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What corrections were made to the August 2016 template post release?

Corrections made relate to inconsistent ID numbers and spelling/grammar in labels. There has been no change in the structure of the report. i.e. there have been no additions, removals or changes to any data fields. The Working Group apologise for the inconvenience. Please refer to the document “Summary of Post Release Formatting Corrections to Aug 2016 Excel Template” attached at the top of this page for a complete list of the changes made, and please download the updated excel template for August 2016 from the Download page.

Will there be any further updates?

No. There will be no further updates until the next review by the Working Group which is not expected to take place before 2018.

What has changed in the August 2016 Update?

Please refer to the document ‘Summary of all Changes to OP Template and Manual in August 2016 Revision’ attached at the top of this page for a complete breakdown of all changes that were made in the 2016 update.
How frequently are the template and manual updated?

There were no material changes to the template and manual between the launch in August 2011 and the August 2016 update. The main reason for the August 2016 update was the addition of Real Estate as a new sector in GICS. The template is not expected to change frequently going forward, due to the effort required to update reporting systems, however the Working Group will continue to convene annually to discuss any changes that may be required in the future.

We already report a lot of the information being requested under Open Protocol in our existing risk reports. We have spent a lot of time and thought on what we are currently providing. Why should we provide information in the Open Protocol format? Should the Open Protocol reports replace what the fund is currently providing?

The Open Protocol is not designed to replace a manager’s current risk report, but to supplement it, so that investors not only get a good understanding of the individual fund but also their overall portfolio. The standard allows them to be able to aggregate consistent data across funds. We understand that the risk reports currently provided by managers to their investors show the risks of the fund as the manager sees them, so we fully expect managers to keep providing these reports if they would like to do so, alongside the Open Protocol reports. When designing the Protocol we looked at the information currently provided by managers in order to ensure that the Open Protocol is not asking for something which would be difficult for funds to report.

Would the production of Open Protocol reports stop us from treating all clients equally? We don’t want to set a precedent by creating bespoke reports for one client when other clients will ask for some other information.

Investors are increasingly asking for bespoke information, and the proliferation of bespoke risk reports are very expensive for managers to produce. Many managers have taken a stance that they will not create any bespoke reports as these are expensive to produce, and lead to the preferential treatment of certain clients. The Open Protocol report is the perfect solution for this problem. It was constructed keeping in mind many various client requests, with the objective of creating one universal report covering most of the requests. Open Protocol can be thought of as a single solution for all client requests. Open Protocol reports can be distributed to all investors at the discretion of the manager, so that no single investor would benefit more than any other investor.

When was the Open Protocol finalised? How frequently will the Open Protocol template & manual be updated?

The Open Protocol was formally launched on 9th August 2011 in London and on 11th August 2011 in New York. An updated version of the template was launched on the 5th anniversary of the Open Protocol, 11th August 2016. The Working Group expects to convene on at least an annual basis to discuss any changes which may be required. However, the template is not expected to be updated frequently, due to the work required by all parties to update their reporting systems. If you have any suggestions for changes to the templates, please email us at

Who controls the Open Protocol Data? Is the Open Protocol a central data warehouse?

The Open Protocol is not a centralised data warehouse, it is just a language. Managers own and control the data. They have complete discretion over who sees the information.

Do you have a template for CTAs?

CTAs should complete the same template as other hedge fund strategies. The template does not ask for Margin to Equity at grade 1, but funds could choose to report this at grade 3.

Do we need to provide Open Protocol reports if we will also be providing Form PF? How does Open Protocol compare with Form PF?

Form PF and AIFMD are required by regulators and do not have any direct connection with Open Protocol. However, Open Protocol is compatible with Form PF, and managers can fill in the majority of Form PF if they have Open Protocol already set up. The SEC has kept the methodology flexible for Form PF and therefore the methodology defined under Open Protocol can also be used for Form PF. Regulators are largely concerned about systemic risk while investors are concerned about a broader range of risks. Open Protocol is therefore a more robust solution for investors.

How many managers have agreed to provide Open Protocol reports?

Over 80% of the managers asked have said that they would be happy to provide Open Protocol reports, either in-house, through a third party (eg administrators or risk aggregator) or if investors simply ask for them.

Which third party service providers (Administrators and Risk software companies) have said that they will provide Open Protocol reports?

The majority of administrators approached have said that they are looking at providing Open Protocol reports. Funds should talk to their administrator directly to find out the current status of their progress. The “Support” section of this website lists the service providers producing Open Protocol reports.

The GICS categories are periodically updated. Is the OP template updated every time GICS is updated?

No. The Open Protocol template was updated in August 2016 to reflect the changes made to GICS between the OP template launch in 2011 and August 2016, motivated by the significant addition of Real Estate as an 11th sector. However, the OP template will not be updated every time GICS is updated, because this would require everyone currently producing or using the reports to implement system changes.

Is there a deadline for producing the first Open Protocol report?

It is expected that managers need some time to get their systems in place to generate Open Protocol reports. From experience to date managers tend to take 1 to 3 months to set up their first risk report in the Open Protocol format.

How often should this report be produced? How soon after the end of the month should the report be produced?

The working group expects this to be a monthly report, and typically it should be produced and distributed 15 business days after month end. However there are no set rules about this and the managers have complete discretion on the frequency and timing of the report.

What delivery options are there for reports according to the standard?

Open Protocol has defined two reporting formats, an excel spreadsheet and an XML schema (which can be used for machine-to-machine dialogue). Both these templates are available on the Open Protocol website for all to download. PDF reports are not permitted since they would not allow for systematic aggregation.

Is it possible for us to deliver a partially completed report that omits answers to particular questions or sections altogether?

All managers would be required to fill sections 1, 8-11 and at least one of sections 2 to 7. If a manager trades more than one asset class (even if it is a hedge) then they should complete all the relevant asset class sections. For each of the sections, managers would be required to fill in at least Grade 1 information, but could choose different grades in each section. For sections 8, 9 and 10, which deal with portfolio level risk measures, managers could avoid filling in the template by stating that 0% of the long & short exposure is included in the calculation. For example, a manager trading distressed assets can avoid filling VaR (section 8) if they feel that VaR is not a meaningful measure of risk for their portfolio.

Can a manager change any of the fields or add/remove cells in the Open Protocol template?

The template and schema are both fixed, and the fields should not be changed as it would hinder the investor’s ability to aggregate information, ultimately defeating the entire purpose of the exercise. The Manager could use the “Comment” section available at the bottom of each tab to give the reader more colour regarding the information provided or assumptions made.

Once we have completed the Open Protocol template, who should we send it to?

It is the manager’s decision to whom they want to send the reports. The Open Protocol reports are owned by the manager, so they are free to send them to any party directly, including current and/or prospective investors.

If we report at Grade 2 or 3 should we fill in information at the previous grade, i.e. Grade 1 and 2, also?

Yes, please fill in the relevant information for the preceding grades also. If a manager is reporting at Grade 3 then they should fill information at Grade 1 and 2 as well. Grades 2 and 3 are not an exhaustive list of constituents of the previous grade and thus to avoid any confusion managers should fill in all grades.

Do we have to use one Grade for the entire report or can we choose which information is completed at which level?

Managers have the ability to pick and choose the level of granularity that they are comfortable providing for different sections of the report. For example, managers could provide Equity sector information at Grade 1 but provide Equity region exposure at Grade 3.

For calculating exposure information, should we rely on the methodology prescribed under Appendix I?

The main body of the Manual contains methodology to calculate exposure information for various instruments, for example GP 15 to 17. The methodology in the main document should always take precedence over Appendix I. For example, GP 16 suggests that “All sovereign interest exposure (Section 3) should be reported as US 10 year swap equivalent basis” while Appendix I suggests that “Bond Future: N * NCS * market price of the CTD reference bond”. So, for Sovereign bonds, use the methodology prescribed in the main body, i.e. report exposure on US 10 year swap equivalent basis” and for non Sovereign bonds use the methodology in Appendix I.

Portfolio risk measures like VaR which are required under Open Protocol are not relevant for our strategies and we do not calculate them internally. Should we calculate them just for the report?

For some strategies, for example distressed debt, VaR would not be a good measure of risk. Therefore to accommodate for such strategies Open Protocol has provided a way which allows managers to avoid filling in the relevant section but still ensure that the entire report is completed at Grade1. Under sections 8, 9 and 10, which deal with portfolio level risk measures, managers could avoid completing them by stating that 0% of the long & short exposure (8.8, 9.9 etc) is included in the calculation. This way the manager would have filled in the report at Grade 1 without actually filling the portfolio risk measures. This exemption is available for these three sections only; all other sections should be completely filled in.

For the XML file format, is it possible to fill only pertinent tags or do we have to fill all tags including empty or not applicable ones?

Generally you only have to include the tags for which there are any values. There are only a few tags that are mandatory (e.g. fund name and so on).

Should we report at share class or fund level?

All exposure, AUM and performance information should be at the fund level. Under certain circumstances if the fund has multiple share classes (e.g. Onshore/Offshore share class), with similar exposures, then the manager can choose to provide information at a share class level. If performance (section 1.6) is reported at share class level, then the manager should make a note of the share class information on the ‘Fund and Investor Details’ tab (section 1.5) and ensure that the most representative (e.g. largest AUM) share class is selected.

Under which asset class should TIPS be reported?

These securities should be included in the Sovereign and Interest Rates Exposure section.

On what should the classification of derivative instruments be based?

On the exposure tabs, the classification of derivative instruments (by sector, region, maturity, market cap, credit rating, yield, etc) should be based on the underlying security. The only exceptions are the Instrument and Liquidity sections which should be based on the instrument (2.6, 2.8, 3.7, 4.7, 4.12, 5.6, 5.11, 6.6, 7.6, 7.10). Example 1: Equity options should be classified based on the underlying security in sections 2.4, 2.5 and 2.7, and based on the instrument type in sections 2.6 and 2.8. Example 2: Sovereign bond futures should be classified based on the underlying security in sections 3.4, 3.5 and 3.6. Note that this includes section 3.5 Instruments by Maturity; here the maturity should be the maturity of the underlying bond. Section 3.7 should be based on the instrument type.

Is the Open Protocol sector classification exactly the same as GICS?

The sector breakdown in the August 2016 OP template is based upon GICS, with the additions of Conglomerates, Broad Market Indices and Other. These are for multi-industry companies, multi-sector indices and any other equity exposures that do not fit in one of the 11 default sectors.

The GICS categories are periodically updated. Is the OP template updated every time GICS is updated?

No. The Open Protocol template was updated in August 2016 to reflect the changes made to GICS between the OP template launch in 2011 and August 2016, motivated by the significant addition of Real Estate as an 11th sector. However, the OP template will not be updated every time GICS is updated, because this would require everyone currently producing or using the reports to implement system changes.

GP 18 – Can you give guidance about the format of different values in the report?

Open Protocol required various types of values to be entered and the following is a rough guide: a.) All % values: should be reported with a percentage sign or as a decimal (max 3). For example, 9.355% holding should be reported as 9.4% or 0.094 but not 9.4. b) Numerical cells: text should not be entered in a numerical cell, i.e. do not put dashes or ‘n/a’ in any cells. If a cell is not applicable just leave it blank. c) All AUM numbers: should be reported to the nearest integer. Report the actual amount and do not use any text like “m” or “million” in these fields. d) In sections 2 to 7, “Total Exposure to ….”: Total long and short dollar exposure for each relevant asset class should be reported at the top of the template in sections 2.1, 3.1, 4.1, 5.1, 6.1 and 7.1. e) Section 4.8 Price Yield and Spread

  • &, metrics for performing debt: should be reported as a percentage or decimal. For example 11.8% or 0.118.
  • metrics for performing debt (CDS current spread): should be reported in terms of basis points 210 and NOT 2.10%
  •, Average $ price (cents per $): Should be reported as cents, for example a $100 bond trading at $40 should be entered as 40.

f) Section 4.10.1, Portfolio Average Maturity: Should be reported as number of years, for example 5.1. Do not add “years” or other text at the end. g) Section 5.7, Derivative specific information

  • 5.7.1 to 5.7.4: should be reported as a percentage or decimal. For example 10% or 0.10.
  • 5.7.5: Average Portfolio Bond Market Price: should be reported as a dollar amount. Par value should be assumed to $100. For example a $1000 bond trading at $1128 should be reported as 112.8. Note: information at Grade 2 under 5.7.5 should be reported as percentage of AUM.
  • 5.7.6: Average Portfolio Delta: should be reported as a percentage or decimal. For example 80% or 0.80.
  • 5.7.7: Premium over Parity: should be reported as a percentage or decimal. For example 10% or 0.10.

h) In sections 8 to 11, for “% Long/Short exposure included in calculation”: Values should be reported as a percentage of total AUM and not as a percentage of total long / short exposure.

GP 19 – How does Open Protocol consider Side Pockets?

Side pockets should be included under the following sections only:

  • 1.2 Total Firm Assets under Management
  • 1.3 Total Fund Assets under Management
  • 1.7 Investor Break Down
  • 1.8 Investor Liquidity

Please do not include Side Pocket information for the following sections

  • 1.6 Performance
  • 2 to 7 Asset Class Exposures
  • 8 to 10 Portfolio Level Risk Measures
  • 11 Counterparty

GP 20 – If the Open Protocol does not represent our portfolio accurately can we change the methodology or the template to make the report more representative?

The main objective of the Open Protocol is to ensure investors get consistent information across all their investments, and therefore managers are not permitted to change the methodology or the reporting template. Managers can however use the “Comments” section, which can be found at the bottom of each page, to convey their opinions to the reader. Enter the cell number that the comment is referring to under the “Number” column and then enter the “Comment” section. If the comment is general and not to a specific cell in the template then leave “Numbers” section blank.

Section 1.5 – Should we complete this section?

This section is applicable only if a manager chooses to report performance (section 1.6) at the share class level rather than the fund level. The reporting share class should be most representative share class if the fund has multiple share classes. If this section is filled in then performance will be assumed to be at the RSC level.

Section 1.6 – Where and how should we report performance?

Performance should be reported both Net and Gross. MTD (Month to Date), QTD (Quarter to Date) and YTD (Year to Date) performance should be reported on a non annualised basis under section 1.6. ITD (Inception to Date) performance should be reported on an annualised basis.

Section 1.6 – How are QTD, YTD and ITD performance calculated?

QTD performance is the cumulative performance to date since the latest quarter end NOT rolling 3month return. Similarly, YTD performance is the cumulative performance since the latest 31st December. ITD performance must be annualised unless the fund is less than 12 months old.

Section 1.7 – Should “Top 5 Largest Investors” include the GP/manager?

Yes. GP/Manager investment should also be included under Individuals.

Section 1.7 – Should we follow the classifications provided in regulatory reporting (i.e. Form PF) or more closely align answers with internal classification systems?

Managers should be looking to align their investor reporting with their regulator reporting, within the Open Protocol guidelines.

Section 1.7 – Should values be reported for investor or beneficial owners? For example, we may have an investor that is a bank but the beneficial owners are high net worth individual. Would this investment be classified under Individuals or Intermediaries?

For Banks, Private Banks, insurance companies and other financial institutions this would be classified based on the underlying source if possible (e.g. to HNW individuals if applicable). For Fund of Funds this should be classified as Intermediaries.

Section 1.8 – How do you complete this?

Please report this section in the same manner as you would Form PF, Question 50 ( Please report this section assuming that 100% of the investor base has requested liquidity. For each reporting date, this section should be filled in taking into account all relevant lock-ups, upcoming notice and redemptions dates, gates, etc. “Without Penalty” column should be completed cumulatively such that “More than 36 Months” + “Side Pockets” equals 100%. “With Penalty” column should only show what additional amount can be redeemed with Penalty in each cumulative period. Therefore, the sum of the two numbers across each row should not exceed 100%. The split between “with penalty” and “without penalty” should be proportional to the split between the investor base off lockup (“without penalty”) and investor base under soft lockup (“with penalty”). For example, assume the following:

  • – 35% of investors are locked up, 50% are off lockup, and 15% are under soft lockup.
  • – 20% gate applies.

The 20% gate should be split as follows:

  • – Without penalty: 20% * (50% / (50%+15%)) = 15.4%
  • – With penalty: 20 *( 15% / (50% + 15%)) = 4.6%

Section 1.9 – How is “Unencumbered Cash” defined?

Generally, funds can report Unencumbered Cash as defined for Form PF: “The fund’s plus the value of overnight repos used for liquidity management where the assets purchased are U.S. treasury securities or agency securities minus the sum of the following (without duplication): (i) cash and cash equivalents transferred to a collateral taker pursuant to a title transfer arrangement; and (ii) cash and cash equivalents subject to a security interest, lien or other encumbrance (this could include cash and cash equivalents in an account subject to a control agreement).” In general we expect Unencumbered Cash to include only cash, risk free government bonds and money market funds that are in the same currency as the fund. Any cash or cash equivalents that are not in the base currency of the fund must be reported in section 3, sovereign and interest rate exposure, and section 6, currency.

Section 1.9 – For instruments in Currency sections 6.5 and 6.6, is “Cash” included in the section for “Spot”?

Report cash under Unencumbered cash (1.9.1) under 6.5 and 6.6 please only report actual currency positions that are not in the base currency (USD)

Section 1.9 – If we invest excess cash in short duration fixed income securities as a cash management strategy, should this be reported under Unencumbered cash or elsewhere?

If these are risk free securities issued by the government of the currency of the fund, this can be reported under Unencumbered Cash. Otherwise due to market risk, these investments must be reported on the appropriate asset class tabs (i.e. credit and sovereign interest rate tabs) and should not be reported under Unencumbered Cash).

Section 1.10 – What does “Investment in External Funds” mean?

Any investment in funds where the manager has “no control” over the investment decisions should be treated as external. If you are reporting for a fund which invests in other funds within the same company and the manager has control over the investments, then they should not be treated as external investments and the exposure information of these funds should be filled in the relevant templates. Investments in money market funds should be reported under 1.10.1 and 1.9 and investments in any other funds should be reported under 1.10.2.

Sections 1.9 and 1.10.1 – Should there be any overlap between these sections?

Investments in money market funds in the base currency of the fund (if unencumbered) would be reported under both 1.9 and 1.10.1.

Overall – How should baskets be reported?

Baskets should be broken down into individual stocks in order to accurately reflect the sector and region exposures in the portfolio. This may appear to inflate your total number of positions in sections 2.4 and 2.5 however in the Instrument and Market Cap tables you can report each basket as one position under “Indices and Baskets” It would also be acceptable to report baskets in the “Equity (Single Stock)” line in section 2.6 to distinguish them from listed indices, but in 2.7 they should be bundled under “Indices and Baskets”.

Overall – How should index exposure be reported?

Index exposure should be broken down into sectors, regions and market cap, where possible. An approximate breakdown is acceptable. In sections 2.6 and 2.7 index exposure would be reported under “Indices and Baskets”.

Overall – How are VIX positions reported?

Since the Open Protocol template does not treat volatility as a separate asset class, VIX positions should be captured in the Equity Exposure tab. For consistency, they should be expressed as a combination of options on the SP500 which would be captured under the Equity Indices – Options exposure row. For example, a long VIX future position can be expressed as long calls and long puts and then the delta adjusted exposure of the latter would be reported in OP. Alternatively, if the above treatment is not possible, the position could be captured as long or short index future exposure, depending on whether it is a bearish or bullish view on the SP500. For example, long VIX is a hedge against falling equities hence it would be captured as short exposure in OP.

Section 2.4 – For sector indices, for example Materials would we classify the exposure as Materials or Broad Market Indices, and how is this classified at grade 2 or 3.

It should be under the Materials sector and if the break down is known, use that to fill in lower grades. However, if the breakdown is not known then 2.4.1 should be filled in. This would be an example of where the lower grades will not sum to the higher grade but that is expected. Note that the same logic should apply to mapping the indices on the region table.

Section 2.6 – What does PIPE stand for?

PIPE stands for Private Investment in Public Equity. Please report Market value if possible.

Section 2.6 – How should private investments be classified?

Private exposure should be classified under the relevant bucket based on the company valuation.

Section 2.8 – Should CFDs be reported as Exchange Traded or Non Exchange Traded?

CFDs should be classified as non exchange traded in section 2.8. To explicitly show how much exposure is in CFDs, the grade 2 information in section 2.6 can be completed. You can also add a comment at the bottom of the report to provide further clarification.

Overall – Which US 10 year swap should be used in the conversion?

We suggest managers to use the DV01 of a theoretical contract on Bloomberg (USSW10 Currency).

Overall – Do we include Sovereign CDS in the Sovereign and Interest Rate Exposure section, or are these captured in the Credit section? If so, what exposure calculation would be used?

Sovereign CDS should be reported in the Sovereign and Interest Rare Exposure section. The exposure information should be the same as other CDS, ie. underlying bond equivalent , but the bonds’ exposure should be converted to 10 year US Swap equivalent.

GP 15 – How do we report Sovereign and Interest Rate exposure on a 10 year Swap Equivalent Basis?

The basic idea here is to calculate the interest rate exposure in terms of 10 year swaps by using DV01 as the relationship.

  • Step 1: Calculate present value of all the bonds in the portfolio
  • Step 2: for non USD bonds, convert to USD.
  • Step 3: Calculate DV01 for all the bonds in the portfolio and the reference 10 year Swap
  • Step 4: For each bond in the portfolio calculate the ratio of its DV01 to DV01 of 10 year swap (so bonds with DV01 lower than 10 year swap will have ratio less than 1 and those with higher DV01 will have a multiplier greater than 1)
  • Step 5: Multiply ratio in step 4 with present value in step 2 to arrive at the final exposures.

Section 3.4 – The Region sub-section appears in all sections; however only section 3 has a Euro entry within Europe/Advanced Economies . Why is this?

The Euro has been introduced under the Sovereign and Interest Rate Exposure section to enable reporting of exposure for Euro denominated investments (which wouldn’t be available for other asset classes).

Section 3.5 – Should caps and floors be placed in the category of Fixed Income Futures – Options (Delta Adjusted) or Cash Note – Options (Delta Adjusted)?

These should appear under Fixed Income Futures – Options (Delta Adjusted), as caps and floors are written on synthetics and not the physicals.

Section 3.6 – What rating should be assigned to Eurodollar futures and swaptions at grade 1?

The rating of the issuer should be used (and if not available the rating of the issuer’s region). We would expect all Eurodollar instruments to be captured as Investment Grade.

Section 3.6 – How should the credit rating for interest rate derivatives be determined?

The rating for the underlying country should be used. If there is no underlying country (e.g. Euribor) then the rating of the issuer should be used.

Can exposures be netted per clearing house rules?

Exposures on the Sovereign and Interest Rates tab may be netted per the clearing house rules. The objective of not allowing netting risk is to see what would happen if one of the counterparties defaults. In this case since the trades are collapsed there is no risk left on the table and therefore this should be reported on a netted basis.

Overall – Does the market value of a bond include accrued interest?

Market value of the bond should include accrued interest as that influences your market exposure.

Overall – For CDS, what is deliverable/representative bond? Could we report present values of fixed payments of CDS considering the survival curve or the notional amount adjusted by default probability or the notional amount?

Every CDS on a single entity has an underlying representative/deliverable bond, which should be used for valuing the CDS. If the identifying the underlying bond is difficult (i.e. for an index) then as per GP 17 you can use notional value. Open Protocol always looks at the underlying asset. If an increase in value of the underlying asset leads to a positive return then the manager is long, if it leads to a negative return then the manager is short. Therefore a long CDS position is effectively a short bond exposure.

Overall – What is the bond equivalent market value for bonds (e.g. coupon bond, callable bond, convertible bond, etc.)?

Bond equivalent simply means the market value of the bonds, so for example, for a corporate bond you would (Market value*Number of bonds)/(Total AUM).

Overall – Are credit securities of different maturities adjusted for one standardized maturity like with “Sovereign and Interest Rate” exposure?

No, the 10 year equivalent conversion is only valid for securities which do not carry any direct corporate credit risk. The 10 year equivalent should be used for all securities reported on the Sovereign and Interest Rate tab, and not for securities reported on the Credit (ex Convertible Bonds) tab.

Section 4.4 – How should credit exposure, for example MBS, ABS or munis, be classified?

At Grade 1, Structured Credit (MBS, ABS) would fall under “Financials”. At Grade 2, it should be classified as follows:

  • Mortgages: “Thrifts & Mortgage Finance”
  • Other Securitized Assets: “Diversified Financial Services” or “Consumer Finance” depending on type of financing
  • Munis: “Other”

Section 4.4 – If there is bank loan position with no available sector categorization, should we always place it in ‘conglomerates’, regardless of the size of the firm. When would a position fall into “Other”?

In this case fill in the “Other” section as the sector information is not available. Fill in conglomerates where you cannot classify into any single sector.

Section 4.4 – What sector should be used for CDS on indices?

CDS on non single sector indices will come under Broad Market Indices, single sector indices would come under the relevant sector.

Section 4.6 – How should all CDS & related products (CDS indexes/tranches/options) be classified?

The group depends on the nature of the underliers. These can be seen at grade II. Typically CDS indices fall under the Corporate Debt (Indices / Pooled products) category.

Section 4.6 – Where should quasi-sovereign debt be reported under ‘Credit Type’?

The classification depends on the underlying risk. For example if the debt is backed by revenues, it would fall under Corporate Credit, whereas if the debt is backed by taxation or guaranteed by the government, it would fall under Municipal Bonds.

Sections 4.8 & 4.10 – What is considered non-performing? Does this refer to the defaulted debt as well as delayed payment?

Non-Performing Debt would include defaulted as well as delayed payments, i.e. where cashflows are uncertain. It would not include derivatives like CDS.

Section 4.8 – How should CDX Index and single name CDS be categorized?

This should be captured as Performing, unless there has been a default event. In table 4.9 the rating of the CDX Index should either be investment Grade or Non Investment Grade depending on the index specifications, rather than ‘not rated’.

Section – What does Non Performing Debt- Average $ price (cents per $) mean?

The Open Protocol is asking for the weighted average discount at which non performing bonds, i.e. bonds where scheduled interest payments have not been made or where the scheduled interest payments are uncertain, are trading. If you hold a $100 bond trading at $40 then you report 40.

Section 4.10 – What is the average maturity based on – is it expected or legal?

The Open Protocol is looking for legal maturity, to ensure objective reporting. Expected maturity would make the reply subjective as different managers could have different expectations for the same security.

Overall – Should delta notional or market value be used for convertible bonds?

For convertible bonds please report market value as opposed to delta notional.

Overall – Showing our long convertible bonds on tab 5 and the short equity exposure on tab 2 makes our convert long exposure look extremely long and our equity exposure look shorter than it should. Can these two exposures be netted on the file under converts?

These should not be netted. If you would like to clarify, you could put a note in the Comments section on each tab, but investors are generally aware that these exposures would offset each other.

Section 5.6 – What is the difference between Average Portfolio Delta and the Delta required in the Sensitivities tab?

In the Average Portfolio Delta computation, delta is defined as a ratio (known as the hedge ratio) between the change in convertible bond price and the change in the underlying equity price, (Change in CB price due to small change in equity price)/(small change in equity price) To arrive at the average, the hedge ratio needs to be computed for each bond and then weighted using the bond market value. Average Portfolio Delta would typically lie in the region of 35% to 80%. This gives as an estimate of how much the portfolio would change in value due to a small shift in equity prices, ∆, by computing: (Average Portfolio Delta) x ∆ In the sensitivities tab, Convertible delta is defined as a percentage impact on portfolio value: (Change in value of all convertible bonds held by the fund due to a 1% equity increase)/AUM Note that this number would of course be affected by the exposure in convertibles. Now, to try and connect the two different deltas, suppose we only have one bond with delta (hedge ratio) 0.8. So for a small shift in the equity, ∆, price the bond will move by: 0.8 x ∆

Section 5.6.6 – What does “Coupon convertible” stand for?

This is an error; Coupon convertible is basically convertible bonds with coupons and therefore is a repetition as we already have Convertible bonds under 5.6.1.

Section 5.10 – How should Ascots be included in the 5.10.1 calculation?

For ASCOTS, since there are no bonds, you do not include them in this particular calculation.

Overall – Currency exposure reporting seems to be confusing. Could you explain it in more detail?

Hopefully the examples below will help clarify the process: In the examples below, it is assumed the base currency is not Euro. Example 1

  • Position: Long Philips in Euro and currency exposure is not hedged.
  • Treatment in Open Protocol:
  • In the Equity section:
  • Long 2.4.2 (Industrial)
  • Long 2.5.5 (Europe)
  • Long 2.6.1 (Equity (single stock))
  • Long 2.7.1 (Mega Cap)
  • Long 2.8.1 (Exchange Traded)
  • In Currency section
  • Short 6.4.1 (Base Currency)
  • Long 6.4.2 (Europe)

Example 2

  • Position: Long Philips in Euro and currency exposure hedged.
  • Treatment in Open Protocol
  • In the Equity section:
  • Long 2.4.2 (Industrial)
  • Long 2.5.5 (Europe)
  • Long 2.6.1 (Equity (single stock))
  • Long 2.7.1 (Mega Cap)
  • Long 2.8.1 (Exchange Traded)
  • In Currency section
  • Short 6.4.1 (Base Currency)
  • Long 6.4.2 (Europe)
  • Long 6.4.1 (Base Currency)
  • Short 6.4.2 (Europe)
  • Short 6.5.1 (Non Base Currency G10 Currency)
  • Short 6.6.1 (Non Exchange Traded)

The rationale for asking for information in this manner is that if the manager has active currency risk, it would be picked up by the long Euro in Example 1, however if the manager then hedges the currency risk, as seen Example 2, then it will show a net zero exposure to Euro and the base currency. An alternative approach which would lead to a similar output would be to calculate the base currency delta for all the positions (not just the currency positions) in the portfolio with respect to all the currencies. The output could be used to complete section 6.4.

Overall – How should currency hedges be reported?

Currency hedges should be reported as separate trades in the Currency section. Examples in the question above give further clarification. Currency hedges purely for the purpose of maintaining share classes in different currencies should not be reported under Open Protocol.

Overall – How should we treat non-base currency cash balances?

These should be included in 6.4 (and unencumbered cash on tab 1) but not 6.5 or 6.6.

Overall – Should accruals (dividend or coupon) be included as part of the currency exposure?

If a dividend or interest is paid and/or received by the manager then it should be included under cash.

Section 6.4 – What should be included and excluded from the Base Currency row in 6.4?

Row 11 captures the opposite leg of all non-base currency exposures whether these are direct (i.e. through FX instruments) or indirect (i.e. through non base currency denominated securities/derivatives). It should not however include base currency cash/securities/derivatives. To illustrate this with an example, suppose you hold the following and your base currency is USD:

    • a) Long EUR stock @10% of AUM
    • b) Short CAD stock @5% of AUM
    • c) Long USD stock @15% of AUM
    • d) USD Cash @20% of AUM.

c and d would not count towards the Base Currency row.

  • a) Would be captured as 10% long in the EUR row (row 14) and 10% short the Base Currency row
  • b) Would be captured as 5% short in the CAD row (r 37) and 5% long in the Base Currency row.

Then the totals in rows 7 and 3 should not include the Base Currency row as this does not pose currency risk (it is the base currency).

Section 6.5 – Should we report our base currency exposures in this section?

Only report one leg of the trade under section 6.5. The base currency leg should not be reported under section 6.5 as it is covered under 6.4.1.

Section 6.5 – What are the G10 Currencies?

The G10 currencies are listed in the manual. They are USD, Euro, GBP, CHF, JPY, CAD and SEK. So there are only 7 currencies.

Overall – For which strategies is VaR not relevant?

Generally strategies where credit or options play a dominant role would fall under this category, and therefore VaR could be left blank. In general for all strategies where VaR is relevant, it should be provided.

Section 8.3 – Should VaR be reported as a positive or negative number?

Overall portfolio VaR and VaR for each asset class, region and sector, should be reported as a positive number and it should be reported as a percentage of AUM and not a dollar value. For example, report as 3.4% and not $3,000,000. Diversification benefit should be entered as a negative number and should be the balancing figure that would equate the cumulative component VaR to the actual overall portfolio VaR.

Section 8.5.6 – How should VaR be calculated for currency exposure from non-fx instruments, for example foreign equities?

There are two alternative methods:

  • i. Include the impact of foreign currency movements under the appropriate asset class VaR, and exclude from the Currency VaR line. For example: Use USD returns to compute VaR for foreign equity, i.e. equity VaR incorporates the foreign currency price movements
  • ii. Exclude the impact of foreign currency movements from the asset class VaR, and include separately under Currency VaR For example: Use foreign currency returns to compute VaR for foreign equity positions, and compute separately the VaR from the foreign currency exposure.

Sections 8.5.7, 8.6.7 and 8.7.14 – How do you calculate the diversification benefit?

Diversification Benefit should be calculated as Portfolio VaR minus the sum of separate asset class VaRs.

Section 9.2 – For delta, should the change in the underlying asset be absolute or relative?

Clarification: cell B4 should read “9.8 Asset Classes” and not “10.8 Asset Classes”. All values should be entered as a percentage of AUM. For purpose of calculating Delta underlying asset value should be increased on a relative basis by 1%. So if the underlying is 50 then the increase value would be 50.5 and not 51.

Section 9.2 – Should gamma have the same interpretation as gamma is the derivative of delta?

Clarification: cell B4 should read “9.8 Asset Classes” and not “10.8 Asset Classes”. All values should be entered as a percentage of AUM. Gamma should be calculated with respect to the Delta and the calculation methodology should be consistent. Therefore for 3. Sovereign & Int Rate Exp, convexity should be on Interest rate while for 4 it should be on credit spread.

Sections 10.1.3 and 10.1.4 – For the Sovereign Interest Rate stress tests, which key rates should we be shocking for the Short Term +5% and Long Term +10% test?

Short Term refers to any security with maturity which is less than or equal to 1 year. Long term refers to any security with maturity which is more than 1 year.

Sections 10.1.7 and 10.1.8 – For Convertible Bonds +/- 10%, should we move the underlying equity or the convertible bond?

Over here only consider the increase/decrease in convertible bond prices and not the equity price. The impact of the equity movement on the converts should be reported under 10.1.1 and 10.1.2 and that of implied volatility under 10.1.13 and 10.1.14.

Section 10.2 – Am I supposed to only report for the scenarios that occurred since inception. IE the strategy started in 2008, should I run a simulation for scenarios prior to 2008?

The portfolio inception does not really matter as you would be stressing the current positions. Hence the impact could be reported for all scenarios. For all historical stress tests report the performance of the current exposures over the period of the test. For positions on securities that existed during the period of the test, then use their actual historical prices to calculate the impact. For positions on securities that did not exist at the time, use a predictive methodology.

Section 10.3 – For the worst rolling measures, should the negative or positive number be used to present loss for “Worst Rolling 5 day Cumulative Return”?

These numbers should be reported as a negative as there might be a scenario where the worst case is still positive.

Overall – We are concerned about completing the Counterparty section as we believe this information to be sensitive.

We have tried to keep Grade 1 of the Counterparty section as high level and general as possible. We have avoided asking for names of Counterparties and even at Grade 3 there is an option to report anonymous data. Our hope is that this could be completed without the fund having to divulge sensitive information. Part of the reason for including managers in the Working Group for Open Protocol was to ensure that the template would not require the revelation of overly sensitive information.

Overall – Should accrued fees be included in the Counterparty tab?

No, they should only be reflected in the AUM, which would result in a small difference between total Counterparty equity and AUM.

Overall – What should be included in the Available Liquidity & Required Margin at Grade 3?

Available Liquidity would be the amount of assets available via counterparties, which aren’t being used by the manager. Required Margin would be margin for all instruments which require margin, so includes futures, but other derivatives would be included as well.

Overall – How is Equity defined? How is Cash defined at grade 3?

Per the manual page 42, Equity is defined as LMV – abs(SMV) + Cash + OTE/MTM. Note that Available Liquidity is meant to capture access to additional financing that is not yet utilised and should not be included in Equity.

Overall – In “Required Margin”, should the initial margin be included or is it only margin call with respect to CFD which is an OTC derivative?

That would be the margin required to keep the position open at the time of reporting, so in most cases it would be the maintenance margin. If your margin account has more than required then the excess margin would go under the cash column instead of required margin.

Section 11.1.1 – Should we report ISDA exposures net of collateral?

If the collateral is held at the counterparty, then no. The value of the collateral should show up in the Equity number you provide. If the collateral is held at a third party institution (such as a tri-party account) then it should be reported in the appropriate part of the treasury assets section.

Section 11.1 – Futures Clearing: Party A is the sole entity that we use to clear across all Clearing Houses. Should we report our assets at the clearer level (Party A) or at the Clearing House Level (LCH Clearnet, Eurex Clearing) membership?

In the first part of the counterparty section 11.1 aggregate all the assets under one “Part A”. Only report one counterparty, not multiple. However when reporting geography of the counterparty (section 11. 5 to 11.7), then the exposures that are held in different regions would be broken out.

Section 11.1 – Should the total AUM be split into the different asset types in 11.1, 11.2, 11.3?

Yes, the total Equity column should total very close to the overall AUM.

Section 11.1 – Should we report repo trades in this section and if yes, where – is it “11.1 Trading Assets – Other”?

Overnight repos should go under Treasury Assets. Repos with longer maturities should be classed as Trading Assets. Which part of Trading Assets depends on who the financing broker is – if this counterparty doesn’t fit under any of the other headings, eg ISDA, it should go under Other.

Sections 11.1 to 11.3 – Where should money market funds be reported?

The classification depends on whether the assets are invested via a counterparty. If the fund is directly invested in a money market fund then this would be reported under Other – Self Custody. If, for example, excess cash at a prime broker is swept into a money market fund, this may be reported under Trading Assets – Prime Broker.

Section 11.3 – What is an “affiliated entity”?

An affiliated entity is a company which is a counterparty, but is affiliated in some way to the Investment Advisory firm.

Section 11.3 – How is ‘investments in other funds’ defined and how does this differ from 11.3.1?

These would be investments in non-affiliated funds for custody purposes.

Section 11.4 – Should a counterparty not be in the list, what should be included as the counterparty name?

Please let us know of the names and we will add them to the list. In the meantime you can use a holding name like Counterparty A and add a comment giving more details.

Section 11.4 – How should negative equity be treated when computing the top trading counterparties?

Sort balances from the largest positive to the largest negative. For example say you have 4 counterparties with the following equity in each (in millions): 100, 70, -10, 5. In top 3 you would report 100+70+5. The -10 would be included in top 5. The rationale behind this is that a negative balance is owed to the counterparty rather than owed to the fund; thus there is no risk of losing assets in case the counterparty shuts down. This treatment might lead to top 3 > top 5 .. top 10 > total AUM which is acceptable.

Section 11.5 and 11.6 – Trading assets by geography Treasury assets by geography. Why depending on the question are you requesting sometimes the “Number of Custodians / Counterparties” and sometimes the “Number of Financing Agreements”?

Risk under “treasury assets” is focused on who holds the assets and therefore we look for “Number of Custodians / Counterparties” while the risks under “trading assets” who is the counter party and therefore we look for “Number of Financing Agreements”.

Section 11.5-11.7 – How are the assets based on the Geography of where they are held classified?

They are based on Counterparty Location (based on the subsidiary).

Section 11.9.1 – What should be included under “What % of your aggregate net credit counterparty exposure is with unregulated entities?”

This question focuses purely on financing so only report securities that are financed by the unregulated entities (non financial institutions) in this section.

Section 11.9.2 – What should be included under “What % of your financing is uncollateralized?” When the fund buys a corporate loan which is generally fully paid and outside the scope of Prime Brokerage, should this be reported as uncollateralized.

Again this section is focused on financing and should contain information regarding any unsecured borrowings that the fund might have. Fully funded position would generally be reported in the “Treasury Assets or Other” part of the report depending on how the security is custodied and administered. If a fund establishes a position without borrowing, then the position should not be included in the financing section.