AMF Swaps Best Practices

As a follow-up to the AMF Swaps Conference on July 26, 2005, the AMF has begun to schedule meetings with industry members to solicit additional feedback on its swaps best practice recommendations. On August 10th, the AMF is scheduled to meet with custodians in Boston to further discuss how the recommendations relate to their business activities. Next week, the AMF is also scheduled to meet with asset managers, dealers and with the leaders of the Swaps Initiative on other follow-up items to the 7/26 Conference. It was at this Conference where the Forum officially promulgated it swaps best recommendations to the industry for public comment.


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At the Swaps Conference, the AMF presented participants with a bookmark that lists the best practices. For your review, this bookmark has been reprinted within this Weekly Report.


Swaps 17
Best Practice Recommendations

I Dealers should send electronic trade confirmations for Interest Rate Swaps and other types of “plain vanilla” swaps on trade date or alternatively, paper confirmations should be sent on T+1 in order to expedite agreement by the counterparty.

II Counterparties involved in interest rate swap transactions, or other similar transactions, should make arrangements to confirm Interest Payments (Resets) electronically at least five business days before the acknowledged settlement date to ensure prompt settlement of funds, so long as such arrangements are compatible with relevant contractual provisions that might apply to such Resets.

III Consistent with new standardized electronic methodologies being promoted by the Data Standards Working Group, swap prices should be reconciled daily between a) dealers and asset managers and b) asset managers and custodians in order to ensure accurate pricing of client portfolios. The Governance Group being created by AMF/BMA, ISDA and ISITC shall ensure that there is consensus concerning this best practice recommendation on the part of the major broker-dealers and custodians prior to implementation of this recommendation.

IV Asset managers are encouraged to develop multi-account (“umbrella”) ISDA Master Agreements for each class of accounts (’40 Act, ERISA, government and separate).

V Before executing a swap transaction, it is recommended to have an ISDA Master Agreement in place.

VI Dealers should send electronic confirmations using the specific type of ISDA “Form of Confirmation” as the standard template.

VII After execution, all parties should strive to communicate post-trade information in electronic form to achieve benefits of STP for all market participants.

VIII The industry should develop standard message format(s) and standard messaging protocol(s) for communication between the asset manager and custodian.

IX Asset managers and custodians should enter the prices of swaps into their systems on trade date to facilitate valuation(s) on trade date.

X The industry should evaluate the pros and cons of developing a standard tri-party collateral control agreement. This should be done with the assistance of AMF’s outside counsel.

XI Asset managers should strive to obtain independent swap pricing for all swaps to validate the accuracy of dealer and internal pricing calculations.

XII Interest Rate and Total Return Swaps should be monitored and aggregated as substitutes for bond exposures.

XIII When monitoring risk in client portfolios, the proposed guideline is that credit default swaps impact credit risk only and should be monitored and aggregated as substitutes for bond exposures.

XIV The industry should develop guidelines for reset tracking (manually or electronic application) and work with vendors to create specifications for an electronic application.

XV Asset Managers should have the proper tools in place to manage collateral.

XVI Dealers and Asset Managers should strive to include each other’s trade reference numbers in all communications to facilitate matching of confirmations, rate resets, pricing and margin calls.

XVII The industry, including relevant buy side and sell side trade groups, should work with recognized Wall Street experts to develop and thereafter promote adoption of a feasible common identifier for swaps in order to help facilitate fully automated processing among market participants.