Total return swap (TRS) and interest rate swap (IRS) contracts can have a spread change that takes place on a non-coupon date. Eagle Accounting can calculate earnings for total return and interest rate swaps where the spread, also called the index offset, changes between coupon dates.
To set up a swap with a changing spread, you define all data on the floating accrual leg (processing security type of Swap Leg Interest Accrual, or SWLEAC). In the case of a Basis swap, an IRS can have two floating legs.
To allow you to update the spread (index offset) change on non-coupon dates, Eagle Accounting uses SMF Earning Time Periods. You must identify the SMF as Time Sensitive to make it eligible for use with SMF Earnings Time Periods, and can then enter the new offset amount/effective date. This allows the system to insert a new record into the Earnings Time Period table. If you change the spread for a date prior to an existing time period, the system inserts a new record into the table but the SMF value does not change.
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The procedures in this section describe how to set up and maintain a swap to reflect spread changes when you use Issue Viewer to manage securities with SMF Earnings Time Period information. You can use Reference Data Center to manage spread changes for swaps in a future release. |
Set Up Swap Securities for Spread Changes in Issue Viewer
For fixed income securities, Eagle Accounting allows you to update the index offset, or spread, on reset dates using SMF Earnings Time Periods. Earnings Time periods can also apply to total return and interest rate swaps. For swaps, the Earnings Time Period process allows for the offset, or spread, to change on non-reset dates.
If a spread applies for a swap starting on the Dated Date, you can enter the initial spread for the security when you create it. Otherwise, if you plan to change the offset for a total return swap or interest rate swap, you must first identify the finance leg of the swap security as time sensitive. In Eagle Accounting, a time sensitive security is a security that is eligible for use with SMF Earnings Time Periods. You can identify one or more legs for a swap as Time Sensitive when you first create the security, or you can edit the security to do so at a later time.
To create a swap that is time sensitive:
- In Accounting Center, in the left navigation pane, click Setup > Securities > Manage Securities > Issue Viewer.
You see the Issue Viewer tool. - Click the Add arrow.
- Point to Derivatives and click Total Rate Return Swap or Interest Rate Swap
You see the Total Rate Return Swap panel or the Interest Rate Swap panel, as appropriate. - In the Multiple Leg Swap panel, when you define the swap contract and legs, select the row for the leg with the Processing Security Type field set to Swap Leg Interest Accrual (SWLEAC) and the Coupon Type Code field set to Floating Rate.
- Under Swap Leg Underlying Information for the Swap Leg Interest Accrual leg, specify a value for the Index Offset (tag 215) field if a spread is applicable starting on the Dated Date.
In Reference Data Center, Index Offset is named Spread. - Under Swap Leg Flags for the Swap Leg Interest Accrual leg, set the Time Sensitive Indicator (tag 11926) field to Yes.
- Complete the remaining options for the security contract and legs.
- Click Submit.
- Click Refresh.
You see the new security in the Query Result window. Eagle Accounting also adds an initial SMF Earnings Time Period entry for the swap leg. The start date of the SMF Earnings Time Period is equal to the security's Issue Date or the Dated Date, whichever is earlier. - If you select the row for the security and click the SMF Earning Time Period tab, you can view the SMF Earnings Time Period record that the system created for the swap leg.
You can then process the trade and earnings. The Earnings process uses the index offset, or spread, from the initial Earnings Time Period created when you first identified the security as Time Sensitive.
Change the Spread for a Swap in Issue Viewer
When you update the spread for an interest rate swap or total return swap, you update the swap leg set up with the Processing Security Type field set to Swap Leg Interest Accrual (SWLEAC) and Coupon Type Code field set to Floating Rate, and that also has the Time Sensitive Indicator field set to Yes. You can identify the changed spread value and the date that the spread goes into effect.
When the spread, or index offset, for the TRS or IRS swap changes, there are two ways in which you can add an Earnings Time Period with the updated offset amount and start date when you use Issue Viewer. You can either edit the security to update the offset value and have the system create an Earnings Time Period record or you can use the Add SMF Earning Time Period option in Issue Viewer to add an Earnings Time Period record directly with the updated offset amount and start date.
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When you need to change the spread for a total return swap or interest rate swap, Eagle recommends that you update the Security Master spread value when you use Issue Viewer rather than directly add an SMF Earnings Time Period record with the updated offset amount and start date. This applies only if you entered the incorrect spread value at the time you created the security. |
To change the spread for a swap:
- In Accounting Center, in the left navigation pane, click Setup > Securities > Manage Securities > Issue Viewer.
You see the Issue Viewer tool. - Enter the query parameters and click Search.
- Select the security record you want to update, click the Change arrow, and click Change Swaps. Or double-click the security record.
You see the Change Swaps multiple leg swap panel. - In the Multiple Leg Swap panel, select the row for the leg with the Processing Security Type field set to Swap Leg Interest Accrual (SWLEAC) and the Coupon Type Code field set to Floating Rate.
- For the Swap Leg Interest Accrual leg you want to change, review the current spread value and effective date.
In the Swap Leg Underlying Information section, the Index Offset (tag 215) field shows the current spread value. In the Swap Leg Flags section, the Existing Effective Dates (tag 7017) field shows the effective date of the most recent spread added. The Existing Effective Date field lookup allows you to select the effective dates for any corresponding spreads you previously entered. - Enter a different value in the Index Offset field to change the spread.
By default the new spread value takes effect on the current date. - If you want the spread to take effect on another date, in the Swap Leg Flags section, specify that date in the As Of Effective Date (tag 4212) field.
The As Of Effective Date value indicates the date a spread takes effect when you define a new spread or change an existing spread. - Click Submit.
The system adds a new row in the SMF Earning Time Period tab grid that reflects your changes. The most recent SMF Earnings Time Period entry has a start date that reflects the current date or the date you specified. - Repeat this process if you want to define several spreads and corresponding As Of Effective Date values.