Date

14 Feb 2023

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.'str

Proceedings:

Today we discussed the certificates work that JG has been researching. There is a gap in our derivatives representation with respect to certificates. Certificates are popular in the European market. They do not appear to be marketable in the US market. There are 3 main types of Certificates: Bonus, Discount and Index that we should represent in FIBO, and this issue is to include them.

Note that in the CFI, certificates fall under 'structured instruments', and may be based on debt, equities, or possibly other things such as carbon credits. They are all based on some underlier, however, and thus the DER FCT determined to incorporate them under derivatives in a new ontology. This new ontology will cover the specific kinds of certificates listed in the CFI, including these main categories described above.

The consensus is to create a new ontology, called StructuredInstruments, that includes a top level class called StructuredInstrument, whose definition is derived from a combination of (1) structured instruments (participation - 6.2.8, (2) structured instruments (capital protection) - 6.4.7, and (3) structured instruments (without capital protection) - 6.4.8, but broad enough to cover the miscellaneous carbon credit certificates. Subclasses that fall under equities (6.2.8) will be structured instruments and equity derivatives. Subclasses that fall under structured instruments (6.4.7 and 6.4.8) will be structured instruments and debt derivatives. Carbon credit certificates will simply appear as structured instruments (though we could consider making them commodity derivatives - not clear unless we have examples).

Note that in the PoolBackedSecurities ontology we cover the debt side of this and should align the two, possibly moving those under pool-backed securities to the new structured instruments ontology, depending on where and how they are used.

Investopedia: "Structured products are pre-packaged investments that normally include assets linked to interest plus one or more derivatives. These products may take traditional securities such as an investment-grade bond and replace the usual payment features with non-traditional payoffs. Structured products can be principal-guaranteed that issue returns on the maturity date.

The risks associated with structured products can be fairly complex—they may not be insured by the FDIC and they tend to lack liquidity." - https://www.investopedia.com/articles/optioninvestor/07/structured_products.asp

"U.S. Securities and Exchange Commission (SEC) Rule 434 (regarding certain prospectus deliveries) defines structured securities as "securities whose cash flow characteristics depend upon one or more indices or that have embedded forwards or options or securities where an investor's investment return and the issuer's payment obligations are contingent on, or highly sensitive to, changes in the value of underlying assets, indices, interest rates or cash flows""

Decisions:

Action items

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