Date

17 Mar 2020

Attendees

Agenda

1) Use Case reminder

2) Where we are on our road map.

3) Open Action Items

4) JIRA Issues Review - https://jira.edmcouncil.org/projects/DER/issues/DER-10?filter=allopenissues

5) Todays content discussion.

6) For next week.

Proceedings:

Everyone had challenges getting into the meeting today - likely with everyone working from home, so we started quite late. Apologies to anyone who was unable to join us.
The council is very interested in our working on a demonstration using the Mizuho content, and will see MakoLab has the bandwidth to create a user interface on top of Stardog / Cambridge Semantics.
Notes from John Nowlin on discount notional:

As per your request regarding discount notional amount definition; for interest rate swaps where the contract states that discounting is applicable, a discount rate and discount rate day count fraction are specified. When calculating payments for such a swap a discounted notional amount is used where

Discounted Notional Amount = Notional Amount /( 1 + (Discount Rate X Discount Rate Day Count fraction))

4. Also, from last week, John Gemski sent some additional links on Interest Rate Swaps:

https://www.wallstreetmojo.com/interest-rate-swap-curve/ - gives an easy to follow example

https://www.citibank.co.kr/cgrp_pjt/jsp/en/fed/fed040030v.jsp?gnbname=fed – gives Citibank’s explanation of interest rate swaps

Note that in both examples they use the term Notional Amount which is the amount that is swapped.

5. Discussion of underlier - there may be a difference between underlying asset and underlying product. John will do some more investigating and get back to us.

Examples/approach: at the swap level, we should have a restriction indicating that each leg has underlying asset that is a financial instrument (even if synthetic). Then an equity swap would have legs that have underlying assets that are equity instruments; an interest rate swap leg would have a debt instrument as its underlying asset.

This means that we may not need to have all these duplicated restrictions with respect to swap stream schedules, or if we have those they should relate to the payment schedules of the underlying instrument.

6. From last week's discussion, the notional schedule applies at the swap level - each party has to agree to the schedule; so the notional amount, notional step schedule and notional step change event are at the swap level, and they also apply to the leg level, constrained to be the same as defined at the swap level. So they would override some of the features of the underlying asset for the leg.

John will try to put some explanation / examples together that we can look at, as well as definitions of underlying asset vs. underlying instrument, where the underlying instrument may be synthetic... which may mean we need to revisit the definition of asset. For an equity swap, there may be an underlying asset that is the equity that is an asset on someone's books, and they swap the dividend payments to maintain voting rights - the equity is the underlying equity for the swap. But, there are cases where there may not be a 'real' underlying asset. And there may or may not be a similar thing going on for interest rate swaps - there may be an underlying instrument that provides the payment stream, and it may be an asset, or maybe not if it's synthetic. The underlying asset is distinct from the concept of an underlying instrument, though.

Note that there may be conflicts next week with the OMG Technical Meeting (taking place online). Jeff Braswell will be presenting on ACTUS - Elisa will send John the link. So the DER meeting next week will be replaced with that session.

Decisions:

Action items

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