Book Trades for Credit Index Swaps

In the Credit Default Index (CDX) Swap panel, you can manually book an open and close trade for a credit default index swap. A credit index swap is a credit derivative used to hedge credit risk or to take a position on a basket of credit entities. Unlike a credit default swap, which is an over the counter credit derivative, a credit swap index is a completely standardized credit security and may therefore be more liquid and trade at a smaller bid-offer spread. You can open long positions for sell protection or short positions for buy protection.

You can add a clean market value or dirty market value for the credit default 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 workspace. See the Calculate Clean Unit Prices page for more information.

Exchange cleared credit index 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 a credit default index 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 Create/Edit Entity, Create Master Fund, and Edit Master Fund/Sector panels. Also, if the Primary Amortization/Accretion Rule field is not set to Straight Line, Straight Line Actual, or None or to use a User Defined schedule, you must set up the Amortization/Accretion Rule at the processing security type level. You can access this field using the create/edit Amortization & Accretion Rules panels. Finally, if you want to book a trade as tech short (book sell transactions prior to buys that will eventually be posted), you must set the entity's Tech Short Eligible Indicator to Yes. You can access this field using the Create/Edit Entity, Create Master Fund, and Edit Master Fund/Sector panels.

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