FIBO Semantics Initiative Addresses Interest Rate Swaps

The EDM Council and the Object Management Group (OMG) have presented their Financial Industry Business Ontology (FIBO) semantics initiative to the US Commodity Futures Trading Commission, the Office of Financial Research and the Federal Deposit Insurance Commission as a means to achieve data consistency and transparency, and allow reuse of core industry data elements and concepts.

The FIBO semantics initiative includes a uniform product identifier applicable to interest rate swaps. "[EDM Council and OMG are] creating operational ontologies for interest rate swaps, which as derivatives were one of the real hotspots in the financial crisis," says David Newman, strategic planning manager and vice-president of enterprise technology architecture and planning at Wells Fargo, who also serves as chair of the EDM Council's semantics program. "Due to their complexity, there was an opaqueness to understanding what these instruments really represented. We built a proof-of-concept that semantically described interest rate swaps, including all the types we've been able to define: fixed, floating, cross currencies, single currency, multiple currencies, overnight, inflation and exotic – which have received much interest from banks and regulatory bodies."

The initiative allows users to identify if legs of an interest rate swap are fixed rate or floating rate, explains Newman. If one leg is fixed, and another is floating, the result is a "fixed-float" interest rate swap. Both legs can be floating or fixed, creating "float-float" swaps or "fixed-fixed" swaps. "As a result, the EDM Council can also infer more specific classifications as we reference additional attributes found in the data, such as matching or non-matching currencies across the swap legs," he says.

FIBO is working with the International Swaps and Derivatives Association to align the semantics initiative with Isda's uniform product identifiers. The semantics initiative will also allow for metadata annotations that provide greater context to elements of the ontology.