This document outlines Eagles best practice in handling the process for Forward-Starting Total Return Swaps (TRS) in versions prior to V17. A Forward-Starting TRS is a contract that has been agreed upon in principal by the two parties involved, but does not become effective until a date in the future.
In Eagle, the key components necessary for booking a trade are the number shares for the Return Leg (underlying asset) and the price (index level). Without these two components the notional amount for the Finance Leg cannot be calculated.
Because a Forward-Starting TRS has an Effective Date in the future, the price is unknown at trade time, which results in an inability to calculate the Finance Leg’s notional for trading. Therefore Eagle recommends that a dummy asset, in this instance a Swaption, be set up and traded from Trade Date until the Effective Date. An example portfolio valuation report is attached showing the Swaption with zero valuation:
The swaption should be set up as shown below.
Issue Name (961): recommend using something similar to the TRS with SWPTN or Swaption appended to the beginning or end
Primary Asset ID Type (1432): recommend using INTERNAL or another type that allows many characters
Primary Asset ID (14): recommend using recommend using something similar to the TRS
Processing Security Type (3931) = OPOPSW
Contract Size (19): amount of notional that each Swaption contract is entitled to; typically 1.00
Issue Country (1418): same as TRS
Asset Currency (85): same as TRS
Expiration Date (38): set to TRS Effective Date, which is its Dated Date (1183) in Eagle
Strike Price (67) = NULL
Option Type (1142): any value can be used as there will be no exercise/assignment
Underlying Security Issue Name (1141) and Asset ID (1348): if you set up the TRS SMF ahead of time you can add it here for reference purposes
Trades against the swaption should be booked at a price of zero to ensure the cost basis of the asset in the portfolio is zero.
On the swap's Effective Date (Dated Date) once the initial price is locked in, run Global Process Center > Expirations > Expire to drop the asset off of the books with no value.
Set Expiration Processing Date (221) = swap's Effective Date
After the swaption has been expired, a new trade can be booked using the true TRS SMF intended for the deal and the confirmed price.
