PROCESSING NOTES
BNY Mellon Data and Analytics Solutions
Instrument Engineering Team
Last Update:
OVERVIEW
Most securities that accrue interest follow terms that remain constant throughout their tenors. However, some securities stipulate a scheduled change in the way interest accrues. Fixed-to-float bonds, for example, change from fixed rate to floating rate at a predetermined point prior to maturity. There are also total return swaps (TRS) where the spread above the floating rate change as frequently as daily. In other cases, there are market events that require a modification of the accrual terms, such as the transition from traditional interbank offered rates (LIBOR, EURIBOR, etc.) to risk-free rates (RFR) including SOFR and EONIA.
Eagle has full support for these securities using "time sensitive" functionality. This allows you to define different accrual terms for specific start and end dates that override the values on the security master file (SMF). Eligible fields consist of Coupon (70), Coupon Type (97), Day Count Basis (471), Payment Frequency (472), Underlying Security (1347), and Spread/Index Offset (55). You cannot override individual dates or date conventions.
This is different than simply updating accrual terms on the SMF. Doing so changes the way the security accrues subsequent to the SMF update, but the prior terms are not maintained through rollback/replay. If a backdated trade is booked or accruals rolled back for any other reason, those dates are re-accrued using the new terms. The only way to maintain integrity of the accrual terms across different periods is to use the time sensitive functionality, as described below.
IMPLEMENTATION
A brief description of the process is provided first, followed by detailed step-by-step instructions. Time sensitive functionality consists of two components: To specify a security as eligible, set Time Sensitive (11926) = This is the critical piece of time sensitive configuration. There are different options for managing the periods, but regardless of your preferred method, the configuration must follow these two rules: As mentioned above, an initial open-ended record (End Date = Once the records have been set up, you can run and rollback/replay accruals across the date(s) of change and interest will be correctly calculated based on the specific terms for each period. This can be done through Reference Data Center (RDC), Issue Viewer, or SRM, although the workflows vary due to the known issues described below, which should be reviewed closely. The benefits of this method are a) you may not need add/edit any SMF Earnings Time Period records directly if you update the SMF on effective date of the change and b) your SMF accrual terms will always be in sync with the most recent SMF Earnings Time Period record. The downside is this method is not well suited to setting up future periods. Once Time Sensitive has been set to There is additional functionality for swaps in Issue Viewer V17 to simplify the manual workflow. The workflow is slightly different depending on whether you use RDC or Issue Viewer/SRM. The benefits of this method is that it does not require any additional updates to the SMF and you can set up the periods at inception. The downside is your SMF accrual terms will be stale as they always reflect the initial period. RDC Issue Viewer/SRM Notes Please review the issues below for your release before beginning to test.High-Level
Detailed
Security Setup
Yes
and save it. This a) overrides the earnings process to retrieve accrual terms from SMF Earnings Time Period records instead of the SMF and b) creates an initial open-ended record based on the SMF data. The SMF can be updated to reflect the new accrual terms, but the data is no longer retrieved from the SMF. This is discussed in more detail under Option 2: Updating SMF below.Yes
for processing consistency even if you do not whether their accrual terms will changeNo
SMF Earnings Time Periods
ADJMBC (Modified Following - Adjusted)
, Begin Date must equal the adjusted coupon dateNULL
) is created when Time Sensitive is set to Yes
. This record will have Begin Date = Issue Date (68) of the security by default, but that must be changed to Dated Date if it is earlier. Notes:IF (:220:< :68:) THEN ERR("Cannot Add a Record Less Than Issue Date");
Yes
through Message Center or Security Reference Manager (SRM) results in Begin Date being incorrectly populated with current date on the initial record; in this case you must update it manually to less than/equal to Dated Date before processing accrualsOption 1: Updating SMF
Yes
, changing accrual terms on the SMF automatically affects the SMF Earnings Time Period records. When you update the SMF, a new record is added with Start Date = current date and the initial record is updated to populate End Date with prior date. At this point the setup should be complete because you have the initial record running from less than/equal to Dated Date through the prior date, and another open-ended record starting from the current date. However, additional configuration may be required due to the known issues described below.Yes
, then reopening; they will not be available when setting Time Sensitive = Yes
for the first timeOption 2: Managing Records Directly
Known Issues
NULL
)
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