Payoffs

Cap

Buyer accrues receivable (writer accrues payable) equal to:

Floor

Buyer accrues receivable (writer accrues payable) equal to:

Entity Setup

Entities can be added/updated using Add/Change Entity or Create/Edit Entity (differs by version). Apart from the regular data setup, entities trading Caps and/or Floors need two additional pieces of data.

• Net Cap Floor (5830)

  • No: long and short positions in the same contract are held separately, with units always positive in Eagle Accounting

    • Short positions have negative units in Data Management

    • Transaction elections are Buy, Write, Sell, and BuytoCoverTrade event types are BUY, WRITE, SELL, and BUYCVR

  • Yes: long and short positions in the same contract are netted together, allowing a trade to cross zero and bring the position from long to short or vice versa

    • Short positions are represented by negative units in both Eagle Accounting and Data Management

    • Transaction elections are Buy and SellTrade event types are BUY and SELL

• Primary Amortization/Accretion Rule (3197): must be straight line (DEFAULTSL), straight line actual (DEFAULTSLA), or none (DEFAULTNONE)

  • If it is set to anything else, a security-level amortization/accretion rule must be established specifying one of the three above

Reference Data

Storage & Configuration

Eagle has modeled Cap/Floor security master files (SMFs) as single rows in Data Management.

Market Data

Caps/Floors are pegged to underlying floating rate indices. These rates must be loaded to an index security that is linked as an underlying to the Cap/Floor.

Security Data

Caps/Floors can be set up using Issue Viewer, Security Reference Manager (SRM), or Reference Data Center (RDC). The list below contains all fields required to configure a Cap/Floor security master file (SMF).

• Issue Name (961)

• Primary Asset ID (14) & Type (1432)

• Processing Security Type (3931): OPIRCA (Interest Rate Option Caps) or OPIRFL (Interest Rate Option Floors)

• Price Multiplier (18): defaults to 0.01, but may need to be changed to 1.00 depending on the prices you receive

• Quantity Scale (19): typically 1.00

• Issue Country Code (1418)

• Asset Currency (85)

• Primary Exchange (17)

• Coupon (70)

• Coupon Type (97) = X (Floating Rate)

• Strike Rate (11850)

  • Negative rates are supported in V17 R2.21 and above

• Day Count Basis (471)

• Payment Frequency (472)

• Issue Price (69)

• Issue Date (68)

• Dated Date (1183)

• First Coupon Date (473)

• Last Coupon Date (474)

• Maturity Date (38)

• Floating Rate Fields

  • First Rate Reset Date (10911): enter the actual first reset date, including any adjustments for weekends/holidays (same as first payment date unless the rate resets more frequently)

  • Reset Frequency (1788): same as payment frequency unless the rate resets more frequently

  • Underlying Security (1347): select appropriate floating rate index security

    • Index Offset (215): spread above or below the floating rate, entered in basis points (0.55% = 55)

Trade Processing

Open & Close

Trades can be booked using Book Trade. Cap/Floor positions can be either long or short. If a Cap/Floor is bought it is established as a long position. A written Cap/Floor is treated as a short position. Netting of the positions is determined by the entity level election. Other than basic information like Trade Date and Settlement Date, below are Cap/Floor specific required fields:are entered using Book Trade once the entity and reference data have been configured. Enter the appropriate entity, security identifier, and trade/settle dates and click Submit to query for the security. Right-click it and select Open > Buy or Close > Sell.

The fields below are used for both opens and closes.

• Event Type (55): see table below

• Select Values to be Calculated by STAR (7000): set to Traded Interest to have it calculated, or Calculate None to enter it manually

• Contracts (40): represents enter the Cap/Floor notional

• Price per Contract (45): this should be a clean unit price

  • Multiplied by Contracts, Quantity Scale, and Price Multiplier to calculate the premium

• Commission (47), Tax Amount (46), SEC Fee (48), Stamp Duty Tax (51), Other Fee (3752): these are added to the premium to generate the total net amount

• Traded Interest (49): this is the accrued interest bought or sold if the Cap/Floor is traded off marketcalculated or entered manually

• Settlement Currency (63): if a Cap/Floor’s trade premium settles in a currency that differs from its Asset Currency, this must be changed to the appropriate currency

• Lot Selection Method (27): defaults to entity value, but can be overridden

  • Used fo

• Broker (88)

Close

The book trade panel should be used to process sells. Eagle Accounting can handle both full and partial terminations.

Accounting

Once a Cap/Floor trade is booked it will be picked up in Eagle’s global workflow. Daily accruals and periodic coupon payments are generated as part of the earnings process, Accounting valuation is calculated when posting unrealized gain/loss, and Data Management valuation is calculated in the STAR to PACE push. These can be scheduled or triggered manually.

• V17 & Above: Accounting Center > Processing and Exceptions > Global Processes

  • Accruals: Earnings > Run Income Accruals

  • Accounting Valuation: Unrealized Gain Loss Entries > Post Daily Fund Unrealized Gain Loss-Position

  • Data Management Valuation: Eagle STAR to Eagle PACE Direct Processing > Transfer Data - Batch

• Prior to V17: Global Process Center

  • Accruals: Earnings > Accrue

  • Accounting Valuation: Unrealized Gain Loss Entries > Post Daily Fund Unrealized Gain Loss-Position

  • Data Management Valuation: STAR to PACE Direct Processing > Transfer Data - Batch

Valuation

Accounting calculates the value of a Cap/Floor by using the formula below:

• Market Value = Notional Amount * Clean Unit Price * Price Multiplier * Quantity Scale

  • Price Multiplier and Quantity Scale are typically 1.00 for Caps & Floors

Accounting needs the prices to be supplied as clean unit prices (without accrued interest).

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 S2P process creates one row for each Cap/Floor in the POSITION, POSITION_DETAIL, TRADE, and CASH_ACTIVITY tables. The MARKET_VALUE_INCOME column captures the total market value, inclusive of price fluctuations and period-to-date accruals payable or receivable (receivable if bought and payable if written). Cash activity is appropriately signed based on whether the Cap/Floor is bought or written.

Accounting Reports

Eagle has a core set of accounting reports that can be used to review Cap/Floor information. These are designed to support the daily operational workflow 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.

Insurance Reporting

Data Management Reporting

Performance

The performance toolkit calculates market value-based performance for Caps/Floors using data supplied by the S2P process. However, this can be misleading because traditional market values do not capture a Cap/Floor's true exposure. Exposure-based analyses, which can be implemented using Eagle Enrichment, calculate more meaningful returns.

Exposure

Exposure reporting and analysis are available in the product suite, but some accounting data must be augmented via Eagle Enrichment. Please contact Instrument Engineering for more implementation information based on your specific requirements. Additional details are also available in Exposure Reporting Best Practices and the Eagle Enrichment User Guide 2015. Manage Eagle Enrichment.

Automation

Refer to Options Automation Processing Notes for general information about options security setup and trade processing via Message Center.

Sample messages for the standard interfaces are listed below.