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When you use Eagle Accounting to process a typical total return swap, the key component necessary for booking a trade is the number of shares for the return leg (the underlying asset) and the price (index level). The system uses those two components to calculate the notional amount for the finance leg. However because the effective date, or dated date, for a forward starting total return swap occurs in the future, the price is unknown.Identifying a security as a forward starting total return swap allows you to book a trade without providing a price. When you lock in the price, the system processes a reset, but this first reset is "cashless." The first reset only locks in price/cost, but does not generate a cash exchange.
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| Option | Tag | Description |
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| Notional Reset Type | 4409 | Determines if the Total Return swap's finance leg is adjusted at reset or accrues on the original notional for the life of the swap, and also indicates whether the swap is a forward starting total return swap. Options include:
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Book Open Trades for Forward Starting Total Return Swaps
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- In the Accounting Center, in the left navigation pane, click Transactions > Trades > Book Trade/Rebook Trade > Book Trade.
You see the Book Trade workspace. - Complete the options in the Search Details pane and click Search.
You see the search results based on the criteria you selected. - Select the row with the forward starting total return swap security you want to trade.
- On the Book Trade tab, in the Actions group, click Action Rules, point to Open, and then click Open Swap Contract.
You see the Open Total Return Swap panel. - Under Issue Information, review the value of the Notional Reset Type field.
If you selected a forward starting total return swap, you see a value of CF (Constant Notional Forward) or RF (Recalc Notional - Forward). - Complete the contract, pay leg, and receive leg options on the Open Total Return Swap panel.
Once you enter the basic trade details, the multi row pane at the bottom of the panel opens. The panel refreshes when you click the contract, pay leg, or receive leg rows in the multi row pane. Options available for the legs vary depending on the value you selected at the security level for the Notional Reset Type field. - If you selected a value of Recalc Notional - Forward for the security, you can set the Notional / Units field to Enter Units, enter the equity leg units in the Shares field, and enter a Price field amount that is equal to zero.
The panel assigns the equity units to the Finance leg. - If you selected a value of Constant Notional - Forward for the security, you can set the Notional / Units field to Enter Notional, enter the notional amount in the Notional field, and enter a Price field amount that is equal to zero.
The panel assigns the Notional amount to the units of the Equity and Finance leg. - Click Submit.
Once you book the trade, it follows all core accounting processes. The system uses the core cost tags to store the notional cost values at the position, open, and close Cost object levels for the equity leg of total return swap.
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Valuing Forward Starting Total Return Swaps
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On the effective date of the security, the reset process recognizes that the position is forward starting, and the reset adjusts the position to set the correct units and notional amount. The system does not create a cash record.WRITERS NOTE: when is the effective date?