Friday, November 11, 2011

Reporting Requirements Swap Data Repository - DODD FRANK Regulation

BI Reporting Requirements for over-the-counter (OTC) 
by DODD-FRANK Regulators  - Part 1
Compiled by Suvradeep rudra

New reporting and record keeping rules generally distinguish between two categories of information
ü  Swap creation data (such as the primary economic terms of the swap and confirmation data.
ü  Swap continuation data (such as event data, valuation information and term changes.

·         Swap execution facilities (“SEFs”)
·         Designated contract markets (“DCMs”)

1.       TOP  SWAPS
a.       Top 10 record (Swaps ) in $ values  for the Day
b.      Top 10 record (Swaps ) in $ values  for the Month
c.       Top 10 record (Swaps ) in $ values  for the Qtr

Reports should include following columns           
                                                               i.       Unique Counterparty Identifier (UC )
                                                             ii.      Unique Swap Identifier (USI)
                                                            iii.      Unique Product Identifier (UPI)
                                                           iv.      Start Date
                                                             v.      Expiration date
                                                           vi.      $ amount

Ø  The UCI would identify the legal entity that is a counterparty to a swap.  Under the proposed rules, the Commission would require use of UCIs in all swap data reporting.
Ø  The Unique Swap Identifier (USI) called for by the proposed rules would be created and assigned to a swap at the time it is executed, and used to identify that particular swap transaction throughout its existence.
Ø  The Unique Product Identifier (UPI) called for by the proposed rules would categorize swaps according to the underlying  products referenced in them. While the UPI would be assigned to a particular level of the taxonomy of the asset class or sub asset class in question, its existence would enable the Commission and other regulators to aggregate transactions at various  taxonomy levels based on the type of product underlying the swap.

2.       Reporting of Swap Creation Data – Executed on a Platform

 The Dodd-Frank Act lays the foundation, defining a SEF to be "a facility, trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by other participants that are open to multiple participants in the facility or system, through any means of interstate commerce."

The expected role of a SEF is to provide pre- and post-trade transparency, encourage competitive execution for the entire institutional marketplace, and provide the tools required to ensure a complete record and audit trail of trades. There could be a significant shift in the way derivatives trading is ultimately executed, and Tradeweb has made great strides to be ahead of the curve for our clients.

Legislative bodies in the U.S. and Europe are moving to increase regulation of the over-the-counter (OTC) derivatives market. These global financial reform initiatives seek to achieve three key objectives for the OTC derivatives markets:
·         Increase transparency
·         Improve market efficiency
·         Prevent market abuse
How Derivatives are Currently Traded
Over-the-counter, or "privately negotiated", derivatives are currently traded on the telephone and increasingly on electronic markets, such as Tradeweb. There are two sectors of the market: institutional dealer-to-client (D2C) and inter-dealer (D2D). These markets are approximately the same size in terms of trading volumes, but there are many more participants in the D2C marketplace than D2D.

Reporting Counterparty
ü  Swap Dealers (SD) and Major Swap Participants (MSP)
ü  Non-SD/MSP Counterparties

Ø  Report  1 - Executed on a platform and cleared
Ø  Report  2 - Executed on a platform and not cleared
Ø  Report  3 -  Not executed on a platform and cleared
Ø  Report  4 - Not executed on a platform and not cleared
Ø  Report  5 - Credit and Equity Asset Classes – Cleared
Ø  Report  6 - Credit and Equity Asset Classes –Not  Cleared
Ø  Report  7 - Interest Rate, Currency, and Other Commodity Asset Classes – Cleared
Ø  Report  8 - Interest Rate, Currency, and Other Commodity Asset Classes – Not Cleared

Wednesday, November 9, 2011

Where Hadoop Fits in

Where Hadoop Fits in
By Suvradeep Rudra

Why Hadoop ?
•Overcome traditional limitation of storage and compute.
•Leverage commodity hardware as inexpensive platform.
•Ease of Linear Scalability.
•Open Source Software

Big Data Values – For Innovation and Productivity

•Can unlock significant value by making information transparent and usable at much higher frequency
•Companies are using data collection and analysis to conduct controlled experiments to make better management decisions
•Organizations create and store more transactional data in digital form, they can collect more accurate and detailed performance information on everything from product inventories to sick days, and therefore expose variability and boost performance.
• Big data allows ever-narrower segmentation of customers and therefore much more precisely tailored products or services
•Big data can be used to improve the development of the next generation of products and services. (preventive measures that take place before a failure occurs or is even noticed).

Big Data - Challenges
•Policies related to privacy, security, intellectual property, and even liability will need to be addressed in a big data world
•Need for right talent and technology in place but also structure workflows and incentives to optimize the use of big data.
•Access to data is critical— challenges will be to integrate information from multiple data sources, often from third parties, and the incentives.
•Shortage of talent necessary for organizations to take advantage of big data

About OTC Derivatives

What is a Derivative?
The financial instruments we've considered so far - stocks, bonds, commodities and currencies - are generally referred to as cash instruments (or sometimes, primary instruments). The value of cash instruments is determined directly by markets. By contrast, a derivative derives its value from the value of some other financial asset or variable. For example, a stock option is a derivative that derives its value from the value of a stock. An interest rate swap is a derivative because it derives its value from an interest rate index. The asset from which a derivative derives its value is referred to as the underlying asset. The price of a derivative rises and falls in accordance with the value of the underlying asset. Derivatives are designed to offer a return that mirrors the payoff offered by the instruments on which they are based. 

What Does Derivative Mean?
A security whose 
price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.

Investopedia explains Derivative
Futures contracts, forward contracts, options and swaps are the most common types of derivatives. Derivatives are contracts and can be used as an underlying asset. There are even derivatives based on weather 
data, such as the amount of rain or the number of sunny days in a particular region. 

Derivatives are generally used as an instrument to hedge risk, but can also be used for speculative purposes. For example, a European investor purchasing shares of an American company off of an American exchange (using U.S. dollars to do so) would be exposed to exchange-rate 
risk while holding that stock. To hedge this risk, the investor could purchase currency futures to lock in a specified exchange rate for the future stock sale and currency conversion back into Euros.

By way of example, a few standard derivatives are listed below. The most commonly-traded derivatives - forwards, futures, options and swaps - will be described in greater detail. 

A credit derivative is an OTC derivative designed to transfer credit risk from one party to another. By synthetically creating or eliminating credit risk from one party to another. By synthetically creating or eliminating credit exposures, they allow institutions to more effectively manage credit risks. Credit derivatives take many forms. Three basic structures include: credit default, total return and credit linked swaps

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Over-The-Counter - OTC
What Does Over-The-Counter - OTC Mean?
A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange. It also refers to debt securities and other 
financial instruments such as derivatives, which are traded through a dealer network.

Investopedia explains Over-The-Counter - OTC
In general, the reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to meet exchange listing requirements. Also known as "unlisted stock", these securities are traded by broker-dealers who negotiate directly with one another over 
computer networks and by phone.

Although Nasdaq operates as a dealer network, Nasdaq stocks are generally not classified as OTC because the Nasdaq is considered a stock exchange. As such, OTC stocks are generally unlisted stocks which trade on the Over the Counter Bulletin Board (OTCBB) or on the pink sheets. Be very wary of some OTC stocks, however; the OTCBB stocks are either penny stocks or are offered by companies with bad 
credit records.

Instruments such as bonds do not trade on a formal exchange and are, therefore, also considered OTC securities. Most debt instruments are traded by investment banks making markets for specific issues. If an investor wants to buy or sell a bond, he or she must call the bank that makes the market in that bond and asks for quotes.

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