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Calypso Introduces Software Update for North American CDS Big Bang

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In line with the rest of the vendor community, derivatives and risk management solution provider Calypso Technology has updated its solutions to accommodate the credit default swap (CDS) ‘big bang’ being led by the International Swaps and Derivatives Association (ISDA). Tomorrow, the new Standard North American Corporate (SNAC) CDS contract convention comes into force, which transforms single name CDS trades into financial instruments with trading, quoting and settlement characteristics similar to those of bonds and CDS indices.

“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,” says Shailendra Methi, senior product manager at Calypso Technology.

According to Calypso, the software update includes all areas of credit trading including trade capture, pricing, market data, risk analysis, settlement and clearing. This encompasses the calculation of upfront fees using the ISDA standard model and the introduction of an interface with Markit to automatically update yield curves on a daily basis. It also allows users to unwind by specifying whether a conventional spread or upfront is required. With regards to risk analysis, the updated software means names are converted to to conventional spread and upfront for comparative purposes.

The new convention will mean that investment grade names will trade with a fixed coupon of 100bps and high yield names will trade with a fixed coupon of 500bps. Methi adds: “The creation of fungible CDS trades is a crucial step toward efforts to standardise the CDS market, institute central counterparty clearing for credit derivatives and help clean up systemic risk.”

Calypso’s competition has also been busy in the run up to the changes and upgrades have been made by a number of players over the last month or so, including Quantifi, CME Group-owned Credit Market Analysis (CMA), RiskVal and Markit.

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