Industry-backed FpML.org has announced the release of Version 1.0 of FpML (Financial products Markup Language), the emerging business information exchange standard for electronic dealing and processing of financial derivatives transactions.
Developed by major derivatives dealers worldwide, FpML provides a communications protocol for sharing information on, and dealing in, financial derivatives instruments over the Internet. The specification, which will be freely licensed, is intended to enable Internet-based integration of a range of services, from electronic trading and confirmations to portfolio specification for risk analysis.
It is envisaged that all categories of over-the-counter (OTC) derivatives will eventually be incorporated into the FpML standard. Version 1.0, the first public release by FpML.org, provides definitions for the trade content of an interest rate swap and a forward rate agreement. Multiple features are supported for interest rate swaps, including: compounding; averaging; principal payments (to support cross-currency swaps); notional amortisation; step-up and step-down coupon/spread schedules; and additional fees and payments.
FpML was first proposed in June 1999 by J P Morgan and PricewaterhouseCoopers, and a draft version was released in August. In order to develop consensus around the standard, a formal not-for-profit entity, FpML.org, was created, consisting of members of derivatives market firms, software and information vendors, and system integrators.
Ten major derivatives dealers are currently involved in the FpML development effort: Bank of America, BNP Paribas, Chase Manhattan Bank, Citigroup, Credit Suisse First Boston, Deutsche Bank, Fuji Capital Markets Corporation, J.P. Morgan, Morgan Stanley Dean Witter, and UBS Warburg. In addition, IBM, PricewaterhouseCoopers, Reuters, SunGard Trading and Risk Systems, and Swift are also leading participants.
The publication of the initial FpML proposal prompted several firms to start experimenting internally with the standard for solving real business problems:
* Chase Manhattan Bank reviewed and adopted FpML as the basis for integrating its internally developed OTC Interest Rate Options Risk-Management Front-end and Production processing systems;
* Fuji Capital Markets Corporation has begun utilising FpML as a type of middleware to transfer deal details between systems using a standardized interface;
* J P Morgan has used FpML for application integration between browser-based trade capture, front- office pricing, and risk management systems;
* UBS Warburg has been using FpML in conjunction with front-office pricing tools to explore its abilities for supporting various product structures.
The release of Version 1.0 is expected to result in a host of new uses by member and non-member firms, as well as the creation of vendor-developed applications. Companies such as Concordia Net, Kronos, Sentry Financial Systems, and SunGard Trading and Risk Systems have all announced plans to incorporate FpML into their product lines. In addition, PricewaterhouseCoopers is beginning to implement solutions that comply with FpML, including FpML-based interface and middleware tools to facilitate the transfer of transactions between systems.