FpML - a New Version for a Growing Role in Derivatives Processing and Reporting Post Crisis

by Karel Engelen
Apr 8, 2010 Share this! LinkedIn logo Facebook logo Twitter logo Reddit logo Google+ logo

ISDA's Karel Engelen explains the changes included in the newly released 4.7 version of FpML and why adoption of the market language is important in improving the processing and reporting of OTC derivatives trades post-credit crisis.

Q. Why is Financial products Markup Language (FpML) important in improving the efficiency in processing derivatives contracts and how has the purpose changed as a result of the financial crisis?

There has been a lot of regulatory attention on reporting of OTC derivatives trades and we are working to provide a consistent framework for the industry and the global supervisor community.  FpML is very well suited to do this kind of reporting, particularly as the adoption of FpML is increasing. FpML is based on XML, " the standard meta-language for describing data shared between applications", and is therefore easier to adopt in firms' systems. The FpML standardization work around reporting allows firms to build on their existing FpML infrastructure for confirmation and other trade lifecycle events.

Q. What is the purpose and role of the new Trade Reporting Working group and how will it help improve regulatory reporting?

The trade reporting group will focus on the regulatory requirements regarding reporting on OTC derivatives. The group is currently collaborating with a variety of industry participants, including the regulatory community, to define what exactly they want to see in the reports. The working group will examine and design a framework to do that reporting via FpML.

Q. What is the latest version of FpML released (4.7) and what is newly included in this version?

Version 4.7 of the standard has additional coverage for equity derivatives, including EU and Pan-Asia Interdealer Share Swaps, EU Client Index Swaps, and US Client Options. Version 4.7 marks further improvements in interest rate, commodity, and credit derivatives. The Recommendation for version 4.7 (final step in the development of a version) was published in February; see the following press release.

Q. What are some other changes of this new version and why were these changes necessary?

With regard to Version 5.0: In 2009 the FpML working groups agreed to expand changes in the messaging framework. Changes include a clearer way to link the messages together, consistency across the different business processes that FpML supports, better representation of accounts and roles, and additional reporting messages for transaction and activity reporting.

The FpML Collateral Working Group is a recently created working group that is looking to create messages in FpML to support the following processes:
· Margin Call
· Interest Payment
· Substitution
The main input for developing these messages is the work done by the ISDA Collateral Committee on Margin Calls available at http://www.isda.org/c_and_a/pdf/Electronic-Messaging.pdf. A first set of Collateral messages will be incorporated in version 5.1 of the standard.

Q. How is the uptake of FpML changing? Are more firms using FpML?

The uptake of FpML continues to increase and expand. Active work is ongoing with asset managers and custodians, who have their own FpML working group. Implementations around the loan work is another area where a lot of new activity happened over the last 12 months (see e.g. http://www.bloomberg.com/apps/news?pid=email_en&sid=ahMuc4iOT6eE)

Q. What’s next for FpML? What are the expected goals for 2010 and beyond?

The current focus is on version 5.0, which we are developing in parallel with the 4.x series. We will bring out a 4.8 version in June of 2010 and a 4.9 version at year end. These so-called minor versions (4.8 and 4.9) allow us to expand product coverage and follow the development of new products quickly.

Version 5 will further enhance the flexible reporting framework and consistency within the business process framework and across the product representations. Version 5 will include a redesign of the existing coverage for FX and syndicated loans; and incorporate the work of the recently started collateral working group. Version 5.0 is expected to reach Recommendation status in the coming months.

* Karel Engelen is the Director of Global Head Technology Solutions at ISDA.

* Read the previous article of the Trade Communication Series: "Best Practices for Efficient Communication of Trade Notification - Building a Business Case."


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Karel Engelen is the Global Head of Technology Solutions at the International Swaps and Derivatives Association, Inc. He is responsible for the further development of the FpML standard and more generally the use of technology and technology related initiatives to improve the derivatives infrastructure. As Director, his focus is currently on the area of credit derivatives and credit related issues.

Mr. Engelen joined ISDA in February 2001 from Dexia Bank. He worked two years in Dexia Bank's New York branch as head of the Systems and Middle Office Department. Prior to this, he spent five years at Dexia's headquarters in Belgium in IT development on various projects for financial markets.

Mr. Engelen received a Master’s Degree in Applied Economics, Quantitative Computer Science from the University of Leuven, Belgium and a joint Master’s Degree in Economics and Marketing, magna cum laude, from the University of Turin, Italy and the University of Leuven, Belgium.