stubs, LongInitial, firstRegularPeriodStartDate and IRD-16

[alexnotalex]

Hi, I’m torn by what seems conflicting advice between schema definition and validation rules. We book an IRS swap leg with a term of just over a year calculationFrequency of 1Y. stubType=LongInitial… so we allocate one regular period then add the remaining days. OK so far. The period is longer than the calculationFrequency, i.e. a stub – so we try to describe it as usual using firstRegularPeriodStartDate which signals the end of the stub period and start of the first regular period. Still OK. Here this falls on the termination/unadjustedDate. (There is no regular period. There was one but we made it longer by allocating the remaining days.) Hmm. This fails validation rule IRD-16 which requires termination/unadjustedDate gt firstRegularPeriodDate So… is IRD-16 applicable here? is it correct to leave out firstRegularPeriodDate since there is no regular period at the expense of describing the stub period. Should the firstRegularPeriodDate be the pre-lengthened period start date? Should we just book this with calculationPeriodFrequency of 1T? best regards, A.

[h_mcallister]

Hi Alex, The solution to your dilemma hinges on the definition of a stub period. A stub exists only in relation to a following/preceding schedule of (one or more) regular periods. The swap described above comprises a single, irregular period – firstRegularPeriodStartDate makes no sense in the context as there are no subsequent regular periods. In this case, it is appopriate to specify the calculationPeriod-, payment- and (where relevant) reset- frequencies as “1T”, similar to the convention for single period OIS swaps. In answer to your final questions: (1) No, IRD-16 is not applicable here; (2) Yes, it is correct to omit firstRegularPeriodStartDate, because there are no subsequent regular periods; (3) No, this would be inconsistent and a mis-representation; (4) Yes, we should specify calculationPeriodFrequency – and other relevant frequencies – as 1T. Best regards, Harry McAllister Chair, IRD-WG

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