Calypso Releases CDS Fixed Coupon Support for CDS Big Bang
Calypso Technology, Inc, a global application software provider of an integrated trading and risk application suite to the capital markets industry, today 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, another in a string of first-to-market achievements for Calypso in the world of credit trading technology.
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
This new release from Calypso prepares market participants for the Big Bang on April 8th, enabling a seamless transition to the new convention.
Calypso maintains a position as being first-to-market in introducing innovations for the credit derivatives market. For example, the firm was first to support advances in the credit derivatives industry including, but not limited to:
- Integrate with Markit RED (reference entity database) which has become the industry standard identifier for reference entities
- Incorporate credit event processing changes announced by ISDA
- Support PAUG soft credit events for CDS on asset-backed securities and integrate with the market standard protocol Markit RCD (Reference Cashflow Database)
- Release a random recovery model to price the senior tranche of synthetic CDOs
"By providing clients with the required functionality in advance of the Big Bang event, the Calypso software is designed to enable Calypso clients to input their trades in a clean, persistent manner, as opposed to resorting to deploying workarounds that might be difficult to migrate to future versions of our software," states Methi.
Calypso Technology's product development and commercial success in providing credit trading solutions has received accolade and recognition from major industry associations and journals. Among other recognitions, it has been consistently ranked as the #1 front-to-back credit trading system by Risk Magazine for the last three years running.
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