Floating Price Instruments Priced at 1.1 Examples

In the following set of scenarios, the sweep asset is identified as a Floating Price Instrument in the SMF record. For simplicity and illustrative purposes the original sweep price is 1, and the subsequent sweep is processed at a price of 1.1.

These examples illustrate how the system maintains the principal and income balances when you run the cash sweep process for floating price instruments rather than for sweep assets priced at 1. Each scenario shows how the system maintains the units and principal and income breakdown for the STIF asset and the cash account before and after a cash sweep. The different scenarios show what happens when all, principal, and/or income balances are positive or negative. Certain scenarios also indicate what happens when negative balances can or cannot be covered by the sweep asset.

Scenario 1: All Balances are Positive

Current Price = 1, Sweep Price = 1.1

In the Before section, note that the STIF asset has the same units as total cost, thus an initial sweep at a price of 1. In the After section, the positive cash balance ($1,000) is swept at a price of 1.1. Rather than 1,000 units, the purchase is done for just 909.09 units – 909.09 + 200 = 1109.09. Principle and Interest simply flow to the STIF asset based on their current balances + cash balances.

Before

After

Scenario 2:  Total and Income Balance Negative, Can be Covered

Current Price = 1, Sweep Price = 1.1

The following example is produces a sell to cover the cash shortfall. The STIF sells enough to cover the cost of the shortfall ($100), and back in to the units from the price ($100 / 1.1 = 90.909 units).

There are two things to note. First, the principle and income are generated to cover the exact shortfall, in this case $300, in principal and -$400 in income, resulting in a positive principal balance and negative income in the STIF asset. Additionally, the sell of 90.909 units for $100 results in a $9.09 realized gain on the position.

Before

After

(gain 9.09)

Scenario 3: Total and Income Balance Negative, Cannot be Covered)

Current Price = 1, Sweep Price = 1.1

This scenario highlights a cash shortfall that cannot be fully funded by the STIF position. Notice that while a price of 1.1 exists, the STIF is fully closed out. Thus 200 units are sold at a price of 1.1 – $220, bringing the cash shortfall to (-$300 + $220) $80. The income moves according to the STIF income balance. However the Principal gets unique treatment in these scenarios.

The Principal delta is based on the STIF balance, but also any realized gain or loss. So in this scenario, the $150 principal STIF balance is added to the $150 cash balance, and in addition the $20 gain brings the total Principal balance to $320.

Before

After

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