generic product representation & final cftc reporting rules

CFTC Part 43-45 & Generic Product Representation

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Generic Product Representation & Final CFTC Reporting Rules Final version –March 21st , 2012

Introduction & Purpose of the Document

This document is a supplemental analysis to the recommendations developed to the CFTC Technology Advisory Committee for the algorithmic

representation of complex and bespoke products. Those recommendations can be found here. As such, it is important that the readers have a

good understanding of those recommendations beforehand. Furthermore, it is recommended that they also be familiar with the conclusion of

the joint SEC/CFTC Study on the Feasibility of Mandating Algorithmic Descriptions for Derivatives, which has been one of the origination points

of those recommendations.

This supplemental analysis aims at evaluating the coverage provided by the FpML Generic Product Representation with respect to the final CFTC

Part 43 and Part 45 rules.

The documents is organized through tables, which list the respective fields that are required as part of the final CFTC rule, and identify whether

and how such information can be provided as part of the current FpML Generic Data representation. The 3rd column aims at providing a

feasibility assessment in the case where such data is not supported. To facilitate the analysis, the fields which coverage is deemed problematic

have been highlighted in yellow.

While those points were already made as part of the recommendation paper, it is worth pointing out again that the philosophy underlying the

generic product representation is to represent trade-level attributes that allow to size the derivative trade (notional), state its start and end

dates, identify the set of underlyers involved and monitor the associated exposure (valuation). The goal has consistently been to stay away from

modeling the payoff streams, as this is where complexity commences, with time-to-market implications. In that respect, the below tables show

that the limitations associated with this generic product representation are most often associated with that dimension.

http://www.cftc.gov/ucm/groups/public/@aboutcftc/documents/file/tac_121311_workingpaper.pdf

http://www.sec.gov/news/studies/2011/719b-study.pdf


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Part 43 – Real-Time Public Reporting of Swap Transaction Data

Field FpML Data Representation (XPath) Comment Cancellation publicExecutionReportRetracted Same as standardized trades.

Correction publicExecutionReport/ isCorrection Same as standardized trades. Execution timestamp publicExecutionReport/trade/tradeHeader/tradeInformation/executionDat

eTime Same as standardized trades.

Cleared or uncleared FpML provide two possible ways to reporting the clearing indicator: publicExecutionReport/trade/tradeHeader/tradeInformation/intentTo

Clear publicExecutionReport/trade/tradeHeader/tradeInformation/clearing

Status As it relates to real-time reporting at execution time, the former might be more appropriate. This will have to be confirmed via industry specification.

Same as standardized trades.

Indication of Collateralization

publicExecutionReport/trade/tradeHeader/tradeInformation/collateralizationType


Indication of end-user exception

publicExecutionReport/trade/tradeHeader/tradeInformation/endUserException


Indication of other price affecting term (indication for non-standardized (bespoke) swaps)

publicExecutionReport/trade/tradeHeader/tradeInformation/nonStandardTerms

This indicator will systematically be set to ‘True’ for bespoke and complex products.

Block trades and large notional off-facility swaps

publicExecutionReport/trade/tradeHeader/tradeInformation/largeSizeTrade


Execution venue publicExecutionReport/trade/tradeHeader/tradeInformation/executionVenueType


Effective or Start date publicExecutionReport/trade/genericProduct/effectiveDate/unadjustedDate

End Date publicExecutionReport/trade/genericProduct/terminationDate/unadjustedDate

Day count convention Not supported Reporting the day count convention would imply representing the trade payoff streams, which


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would significantly alter the scope and complexity of the generic product representation. The implied benefit in terms of price transparency are deemed limited, considering that a number of other terms of the trade would not be provided anyway (bespoke flag will be set to True).

Settlement currency (i.e., value date)

publicExecutionReport/trade/genericProduct/settlementCurrency

Asset class publicExecutionReport/trade/genericProduct/primaryAssetClass It is expected that the ISDA product taxonomy will be provided, as in the case of standardized trades. Sub-asset class for other

commodity publicExecutionReport/trade/genericProduct/productType

Contract type publicExecutionReport/trade/genericProduct/productType Contract sub-type publicExecutionReport/trade/genericProduct/productType Price-forming continuation data

publicExecutionReport/originatingEvent While the FpML schema supports lifecycle events, it is expected that only rudimentary information will be provided in some cases. This could take the form a simple ‘post-execution event' indicator. The reason for this is that developing a complete lifecycle event model is an extremely involved effort, which is not compatible with the early stages of the innovation lifecycle. (See the cost-benefit analysis in the TAC recommendation paper, p. 14.)

Underlying asset I publicExecutionReport/trade/genericProduct/underlyer/… The Generic Product schema accommodates all the underlyer types that have been specified as part of the FpML standard.

Underlying asset 2 publicExecutionReport/trade/genericProduct/underlyer/…

Price notation publicExecutionReport/quote

Additional price notation publicExecutionReport/quote

Unique product identifier Not supported The ISDA UPI working group concluded that the UPI would not be applicable to products that do not have a full algorithmic representation, the reason being that it has to be inferred from a normalized algorithmic representation of the trade/product.

Notional currency 1 (i.e." base

publicExecutionReport/trade/genericProduct/notional/currency The generic product representation supports an array of notionals.

Rounded notional or publicExecutionReport/trade/genericProduct/notional/amount


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principal amount 1

Notional currency 2 (i.e., counter currency)

publicExecutionReport/trade/genericProduct/notional/currency

Rounded notional or principal amount 2

publicExecutionReport/trade/genericProduct/notional/amount

Payment frequency I Not supported

Payment frequency 2 Not supported

Reset frequency I Not supported

Reset frequency 2 Not supported

Embedded Option on Swap Not supported

Option Strike Price Not supported

Option Type publicExecutionReport/trade/genericProduct/optionType

Option Family Not supported

Option currency publicExecutionReport/trade/genericProduct/premium/paymentAmount\Currency

Option premium publicExecutionReport/trade/genericProduct/premium

Option lockout period Not supported

Option expiration date publicExecutionReport/trade/genericProduct/expirationDate/unadjustedDate


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Part 45 – Swap Data Recordkeeping & Reporting Requirements

Two set of provisions stipulated in the CFTC Part 45 rules are problematic as it relates to bespoke and complex derivatives:

§45.3, which states that, for off-facility swaps not subjected to mandatory clearing, “Beginning 180 days after the compliance date, the

reporting counterparty must report all confirmation data to the swap data repository electronically.” Discussion with CFTC staff

members indicated that the proposed approach consisting in sending the trade confirmation in a PDF-type format would not meet the

spirit of the rule, which is rather aiming for a normalized algorithmic representation of the data.

Some of the data requirements listed as part of the Appendix 1. Similarly to what has been presented above for Part 43, the following

tables, list the respective fields that are required as part of the final CFTC rule, and identify whether and how such information can be

provided as part of the current FpML Generic Data representation.


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Credit Swaps & Equity swaps

Field FpML Data Representation (XPath) Comment

The Unique Swap Identifier for the swap nonpublicExecutionReport/trade/tradeHeader/partyTradeIdentifier/tradeId


The Legal Entity Identifier of the reporting counterparty

nonpublicExecutionReport/party/partyId Same as standardized trades.

An indication of whether the reporting counterparty is a swap dealer with respect to the swap

Inferred by the SDR from the LEI Same as standardized trades.

An indication of whether the reporting counterparty is a major swap participant with respect to the swap


If the reporting counterparty is not a swap dealer or a major swap participant with respect to the swap, an indication of whether the reporting counterparty is a financial entity as defined in CEA § 2(h)(7)(C)


An indication of whether the reporting counterparty is a U.S. person


An indication that the swap will be allocated

nonpublicExecutionReport/trade/tradeHeader/partyTradeInformation/allocationStatus


If the swap will be allocated, or is a post-allocation swap, the Legal Entity Identifier of the agent

nonpublicExecutionReport/ party/partyId Same as standardized trades.

An indication that the swap is a post-allocation swap



If the swap is a post-allocation swap, the unique swap identifier of the original transaction between the reporting counterparty and the agent

nonpublicExecutionReport/trade/tradeHeader/partyTradeIdentifier/blockTradeId/tradeId


The Legal Entity Identifier of the non-reporting party


If no CFTC-approved Legal Entity Identifier for the non-reporting counterparty is yet



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available, the internal identifier for the non-reporting counterparty used by the swap data repository

An indication of whether the non-reporting counterparty is a swap dealer with respect to the swap


An indication of whether the non-reporting counterparty is a major swap participant with respect to the swap


If the non-reporting counterparty is not a swap dealer or a major swap participant with respect to the swap, an indication of whether the non-reporting counterparty is a financial entity as defined in CEA § 2(h)(7)(C)


An indication of whether the non-reporting counterparty is a U.S. person.


The Unique Product Identifier assigned to the swap

Not supported The ISDA UPI working group concluded that the UPI would not be applicable to products that do not have a full algorithmic representation, the reason being that it has to be inferred from a normalized algorithmic representation of the trade/product.

If no Unique Product Identifier is available for the swap because the swap is not sufficiently standardized, the taxonomic description of the swap pursuant to the CFTC-approved product classification system

nonpublicExecutionReport/trade/genericProduct/productType

It is expected that the ISDA product taxonomy will be provided, as in the case of standardized trades.

If no CFTC-approved UPI and product classification system is yet available, the internal product identifier or product description used by the swap data repository

To be determined by the respective SDRs In the absence of a normalized representation of the trade/product, the SDR might not be able to go much beyond the product taxonomy.

An indication that the swap is a multi-asset swap

Inferred from the presence of nonpublicExecutionReport//trade/Product/secondaryAssetClas

s


For a multi-asset class swap, an indication nonpublicExecutionReport//trade/Product/primaryAssetClass Same as standardized trades.


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of the primary asset class

For a multi-asset class swap, an indication of the secondary asset class(es)

nonpublicExecutionReport//trade/Product/secondaryAssetClas

s


An indication that the swap is a mixed swap nonpublicExecutionReport/trade/tradeHeader/partyTradeInformation/regulatorRegistration/regulator, with both the CFTC and the SEC indicated in the case of a mixed swap


For a mixed swap reported to two non-dually-registered swap data repositories, the identity of the other swap data repository (if any) to which the swap is or will be reported

TBD – Question raised to the FpML Reporting Working Group


An indication of the counterparty purchasing protection

nonpublicExecutionReport/trade/genericProduct/buyerPartyReference

An indication of the counterparty selling protection

nonpublicExecutionReport/trade/genericProduct/sellerPartyReference

Information identifying the reference entity nonpublicExecutionReport/trade/genericProduct/underlyer/referenceEntity/entityId

The building block used to represent the reference entity is the same than the one in place for standardized credit default swaps.

Contract type nonpublicExecutionReport/trade/genericProduct/productType


Block trade indicator nonpublicExecutionReport/trade/tradeHeader/partyTradeInformation/largeSizeTrade


Execution timestamp nonpublicExecutionReport/trade/tradeHeader/partyTradeInformation/executionDateTime


Execution venue nonpublicExecutionReport/trade/tradeHeader/partyTradeInformation/executionVenueType


Start date nonpublicExecutionReport/trade/genericProduct/effectiveDate/unadjustedDate

Maturity, termination or end date nonpublicExecutionReport/trade/genericProduct/terminationDate/unadjustedDate

The price nonpublicExecutionReport/trade/quote

The notional amount, and the currency in which the notional amount is expressed

nonpublicExecutionReport/trade/genericProduct/notional/currency nonpublicExecutionReport/trade/genericProduct/notional/amount

The amount and currency (or currencies) of Not supported The current generic product representation only


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any up-front payment supports the representation of a premium. That being said, if deemed important, extending the generic product representation to support an array of scheduled payments could be considered, as it would be as invasive as trying to model the payoff streams.

Payment frequency of the reporting counterparty

Not supported Reporting those data points would imply representing the trade payoff streams, which would significantly alter the scope and complexity of the generic product representation.

Payment frequency of the non-reporting counterparty

Not supported

Timestamp for submission to swap data repository

nonpublicExecutionReport/header/creationTimeStamp Same as standardized trades.

Clearing indicator FpML provide two possible ways to reporting the clearing indicator: publicExecutionReport/trade/tradeHeader/tradeInfor

mation/intentToClear publicExecutionReport/trade/tradeHeader/tradeInfor

mation/clearingStatus As it relates to PET reporting, the latter might be more appropriate. This will have to be confirmed via industry specification.


Clearing venue nonpublicExecutionReport/party/partyId Same as standardized trades. If the swap will not be cleared, an indication of whether the clearing requirement exception in CEA § (2)(h)(7) was elected

nonpublicExecutionReport/trade/tradeHeader/tradeInformation/endUserException


The identity of the counterparty electing the clearing requirement exception in CEA § (2)(h)(7)


Indication of collateralization nonpublicExecutionReport/trade/tradeHeader/tradeInformation/collateralizationType


Any other term(s) of the swap matched or affirmed by the counterparties in verifying the swap

Not supported The generic product representation doesn’t allow to represent in a standardized machine-readable format the payoff streams of the trade.


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Foreign Exchange Transactions






























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Inferred from the presence of nonpublicExecutionReport//trade/Product/secondaryAssetClass



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For a multi-asset class swap, an indication of the primary asset class

nonpublicExecutionReport//trade/Product/primaryAssetClass



nonpublicExecutionReport//trade/Product/secondaryAssetClass















Currency 1 nonpublicExecutionReport/trade/genericProduct/underlyer/quotedCurrencyPair/currency1 nonpublicExecutionReport/trade/genericProduct/notional/currency

Currency 2 nonpublicExecutionReport/trade/genericProduct/underlyer/quotedCurrencyPair/currency2 nonpublicExecutionReport/trade/genericProduct/notional/currency

Notional amount 1 nonpublicExecutionReport/trade/genericProduct/notional/amount

Notional amount 2 nonpublicExecutionReport/trade/genericProduct/notional/amount

Delivery type The indication of whether the delivery is “physical (deliverable) or cash (non-deliverable)” is not normalized as part of the generic product


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representation.

Settlement or expiration date nonpublicExecutionReport/trade/genericProduct/terminationDate/unadjustedDate

















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Interest Rate Swaps (Including Cross-Currency Swaps)






























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Start date nonpublicExecutionReport/trade/genericProduct/terminationDate/effectiveDate


Day count convention Reporting the day count convention would imply representing the trade payoff streams, which would significantly alter the scope and complexity of the generic product representation.

Notional amount (leg 1) nonpublicExecutionReport/trade/genericProduct/notional/currency

The generic product representation supports an array of notionals.

Notional currency (leg 1) nonpublicExecutionReport/trade/genericProduct/notional/amount

Notional amount (leg 2) nonpublicExecutionReport/trade/genericProduct/notional/currency

Notional currency (leg 1) nonpublicExecutionReport/trade/genericProduct/notional/


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amount

Payer (fixed rate) The generic product representation deliberately aims at not modeling the derivative payoff streams.

Payer (floating rate leg 1)

Payer (floating rate leg 2)

Direction

Option type nonpublicExecutionReport/trade/genericProduct/optionType

This field is intended to give basic information about the option clause. Its limitation relates to the fact that there is only one value at the trade level, hence it is inapplicable in the case where the trade combines several option clauses.

Fixed rate nonpublicExecutionReport/trade/genericProduct/underlyer/fixedRate

Fixed rate day count fraction The generic product representation deliberately aims at not modeling the derivative payoff streams.

Floating rate payment frequency

Floating rate reset frequency

Floating rate index name/rate period nonpublicExecutionReport/trade/genericProduct/underlyer/floatingRate












Indication of collateralization nonpublicExecutionReport/trade/tradeHeader/tradeInfor Same as standardized trades.


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mation/collateralizationType




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Other Commodity Swaps






























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Start date nonpublicExecutionReport/trade/genericProduct/terminationDate/effectiveDate


Buyer nonpublicExecutionReport/trade/genericProduct/buyerPartyReference

Seller nonpublicExecutionReport/trade/genericProduct/sellerPartyReference

Quantity unit nonpublicExecutionReport/trade/genericProduct/notional/units

Quantity Not supported The periodic quantity isn’t supported as part the generic product. Quantity frequency Not supported

Total quantity nonpublicExecutionReport/trade/genericProduct/notional/


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amount

Settlement method Not supported

Price nonpublicExecutionReport/quote/value

Price unit nonpublicExecutionReport/quote/value/quoteUnits

Price currency nonpublicExecutionReport/quote/value/currency

Buyer pay index nonpublicExecutionReport/genericProduct/underlyer/commodity/instrumentId

The generic product supports the representation of the commodity underlyer. The payer/receiver direction can however be inferred only in the case where there is only one underlyer, as the payoff streams are not modeled.

Buyer pay averaging method Not supported

Seller pay index nonpublicExecutionReport/genericProduct/underlyer/commodity/instrumentId

The generic product supports the representation of the commodity underlyer. The payer/receiver direction can however be inferred only in the case where there is only one underlyer, as the payoff streams are not modeled.

Seller pay averaging method Not supported

Grade nonpublicExecutionReport/genericProduct/underlyer/commodity/instrumentId

Option type nonpublicExecutionReport/trade/genericProduct/optionType

This field is intended to give basic information about the option clause. Its limitation relates to the fact that there is only one value at the trade level, hence it is inapplicable in the case where the trade combines several option clauses.

Option style Not supported

Option premium nonpublicExecutionReport/trade/genericProduct/premium

Hours from through Not supported

Hours from through time zone Not supported

Days of week Not supported

Load type Not supported



mation/clearingStatus As it relates to PET reporting, the latter might be more



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appropriate. This will have to be confirmed via industry specification.










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