About Ex Interest Processing
When a bond trades mid coupon period, the bond can trade flat, CUM, or EX. In Eagle Accounting, the bond can trade:
- Flat. The bond trades without interest. If you indicate the that a security trades flat, by setting the security's Trading Flat (tag 3949) option to Yes, the system does not calculate accrued interest purchased or sold at the time of the acquisition or disposition. In the event of a disposition mid-coupon, the system creates a coupon at the end of the coupon period based on the interest earned during the period.
- CUM. The trade is cumulative. If the bond trades mid coupon period, it trades with full period-to-date interest. The buyer receives the full coupon if held on final entitlement date. This is Eagle Accounting's default methodology.
- EX. The trade is ex interest. If the bond trades mid coupon period, the buyer is not entitled to any interest from the current coupon. The system deducts the amount of interest the buyer would ordinarily earn for the remaining days in the period from the net settlement of the trade, such that it trades with negative interest. In Eagle Accounting, you must set up ex interest processing to trade on an EX basis.
With To enable Eagle Accounting to determine whether to use ex interest processing , when you process accruals on the ex-date of a bond, the system creates the full coupon entitlement for each settled lot. That is, any lot that is entitled to the coupon has a traded cash record created for the full coupon that will be paid to the current holder of the bond. The system records the full receivable on the ledger on ex-date with a contra asset offset for the unearned interest. As the first day of ex-date period is accrued on ex-date, the following day’s (ex-date + 1 day) ex-date amount is the amount of remaining unearned income on ex-date.
For bonds that require a true up accrual on the last day of a coupon period (for example, CAD/365 and ZAR/365 day count) the true up occurs on the ex-date. This occurs because the system uses the ex interest amounts as the amount of interest that should be accrued over the remaining days of the coupon period. It adds the full coupon to the remaining ex interest (for the following day) to arrive at the target accrual for the period and compares it to the amount previously accrued to compute the day’s delta.
To enable Eagle Accounting to use ex interest processinga given trade based on the ex-date, you must perform several setup tasks. You must identify the entities that are eligible for ex interest processing, and you additionally either
update eligible securities and/orcreate an ex interest
schedules for those securitiesschedule for each eligible security or you can update eligible securities with criteria that the system can use to identify the security's ex-date.
Set Up Entities
For each entity that is eligible for ex interest processing, set the entity's Ex Interest Processing Flag field to Yes. This field is available in the Create/Edit Entity panel, the Create Master Fund panel, and the Edit Master Fund/Sector panel. A description of this option follows.
Option | Tag | Description |
|---|---|---|
| Ex Interest Processing Flag |
| 16311 | Indicates whether the system cam create coupons for the entity posted on ex-date rather than on coupon day. |
Options include:
|
Set Up Securities
For each fixed income security that is eligible for ex interest processing, you can define the Ex-Interest Days value. Setting up the Ex-Interest Days value at the security level is optional. The When the system processes a trade for an entity that uses ex interest processing, the system uses this security-level value only if it cannot identify an ex interest schedule for the security.
You can use Reference Data Center to enter this value. Otherwise, if you use Issue Viewer, this option is available in the Coupon Periods section in Issue Viewer's Long Term Debt panel, Short Term Debt panel, and Mortgage Backed Security panel. A description of this option follows.
Option | Tag | Description |
|---|---|---|
| Ex-Interest Days |
| 3941 | Specifies the number of calendar days prior to the coupon date that Eagle Accounting uses to identify the ex-date for this fixed income security. The system uses this value for the security only for entities that use ex interest processing, and only in cases where you did not provide an Ex Interest schedule for that security. Otherwise, if the entity uses ex interest processing and an Ex Interest schedule is available for the security, the system uses the schedule values rather than this security-level field to identify the ex-date. If no ex interest schedule exists for the security for an entity that uses ex interest processing, and you also do not define the Ex-Interest Days value on the security, Eagle Accounting processes the coupon as it normally does on coupon date, and does not use ex interest processing. Ex interest processing does not apply to cleared swaps and to securities trading flat. |
Add an Ex Interest Schedule for a Security
When you use ex interest processing, you can set up ex interest schedules for securities for each period where the bond trades ex coupon. Or, you may receive ex interest schedules from third parties.
If an entity is eligible for ex interest processing, the system uses the ex interest schedule for transactions associated with entities eligible to use ex interest processing to process accruals on the ex-date of a bond. If you do not set up an ex interest schedule for the security, ex interest processing for eligible entities uses the security-level Ex-Interest Days field to identify the ex- date when no ex interest schedule is available.
To add an ex interest schedule:
- Follow the Reference Data Center instructions provided in Add a Schedule. Otherwise, if you use Issue Viewer, see Add a Schedule for a Security in Issue Viewer.
- Identify the security associated with the schedule.
- For each entry in the schedule, in the Schedule Type field, select Ex Interest Schedule.
- In the Effective Date field, specify the effective date of the transaction.
- In the Ex Interest Date field, specify the date that each coupon period begins to trade ex interest to use for the corresponding effective date in the ex
- interest schedule.
Process Trades
If you process a fixed income trade for an entity that does not use ex interest processing, Eagle Accounting sets the trade's Accrued Interest Type (tag 3715) value to CUM, indicating that the trade is Cumulative, and you cannot change the CUM value. A CUM value indicates that the trade is cumulative. If the bond trades mid coupon period, it trades with full period-to-date interest. The buyer receives the full coupon if held on final entitlement date. This is Eagle Accounting's default methodology.
If you process a fixed income trade for an entity that does use ex interest processing, Eagle Accounting sets the trade's Accrued Interest Type (tag 3715) value to CUM, indicating that the trade is Cumulative, and you cannot change the CUM value.
During trade processing During trade entry for fixed income securities, you can specify an set the Accrued Interest Type (tag 3715) value field of STAR Calculated, CUM, or EX on individual fixed income trades entered manually or automatically.
- A CUM value indicates that the trade is cumulative. If the bond trades mid coupon period, it trades with full period-to-date interest. The buyer receives the full coupon if held on final entitlement date. This is Eagle Accounting's default methodology.
- An EX value indicates that the trade is ex interest. If the bond trades mid coupon period, the buyer is not entitled to any interest from the current coupon. The system deducts the amount of interest the buyer would ordinarily earn for the remaining days in the period from the net settlement of the trade, such that it trades with negative interest.
WRITERS NOTE: if you choose EX, must the entity be eligible and the schedule/sec level field also be available? Verify in panel.What if you choose EX and no schedule or Sec value is available?
A STAR Calculated value indicates that Eagle Accounting must. STAR Calculated is the default value, which allows Eagle Accounting to determine whether the trade is
cumulative or ex interest during transaction processing. This is the default value for the Accrued Interest Type field. If you select this value and the entity associated with the trade is eligible for ex interest processing, Eagle Accounting uses theCUM or EX.
When an entity uses ex interest processing, trade processing can determine whether a bond trades ex coupon. It can use a security's ex interest schedule to
set the trade's EX/CUM indicator based on the settlement of the trade. Bonds trade EX (ex-coupon) if the settlement date of the trade is equal to or greater than the ex-coupon date for the period.If the settlement date of the trade is on coupon date or shortly thereafter, the trade is CUM.Otherwise, if no ex interest schedule is available for the security, the system uses the security's Ex-Interest Days (tag 3941) value to set the trade's
identify the ex-date so the system can properly set the trade-level EX/CUM indicator based on the settlement of the trade. If
noyou do not provide an ex interest schedule
or Ex-Interest Days (tag 3941) value is available for the security, the system
sets the EX/CUM indicator to a value of CUM by default. In this case the coupon processes as it normally does on coupon date.This affects the following uses the security's ex interest days to identify the ex-date.
Fields related to ex interest processing are available in these trade panels:
- Open Debt Bond (pan-fixedopen.htm)
- Open Discount Bond (LT/ST) (pan-discountopen.htm)
- Open Inflation Linked Bond (pan-tipsopen.htm)
- Open MBS/ABS/IO/PO (pan-openmbs.htm)
- Close Debt Bond (pan-fixedclose.htm)
- Close Discount Bond (LT/ST) (pan-discountclose.htm)
- Close Inflation Linked Bond (pan-tipsclose.htm)
- Close MBS/ABS/IO/PO (pan-closembs.htm)
On these panels, the following A description of the trade-level fields relate related to ex interest processing follows.
Option | Tag | Description |
|---|---|---|
| Accrued Interest Type | 3715 | Specifies the accrued interest type for the trade. Options include:
|
WRITERs NOTE: when the entity is ineligible for ex interest processing, with null value, sometimes the default is STAR Calculated and sometimes it is CUM and locked. Why? WRITERS NOTE: when the entity is eligible for ex interest processing, can you always pick 3 values? or does system set based on schedule/sec level value? What occurs at time of txn entry and what occurs at time of run accruals? WRITERS NOTE: exactly what is the EX/CUM INdicator? is it a field with same or different tag? Ex Interest Processing Flag | 16311 | If you defined specified the Ex Interest Processing Flag value for the entity related to the trade, this field displays a Y or N to indicate whether the entity associated with the trade can use ex interest processing. Otherwise, no value appears. Options include:
|
Process Earnings
In addition to calculating a period-to-date accrual figure, the Earnings process can calculate a full coupon amount on EX date. It does this for lots in the first coupon period which trade EX, as well on EX date.
WRITERS NOTE: should we include the ZAR example at the end of the FSD?When you process accruals on the ex-date of a bond, the system creates a coupon entitlement for each settled lot. That is, any lot that is entitled to the coupon has a traded cash record created for the full coupon that is paid to the current holder of the bond.
The system records the full receivable on the ledger on ex-date to a new contra asset offset for the unearned interest. This contra offset account is called unearned interest. Because the first day of the ex-date period is accrued on ex-date, the following day’s (ex-date + 1 day) ex-date amount is the amount of remaining unearned income on ex-date. Each subsequent day, the ex-unearned interest account decreases by each day's income accrual until the original coupon entitlement date is reached, at which point the unearned interest account is zero, because all the income for coupon was received.