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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.

Pay special attention to underlined sections, as these highlight the most frequently encountered issues. Bold is used for navigation, modules, and screens. Italics are used for fields, tables, and errors. Fixed width indicates values for fields or code/text that should be entered. Tags are shown in parentheses (#) after field names.

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.

Entities trading Futures need three specific pieces of data, which can be populated using Create/Edit Entity or Add/Change Entity.

  • Lot Selection Method (27): multi-lot Future positions are often closed using Modified FIFO (MFIFO), which is a variation of FIFO that closes lowest cost lots first when relieving multiple open lots from a given date

    • If Futures are going to be comingled with other securities, you may have to set up a Mixed Cost Basis Rule to enforce MFIFO specifically for Futures, as described in Manage Mixed Cost Basis Rules

    • Regular FIFO only considers the Event Sequence (126) when relieving multiple open lots from a given date

    • Details about MFIFO and other lot relief methods are available in Understand Lot Selection Methods

  • Margin Price Source (18041): this price source is used for VM processing and can be different than the price sources used for URGL

    • If an entity has multiple bases, this must be the same across all bases; when adding a secondary basis it will default to the same value as the primary basis

  • Futures & Options with Margin Transaction Fees (3889): this only affects Futures with VM and allows the commission and fees to be either included or excluded in cost for gain/loss calculations

  • Net Futures Positions (632)

    • Yes: long and short trades are netted to a single long position (all trades are considered long, with negative units if a position or trade is short)

      • This is allowed even if Tech Short Eligible (57) = No, which would typically prevent negative units

    • No: long and short trades create two separate position rows (trades and positions are considered long or short, always with positive units)

  • Futures Clearing Broker (634): there can only be one Clearing Broker per futures trade

    • The trade panel will automatically default to this value, but it can be overridden if necessary

Some clients have a requirement to process the same Future with VM in certain funds and without VM in others. This can be accomplished by using a Variation Margin Override Rule. Refer to Override a Security's Variation Margin Setting for an Entity for details.

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) and Issue Description (962) for the Bond Forward and underlying bond, in which case you can use Security Type (82) and/or Sub-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

Settle the position by entering a close at the prevailing market price. The resulting cash settlement will be equal to the gain/loss.

Physical Delivery

Settle the position by entering a close for the Bond Forward and an open for the underlying bond. The prices for these transactions depend on how you want to recognize the premium's URGL.

  • 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
  • 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

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 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.

Data Management Reporting

General Reporting (Eagle OLAP)

OLAP reports provide the maximum level of customization, allowing any column in Data Management to be pulled into a report. These go beyond the Eagle 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.

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 Best Practices and the Eagle Enrichment User Guide 2015.

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