Banking Back-Office Processing Forward Rate Agreements and Interest Rate Swaps Administration Guide
Copyright 2001, Unisys Corporation. All rights reserved Unisys is a trademark of Unisys Corporation Release 9.000
June 2004 Printed in the UK 3937 0168-940
The names, places, and/or events used in this publication are not intended to correspond to any individual, group, or association existing, living or otherwise. Any similarity or likeness of the names, places and/or events with the names of any individual, living or otherwise, or that of any group or association is purely coincidental and unintentional. NO WARRANTIES OF ANY NATURE ARE EXTENDED BY THIS DOCUMENT. Any product and related material disclosed herein are only furnished pursuant and subject to the terms and conditions of a duly executed Program Product License or Agreement to purchase or lease equipment. The only warranties made by Unisys, if any, with respect to the products described in this document are set forth in such License or Agreement. Unisys cannot accept any financial or other responsibility that may be the result of your use of the information in this document or software material, including direct, indirect, special or consequential damages. You should be very careful to ensure that the use of this information and/or software material complies with the laws, rules, and regulations of the jurisdictions with respect to which it is used. The information contained herein is subject to change without notice. Revisions may be issued to advise of such changes and/or additions. All registered trademarks are acknowledged. Correspondence regarding this publication should be forwarded to Unisys Corporation, Bakers Court, Bakers Road, Uxbridge, Middlesex, UB8 1RG, United Kingdom.
About This Guide This guide describes the Forward Rate Agreement and Interest Rate Swap functions offered by the Unisys e-@ction Banking Back-Office Processing product. The information contained in this guide is also available as online help.
Scope This guide provides background information associated with Forward Rate Agreements (FRAs) and Swaps, and describes the data entry screens associated with each of these off balance sheet transactions. Examples of the screens are shown and instructions on their use are given.
Audience This guide is intended for personnel preparing information for, and entering data associated with, Forward Rate Agreements and Swaps.
Prerequisites Any person using this guide should understand the banking terminology associated with FRAs and Swaps. Users of this guide should have read the Starter’s Guide that provides instruction in the use of the screens.
How To Use This Guide This guide should be used as a reference tool when preparing information for data entry. Use the guide in conjunction with a copy of your Guide to Setting Up and the Core Functions and Inquiries Guide. Refer to the On-Demand Reports Guide for instructions on how to select and run reports.
About Urbis The usage of the product name Urbis is due to be phased out as part of the Unisys re-branding exercise. The replacement will be the generic term "Banking Back-Office Processing" solution or "Banking Back-Office" for short. To provide continuity with existing product documentation, the name Urbis is used within this document, but is synonymous with Banking Back-Office Processing.
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About This Guide
Organisation This guide consists of four sections and one appendix. Section 1. Forward Rate Agreements and Swaps Transactions This section provides a background to the Forward Rate Agreement and Swaps transactions processed by the system. Section 2. Forward Rate Agreement Contract Screens This section describes the data entry and inquiry screens associated with FRA contracts. A short description covering data entry, is supplied with each screen. The description is accompanied by an illustration of the screen. Section 3. Swap Contract Screens This section describes the data entry and inquiry screens associated with Swaps contracts. A short description covering data entry is supplied with each screen. The description is accompanied by an illustration of the screen. Section 4. Definition of Field Names This section provides definitions of the field names on Forward Rate Agreement and Swaps screens. The field names are listed alphabetically and in full, regardless of whether or not they are abbreviated on screens. Details of valid entries are given as part of the definition. Appendix A. Calculations This appendix provides the formulae used by the system for calculations associated with the processing of FRA and Swaps transactions.
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Related Product Information Product Overview (3937 0234) This document describes the capabilities and benefits of the modules of the Banking Back-Office Processing system. It consists of an overview of the system, and a description of each of the modules and interfaces available. It is intended for use by senior management. Operations Reference Card (3937 0986) This document is a single card that provides a list of screen names and their mnemonics. The list is organised according to the menu structure of the Graphical User Interface. The card also describes how to log on and off the system, enter data, make inquiries and print reports. These instructions are relevant to the Graphical User Interface only. Starter’s Guide (3937 0531) This guide describes how to enter data and make online inquiries. It also includes a description and example of commonly used data entry and inquiry screens. This guide is intended for all new and inexperienced personnel who need to enter data and make inquiries. Guide to Setting Up (3937 0945) This guide describes how to set up parameters that govern the operating environment of the system. It describes the procedures for setting up the business and operational tables, and setting up usercodes and access security. The procedures for setting up blueprint parameters are provided with a description of each parameter. It should be used by all persons involved in installation, implementation and maintenance of these system parameters. Core Functions and Inquiries Guide (3937 0952) This guide describes the kernel functions that are used regularly for the maintenance of information utilised by a number of modules. It describes the procedures for setting up and maintaining data, such as market rates and dealers. It also describes inquiries that are common to all contracts. This guide is relevant to all users. Clients and Accounts Administration Guide (3937 0960) This guide describes the data entry and inquiry screens associated with setting up and maintaining client details. This guide also describes the set up and maintenance of client accounts, including automatic payments (standing orders). An appendix covers the calculations used by client accounts. This should be used by personnel preparing information for data entry.
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About This Guide
Settlements Guide (3937 0366) This guide describes the processes associated with settlements and customer transfers. It details how to administer the settlement queues. This guide also describes how to use the Straight Through Processing and Netting functions. It should be used by personnel managing the settlements department. General Ledger Administration Guide (3937 0457) This guide describes the data entry screens associated with General Ledger transactions. This should be used by personnel preparing information for data entry. Risk Management Administration Guide (3937 0358) This guide describes the data entry screens associated with setting up limits and exposures. The guide also describes the screens associated with portfolios. The amounts that represent book and market values are listed by module in an appendix. This guide is intended for personnel preparing information for data entry and those concerned with controlling risk. Commercial Loans Administration Guide (3937 0150) This guide describes the data entry screens associated with Commercial Loan transactions. This includes entry of commitments, various types of drawdown and contract schedules. An appendix gives the calculations used in the processing of Commercial Loan transactions. This guide is intended for personnel preparing information for data entry. Foreign Exchange and Money Market Administration Guide (3937 0135) This guide describes the data entry screens associated with Foreign Exchange and Money Market transactions. An appendix gives the calculations used in the processing of Foreign Exchange and Money Market transactions. This guide is intended for personnel preparing information for data entry. Futures Administration Guide (3937 0176) This guide describes the data entry screens associated with Futures transactions and some related inquiries. An appendix gives the calculations used in the processing of Futures transactions. This guide is intended for personnel preparing information for data entry. Options Administration Guide (3937 0184) This guide describes the data entry screens associated with Options transactions. An appendix gives the calculations used in the processing of Options transactions. This guide is intended for personnel preparing information for data entry.
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About This Guide
Securities Administration Guide (3937 0341) This guide describes the data entry screens associated with Interest Bearing Securities, Discounted Securities and Repurchase Agreements transactions and some related inquiries. An appendix gives the calculations used in the processing of Securities transactions. This guide is intended for personnel preparing information for data entry. Trade Finance Administration Guide (3937 0119) This guide describes the data entry screens used by the Trade Finance department. This guide is intended for personnel preparing information for data entry. Generalised Fees Administration Guide (3937 0374) This guide describes the data entry screens associated with Fee transactions and supporting business table. This guide is intended for personnel preparing information for data entry. Core On-Demand Reports (3937 0853) This guide describes how to run online reports that are provided in the core of the system and which will be relevant to most implementations of the system. Any options available when producing a report are detailed as well as any specific calculations. On-Demand Reports Guide (3937 0937) This guide describes on-demand reports in alphabetical order. Any options available when producing a report are detailed as well as any specific calculations. Note: core reports are described in the Core On-Demand Reports Guide; retail reports are described in the Retail OnDemand Reports Guide. Overnight Reports (3937 0861) This guide describes how to run offline reports. This includes an overview of overnight processing. Instructions on how to initiate reports are given. This guide should be used by all personnel who need to understand the reports and the overnight process. Data Dictionary (3937 0226) This document provides details of data fields within every dataset on your banking systems database. This document should be used by staff preparing the accounting models and writing SQL reports to inquire on the database. Guide to Interfaces with External Systems (3937 0911) This guide describes the running of all the interfaces between your Banking Back-Office system and external systems. This guide is intended for personnel involved in setting up and running external interfaces.
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Order Transport Management System (3937 1018) This guide describes how to enter stock exchange securities contracts using the Order Transport and Management System. The screens in this guide allow users to add, maintain and inquire on deals, convert deals into stock exchange securities contracts, and liaise with brokers to complete settlement of a deal. This guide is intended for personnel preparing information for data entry. Portfolio Management (3937 1026) This guide describes how to create portfolios for the clients and agents who will be trading stock exchange securities with your institution. A large array of inquiry screens for managing these portfolios is also described. This guide is intended for personnel preparing information for data entry. Stock Exchange and Securities Management (3937 1000) This guide describes how to set up and maintain the securities master file, allowing you to record details of stock exchange securities. This guide also describes how to create, maintain and inquire on contracts based on stock exchange securities, including the necessary static data. Loan Administration System Guide (3937 0994) This guide describes the data entry screens associated with Syndicated Loans. It includes entry of facilities, and contracts such as drawdowns, guarantees and acceptances and their schedules. The screens in this guide allow users to enter data using workflows. This guide is intended for personnel preparing information for data entry. Static Database Reports Guide (3937 0085) This guide provides examples of the master data information used in the establishment and production of the static database. It should be used by persons who are familiarising themselves with the systems functionality. Static Database Transaction Input Guide (3937 0093) This guide, in conjunction with the static database, enables users to evaluate the functions and features of many of the modules. It should be used by persons who are familiarising themselves with the systems functionality.
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Contents About This Guide ......................................................................................... Section 1
Forward Rate Agreements and Swaps Transactions FRA and Swap Contract Types ............................................... All Contracts .............................................................. Payments .................................................................. Introduction to Forward Rate Agreements ................ Introduction to Swaps ............................................... Mark to Market Valuation ......................................................... Schedule Events ....................................................................... Forward Rate Agreement Schedule Events ............. Swap Schedule Events ............................................. Confirmations and Payment Advices ..................................... Nostro and Agent Combinations ............................................ Euro Related Information ........................................................
Section 2
1–1 1–1 1–1 1–2 1–4 1–7 1–8 1–8 1–8 1–9 1–9 1–12
Forward Rate Agreement Contract Screens Introduction to FRAs ............................................................... Screen Flow .............................................................................. Prerequisites ............................................................................. FRA Defaults Maintenance (FRDFM) ...................................... FRA Outline Deal Add (FRDEA) .............................................. FRA Contract Screens ............................................................. FRA Contract - Add (FRASA) ................................... FRA Contract - Change (FRASC) ............................ FRA Contract - Inquire/Delete (FRASI) .................... FRA Contract Diary Narratives ............................................... FRA Settlement Rate Fix (FRAFA) .......................................... Forward Rate Agreement Settlement Rate Authorise (FRASD) ................................................................................ FRA Holdings Summary (FRAHI) ............................................ Forward Rate Agreement Contract Valuation (FRAVI) .........
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2–1 2–2 2–3 2–4 2–5 2–6 2–6 2–10 2–11 2–12 2–13 2–15 2–17 2–18
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Contents
Section 3
Swap Contract Screens Introduction to Swaps Screens .............................................. Creating a Swap Contract ....................................................... Managing a Swap Contract .................................................... Swaps Prerequisites ............................................................... Swaps Defaults (SWDFM) ....................................................... Swaps Outline Deal Add (SWDEA) ........................................ Swaps General Details Initial Add (SWGEL) ......................... Swaps Loan Side Add (SWLNA) ............................................ Swaps Deposit Side Add (SWDPA) ....................................... Swaps General Details - Add (SWGEA) ................................ Swaps General Details - Change (SWGEC) .......................... Swaps General Details - Inquire/Delete (SWGEI) ................. Swaps Loan Side - Inquire (SWLNI) ....................................... Swaps Deposit Side - Inquire (SWDPI) .................................. Swaps Contract Diary Narratives ........................................... Swaps Close Out (SWCOM) ................................................... Swaps Compensating Payments (SWCPM) .......................... Swaps Event Inquiry (SWEVI) ................................................ Swaps Schedule Maintenance (SWSCM) .............................. Swaps Schedule Inquiry (SWSCI) .......................................... Swaps Settlement Details (SWSTM) ...................................... Swap Contract Valuation (SWPVI) .........................................
Section 4
3–1 3–2 3–3 3–4 3–5 3–6 3–8 3–11 3–13 3–15 3–17 3–19 3–21 3–22 3–23 3–24 3–27 3–29 3–30 3–32 3–34 3–35
Definition of Field Names Introduction ..............................................................................
4–1
Appendix A Calculations Introduction .............................................................................. Forward Rate Agreement - Estimated Settlement ................ Forward Rate Agreement - Settlement Sum ......................... Accrual Methods ...................................................... Swap - Valuation ...................................................................... Estimation of Floating Interest Cash Flows .............. Discounting of Forward-Dated Cash Flows .............
A–1 A–1 A–2 A–3 A–4 A–4 A–5
Index .................................................................................................................. Index–1
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Figures 1–1
Example of a Swap Schedule .................................................................
1–4
2–1 2–2 2–3 2–4 2–5 2–6 2–7 2–8 2–9
FRA Data Entry Screens ......................................................................... FRA Defaults Maintenance screen ......................................................... FRA Outline Deal Add screen ................................................................. Forward Rate Agreement Contract - Add screen ................................... Forward Rate Agreement Contract - Change screen ............................. FRA Settlement Rate Fix screen ............................................................. FRA Settlement Rate Authorise screen .................................................. FRA Holdings Summary screen .............................................................. FRA Contract Valuation screen ...............................................................
2–2 2–4 2–5 2–9 2–11 2–14 2–16 2–17 2–18
3–1 3–2 3–3 3–4 3–5 3–6 3–7 3–8 3–9 3–10 3–11 3–12 3–13 3–14 3–15 3–16 3–17 3–18 3–19
Swaps Contract Entry Screens ............................................................... Flow of Swaps Close Out, Event and Inquiry Screens ........................... Swaps Defaults screen ........................................................................... Swaps Outline Deal Add screen ............................................................. Swaps General Details Initial Add ........................................................... Swaps Loan Side Add ............................................................................. Swaps Deposit Side Add ......................................................................... Swaps General Details - Add .................................................................. Swaps General Details - Change ............................................................ Swaps General Details - Inquire/Delete .................................................. Swaps Loan Side - Inquire ...................................................................... Swaps Deposit Side - Inquire .................................................................. Swaps Close Out screen ......................................................................... Swaps Compensating Payments screen ................................................ Swaps Event Inquiry screen .................................................................... Swaps Schedule Maintenance screen .................................................... Swaps Schedule Inquiry screen .............................................................. Swaps Settlement Details screen ........................................................... Swap Contract Valuation screen .............................................................
3–2 3–3 3–5 3–7 3–10 3–12 3–14 3–16 3–18 3–20 3–21 3–22 3–26 3–28 3–29 3–31 3–33 3–34 3–35
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Figures
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Tables 1–1
Entries in Nostro and Agent Fields ..........................................................
1–10
4–1
Definition of Field Names for Data Entry Screens ..................................
4–1
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Section 1 Forward Rate Agreements and Swaps Transactions FRA and Swap Contract Types The FRAs and Interest Rate Swaps modules process the following types of contract: •
Forward Rate Agreements (FRAs)
•
Interest Rate Swaps
•
Currency Swaps
These transactions are a means of avoiding the effect of adverse movements in the money market; they are not reflected on the bank’s balance sheet.
All Contracts Each contract is linked to a General Ledger Master, accounting centre and portfolio. Defaults can be set up for all three. The General Ledger Master determines the ledger category for the contract, see the General Ledger Administration Guide for further information on General Ledger Masters. Back-valued but not matured contracts can be entered. These contracts can be back-valued to the earliest history retention date as set up at installation, except that Swaps can only be back-valued to the first interest settlement date. For each contract, you can enter narrative events, which are used for reporting. Each contract can have any number of associated narrative events, provided that each event has a different value date. For contracts arranged through a broker, the brokerage fee can be either entered or derived using the calculation methods set up in the Brokerage tables.
Payments Payments made as a result of FRAs and Swaps contracts will be made automatically through either a Nostro or a Settlement account. However, where the payment would have been effected through a nostro that is used to compensate for another contract, no payment will be made as the amount is used as an offset to the other contract.
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Introduction to Forward Rate Agreements An FRA is a contract between two parties who are seeking to protect themselves against interest rate fluctuations. The buyer of an FRA is safeguarding against future rises in interest rates whilst the seller is seeking protection against a future fall in interest rates. The agreement, which is for a fixed term, stipulates that at an agreed date in the future the two parties will settle the difference between an agreed interest rate and the actual interest rate, as applied to the principal of the contract for the designated contract period. The principal amount of an FRA is always only a notional amount, and is never paid. The system administers this process by enabling you to enter the basic contract details (using the agreed rate) at the time the deal is struck (Start Date) and, subsequently, enabling you to fix, then authorise, the actual rate when the Fixing Date has been reached. Two methods of measuring FRA profit/loss accrual are catered for, depending on whether the transaction is hedged or traded.
Interest Accrual on FRAs FRAs are generally taken out as a hedge against interest exposures. As income from loans, deposits and other interest bearing instruments is usually accrued over the life of a transaction, then profit and loss from FRAs can, similarly, be accrued over the notional contract period, from the settlement date to maturity. Where FRAs are taken out as traded transactions, they may be ‘marked to market’ during the period remaining until settlement (only if the accounting model has been set up accordingly). This means that estimated settlement amounts are assessed, and are made available for posting daily, on the basis of the difference between the market interest rate and the contract rate. Thus final settlement comprises the realisation of the amount taken to the profit and loss account by the mark to market process. Interest Accrual on FRAs can be calculated using either the regressive method or the linear method of accrual. These methods determine the way the settlement amount should be amortised between settlement and maturity. For details on the calculations involved, see 'Calculations' in Appendix A.
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FRA Exposures The system uses market interest rates for all FRAs on a daily basis, enabling on-line updates to be made to both the estimated settlement amounts and the exposure calculations, as follows: •
All outgoings are calculated as negative, reducing exposure, and all incoming cashflow is positive, increasing the exposure. Exposures for all events are then aggregated to form the net final exposure, which is reported in the base currency.
•
The exposure percentage is based on the details set up using the Exposure Percentages (EXPRA) table for FRA counterparty contracts, the ‘Forward Days’ being the number of days between the as-of date and Settlement Date. The associated ‘Exposure Percentage’ is then applied to the notional principal sum and the result is added to the settlement amount, to obtain the exposure amount.
•
Following overnight processing the system applies revalued rates to all FRAs that have not been fixed, producing an estimated settlement amount. This amount is used as part of the exposure calculation for all FRAs and is made available for posting for Traded FRAs. Actual exposures can be calculated once the rate has been fixed and the exposure reverts to ‘zero’ once the settlement date has passed.
•
Although the system caters for delays in authorisation, it should be noted that exposures revert to ‘zero’ on the day following the settlement date, even if settlement has not taken place.
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Forward Rate Agreements and Swaps Transactions
Introduction to Swaps A Swap is a mechanism whereby different interest obligations may be exchanged between two parties. In the system these obligations are represented by a Loan side, whose interest is received by the bank, and a Deposit side, whose interest is paid to the counterparty. Swaps are used for many purposes. For example, Swaps can be used in a similar manner to FRAs so that the parties can protect themselves against fluctuations in interest rates. However, the terms of Swaps deals are much more complicated than FRAs. The Interest Rate Swaps module can handle: •
Interest Rate Swaps. For these Swaps, the loan and deposit sides are in the same currency and the principals for both are notional.
•
Currency Swaps. For these Swaps, the loan and deposit sides are in different currencies and the principal amounts involved on each side can be exchanged. Principal exchange can take place either at the deal start date, the maturity date or on both dates.
Note:
Foreign Exchange Swaps are part of the Foreign Exchange module and are described in the Foreign Exchange and Money Market Administration Guide.
The loan side and deposit side of a Swap must have the same start date and maturity date. However, the types of interest can be different for each side: •
Fixed rate with floating rate
•
Floating rate with floating rate
•
Fixed rate with fixed rate
The interest schedule for each side of the Swap is defined independently. Thus one side can have interest calculated at a fixed rate and paid annually, while the other side can have interest calculated on a “floating” rate (one which is determined by the market rates prevailing at the start of each interest period) and paid semi-annually. If interest rates rise over the life of the Swap, then the deposit side payments will increase, but the loan side receipts will not change.
Deposit Side - Increasing Payments
6 Months
12 Months Loan Side - Fixed Payments
Figure 1–1. Example of a Swap Schedule
1–4
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Swaps can also be used to alter the interest characteristics of a security, such as a bond, to make it more attractive to investors. A bank might for example, issue a bond that pays 7% annual fixed interest in Deutschmarks, and simultaneously enter into a Swap to convert this interest into semiannual interest floating at LIBOR plus 0.5%. Such Swaps are referred to as Asset-backed Swaps. To assist in this process, the system allows the user to define interest schedules in ways which conform to those often used in bonds and other securities, for example, a zero-coupon schedule.
Traded and Hedged Swaps The following types of Swaps are processed: Hedged - where a contract has been entered into which affects the bank’s market position in one direction, it may wish to take out another contract in the other direction; also where the two parties each have loan obligations to third parties and wish to exchange these obligations with each other. Traded - where two parties exchange interest conditions, which are not related to obligations with third parties, on a speculative basis. Swaps accrue interest on a daily basis, as part of the end-of-day processing. Where a Swap is hedged, interest is accrued and daily accruals on each side are automatically made available for posting. Traded Swaps are valued (marked to market) and adjusted daily, and the updated values are made available for posting.
Schedules for Swaps The system uses the first settlement date of the Swap and the payment frequencies entered to generate schedules of payment dates for the loan and deposit sides of the Swap, and to divide the contract period into calculation periods for the purpose of calculating interest. These schedules can then be manually updated as required. Where payments in the same currency are scheduled for the same day, they are netted; payments for the last period, for both sides, will be effected on the same termination date. During the term of a Swap, the payment dates are also used as the fixing dates for the purpose of determining the floating rate for the current period. (Although you can fix the interest rate for the next period. Fixing can only take place during the fixing period defined for the contract.) Rates for the current period can be amended at any time up to the moment when payments are generated (when interest accrual and exposures are adjusted, as required). All schedule events are validated by the system as business days. An error message is generated whenever you enter a date that falls on a weekend, or a public holiday, for any one of the countries associated with the Client, the Loan Currency or the Deposit Currency. Selecting “Holiday Override”, however, enables the entry of a non-business day in any of the date fields. The “Holiday Method” is used to identify the method that the system uses to determine the settlement event date, if the system generated event date falls on a holiday. A Swap that has passed its effective date can be entered; however a Swap that has passed its first principal payment date cannot be entered. Also, where the “Repayment Frequency” field is used to project the first payment date after the start date, then it is not possible to manually enter a first payment date that is later than the projected date.
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Forward Rate Agreements and Swaps Transactions
Terminating Swaps A Swap can be closed out at any time between the current date and the contract termination date. Swaps may be partially closed out by reducing the principal on both sides. Both partial and full close-outs may give rise to a compensation payment to/from the counterparty.
Exposure for Swaps Exposure is calculated on the basis of the cashflow (interest payments) and the dates of events, using the percentages set up on the Exposure Percentages Add (EXPRA) business table for the contract giving rise to the cashflow. All outgoings are calculated as negative, reducing exposure, and all incoming cashflow is positive, increasing the exposure. Exposures for all events are then aggregated to form the net final exposure, which is reported in the base currency.
Cost of Funds Cost of Funds is a facility that allows you to calculate and report on the profit and loss arising due to all business activities carried out and all costs arising due to the funding of assets and liabilities. See "Cost of Funds " in the Guide to Setting Up. This calculation is reported on an accounting centre basis and reconciles with the monthly profit and loss statement of the institution. The INCOMESTMT - Income Statement report, see the Core On-Demand Reports Guide, groups accounting centres by area of business. Cost of Funds can be accrued using either one of the following two methods: Add-on Margin: In Interest Rate Swaps, the cost of funds is added to the contract via the add-on rate that is applied for both loan and deposit legs of a swap contract. This rate is used for accrual on the principal (on which the interest rate accrues) and the result is made available for posting via the DY (Daily Accrual) and PD (Period End Accrual) events. Accrual of add-on does not effect the existing accrual of interest, premium or discount for the swap. Funding Account: The fundable balances derived from all transactions are taken to funding accounts from where the cost of funds is accrued. Funding accounts are available for posting through the accounting models. The profit or loss associated with a particular product will be ascertained by the relevant funding account set up for the product. See "Cost of Funds " in the Guide to Setting Up for details on setting up of funding accounts.
1–6
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Mark to Market Valuation The system enables Forward Rate Agreement and Swap contracts to be revalued on the basis of the mark to market process, using current market interest rates, provided that: •
A valid “Rate Identifier” has been set up on the Rate Table Definition (RTDEF) table and rates have been entered for it on the Market Rates (RATEA) table
•
The contract is traded (Trade Type ‘Traded’). In the case of inter-accounting centre FRAs, at least one side of the deal must be traded
Valuation takes place during overnight processing using the applicable rates, as they become effective, for each contract. Existing contracts are revalued, and new contracts are valued, each night and the amounts are made available for posting to unrealised profit/loss accounts. Where a rate has not been set up for a specific day, the system automatically interpolates the rate, by calculating it from the rates for the nearest previous and nearest later dates. On maturity, deletion or the full close-out of a contract, mark to market revaluation ceases and an adjustment is made to the unrealised profit/loss accounts.
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Forward Rate Agreements and Swaps Transactions
Schedule Events When a contract is entered, diary events for input, start and maturity of the contract are automatically generated. Interest settlement events are also scheduled if the settlement frequency is specified for the Swap contracts. Interest settlement takes place on contract maturity if the settlement frequency is not specified. The chronological ordering of the diary events constitutes the contract schedule. If the contract is amended or deleted, associated diary events are also amended or deleted. You can also enter other schedule events depending on the type of contract. See 'Accounting Events' in the Guide to Setting Up for details of the events available with FRAs and Swaps.
Forward Rate Agreement Schedule Events For Forward Rate Agreements you can: •
Fix the FRA Settlement Rate
Swap Schedule Events For Swaps you can: •
Add or change a principal repayment amount. This generates a rate principal change (RPL or RPD) event.
•
Amend a Swap interest settlement rate. This amends the existing interest settlement (ISL or ISD) events.
•
Add or change a Swap interest settlement date. This adds a new interest settlement (ISL or ISD) event or amends an existing interest settlement event.
•
Enter or change a partial or full close-out for a Swap. This generates a rollover (RLL or RLD) event.
•
Enter or change a compensation payment/receipt associated with a Swap (partial) close-out. This generates a compensating payment (CG) event.
Note:
1–8
When a compensation payment is being entered, this must be done prior to a close-out. This is the reverse of the normal procedure, and must be done to ensure that message MT365 is generated correctly.
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Confirmations and Payment Advices Input confirmations are printed (or S.W.I.F.T. messages are generated) when a contract is entered. Confirmations and payment advices for subsequent events are produced a number of days in advance of the event (for each country). These subsequent confirmations are produced during the overnight processing. For each contract entered, you can specify the priority of the S.W.I.F.T. messages generated for that contract by making an entry in the ‘Message Priority’ field. If you leave this field blank, the default value selected at installation is used. If payments are being compensated by a second contract and the compensatory payments are being made through a Nostro, the netting can be utilised so that no actual payment is made.
Nostro and Agent Combinations The system automatically identifies the accounts between which payments are made, on the basis of the nostros and agents that have been set up for each particular contract giving rise to the notice or payment. Default nostro and agents may be allocated according to rules set up on the Nostro Settlement Defaults (NSDFM) and the Agent Settlement Defaults (AGDFM) tables. A nostro account is defined as “our account with another bank” (the correspondent). In order to correctly reflect any money held with another bank, the system maintains a copy of the nostro account in its own books. Nostro accounts are set up using the Nostro Details (NSTRO) table. They are identified by a nostro number and currency or a nostro name and currency. An agent is defined as a “third party responsible for paying or receiving funds on a contract”. Agents are set up using the Agent Details (AGNTM) table. They are identified by an agent nickname. For details of how to set up nostros and agents see the Settlements Guide. Nostros and Agents are specified when entering contracts under the FRAs and Interest Rate Swaps modules. In order that instructions for the transfer of funds are correctly generated (using either the S.W.I.F.T. network, if applicable, or printed messages), the system ensures that only valid combinations of nostros and agents can be specified for each contract. Table 1-1 lists and describes valid combinations of entries in the nostro and agent fields. Note the following: •
A nostro can be identified by either its name or number.
•
The use of an Agent does not necessarily indicate that an account relationship exists between the bank and the agent. For example settlement messages may be sent by the bank to its pay nostro, with information for onward transmission to the client's agent. Similarly, settlement messages may be received from the client's agent by the bank's receive nostro, with information for onward transmission to the bank.
•
For FRA’s, standard settlement instructions can be entered to use the default settings for the nostro and agent for the contract. These instructions can be applied to the contract by entering
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Forward Rate Agreements and Swaps Transactions
‘SSI’ in the required Receive/Pay Nostro/Agent fields. Following acceptance of the contract, whenever it is displayed whether for maintenance or inquiry, the entered field will display ‘SSI’ not the agent name/number or nostro/number. ‘SSI’ cannot be entered for an agent or nostro if the default has not been defined. When SSI has been entered for an agent or nostro, the default agent and nostro details can be displayed by double clicking on the ‘SSI’ entry. This facility is only available when you are using the Graphic User Interface (GUI). For fuller details, see the Core Functions and Inquiries Guide. SSI cannot be used for Interest Rate Swaps. Note:
The default settings for both the agent and the nostro can be entered using other methods. Entering the number or name for the default agent or nostro will display the entered detail for the agent or nostro. Leaving the agent or nostro blank will result in the system applying the default, if available, or ‘T’ (To be advised). Table 1–1. Entries in Nostro and Agent Fields
1–10
Nostro
Agent
Number/Name
Name
Number/Name
Number/Name
Description Your correspondent and the client’s agent are different. The agent’s nickname is entered in the Agent field. The client’s agent is one of your correspondents: 1.
The nostro number/name in the Nostro field can be different from the nostro number/name in the Agent field.
2.
If your correspondent and the client’s agent are the same, the nostro number/name entered in the Nostro field can refer to the same nostro as that entered in the Agent field.
Number/Name
S
Your correspondent and the client’s agent are the same. (This is equivalent to 2. above).
Number/Name
U
There is no agent.
Number/Name
T
Your correspondent is known; the client’s agent is to be advised. If a S.W.I.F.T. message would normally have been sent, this combination will result in it not being sent - printed messages will be generated instead.
V
Vostro A/C No.
Posting is to be made using a vostro. The Agent field identifies the account to be used.
D
Name
Posting is to be made directly from/to your bank to/from the client’s agent. You can enter either an agent’s nickname or a nostro number/name in the agent field.
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Nostro
Agent
Description
D
U
There is no agent. Posting is to be made directly from your bank to the error suspense account. When the receive account is known, use the batch postings facility to effect the transfer.
D
T
Posting is to be made directly from your bank to a client’s agent who is to be advised. If a S.W.I.F.T. message would normally have been sent, this combination will result in it not being sent - printed messages will be generated instead.
T
Name
Your correspondent is to be advised; the client’s agent is known. You can enter a nostro number/name in the Agent field. This combination will result in S.W.I.F.T. messages not being sent - printed messages will be generated instead.
T
U
Your correspondent is to be advised and the client doesn’t have an agent. This combination will result in S.W.I.F.T. messages not being sent - printed messages will be generated instead.
T
T
Both your correspondent and the client’s agent are to be advised. The settlement message will be sent directly to the nostro, when entered. This nostro/agent combination should be used with care when payment takes place at the start event. This combination will result in S.W.I.F.T. messages not being sent - printed messages will be generated instead.
C
T
No payment is to be made, as the payment amount is to be compensated by a second contract.
SSI
SSI
The contract is to use the default nostro and agent defined using the Agent Settlement Defaults (AGDFM) screen and the Nostro Settlement Defaults (NSDFM) screen.
Number/Name/ SSI/blank
SSI
The contract is to use the default agent defined using the Agent Settlement Defaults (AGDFM) screen.
SSI
Number/Name/ SSI/Blank
The contract is to use the default nostro defined using the Nostro Settlement Defaults (NSDFM) screen.
Number/Name/ SSI
NSTD
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Settlement instructions specific to the contract are to be used for the agent. Enter ‘NSTD’ in the “Their Receive Agent” field to utilise non standard settlement instructions. These are set up using the Non Standard Settlement Instructions (NSTDM) screen.
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Forward Rate Agreements and Swaps Transactions
Any of the Agent identifiers shown in Table 1-1 can be replaced by the exact S.W.I.F.T. address of the agent. Only do so if you are certain of the address, which must be entered using an ‘@’ symbol followed by the appropriate 8 or 11 character S.W.I.F.T. address. Only the following formats should be used: •
@BBBBCCLL
•
@BBBBCCLLXXX
Where: BBBB =
Four alphabetic characters representing the S.W.I.F.T. bank identifier
CC
=
Two alphabetic characters representing the S.W.I.F.T. country code
LL
=
S.W.I.F.T. location code
XXX
=
Three alphabetic/numeric characters representing the S.W.I.F.T. branch code (if applicable)
Euro Related Information Economic and Monetary Union (EMU) is a process by which certain countries in the European Union are converting their national currencies (also called “in” currencies) into a single European currency called the Euro. The system supports this conversion process fully for all currencies and all phases of the conversion (see "Euro Related Information" in the Core Functions and Inquiries Guide for more information).
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Section 2 Forward Rate Agreement Contract Screens Introduction to FRAs Before attempting to enter an FRA, you must be familiar with: •
‘Entering and Inquiring on Contracts’ as described in the Starter's Guide and Core Functions and Inquiries Guide.
•
General information on forward rate agreement contracts, see ‘FRA and Swap Contract Types’ in Section 1
•
General information on settlements, see ‘Overview of Settlements’ in the Settlements Administration Guide
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Forward Rate Agreement Contract Screens
Screen Flow The data entry screens used to enter and manage an FRA contract are illustrated below: Outline Deal Add (DEAL)
FRA Outline Deal Add (FRDEA)
Begin contract entry
Enter deal details
Contract Input (LEAD1)
Outline Deal Queue (DEALQ)
Begin outline deal entry
Enter outline deal details
Select outline deal for verification
FRA Contract - Add (FRASA)
Enter settlement rate on fixing date
FRA Settlement Rate - Fix (FRAFA)
Authorise settlement rate
FRA Settlement Rate Authorise (FRASD)
Figure 2–1. FRA Data Entry Screens The basic details of a forward rate agreement (FRA) contract are set up using the FRA Contract Add (FRASA) screen. This information includes the date on which the settlement information will be fixed (the Fixing Date). When the Fixing Date is reached, the settlement rate can be added using the FRA Settlement Rate - Fix (FRAFA) screen. However, before the contract is settled, the settlement details must be authorised using the Forward Rate Agreement Settlement Rate Authorise (FRASD) screen.
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Forward Rate Agreement Contract Screens
A full description of the fields on the screens, and valid entries, is given in Section 4, “Definition of Field Names”. Please refer to the Starter’s Guide for a description of how to access and use screens.
Prerequisites Before you can enter any type of FRA contract, certain items referenced by the contract must be set up. The following list shows the mandatory items and the business tables on which they are set up: •
Accounting Centre - Accounting Centres Maintenance (ACNTM), see the Guide to Setting Up
•
Portfolio - Portfolio Definition (PFDFM), see the Risk Management Administration Guide
•
Product Type - Product Types Maintenance (PRTPM), see the Core Functions and Inquiries Guide
•
Principal Currency - Currencies (CCYS), see the Guide to Setting Up
•
General Ledger Master - General Ledger Master (GLMAM), see the General Ledger Administration Guide
•
Rate Definition - Rate Table Definition (RTDEF), see the Core Functions and Inquiries Guide
•
Market Rates - Market Rates (RATEA), see the Core Functions and Inquiries Guide
You can set a default General Ledger Master for a counterparty FRA deal and for an interaccounting centre FRA deal using the Default General Ledger Masters (GLDFM) screen, see the General Ledger Administration Guide.
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Forward Rate Agreement Contract Screens
FRA Defaults Maintenance (FRDFM) Before you can enter a Forward Rate Agreement contract, you must define the product that is traded on the Product Types Maintenance (PRTPM) screen. Once a Forward Rate Agreement product has been defined, you can set up defaults for it on the FRA Defaults Maintenance (FRDFM) screen. You can set up both a default contract period and a maturity period. If these defaults are set, the system calculates the settlement date and maturity date from the deal date when a contract is input on the FRA Contract - Add (FRASA) screen. The “External Market Value” indicator should only be set if market values are to be imported into the system from an external system. For more information on importing data into the system, see the Guide to Interfaces with External Systems. These defaults are designed to save you time when entering deal details. The values that are displayed do not constitute a complete contract record. You may overwrite the defaulted details. The following figure shows an example of the FRA Defaults Maintenance screen.
Figure 2–2. FRA Defaults Maintenance screen
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Forward Rate Agreement Contract Screens
FRA Outline Deal Add (FRDEA) You will be routed to this screen if you enter an FRA product on the Outline Deal Add (DEAL) screen, see the Starter's Guide for details. Use the FRA Outline Deal Add (FRDEA) screen to view your exposure to a client and to submit an outline deal to the Outline Deal Queue (DEALQ) from which it can be verified and the contract added to the system. See 'Entering an Outline Deal' in the Starter's Guide for full details of outline deals. The following figure shows an example of the FRA Outline Deal Add screen.
Figure 2–3. FRA Outline Deal Add screen
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Forward Rate Agreement Contract Screens
FRA Contract Screens The following screens are used to define and maintain forward rate agreement contracts. For general information on forward rate agreement contracts see ‘All Contracts’ in Section 1. The following screens are used for Forward Rate Agreement contracts: •
FRA Contract - Add (FRASA)
•
FRA Contract - Change (FRASC)
•
FRA Contract - Inquire or Delete (FRASI)
FRA Contract - Add (FRASA) Both inter-accounting centre and counterparty FRA deals are added using the FRA Contract Add (FRASA) screen. The particular FRA being traded is represented by the “Product Type”; this is defined on the Product Types Maintenance (PRTPM) screen. You may set up default details for each “Product Type” on the FRA Defaults Maintenance (FRDFM) screen. To display the defaults on a blank FRA Contract - Add (FRASA) screen:
á
Enter “Product Type” and click OK
T
Enter “Product Type” and press Transmit
FRA Deal Types Two sets of fields within the screen are specific to one or other of the following deal types: Counterparty deals require details to be entered in the “Shortname” and “City” fields. For inter-accounting centre deals, valid entries must be made in the “Other Accounting Centre” and “Other Accounting Centre Trade Type” fields. Also, the “Other GL Master” field is mandatory/defaulted. It is not possible to complete both (counterparty and inter-accounting centre) sets of fields on the same screen. Note:
2–6
If you enter a product type that has a contract type of FRAC, then do not complete the fields relating to inter-accounting centre deals or the deal will be treated as an inter-accounting centre FRA.
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Forward Rate Agreement Contract Screens
Trade Types The “Trade Type” field enables you to specify whether the FRA deal is Traded or Hedged. This affects the method by which the accrual of profit and loss is measured - traded deals are ‘marked to market’ up to settlement whereas hedged deals are accrued over the notional contract period. For inter-accounting centre deals, the two accounting centres may treat the deal as either traded or hedged, although it is unlikely that they will both treat it as hedged. Each party will, therefore, require independent Trade Type indicators (“Trade Type” and “Other Trade Type”).
General Ledger Masters For flexibility of accounting, both parties to an inter-accounting centre deal have their own General Ledger Masters (“GL Master Number” and “Other GL Master”). When settlement is calculated and reported by the system the sign (‘+’ or ‘-’) of the settlement amount denotes the direction of settlement from the standpoint of the entering accounting centre. Thus a profit is signified by a positive amount and a loss by a negative amount (and vice versa for the other accounting centre).
FRA Brokerage Details Brokerage fields are relevant to counterparty deals only. If the “Broker or Via” and “Brokerage Method” fields are completed, the brokerage amount is calculated automatically. If the “Broker or Via” field only is completed, the “Brokerage Amount” field remains unfilled.
Accrual Methods The settlement amount is amortised between settlement and maturity using either the regressive method or the linear method. When a FRA contract is added using the FRA Contract - Add (FRASA) screen, the default accrual method set up for the contract is applied for the entire life of the new contract. Any changes made on the FRA Default Maintenance (FRDFM) screen will only apply to future new contracts and will not be reflected on the existing contracts.
FRA Schedule Events All schedule events are validated as business days; the entry of a date that falls on a weekend or a public holiday generates an error message. Applying “Holiday Override”, however, enables the entry of a non-business day in any of the date fields. The “Deal Date” field defaults to the system as-of date. When the settlement date for a contract is entered, the fixing date is calculated on the basis of the Forward Rate Agreement British Bankers’ Association (FRABBA) terms. Similarly, when the fixing date is entered, the settlement date is calculated automatically. However both dates may be entered, in which case they are validated.
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Forward Rate Agreement Contract Screens
The system also automatically calculates the maturity date on the basis of FRABBA terms when the fixing, or settlement, date and the “Contract Period” field details have been entered. The contract period is the time span from the deal date to the settlement date. Alternatively the system will calculate the Contract Period if the fixing, or settlement, date and maturity date are entered. Non standard settlement instructions for the payment agent may be created by linking through to the Non Standard Settlement Instructions (NSTDM) screen (see the Settlements Guide). To do this:
á
Enter “NSTD” in the “Their Receive Agent” field and Click Settlement Instructions.
T
Enter “NSTD” in the “Their Receive Agent” field Enter “Y” in the “Settlement Instructions” field and Press Transmit The following figure shows an example of the Forward Rate Agreement - Add screen.
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Forward Rate Agreement Contract Screens
Figure 2–4. Forward Rate Agreement Contract - Add screen
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Forward Rate Agreement Contract Screens
FRA Contract - Change (FRASC) Amendments to Forward Rate Agreement contract data are entered on the FRA Contract Change (FRASC) screen. An additional, display only, field (“Fixing Status”) appears, identifying whether the FRA is: •
Unfixed, but has yet to reach the Fixing Date
•
Unfixed, but has reached the Fixing Date and is therefore fixable
•
Fixed (having reached the fixing date) but is not yet authorised
•
Authorised
Contract data cannot be amended when a contract has either matured or been deleted. It is also not possible to change contract details when the settlement sum has been paid. Non standard settlement instructions for the payment agent may be created by linking through to the Non Standard Settlement Instructions (NSTDM) screen (see the Settlements Guide). To do this:
á
Enter “NSTD” in the “Their Receive Agent” field and Click Settlement Instructions.
T
Enter “NSTD” in the “Their Receive Agent” field Enter “Y” in the “Settlement Instructions” field and Press Transmit The following figure shows an example of the Forward Rate Agreement - Change screen.
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Forward Rate Agreement Contract Screens
Figure 2–5. Forward Rate Agreement Contract - Change screen
FRA Contract - Inquire/Delete (FRASI) Details of Forward Rate Agreement deals are available from the FRA Contract - Inquire/Delete (FRASI) screen. After performing an inquiry on a contract you can: •
Copy it
•
Delete or replace it. If the contract has matured, then it cannot be deleted unless the blueprint parameter BP-CNT-MATDEL-DYS (see the Guide to Setting Up) has been used to specify that matured contracts can be deleted. Using the blueprint parameter you specify the period after maturity during which a contract may be deleted.
When a contract is deleted: •
All associated account postings are reversed
•
Any position and exposure updates are deleted
The FRA Contract - Inquire/Delete (FRASI) screen has the same layout as the FRA Contract Change (FRASC) screen.
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Forward Rate Agreement Contract Screens
FRA Contract Diary Narratives Each diary event associated with an FRA contract is processed automatically, on the basis of the details entered in the contract and schedule screens. However, it may be necessary to enter additional diary narratives, for example you may wish the system to provide a message prompting you to take action the day before a settlement event. These contract diary narratives can be set up and maintained using the standard contract screens: •
Contract Diary Narrative Add (CNARA)
•
Contract Diary Narrative Maintain (CNARM)
These diary narratives can be seen on the inquiry screens Diary Narratives By Accounting Centre (DNBIQ) and Diary Narratives By Contract (DNCIQ) (see the Core Functions and Inquiries Guide for full details). Each contract can have any number of associated narrative events. Each narrative event is identified by its value date and sequence number. This means that more than one narrative event can take place on the same value date. Using the Contract Diary Narrative Add (CNARA) screen you can add a number of narrative events for a contract. Individual narrative events can then be updated or deleted using the Contract Diary Narrative Maintain (CNARM) screen.
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Forward Rate Agreement Contract Screens
FRA Settlement Rate Fix (FRAFA) The FRA Settlement Rate Fix (FRAFA) screen is used to enter, maintain and display settlement details once the Fixing Date has been reached and the Settlement Rate can, therefore, be entered. At this stage the settlement details have yet to be authorised - authorisation takes place using the Forward Rate Agreement Settlement Rate Authorise (FRASD) screen. When you first display the FRA Settlement Rate Fix (FRAFA) screen, the fields will appear blank. Two separate operations can be carried out: •
Enter the contract number of the deal whose settlement details you wish to fix.
•
View the contracts available for fixing.
Entering a Settlement Rate Settlement rate data cannot be entered until the fixing date has been reached. An estimated settlement rate is displayed once data for a contract has been recalled. This rate is derived from current rate details associated with the ‘Fixing Rate Identifier’ entered on the contract screen. Once entered, the settlement rate can only be changed if it has not yet been authorised.
Contracts Available for Fixing The full list of Contracts that are available for fixing can be viewed online. Contracts appear on this list on or after the fixing date. You can browse from the first contract onwards as follows:
á
Click OK on the blank screen to display the first contract. To start scrolling from the displayed contract continue to click OK or Enter a contract number and click OK. To start scrolling from the entered contract continue to click OK.
T
Transmit the blank screen then browse through the contracts using the Transmit key or Enter a contract number then press Transmit to start browsing from the entered contract The details associated with the lowest numbered contract are displayed first. Use the scroll facilities to browse through the list, in numerical order of the contracts. You can then enter the settlement rate for those that you wish to fix. Note:
A blueprint parameter (BP-FIX-OS) enables you to define the number of days at which the fixing of the contract rate becomes outstanding. Refer to the ”Blueprint Parameters” section of the Guide to Setting Up for details of this blueprint. Contracts that remain outstanding for the number of days defined by the above blueprint are highlighted at system closedown (SYSCLOSE) and offline processing will not proceed until their rates have been fixed. Refer to the Overnight Reports Guide for a description of the SYSCLOSE procedure.
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Forward Rate Agreement Contract Screens
The following figure shows an example of the FRA Settlement Rate Fix screen.
Figure 2–6. FRA Settlement Rate Fix screen
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Forward Rate Agreement Contract Screens
Forward Rate Agreement Settlement Rate Authorise (FRASD) The FRA Settlement Rate Authorise (FRASD) screen is used to validate settlement details that have been entered on the FRA Settlement Rate Fix (FRAFA) screen so that only authorised settlement details are processed, and posted. When you display the FRA Settlement Rate Authorise option (FRASD), the screen will appear blank. Two separate operations can be carried out: •
Enter the contract number of the deal whose settlement details you wish to authorise
•
View the contracts available for authorisation, using the scrolling facility
Entering Settlement Rate Data Settlement Rate data cannot be authorised unless the rate has already been fixed on the FRA Settlement Rate Fix (FRAFA) screen.
Contracts Available for Authorisation The full list of Contracts that are available for authorisation can be viewed online. You can browse from the first contract onwards as follows:
á
Click OK on the blank screen to display the first contract. To start scrolling from the displayed contract continue click OK or Enter a contract number then click OK. To start scrolling from the entered contract continue to click OK.
T
Transmit the blank screen then browse through the contracts using the Transmit key or Enter a contract number then press Transmit to start browsing from the entered contract The details associated with the lowest numbered contract are displayed first. Browse through the contracts and enter the Settlement Rate for those that you wish to authorise.
Authorising Settlement Rate Data Authorisation can be effected in two ways. The method that your system uses is defined by the Blueprint Parameter BP-FRASD-MTHD: •
Re-enter the Settlement Rate, without viewing the value it presently holds on the FRA Settlement Rate Fix (FRAFA) screen, and confirm authorisation (see “Authorisation Confirmed” in Section 4, Definition of Field Names). If you enter the same value as that appearing on the FRA Settlement Rate Fix (FRAFA) screen, authorisation is made effective.
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Forward Rate Agreement Contract Screens
•
The Settlement Rate is automatically displayed, using the same value as that entered on the FRA Settlement Rate Fix (FRAFA) screen. If you wish to authorise this rate, simply complete the “Authorisation Confirmed” field (see Section 4, Definition of Field Names). If you wish to enter a different rate to that which presently appears on the FRA Settlement Rate Fix (FRAFA) screen, you must first amend the value on that screen.
Notes: A blueprint parameter (BP-AUTH-OS) enables you to define the number of days at which authorisation of the contract rate becomes outstanding. Refer to the Guide to Setting Up for details of this blueprint. Contracts which remain outstanding for the number of days defined by the above blueprint are highlighted at system closedown (SYSCLOSE) and offline processing will not proceed until their rates have been authorised. Refer to the Overnight Reports Guide for a description of the SYSCLOSE procedure. The following figure shows an example of the FRA Settlement Rate Authorise screen.
Figure 2–7. FRA Settlement Rate Authorise screen
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Forward Rate Agreement Contract Screens
FRA Holdings Summary (FRAHI) Details of all active contracts may be viewed on the FRA Holdings Summary (FRAHI) screen. If the Counterparty Deal field is not selected, the list will be restricted to active inter-accounting centre deals. Details of each FRA contract are displayed in numerical order, beginning with the contract specified in the “Next Contract Number” field. Two FRA contracts are displayed on each screen. The Fixing Status of each FRA is displayed, indicating whether it is: •
Unfixed and is not yet fixable (yet to reach Fixing Date)
•
Unfixed, but is fixable (has reached Fixing Date)
•
Fixed, but not yet authorised
•
Fixed and authorised but not settled
Note:
Contracts whose rates have been both settled and authorised do not appear in the summary.
The following figure shows an example of the FRA Holdings Summary screen.
Figure 2–8. FRA Holdings Summary screen
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Forward Rate Agreement Contract Screens
Forward Rate Agreement Contract Valuation (FRAVI) Estimated and Actual Settlement information for a specific FRA contract is available from the FRA Contract Valuation (FRAVI) screen, as follows: •
Before Fixing the rate, only the estimated settlement details are displayed. The estimated settlement rate is derived from the rate table identified by the ‘Fixing Rate Identifier’ specified on the contract
•
During the period between Fixing and Authorisation, the estimated and actual settlement details are displayed
•
After Authorisation, the final estimated and actual settlement amounts are displayed.
The following figure shows an example of the FRA Contract Valuation screen.
Figure 2–9. FRA Contract Valuation screen
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Section 3 Swap Contract Screens Introduction to Swaps Screens Before attempting to enter a Swap, you must be familiar with: •
‘Entering and Inquiring on Contracts’ as described in the Starter's Guide and Core Functions and. Inquiries Guide
•
General information on Swaps contracts, see ‘FRA and Swap Contract Types’ in Section 1
•
General information on settlements, see ‘Overview of Settlements’ in the Settlements Administration Guide
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3–1
Swap Contract Screens
Creating a Swap Contract The Swap contract creation process is illustrated in the following flow. Outline Deal Add (DEAL)
Swaps Outline Deal Add (SWDEA)
Begin contract entry
Enter deal details - general
Enter deal details - loan
Enter deal details - deposit
Contract Input (LEAD1)
Outline Deal Queue (DEALQ)
Swaps General Details Initial Add (SWGEL)
Swaps General Details Add (SWGEA)
Begin outline deal entry
Enter outline deal details
Select outline deal for verification
Enter deal details - general
Swaps Loan Side - Add (SWLNA) Swaps Deposit Side - Add (SWDPA)
Figure 3–1. Swaps Contract Entry Screens Before you can enter a Swap contract, you must define the product that is traded on the Product Types Maintenance (PRTPM) screen. Once a Swap product has been defined, you can set up defaults for it on the Swaps Defaults (SWDFM) screen.
3–2
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Swap Contract Screens
Managing a Swap Contract Enter compensating payment
If add close outs or partial close outs
Swaps Compensating Payments (SWCPM)
Swaps Close Out (SWCOM)
Swaps Event Inquiry (SWEVI)
Swaps Schedule Inquiry (SWSCI)
Swaps Schedule Maintenance (SWSCM)
Add or amend details of an event
Swaps Settlement Details (SWSTM)
Amend nostro and agent details for a contract
Swap Contract Valuation (SWPVI)
Inquire on net present value of a contract
Inquire on event details
Figure 3–2. Flow of Swaps Close Out, Event and Inquiry Screens
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3–3
Swap Contract Screens
Swaps Prerequisites Before you can enter a Swap contract, certain items referenced by the contract must have been set up. A Swap contract is associated with an accounting centre, a portfolio, a product type, a nostro and an agent. The following list shows the mandatory items and the screens that are used to create them. •
Accounting Centre - Accounting Centres Maintenance (ACNTM), see the Guide to Setting Up
•
Portfolio - Portfolio Definition (PFDFM), see the Risk Management Administration Guide
•
Product Type - Product Types Maintenance (PRTPM), see the Core Functions and Inquiries Guide
•
Principal Currency - Currencies (CCYS), see the Guide to Setting Up
•
Nostro Details - Nostro Details (NSTRO), see the Settlements Guide
•
Agent Details - Agent Details (AGNTM), see the Settlements Guide
•
General Ledger Master - General Ledger Master (GLMAM), see the General Ledger Administration Guide
You can set a default General Ledger Master for a Swaps deal using the Default General Ledger Masters (GLDFM) screen, see the General Ledger Administration Guide.
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Swap Contract Screens
Swaps Defaults (SWDFM) Before you can enter a Swap contract, you must define the product that is traded on the Product Types Maintenance (PRTPM) screen. Once a Swap product has been defined, you can set up defaults for it on the Swaps Defaults (SWDFM) screen. The “External Market Value” indicator should only be set if market values are to be imported from an external system. This facility is designed to save you time when entering deal details. The values that are displayed do not constitute a complete contract record. You may overwrite the defaulted details. The following figure shows an example of the Swaps Defaults screen.
Figure 3–3. Swaps Defaults screen
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3–5
Swap Contract Screens
Swaps Outline Deal Add (SWDEA) You will be routed to this screen if you enter a Swaps product on the Outline Line Deal Add (DEAL) screen, see the Starter's Guide for details. Use the Swaps Outline Deal Add (SWDEA) screen to view your exposure to a client and to submit an outline deal to the Outline Deal Queue (DEALQ) from which it can be verified and the contract added to the system. See 'Entering an Outline Deal' in the Starter's Guide for full details of outline deals. Note :
The exchange rate used depends on the exchange rate group for the location attached to the contract's accounting centre set-up in the Location Maintenance (LOCTM) screen, see the Guide to Setting Up.
The following figure shows an example of the Swaps Outline Deal Add screen.
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Swap Contract Screens
Figure 3–4. Swaps Outline Deal Add screen
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Swap Contract Screens
Swaps General Details Initial Add (SWGEL) To create a Swaps contract you must complete the Swaps General Details Initial Add (SWGEL), the Swaps Loan Side Add (SWLNA) and the Swaps Deposit Side Add (SWDPA) screens. The particular Swap being traded is represented by the “Product Type”; this is defined on the Product Types Maintenance (PRTPM) screen. You may set up default details for each “Product Type” on the Swaps Defaults (SWDFM) screen. To display the defaults on a blank Swaps General Details Initial Add (SWGEL) screen:
á
Enter “Product Type” and click OK
T
Enter “Product Type” and press Transmit When you have completed this screen, you must either:
á
Click Add to add the general details and redisplay the Swaps General Details Initial Add (SWGEL) screen so that a set of general details can be added for another contract or Click Loan to move to the Swaps Loan Side Add (SWLNA) screen to continue adding details for the current contract or Click Deposit to move to the Swaps Deposit Side Add (SWDPA) screen to continue adding details for the current contract
T
Press Transmit to add the general details and redisplay the Swaps General Details Initial Add (SWGEL) screen so that a set of general details can be added for another contract or Enter '1' in the 'Link to' field to move to the Swaps Loan Side Add (SWLNA) screen to continue adding details for the current contract or Enter '2' in the 'Link to' field to move to the Swaps Deposit Side Add (SWDPA) screen to continue adding details for the current contract Note:
Contract entry is not considered complete until the deal has been committed using the 'Commit Deal' function on either the Swaps Loan Side Add (SWLNA), the Swaps Deposit Side Add (SWDPA) or the Swaps General Details Add (SWGEA) screen. The exchange rate used depends on the exchange rate group for the location attached to the contract's accounting centre set-up in the Location Maintenance (LOCTM) screen, see the Guide to Setting Up.
See Schedules for Swaps in Section 1 for details of event scheduling.
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Swap Contract Screens
Currency Swaps The principal amount need not be exchanged in any Swap contract. However, if it is exchanged this is only possible for a Currency Swap. A Currency Swap has different loan and deposit currencies. The “Exchange Rate” and “Exchange Principal” fields are only relevant when the deal being entered is a Currency Swap, as described above.
Compensating Payments Both Interest Rate and Currency Swaps may involve compensating payments that may be paid to or received from a client. This payment is processed automatically if entries are made in the “Compensating Amount”, “Compensating Currency”, “Compensating Date” and “Compensating Payment” fields. The compensating currency must be the same as the currency of either the loan side or the deposit side. Nostro and agent details for compensating payments are defaulted as follows: •
The loan side nostro and agent are used for Interest Rate Swaps
•
If the payment is in the loan side currency, the loan side nostro and agent are used
•
If the payment is in the deposit side currency, the deposit side nostro and agent are used
Compensating payments can be added or changed after the contract has been added using the Swaps Compensating Payments (SWCPM) screen.
Trade Types Swaps may be either Traded or Hedged. The trade type is identified by selecting Traded or Hedged in the “Trade Type” field. This identifies the trade type from the bank’s point of view. Swaps are hedged when the bank wishes to cover its market position in one direction or, for example, where both parties have loan obligations to third parties and wish to exchange these obligations with each other to take advantage of the market position in which the other party is placed. Traded Swaps apply to the exchange of interest conditions which are not related to other obligations and which are, therefore, speculative.
Brokerage Details If the “Broker or Via” and “Brokerage Method” fields are completed, the system automatically calculates the brokerage amount (on the basis of the percentage, set up using the Non-FX Brokerage Rates (NONFX) business table, and the notional principal). If the “Broker or Via” field only is completed, the “Brokerage Amount” field remains unfilled.
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Swap Contract Screens
The following figure shows an example of the Swaps General Details Initial Add screen.
Figure 3–5. Swaps General Details Initial Add
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Swap Contract Screens
Swaps Loan Side Add (SWLNA) The Swaps Loan Side Add (SWLNA) screen is used to enter the loan details for a Swaps contract. The screen can be accessed for three reasons: •
If you have selected an outline swaps deal from the Outline Deal Queue (DEALQ) and have transferred to this screen from the Swaps General Details Add (SWGEA) screen, then you can enhance the loan details. The basic loan details are entered for the outline deal using the Swaps Outline Deal Add (SWDEA) screen.
•
If you have entered general details of the contract using the Swaps General Details Initial Add (SWGEL) screen and have transferred to this screen, then you can enter the loan details for the contract.
•
If you have entered a contract by either of the above two methods, but have not committed it to the system, you can open this screen, recall the current loan details of the contract and add or change the details.
If the general details and the deposit details for the contract have been added and the appropriate loan side fields have been completed, then you can action the contract by:
á
Clicking on the “Commit Deal” button.
T
Entering 'Y' in the “Commit Deal” field and pressing Transmit If you need to add or amend the general details or the deposit side details, then:
á
Complete the appropriate loan side fields and click General or Deposit
T
Complete the appropriate loan side fields, enter '1' or '2' respectively in the “Link to” field and press Transmit Note:
The details of the contract are stored even before the contract is committed, but the contract will not appear on the list of contracts and will not become effective until it is committed. Use the Outline Deal Queue (DEALQ) screen to view a list of non-committed Swaps contracts.
See Schedules for Swaps in Section 1 for details of event scheduling.
Swaps with Accruals Similar to Securities This screen can be used to set up the loan-side of a Swap that will have accruals consistent with a securities contract. Three types of security are catered for: •
Interest bearing securities with premiums or discounts
•
Discounted securities
•
Zero coupon bonds
To add a Swap with a premium or discount, you must complete the "Premium/Discount", "Yield" and "Yield Basis" fields. This causes the Swap to have accruals that take place in a similar manner to an interest bearing security.
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Swap Contract Screens
To add a Swap that has accruals similar to either a discounted security or a zero coupon bond, you must complete the "Yield", "Yield Basis" and "Yield Method" fields. The accrual method is determined by your entry in the "Yield Method" field: •
Entering 2 indicates that the accrual will be calculated in a similar manner to a discounted security
•
Entering 5 indicates that the accrual will be calculated in a similar manner to a zero coupon bond
Note:
Interest and repayment details are not applicable to Swaps that have accruals similar to either discounted securities or zero coupon bonds. The schedules of these Swaps cannot be changed after contract commitment.
The following figure shows an example of Swaps Loan Side Add screen.
Figure 3–6. Swaps Loan Side Add
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Swap Contract Screens
Swaps Deposit Side Add (SWDPA) The Swaps Deposit Side Add (SWDPA) screen is used to enter the deposit details for a Swaps contract. The screen can be accessed for three reasons: •
If you have selected an outline swaps deal from the Outline Deal Queue (DEALQ) and have transferred to this screen from the Swaps General Details Add (SWGEA) screen, then you can enhance the deposit details. The basic deposit details are entered for the outline deal using the Swaps Outline Deal Add (SWDEA) screen.
•
If you have entered general details of the contract using the Swaps General Details Initial Add (SWGEL) screen and have transferred to this screen, then you can enter the deposit details for the contract.
•
If you have entered a contract by either of the above two methods, but have not committed it to the system, you can open this screen, recall the current loan details of the contract and add or change the details.
If the general details and the loan details for the contract have been added and the appropriate loan side fields have been completed, then you can action the contract by:
á
Clicking on the “Commit Deal” button
T
Entering 'Y' in the “Commit Deal” field and pressing Transmit If you need to add or amend the general details or the loan side details, then:
á
Complete the appropriate deposit side fields and click General or Loan
T
Complete the appropriate deposit side fields, enter '1' or '2' respectively in the “Link to” field and press Transmit Note:
The details of the contract are stored even before the contract is committed, but the contract will not appear on the list of contracts and will not become effective until it is committed. Use the Outline Deal Queue (DEALQ) screen to view a list of non-committed Swaps contracts.
See Schedules for Swaps in Section 1 for details of event scheduling.
Swaps with Accruals Similar to Securities This screen can be used to set up the deposit-side of a Swap that will have accruals consistent with a securities contract. Three types of security are catered for: •
Interest bearing securities with premiums or discounts
•
Discounted securities
•
Zero coupon bonds
To add a Swap with a premium or discount, you must complete the "Premium/Discount", "Yield" and "Yield Basis" fields. This causes the Swap to have accruals that take place in a similar manner to an interest bearing security.
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Swap Contract Screens
To add a Swap that has accruals similar to either a discounted security or a zero coupon bond, you must complete the "Yield", "Yield Basis" and "Yield Method" fields. The accrual method is determined by your entry in the "Yield Method" field: •
Entering 2 indicates that the accrual will be calculated in a similar manner to a discounted security
•
Entering 5 indicates that the accrual will be calculated in a similar manner to a zero coupon bond
Note:
Interest and repayment details are not applicable to Swaps that have accruals similar to either discounted securities or zero coupon bonds. The schedules of these Swaps cannot be changed after contract commitment.
The following figure shows an example of the Swaps Deposit Side Add screen.
Figure 3–7. Swaps Deposit Side Add
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Swap Contract Screens
Swaps General Details - Add (SWGEA) The Swaps General Details - Add (SWGEA) screen is used to enter general details for a Swaps contract. The screen can be accessed for three reasons: •
If you have selected an outline swaps deal from the Outline Deal Queue (DEALQ) then this screen is displayed so that you can enhance the contract details. The basic details are entered for the outline deal using the Swaps Outline Deal Add (SWDEA) screen.
•
If you have entered general details of the contract using the Swaps General Details Initial Add (SWGEL) screen and have used the Swaps Loan Side Add (SWLNA) and the Swaps Deposit Side Add (SWDPA) screens without committing the contract, then you can transfer to this screen to change the general details.
•
If you have entered a contract by either of the above two methods, but have not committed it to the system, you can open this screen, recall the current general details of the contract by:
á
Clicking OK
T
Pressing Transmit You can then add or change the details. If the loan and deposit details for the contract have been added and the appropriate general details fields have been completed, then you can commit the contract by:
á
Clicking the Commit Deal button
T
Entering 'Y' in the “Commit Deal” field and pressing Transmit If you need to add or amend the loan or deposit side details, then:
á
Complete the appropriate general details fields and click Loan or Deposit
T
Complete the appropriate general details fields, enter '1' or '2' respectively in the “Link to” field and press Transmit Note:
The details of the contract are stored even before the contract is committed, but the contract will not appear on the list of contracts and will not become effective until it is committed. Use the Outline Deal Queue (DEALQ) screen to view a list of non-committed Swaps contracts.
See Schedules for Swaps in Section 1 for details of event scheduling. The Swaps General Details Initial Add (SWGEL) screen and the Swap General Details - Add (SWGEA) screen contain similar fields, therefore see the Swaps General Details Initial Add (SWGEL) screen for information on completion of the individual fields.
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Swap Contract Screens
The following figure shows an example of the Swaps General Details - Add screen.
Figure 3–8. Swaps General Details - Add
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Swap Contract Screens
Swaps General Details - Change (SWGEC) Swaps General Details - Change (SWGEC) screen can be used to change non-financial details, including the nostro and agent details relating to a Swaps contract. If you need to amend financial details then you must use one of the following screens: •
The Swaps Close Out (SWCOM) screen to perform an early close-out, or partial close-out of a Swap contract.
•
The Swaps Compensating Payments (SWCPM) screen to add or amend a compensating payment. For example to add a compensating payment to take account of an early close-out, or partial close-out of a Swap contract.
•
The Swaps Settlement Details (SWSTM) screen to amend the settlement details for a particular date or for all dates after a specified date. Settlement details can be amended either for the loan side, the deposit side or both sides of a Swap contract. Settlement details cannot be amended for settlements before the current date.
•
The Swaps Schedule Maintenance (SWSCM) screen to amend details of an event associated with a Swaps contract.
Contract data cannot be amended when a contract has either matured or been deleted. If the nostro or agent details are amended, this will only affect events that have yet to be actioned.
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Swap Contract Screens
The following figure shows an example of the Swaps General Details - Change screen.
Figure 3–9. Swaps General Details - Change
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Swap Contract Screens
Swaps General Details - Inquire/Delete (SWGEI) The Swaps General Details - Inquire/Delete (SWGEI) screen can be used to perform an inquiry on any Swaps contract. After performing an inquiry on a contract you can: •
Copy it
•
Delete or replace it. If the contract has matured, then it cannot be deleted unless the blueprint parameter BP-CNT-MATDEL-DYS (see the Guide to Setting Up) has been used to specify that matured contracts can be deleted. Using the blueprint parameter you specify the period after maturity during which a contract may be deleted.
When you are copying or replacing a contract, the Swaps General Details Initial Add (SWGEL) screen will be displayed, so that you can amend any general details for the new contract. You must also view the loan and deposit side details and make any necessary amendments on the Swaps Loan Side Add (SWLNA) and Swaps Deposit Side Add (SWDPA) screens before you will be able to commit the new contract to the system. See 'Copying, Deleting or Replacing a Contract' in the Starter's Guide for further details. You can view the diary for a Swaps contract that you have recalled for inquiry by:
á
Clicking Diary
T
Pressing Transmit Note:
Contract copying, replacement and deletion can only be performed from the Swaps General Details - Inquire/Delete (SWGEI) screen. It cannot be performed from the Swaps Loan Side - Inquire (SWLNI) or the Swaps Deposit Side - Inquire (SWDPI) screen.
If a contract is deleted then all accruals and settlements are backed out and all exposure calculations are reversed. Daily accruals are backed out during overnight processing on the day of deletion. Monthly accruals are backed out during overnight processing at the next month-end.
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Swap Contract Screens
The following figure shows an example of the Swaps General Details - Inquire screen.
Figure 3–10. Swaps General Details - Inquire/Delete
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Swap Contract Screens
Swaps Loan Side - Inquire (SWLNI) The Swaps Loan Side - Inquire (SWLNI) screen can be used to perform an inquiry on the loan side details of any Swaps contract. After performing an inquiry on a contract you can: •
Click General to move on to the Swaps General Details - Inquire/Delete (SWGEI) and view general details of the contract
•
Click Deposit to move on to the Swaps Deposit Side - Inquire (SWDPI) and view deposit side details of the contract
Note:
Contract copying, replacement and deletion can only be performed from the Swaps General Details - Inquire/Delete (SWGEI) screen. It cannot be performed from the Swaps Loan Side - Inquire (SWLNI) or the Swaps Deposit Side - Inquire (SWDPI) screen.
The following figure shows an example of the Swaps Loan Side - Inquire screen.
Figure 3–11. Swaps Loan Side - Inquire
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Swap Contract Screens
Swaps Deposit Side - Inquire (SWDPI) The Swaps Deposit Side - Inquire (SWDPI) screen can be used to perform an inquiry on the deposit side details of any Swaps contract. After performing an inquiry on a contract you can: •
Click General to move on to the Swaps General Details - Inquire/Delete (SWGEI) and view general details of the contract
•
Click Loan to move on to the Swaps Loan Side - Inquire (SWLNI) and view loan side details of the contract
Note: Contract copying, replacement and deletion can only be performed from the Swaps General Details - Inquire/Delete (SWGEI) screen. It cannot be performed from the Swaps Loan Side - Inquire (SWLNI) or the Swaps Deposit Side - Inquire (SWDPI) screen. The following figure shows an example of the Swaps Deposit Side - Inquire screen.
Figure 3–12. Swaps Deposit Side - Inquire
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Swap Contract Screens
Swaps Contract Diary Narratives Each diary event associated with a Swap contract is processed automatically, on the basis of the details entered in the contract and schedule screens. However, it may be necessary to enter additional diary narratives, for example you may wish the system to provide a message prompting you to take action the day before a settlement event. These contract diary narratives can be set up and maintained using the standard contract screens. •
Contract Diary Narrative Add (CNARA)
•
Contract Diary Narrative Maintain (CNARM)
These diary narratives can be seen on the inquiry screens Diary Narratives By Accounting Centre (DNBIQ) and Diary Narratives By Contract (DNCIQ) (see the Core Functions and Inquiries Guide for full details). Each contract can have any number of associated narrative events. Each narrative event is identified by its value date and sequence number. This means that more than one narrative event can take place on the same value date. Using the Contract Diary Narrative Add (CNARA) screen you can add a number of narrative events for a contract. Individual narrative events can then be updated or deleted using the Contract Diary Narrative Maintain (CNARM) screen.
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Swap Contract Screens
Swaps Close Out (SWCOM) If it is necessary to terminate a Swaps contract early (see also ‘Terminating Swaps’ in Section 1), the Swaps Close Out (SWCOM) screen can be used to enter and maintain details associated with the close-out, or partial close-out, of the selected Swaps contract. When you create a close-out, or partial close-out, rollover events (RLL and RLD) are added to the event schedule for loan and deposit sides of the Swap. These events will be actioned during overnight processing on the close-out date entered. Note:
It is not possible to close-out one side of a Swap without also closing out the other side. If a close-out occurs on an interest settlement date, the interest settlement event still takes place.
The Swaps Close Out (SWCOM) screen is initially displayed with blank fields. The steps for (partially) closing-out a Swap are detailed below: a)
Enter the Contract Number and Close-out Date, then:
á T
Click Inquire Press Transmit
b) The existing contract details are displayed. These should be checked to ensure that they apply to the contract that is to be (partially) closed-out. Then enter the details of the close-out. c)
To record a partial close-out, use the "Close-out Amount" field to enter the amount of the Swap that is to be removed from the current principal. The new principal applies from the “Close-out Date” onwards.
d) To record a full close-out, note the amount displayed in the “Current Principal” field and enter this amount in the "Close-out Amount" field. e) If a compensating amount is associated with the close-out, link to the Swaps Compensating Payments (SWCPM) screen after performing the close-out by:
á T f)
Clicking Payments Entering "Y" in the Compensating Payments field and pressing Transmit
After entering the necessary details:
á T Note :
Click Change Enter "CHG" in the maintenance field and press Transmit The exchange rate used depends on the exchange rate group for the location attached to the contract's accounting centre set-up in the Location Maintenance (LOCTM) screen, see the Guide to Setting Up.
You can amend details associated with a specific close-out, or partial close-out, event for a selected Swap contract on the Swaps Close Out (SWCOM) screen using the above procedure. The details of a close-out can only be amended if it has not been actioned. To delete a close-out, perform a change and blank out the "Close Out Amount" fields.
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Partial Close-Outs A partial close-out reduces the principal for the whole of the interest settlement period in which it occurs, and all subsequent periods. It therefore reduces the amount of an exchange of principal if this occurs after the partial close-out. After a partial close-out of a single currency Swap the new principals for both the loan and deposit sides must be the same. The close-out payment is made effective on the close-out date although the reduced principal applies over the whole period in which the close-out occurred.
Nostro and Agent Details Nostro and Agent details need not be entered for the close-out payment. The system automatically uses the nostro/agent combinations associated with the loan side, if the close-out payment is in the loan currency or if the contract is for an Interest Rate Swap; it uses the nostro/agent combinations associated with the deposit side, if the close-out payment is in the deposit currency. If you need to amend the settlement details for a close out, utilise the Swaps Settlement Details (SWSTM) screen.
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Swap Contract Screens
The following figure shows an example of the Swaps Close Out screen.
Figure 3–13. Swaps Close Out screen
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Swap Contract Screens
Swaps Compensating Payments (SWCPM) This screen can be used to add or amend a compensating payment that has not already been paid. Compensating payments can be paid for a number of reasons, such as a partial close-out. This screen can be accessed directly or via either the Swaps Close Out (SWCOM) screen or the Swaps Event Inquiry (SWEVI) screen. When it is accessed directly, a blank screen will be displayed so that you can enter the Contract Number and Event Date of the compensating payment to recall any existing details by:
á
Clicking Inquire
T
Pressing Transmit You can change the details of an existing payment or add a payment if no payment exists on that date. When a payment is created, a Compensating Payment (CG) event will be added to the schedule. Non standard settlement instructions for the payment agent may be created by linking through to the Non Standard Settlement Instructions (NSTDM) screen (see the Settlements Guide). To do this:
á
Enter “NSTD” in the “Their Receive Agent” field and Click Settlement Instructions.
T
Enter “NSTD” in the “Their Receive Agent” field Enter “Y” in the “Settlement Instructions” field and Press Transmit
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Swap Contract Screens
The following figure shows an example of the Swaps Compensating Payments screen.
Figure 3–14. Swaps Compensating Payments screen
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Swap Contract Screens
Swaps Event Inquiry (SWEVI) The Swaps Event Inquiry (SWEVI) screen is used to view the events for a Swaps contract. To view more detail on the amounts associated with a particular event use the Swaps Schedule Inquiry (SWSCI) screen. The Swaps Event Inquiry (SWEVI) screen can also be used to select an event (for which a payment has yet to be issued) so that it may be changed. The following activities are carried out on associated screens: •
Updates to interest rates and value dates of interest settlement, maturity, rate/principal change and rollover events, are carried out on the Swaps Schedule Maintenance (SWSCM) screen
•
All updates to compensating payments are performed on the Swaps Compensating Payments (SWCPM) screen
To display the deal details for a Swap, enter the number of the required contract in the “Contract Number” field. To change the interest rate or value date details of an interest settlement, maturity, rate/principal change, compensating payment or rollover event:
á T
Select the event and click Schedule Maintenance. Only one event may be selected. Enter 1 in the appropriate ‘Select’ field and press Transmit. Only one event may be selected. The following figure shows an example of the Swaps Event Inquiry screen.
Figure 3–15. Swaps Event Inquiry screen
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Swap Contract Screens
Swaps Schedule Maintenance (SWSCM) The Swaps Schedule Maintenance (SWSCM) screen is used to maintain the schedule for a Swap contract. Using this screen you can: •
Add a new interest settlement event (ISL or ISD)
•
Change an interest settlement (ISL or ISD), rate/principal change (RPL or RPD), rollover (RLL or RLD) or maturity (MAL or MAD) event
•
Delete an interest settlement (ISL or ISD), rate/principal change (RPL or RPD) or rollover (RLL or RLD)
You indicate whether an event is applicable to the loan or deposit side of the Swap using 'Contract Indicator' field. To add a new interest settlement event, enter full details of the event (the Event Type field must be blank), and:
á
Click Add.
T
Enter ADD in the Maint field and press Transmit. To change an event, recall the existing details by completing the Contract Number, Value Date and Contract Indicator fields and:
á
Clicking Inquire. Change the details as required and click Change.
T
Pressing Transmit. Change the details as required, enter CHG in the Maint field and press Transmit. Note:
You can change the Value Date of event as described above.
To delete an event, recall the existing details by completing the Contract Number, Value Date and Contract Indicator fields and:
á
Clicking Inquire. Perform the deletion by clicking Delete.
T
Pressing Transmit. Perform the deletion by entering DEL in the Maint field and pressing Transmit. This screen can be accessed directly or via the Swaps Event Inquiry (SWEVI) screen or the Swaps Schedule Inquiry (SWSCI) screen, also described in this section.
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Swap Contract Screens
The following figure shows an example of the Swaps Schedule Maintenance screen.
Figure 3–16. Swaps Schedule Maintenance screen
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Swap Contract Screens
Swaps Schedule Inquiry (SWSCI) The Swaps Schedule Inquiry (SWSCI) screen is used to view the amount details of the events associated with a Swaps contract. To view a summary of the events associated with a contract, use the Swaps Event Inquiry (SWEVI) screen. The Swaps Schedule Inquiry (SWSCI) screen can also be used to select an event (for which a payment has yet to be issued) so that it may be changed. The following activities are carried out on associated screens: •
Updates to interest rates and value dates of interest settlement, maturity, rate/principal change and rollover events, are carried out on the Swaps Schedule Maintenance (SWSCM) screen
•
All updates to compensating payments are performed on the Swaps Compensating Payments (SWCPM) screen
To change the details of an event:
á
Select the event and click Maintenance. Only one event may be selected.
T
Enter X in the appropriate ‘Select’ field and press Transmit. Only one event may be selected. If the event is an interest settlement, maturity, rate/principal change or rollover, then the Swaps Schedule Maintenance (SWSCM) screen will be displayed. If the event is a compensating payment, the Swaps Compensating Payments (SWCPM) screen will be displayed.
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Swap Contract Screens
The following figure shows an example of the Swaps Schedule Inquiry screen.
Figure 3–17. Swaps Schedule Inquiry screen
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Swap Contract Screens
Swaps Settlement Details (SWSTM) The Swaps Settlement Details (SWSTM) screen is used to amend the settlement details for a particular date or for all dates on and after a specified date. Settlement details can be amended either for the loan side, the deposit side or both sides of a Swaps contract. Settlement details cannot be amended for settlements before the current date. Non standard settlement instructions for the payment agent may be created by linking through to the Non Standard Settlement Instructions (NSTDM) screen (see the Settlements Guide). To do this:
á
Enter “NSTD” in the “Loan Receive Agent” or “Deposit Receive Agent” field and Click Settlement Instructions.
T
Enter “NSTD” in the “Loan Receive Agent” or “Deposit Receive Agent” field Enter “Y” in the “Settlement Instructions” field and Press Transmit The following figure shows an example of the Swaps Settlement Details screen.
Figure 3–18. Swaps Settlement Details screen
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Swap Contract Valuation (SWPVI) Valuation and settlement information for Swap deals is available from the Swap Contract Valuation (SWPVI) screen. The following figure shows an example of the Swap Contract Valuation screen.
Figure 3–19. Swap Contract Valuation screen
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Swap Contract Screens
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Section 4 Definition of Field Names Introduction This section provides a definition of all the field names on client account data entry screens. The fields are listed alphabetically and details of valid entries are given. If the field is prefilled with a value on the screen, or defaults to a value if left blank, these values are also given. Many of the codes and mnemonics given in this section may be changed when the system is installed at your bank. Table 4–1. Definition of Field Names for Data Entry Screens
Field
Definition
Accounting Centre
This is the identifier of the Accounting Centre associated with the contract. It is set up on the Accounting Centres Maintenance (ACNTM) screen. All Accounting Centres are linked to a location maintained using the Location Maintenance (LOCTM) screen. On contract add screens, this field is prefilled with the Accounting Centre associated with your usercode on the Users Maintenance (USERS) screen.
Accrual Method
This field identifies the method by which the settlement amount should be amortised between settlement and maturity in a contract.
• •
3937 0168-940
Settlement amount is accrued using the linear method Settlement amount is accrued using the regressive yield method
á
Linear Regressive
T
L R
Linear Regressive
4–1
Definition of Field Names
Field
Definition
Accrual Type
This indicates which accrual type you wish to apply to the contract:
•
Interest is accrued at the end of the first online day during end-of-day processing and during every end-of-day until maturity; no interest is accrued for the Maturity Date itself
•
Interest is accrued during the first beginning-of-day processing (at the start of the second day) and during every beginning-of-day after that including the last day (Maturity Date)
á
First Last
T
F L
First Last
Action
This field is for use with Securities instruments. It is not relevant to other types of deal.
Actual
One of the following literals is displayed automatically indicating whether the settlement rate has been both fixed and authorised and whether the settlement amount is therefore actual or estimated: UNFIXED The settlement rate has not been fixed NOT AUTHORISED The settlement rate has been fixed but not authorised AUTHORISED The settlement rate has been authorised
4–2
Add-on Rate
An additional margin applied to the contract to calculate the cost of funds.
Adjustment Amount
This is the difference between the "Interest Payable" and the "Calculated Interest". The adjustment amount will only exist if the calculated interest has been overridden using the "Interest Payable" field on this screen.
Agreement Type
This indicates whether the FRA contract is made in anticipation of a rise in interest rates (bought) or in anticipation of a fall in interest rates (sold):
á
Bought or Sold
T
B S
Bought Sold
Amount
This is the amount of the payment associated with a scheduled event.
Amounts and Currencies
A list of the amounts and currencies associated with the displayed event.
3937 0168-940
Definition of Field Names
Field
Definition
Associated MM Deal
This is used to associate a hedged FRA deal with the Money Market deal it relates to. This is a two part field. The first indicates whether a Money Market deal is associated with the Forward Rate Agreement:
á
On Off
Yes, there is an associated deal No, there is no associated deal
T
Y N
Yes, there is an associated deal No, there is no associated deal
The second field is used to identify the contract number of the associated Money Market deal. If you set the first field to Yes on the deal Add screen but do not enter a contract number, you can enter one later using the change screen. Authorisation Confirmed
Available Amount
This enables you to authorise the Settlement Rate entered for fixing:
á
Switch on to indicate that the Settlement Rate for the contract is to be authorised.
T
Enter "Y" to indicate that the rate is to be authorised.
When the screen is initially displayed, this field displays the amount available before the client limit is exceeded. This amount is the "Current Limit" minus the "Current Exposure". When you enter details of a new money market or interest bearing securities outline deal, but do not complete the "Confirm" field, then the available amount is updated to reflect any additional exposure that would be caused by the deal.
Bank Portfolio
The Bank Portfolio is used to hold the Bank’s principal positions. This field shows the identifier of the Bank Portfolio to which this deal belongs. The identifier is defined on the Portfolio Definition (PFDFM) screen. On contract add screens, this field is pre-filled with the Portfolio associated with your usercode on the Users Maintenance (USERS) screen.
3937 0168-940
4–3
Definition of Field Names
Field
Definition
Broker or Via
This field shows either the broker that arranged the contract, or the method by which the contract was arranged. The field can contain one of the following
•
The nickname of the broker through which the contract was arranged. These are set up on the Brokers (BRKRM) table.
• • • • •
ELEC PHON REUTERS SWIFT TELEX
If you are not entering a brokerage amount, the entry in this field is used for documentary purposes. See Brokerage Method. Brokerage Amount
The amount of brokerage to be paid on the contract. See Brokerage Method.
Brokerage Currency
The mnemonic of the currency in which the brokerage amount is entered. Currency mnemonics are set up on the Currencies table (CCYS). See Brokerage Method.
Brokerage Method
A code identifying the method used to calculate brokerage rates. This is defined by the user on the Non-FX Brokerage Rates table (NONFX). In conjunction with the contract type and broker number it constitutes the key to the brokerage method.
•
The brokerage fields are entered in the following combinations:
•
Complete the Broker or Via and Brokerage Method fields if you want the system to calculate brokerage
•
Complete the Broker or Via, Brokerage Currency and Brokerage Amount fields if you want to enter the brokerage amount
•
If you do not want to enter a brokerage amount, only complete the Broker or Via and Brokerage Currency fields
•
If you are not entering any brokerage details, leave all the brokerage fields blank.
Calculated Interest
The interest that was calculated for the period between the previous event and the current event.
Client City
For Forward Rate Agreements this is the mnemonic of the counterparty's city of residence. No entry need be made for interdepartmental deals. For swaps this is the mnemonic of the Payee/Payer’s city of residence. City mnemonics are set up on the General Purpose Narratives table (type CI).
4–4
3937 0168-940
Definition of Field Names
Field
Definition
Client Portfolio
The Client Portfolio is used to hold a client’s positions. This field shows the identifier of the Client Portfolio to which this deal belongs. The identifier is defined on the Portfolio Definition (PFDFM) screen.
Client Shortname
For Forward Rate Agreement deals this is the shortname of the client with whom a counterparty deal is struck. No entry need be made for FRA interdepartmental deals. For swaps deals this is the shortname of the client with whom a counterparty deal is struck. Client mnemonics are set up on the Client Details - Banking (CIWSL) screen.
Close-out Amount
The amount of the "Current Principal" that is to be closed out for this swap.
Close-out Date
The date on which a Swap is closed-out, or partially closed-out, before the Termination Date. For a full close-out, the Swap contract will be prematurely terminated and a compensating payment may be made. For a partial close-out, a compensating payment may be made and any New Principal will apply for the period in which the Close-out Date occurs, and all subsequent periods, with immediate effect. The close-out date should be a date falling after the start date and before the maturity date.
Comments
This field is used for documentary purposes. Any comments entered here are displayed when details of the deal are displayed on the Outline Deal Inquiry (DEALI) screen, and on the Authorise Release of Event Messages (SETTA) screen. Use of this field is defined on the System Parameters (SPMTR) screen (see the Guide to Setting Up).
Commitment Date
The date on which the swaps contract was committed onto the system.
Compensating Amount
The amount of the initial compensating payment in respect of the swap. This is paid on the “Compensating Date”.
Compensating Currency
The currency of the initial compensating payment in respect of the swap.
Compensating Date
The date on which the initial compensating payment will be paid for the swap.
3937 0168-940
4–5
Definition of Field Names
Field
Definition
Compensating Payment
Indicates whether the initial compensating payment is to be Paid to or Received from the client. This field is only mandatory on the Swaps General Details - Lead In (SWGEL) and Swaps General Details Add (SWGEA) screens if there is an entry in the "Compensating Amount" field.
Confirm
Confirmation
Contract Indicator
á
Pay Receive
T
P R
Pay Receive
On the FRA Outline Deal Add (FRDEA) and the Swaps Outline Deal Add (SWDEA) screen, use this field to indicate whether a deal is to be added to the outline deal queue.
á
No Yes Override
T
N Y O
Do not add the deal Add the deal if no limits are exceeded Add the deal even if limits are exceeded Do not add the deal Add the deal if no limits are exceeded Add the deal even if limits are exceeded
Indicates whether a confirmation has been received by the counterparty:
á
On Off
Confirmation received Confirmation not received
T
Y N
Confirmation received Confirmation not received
This field indicates whether the "Compensating Amount" is to be added to the loan side or the deposit side of the swaps contract. This field is only mandatory on the Swaps General Details - Lead In (SWGEL) and Swaps General Details Add (SWGEA) screens if there is an entry in the "Compensating Amount" field.
á
Loan Deposit
T
L D
Loan Deposit
On the Swap Event Inquiry (SWEVI) and the Swaps Schedule Inquiry (SWSCI) screens, you can use this field to limit the display to those fields that are applicable to one side of the swap.
4–6
3937 0168-940
Definition of Field Names
Field
Definition
Contract Number
The unique reference number that identifies the contract. This is automatically allocated when you add a new contract, but must be input for all other actions. On the Contract Diary Narratives screens (CNARA and CNARM), this is the number of the contract for which the events are being entered. This field is used, in conjunction with the Value Date, to uniquely identify the record.
Contract Period
The number of days between the start date and the settlement date. This period is notional because the principal is never actually paid or received for the duration of the period. When this field is amended, all associated account postings are recalculated. You must enter either the Contract Period or the 'Maturity Date'.
Contract Rate
The agreed rate for the contract on the deal date. The value entered can have up to four numeric characters before the decimal point and up to 12 decimal characters after the decimal point. When the Fixing Date is reached, the difference between the Contract Rate and the prevailing market interest rate is applied to notional principal to ascertain what the settlement sum should be.
Counterparty Deal
Currency
This indicates whether or not the deals displayed are counterparty or interdepartmental deals:
á
On Off
Counterparty deals Interdepartmental deals
T
Y N
Counterparty deals Interdepartmental deals
The mnemonic of the currency in which an amount is expressed. On the FRA Outline Deal Add (FRDEA) and the Swaps Outline Deal Add (SWDEA) screens, this is the currency in which the limits and exposures are displayed. Currency mnemonics are set up on the Currencies (CCYS) table.
Currency Conversion Indicator
This field controls whether the contract is to be converted from its existing currency into euros. To convert the contract to euros:
3937 0168-940
á
Select the 'Currency Conversion Indicator' and click Change
T
Enter "Y" in the 'Currency Conversion Indicator' field and press Transmit
4–7
Definition of Field Names
Field
Definition
Current Exposure
This is your current exposure to the client specified in the "Limit and Exposure for" field. The exposure includes:
• •
All the client's active contracts Money market and interest bearing securities outline deals currently on the outline deals queue
Current Limit
This is the exposure limit that is set up for the client specified in the "Limit and Exposure for" field. The exposure limit is the sum of the short and long term exposures set up for the client on the Limit Maintenance (EXCLM) screen, see the Risk Management Administration Guide.
Current Principal
On the Swaps Close-Out (SWCOM) screen, this is the amount of the principal before a (partial) close-out of the swap contract. On the Swaps Schedule Maintenance (SWSCM) screen, this is the amount of the principal after the current event has been actioned.
Days for Interest
The length, in days, of the interest payment calculation period.
Deal Date
The date on which the deal was struck. This field defaults to the system as-of date.
Deal Equivalent
When you enter details of a new money market or interest bearing securities outline deal, but do not complete the "Confirm" field, then this field displays the exposure to the deal in the currency of the client limit. For FRA and Swaps contracts, this field is not utilised.
Dealer Identifier
The identifier of the dealer responsible for the contract. These identifiers are set up on the Dealers and Officers table (DEALR).
Deposit Currency
The currency in which the deposit details are entered and displayed. Currency mnemonics are set up on the Currencies (CCYS) table.
Deposit Interest Basis
For the deposit side of the swap, this is the method of calculating the effective period over which interest will be accrued. See 'Contract-Related Calculations' in the Core Functions and Inquiries Guide for details. Values are: 30 31 366 360 365
Deposit Maturity Date
4–8
30/360 30E/360 Actual/Actual Actual/360 Actual/365
For the deposit side of a swaps contract, this is the date that marks the end of the final calculation period.
3937 0168-940
Definition of Field Names
Field
Definition
Deposit Pay Agent
The name of the client's agent who pays the funds on the deposit side of the swaps contract. This is set up on the Agents table (AGNTM). You can also enter one of the following codes: T
To be advised
U
No agent is involved on this side of the deal
S
Agent is the same as the nostro
@ This must be followed by the exact S.W.I.F.T. address of the agent. Agents can be defaulted onto contract entry screens according to rules set up on the Agent Settlement Defaults (AGDFM) table. For a list of valid combinations of entries in the Nostro and Agent fields see "Nostro and Agent Combinations" in Section 1 of this guide. Unless otherwise specified, all nostro and agent fields default to "T". This nostro/agent combination (T/T) should be used with care when payment takes place at the start event. Deposit Pay Nostro
The number or name of the payment nostro, set up on the Nostros table (NSTRO), for the deposit side of the swaps contract. You can also enter one of the following codes: V
Vostro
D
Direct payment
T
To be advised
C
Compensating Contract
Nostros can be defaulted onto contract entry screens according to rules set up on the Nostro Settlement Defaults (NSDFM) table. For a list of valid combinations of entries in the Nostro and Agent fields, see "Nostro and Agent Combinations" in Section 1 of this guide. Unless otherwise specified, all nostro and agent fields default to "T". This nostro/agent combination (T/T) should be used with care when payment takes place at the start event. Deposit Principal
The amount of the deposit principal expressed in the "Deposit Currency".
Deposit Rate Table
This identifies the rate that is used for Mark to Market revaluation for the deposit side of the swaps contract. The identifier is set up on the Rate Definition table (RTDEF) and the rates represented by the identifier are set up on the Market Interest Rates table (RATEA). Note:
3937 0168-940
The rate table used must have the Forward Rate Indicator field set to Zero-Coupon.
4–9
Definition of Field Names
Field
Definition
Deposit Receive Agent
The name of the client's agent who is to receive funds from the pay nostro. These are set up on the Agents table (AGNTM). You can also enter a code (see "Deposit Pay Agent"). You can enter NSTD in this field to utilise non-standard settlement instructions. These instructions must be set up for the deposit side of the contract using the Non Standard Settlement Instructions (NSTDM) screen (see the Settlements Guide).
Deposit Receive Nostro
The number or name of the receive nostro, set up on the Nostros table (NSTRO), for the deposit side of the swaps contract. You can also enter a code (see Deposit Pay Nostro).
Deposit Start Date
This is the effective start date of the deposit side of the swaps contract. The first calculation period commences from this date.
Direction
This indicates whether the compensating payment, in respect of the (partial) close-out of a Swap contract, is Paid or Received from the bank.
Estimated
á
Paid Received
T
P R
Paid to Received from
One of the following literals is displayed automatically indicating whether the settlement rate has been authorised and whether the settlement amount is therefore actual or estimated: FINAL The settlement rate has been authorised CURRENT The settlement rate has not yet been authorised
Estimated Settlement
The estimated settlement amount based on the current market interest rate. An outgoing payment amount is preceded by "-", whilst an incoming payment is unsigned.
Estimated Settlement Rate
This rate is estimated using the current rate held on the Market Interest Rates table (RATEA) for the rate represented by the Fixing Rate Identifier on the contract.
Event
On the Swaps Event Inquiry (SWEVI) screen, this is the narrative key of the event for the swap contract. One of:
Event Currency
4–10
IP
Input
IS
Interest Settlement
RP
Rate/Principal Change
RL
Rollover
MA
Maturity
CG
Compensating Payment
The currency in which details of the event are displayed and entered.
3937 0168-940
Definition of Field Names
Field
Definition
Event Date
The date on which the compensating payment is to take place.
Event Type
On the Swaps Schedule Maintenance (SWSCM) screen, this is the narrative key of the event for the swap contract. One of: IS
Interest Settlement
RP
Rate/Principal Change
RL
Rollover
MA
Maturity
The Swaps Schedule Inquiry (SWSCI) screen shows the above events, but also shows input (IP) and compensating payment (CG) events. The schedules for these events cannot be changed. Exchange Rate
The exchange rate applied when the principal is exchanged for a currency swap. This field is optional, but if a value is entered, the rate must be consistent with the loan and deposit principals.
External Market Value
This indicates whether the contract has been marked to receive external market values. For more details, see Mark to Market Loader for FRAs and Swaps in the Guide to Interfaces with External Systems.
á
On Off
Receive external market values External market values not to be received
T
Y N
Receive external market values External market values not to be received
First Repayment Date
The date on which the first principal repayment will take place for this side of the swaps contract. Subsequent repayments will be calculated from this date using the value set in the "Repayment Frequency" field.
First Settlement Date
The date on which the first interest settlement will take place for the swaps contract. Subsequent settlements will be calculated from this date using the value set in the "Settlement Frequency" field. Different dates can be set for the loan and deposit sides of a contract.
Fixing Date
The date on which the prevailing market interest rate is applied to the notional principal so that the settlement sum can be ascertained (based on the difference between the contract and the market interest rates). You must enter either the Fixing Date or the Settlement Date.
Fixing Days
This is the number of days prior to the calculation period date when the rate for the next period is fixed.
3937 0168-940
4–11
Definition of Field Names
Field
Definition
Fixing Rate Identifier
This identifies the rate table used to fix the Forward Rate Agreement contract. At the time of fixing, the system uses the current rate from the identified table to estimate the settlement rate and amount. The rate identifier is set up on the Rate Definition (RTDEF) table and the rates represented by it are set up on the Market Interest Rates (RATEA) table. Note:
Fixing Status
The rate table used must have the Forward Rate Indicator field set to Yes.
For FRA contracts, this is a literal identifying the status of the contract: UNFIXABLE The settlement rate is unfixed, but is not fixable because the Fixing Date has yet to be reached FIXABLE The settlement rate is fixable but has not yet been fixed FIXED The settlement rate has been fixed but is not yet authorised and may, therefore, be re-fixed AUTHORISED The settlement rate has been authorised, and cannot be re-fixed For swaps contracts, this is the status of the floating rate that is to be used for a particular calculation period. This field is only relevant if a “Floating Rate Identifier” has been specified.
•
Estimated (E): The calculation period date is more than the number of Fixing Days ahead so the latest rate on the floating rate table has been used as an estimated rate
•
Fixed (F): The calculation period date is before the current date and the floating rate has been taken from the floating rate table
•
Manual (M): The floating rate table has been overridden by a manually entered floating rate
•
Previous (P): The calculation period date is within the number of fixing days of the current date but has yet to be fixed
Floating Rate
The value of the floating rate for the current calculation period.
Floating Rate Identifier
This identifies the floating rate used to calculate the charge or payment on the swaps contract. Different rates can be applied to the loan and deposit sides of a contract. The rate identifier is set up on the Rate Definition (RTDEF) table and the rates represented by it are set up on the Market Interest Rates (RATEA) table. On the Swaps Schedule Maintenance (SWSCM) screen, this is the rate identifier applicable to the displayed event.
4–12
3937 0168-940
Definition of Field Names
Field
Definition
Forward Rate Table
This identifies the rate that is used for Mark to Market revaluation. The identifier is set up on the Rate Definition table (RTDEF) and the rates represented by the identifier are set up on the Market Interest Rates table (RATEA). Note:
FRA Rules
GL Master Number
The rate table used must have the Forward Rate Indicator field set to Yes.
A documentary field only, which may be used to identify the terms under which the FRA contract will be conducted. This field is used in S.W.I.F.T. messages. This field can contain one of the following:
á
ISDA terms BBA FRA terms Other Details
T
I B O
ISDA terms BBA FRA terms Other terms
The number of the General Ledger Master to which the contract is linked. This identifies the General Ledger category. The GL Master can be defaulted from the Default General Ledger Categories Maintenance table (GLDFM).
3937 0168-940
4–13
Definition of Field Names
Field
Definition
Holiday Method
This comprises two fields. The first identifies the method that the system uses to determine the settlement event date, if the system generated event date falls on a holiday in the countries indicated by the value in the second field. The first field indicates one of the following: Following The system settles the amount on the next available day. Modified The system settles the amount on the next available day. If this falls in the following month, the system will search for the first available day prior to the end of the month. Previous The system settles the amount on the first available previous day. None The system will settle on the event day, even if it is a holiday.
á
Following Modified Previous None
T
F M P N
Following Modified Previous None
The second field contains a value defined on the Country Check Codes table (CNCHK) representing the currencies to be checked for holidays for each contract event. Holiday Override
This comprises two fields. The first indicates whether an event on the contract can occur on a holiday:
á
On Off
Yes, events can occur on holidays No, events can not occur on holidays
T
Y N
Yes, events can occur on holidays No, events can not occur on holidays
The second field contains a value defined on the Country Check Codes table (CNCHK) representing the currencies to be checked for holidays for each contract event. Instrument / Product
This identifies the product being traded for this contract. For example, Treasury Bonds, Gilts, Foreign Exchange Spot Deal. Product definitions are held on the Product Types Maintenance table (PRTPM).
Instrument Swapped
4–14
This is a documentary field that that you can use to indicate that this swap contract is related to a Securities instrument.
3937 0168-940
Definition of Field Names
Field
Definition
Interest Basis
This is the method of calculating the effective period over which interest will be accrued. See 'Contract-Related Calculations' in the Core Functions and Inquiries Guide for details. Values are: 30 31 366 360 365
30/360 30E/360 Actual/Actual Actual/360 Actual/365
Interest Literal
A narrative indicating whether the type of interest is either “FIXED” or “FLOATING”.
Interest Payable
The amount of interest that is to be paid for the period between the previous event date and the current event date. This will be set equal to the "Calculated Interest", but it can be changed as required.
Interest Rate
If a swaps contract has a fixed rate of interest, this is the rate that will be charged or paid. Different rates can be applied to the loan and deposit sides of a contract.
Limit and Exposure for
The client for which the limit and exposure details are being displayed.
Linked Contract
This is a documentary field indicating the contract from which details of the current contract were copied. If you are in the process of copying a contract, this field contains the number of the contract being copied. This field can be overwritten if required.
Loan Currency
The currency in which the loan details are entered and displayed.
Loan Interest Basis
For the loan side of the swap, this is the method of calculating the effective period over which interest will be accrued. See 'Contract-Related Calculations' in the Core Functions and Inquiries Guide for details. Values are: 30 31 366 360 365
Loan Maturity Date
3937 0168-940
30/360 30E/360 Actual/Actual Actual/360 Actual/365
For the loan side of a swaps contract, this is the date that marks the end of the final calculation period.
4–15
Definition of Field Names
Field
Definition
Loan Pay Agent
The name of the client's agent who pays the funds on the loan side of the swaps contract. This is set up on the Agents table (AGNTM). You can also enter one of the following codes: T
To be advised
U
No agent is involved on this side of the deal
S
Agent is the same as the nostro
@ This must be followed by the exact S.W.I.F.T. address of the agent. For a list of valid combinations of entries in the Nostro and Agent fields see "Nostro and Agent Combinations" in Section 1 of this guide. Unless otherwise specified, all nostro and agent fields default to "T". This nostro/agent combination (T/T) should be used with care when payment takes place at the start event. Loan Pay Nostro
The number or name of the payment nostro, set up on the Nostros table (NSTRO), for the loan side of the swaps contract. You can also enter one of the following codes: V
Vostro
D
Direct payment
T
To be advised
C
Compensating Contract
Nostros can be defaulted onto contract entry screens according to rules set up on the Nostro Settlement Defaults (NSDFM) table. For a list of valid combinations of entries in the Nostro and Agent fields, see "Nostro and Agent Combinations" in Section 1 of this guide. Unless otherwise specified, all nostro and agent fields default to "T". This nostro/agent combination (T/T) should be used with care when payment takes place at the start event. Loan Principal
The amount of the loan principal expressed in the "Loan Currency".
Loan Rate Table
This identifies the rate that is used for Mark to Market revaluation for the loan side of the swaps contract. The identifier is set up on the Rate Definition table (RTDEF) and the rates represented by the identifier are set up on the Market Interest Rates table (RATEA). Note:
Loan Receive Agent
The rate table used must have the Forward Rate Indicator field set to Zero-Coupon.
The name of the client's agent who is to receive funds from the pay nostro. These are set up on the Agents table (AGNTM). You can also enter a code (see "Loan Pay Agent"). You can enter NSTD in this field to utilise non-standard settlement instructions. These instructions must be set up for the deposit side of the contract using the Non Standard Settlement Instructions (NSTDM) screen (see the Settlements Guide).
4–16
3937 0168-940
Definition of Field Names
Field
Definition
Loan Receive Nostro
The number or name of the receive nostro, set up on the Nostros table (NSTRO), for the loan side of the swaps contract. You can also enter a code (see Loan Pay Nostro).
Loan Start Date
This is the effective start date of the loan side of the swaps contract. The first calculation period commences from this date.
Margin
For Swap contracts involving floating interest rates on the loan and/or deposit side, a numeric value defining the percentage variation added to or deducted from the basis of the floating rate, for example “0.5%” may be added to LIBOR. This is used to value a Swap on the mark to market basis. Any changes made to this value can be viewed online using the Swaps Contract Valuation (SWPVI). See also “Floating Rate Identifier”.
Market Rate Table
This identifies the rate that is used for Mark to Market revaluation. The identifier is set up on the Rate Definition table (RTDEF) and the rates represented by the identifier are set up on the Market Interest Rates table (RATEA). Note:
Maturity Date
The rate table used must have the Forward Rate Indicator field set to Zero-Coupon.
For an FRA contract, this is the date on which the notional contract period expires. For a swaps contract, this is the date that marks the end of the final calculation period and the end of the Swap term. If you amend this date (on the Swaps Schedule Maintenance (SWSCM)) to be before the first payment date (entered on Swaps Loan Side Add (SWLNA) and Swaps Deposit Side Add (SWDPA) screens, the first payment will automatically be scheduled to take place on the termination date.
Maturity Period
The number of days between the settlement date and the maturity date. This can be set up as a default for a product on the Forward Rate Agreement Defaults Maintenance (FRDFM) screen. If this default exists, the system calculates the maturity date for a contract automatically.
Maximum Rate
This is the rate above that the floating rate, with the margin applied, may not rise for this side of the swap.
3937 0168-940
4–17
Definition of Field Names
Field
Definition
Message Priority
Unless your version of the system is set up to support S.W.I.F.T. payment / confirmation messages, this is a documentary field only. Otherwise, it identifies the system code associated with a standard S.W.I.F.T. message priority code. 01 - Urgent U1003 Equivalent to S.W.I.F.T. message U1003 (Urgent); a Non-Delivery Warning is reported if the message has not been received within 15 minutes. 02 - Normal N2020 Equivalent to S.W.I.F.T. message N2020 (Normal); Delivery Notification is reported if the message has been received within 100 minutes. 11 - Urgent U3003 Equivalent to S.W.I.F.T. message U3003 (Urgent); a Non-Delivery Warning is reported if the message has not been received within 15 minutes and Delivery Notification is reported if the message has been received within 15 minutes. 99 - None Indicates that, even if the client has a S.W.I.F.T. address, settlement instructions must be suppressed. This facility can be used for internal deals that do not require settlement instructions.
Minimum Rate
This is the rate below that the floating rate, with the margin applied, may not fall for this side of the swap.
Net Interest Payment
This indicates whether interest settlement is to be netted for the loan and deposit sides of an interest rate swap. Netting will only take place for interest settlements that are on the same date.
á
On Off
Yes, netting of interest is to be made No, netting of interest is not to be made
T
Y N
Yes, netting of interest is to be made No, netting of interest is not to be made
Note:
4–18
Interest netting cannot be performed for currency swaps.
Net Present Value
The net value of a Swap is updated online. This field reflects the present value in the system base currency. Refer to Appendix A, Calculations for a description of the calculation.
Net Present Value (LWD)
This field shows the Net Present Value as at the close of business on the Last Working Day (LWD).
New Value Date
If you are changing the date on which an event is to take place, enter the new date.
Next Contract Number
This is the number of the next contract for which you wish to display details.
Next Payment Date
The date of the next scheduled interest payment event in respect of the loan and deposit side of a Swap.
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Definition of Field Names
Field
Definition
Notional Maturity Date
For an FRA contract, this is the date on which the notional contract period expires. On the FRA Contract Add (FRASA) screen, you must enter either the Notional Maturity Date or the Contract Period.
Other Accounting Centre
The mnemonic of the accounting centre of the other “department” involved in an interdepartmental deal. These are set up on the Accounting Centres table (ACNTM). This field is not used for counterparty deals.
Other Accounting Centre Trade Type
This indicates whether the interdepartmental contract is Traded or Hedged, from the accounting centre of the other “department's” standpoint. For counterparty deals, a trade type is not indicated in this field. This field is only displayed on the FRA Contract screens (FRASA/C/I) and the FRA Contract Valuation inquiry (FRAVI).
Other GL Master
á
Traded Hedged None (counterparty deals only)
T
T H Space
Traded Hedged (counterparty deals only)
For interdepartmental contracts, this is the General Ledger Master number of the accounting centre to which the other “department” belongs. This field is not used for counterparty deals.
Our Pay Nostro
The number or name of the payment nostro, set up on the Nostros table (NSTRO), for the contract: You can also enter one of the following codes: V
Vostro
D
Direct payment
T
To be advised
C
Compensating Contract
Nostros can be defaulted onto contract entry screens according to rules set up on the Nostro Settlement Defaults (NSDFM) table. For a list of valid combinations of entries in the Nostro and Agent fields, see "Nostro and Agent Combinations" in Section 1 of this guide. See also "Their Receive Agent". Unless otherwise specified, all nostro and agent fields default to "T". This nostro/agent combination (T/T) should be used with care when payment takes place at the start event.
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4–19
Definition of Field Names
Field
Definition
Our Receive Nostro
The number or name of the receive nostro, set up on the Nostros table (NSTRO), for the contract: You can also enter a code (see Our Pay Nostro). Nostros can be defaulted onto contract entry screens according to rules set up on the Nostro Settlement Defaults (NSDFM) table. See also "Their Pay Agent".
Payment Amount
On the Swaps Compensating Payments (SWCPM) screen, this is the compensating amount to be paid to or received from the counterparty. On the Swaps Contract Valuation (SWPVI) screen, this is the interest amount due on the next payment date followed by a literal indicating whether the amount is estimated (ESTIMATED) or not (blank).
Payment Currency
The currency of the compensating payment.
Payment Frequency
This indicates the regularity of interest settlements for swaps. Frequency codes are set up on the General Purpose Narratives table (GNARR), table type FR.
Payment Type
In normal circumstances, interest is paid at the swap's fixed rate on the defined settlement dates. However, some swaps allow the interest accrued to be added to the nominal. The rolled nominal is then used to calculate the interest amount for the next period. The permitted values are:
Premium/Discount
á
Normal Rolled
T
N R
Normal Rolled
The total amount of the premium or discount for the swap. This field is used when you are setting up a swap with a premium or discount that will be accrued in the same way as an interest bearing security. For a discount, enter a "- " sign in front of the discount amount that is to be accrued.
4–20
Previous Basis
The "Interest Basis" relevant to the previous event that took place on the side of the contract referred to in the "Contract Indicator" field.
Previous Event
The date on which the previous event took place on the side of the contract referred to in the "Contract Indicator" field.
Previous Payment Date
The date of the previous scheduled interest payment event in respect of the loan/deposit side of a Swap.
Previous Principal
The outstanding principal before this event is actioned. The principal will relate either to the loan or deposit side of the contract depending on the value of the "Contract Indicator" field.
Previous Rate
The interest rate applicable to the period between the previous event and the current event.
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Definition of Field Names
Field
Definition
Principal Currency
The mnemonic of the currency of the contract. Currency mnemonics are set up on the Currencies table (CCYS).
Principal Exchange
Indicates when the principal amounts associated with a currency swap contract will be exchanged:
á
Both Final Initial No
T
B F I N
Principal exchanged at contract start and maturity Principal exchanged at contract maturity Principal exchanged at start of contract Principal not exchanged Principal exchanged at contract start and maturity Principal exchanged at contract maturity Principal exchanged at start of contract Principal not exchanged
This field is only applicable to currency swaps. Principal Amount
For Swaps this is the amount of principal. For Forward Rate Agreements this is the nominal amount used to calculate the interest to be paid.
Product Type
This identifies the product being traded for this contract. For example, six month USD FRA that has standard terms and conditions. Product definitions are held on the Product Types Maintenance table (PRTPM).
Rate
An indication of whether the interest rate is:
• •
Floating/Variable (V) Fixed (F)
Rates
The fixed or floating interest rate for the calculation period before the event.
Receipt Amount
This is the compensating amount to be received from the counterparty.
Receipt Currency
The currency of the compensating payment.
Related Contract
This is a documentary field that that you can use to indicate that this swap contract is related to another contract such as a Money Market loan or a Securities contract. The contract number that you enter must exist.
Repayment Amount
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If it has been agreed that principal repayment will be made on a regular basis instead of using close-outs, this field can be used to specify the amount of each repayment.
4–21
Definition of Field Names
Field
Definition
Repayment Frequency
If it has been agreed that principal repayment will be made on a regular basis instead of using close-outs, this field can be used to specify the frequency of repayment. Frequency codes are set up on the General Purpose Narratives table (GNARR), table type FR.
Replaced By
This is a documentary field indicating the contract that replaced this contract.
Replaces Contract
This is a documentary field indicating the contract being replaced by this contract. If you are in the process of replacing a contract, this field contains the number of the contract being replaced. This field can be overwritten if required.
Reserved Amount
When the screen is initially displayed, this is your current exposure to the client in respect of the money market and interest bearing securities outline deals currently on the outline deals queue. When you enter details of a new money market or interest bearing securities outline deal, but do not complete the "Confirm" field, then the reserved amount is updated to include any additional exposure that would be caused by the deal.
Sequence
This is the sequence number of the compensating amount. This field enables you to set up more than one compensating amount for the same date.
Settlement Amount
The actual or estimated settlement amount of the deal, depending on whether the settlement rate has been fixed and authorised. The value may be displayed under the 'Actual' or 'Estimated' fields, depending on the following conditions: If the contract is not fixed, no 'Actual' amount is shown; only the current 'Estimated' details appear. If the contract has passed the fixing date, the final 'Estimated' amount is displayed. If the rate has been fixed, the 'Actual' amount is displayed. The direction of the settlement sum is displayed, for both the Actual and Estimated amounts, in the "Related Transaction" field at the bottom of the screen. The direction of the payment can be: PAYMENT TO BANK PAYMENT TO COUNTERPARTY PAYMENT TO ACCOUNTING CENTRE
Settlement Date
4–22
The date by which the amount to be paid or received, in respect of the deal, must be settled. You must enter either the Settlement Date or the Fixing Date.
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Definition of Field Names
Field
Definition
Settlement Frequency
This is the frequency of interest settlement for a swaps contract. The frequency codes are defined on the General Purpose Narratives (GNARR) table, type FR. The interest settlement dates will be calculated using this frequency and the "First Settlement Date". Different frequencies can be set for the loan and deposit sides of a contract.
Settlement Rate
For Forward Rate Agreements, this is the settlement rate of the deal, based on the current market interest rate indicated by the "Rate Table" on the contract entry (FRASA) screen, on or after the fixing date has passed. The rate may not be amended after settlement has been authorised. The value entered can have up to four numeric characters before the decimal point, and up to eight decimal characters after the decimal point. On the FRA Contract Valuation (FRAVI) screen, the value may be displayed under the 'Actual' or 'Estimated' fields, depending on the following conditions:
Show Euro Equivalent
Side
3937 0168-940
•
If the contract is not fixed, no 'Actual' rate is shown; only the current 'Estimated' rate appears.
•
If the contract has passed the fixing date, the final 'Estimated' rate is displayed.
•
If the rate has been fixed, the 'Actual' rate is displayed.
Selecting this field when inquiring on an account will return the balance automatically converted into Euros
á
Checked- Show account in euros Unchecked - Show account in default currency.
T
Y N
Show accounts in euros Show accounts in default currency (default)
This indicates whether this is the Loan or Deposit side of the swap or Both.
á
Loan Deposit Both
T
L D B
Loan Deposit Both
4–23
Definition of Field Names
Field
Definition
Start Date
On the FRA screens, this is the effective start date of the FRA contract. On the Swaps screens, this is the effective start date of the swaps contract. The first calculation period commences from this date.
Start Value Date
The "Event Date" from which you want the display of events to start.
Status
This indicates the status of the contract. The following may be displayed for FRA or Swap contracts:
Swap Rules
Their Pay Agent
á
Active Deleted Matured Unstarted
T
A D M U
Active Deleted Matured Unstarted
A documentary field only, which may be used to identify the terms under which the Swap contract will be conducted. This field can contain one of the following:
á
ISDA terms BBA Swap terms Other terms
T
I B O
ISDA terms BBA Swap terms Other terms
The name of the client's agent who pays the funds on the contract. This is set up on the Agents table (AGNTM). You can also enter one of the following codes: T
To be advised
U
No agent is involved on this side of the deal
S
Agent is the same as the nostro
@ This must be followed by the exact S.W.I.F.T. address of the agent. Agents can be defaulted onto contract entry screens according to rules set up on the Agent Settlement Defaults (AGDFM) table. For a list of valid combinations of entries in the Nostro and Agent fields see "Nostro and Agent Combinations" in Section 1 of this guide. Unless otherwise specified, all nostro and agent fields default to "T". This nostro/agent combination (T/T) should be used with care when payment takes place at the start event.
4–24
3937 0168-940
Definition of Field Names
Field
Definition
Their Receive Agent
The name of the client's agent who is to receive funds from the pay nostro. These are set up on the Agents table (AGNTM). You can also enter a code (see "Their Pay Agent"). Agents can be defaulted onto contract entry screens according to rules set up on the Agent Settlement Defaults (AGDFM) table. See also "Our Pay Nostro".
Total Exposure
When the screen is initially displayed, this is your current exposure to the client specified in the "Limit and Exposure for" field. The exposure includes:
• •
All the client's active contracts Money market and interest bearing securities outline deals currently on the outline deals queue
When you enter details of a new money market or interest bearing securities outline deal, but do not complete the "Confirm" field, then the total exposure is updated to include any additional exposure that would be caused by the deal. Total Settled
The total amount of all settled loan and deposit side interest payments/receipts. The currency mnemonic is displayed before the amount.
Trade Type
Update
This indicates whether the contract is Traded or Hedged, from your own standpoint:
á
Traded Hedged
T
T H
Traded Hedged
Use this field to indicate whether any settlement changes are to be restricted to the displayed event or are to be applied to all settlement events from the displayed event.
á
Ignore Changes Currently Selected Date Only All Dates On or After Selected Date
T
N C A
Do not update these details Update details for this event only Update details for this settlement and all subsequent settlements
If you are only changing the details for one side of a contract, the Update field for the other side of the contract should be set to ignore changes. Value Date
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The date on which the event is due to take place.
4–25
Definition of Field Names
Field
Definition
Variation Type
The variation defines how the "Margin" will be applied to the Interest Rate. The variation is: “+” if the margin is to be added to the Interest Rate “-” if the margin is to be subtracted from the Interest Rate.
Variation/Margin
This is the variation and the margin in relation to a floating interest rate on the loan and/or deposit side. The variation is: “+” if the margin is to be added to the Interest Rate “-” if the margin is to be subtracted from the Interest Rate The margin is a numeric value defining the percentage variation added to or deducted from the basis of the floating rate, for example “0.5%” may be added to LIBOR. This is used to value a Swap on the mark to market basis. Any changes made to this value can be viewed online using the Swaps Contract Valuation (SWPVI). See also “Floating Rate Identifier”.
Width Override
A code used to accept an exchange rate that exceeds one of the two exchange rate width bands set up for the currency at installation. Enter the Wide Code (W) if the exchange rate exceeds the first width band. Enter the Management Code (M) if the exchange rate exceeds the second width band.
Yield
The yield for the swap. This field is only relevant if the swap has similar characteristics to a security.
Yield Basis
This is the method of calculating the effective period for the 'Yield'. See 'Contract-Related Calculations' in the Core Functions and Inquiries Guide for details. Values are: 30 31 366 360 365
Yield Method
4–26
30/360 30E/360 Actual/Actual Actual/360 Actual/365
This identifies the method used to calculate the accruals for the premium or discount on a swap. The calculation method is the same as that of a type of security. Valid entries are:
á
2 5
Discounted Zero Coupon
T
2 5
Discounted Zero Coupon
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Appendix A Calculations Introduction This appendix gives the calculations used by the system that are specific to FRAs and Swaps. For calculations that are common to a number of contract types, see 'Contract-Related Calculations' in the Core Functions and Inquiries Guide.
Forward Rate Agreement - Estimated Settlement The estimated settlement sum is calculated on the same basis as that shown below for the settlement sum. However, where no market rate is available on the date of the estimated settlement, a Derived Market Rate (Rd) must be obtained, as follows:
Ri x Ba Rd = 1 + Bf x Q x 100
M
x
Q Ba
Bf
M
− 1 x 100 x
where: Ba =
Quotation basis
Bf =
FRA day basis
L
Length of FRA (Settlement to Maturity date in days)
=
M =
Lesser amount of L and Ba
Q
Quotation Frequency of market rates expressed numerically. This is set at "12" (i.e. monthly)
=
Ri =
Interpolated Market Rate. This must first be obtained, as follows:
The rates for FRAs are entered on the Market Rates (RATEA) table. The relevant rate table is identified in the ‘Market Rate Table’ field on the contract. The identified rate must have the ‘Forward Rate Indicator’ set to Yes. If no rate exists for the day on which estimated settlement is to be calculated, the rate is interpolated (based on the two existing rates which exist on the nearest dates preceding and following the required date). This interpolation is on a straight line basis and weights the two rates according to the time periods between each of the two known dates and the required date.
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A–1
Calculations
Forward Rate Agreement - Settlement Sum The Settlement Sum is calculated on the basis of the British Banker's Association formula for FRAs with a notional Contract Period in excess of one year and not in excess of three years. This formula may be used for periods of less than one year since the additional factors (SS2 and SS3) become zero:
Settlement Sum =
SS 3 ( D2 x L ) ( D1 x L ) x (1 + (1 + ) ( B x 100) ( B x 100)
+
SS 2 ( D1 x L ) 1+ ( B x 100)
+ SS 1
where SS1, SS2 and SS3 are calculated as follows: SS 1 =
( L - R ) x D1 x A ( B x 100) + ( L x D1)
SS 2 =
( L - R ) x D2 x A ( B x 100) + ( L x D 2 )
SS 3 =
( L - R ) x D3 x A ( B x 100) + ( L x D3)
and where: L R A B D1 D2 D3 SS1 SS2 SS3
A–2
= Settlement Rate = Contract Rate = Contract Amount (Principal) = Interest Basis = Number of days in year 1 = Number of days in year 2 = Number of days in year 3 = Discounted interest differential due for year 1 = Discounted interest differential due for year 2 = Discounted interest differential due for year 3
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Calculations
Accrual Methods Accrual can be calculated using one of the two methods available:
Regressive Method of Accrual
Interest Amount =
( ) ( ) *S 1− (1+ R 100) **( − D2 Basis) 1− 1+ R 100 ** − D1 Basis
where: R = Actual rate of FRA calculated at fixing date S = Actual settlement sum D1 = Days from calculation to maturity D2 = Days from contract settlement to maturity Accrual will be calculated from the calculation date to the end date.
Linear Method of Accrual
Interest Amount = S *
D1 D2
where: S = Actual settlement sum D1 = Days to be calculated D2 = Days from contract settlement to maturity Interest will accrue evenly from the calculated date to the end date.
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A–3
Calculations
Swap - Valuation The value of a Swap is the unrealised profit/loss using the current market rates. It is calculated by calculating the net present values of its constituent cash flows. The Present Value (PV) of a cash flow is calculated:
•
For an interest settlement associated with a floating interest rate, estimate the size of the cash flow
•
For a forward-dated cash flow (either fixed or estimated), discount the cash flow
In calculating the net present value of a Swap, the following steps are performed:
•
Calculate the present value for each forward-dated cash flow on the loan side of the Swap
•
Sum the present values of the forward-dated cash flows on the loan side of the Swap to obtain the net present value of the loan side. Convert the net present value into the base currency
•
Calculate the present value for each forward-dated cash flow on the deposit side of the Swap
•
Sum the present values of the forward-dated cash flows on the deposit side of the Swap to obtain the net present value of the deposit side. Convert the net present value into the base currency
•
Calculate the overall present value of the Swap by subtracting the deposit side from the loan side
Note:
All NPV amounts are converted to the system base currency for comparison. The conversion is done using the mid-market spot exchange rate held on the Exchange Rates table (EXCHM). The exchange rate group used to identify the exchange rates table is defined by the Default Country for the Accounting Centre. The Default Country is defined using the Location Maintenance (LOCTM) screen, see the Guide to Setting Up for details.
Estimation of Floating Interest Cash Flows If a Swap has a floating side, then it must have a "Floating Rate Identifier" associated with it. This rate identifier is set up on the Rate Definition (RTDEF) table and the rates represented by it are set up on the Market Interest Rates (RATEA) table. The rate identifier will have a time period associated with it; for example a US Dollar Treasury Rate might have an identifier of 3MUSDTREAS and its associated rates might be applicable for periods of three months. The Market Interest Rates (RATEA) table will hold details of the current values of the rates and any expected values of the rates at given future dates. For example, the current value of 3MUSDTREAS may be 6%, whereas the expected value two months ahead may be 6.3%. When determining the rate for a future interest period, the system examines all the market rates associated with the rate identifier, and estimates the rate using the following rules: a. If no future rates have been set up on the Market Rates (RATEA) table, then the current fixed rate is applied throughout the life of the Swap
A–4
3937 0168-940
Calculations
b.
If future rates have been set up on the Market Rates (RATEA) table and the floating rate is applicable for periods of n months (for example, 3 months for a 3-monthly US Dollar Treasury Rate), then for each cash flow use the rate applicable n months (3 months in the example) before its value date. For a cash flow within n months of the current date, the current rate is used. If there is not a rate set for a particular date, then the rate on the previous date is used.
The estimated rate is then used to calculate the interest for the period.
Discounting of Forward-Dated Cash Flows All forward-dated cash flows (real and notional) are included in the valuation of a Swap and must be discounted. The forward-dated cash flows that can be relevant to a Swap are:
•
Start Principal (STL or STD)
•
Interest Settlement (ISL or ISD)
•
Sum of Principal Repayment and Interest Settlement (RPL or RPD)
•
Sum of Final Payment/Receipt (RPL or RPD)
•
Close-out Payment/Receipt and Interest Settlement (RLL or RLD)
•
Compensating Payment/Receipt (CG)
For each cash flow a discounting rate (Re) is calculated from rates shown on the Market Rates (RATEA) table as follows: 1.
Determine the time period between the current date (Dc) and the value date (De) of the event (cash flow)
2.
If a market rate (Re) exists for the event's period (De-Dc), then use that rate
3.
If a market rate (Re) exists for either a shorter or a longer period than the event's period, then use that rate
4.
If market rates, R1 and R2, exist both for shorter and longer periods than the event's period, then use these rates to interpolate the discounting rate (Re):
Re = R1 +
3937 0168-940
( R2 − R1)( De − D1) ( D2 − D1)
A–5
Calculations
Cash flow to be discounted
Nearest shorter period with a market rate of R1 Required period of discounting Nearest longer period with a market rate of R2
Date Current Date (Dc)
Present Value of cash flow =
D1
De
D2
I 1 + ( R e x D)
where: D
Effective period between current date and cash flow date, calculated using the 'Interest Basis Calculations' defined in the Core Functions and Inquiries Guide. The Interest Basis used is defined for the particular side of the Swap on the Swaps Loan Side Add (SWLNA) or the Swaps Deposit Side Add (SWDPA) screen. Re = Interpolated market rate for the period D I = Cash flow ('+' for receipts, '-' for payments)
A–6
=
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Index A Accrual Methods, 2-7, A-3
C Calculations, A-1 Confirmations and Payments, 1-9 Contract Diary Narratives, 2-12, 3-23 Contracts Forward Rate Agreements, 1-2 Introduction to, 1-1 Payments resulting from, 1-1 Schedule Events, 1-8 Swaps, 1-4 Types, 1-1 Cost of Funds, 1-6 Currency Swaps, 1-4
D Definition of field names for data entry screens, 4-1 to 4-26
E Euro Related Information, 1-12
F Forward Rate Agreement screen Instructions for adding, 2-7 Forward Rate Agreements, 1-2 Exposure calculations for, 1-3 Interest Accrual, 1-2 FRA Contract - Add screen Description of, 2-6 Example of, 2-8 FRA Contract - Change screen Description of, 2-10 Example of, 2-10
3937 0168-940
FRA Contract - Inquire/Delete screen Description of, 2-11 FRA Contract Valuation screen Description of, 2-18 Example of, 2-18 FRA Defaults Maintenance screen Description of, 2-4 Example of, 2-4 FRA Holdings Summary screen Description of, 2-17 Example of, 2-17 FRA Outline Deal Add screen Description of, 2-5 Example of, 2-5 FRA Settlement Rate Authorise screen Description of, 2-15 Example of, 2-16 Scrolling, 2-15 FRA Settlement Rate Fix screen Description of, 2-13 Example of, 2-14 Scrolling, 2-13 FRAFA screen, 2-13 to 2-14 FRAHI screen, 2-17 FRASA screen, 2-6 to 2-9 FRASC screen, 2-10 to 2-11 FRASD screen, 2-15 to 2-16 FRASI screen, 2-11 FRAVI screen, 2-18 FRDEA screen, 2-5 FRDFM screen, 2-4 Future Rate Agreements, See Forward Rate Agreements
I Interest Rate Swaps, 1-4
M Mark to Market Valuation, 1-7
Index-1
Index
N Nostro/Agent Displaying the Standard Settlement Instructions, 1-10 Standard Settlement Instructions, 1-9 Nostro/Agent Combinations, 1-9 to 1-12
P Prerequisites FRA contract entry, 2-3 Swaps contract entry, 3-4
S S.W.I.F.T. Address format, 1-12 Schedule Events overview of, 1-8 SSI, 1-9 Standard Settlement Instructions, 1-9 Swap Contract Valuation screen Description of, 3-35 Example of, 3-35 Swaps Exposure calculations for, 1-6 Schedules for, 1-5 Termination of, 1-6 Swaps Close Out screen Description of, 3-24 Example of, 3-26 Swaps Compensating Payments screen Description of, 3-27 Example of, 3-28 Swaps Defaults screen Description of, 3-5 Example of, 3-5 Swaps Deposit Side - Inquire Description of, 3-22 Example of, 3-22 Swaps Deposit Side Add Description of, 3-13 Example of, 3-14 Swaps Event Inquiry screen Description of, 3-29 Example of, 3-29 Swaps General Details - Add Description of, 3-15 Example of, 3-16
Index-2
Swaps General Details - Change Description of, 3-17 Example of, 3-18 Swaps General Details - Inquire/Delete Description of, 3-19 Example of, 3-20 Swaps General Details Initial Add Description of, 3-8 Example of, 3-10 Swaps Loan Side - Inquire Description of, 3-21 Example of, 3-21 Swaps Loan Side Add Description of, 3-11 Example of, 3-12 Swaps Outline Deal Add screen Description of, 3-6 Example of, 3-6 Swaps Schedule Inquiry screen Description of, 3-32 Example of, 3-33 Swaps Schedule Maintenance screen Description of, 3-30 Example of, 3-31 Swaps Settlement Details screen Description of, 3-34 Example of, 3-34 SWCOM screen, 3-24 to 3-26 SWCPM screen, 3-27 to 3-28 SWDEA screen, 3-6 to 3-7 SWDFM screen, 3-5 SWDPA screen, 3-13 to 3-14 SWDPI screen, 3-22 SWEVI screen, 3-29 SWGEA screen, 3-15 to 3-16 SWGEC screen, 3-17 to 3-18 SWGEI screen, 3-19 to 3-20 SWGEL screen, 3-8 to 3-10 SWLNA screen, 3-11 to 3-12 SWLNI screen, 3-21 SWPVI screen, 3-35 SWSCI screen, 3-32 to 3-33 SWSCM screen, 3-30 to 3-31 SWSTM screen, 3-34
3937 0168-940
