When you use ex interest processing, Eagle Accounting allows coupons to post on ex-date rather than on coupon day. As part of normal accrual processing in Eagle Accounting, coupons typically post on coupon day. However, with ex interest processing, the system can separate the coupon payment from the bond and post on ex-date. You can use ex interest processing with certain securities that require the coupon payment to be separated from the bond and post on ex-date.
When a transaction meets the criteria for ex interest processing and 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.
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Flat. The bond trades without interest. If you indicate
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.
To enable Eagle Accounting to automatically process a trade ex interest based on the 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 processing, you must perform several setup tasks. You identify the entities that are eligible for ex interest processing, and you additionally either update eligible securities and/or create ex interest schedules for those securities.
Set Up Entities
For each entity that is eligible for ex interest processing, set the 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.
Ex Interest Processing Flag (tag 16311). Indicates whether the system cam create coupons for the entity posted on ex-date rather than on coupon day. In Eagle Accounting, coupons typically post on coupon day. Options include:
Yes. The entity uses ex interest processing for eligible securities. When, you must either create an ex interest schedule for each eligible security or you can update eligible securities with criteria that the system can use to identify the security's ex-date.
About Ex Interest Processing for Coupons
When you use ex interest processing for coupons, Eagle Accounting allows coupons to post on ex-date rather than on coupon day. As part of normal accrual processing in Eagle Accounting, coupons typically post on coupon day. However, with ex interest processing for coupons, the system can separate the coupon payment from the bond and post on ex-date. You can use this functionality with certain securities that require the coupon payment to be separated from the bond and post on ex-date.
If an entity is configured for ex interest processing for coupons and 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
.
Set Up Securities That Trade Ex Interest
For each fixed income security that
trades ex interest
, you can define the Ex-Interest Days value. Setting up the Ex-Interest Days value at the security level is optional.
When the system processes a trade for a security with a defined ex period, 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. |
If 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. |
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
Manage Schedules. Otherwise, if you use Issue Viewer, see Add a Schedule for a Security in Issue Viewer.
When you add an ex interest schedule, you must:
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.
Set Up
Entities Eligible for Ex Interest Processing for Coupons
For each entity that is eligible for ex interest processing for coupons,
set the
entity's
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 processingEx-Interest Coupon Recognition Date field to Ex Date. 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 Coupon Recognition Date | 16311 | Indicates whether the system can create coupons for the entity posted on ex-date rather than on coupon day. Options include:
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Process Trades
During trade entry for fixed income securities, you can
set the Accrued Interest Type (tag 3715)
field of STAR Calculated, CUM, or EX
- 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 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 the. STAR Calculated is the default value, which allows Eagle Accounting to determine whether the trade is CUM or EX.
Trade processing can determine whether a bond trades ex coupon. It can use a security's ex interest schedule to identify the ex-date so the system can properly set the trade
-level EX/CUM indicator based on the settlement of the trade.
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 EX/CUM indicator based on the settlement of the trade. If no 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 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)
If you do not provide an ex interest schedule, the system uses the security's ex interest days to identify the ex-date.
After trade processing, the system stores the Accrued Interest Type value of CUM or EX to indicate whether you receive the next coupon. After that coupon passes, the system updates the current Ex/Cum indicator.
On the trade entry panel, the system also displays the Ex-Interest Coupon Recognition Date (16311) value for the entity related to the trade to indicate whether the entity associated with the trade can use ex interest processing for coupons. Otherwise, no value appears.
Fields related to ex interest processing are available in the Open Debt Bond panel, Open Inflation Linked Bond panel, Close Debt Bond panel, and Close Inflation Linked Bond panel.
A description of the trade-level fields related to ex interest processing follows.
Option | Tag | Description |
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Accrued Interest Type | 3715 | Specifies the accrued interest type for the trade. Options include:
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Ex |
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?
If you defined 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. Options include:
Yes (Y). The entity can use ex interest processing to create coupons posted on ex-date rather than on coupon day. If the trade has the Accrued Interest Type field set to STAR Calculated or EX, the-Interest Coupon Recognition Date | 16311 | Displays whether the system can create coupons posted on ex-date rather than on coupon day for the entity. Options include:
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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.
Process Corporate Actions for Ex Interest Bonds
When you process a corporate action such as an Exchange for a security that trades ex interest, the system does not determine whether a non market event is in an ex interest period, as it does for market trades. Non-market events such as corporate actions do not set the Accrued Interest Type (tag 3715), but default to cumulative interest.
Process Interportfolio Transfers for Ex Interest Bonds
When you process an interportfolio transfer (IPT) for a security that trades ex interest, the system does not determine whether a non market event is in an ex interest period, as it does for market trades. Non-market events such as interportfolio transfers do not set the Accrued Interest Type (tag 3715), but default to cumulative interest.