How Same Lot Selection Affects Close Transactions

When you use same lot selection, the system uses lot selection logic designed to relieve the "same" lots across all bases of an entity, such that the remaining lots in each basis originate from the same lots even through the structure and cost may differ. The system can link fractured lots caused by wash sales in a tax basis back to a single lot in another basis and considered it the same lot for lot selection and reconciliation.

In order to use same lot selection, you must identify an accounting basis within an entity as the controlling basis to use for lot selection. During automated or manual processing for a close transaction, when the system executes a trade on both bases, it first creates close transactions for the controlling basis. Then, when it is replicating the transactions for the non-controlling bases, it uses the lot selection results of the controlling basis to perform lot selection for the non-controlling basis or bases. It closes out the same lots in the non-controlling basis that were closed in the controlling basis.

During same lot selection processing, the system considers whether each controlling and non-controlling basis is eligible for wash sales processing in order to process the close transactions appropriately. Same lot selection uses the Original Event ID (tag 457) as a common lot identifier on transactions and as the common link across lots for multiple accounting bases. This identifier indicates that a lot in a position on one basis is the same lot on another basis. Due to fractured lots caused by wash sales, multiple lots on one basis can correspond to a single lot on another basis. This Original Event ID tag has the same value on the fractured lot and its sub-lots in the case of wash sales. 

When the system performs same lot selection during processing, it uses the lot selection method of the controlling basis to select lots and create close transactions for the controlling basis. However, when the system creates close transactions for a non-controlling basis, it uses the lot selection results of the controlling basis and assigns the lot selection method of SMLOT to the close transactions created. This indicates that the close transaction's lot selection method was assigned by the system as a result of same lot selection processing. If the system cannot identify a controlling basis when it processes close transactions automatically, same lot selection process does not occur. 

How Same Lot Selection Affects Global Processes

When the system performs rollback and replay for entities that use same lot selection, the controlling basis position rolls back the cost, and the replay information of any sells is propagated to loopback for the non-controlling basis if the system back dates any activity. If there are changes to a security or amortization rule, for example, the system may need to roll back and replay sell transactions for multiple bases, and needs to create sell transactions in a manner that maintains lots structures consistent with same lot processing. 

If you use same lot selection, be aware that several global processes related to fixed income securities use the controlling basis during processes to keep lots in sync across bases. Global processes such as the accruals process and variation margin identify the controlling basis in order to replicate events from the controlling basis or primary basis. It does this whether you run the global process panel manually or automatically, or whether the system triggers the events in rollback/replace when it is processing an event on an As Of basis.

This also affects processes such as bulk cancellations.

About Pending Transactions and Same Lot Selection

When you use pending transactions and also use same lot selection, the system uses the controlling basis when you manually cancel a transaction. For entities marked as pending trade eligible (tag 3679 set to Y), the system insert a copy of the manually cancelled transaction to the Pending Trades table for the controlling basis. If there is no controlling basis, it stores a copy of the transaction for the primary basis.

About Reconciliation and Same Lot Selection

If you use same lot selection and use Eagle solutions for reconciliation, STAR to PACE Direct sends the Original Event ID to the Eagle data warehouse tables for use in reconciliation when comparing lots. You can set up the reconciliation process to identify expected accounting differences and to assign reason codes that inform you why lots are out of sync. For example, if you have known amortization methods differences between bases that would cause a break each day, you can set up rules to evaluate the difference to see if it met certain conditions. If conditions are met, the system can flag the amortization difference as an expected or known difference and assign it a specific reason codde.