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.

Entity Setup

Before any trades can be booked, the target entity must be set up appropriately.

SWCDCO Entity Setup

OPOPSW Entity Setup

Reference Data

Storage & Configuration

Both SWCDCO and OPOPSW security master files (SMFs) have single rows in Data Management. Security Type (82) and Sub Security Type (1464) can be used to distinguish VVS from regular SWCDCO/OPOPSW. In V17 R2.28, a dedicated security field named Variance/Volatility Swap (18275) was added to further identify VVS.

Market Data

Both models provide familiar processing workflows that also aligns with VVS pricing in the market. Both models use par-zero pricing, which allows positive and negative prices to be entered directly. Par-zero pricing also allows for extreme price fluctuations, which would be capped if using par-based/percentage pricing.

When using the SWCDCO model for Dispersion Swaps, you may need to flip the price from positive to negative, or vice versa, because SWCDCO are always held long in Eagle. There should be no price manipulation required for the OPOPSW model.

Security Data

VVS can be setup and maintained using Issue Viewer, Security Reference Manager (SRM), or Reference Data Center (RDC). The list below contains all fields required to configure a VVS SMF.

SWCDCO Security Data

• Issue Name (961)
• Primary Asset ID (14) & Type (1432)
• Unique Product (1955) & Swap Identifier (1958, V12.1.2 and above)
• Processing Security Type (3931) = SWCDCO (Credit Default Swaps)
• Security (82) & Sub Security Type (1464): can be used to distinguish VVS from regular SWCDCO
• Price Multiplier (18): 1.00 is most common for VVS, but 0.01 may be correct depending on your price source
• Issue Country (1418)
• Asset Currency (85)
• Buy/Sell Indicator (1364): required for securities using the SWCDCO model, but has no impact on Accounting for VVS; can be used to denote buying or selling the variance/volatility
  • Buy: long exposure to variance/volatility
  • Sell: short exposure to variance/volatility (typically the broker side or party writing the contract)
• Coupon (70) = 0.00
  • This suppresses income accruals
• Coupon Type (97) = F (Fixed Rate)
• Day Count Basis (471) = ACT/360
• Payment Frequency (472) = MAT (At Maturity)
• Business Day Convention (1536) = NONE
• Issue Date (68): first trade date of the swap
• Dated Date (1183):  "Effective Date" in ISDA contracts; typically same as Issue Date for VVS
• First Coupon Date (473) = Maturity Date
• Last Coupon Date (474) = Maturity Date
• Maturity Date (38): "Final Observation Date," "Expiration Date," or "Termination Date" in ISDA contracts
• Cleared Security (5027) = No

OPOPSW Security Data

• Issue Name (961)
• Primary Asset ID (14) & Type (1432)
• Processing Security Type (3931) = OPOPSW (Swaptions)
• Price Multiplier (18): 1.00 is most common for VVS, but 0.01 may be correct depending on your price source
• Contract Size (19): typically 1.00 for VVS
• Issue Country (1418)
• Asset Currency (85)
• Expiration Date (38): date when Eagle Accounting will automatically mature the VVS, unless the entity-level Options and Futures Expiration Delay Days field has been populated
• Strike Price (67): used for reference/reporting purposes, not required for processing
• Option Type (1142): any value can be selected because the exercise/assignment process is not used for VVS
• Underlying Security (1347): if you set up the index SMF ahead of time, you can add it here for reference purposes

Trade Processing

SWCDCO Open (transaction type: CDSOPEN)

Trades are entered using the Book Trade module once the 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. Right-click it and select Open > Open Swap Contract. The list below contains all fields required to book a VVS trade.

• Traded Interest/Effective Date (2857): date accruals begin in Accounting; leave default value as there is no impact for VVS
• Select Values to be Calculated by STAR (7000) = Calculate None
• Data Entry Method (10485): Enter Price to supply a unit price or Enter Total Settlement Amount to supply a value representing all-inclusive trade proceeds (both can be positive or negative)
  • Enter Price: Net Amount is calculated as Notional Principal Value * Price * Price Multiplier 
  • Enter Total Settlement Amount: Net Amount is equal to Total Settlement Amount
  • Depending on the type of trade (open or close) and sign of the Price or Total Settlement Amount, Accounting will post either a premium payment or premium receipt; the chart below outlines this methodology
    • Open + Positive Price/Amount = Premium Payment
    • Open + Negative Price/Amount = Premium Receipt
    • Close + Positive Price/Amount = Premium Receipt
    • Close + Negative Price/Amount = Premium Payment
  • Open price/amount is typically zero for VVS as there is no upfront payment
• Notional Principal Value (40): contract notional
• Broker (88)
• Counterparty (1144, optional): the counterparty can be selected from a list of all Issuers that have been tagged as counterparties (see Setting Up Legal Entities Best Practices for more information)

SWCDCO Close (transaction type: SELL)

The Book Trade module should also be used to process both full and partial terminations. Enter the same identifiers as the open to query for the security. Right-click it and select Close > Close Swap Contract. All fields on the close are the same as the open, except Lot Selection Method. VVSs can be closed using either FIFO or IDLOT.

OPOPSW Open & Close

The fields below are used for both opens and closes.

• Contracts (40): notional amount of the VVS
• Price Per Contract (45): multiplied by Contracts, Contract Size, 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)

Cancel & Rebook

Faulty VVS transactions can be cancelled and rebooked using the Cancel & Rebook Trade module, which will also replay the full lifecycle of the position. Alternatively, trades can be cancelled using Cancel Trade, with the transaction rebooked using the Book Trade module.

Accounting

Once a VVS position has been established 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

Due to the broad universe of calculations underlying different flavors of VVSs, Eagle requires clean unit prices to generate accurate valuations. Eagle does not calculate the variance/volatility/dispersion based on underlying price/index/rate levels. The price loaded into Eagle, when multiplied by the notional and Price Multiplier, should equal the expected market value of the VVS.

VVSs can be priced both positive and negative.

Market Disruption Events

Please contact Instrument Engineering for more information about processing these events.

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 VVS 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 VVS and other security 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

To categorize derivatives for insurance reporting, such as the Schedule DB, Derivative Elections (56) must be set to Hedging Effective, Hedging Other, Income Generation, Replications, or Other on all trades. Leaving the default of Trade will prevent the transaction from appearing on insurance reports.

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 calculates market value-based performance for VVSs using data supplied by the S2P process. However, this can be misleading because swaps use notional values and typically start with a market value of zero. Exposure-based analyses, which can be implemented using Eagle Enrichment, calculate more accurate returns. Package content is available for SWCDCO, which may be applicable to VVS, but there is no package content specific to VVS. Please contact Instrument Engineering to discuss implementation for VVS.

Automation

VVS security master files (SMFs) and trades can be loaded through the standard Message Center streams following the SWCDCO or OPOPSW model. The SMF must be loaded prior to the trade (trades do not spawn SMFs). Refer to Supported Generic Interfaces V17 for more information.