The Derivatives Consulting Group would like to thank Markit for their support in the writing of the Fed terminology. Markit is responsible for collating and producing the Markit Metrics™.
Markit Metrics™ are reported by participating banks to their primary regulators.
Affirmation
The process by which two counterparties agree the primary economics of a trade. The affirmation process may be done by telephone, voice recording, e-mail or on an electronic checkout platform.
Affirmation – alternative method
The policies and procedures which are disclosed in the monthly Fed submissions where a firm does not have a formal affirmation policy as per industry guidelines.
Auto matching of confirmations
The process of matching trade confirmations on an electronic platform (such as DTCC or Swapswire).
Breaks/mismatches
Incidences where two sides of the trade do not match. These incidences can be cash breaks or documentation mismatches.
Business days
22 days each calendar month.
Business days outstanding
The number of outstanding confirmations divided by the monthly deal volume multiplied by 22 business days.
Cash flow matching (DTCC)
The matching of derivative cash flows made on the quarterly roll date using DTCC cashflow matching module.
Cash flow matching percentage (DTCC)
The success ratio of cashflows matched on DTCC as a percentage of total cashflows submitted.
Checkout
The affirmation of a derivative trade economics between two counterparties.
Credit derivative deal volume
The total number of credit derivative trades transacted each month per dealer. The volume is based on absolute numbers, one deal equals one confirmation. The volume includes all external facing business deals, but excludes all inter-company or intra-desk trades. Prime broker activity or intermediation is reported as two deals. Allocation splits are reported as the number of funds to which a block trade is allocated.
Dealer group (Fed 18)
The dealers who are part of the Fed 18.
Electronic confirmation
A confirmation which is submitted to an electronic platform, such as DTCC (or other electronic matching platforms) for matching.
Electronically confirmed ratio T+1
The percentage of total derivative electronic confirmations submitted for auto matching by close of business T+1.
Electronically confirmed ratio T+5
The percentage of total derivative electronic confirmations submitted for auto matching by close of business T+5.
Electronically eligible trades – credit and rates
Any trades on products that are supported by DTCC (or other electronic matching platforms) for auto matching.
Electronically eligible trades – equities
Any trade for which there is a master confirmation in the market (ISDA® or non ISDA®). These trades can be matched on any electronic platform. The trades are limited to single name, index options and variance swaps (Europe, US and Japan).
Electronic/vanilla T+5 to T+8 ratio
The percentage of credit derivative electronic confirmations outstanding which have been risk mitigated via checkout of key trade economics on or before T+8 business days divided by the total number of credit derivative electronic confirmations outstanding at T+5 business days, as per steady state targets.
Equity derivative deal volume
The total number of equity derivative trades transacted each month per institution. The volume is based on absolute numbers, one deal equals one confirmation. The volume includes all external facing business deals, but excludes all inter-company or intra-desk trades. Prime broker activity or intermediation is reported as two deals. Equity combos (a generic term for a single trade with multiple legs) are also reported as two deals. Allocation splits are reported as the number of funds to which a block trade is allocated.
Fed metrics
The key metrics on operations, collated by Markit and the Derivative Consulting Group, which participating dealers can elect to report to regulators on their derivatives operations.
Interest rate derivative deal volume
The total number of interest rate derivative trades transacted each month per institution. The volume is based on absolute numbers, one deal equals one confirmation. The volume includes all external facing business deals, but excludes all inter-company or intradesk trades. Prime broker activity or intermediation is reported as two deals. Allocation splits are reported as the number of funds to which a block trade is allocated.
Intermediation
The process by which a dealer steps into a transaction between a client and a counterparty. The dealer becomes the principal counterparty to both parties and has credit exposure to both.
Markit Monthly Market Data Report
A report based on the collation of monthly metrics including average, median, quartile and total statistics for each reporting category. This report is delivered by participating firms to their regulators.
Match rate percentage
The officially published percentage of trade confirmations matched in DTCC as a percentage of total trade confirmations submitted to DTCC. Match rates are reported in time buckets: percentage of trades matched on T+0, T+1, T+2, T+3, T+4, T+5 and over T+5.
Non-electronic confirmation
A confirmation which is not submitted to an electronic platform for matching, but is sent by fax or post.
Non-electronic confirmed T+10/manually confirmed
The number of derivative non-electronic confirmations which are not issued by close of business T+10, under steady state.
Non-electronic confirmed T+30/manually confirmed
The number of derivative non-electronic confirms which are not executed or completed by close of business T+30.
Non-electronically eligible trades
Any trades on products that are not currently supported by any electronic matching platform. Non-electronic/non-vanilla percentage T+3 ratio The percentage of credit derivatives non-electronic confirmations issued but unconfirmed at T+3 business days which have been risk mitigated via checkout of key trade economics, under steady state.
Outstanding confirmations
The total number of electronic and non-electronic confirmations not closed out at month end. Closed out refers to either matched on an electronic matching platform for electronic confirmations, or signed by both counterparties for non-electronic confirmations. The number of confirmations include:
- confirmations not drafted and not yet issued;
- confirmations drafted and not yet issued;
- confirmations not yet received;
- confirmations issued and sent but not yet returned.
Outstanding confirmations alleged
The number of outstanding confirmations a firm alleges it currently has with a Fed 18 counterparty. Outstanding confirmations alleged against The number of outstanding confirmations that each Fed 18 counterparty alleges to currently have with a certain counterparty.
Outstanding fails to nostro breaks ratio
The number of fails arising from the last quarterly roll with a nominal value greater than or equal to $1,000 divided by the total number of settlements (post or pre netted) at the last quarterly roll. The number of fails includes:
- fails outstanding at month end which are subsequently matched and not true fails;
- the number of ledger items outstanding and number of statement items outstanding;
- the non-receipt of funds, partial receipt of funds, and overpayment of funds and return of funds associated with a valid trade.
Funds received on a roll date, across all derivative products that are as yet unapplied, are also included.
Outstanding nostro breaks
The total number of nostro breaks with a nominal value of greater than or equal to $1,000 still outstanding. These breaks are time bucketed by which quarterly roll the break occurred.
Post-netted settlements
The actual number of settlements for the quarterly roll made after counterparty cross-transaction netting.
Prematching
The matching of cashflows on DTCC before the quarterly roll date.
Pre-netted settlements
The gross number of settlements for the quarterly roll before applying any netting.
Quarterly credit derivative swap roll cycle (quarterly roll date)
The payment and receipt of cash on the 20 March, 20 June, 20 September and 20 December.
Reduction levels
The percentage reduction in the number of outstanding confirmations at a certain point in time divided by the benchmark level of outstanding confirmations agreed upon by the SOG and the Fed 18. For credit derivatives this benchmark level was the level as at September 30th 2005. For equity derivatives this benchmark is the highest number of outstanding confirmations greater than 30 days old between July 1st and September 30th 2006 inclusive.
Risk mitigation
Any technique facilitating checkout of key trade economics, including telephone and/or e-mail of economics, exchange of spreadsheets with main economics, broker checks or Bloomberg messages.
Senior Oversight Group (SOG)
The steering group of dealers, hedge funds and asset managers who work together on industry initiatives and who agree reporting metrics, definitions and performance targets for the monthly metrics. The SOG also includes representatives from industry organisations such as the Managed Fund Association, the Securities Industry and Financial Markets Association and ISDA®.
Steady state
The state of the industry once Fed 18 targets for confirm turnaround times and backlog reductions are achieved.
