FpML at SwapsWire

FpML is the industry-led XML-based standard emerging in the financial derivatives domain. Initially proposed in July 1999 by JP Morgan and PricewaterhouseCoopers, FpML.org has rapidly developed into an industry-led consortium driven by ten of the leading derivative market players and involving major vendors, including IBM and Reuters. Further organizations have joined the consortium this year, including Integral, developers of FinXML. In July 2000, a not-for-profit entity, FpML.org, Inc. was founded with the aim of furthering the existing consortium efforts. July 2000 also saw the publication of FpML 1.0 Architecture and FpML Version 1.0 specifications as Working Drafts. These specifications were the output from the first two FpML.org Working Groups – the Products and Architecture Working Groups – formed in January 2000 to define product definitions covering interest rate swaps and forward rate agreements (two kinds of derivative products), together with an XML architectural framework that would form the foundation for this and later versions of the standard. The FpML 1.0 Architecture and FpML Version 1.0 specifications were both advanced to FpML.org Recommendations in March and May of 2001 following a successful public review period.

New FpML Working Groups have been established this year to both expand the existing interest rate derivatives product coverage, the focus of FpML 1.0, as well as to extend the standard into other derivative markets, including foreign exchange and equity derivatives. In parallel with the increase in product coverage, work continues on evolving the architectural framework.

Unlike the traditional securities market, where identifying the security being traded is trivial because of the use of industry recognized identifiers, FpML has to address the problem that a derivative trade is a privately negotiated over-the-counter (OTC) contract between two parties. In a sense, each trade is a unique financial instrument that can only be communicated by exchanging all the economic terms. Until today, trade terms have typically been exchanged between parties via fax in the form of a three-page long legal contract resembling a lease or mortgage contract. FpML 1.0 provides an XML-based alternative to the paper contract specification for the two most heavily traded interest rate derivative contracts.

With the FpML 1.0 specification now stable, an increasing number of implementations are starting to appear. Among them, and perhaps the one being followed most closely, is SwapsWire’s use of FpML. SwapsWire is a collaborative venture within the interest rate derivatives community, backed by 23 leading participants in the derivatives market, including the financial institutions that founded FpML.org. SwapsWire will deliver an electronic trading platform for the negotiation and trading of interest rate swap products with electronic confirmation. SwapsWire is using FpML as the core of its trade confirmation message and intends to make the fax confirmation a thing of the past. The presentation will cover SwapsWire’s pioneering implementation of FpML and the technical and non-technical issues surrounding the introduction of a new industry standard. An update of the latest developments in FpML for interest rate derivatives will also be covered.