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Pool Substitution

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FICC's MBS Division provides the Pool Substitution message (or “CC” for Cancel/Correct) to support the simultaneous cancel of previously allocated pools with the notification of substituted pools. This benefit of this message is that it provides EPN members with time-stamped evidence of delivery of a Pool Substitution. Like all EPN message types the processing of the Pool Substitution message is subject to The Securities Industry and Financial Markets Association (SIFMA) guidelines governing good delivery (for example, tolerable variance or number of pools per million, etc.) Members are referred to the Uniform Practices published by SIFMA for detailed information on good delivery guidelines.

The Pool Substitution message provides members with an efficient method of transmitting Pool Substitutions to their allocation counterparties. The Pool Substitution message is structured to create a relationship between both the canceled and substituted pools. Canceled lots or pools are followed by substituted lots or pools of the same value (within variance).

Pool Substitution messages are passed to counterparties on a real time basis through EPN, and standard EPN validations are performed on Pool Substitution messages – that is the message will be validated for data integrity, but not for business terms. Consistent with other business messages, validation of the business terms of the Pool Substitution message is the responsibility of the sending and receiving members.

Submission of pool details in the Pool Substitution message require a system-defined ordering scheme whereby canceled lots are immediately followed by substituted lots.

Benefits Derived From The Pool Substitution Service

This service creates efficiencies in the allocation process:

  • By providing a single message to effect cancels and substitutions of allocations, members are able to replace a “two message”, unlinked process and/or replace phone/fax substitutions with one streamlined process;
  • Pool Substitution messages passed via EPN provide members with evidence of delivery and receipt of Pool Substitutions and an audit trail via reports for the message. Members have the ability to store these messages and incorporate them into their internal system as they see fit.
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The Pool Substitution message requires all participants in EPN to adhere to specific processing guidelines. If executed incorrectly, these processing tasks can create messages that can be rejected by EPN, or “DK”ed by your contra sides, causing costly delays in notification. These processing guidelines are outlined to maximize the processing capabilities of EPN users.

EPN Guidelines Governing Pool Substitution Messages 
Pool Substitution messages are subject to the existing EPN General Guidelines found in the current EaSy Pool Action Guide and the EPN Implementation Guide. The guidelines outlined in this document are supplemental to the EPN General Guidelines and specifically address the requirements for delivery and receipt of Pool Substitution messages.

 

Business Data Verification
Consistent with other business messages, validation of the business terms of the Pool Substitution message is the responsibility of the sending and receiving members. The EPN member submitting the Pool Substitution is responsible for: 1) referencing the cancel portion to an allocation previously submitted, validating the terms of the cancel component of the message against the original allocation; and 2) validating that the substituted pools meet SIFMA guidelines. The EPN member receiving the message must validate the same information from its perspective.

 

DK’S on Pool Substitution Messages 
EPN performs message integrity checks on Pool Substitution messages. It does not validate the business terms of the message against an original allocation. Therefore, receiving members must be proactive in validating the business terms of the message against the original allocation and must take action on the Pool Substitution messages as needed. FICC expects members to submit DK’s on Pool Substitution messages having terms they don’t agree with in a timely manner.

Members have the flexibility to DK either an entire message or part of a message.

• Members should DK the entire lot, both the canceled and the substituted pools, if any one substituted pool of the lot is invalid for the allocation.
• By DK’ing a substituted lot, the associated cancel is rendered invalid and should not be processed by either the original submitter of the Pool Substitution or the recipient of the Pool Substitution.
• To affect a cancel on those pools, the submitter should submit a new Pool Substitution message with valid substitution data or deliver a Cancel message for the canceled pools.

 

Pool Substitution Message 
EPN accepts and processes Pool Substitution messages and allows members to perform the full range of subsequent actions on Pool Substitution messages that are available for other EPN business messages. Pool Substitution messages are identified by the message type code “CC” and canceled and substituted pools are identified by the terminators. If CC messages do not match the criteria in the below table the receiver has grounds to DK the message.

pool subsitution field table

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Good Delivery Millions (GDMM) submitted on a Pool Substitution must equal the number of GDMM of the substituted pools in the message. If the GDMM field does not accurately show the GDMM’s of the substituted pools in the message, the recipient has grounds to DK the message.

GDMM may differ from the ON message because the data pertains specifically to the pool information detailed on the message.

  • Bad Delivery: Messages with bad delivery lots that are canceled and substituted have zero GDMMs for that lot, which should be reflected in the GDMM field.
  • Odd Lots: If an odd lot less than one million is canceled and replaced, the associated GDMM is zero. If an odd lot greater than one million is canceled and replaced, the associated GDMMs must equal the GDMMs in the odd lot as per the guidelines for Pool Terminators.
  • Partial GDMM Lot Substitutions: If a partial lot is canceled and substituted, the GDMM associated with the partial cancel and substitution is zero.

Combining Substitutions of an Odd Lot and a Good Delivery Lot: If a message contains substitution data for an odd lot and a good delivery lot, the GDMM field must show the total number of GDMMs substituted.

Combining Substitutions of a Bad Delivery Lot and a Good Delivery Lot: If a message contains substitution data for a bad delivery lot and a good delivery lot, the GDMM field must show the number of GDMMs (i.e. the good delivery lot value only).

Combining Substitutions of a Bad Delivery Lot and an Odd Lot: If a message contains substitution data for a bad delivery lot and an odd lot, the GDMM field must show the number of GDMMs (i.e. the good delivery lot value only) substituted in the message.

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Pool Substitution messages are subject to existing EPN General Guidelines. The guidelines outlined in this section supplement the EPN General Guidelines and specifically address the delivery and receipt requirements for Pool Substitution messages.

  • The new Pool Substitution service allows for substitutions of pool details only. If an original notification (ON) message is submitted with erroneous header information, the ON message must be canceled (CX), and a new ON message must be submitted.

The following section outlines the guidelines for processing Pool Substitution messages. Throughout this section the term ‘ON’ is used to reference the original notification of allocation, whether it was passed to the contra via EPN or some other medium.

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Using the MBSD Lot-ID scheme (1a, 1b, 2a, 2b, 2c, etc.) is highly recommended but not mandatory.

Canceled pools should be linked to the substituted pools using Lot-ID. For example, Lot-ID 1A of a canceled pool should be repeated on the first pool of the substituted lot.

When a single pool replaces multiple canceled pools, the first Lot-ID should be repeated. When multiple pools replace a single pool, logical incremental Lot-IDs should be used.

Lots should be represented in the same way on a Pool Substitution message as were found on the ON message.

Pools across multiple lots on ON messages cannot be mismatched into a new lot on a Pool Substitution messages. Doing so provides grounds to DK the lots.