Overview

In some cases there may be a requirement to fair value a Total Return Swap (TRS) or include another form of discounting in the valuation. In V17 R2.49 and above, you can specify different sources to be used for TRS resets at the entity level. There is no change to the daily valuation process; it continues to use Long Price Source (1282) and Short Price Source (5422) from the entity. The default behavior is that these sources are used for resets too. You can override the default behavior as described in the Implementation section below.

When using this functionality in releases prior to V26 R1.2, a missing price for the reset price source will cause resets to fail (they will not fall back to the valuation price source). In V26 R1.2 and above, resets will fall back to the valuation price source if a price is missing on the reset price source. This allows the functionality to be used for a subset of TRS in an entity.

There is additional functionality to convert a dirty discounted market value (URGL) to a unit price as required by Eagle Accounting, which can be used alongside the functionality described here. See TRS Price Conversion Processing Notes for details.

Implementation

The prices that will be used for valuations and resets must be loaded to separate sources. Example: discounted prices are loaded to SOURCE1 and market prices are loaded to SOURCE2. Prices can also be applied separately for long and short positions as demonstrated in the table below.

In releases prior to V26 R1.2, prices on the reset price source must exist for the return leg of each TRS. In V26 R1.2 and above, the reset process can look through to the underlying equity to pick up the price from the reset price source. This is only available when using the alternate price source functionality (prices must still exist for the return leg for the standard valuation source reset functionality). When looking through to the underlying, the reset process will not fall back to the valuation price source if a price is missing on the reset price source.

• The association of an entity to a price source for long and/or short TRS resets is driven by code values

• To change an entity's price source for long TRS resets:

  • Open Codes

  • Locate and open LONG TRS PRICE

  • Add new code value with the following attributes

    • Code Value Short Description = Entity ID of applicable entity

    • Code Value Long Description = price source for long TRS resets (case sensitive)

    • Source = Long Price Source of applicable entity

      • This field is not relevant starting in V17 R2.51; the default value of EAGLE PACE (or any other) can be used

    • Code Value System Control = U to look through to underlying equity, S to pull directly from return leg

      • This applies to V26 R1.2 and above, in prior releases the price is always pulled directly from the return leg

• To change an entity's price source for short TRS resets:

  • Open Codes

  • Locate and open SHORT TRS PRICE

  • Add new code value with the following attributes

    • Code Value Short Description = Entity ID of applicable entity

    • Code Value Long Description = price source for short TRS resets (case sensitive)

    • Source = Short Price Source of applicable entity

      • This field is not relevant starting in V17 R2.51; the default value of EAGLE PACE (or any other) can be used

    • Code Value System Control = U to look through to underlying equity, S to pull directly from return leg

      • This applies to V26 R1.2 and above, in prior releases the price is always pulled directly from the return leg

• If an entity is not in the list of code values, the default behavior is applied (entity-level price sources are used for resets)

When using an alternate source for resets, prices are pulled from the PRICE table for the specified source.