Book Trades for Interest Rate Swaps

In the Interest Rate Swap panel, you can manually book an open and close trade for an interest rate swap. Interest rate swaps are multi-leg swaps. That is, they are comprised of three separate legs that are linked together by a shared primary asset identifier. The swap contains a contract leg, which provides general information, such as trading, pricing, and fee amortization. It also contains receive and pay legs, which provide specific payment details, such as daily accruals. The holder of the swap pays a contracted fixed income rate or variable/floating rate based on an underlying index and receives a different amount based on either a fixed or variable/floating rate.

The system processes each leg of a multi-leg swap as an individual position so that you can view holdings and accruals separately. Pricing is only processed at the contract level.

You can add a clean market value or dirty market value for the interest rate swap. The system calculates the clean unit price for a particular effective date when you trigger the Calculate Clean Unit Price process in the Global Process Center. See the About Clean and Dirty Market Prices page for more information.

Exchange cleared interest rate swaps calculate both income and variation margin daily. Trade processing does not create a cash movement and the cost is notional. The system handles both full and partial terminations. To calculate and approve the variation margin, see the Calculate and Approve Variation Margin page.

This article assumes you are familiar with the entity and security level elections that have been made for processing an interest rate swap. For example, you must enter a value for the Swap Accrual Method field. If you set this field to Income/Expense, the system posts interest accruals and dividends to income/expense accounts in the general ledger. If you set this field to Unrealized, the system posts interest accruals and dividends to unrealized capital accounts in the general ledger. You can access this field using the Add/Change Entity and Add/Change Master Fund Setup panels. Also, if the Primary Amortization/Accretion Rule field is not set to Straight Line, Straight Line Actual, or None, you must set up the Amortization/Accretion Rule at the processing security type level. You can access this field using the Add/Change Amortization/Accretion Rules panel.