FpML

Abstract: Financial institutions are increasingly using XML as a defacto standard to represent and exchange information about their products and services. Their aim is to process transactions quickly, cost-effectively, and with minimal human intervention. Due to the nature of the financial industry, inconsistencies inevitably appear throughout the lifetime of a financial transaction and their resolution introduces cost and time overheads. We give an overview of requirements for inconsistency detection in our particular domain of interest: the over-the-counter (OTC) financial derivatives sector. We propose a taxonomy for the classes of consistency constraints that occur in this domain and present how xlinkit, a generic technology for managing the consistency of distributed documents, can be used to specify consistency constraints and detect transaction inconsistencies. We present the result of an evaluation where xlinkit has been used to specify the evaluation rules for version 1.0 of the Financial Products Markup Language (FpML). The results of that evaluation were so encouraging that they have led the FpML Steering Committee to consider xlinkit as the standard for specifying validation constraints throughout.

Abstract: Financial institutions are increasingly using XML as a de-facto standard to represent and exchange information about their products and services. Their aim is to process transactions quickly, cost-effectively, and with minimal human intervention. Due to the nature of the financial industry, inconsistencies inevitably appear throughout the lifetime of a financial transaction and their resolution introduces cost and time overheads. We give an overview of requirements for inconsistency detection in our particular domain of interest: the over-the-counter (OTC) financial derivatives sector. We propose a taxonomy for the classes of consistency constraints that occur in this domain and present how xlinkit, a generic technology for managing the consistency of distributed documents, can be used to specify consistency constraints and detect transaction inconsistencies. We present the result of an evaluation where xlinkit has been used to specify the evaluation rules for version 1.0 of the Financial Products Markup Language (FpML). The results of that evaluation were so encouraging that they have led the FpML Steering Committee to consider xlinkit as the standard for specifying validation constraints throughout.

Abstract: 1. Background & Development to Derivatives Marketso Definition and key featureso Exchange Traded instruments vs Over the Counter (OTC)o Increasing use of Central Counterparty Model (CCP)o Increasing importance of Risko Rise of the Exchangeso Speculation and Risk Managemento Uses and Users of derivatives - banks, corporates, asset managers, hedge funds, arcades, prop-shops, brokers, retail (individuals)o Volumeso Quest for true Straight Through Processing (STP) 2. Market Fundamentals - everyone thinks you know and understand thiso How banks generate incomeo 3 key ruleso Role and use of LIBORo Day countso Financial Maths: compounding, discounting, NPV, TVMo What is a forward rate and how do we calculate ito Marking to Marketo Yield Curves 3. Derivatives Fundamentalso What is a "Vanilla" trade?o Single vs Multiple settlemento Market vs Legal triggerso Cash vs Physical settlemento Liquidityo Gearing o Credit Risko Understanding the Underlying interest rates, FX, commodity, equityo Using benchmarks o Fair value 4. Basic Option Conceptso Definition and key featureso Terminology o Call, Put, o American, European, Bermudan, Asian/Average Rateo Exercise price also known as Strike priceo Exercise and Expiryo Intrinsic value, time value, fair valueo Role of Volatilityo Pricing modelso Premium determinantso Profit and loss profiles also known as Expiry profiles 5. Interest Rate Derivatives single settlement instrumentso Definition and key featureso Exchange Traded - Financial Futureso OTC- Forward Rate Agreements (FRA)o OTC - Interest Rate Optionso Examples and applicationsQuiz 6. Interest Rate Derivatives OTC multiple settlement instrumentso Definition and key featureso Caps, Collars, Floorso Interest Rate Swaps most popular derivative instrumento Understanding Comparative Advantageo Swap categories:o Fixed/floating o Basis swapso Overnight Index Swapso Swaptionso Callable Swapso Examples and applicationsQuiz 7. Credit DerivativesFastest growing derivatives instruments almost exponential growtho Definition and key featureso Volumes and market shareo What is credit risk and how is it traded?o Legal triggerso Reference Entity and Reference Obligationo Deliverable obligationso Uses and applicationso OTC Credit Default Swaps (CDS)o OTC Total Return Swaps (TRS)o Exchange Traded credit derivatives indiceso Examples and applications 8 . Beyond Credit DerivativesPossible guest chapter, Jonathan Davies, Reoch Consultingo Collateralised Debt Obligations, (CDOs)o Beyond a vanilla CDS o Link with the Credit Derivatives Markets 9. Currency Derivativeso Definition and key featureso Exchange Traded instrumentso FX Futures, o Options on FX Futureso OTC instrumentso Vanilla and simple exotic FX Optionso Barrier structureso Currency Swapso Examples and applicationsQuiz 9a Guest contributor, Ray McKenzie, o The story behind the re-birth of FX futures Director Foreign Exchange Products, Chicago Mercantile Exchange (CME) 10. Equity Derivativeso Single Stocks or Indiceso Portfolio managemento Exchange traded index futures and optionso Exchange traded single stock options, Universal Stock Futures (USF)o Exchange traded warrantso OTC Equity Options o OTC Equity SwapsQuiz 10a. Guest Chapter, Christopher C. Taylor, HSBCo "Uses and applications of derivatives in Capital Protected products"o increasing use of derivatives in Retail Products 11. Commodity Derivativeso Global energy marketso Oil and Oil productso Electricity and Emissionso Weathero Metalso Exchange traded futures and options contractso OTC or "Off-exchange" products - Swaps, Caps, OptionsQuiz 11a. Possible Guest chapter, Mitsui Energy Risk Management "Derivatives in the Energy Market" 12 . Derivatives and Documentationo All deals transacted "subject to docs"o Key OTC market documentationo Why is it so important?o Background to ISDAo Products which are coveredo Structure of the documentationo Master, schedule, confirmationso ISDA heaven vs ISDA Hell 13. Guest chapter, Bill Hodgson, Business Development, Deriv-Serv, DTCCo "STP for OTC derivatives"o Why and how things have changedo The need for fast, efficient post transaction processing o Background: o Paper, o SWIFT, o SwapClear, o FpML, o SwapsWire, o DTCCo Trade Servicingo Where next 14. Guest chapter, Deborah Morton-Dareo "First Principles of Accounting for Derivatives"o including implications of IAS 39 15. Guest chapter, Bernard Cowleyo "Risk and Risk Management"o Typical risks faced by a derivatives usero Credit: Sovereign/Politicalo Liquidityo Marketo Capital at Risk (CaR)o Value at Risk (VaR) 16. Guest chapter Compliance in a Derivatives Practitioner 17. Trying for a guest chapter from a Hedge Fund but they are very secretive

Abstract: In this paper we describe our experiences in using the OCL language in a commercial environment to validate XML-based financial data such as FpML [1] and ISO 20022 [2] data. We describe three problems we have encountered in supporting customer requirements when validating data in this context, and outline how we have chosen to support these requirements. We suggest that it would be useful to define a common approach to solving these problems for users of OCL.