ENTITY SETUP

Entities trading Fixed-to-Float Bonds do not require any special setup. However, it is important to make note of the Variable Rate Source (3301) and ensure that the floating rates are loaded to this same source.

OPTION 1: TIME SENSITIVE

Time sensitive functionality allows you to define different accrual terms for specific start and end dates that override the values on the security master file (SMF). In this case we will be using it to change/add Coupon (70), Coupon Type (97), Underlying Security (1347), and Spread (55) if applicable. Time sensitive functionality overrides SMF-level accrual terms and tells the earnings process look to SMF Earnings Time Period records (explained further below) for accrual terms instead.

You have the option to establish the SMF Earnings Time Period records at inception (if the transition date from fixed to float is known) or to wait until the transition date. This dictates how to set up the SMF initially:

• If you elect to set up the periods at inception, the Fixed-to-Float bond should be set up as if it were floating rate
  
  • The earnings process requires First Rate Reset Date (10911) and Reset Frequency (476) to be populated if a floating rate period exists, even if it is in the future
• If you elect wait until the transition date, the Fixed-to-Float bond should be set up as if it were fixed rate
  • You will then change it to floating rate on transition date

The first SMF Earnings Time Period record should contain fixed accrual terms, while the subsequent record contains floating accrual terms. Again, you can set up these records either at inception or wait until the transition date. Once records exist, these fields will override their SMF-level counterparts. This table shows an example that assumes a Dated Date (1183) of 1/4/2019 and a transition date of 10/4/2019 from fixed to float:

Refer to our Time Sensitive Processing Notes for detailed implementation steps. Fixed-to-Float Bonds can be treated like any other fixed income securities once the SMF Earnings Time Period records have been set up correctly.

OPTION 2: CONVERTIBLE BOND

Reference Data

Storage & Configuration

Each Fixed-to-Float Bond will consist of two security master file (SMF) rows in Data Management, with all reference data identical other than the coupon-related fields. The fixed-rate bond must be set up before the initial trade is booked. The floating rate bond can be set up at the same time, or you can wait until you are ready to process the transition. If you set it up ahead of time you will have to edit the identifiers of both securities when processing the transition, whereas if you wait to set it up you will only have to edit the identifiers of the fixed-rate bond and can set up the floating rate bond directly with the appropriate identifiers. When transitioning from one security to the other, Primary Asset ID (14) must be changed on the original security to allow for reuse on the new security.

Add Underlying Security can be used to add the floating-rate bond as an underlying of the fixed-rate bond for reference and reporting purposes.

Reuse of Identifiers

The Primary Asset ID of the fixed-rate bond should be reused for the floating-rate bond by following the steps in Reusing Cross Reference Identifiers Processing Notes.

Market Data

The floating-rate bond will float against an underlying interest rate index. Each index must be set up as an Index security using Issue Viewer, SRM, or RDC. Other than identifiers, the only information that has to be entered is the currency.

Once the index has been setup, floating rates can be loaded using Add Variable Rate. Accounting will automatically pull the appropriate rates into the accrual process based on the floating-rate bond's First Rate Reset Date (10911), Reset Frequency (1788), and Reset Look-Back Days (10547).

• Interest rates must be loaded to the underlying index back to the date when the bond converts to floating rate, minus any Reset Look-Back Days

Security Data

The two securities required to model Fixed-to-Float Bonds can be set up and maintained in Issue Viewer, SRM, or RDC.

• Processing Security Type (3931) = DBIBFD (Interest Bearing Debt Instrument)
• Coupon (70)
  • Fixed Rate Security: interest rate for fixed accrual period
  • Floating/Variable Rate Security: 0.00 to signify that rates must be retrieved from the VARIABLE_RATE table
• Coupon Type (97): F (Fixed) for one security and X (Floating Rate)/I (Variable Rate) for the other
• Day Count Basis (471)
• Payment Frequency (472)
• Convertible Indicator (1531) = Yes
• Underlying Security (1347, floating bond only): floating rate index

Trade Processing

Open (transaction type = BUY or SHORTSELL)

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. Right-click it and select Open > Buy or ShortSell.

• Trades should be processed like standard bond trades
• Principal (165) is calculated based on Par Value/Current Face (40) and Price (45)
• Traded Interest (49) can be calculated or provided, and is factored into Local Net Amount (50)
• Trade Yield (9430), and Amort Yield (75) if applicable, can also be calculated at trade time based on the prevailing interest rate and will be automatically recalculated when rates change

Close (transaction type = SELL or BUYCVR)

Book Trade should also be used to process both full and partial closes. Enter the same identifiers as the open to query for the security. Right-click it and select Close > Sell or BuytoCover depending on whether the existing position is long or short. All fields on the close are the same as the open, except Lot Selection Method (27). This defaults to the entity-level election, but can be overridden.

Transition Fixed to Float

Corporate Action Announcement

In order to transition the fixed-rate bond to a floating rate bond in Accounting, a Redenomination of Bonds corporate action must be created and processed. Accounting maintains the original position values from the fixed-rate bond to the new floating-rate bond position.

The following fields are required to set up the corporate action announcement.

• From Asset ID (14) & Issue Name (1432): enter one or the other for the fixed-rate bond
• Sweep Date (1197): date when the global corporate action process will pick and execute the corporate action (generally current date)
  • Note: this is a strictly operational data element that controls when the action is processed; the corporate action takes effect as of Ex Date
• Ex Date (65) = transition date
• Corporate Action Status (54) = Released
• To Asset ID (1348) & Issue Name (1103): enter one or the other for the floating-rate bond
• Conversion Factor (1716) = 1.00
• Corporate Action Type (1728) = Redenomination

Triggering Corporate Action

The corporate action can be triggered manually via:

• V17 & Above: Accounting Center > Processing and Exceptions > Global Processes > Corporate Actions > Redenomination of Bonds
• Prior to V17: Global Process Center > Corporate Actions Processing > Merger/Exchange Offer/Assimilation/Unit Splits/Redenomination/Partial PreRefund/Share & Cash Tender

Set Corporation Action Begin (220) & End Sweep Date (221) to a range that includes the Sweep Date entered on the announcement

ACCOUNTING

Once a Fixed-to-Float Bond trade is booked, it will be picked up in Eagle’s global workflow. Daily accruals (whether positive, negative, or zero) and periodic coupons 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 be scheduled or triggered manually.

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

  • Accruals: Earnings > Run Income Accruals

  • 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

  • Accruals: Earnings > Accrue

  • 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

Fixed-to-Float Bonds are valued using clean prices, entered via Add Issue Price or Pricing Center:

• Market Value = Par Value/Current Face * Price * Price Multiplier * Quantity Scale

Mature

Fixed-to-Float Bonds are captured by Eagle’s core maturity process. Maturities can be triggered manually via:

• V17: & Above: Accounting Center > Processing and Exceptions > Global Processes > Expirations & Maturities > Run Mature Process
• Prior to V17: Global Process Center > Expirations > Mature

Set Maturity Processing Date (221) = Maturity Date of the Fixed-to-Float Bond.

REPORTING

STAR to PACE (S2P)

Almost all reports in Eagle Accounting 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 Fixed-to-Float Bond in the POSITION, POSITION_DETAIL, TRADE, and CASH_ACTIVITY tables. The MARKET_VALUE_INCOME column captures the total market value, inclusive of price fluctuations and period-to-date accruals payable or receivable.

Accounting Reports

Eagle has a core set of Accounting reports that can be used to review Fixed-to-Float Bond 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

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.

PERFORMANCE

The performance toolkit has full functionality to calculate market value-based performance for Fixed-to-Float Bonds using data supplied by the S2P process. Risk and performance attribution features are available to analyze Fixed-to-Float Bond performance.

AUTOMATION

Fixed-to-Float Bond SMFs and trades can be loaded through the standard Message Center streams. The SMF must be loaded prior to the trade (trades do not spawn SMFs). Refer to Supported Generic Interfaces V17 for more information.