Abstract FpML is the industry-standard protocol for complex financial products. It is based on XML (eXtensible Markup Language), the standard meta-language for describing data shared between applications. This chapter describes FpML and shows how it can be used as a language for expressing financial contracts. If financial contracts are expressed in text, they are very difficult to reason with computationally. Yet, computer-driven analysis of complex networks of contracts, and long chains of dependencies in financial events, is likely to be important for systemic risk assessment. This chapter suggests how FpML can be helpful in this regard.

Introduction

The ‘Financial products Markup Language’ (FpML) is an open standard based on XML and XML Schema technology which has been developed by the financial industry to help streamline the processing of ‘Over the Counter’ (OTC) derivative transactions. These transactions are a significant component of today's capital markets and a major source of information technology investment for the firms involved since they carry high monetary value and risk.

Derivatives products

A derivative is a contract which takes a property of another financial instrument, for example an interest rate, a foreign exchange rate or a stock price, and uses it to define a series of actual or potential payouts that will occur over the life of the contract.