BEST PRACTICES GUIDE
BNY Mellon Data and Analytics Solutions
Instrument Engineering Team
Last Update:
OVERVIEW
This document applies to all releases of Eagle software. Version-dependent functionality is noted with the initial release(s) it became available.
A Bond Forward is an over-the-counter (OTC) contract where the purchaser agrees to buy or sell a fixed income security (or basket of fixed income securities) in the future at a price determined today. From an accounting perspective, Bond Forwards function very much like traditional future contracts; they are single-leg securities and valued with market value (MV) = unrealized gain/loss (URGL). Eagle does not have a dedicated security for Bond Forwards, but they can be modeled accurately using the existing future contract functionality.
Example reference data screens, trade screens, and reports are attached:
ENTITY SETUP
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.
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. 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.
Security Data
Bond Forwards can be set up and maintained in Issue Viewer, Security Reference Manager (SRM), or Reference Data Center (RDC).
Processing Security Type
(3931) =FTXXXX
Price Multiplier
(18) =0.01
Quantity Scale
(19) =1.00
Variation Margin
(4533) =No
The same tools can also be used to set up an SMF for the underlying bond if the Bond Forward is going to be physically delivered. In this case the underlying bond SMF can be set up at the same time as the Bond Forward, or you can wait to set it up until the Bond Forward is actually expiring.
- You may want to use the same
Issue Name
(961) andIssue Description
(962) for the Bond Forward and underlying bond, in which case you can useSecurity Type
(82) and/orSub-Security Type
(1464) to differentiate the Bond Forward from the underlying bond
TRADE PROCESSING
Trades are entered using the Book Trade module once 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. When the security is right-clicked, it will provide options to open and close.
- Open the Bond Forward (future) trade using the quoted units and the agreed-upon forward price on trade date
Final Settlement
A Bond Forward can have two different methods upon final settlement: cash settlement or physical delivery.
- Cash Settlement
- To settle the position, enter a close using the prevailing market price
- The resulting cash settlement will be equal to the gain/loss
- Physical Delivery
- To settle the position, enter a close at cost (same price as the open)
- This will prevent any cash from being generated
- Buy the underlying bond again using the same price at which the Bond Forward was originally booked
- To settle the position, enter a close at cost (same price as the open)
ACCOUNTING
Once a bond 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 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:
- Accruals: Earnings > Accrue
- 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
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.
REPORTING
STAR to PACE (S2P)
Almost all reports in Eagle leverage data from the Warehouse, 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 Bond Forward in the position, position_detail, trade, and cash_activity tables. The market_value_income column for each row captures a portion of the total market value.
Accounting Reports
Eagle has a core set of Accounting reports that can be used to review bond forward and other security information. These were designed to support the daily operational workflow for business users, so Grid Reports can be exported to Excel and customized to provide details that they need. Advanced Reports are intended to be client-facing, but do not provide the same level of customization.
Data Management Reporting
OLAP
OLAP reports provide the maximum level of customization, allowing any column in the Date Warehouse to be pulled into a report. These go beyond the Accounting Grid Reports because they are not limited by core queries, can support multiple sources and various types of calculations, and provide drill-down functionality based on user-defined groupings. This helps to avoid issues with swap legs being separated from the contract.
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 available in the Exposure Reporting and Eagle Enrichment Quick Reference documents.
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