In conjunction with the 2005 Advocacy Initiatives of the Senior Executives Group, this Weekly Report reports on items related to industry business continuity planning and resiliency and the AMF Swaps Best Practices Initiative.
Initial Recommendations by AMF Swaps Best Practices Industry Leaders
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Tracey Jordal Jason Jesner Jean Ebbott George Hall NYC |
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Marcia Clark Newport Beach |
Below are links to video highlights of the AMF Swaps Panel Presentation that was offered at the Forum's Quarterly Business Meeting on February 9, 2005 in New York City and Newport Beach. These videos and corresponding descriptions highlight some of the initial recommended best practices being considered by the AMF Swaps Committee. If you are interested in participating in the work of the AMF Swaps Initiative, please contact the staff of the Technology, Operations and Asset Manager Relations Department.
Swaps Compliance (Marcia Clark, PIMCO)
Marcia Clark explains that in order to best monitor the risk characteristics of a swap, a best practice would be to monitor the underlying security and yield curve which ultimately determines the gains or losses on that swap. As a possible compliance best practice, asset managers should examine the risk of the underlying market and then aggregate that risk to the real risk of loss, which is broken into two avenues, namely, its volatility and its risk of default.
Click here to view the AMF Swaps Panel PowerPoint Presentation
Swaps Confirm/Legal (Tracey Jordal, PIMCO)
In considering best practices for swaps documentation, Tracey Jordal explains that using an umbrella or multi-fund ISDA Master Agreement is being considered among the subcommittee's proposed best practices. An umbrella agreement could eliminate having several agreements with a counterparty, which could free up resources. When a new fund is added, an appendix is simply added to the ISDA. Tracey also explained that having a standardized collateral control agreement could also make the documentation/legal process more efficient.
Click here to view the AMF Swaps Panel PowerPoint Presentation
Swaps Maintenance (George Hall, Goldman Sachs Asset Management)
Speaking for Joseph Pomo of GSAM, George Hall (Chairman of the Swaps Committee) reviews some of the initial best practices of the AMF Swaps Maintenance Subcommittee which relate to tracking resets and managing collateral. One of the initial recommendations is that payments are confirmed with the counterparty five business days prior to payment date, except where impractical due to non-availability of data. This proposed best practice could expedite the process, improve control and reduce the amount of fails in the market.
Click here to view the AMF Swaps Panel PowerPoint Presentation
Swaps Trade Execution (Jason Jesner, Credit Suisse Asset Management)
Jason Jesner presents on two of the initial recommendations of the Trade Execution Subcommittee. First, the subcommittee proposes that, if possible, an ISDA Agreement be negotiated before trading since the agreement clearly establishes the trading terms. Furthermore, to help mitigate operational risk, post-execution trade communication should occur electronically between the broker, investment manager and custodian.
Click here to view the AMF Swaps Panel PowerPoint Presentation
Swaps Valuation (Jean Ebbott, Morgan Stanley Investment Management)
Jean Ebbott describes two of the initial recommendations being proposed by the AMF Swaps Valuation Subcommittee. First, on T+1 and daily thereafter until the swap matures or closes out, the asset manager should reconcile all open swap positions and market values between the broker/dealer and Investment Advisor by using common trade attributes. On a weekly basis, Custodians should reconcile all open swap positions with the Investment Advisor. This proposed recommendation could reduce operational risk and help to ensure that an accurate valuation is calculated for the fund's NAV. Also, asset managers should consider obtaining an independent swap price for mutual funds, at least on a periodic basis, in order to verify the accuracy of their internal pricing calculations.
Click here to view the AMF Swaps Panel PowerPoint Presentation
Industry BCP Events
In continuing with its work as it relates to industry business continuity planning and resiliency in an emergency, The Bond Market Association's Business Continuity Management Council and the SIA BCP Committee have tentatively scheduled two testing dates.
April 5, 2005
During this industry test, which would include the Department of Homeland Security, the financial community in New York City will be asked to respond to a situation which would involve activating emergency protocols and procedures.
October 15, 2005
As a follow-up to the successful May 18, 2004 Industry BCP Exercise, this industry test would involve testing the back-up facilities of securities firms that operate both in the fixed income and equities market. The SEC and Treasury would be actively engaged in the planning of this event along with the SIA/BMA BCP Committees.
Asset Management firms are encouraged to become involved in this industry-wide undertaking. Questions regarding this initiative should be directed to Joseph Sack of The Bond Market Association at 646.637.9200.