The International Swaps and Derivatives Association (ISDA) has published a Version 2.0 Recommendation for Financial Products Markup Language (FpML) specification. FpML is an "XML-based, freely licensed, e-commerce standard supporting OTC trading of financial derivatives. As a business information exchange standard for electronic dealing and processing of financial derivatives instruments, FpML establishes the industry protocol for sharing information on, and dealing in, financial swaps, derivatives and structured products over the Internet. pML Version 2.0 extends interest rate product coverage to include interest rate options including swaptions, caps and floors, and extends the swap definition to include FX resetables, cancelables and early termination provisions. The Recommendation reflects consensus within FpML as represented by approval from the Standards Committee. The Standards Committee considers that the ideas and technology specified by a Recommendation are appropriate for widespread deployment and promote the mission of FpML. While the Recommendation for version 2.0 thoroughly covers interest rate derivatives, upcoming versions will focus on equity and credit derivatives, as well as messaging." The FpML Validation Working Group has also released a draft technical note for the FpML Validation Language Requirements.

FpML 2.0 Bibliographic Information

FpML Version 2.0. Financial Products Markup Language. Recommendation 10-February-2003. Edited by Steven Lord (UBS Warburg). Produced by members of the IRD Products Working Group. 298 pages. "This is the FpML Version 2.0 Recommendation. This specification has been endorsed by the FpML Standards Committee as an FpML Recommendation. It is a stable document and may be used as reference material or cited as a normative reference from another document. Comments on this document, including reporting of errors, should be sent via http://www.fpml.org/issues/. An archive of the comments is available at http://www.fpml.org/issues/archive.asp. A list of current FpML Recommendations and other technical documents can be found at http://www.fpml.org/spec. This document has been produced as part of the FpML Version 2.0 activity and is part of the Standards Approval Process. This Activity was initiated by the FpML Board of Directors in October 2000 to extend the FpML Version 1.0 product definitions, which covered interest rate swaps and FRAs, to include further interest rate derivatives products and features." See also the FpML v2.0 XML DTD.

FpML 2.0 Scope and DTD Structure

The scope of the IRD Products Working Group, with respect to extending the FpML 1.0 product definitions, is to complete definitions for the following new products and features: (1) Interest Rate Cap; (2) Interest Rate Floor; (3) Interest Rate Swaption (European, Bermuda and American Styles; Cash and Physical Settlement); (4) Extendible and Cancelable Interest Rate Swap Provisions; (5) Mandatory and Optional Early Termination Provisions for Interest Rate Swaps; (6) FX Resetable Cross-Currency Swap. Current capabilities of the FpML Version 1.0 specification to support Basis Swaps will also be reviewed.

DTD Structure: "The FpML 2.0 Recommendation, following the approach used with FpML 1.0, utilises a single DTD. However, with the expected addition of other asset classes (FX and Equities) in FpML 3.0 it is intended at that time to separate the DTD into multiple parts: (1) A shared components DTD; (2) Several asset class specific DTDs; (3) A main DTD which links the other DTDs to form the FpML standard. [from the text of the v2.0 spec]

About FpML

FpML (Financial products Markup Language) is the industry-standard protocol for complex financial products. It is based on XML (Extensible Markup Language), the standard meta-language for describing data shared between applications. All categories of privately negotiated derivatives will eventually be incorporated into the standard. Version 1.0 of FpML covers interest rate swaps and Forward Rate Agreements (FRAs). Version 2.0 extends the interest rate product coverage to the most common option products, including caps, floors, swaptions, and cancelable and extendible swaps. Version 3.0 covers different asset classes, this version includes the interest rate work of version 2.0 and additionally covers FX and Equity Derivatives.

The development of the FpML standard is being driven by the financial industry and controlled by market participant firms, with input from vendors.

The standard, which is freely licensed, is intended to automate the flow of information across the entire derivatives partner and client network, independent of the underlying software or hardware infrastructure supporting the activities related to these transactions.

FpML is of value when the direct communication of derivative trade descriptions and environment information between two firms is desired. Ultimately, it will allow for the electronic integration of a range of services, from electronic trading and confirmations to portfolio specification for risk analysis. [from the Home Page]

Related: Draft Technical Note on FpML Validation Language Requirements

The FpML Validation Working Group has issued a Draft Technical Note: FpML Validation Language Requirements and and call for feedback on the requirements for a validation constraint language for FpML. "The purpose of this document is to gather feedback from other working groups and stakeholders in the industry, in particular with regards to the priority of the different requirements and the overall approach. The Validation Working Group was set up in January 2003 to investigate validation of FpML beyond the Schema and DTD stages. This includes validation that cannot be performed using these mechanisms, business rule validation and validation against external data sources. The group is currently gathering descriptions of rules for XML in English and is also selecting a constraint language to allow it to publish those rules in a precise manner. [The WG] is still keen to hear from parties from financial institutions who are interested in participating in the group. Please contant val-wg-chair@fpml.org to indicate your interest..." [From Christian Nentwich, Chair of the FpML Validation Working Group]

The FpML Validation Working Group has two threads working in parallel: (1) The Business Constraint Definition thread "will build on the standards definition work in each of the FpML product working groups to start the plain English definition of the relevant business constraints for each version of the FpML standard. These plain English constraints will be implemented in a constraint language to be selected by the second thread. These constraints will be those roles that are required for an FpML document to make sense (e.g. terminationDate is after effectiveDate) but not any organisation specific constraints. The set of constraints developed will cover each asset class but will not be comprehensive. The aim being to provide enough constraints to validate the language definition and provide momentum to specify further constraints. (2) The Constraint Language Definition thread will document the requirements for an FpML validation constraint language and review the different possible approaches taking into account the requirements. They will then select an approach that is best suited to the FpML standard. This approach will then be used to describe unambiguous business validation constraints for the different versions of the FpML standard. The work of the first thread will be used in creating these descriptions." [WG website]