Bond lifecycling - Updating a holidayCalendar after evolving the Bond

Questions
1

Hi,

I was wondering how to manage the following scenario (corner case):

Say we have a FixedRate Bond v0 and the holidayCalendar associated to it says that today and tomorrow are working days.

Then, the lifecycler evolves the bond today, resulting in a new bond v1 and Effects. Suddenly something unexpected and extraordinary happens and today and tomorrow are declared as public holidays, so the calendarDataProvider updates the holidayCalendar. I understand that the Effects generated are no longer valid.

Any ideas about how to deal with this scenario?
Or maybe the scenario does not make any sense?

Thanks!
Jose

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2

What I’d expect to happen in this case:

  • Assumption is that no settlement of claimed effects has happened yet (it shouldn’t be possible, as the “disruption” event is preventing it)
  • The issuer archives the effect
  • The issuer archives any settlement batches and instructions from anyone that has already claimed the effect
  • The issuer archives v1 of the bond
  • The issuer lifecycles the v0 bond again the day after tomorrow, which - as the new holiday calendar is taken into account - would be the new coupon payment date (with a potentially different coupon amount due to day count fraction being different). A new effect is generated which then allows claiming as usual

So essentially, we remove the previous, invalid v0 → v1 upgrade route, and replace it with a new one.

If you’re in the situation where some investors have already gone through settlement of the “wrong” effect somehow, the situation is a bit tricker, as you’d likely have to book correction payments. For all other investors the flow above could still apply. Both paths have brought investors from v0 → v1, but with different payments, so some will need “manual” corrections.

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3

Thanks @georg for the detailed explanation.

I’m not sure if I understand the assumption. Why the “disruption” event prevent the settlement?
Maybe because, for example, the issuer won’t allocate/approve the instructions due to the event?

Thanks!
Jose

4

Yes, we assume here that some party critical for settlement is unavailable (eg. node of the settler is offline) and therefore settlement cannot happen. Therefore, the market authority declares a disruption event (such that missed payments are not considered a credit event).

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