2020-10-13 Meeting notes
- Elisa Kendall
Date
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:
Discussion of the case where JPMC was fined - JN will investigate how FIBO can help with the reporting as David suggested. JN will discuss the situation with others internally and see if there is something we can do to address cases like this.
Reviewed the return swaps ontology - the content should be merged with the swaps ontology and eliminate the specific restrictions on asset class, since it can be any asset class. From investopedia:
"A total return swap is a swap agreement in which one party makes payments based on a set rate, either fixed or variable, while the other party makes payments based on the return of an underlying asset, which includes both the income it generates and any capital gains. In total return swaps, the underlying asset, referred to as the reference asset, is usually an equity index, a basket of loans, or bonds. The asset is owned by the party receiving the set rate payment. "
https://www.investopedia.com/terms/t/totalreturnswap.asp
May need to differentiate between underlying asset for a return swap, rather than a generic underlier, which could be the weather. But in most cases, particularly for return swaps, we are talking about an underlying asset, which is something that someone holds a position in, not just a parameter that has some observable value. Could replace the current definition of underlier for a return swap as a financial asset. We are missing a sibling for FinancialAsset of PhysicalAsset, and add an explanatory note to financial asset to say that it should not be confused with any asset that appears on a financial statement.
Then the right side of the restriction on return swap for has underlier should be financial asset or contract or the union of the two, such that it could be anything traded in the market.
Need a definition for underlying asset - and a relationship to the asset, which could be the union of contract and financial asset and other things. Also need to include the 'tenor of the swap'. John will try to get a definition of 'underlying asset' for us. Underlying assets are specific to a swap, but what we need to clarify is the definition with respect to a total return swap or excess return swap, which may be narrower than underlier in general. If it has the same meaning as our current notion of underlier in Derivatives Basics, we need a synonym for underlying asset on the Underlier class.
From the free dictionary: A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset (like a security) or set of assets (like an index). Common underlying instruments include bonds, commodities, currencies, interest rates, market indexes, and stocks.
In a derivative or warrant, the security, property, or other asset that gives value to the derivative or warrant.
There is no distinction between 'return swap' and swap - only total return swap, which would include, in addition to the dividends, say on an equity, includes capital gains, or interest with respect to a bond. excess return swap is defined in the ISDA annex - see https://globalmarkets.bnpparibas.com/gm/features/docs/dfdisclosures/ISDA_Commodity_Derivatives_Disclosure_Annex_04_2013.pdf.
Also, based on the ISDA definitions, our definition of 'commodity' may be too narrow - need to review that with respect to the annex at the link given, above.
Total return swap, excess return swap, and return leg should be revised to cover the definitions in the ISDA document (total return swap is currently specific to security-based swaps, which isn't right based on the definitions in this document, it's more general). The document also includes index return swap as a thing, and those can be either total return or excess return swaps. There is also a more general definition of basis swap than what we have in IR swaps in this document, so that should be moved from IR Swaps to Swaps and revised accordingly. Content currently in the return swaps ontology should be merged with the swaps ontology once we have good definitions and a better understanding of the concepts.