Set Up Securities for Caps and Floors

Owned by Nancy Cohn (Deactivated)
Last updated: Aug 23, 2023
5 min read

You can use Reference Data Center to establish a cap/floor Security Master File (SMF) record with the Cap - Floor data strategy. For more information, see Create and Delete Securities.

Otherwise, you can use Accounting Center's Issue Viewer, Eagle's legacy security master tool. To set up a cap or floor security, you can use the Caps & Floors panel. For more information, see Manage Caps/Floors in Issue Viewer. 

This section describes key options used to set up cap and floor securities. Several examples follow.

Caps and Floors Key Options

A cap/floor must adhere to the same requirements as all fixed income securities. For example, the First Coupon Date and Last Coupon Date values must be in sync with the payment frequency of the bond, and you must enter all required fields before submitting the record. Also, the values for the First Coupon Date, Last Coupon Date, and Maturity Date must not include Delay Days. For general information about reference setup, see Understand Fixed Income Reference Data.

Eagle Accounting determines the payment frequency of the bond from the Payment Frequency, Interest Payment Timing, Business Day Calendar, Business Day Adjustment, Coupon Day of Month, and Day of Month Override fields.

When you set up a cap or floor security, review the following key options. The following options are available in Issue Viewer's Caps & Floors panel. Note options may vary according to your selections. 

Option

Tag

Description

Option

Tag

Description

Processing Security Type

3931

Specifies the code value that the system uses to determine the type of cap/floor you are adding. Options include:

  • OPIRCA. Interest Rate Option Caps.

  • OPIRFL. Interest Rate Option Floors.

Coupon Type Code

97

Indicates the type of coupon associated with the security. Options include:

  • Floating Rate. The security has fixed coupon dates and uses a variable rate that is based on an underlying index and index offset to calculate the coupon to use for earnings. You must enter the rate in the Variable Rate table.

  • Variable Rate. The security has fixed coupon dates and uses a variable rate based on the security identifier to calculate the coupon for use in earnings. You must enter the rate in the Variable Rate table.

  • Inverse Floater. The security has fixed coupon dates and uses a variable rate whose coupon rate is calculated inversely to the underlying index to which it is attached. When you select this value, STAR displays the following fields: Inverse Floater Rate, Inverse Floater Multiple, Underlying Issue Name, Underlying Asset ID, and Index Offset. You must enter the rate in the Variable Rate table.

  • Step Coupon. The security has fixed coupon dates and uses a variable rate based on the security identifier to calculate the coupon for use in earnings. You must enter the rate in the Variable Rate table. The system recognizes this option as a step bond (also called a step coupon bond, step up bond, or step down bond).

  • Fixed Rate. The security has fixed coupon dates and has a fixed coupon rate to calculate the coupon for use in earnings.

  • Unscheduled Variable Rate. The security has unscheduled payments and accrues interest based on a rate you enter in the Variable Rate table.

Strike Rate

11850

Determines the rate at which you can exercise against the cap/floor. This value stores the ceiling rate for cap contracts and stores the floor rate for floor contracts. If you set up the security with a Floating Rate or Inverse Floating Rate coupon type, Eagle Accounting uses the value in the Strike Rate field along with the rate of the underlying security on the reset date to determine at what rate the contract accrues interest. If the coupon type on the cap/floor contract is not Floating or Inverse Floating, the Strike Rate field is for reference only.

Maturity Price

42

Specifies the price at which the security returns principal. The Maturity Price defaults to 0 because both cap and floor contracts are interest-only and there is no repayment of principal.

Trading Flat

3949

Indicates whether the security is trading with or without interest. As a general rule, cap and floor contracts trade without interest (trades flat). Therefore this field has a default value of Yes. In the event that a contract does trade with interest, you can change the value to No. Options include:

  • Yes. The system does not calculate accrued interest purchased or sold at the time of the acquisition or disposition. In the event of a disposition mid-coupon, the system creates a coupon at the end of the coupon period based on the interest earned during the period.

  • No. The system calculates accrued interest purchased or sold at the time of the acquisition or disposition.

OID Indicator

218

Indicates whether the security is OID (original issue discount) eligible. For caps/floors, because the Maturity Price (tag 42) of a cap/floor defaults to 0; the OID Indicator is set to No. Options include:

  • Yes. The security is OID eligible. For this flag to be set to Yes, the issue price must be less than the value in the Maturity Price field. The value in the Maturity Price field cannot be 0.

  • No. The security is not OID eligible.

About Coupon Setup for Caps and Floors

When you use the Caps & Floors panel to set up a cap or floor security, you must specify a Coupon Type (tag 97) field value. The following setup information is specific to the Caps & Floors panel.

Eagle Accounting supports the following coupon types for cap/floor contracts. 

  • Variable Rate. If you select this value, you need to populate coupon rates in the Variable Rate table to accrue interest income. Eagle Accounting uses the coupon rates directly from the Variable Rate table. The Strike Rate field is not used in the calculation of coupon rates.

  • Unscheduled Variable Rate. If you select this value, you need to populate coupon rates in the Variable Rate table to accrue interest income. Eagle Accounting uses the coupon rates directly from the Variable Rate table. The Strike Rate field is not used in the calculation of coupon rates.

  • Floating Rate. If you select this value, Eagle Accounting requires the following fields:
    - Underlying Issue Name (tag 1141) 
    - Underlying Ticker (tag 1349)
    - Underlying Asset ID (tag 1348)
    - Underlying Security Asset ID (tag 1347)
    - First Rate Reset Date (tag 10911)
    - Reset Frequency Code (tag 1788) 
    - Underlying Issue Name (tag 1141)
    For cap/floor security master records set up with a Floating Rate coupon type, Eagle Accounting uses the coupon rates of the attached underlying security on the Rate Reset Date from the Variable Rate table. Eagle Accounting then adds any applicable Index Offset (tag 215) to the coupon rate selected from the Variable Rate table. Eagle Accounting then compares the sum of the underlying security Coupon Rate and Index Offset with the Strike Rate to determine what the coupon rate should be.

  • Inverse Floating Rate. If you select this value, Eagle Accounting requires the following fields:

    • Underlying Issue Name (tag 1141)

    • Underlying Ticker (tag 1349)

    • Underlying Asset ID (tag 1348)

    • Underlying Security Asset ID (tag 1347)

    • First Rate Reset Date (tag 10911)

    • Reset Frequency Code (tag 1788)

    • Inverse Floater Rate (tag 1553)

    • Inverse Floater Multiple (tag 4532)

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