2.1.4.60.3.3 FRA Yield Discounting with 2000 Definititons

AFMA continues to recommend that, if market participants intend to enter into an AUD or NZD forward rate agreement, or an AUD or NZD rate cap, collar or floor transaction and are using the 2000 Definitions, the following clause is included in the Schedule:

"FRA Basis. Unless expressly agreed otherwise in respect of a particular Transaction, the following provisions apply to any Transaction which is, or is described in its Confirmation to be, an AUD or NZD forward rate agreement ("FRA"), or an AUD or NZD rate cap transaction, rate collar transaction or rate floor transaction.

For the purpose of the following provisions, the rate cap part of a rate collar transaction is to be treated as a rate cap transaction and the rate floor part of a rate collar transaction is to be treated as a rate floor transaction.

Despite sections 6 and 8.4 (b) of the 2000 ISDA Definitions, on each Payment Date:

(a) in the case of an FRA:

(i) if the Floating Rate exceeds the Fixed Rate, then the Floating Rate Payer must pay the absolute value of the FRA Amount to the Fixed Rate Payer; and

(ii) if the Fixed Rate exceeds the Floating Rate, then the Fixed Rate Payer must pay the FRA Amount to the Floating Rate Payer;

(b) in the case of a rate cap transaction, if the Floating Rate exceeds the cap rate, then the Floating Rate Payer (Seller) must pay the absolute value of the FRA Amount to the Fixed Rate Payer (Buyer). (No corresponding payment is due from the Fixed Rate Payer to the Floating Rate Payer);

(c) in the case of a rate floor transaction, if the floor rate exceeds the Floating Rate, then the Floating Rate Payer (Seller) must pay the FRA Amount to the Fixed Rate Payer (Buyer). (No corresponding payment is due from the Fixed Rate Payer to the Floating Rate Payer).

The "FRA Amount" is calculated in accordance with the following formula:

where:

CA = Calculation Amount.

R1 = in the case of an FRA, the Floating Rate on the Payment Date (expressed as a number and not a percentage, eg 8.1875 not 8.1875%), or in the case of a rate cap transaction or a rate floor transaction, the Floating Rate calculated disregarding section 6.2 (a)(i) and section 6.2 (a)(ii) of the 2000 ISDA Definitions.

R2 = in the case of an FRA, the Fixed Rate (expressed as a number and not a percentage), or in the case of a rate cap transaction or a rate floor transaction, the cap rate or the floor rate respectively.

ND = the actual number of days in the Calculation Period.

Unless otherwise agreed, the Relevant Rate:

(a) in the case of A$ FRAs is "AUD-BBR-BBSW"; and

(b) in the case of NZD FRAs is "NZD-BBR-FRA".

Each reference in this clause to the "Floating Rate" is a reference to the Floating Rate plus or minus the Spread (if any)."


Last Update Date 29 Jun 2011