...
Overview
A Forward Rate Agreement (FRA) is the simplest form of an Interest Rate Swap (IRS), essentially a single period IRS. The major difference is that FRAs do not accrue interest income. Since FRAs are single period instruments, the payoff is known well before maturity. The price of an FRA remains constant after the Dated Date of the floating leg, so there is no need for the legs to accrue. This document covers the details of Accounting, Data Management, and Performance for FRAs.
| Include Page | ||||
|---|---|---|---|---|
|
...
Entity Setup
Before any trades can be booked, the target entity must be set up appropriately.
| Include Page | ||||
|---|---|---|---|---|
|
...
Reference Data
Eagle has modeled FRAs with three security master records. FRAs should be set up and viewed using Issue Viewer or Security Reference Manager > Add > Derivatives > Interest Rate Swap, or Reference Data Center.
...
| Include Page | ||||
|---|---|---|---|---|
|
...
Trade Processing
Open (transaction type: OPENSWAP)
...
The Book Trade module should be used to process closes. Eagle Accounting can handle both full and partial terminations.
Cancel & Rebook
Faulty FRA transactions must be cancelled using Batch Cancel Trades, with the transaction rebooked using the Book Trade module. FRAs are not supported in the Cancel & Rebook Trade process.
...
Maturities must also be canceled using Batch Cancel Trades.
Accounting
Once an FRA trade is successfully booked it will follow all core Eagle Accounting processes.
...
Similar to a fixed income instrument, accounting assumes a swap has the same price across all accounts. If there is a need to use different prices across entities then account level price overrides have to be used. If there is a need to use dirty pricing, then the pay and receive legs of the FRA should be setup to not accrue. This can be accomplished by populating both legs with a coupon of zero. Note that this also implies that cash and payments will not be created.
...
Reporting
...
STAR to PACE (S2P)
Almost all reports in Eagle Accounting leverage data from Data Management, which is populated by the S2P process
...
. This will be scheduled as part of the daily workflow, but can also be triggered manually as described in the Accounting section.
- The market_value_income column for each of these records captures a portion of the total market value and accrued income.
- Contract Position: captures the market value due to spread.
- Pay Leg Position: captures the market value due to period to date accrual payable. This is zero in the case of FRAs.
- Receive Leg Position: captures the market value due to period to date accrual receivable. This is zero in the case of FRAs.
Similar to other instruments, STAR to PACE creates data in position, position_detail, trade, and cash_activity tables.
OPERATIONAL REPORTING
The S2P process creates three rows for each FRA in the
...
POSITION, POSITION_DETAIL, TRADE, and CASH_ACTIVITY tables. The MARKET_VALUE_INCOME column captures the total market value at the contract level.
Accounting Reports
Eagle has a core set of
...
accounting reports that can be used to review
...
IRS and other security information. These are designed to support the daily operational workflow
...
INVESTMENT REPORTING
The STAR to PACE process moves position, cash activity, and trade data to PACE. This enables users to take advantage of all of the PACE OLAP reporting capabilities:
- Single/multi period lot, aggregate, and position reporting.
- Trade activity reporting.
- Cash activity reporting.
- Exposure reporting with full analytics integration; some data must be augmented to achieve complete exposure reporting
PERFORMANCE
...
for business users, allowing Grid Reports to be easily exported to Excel and customized to provide additional details as needed. Advanced Reports are intended to be client-facing and do not provide the same level of customization.
IRSs are displayed as three separate rows. The contract and legs are intended to be displayed together, but may be broken into different areas depending on the report's groupings (long/short, for example).
Insurance Reporting
| Include Page | ||||
|---|---|---|---|---|
|
Data Management Reporting
| Include Page | ||||
|---|---|---|---|---|
|
Performance
The performance toolkit has full functionality to calculate market value based performance at the contract and leg levels. The tool kit toolkit process is pre-configured to read data supplied by the STAR to PACE process and calculate performance.
- The swap contract and the legs will be grouped under the correct bucket based on your existing performance model
- Rollup level returns will be accurate, however the absolute return number might not make intuitive sense
- Because the FRA typically has a beginning market value of zero and is valued relative to the market value, the individual returns may not be meaningful
- In these instances reporting contribution to return will make more sense
- Clients needing returns at each instrument level can create a group based on Primary Asset ID; grouping the report by Primary Asset ID will aggregate the data at the FRA deal level with full drill through to the underlying legs
- Contract: performance due to price change
- Pay Leg: performance due to accrual paid to counter party; zero in case of FRAs
- Receive Leg: performance due to accrual received from counterparty; zero in case of FRAs
- Once performance data is committed to the database, performance link analysis, risk analysis, and performance attribution analysis features are available to analyze FRA performance
AUTOMATION
Three legged swap security master files and trades (contract, 1 pay, and 1 receive leg) are supported through the standard Message Center streams. The security master file must be loaded prior to the trade (the trade will not create a security master file record). For both the security master file and trade loads, records must be sent at the contract, pay leg, and receive leg levels. Therefore a single trade or security master file record will not spawn the pay and receive legs. Refer to the Eagle Message Center STAR and CSV Format Default Streams Guide for more information.
OTHER NOTES
...
Automation
| Include Page | ||||
|---|---|---|---|---|
|
FRA prices must be loaded to the contract only. Make sure you set tag 4590 = C in your price message.