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Before any trades can be booked, the target entity must be set up appropriately. You need to populate the future-related entity fields described below because we are modeling Bond Forwards as futures.Include Page
In addition, we recommend setting Option And Futures Expire Delay Days (12101) to 1 to prevent the Bond Forward position from being automatically expired. Please note this will impact other option and future positions held on same entity. You can contact Instrument Engineering for more information.
Reference Data
Storage & Configuration
Standard future contract functionality is used to model Bond Forwards are modeled using the Futures processing type. On expiration of the Bond Forward, standard fixed income functionality can be used to model the underlying bond in the case of physical delivery. Each security master file (SMF) will have a single row in Data Management.
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Trades are entered using the Book Trade module once entity and reference data have been configured. Enter the appropriate entity, security identifier, and trade (35)/settle (37) dates and click Submit to query for the security. When you right-click the security is right-clicked, it will provide options to open and close, the options for opening and closing it will depend on whether the entity-level Net Futures Positions field is set to Yes or No.
- Open the Bond Forward (future) trade using the quoted units and the agreed-upon forward price on trade date
Refer to Futures (FUT) Best Practices for additional information about trades using the Futures processing type.
Final Settlement
A Bond Forward can have two different methods upon final settlement: cash settlement or physical delivery.
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- Move Premium to Underlying
- Enter a close at cost (same price as the open)
- This prevents any cash from being generated
- Buy the underlying bond, again using the same price at which the Bond Forward was originally booked
- This will immediately factor the premium into the bond's URGL
- Enter a close at cost (same price as the open)
- Recognize Premium on Bond Forward
- Enter a close at the prevailing market price
- This moves the URGL to realized and generates cash
- Buy the underlying bond at the prevailing market price
- This will prevent the premium from being factored into the bond's URGL
- Enter a close at the prevailing market price
Accounting
Once a bond Bond Forward trade is booked it will be picked up in Eagle’s global workflow. Daily accruals and periodic resets are generated as part of the earnings process, accounting Accounting valuation is calculated when posting unrealized gain/loss , and Data Management valuation is calculated in the STAR to PACE push. These can also be triggered manually via Global Process Center:
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Note: if the Bond Forward requires settling coupon payments, these have to be processed using Miscellaneous Income, Asset Specific entries because futures do not support accrual processing.
Valuation
Bond Forwards are valued at their unrealized gain/loss using the formula below.
- Market Value = URGL = Notional Market Value - Notional Cost
= # of Contracts * Contract Size * (Current Price - Trade Price) * Price Multiplier
Reporting
STAR to PACE (S2P)
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