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Fixed Income
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Re: Expressing discount rate in FIX 4.4
Andrew McDaniel / Transacttools, Inc <>
6 Feb 2007 6:27PM ETAs a follow-up, there is some additional information at http://www.fixprotocol.org/implementation-guide/process.shtml regarding price types:
“6. LastPxPar conditionally required in the Execution Report, Allocation, and TradeCaptureReport messages when LastPx is expressed with a PriceType other than "percent of par" (i.e. when LastPx is expressed as "discount" or "yield" PriceType then LastPxPar must be used to express the price in "percent of par" equivalent.)”
That way the counter party can verify the price calculations, and according to the 4.4 spec:
"If the Initiator deems that there are discrepancies in the Execution Report message received from the Respondent, the Initiator may use the Don’t Know Trade (a.k.a. DK Trade) message type to “reject” the trade information. Resolving the error or discrepancies would be done manually and is currently out of scope for the suggested use of the protocol." (page 75)
Specifically, the rejecting party would want to send the DKReason code for "Calculation Difference" to indicate a discrepancy between the two prices. Although the use of the "Discount" price type does seem somewhat ambiguous for Order messages, it should be possible to provide a safeguard when agreeing with a counterparty to use a PriceType=4 to mean "Discount Rate" rather than the literal definition in the spec.
> I think both market practice that we have seen and also the FPL fixed
> income certification standards call for using the 'discount' pricetype
> for discount instrument trading, possibly not taking a strictly literal
> interpretation of what 'percentage points below par' might mean.
>
> > Thank you, Andrew - saw that, but none of the valid values is
> > consistent with the market's quote convention, which is a discount
> > *rate*, not a yield, dollar price, or "points" below par. Since
> > percentage of par can be calculated from discount rate, I suppose we
> > could force our members to do that and send messages containing the
> > calculation result. If anyone has any contrary experience or business
> > practice, I would be grateful for any guidance.
> >
> > > John,
> > >
> > > This is from the Fiximate reference for Fix 4.4, tag 423
> > > (PriceType):
> > >
> > > Code to represent the price type. Valid values: 1 = Percentage (e.g.
> > > percent of par) (often called "dollar price" for fixed income) 2 =
> > > Per unit (i.e. per share or contract) 3 = Fixed Amount (absolute
> > > value) 4
> > > = Discount – percentage points below par 5 = Premium – percentage
> > > points over par 6 = Spread 7 = TED price 8 = TED yield 9 = Yield 10
> > > = Fixed cabinet trade price (primarily for listed futures and
> > > options) 11 = Variable cabinet trade price (primarily for listed
> > > futures and options) (For Financing transactions PriceType implies
> > > the “repo type” – Fixed or Floating – 9 (Yield) or 6 (Spread)
> > > respectively - and Price
> > > (44) gives the corresponding “repo rate”. See Volume 1: "Glossary"
> > > for further value definitions)
> > >
> > >
> > > > For fixed-income securities normally quoted in discount-rate terms
> > > > (e.g., U.S. Treasury bills), what PriceType is recommended for use
> > > > in a New Order Single message? Thank you.
Re: Expressing discount rate in FIX 4.4
Andrew McDaniel / Transacttools, Inc 6 Feb 2007 6:27PM ET
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