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Time Sensitive Processing Notes

Time Sensitive Processing Notes

Overview

Most securities that accrue interest follow terms that remain constant throughout their tenors. However, some securities have scheduled changes in the way interest accrues. Fixed-to-float bonds, for example, change from fixed rate to floating rate at a predetermined point prior to maturity. There are also total return swaps (TRS) where the spread on the floating rate changes as frequently as daily.

Eagle has full support for these securities using "Time Sensitive" functionality. It allows you to enter different accrual terms for specific date ranges that override the values on the security master file (SMF). You cannot override individual dates or date conventions. The eligible fields are:

  • Coupon (70)

  • Coupon Type (97)

  • Day Count Basis (471)

  • Payment Frequency (472)

  • Underlying Security (1347)

  • Spread/Index Offset (55)

    • Spread changes can occur on any date, while all other changes must occur on coupon dates

Time Sensitive functionality is different than simply updating accrual terms on the SMF, which does not support rollback/replay for dates prior to the change. If a backdated trade is booked or accruals rolled back for any other reason, those dates are re-accrued using the new terms. The only way to maintain integrity of the accrual terms across different periods is to use the Time Sensitive functionality.

Implementation

A brief description of the process is provided first, followed by detailed step-by-step instructions.

High-Level

Time Sensitive functionality consists of two components:

  1. Specifying that a security is eligible to use it

    • This can be done during initial setup or at any point throughout the security's tenor

  2. Creating the records that define the accrual terms for subsequent periods

    • The intended design is for this step to happen automatically during the SMF update

    • When you specify a security as eligible, an initial open-ended SMF Earnings Time Period record is created automatically

    • When you update a security, the initial record is closed out and a new open-ended record is inserted

Detailed

Security Setup

To specify a security as eligible, set Time Sensitive (11926) = Yes and save it. This a) overrides the earnings process to retrieve accrual terms from SMF Earnings Time Period records instead of the SMF and b) creates an initial open-ended record based on the SMF data with Begin Date = Issue Date (68).

  • Securities can be set up at inception with Time Sensitive = Yes for processing consistency even if you do not know whether their accrual terms will change

  • If no additional records are added, the results will match a security with Time Sensitive = No

SMF Earnings Time Periods

This is the critical piece that drives Time Sensitive processing, and it must follow these two rules:

  1. Begin Date (220) = effective date of the change

    1. Must be an actual coupon date for all changes other than spread

    2. Must be less than or equal to Dated Date (1183) for the initial period

    3. If you are using an Adjusted day count basis such as ADJMBC (Modified Following - Adjusted), Begin Date must equal the adjusted coupon date (does not apply to spread changes)

  2. End Date (221) = one calendar day before effective date of the next change, or null if there are no subsequent changes

    1. Must not overlap with Begin Date of the subsequent period

Having multiple periods with no End Date may cause the TRAN engine to hang. Ensure you do not have any overlapping periods or multiple periods with no End Date before attempting to process trades or accruals.

Option 1: Update SMF

This is the recommended method and can be done through Reference Data Center (RDC) or Issue Viewer. The benefits of this method are a) you will not need to add/edit any SMF Earnings Time Period records directly if you update the SMF on effective date of the change and b) your SMF accrual terms will always be in sync with the most recent SMF Earnings Time Period record. The downside is that this method is not well suited to setting up future periods.

Once Time Sensitive has been set to Yes, changing accrual terms on the SMF automatically affects the SMF Earnings Time Period records. When you update the SMF, a new record is added with Start Date = current date and the initial record is updated to populate End Date with prior date. The setup should be complete because you have the initial record running from (or prior to) Dated Date through current date - 1, and another open-ended record starting from the current date.

There is additional functionality for swaps in Issue Viewer V17 to simplify the manual workflow. The following fields become available after saving a swap with Time Sensitive = Yes, then reopening it. They will not be available when setting Time Sensitive = Yes for the first time.

  • Existing Effective Dates (7017): returns any Time Sensitive records that have been added and the associated data

  • As Of Effective Date (4212): date a Time Sensitive change takes effects

    • This must be populated and is used as Begin Date when defining a Time Sensitive data change

Option 2: Manage Records Directly

The workflow is slightly different depending on whether you use RDC or Issue Viewer. The benefits of this method are that it does not require any additional updates to the SMF and you can set up the periods at inception. The downside is your SMF accrual terms will be stale and any subsequent SMF updates will interfere with the SMF Earnings Time Period records.

RDC

  1. Query for the security and open it in Edit mode

  2. Click the SMF Earnings Time Period tab

  3. Double-click the record with Begin Date = Issue Date (68) of the security

  4. Set End Date = one calendar day prior to effective date of the change

    1. If Dated Date is prior to Issue Date, you must also set Begin Date = Dated Date

  5. Click Save

  6. Back in the SMF Earnings Time Period tab, click Add SMF Earnings Time Period

  7. Enter accrual terms

  8. Set Begin Date = effective date of the change

  9. Click Save

Issue Viewer

  1. Query for the security and select it in the results (do not open it)

  2. Click the SMF Earnings Time Period tab in the lower section of the screen

  3. Select the record with Begin Date = Dated Date of the security and click Change SMF Earnings Time Period

  4. Set End Date = one calendar day prior to effective date of the change

    1. If Dated Date is prior to Issue Date, you must also set Begin Date = Dated Date

  5. Click Submit

  6. Back in the SMF Earnings Time Period tab, click Add SMF Earnings Time Period

  7. Enter accrual terms

  8. Set Begin Date = effective date of the change

  9. Click Save

Additional Considerations

  • When viewing SMF Earnings Time Period records with underlying securities in RDC, the Underlying Security column displays the securities aliases

  • When using the Time Sensitive functionality to change the underlying index for a floating rate security, rates must be loaded through the fixing date when the change occurs

    • This is different than a standard floating rate security where the earnings process will pick up a stale rate

  • If a security has Dated Date < Issue Date, Begin Date on the initial open-ended SMF Earnings Time Period record must be changed to match Dated Date

    • The Add/Change Earnings Time Period screens do not allow Begin Date < Issue Date, which can be resolved locally by adding overlays to comment out this line: IF (:220:< :68:) THEN ERR("Cannot Add a Record Less Than Issue Date");

  • Editing an existing record through Issue Viewer where Begin Date is changed results in a new record being created rather than the existing record being updated

    • The old record with the incorrect Begin Date must be deleted when this happens

  • In Issue Viewer you can edit multiple SMF Earnings Time Period records at the same time by shift- or ctrl-clicking the desired rows and then using Change SMF Earnings Time Period

  • In the Classic UI, you can also access Add/Change/Delete/List Earnings Time Period through the main menu to perform these steps