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TRS Reset Processing Notes

TRS Reset Processing Notes

Workflow

  • The underlying price must be populated directly on the return leg for valuation date before processing the reset

    • Accounting does not automatically look to the underlying for reset prices

  • The reset event should be scheduled to run on a daily basis with Select Query Option (2283) = All Entities/All Securities in a production setting

    • Only TRS that are eligible to reset will be picked up

    • It should be scheduled to run in the EOD cycle after all prices are available

      • If prices are not available in a timely fashion, it can be scheduled to run in the SOD cycle with a Trade Dt of the prior day (income is automatically rolled back to reset date and replayed)

  • Security Query Flag (1256): controls whether prices and FX rates must be loaded for the reset date (ACTUAL), or if the most recently available will be used (RECENT)

    • When ACTUAL is used and either prices or FX rates (for foreign TRS) are missing, the reset will fail

      • This is the default behavior

    • Using RECENT will prevent failures, but may lead to incorrect reset activity

  • If a TRS has already been reset for a given date, rerunning the reset event for that same date will throw an error: Error - 1227 - Unable to process Reset event. Adjustment exists for same or future effective date. Must must cancel subsequent activity before processing new event

Calculation

The reset cash flow direction is determined by reset price being above or below initial price (trade price or last reset price). The table below shows the cashflow direction based on the calculation of Return Amount.

  • Shares = 1,000,000, Initial Price = $80, and Reset Price = $85

  • Return Amount = 1,000,000 * (85 - 80) = $5,000,000

  • New Notional = 1,000,000 * 85 = $85,000,000

Scenario

Return Amount

Cashflow Direction

Pay Return

Positive

Disbursement

Negative

Receipt

Receive Return

Positive

Receipt

Negative

Disbursement

Finance leg notional is recalculated based on return leg # of shares and reset price. The finance leg starts accruing on the new notional on reset date (valuation date + Lag/Coupon Delay Days). This is the 10th in the attached example.

Constant Notional: reset payments are calculated the same way as outlined above, except the initial price is always trade price. Notional and notional cost are established at trade time and do not change.

  • To keep notional constant, Eagle Accounting divides it by reset price to calculate an updated # of shares