Understanding the Market Conventions Used in SDX Interest Rates

For each instrument, depending on both its currency and the dates chosen, there are set market conventions for certain fields. For example, if you enter into a 1y USD vanilla swap, the payment frequency convention is annual whereas for a 10y USD vanilla swap, the payment frequency convention is semi annual. Similarly, whereas for a EUR vanilla swap the default index is 6m with a semi annual payment frequency, for a EUR cap the default index is 3m with a quarterly payment frequency.

In SDX Interest Rates, when you enter a term or change a date, by default the system always automatically displays the relevant market conventions for the instrument for the displayed currency and dates.

You can then edit any of those fields. For example, you can manually change the payment frequency from semi annual to monthly. If you do edit a field which the system had previously filled in using market conventions, the field is highlighted in yellow as seen in Figure 1.

Figure 1: Yellow Highlight Indicates You Have Edited a Market Convention Setting for that Field

Moreover, if you manually edit a field that holds a market convention value (for example, you manually change the payment frequency to quarterly), when you subsequently update the instrument’s term or one of its dates, the manually edited field is not automatically updated by the system to display the relevant market convention for the new term or dates. That is, the system retains your edited value (and the yellow highlight). For example, if you price a USD vanilla swap and update the floating leg index from the default setting of 3m to 6m, the index will now remain set to 6m even if you then change the term.

At any stage you can of course instruct the system to overwrite your edited values with the market conventions. You do this in both the pricing pages using the Restore Defaults button.

It is important to note that the Restore Defaults button:

Only resets fields that are instrument and currency and date related, for example, the Convention, Index and Frequency fields in the pricing page and the Fixing Delay and Payment Holiday fields in the Cash Flow Dates window.

Does not reset fields that are not currency and date related. For example, if you change a fixed leg to a float leg, clicking this button will not restore the leg to a fixed leg. Similarly, if in the Cash Flow Dates window you had manually edited the Roll Convention, clicking the Restore Defaults button will not reset this field.

Does not affect edited market rates.

To restore the market conventions:

In the pricing page click the Restore Defaults button. The system restores the market conventions according to the current instrument, currency and dates chosen to any edited fields as necessary. In addition it removes the yellow highlight from these edited fields.