Swaps Glossary

BASIS SWAP: Transaction in which the Parties agree to exchange with one other the amounts resulting from application of two Floating Rates, or with different frequencies, based on a Nominal Amount for an agreed Duration Period.

BAU: Business as Usual, is the normal “state-of-the-art” of the business. The way in which usually business are run.

BIC: “Bank Identifier Code”: International standard number set out by SWIFT to identify financial entities. It usually consists of 11 characters, but sometimes only 8. These are the name of the entity (4 characters), country code (2 characters), Location code (2 characters), and optionally a branch code (3 characters).

BLOOMBERG: Vendor which provides financial software tools for financial analysis for financial companies and worldwide organizations. For more information please click here.

BP: “Basis Point” or “Pip”. Equals to 1/100 of 1%. Used to denote Interest rates variation. 1% equals to 100 basis points and 0.01% equals to 1 basis point. Thus a swap increasing its coupon from 5% to 5.5% is said to have a 50 basis points variation or that the rates have risen by 50 basis points. 

BUCKET: Tenors of the rates’ curve where the liquidity of the market is mostly concentrated. For this reason are the chosen ones to run the hedging operations in case of a Clearing Member’s default.

BUSINESS CENTER: Financial places which determines the financial calendar applicable for the life of a transaction, Defines whether a date is a business day or not.

BUSINESS DAY CONVENTION: Adjustment made for a date in case of a bank or public holiday or weekend.

CCP: Central CounterParty. The name EMIR assigns for the Clearing Houses.

CET: Central European Time. Time usually used in most of the European and Northern Africa countries to determine the time for a transaction settlement and or trading.

CLEARING HOUSE: See CCP.  

CLEARING OBLIGATION: Rule under EMIR regulation which declares as mandatory the Clearing of some OTC derivatives transactions for market risk mitigation purposes.

CLEARING MEMBER: Clearing Member. Some participants in a CCP that may clear and compensate trades on behalf his clients and / or between the proprietary account of the CM and their clients.

COB: Close of Business. The moment of the day from which no more transactions can be traded and / or registered.

COMMUNICATION SYSTEMS: Systems or services approved by BME Clearing used to apply for registration by BME Clearing of a Trade in the IR Segment. The BME Clearing API is not considered a Communication System for these purposes.

CONSIDERATIONS: See additional payments.

CONTRACT GROUP: Synonym of Segment as defined in the Rule Book.

CONTRACT: Synonym of Transaction as defined in the Rule Book.

COUNTERPARTY: Each of the parts involved in a financial transaction.

COUPONS: These are payments to be made by the Clearing Member and/or BME Clearing corresponding to the Fixed Amount and the Floating Amount, as these are calculated in accordance with the relevant Circular.  Each of the periodic payments agreed between counterparties in a transaction.

D2C: Dealer to Client. Transactions closed between a dealer and a customer. In order to clear this transaction in a CCP, a Clearing Member is necessary. The CM is usually the dealer in the transaction.

D2D: Dealer to Dealer. Transactions closed between two dealers. Both of them are usually Clearing Members in a CCP.

DAY COUNT CONVENTION: This convention rules the number of days for the calculation period to compute the coupon amount.

DEFAULT MANAGEMENT COMMITTEE: Committee comprising representatives of Clearing Members and, as the case may be, employees of BME CLEARING, the function of which is to advise BME Clearing on managing of a default in accordance with these General Conditions and the relevant implementing Circulars.

DEFAULT FUND: Additional Margin to the Initial and Variation Margin that CCP calls out to the all of the CM to face the default of a member when liquidating his position.

DFA: “Dodd-Frank Act”. Is the equivalent regulation to EMIR but for the USA. This is a financial reform and consumer’s protection law, entered into force on July, 2010.For more information please click here.

EBF: “European Banking Federation”. For more information please click here.

ECB: European Central Bank. For more information please click here.

EFFECTIVE DATE: Also known as Value Date. This is usually 2 business days after the trade date and from that date either regular or irregular periods are computed. It is the date from which accrued and payment obligations fro both parts arise in a swap.

EMIR: European Market Infrastructure Regulation. Regulation 648/2012 on OTC Derivatives, CCP and trades registration implemented for a higher transparency on derivatives. For more information please click here.

EMMI: European Money Market Association (EMMI). International Association in charge of management and publication of the EURIBOR and EONIA indexes. For more information please click here.

EOD: End of Day. It refers to all the processes run after the end of trading.

EONIA: EONIA is calculated by the ECB and administered and managed by the European Money Markets Institute (EMMI). Reflects the real interest rate at which unsecured transactions are executed between two UME and EFTA interbank market entities. If the ECB or the EMMI should no longer perform any of the functions related to this index and ISDA should amend the definition of the EONIA, the new definition of ISDA shall be used.

EXPECTED SHORTFALL (ES): This risk measure can be defined as the average of all losses which are greater or equal than VaR, this means the average loss in the worst (1-p)% cases, where p is the confidence level. It provides the expected value of an investment in the worst q% of the cases.

ESMA: European Securities and Markets Authority. Supervisor of the financial markets in the European Union. For more information please click here.

ETD: Exchange Traded Derivatives. Derivatives traded in any kind of regulated markets by opposition to the OTC derivatives.

EURIBOR: Euro Interbank Offered Rate. EURIBOR is administered by EMMI. It reflects the deposit rate for different terms at which two interbank market entities of the EMU would lend to one another. It is published on a daily basis for 13 terms at 11 AM (CET) with spot value (T+2), on an Act/360 convention. If the EMMI should no longer perform any of the functions related to this index and ISDA should amend the definition of the EURIBOR, the new definition of ISDA shall be used.

EuroSTR: The euro short-term rate (€STR) reflects the wholesale euro unsecured overnight borrowing costs of banks located in the euro area. The €STR is based entirely on daily confidential statistical information relating to money market transactions collected in compliance with the Money Market Statistical Reporting (MMSR) Regulation. For more information please click here. 

EWMA: Exponentially Weighted Moving Average. EWMA is used to calculate the volatility weighing more the latest data with a decay factor known as Lambda (λ).

FC: Financial Counterparty.

FEE: See considerations.

FIRE DRILL: Auction simulation run by the CCP to ensure that both the Clearing Members and the CCP are ready to manage a default.

FIXING DATE: Reset Date. Is the date when the value for the floating reference is set. For the Euro is usually 2 business date before the last coupon payment date. For more information please click here.

FIXING: Process run to calculate the value of the floating references indexes (EURIBOR and EONIA for BME CLEARING) necessary to compute the coupon payment.

FORWARD RATE AGREEMENT (FRA): Transaction in which the parties agree, in the event future interest rates are expected to vary for a given Nominal Amount and for a certain Duration Period, agree that if the Transaction Interest Rate is higher or lower than the Settlement Interest Rate, either the Buyer or Seller must pay the other party the Resulting Amount in accordance with the financial formula described in the Product valuation Circular.

FPML: Financial product Mark-up Language. Is an open source XML standard language for trading and electronic processing of derivatives transactions. Reports of BME Clearing will be sent using this format. For more information please click here.

GUI: Graphical User Interface.

ID: Intraday. Applies to all the processes run during the session timetable.

INITIAL MARGIN (IM): Position Margin. Is the margin posted by the CM to protect the CCP form losses during the period taken to close out the defaulting clearing member's position. This margin is calculated at account level. Is the potential loss that the CCP could face due to interest rates variation during the 5 days following the default.

INCEPTION: See trade date.

INTEREST RATE SWAP: Transaction in which the Parties agree to exchange with one other the amounts resulting from application of a Fixed Rate and a Floating Rate to a Nominal Amount for an agreed Duration Period.

ISDA: International Swaps and Derivatives Association. For more information please click here.

LEI: Legal Entity Identifier. Legal universal and unique identification for an entity.

MARGIN CALL: Margining process by which a CCP requires posting additional margin to a clearing member due to fluctuation in interest rates curve if this variation exceeds the value of the previously posted margins.

MARKET IRS: IRS closed when the trade date is the same than valuation date, at market prices and where the NPV of the difference between the legs is equal to zero.

MARKITWIRE (MW): Affirmation and confirmation platform developed by Markit. Is the standard for trades' confirmation. For more information please click here.

CM: See Clearing Member.

DCM: Defaulting Clearing Member.

NDCM: Non- defaulting Clearing Member.

MIFID: Markets in Financial Instruments Directive.

MTF: ‘multilateral trading facility’ or ‘MTF’ means a multilateral system, operated by an investment firm or a market operator, which brings together multiple third-party buying and selling interests in financial instruments in a way that results in a contract .

NETTING: Compensation agreement between counterparties. A long position and a short position with identical economic terms are subject to netting.

NFC: Non-Financial Counterparties, entities that trade with derivatives although they are no financial entities. Corporates may belong to this category.

NID: Netting ID. Netting Code identifier created by BME Clearing.

NET PRESENT VALUE (NPV): The NPV of a trade is the sum of the NPV of its coupons, this means the gross value of the flow, multiplied biy its discount factor. The NPV of a portfolio is the sum of the NPV of the trades comprised in it.

OFF MARKET IRS: IRS traded or closed in a day different from valuation date. Because of this the NPV of the difference of the legs may differ from zero.

ON-THE-RUN / OFF-THE-RUN: On-The-Run is applied to the standard tenors of the curve, usually multiples of 1 year, while Off-The-Run refers to the tenors submultiples of 1 year.

OTF: ‘organised trading facility’ or ‘OTF’ means a multilateral system which is not a regulated market or an MTF and in which multiple third-party buying and selling interests in bonds, structured finance products, emission allowances or derivatives are able to interact in the system in a way that results in a contract.

OVER THE COUNTER (OTC): Bilateral transaction out of a regulated and supervised market. Opposite to ETD.

OVERNIGHT INDEXED SWAP (OIS): Interest rate swap in which the Parties agree to exchange the payment of amounts resulting from applying a Fixed Rate and a Floating Rate to a Nominal Amount for an agreed Calculation Period, but in which the floating Rate is determined on the basis of the weighted average rate of overnight deposits in the Interbank Market (WAR) that are capitalized (CWAR) in accordance with the formula set out in the Valuation Circular.

PAYMENT DATE: Each of the dates of a trade in which an amount derived from must be paid.

PORTABILITY: It is the possibility for a client to take his position from one CM to another.

POST - REGISTER EVENT: These events takes place after the trade registration in the CCP. These include early termination, portability, risk Free Netting, etc.

PRICE ALIGNMENT INTEREST (PAI): The interest at EONIA which BME Clearing or the relevant Clearing Member pay or receive as calculated on the basis of the accrued amount of the Variation Margin received or delivered, as calculated in accordance with these General Conditions and the relevant Circular.

RESET DATE: See fixing date.

RIC: Reuters Instrument Code.

SWAPS EXECUTION FACILITY (SEF): Applies to the electronic trading platforms, ruled by the Dod Frank Act in USA.

SKIN - IN – THE - GAME: As required under EMIR, article 8.4.2 of CCP’s Clearing Rule Book confirms that a CCP will apply its own dedicated financial resources in the event of a member default, prior to the use of clearing fund contributions of non-defaulting clearing participants.

START OF DAY (SOD): Refers to the processes that must be run at the beginning of the session.

SPOT DATE: See Effective Date.

STUB: Period of time that differs from the regular coupon calculation period.

TARGET: Trans-European Automated Real-time Gross Settlement Express Transfer System. Is the main settlements system in the Euro zone. For more information please click here.

TENOR: Standard term of the interest rates curve.

TERMMINATION DATE: Maturity date. The date when the obligations of the counterparties cease.

THOMSON REUTERS: Vendor which provides financial software tools for financial analysis for financial companies and worldwide organizations. For more information please click here.

TRADE REPOSITORY (TR): A company that collects and keeps centralised registration of all derivative's transactions either OTC or ETD. Is ruled by EMIR. The TR of BME Clearing is REGIS-TR. For more information please click here.

TRADE DATE: The date the transaction is closed.

UPI: Unique Product Identifier. The number that identifies uniquely a product. For more information please click here.

USI: Unique Swap Identifier. The number that identifies uniquely a swap according to DFA. For more information please click here.

UTI: Unique Trade Identifier. The number that identifies uniquely a transaction. For more information please click here.

VALUE AT RISK (VaR): Risk measure released in 1992 by JP Morgan based on its Risk Metrics ®. It shows the maximum potential loss of a position due to the interest rate risk, taking into account a confidence level (probability) and specific time period. If a portfolio of IRS and FRA, has a 1 day VaR of €100.000€ with a confidence interval of 99%, means there is a probability of 1% that the maximum loss of the portfolio in 1 day time exceeds €100.000.

VARIATION MARGIN (VM): The amount of cash Margin necessary to cover the risk associated to the daily change in the net present value (NPV) a Clearing Member must transfer to BME Clearing or BME Clearing to the Clearing Member and calculated in accordance with these General Conditions and the relevant Circular on margins.

VARIABLE NOTIONAL SWAP (VNS): Swaps with a notional that may vary at a given rate or amount for each calculation period.

ZERO COUPON SWAP: Interest rate swap where payments of amounts resulting from application of the fixed or variable rate or both are settled once upon maturity rather than periodically.