PROCESSING NOTES
BNY Mellon Data and Analytics Solutions
Instrument Engineering Team
Last Update:
OVERVIEW
For foreign Futures, Options, and Cleared Swaps, clearing brokers sometimes use FX rates that differ from a client's source. This can cause breaks between a broker's variation margin (VM) statement and the cash amounts calculated by Accounting. Alternate rates are supported for Futures and Options via Accounting's Broker Currency and Broker Rates functionality, without affecting the FX rates used for other processing. It must be configured prior to processing variation margin.
When using this functionality, each day's VM is calculated in the security's local currency. That amount is then converted to the Broker Currency using the most recently available Broker Rate. If none is available, the most recent rate from the entity's FX Source (1344) is used. This does not affect base values on the income lots, which are calculated directly from the security's local currency using the entity's FX Source.
The table below demonstrates a cross-currency example for a Future, where the security's local currency (GBP) and the Broker Currency (CAD) are both different than the fund's base currency (USD). This scenario is only supported for Futures and Options. For a Cleared Swap, VM must settle in the base currency of the fund holding it (Broker Currency matches fund's base currency).
| Day 1 | Day 2 | Day 3 | Notes | |
|---|---|---|---|---|
| Income - Unaffected by Broker Rates | ||||
| Urgl Sec Delta L (4363) | 30,000 | -20,000 | 70,000 | = daily VM |
Var Margin Ltd Local (5020) | 30,000 | 10,000 | 80,000 | = accumulated VM Calculated in GBP |
| Local to Base FX Rate | 0.95 | 0.94 | 0.96 | GBP to USD using FX Source |
| Var Margin Ltd Base (5021) Urgl Security Base (491) | 31,578.95 | 10,638.30 | 83,333.33 | = Var Margin Ltd Local / Local to Base FX Rate Calculated in USD |
Urgl Sec Delta B (4364) | 31,578.95 | -20,940.65 | 72,695.03 | = day-over-day change in Var Margin Ltd Base |
| Cash - Uses Broker Rates | ||||
| Broker FX Rate | 0.59 | 0.60 | 0.58 | GBP to CAD |
| Net Amount Local (50) Settle Amt S (64) | 50,847.46 | -33,333.33 | 120,689.66 | = Urgl Sec Delta L / Broker FX Rate |
| Broker Currency to Base FX Rate | 1.35 | 1.30 | 1.25 | CAD to USD using FX Source |
| Net Amount Base (478) | 37,664.79 | 25,641.02 | 96,551.73 | = Net Amount Local / Broker Currency to Base FX Rate Calculated in USD |
CONFIGURATION
The relevant currency must be defined and rates must be entered prior to processing VM. The screens can be located by search for Broker Currency and Broker Rates.
Although Cleared Swaps are not currently supported with this functionality in core, it is possible to enable them locally. Cross currency scenarios (where a security's local currency and settlement currency are both different than the fund's currency) and Cleared Swaps must have Settlement Currency (63) on the security master file (SMF) set to the currency in which variation margin will settle. This is not required in other situations, where Settlement Currency can be set to Asset Currency (85) on the SMF.
Add Broker Currency
Specifies currency for conversion of VM. For example: if all VM for clearing broker BNYM is moved in USD, enter USD as the Broker Currency.
- Entity ID (1163) & Name (1164): entity that has VM for foreign futures moved in a base currency
- Clearing Broker (1236) & Code (1237): clearing broker that moves VM for foreign futures in a base currency
- Asset Currency (85): currency for VM settlement
- Entry Type (1882):
FutureorOption - Effective Date (1109): this should be left
NULL, unless you want to limit the time period to which the Broker Currency is applied
Add Broker Rates
Specifies FX rates that will be used to convert local VM amounts to cash movements in the settlement currency.
- Entity ID (1163) & Name (1164): same as above
- Clearing Broker (1236) & Code (1237): same as above
- Entry Type (1882): same as above
- From Currency (363): local currency of a Future or Option contract to be converted using these rates
- To Currency (313): currency for VM settlement
- This should match Asset Currency entered above
- Effective Date (1109)
- Spot Rate (96): FX rate specified by clearing broker
PROCESSING
Once a Broker Currency has been defined and Broker Rates have been loaded, they will be picked up automatically by the VM approval process. The calculations in local and base currencies are unchanged. VM is converted to the settlement currency using Broker Rates from the relevant dates, if available. If none are available, the most recent rates from the entity's FX Source are used.
REPORTING
For cross currency scenarios on Futures and Options where the security's local currency and your Broker Currency both differ from the base currency of your fund, you must use the Cash Position - Different Settlement Currency report in Position Viewer to view the cash records. This is available in the ribbon under Additional Reports in V17 and above, or in the left nav below Cost/Cash/Income Positions in versions prior to V17.
Note: after approving VM, local currency records remain in the Unapproved columns of the Variation Margin report because they never technically settle in that currency. The settlement currency records appear in the Approved columns. This has no impact on cash or ledger postings.
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