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Phase 1 of swaps netting in Eagle Accounting is limited to cleared Interest Rate Swaps (IRS) and Credit Default Index Swaps (CDX) set up with variation margin (VM) and amortization both turned off. It Single-Name Credit Default Swaps (CDS) are also supported when following Eagle’s best practice of using the CDX functionality for all credit swaps. Netting is rules-based to support different netting configurations across clearinghouses and securities, and . It can be triggered manually or via a schedulescheduled. Rules are configured based on Processing Security Type (3931), Primary Asset ID (14), and Primary Exchange (17).
Trade Processing
The market convention for cleared swaps is that all trades are opens and netting is used to collapse the offsetting positions, as shown in the scenarios below. To align with this convention in Eagle Accounting, only OPENSWAP transactions would be used. This may require remapping of inbound messages if closes/sells are being instructed.
Scenario | Existing Position | Activity | Netted Position |
|---|---|---|---|
Reduce Position By Half | 1,000,000 Long | Open 500,000 Short | 500,000 Long |
Cross Zero (500,000 Short to 250,000 Long) | 500,000 Short | Open 750,000 Long | 250,000 Long |
Configuration
Swaps netting is a four-step process:
Establish Accounting Rule
Define Netting Rule Details
Add Netting Rule to Entity
Trigger Netting
| Info |
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Netting is designed to work with Identified cost. Average cost entities require a Mixed Cost Basis Rule to specify Identified cost for Processing Security Type = |
Step 1: Establish Accounting Rule
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