Defining Legal Agreements

You can define legal agreements between two parties for OTC derivatives. Legal agreements can be referred to in the messages generated by the system.

Legal agreements can also be associated with break clauses in trades (Cash Settlement Info).

From the Calypso Navigator, navigate to Configuration > Legal Data > Agreements to define legal agreements.

You can browse legal agreements using Reports > Cross-Asset Reports > Legal Agreement Report.

1. Defining a Legal Agreement

The Global panel is selected by default.

Click New and enter the Global panel fields described below as needed.

Select the Legal Agreement panel and enter the fields described below as needed.

Then click Save to save your changes.

You can also click Save As New to save the legal agreement as a new legal agreement provided you change some criteria as follows: for a given combination of processing org and counterparty, you can setup multiple non-master agreements per product type, and ONE master agreement per product type.

Note that if the Authorization mode is enabled, an authorized user must approve your entry.

Global Panel Fields Details

Fields	Description
Processing Org	Select a processing organization.
Legal Entity	Click ... to select the counterparty of the agreement.
Product Family	Select a product family, or ALL.
Product Type	Select product type(s), or product subtype(s) defined as "<product type>.<product subtype>", or ALL. Example: Selection by product type would be "SecLending", and selection by product subtype would be "SecLending.Sec Vs Cash". For a given combination of processing org and counterparty, you can setup multiple non-master agreements per product type, and ONE master agreement per product type. The product type can also be a group of products. See Configuration > Product > Group (menu action `refdata.ProductGroupWindow`) for information on creating groups of products. Note that the environment property USE_PRODUCT_GROUP should be set to true in order to allow specifying legal agreements by product group. Product groups can also be created by product subtype.
Currency	Click ... to select the currencies for which the agreement applies, or ANY. When you select the agreement type CLS, the currencies default to the CLS currencies (currencies that belong to the CLS group in the Currency definition). You can use the static data filter element "Legal Agreement#<LE agreement type>#Check Currency" to check the currency of the legal agreement.
Date	Enter the effective date of the agreement.
PO Children ALL	Click ... next to the PO Children field to select the children of the processing org for which the agreement applies. You can also check the ALL checkbox next to the PO Children field to apply the agreement to all the children of the processing org.
LE Children ALL	Click ... next to the LE Children field to select the children of the counterparty for which the agreement applies. You can also check the ALL checkbox next to the LE Children field to apply the agreement to all the children of the counterparty.

Legal Agreement Panel Fields Details

Fields

Description

Agreement

Select the type of agreement. It can be used in messages, and as search and selection criteria.

Click ... to add new types of agreement as applicable.

The TripartyRepo agreement type is specific to triparty repos. Such an agreement type must be specified between the processing org, counterparty and agent.

Refer to the Calypso Triparty Services Guide for complete details.

Is Master

Check the “Is Master” checkbox for the master agreement between two parties. This applies when multiple agreements are specified between two parties.

Ⓘ [NOTE: When using the static data filter element "Legal Agreement Type", only master agreements are taken into account - To create a static data filter that takes into account non-master agreements, you can use the static data filter element "Legal Agreement#<type>#Type"]

Id Number

Id number automatically given by the system when the agreement is saved.

Documents

Allows attaching documents.

See Attaching Documents for details.

Is Trilateral

Check the “Is Trilateral” checkbox to define a Triparty agreement, and select the type TripartyRepo. The third-party is specified in the Guarantor field - See below.

Ref Number

Enter a reference number as applicable.

Is Triparty Substitution

Used in the triparty repo allocation process.

If checked, and depending on the repo trade maturity type:

•

OPEN and callable – The pledge trades will be OPEN with Notice Days = Notice Days of parent triparty repo.

•

TERM and callable – The pledge trades will be OPEN with Notice Days = Notice Days of parent triparty repo.

•

TERM and not callable – The pledge trades will be OPEN with Notice Days = 0.

•

INTRADAY – The pledge trades will be TERM with 1D duration.

If not checked, and depending on the repo trade maturity type:

•

OPEN and callable – The pledge trades will be OPEN with Notice Days = Notice Days of parent triparty repo.

•

TERM and callable – The pledge trades will be TERM with End Date = End Date of parent triparty repo, and with Notice Days = Notice Days of parent triparty repo.

•

TERM and not callable – The pledge trades will be TERM with End Date = End Date of parent triparty repo, and with Notice Days = 0.

•

INTRADAY – The pledge trades will be TERM with 1D duration.

Status

Select the status of the agreement. It can be used in messages, and as search and selection criteria.

In the out-of-the-box confirmations, a reference to the legal agreement will be mentioned for SIGNED legal agreements.

You can click ... to add new status codes as applicable. They are defined in the domain "legalAgreementStatus".

Guarantor

Click ... to select a legal entity of role Guarantor.

You can double-click the Guarantor label as applicable to change the role. In that case, you will be able to select a legal entity of the selected role.

For TripartyRepo agreements, change the role to Agent and select the agent.

Special Clause

Enter a free form special clause as applicable.

Additional Info

Click the second ... button to set values for the additional information.

The Additional Info section allows specifying custom attributes for a legal agreement. You can select an attribute, and its value will be displayed in the adjacent field.

You can click ... next to the Additional Info field to add attributes.

If you want to specify a list of possible values for a given attribute, create the domain “laAdditionalField.<attribute name>”, and add the values to that domain - The name is case sensitive.

The attribute CrystalizationDays can be used to define the number of crystallization days for the EONIA rate index on security finance trades paying interest at maturity.

The attribute TERMINATION_APPENDIX_MID can be used to drive default values on break clauses (cash settlement info):

•

Quotation Rate

–

If TERMINATION_APPENDIX_MID = Yes, it is set to MID.

–

If TERMINATION_APPENDIX_MID = No, it is set to BID / ASK.

–

Otherwise, it is not set.

•

Exercise Party Pays

–

If TERMINATION_APPENDIX_MID = Yes or not set, it is set to false (unchecked).

–

If TERMINATION_APPENDIX_MID = No, it is set to true (checked).

2. Attaching Documents

From the Legal Agreement panel, you can attach actual documents to the legal agreement for information purposes.

Select the Legal Agreement panel, load a legal agreement and click Documents to attach documents.

Enter a description for the document and click Add. You will be prompted to select a document. Select a document as needed.

Once a document is added, you can double-click the document to display it.

Then click Close.

Then click Save in the Legal Agreement window to save your changes.

Note that if the Authorization mode is enabled, an authorized user must approve your entry.

3. Adding Eligibility Rules

The Eligibility Rule panel only applies to legal agreements for repo trades. It allows adding eligibility rules to a legal agreement and specifying whether they are blocking or not on each direction independently. Eligibility rules allow specifying which securities are acceptable as collateral. Security eligibility checking will take place when the legal agreement is selected on a repo trade, even if this occurs after having booked the security.

Before adding an eligibility rule to a legal agreement, you need to define eligibility rules. From the Calypso Navigator, navigate to Configuration > Legal Data > Eligibility Rules (menu action refdata.EligibilityRuleWindow).

In order to specify eligible securities, you must have set up static data filters / static data filter trees which cover all the eligible securities you would like to use.

Click New to create a new eligibility rule, and enter a name in the Name field.

In the Collateral Giver area, click

to select a static data filter to be used as an eligibility filter for collaterals in the give direction.

Add additional eligibility filters as necessary. You can delete a filter by selecting it and clicking .

To be eligible, a security must belong to at least one of these filters.

Repeat as needed in the Collateral Taker area to specify eligibility filters for collaterals in the receive direction.

You can click Copy to duplicate the list from the Collateral Giver area.

Click Save when you are done.

Note that if the Authorization mode is enabled, an authorized user must approve your entry.

Now you can add eligibility rules to a legal agreement in the Legal Agreement window.

Select the Eligibility Rule panel.

Select an eligibility rule from the Name drop-down. The eligibility filters that are defined on the rule are populated in the Collateral Giver and Collateral Taker areas. Note that they are only displayed here for information purposes and are not editable from this window. To edit the eligibility filters you must do so from the Eligibility Rule window.

Check the Blocking checkbox if desired in the Collateral Giver and / or Collateral Taker areas.

If checked, repo trades with ineligible securities will not be able to be saved.

If not checked, repo trades with ineligible securities will alert the user upon saving, but can be saved.

Then click Save to save your changes.

Note that if the Authorization mode is enabled, an authorized user must approve your entry.

Viewing Security Eligibility in Trade Windows

When a legal agreement is selected on a repo trade, the "Sec. Eligibility" field is displayed in the Collateral details area. It will appear as checked if the selected security is eligible to the selected legal agreement.

When more than one security has been added to a repo trade, a list of securities is displayed. You can add a column which will display whether or not the securities are eligible to the selected legal agreement.

Right-click in the column headings and select .

Add the "Sec. Eligibility" column. It will appear as checked for those securities which are eligible.

4. Adding Haircut Rules

The Haircut Rule panel allows entering haircut details which will be used as default values when the legal agreement is selected on repo trades.

Select the Haircut Rule panel.

In the Collateral Giver area, enter the haircut details to be used as default values for collaterals in the give direction.

–

Select the base amount to compute the haircut: DirtyPrice or CleanPrice. The haircut amount will be added / subtracted to / from the collateral value.

–

Select Regular or Inverse to indicate the type of haircut computation: Regular [amount * (1+haircut)], or inverse [amount / (1-haircut)]. The haircut value is not an absolute value. The sign of value is important. Enter a negative value for a discount and a positive value for a premium.

–

Select Give or Receive to indicate the direction of the haircut from the processing organization’s perspective.

–

Enter the number of decimals permitted for haircuts entered for this counterparty.

–

Enter the haircut percentage, expressed in basis points (enter 0 for no haircut), or select a haircut rule.

Haircut rules are defined in Calypso Navigator > Configuration > Fees, Haircuts, & Margin Calls > Haircut Rule.

Repeat as needed in the Collateral Taker area to enter haircut default values for collaterals in the receive direction.

Then click Save to save your changes.

Note that if the Authorization mode is enabled, an authorized user must approve your entry.

5. Adding Pricing Parameters

From the Pricing panel, you can specify pricing parameters to be used when this legal agreement is selected on a repo or security lending trade. These parameters are used for calculating the MARGIN_CALL pricer measure. By setting them at the legal agreement level, it allows margin call exposures to be calculated differently from one counterparty to another.

Select the Pricing panel and enter values for the pricing parameters described below as needed. Those that are not needed can be left blank.

Then click Save to save your changes.

Note that if the Authorization mode is enabled, an authorized user must approve your entry.

Some of these pricing parameters are also able to be set on margin call contracts, as indicated in the table below. For a trade using both a legal agreement and a margin call contract, the pricing parameters that are actively defined (not left blank) on the legal agreement will take priority. For parameters left blank on the legal agreement, the values defined in the margin call contract, if any, will be used. For parameters undefined in both the legal agreement and margin call contract, the values from the pricing environment, if any, will be used.

Pricing Parameters	Description
MC_INCLUDES_END_DATE_EXPOSURE	True or false. If set to true, MARGIN_CALL is calculated at trade end date, but disregarded (returns 0 value) if set to false. Margin call contract corresponding field: "Include End Date Exposure" on the Details panel
MC_EXCLUDE_TRADE_HAIRCUT	True or false. If set to false, MARGIN_CALL calculation includes the trade haircut to price the collateral value. Margin call contract corresponding field: "Exclude Trade Haircut" on the Parties panel
MC_EXCLUDE_INTEREST	True or false. If set to false, MARGIN_CALL calculation includes accrued interest to trade liability. Margin call contract corresponding field: "EXCLUDE_REPO_INTEREST" and "EXCLUDE_SECLENDING_INTEREST" on the Additional Info panel
MC_SEC_QUOTE_OFFSET	0 or 1. Determines which day’s quote to use in the collateral value calculation. When set to 0, uses the val date quote. When set to 1, uses the (val date - 1) quote. Margin call contract corresponding field: "Quote Offset Days" in the Dates & Times panel
MC_INCLUDE_EXDIV_COUPON	If set to true, the MARGIN_CALL pricer measure includes any pending coupon due amount from the earlier record date to the payment date. Margin call contract corresponding field: "INCLUDE_EXDIV_COUPON" on the Additional Info panel

6. Viewing Existing Legal Agreements

You can browse legal agreements using Reports > Cross-Asset Reports > Legal Agreement Report.

Security finance trade defaulting definitions are also displayed in this report. Either the 'Trade Defaulting' column or the 'Legal Agreement' column will be checked to indicate which it is.

Refer to Calypso Security Lending Trading and Calypso Repo Trading documentation for details on security finance trade defaulting.

You can double-click a legal agreement to load its configuration window.

7. Modifying a Legal Agreement

The left-hand side of the window allows searching and browsing existing legal agreements.

In the Search panel, you can enter search criteria and click

to load the corresponding legal agreements. You can also navigate the existing legal agreements in the Navigate panel.

They will appear at the bottom of the window - Double-click a legal agreement to show its details. Then modify the fields as needed.

It is possible to set the maximum number of agreements to be displayed in the User attribute “Max.LegalAgreement”.

Then click Save to save your changes.

Note that if the Authorization mode is enabled, an authorized user must approve your entry.

8. Associating a Legal Agreement with a Margin Call Configuration

Load a legal agreement and click Margin Call Agreement to create a margin call configuration. A margin call configuration is used to calculate margin calls between two parties.

Refer to Calypso Collateral Management documentation for details.

9. Displaying Pending Authorizations

Click Show Pending Authorizations to see any legal agreements pending authorization. This only applies if the Authorization mode is enabled.

10. Deleting a Legal Agreement

Load a legal agreement and click Delete to delete it.

Note that if the Authorization mode is enabled, an authorized user must approve your entry.