Fund-Technology.com

Calypso releases software update in time for CDS big bang

Posted: 07 April 2009

Calypso Technology, a trading and risk application suite provider to the capital markets industry, has announced the release of a software update to support the new Standard North American Corporate (SNAC) credit default swap (CDS) contract, scheduled to launch on April 8th this year. Calypso has swiftly introduced this critical functionality in advance of this major market event.

On April 8th, the new SNAC convention transforms single name CDS trades into financial instruments with trading, quoting and settlement characteristics similar to those of bonds and CDS indices, making the trades fungible with each other. Per the new convention, investment grade names will trade with a fixed coupon of 100bps and high yield names will trade with a fixed coupon of 500bps.

"This is a monumental change in the world of credit derivatives, when you consider that credit default swaps are the building blocks for all synthetic credit trading. As a result, the new convention has a wide-ranging impact on organizational trading business and workflow and consequently on any trading system," states Shailendra Methi, Senior Product Manager at Calypso Technology. "The creation of fungible CDS trades is a crucial step toward efforts to standardize the CDS market, institute central counterparty clearing for credit derivatives and help clean up systemic risk."

The software update encompasses all areas of credit trading including trade capture, pricing, market data, risk analysis, settlement and clearing. The enhancements include:

- Trade capture using SNAC conventions (Fixed Coupon, Full Coupons)
- Calculation of upfront fees: Using the ISDA standard model
- Yield curve: Interface with Markit to automatically update this curve on a daily     basis
- Termination: Unwind by specifying conventional spread or upfront
- Risk analysis: Convert all the names to conventional spread and upfront to compare
- Credit event processing: Enhanced to take care of rolling Credit event date

 

 

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