Practice Guidelines For Trading GSE European Callable Securities; Updated to Reflect Technical Improvements and Current Market Conventions

The 2004 Guidelines contain the following improvements to Appendix A, B, and C:

Appendix A:

a. Par and spot yields with maturities of a year or less are assumed to be semiannually compounded bond equivalent yields.

b. The Option Price formula has been revised to conform more closely to current market practice in the swaption markets.

c. The BMA ECS Formula has refined to allow transactions that do not settle T+1.

Appendix B:

a. The formula for the Base Volatility has been revised to conform more closely to current market practice in the swaption markets.

Appendix C:

a. More details are provided about the Designated Securities used in the Designated Yield curve and when the Designated Security for a Designated Tenor rolls to a new Designated Security.

b. The short end of the Designated Yield Curve can be constructed using either Yields of Designated Bills or Eurodollar Futures Prices.

c. The Guidelines recommend that Spread Adjustments for Yields of Designated Securities be computed live, instead of only at end-of-day. Spread Adjustments for Live LIBOR Rates are provided by the Issuer prior to the start of each trading day.

The Task Force is comprised of a broad array of industry professionals, including buy-side firms, issuers, dealers, inter-dealer brokers, vendors and others. The Task Force is committed to improving the overall functioning of the primary and secondary market for callable GSE securities.