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.

• Refer to Options Entity Setup Processing Notes for all entities trading Swaptions

• Refer to Swaps Entity Setup Processing Notes if the underlying swap trade will be booked

Reference Data

Storage & Configuration

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

There are two options for indicating Payer vs. Receiver on the SMF.

1. Security Type (82) or Sub Security Type (1464): either of these fields can be used, but they are not required

2. Put/Call Flag (1350): this field is not required, but can be used as an indicator

   1. Put: Payer Swaptions, because they are similar to a put option on a bond

   2. Call: Receiver Swaptions, because they are similar to a call option on a bond

The underlying swap contract can be set up ahead of time and then linked to the Swaption via the Underlying Security fields.

Market Data

Swaption prices must be loaded directly to the contract (they will not be pulled from the underlying security).

Security Data

Options can be set up and maintained in Issue Viewer, Security Reference Manager (SRM), or Reference Data Center (RDC). The list below contains all fields required to configure a Swaption SMF.

• Issue Name (961)

• Primary Asset ID (14) & Type (1432)

• Processing Security Type (3931) = OPOPSW (Swaptions)

• Contract Size (19): amount of notional that each Swaption contract is entitled to

• Issue Country (1418)

• Asset Currency (85)

• Expiration Date (38): date when Eagle Accounting will automatically expire the Option, unless the entity-level Options and Futures Expiration Delay Days field has been populated

• Strike Price (67): this can be left NULL for Swaptions

• Option Type (1142)

  • American: Option can be exercised or assigned at any time until expiration, assuming the strike price has been reached

  • European: Option can be exercised or assigned on expiration date only

  • Bermudan: functions the same way as American in Eagle Accounting; this option exists for reference data purposes only

• Underlying Security (1347): if you set up the swap SMF ahead of time, you can add it here for reference purposes

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 (35)/settle (37) dates and click Submit to query for the security. When you right-click the security, the options for opening and closing it will depend on whether the entity-level Net Option Positions field is set to Yes or No.

For Swaption Straddles, book trades against both Payer and Receiver Swaptions such that the net premium between the two trades is correct.

Opens & Closes

The fields below are used for both opens and closes.

• Contracts (40): number of contracts being transacted

• Price Per Contract (45): multiplied by Contracts, Contract Size (19), and Price Multiplier (18) to calculate the premium

  • Can be positive, negative, or zero

• Commission Per Contract (971): multiplied by Contracts to calculate Commission Amount Local (47), which is factored into the Net Amount fields

• Tax Amount (46), SEC Fee (48), Stamp Duty Tax (51), & Other Fee (3752): added to the premium and commission to generate the total net amount

• Broker (88)

Accounting

Once a Swaption trade is booked, it will be picked up in Eagle’s global workflow. Accounting valuation is calculated when posting unrealized gain/loss and Data Management valuation is calculated in STAR to PACE. These can be scheduled or triggered manually.

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

  • 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

  • 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

Swaptions are valued using unit prices. The market value formula is:

• Market Value = # of Contracts * Contract Size * Price * Price Multiplier

Exercise/Assign

Exercises and assignments are processed using Book Trade > Other > Exercise. By definition, purchased Options are exercised and written Options are assigned, but they use the same process in Eagle Accounting.

Settlement

Options can be exercised or assigned using cash or physical settlement. Cash settlement has no effect on the underlying asset; it is simply an exchange of money based on the exercise price. Physical settlement results in closing out the existing option position, but it will not automatically generate transaction activity in the underlying swap.

Cash Settlement

Purchased Call or Put

• Cash Receipt = # of contracts exercised * contract size * exercise price * price multiplier

• Gain (Loss) = # of contracts exercised * contract size * (exercise price - price per contract) * price multiplier

Written Call or Put

• Cash Disbursement = # of contracts exercised * contract size * exercise price * price multiplier

• Gain (Loss) = # of contracts exercised * contract size * (price per contract - exercise price) * price multiplier

Physical Exercise

Eagle Accounting does not currently support physical settlement of a Swaption. Processing physical exercises is a two-step process:

1. Close the Swaption through Book Trade or Message Center

2. Enter a separate open transaction for the underlying CDS/CDX/IRS at the Swaption's Strike Price adjusted for proceeds on the settled Swaption(s)

   1. Conversely, you can enter the open transactions at the Swaption's Strike Price, then book a miscellaneous income/expense to adjust the position's cost based on proceeds from the settled Swaption(s)

Adjusting the price allows you to factor the Swaption's premium into the underlying swap's cost.

• Premium to Allocate = # of contracts exercised * Contract Size * open price * Price Multiplier

• Separate transactions are typically provided by trading systems to ensure the exact the details of the resulting swap position are correct

Refer to  for more information.

Expire

If the contract is not closed prior, Eagle Accounting will expire the Swaption on expiration date plus the number of days defined in the entity’s Options and Futures Expiration Delay Days election. Each contract's cost/proceeds are posted to realized gain/loss.

Reporting

STAR to PACE (S2P)

Almost all reports in Eagle 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 a single row for each Option in the POSITION, POSITION_DETAIL, TRADE, and CASH_ACTIVITY tables. The MARKET_VALUE_INCOME column captures the total market value. Cash activity is appropriately signed based on whether the Swaption is bought or written.

Accounting Reports

Eagle has a core set of accounting reports that can be used to review Swaption 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 Swaptions using data supplied by the S2P process. However, this can be misleading because traditional market values do not capture an option’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.

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.