As with most forms of repurchase agreements, BSB/SBBs are an efficient short term financing tool for investors. Financing rates for collateralized loans such as these are typically lower than unsecured loans. In addition, they are legally recognized as a single transaction, as opposed to two separate transactions, which make them attractive from a tax perspective.

For trading purposes, this is viewed as a single transaction with two legs. For settlement purposes, it is viewed as two separate and distinct transactions, where the security changes hands in the depository system at the onset and close of the transaction, both based on a negotiated price. This document covers the full lifecycle including Eagle Accounting, Data Management, and Performance.

Entity Setup

Entities trading BSBs/SBBs do not require specific requirements for the entity configuration. However, Accrual Convention Offset (12038) controls when the coupon is reflected for settlement (either Settlement Date or Settlement Date + 1). It can be populated using Create/Edit Entity (V17) or Add/Change Entity (prior to V17) and it affects all holdings within a given entity. If a different value is required for BSBs/SBBs, the entity-level value can be overridden at trade time using Accrual Convention Offset Override (1604). This is used to allow coupon settlements to occur on a one-day lag.

Reference Data

Storage & Configuration

Eagle models BSB/SBB security master files (SMFs) as single rows in Data Management. The collateral's SMF is linked as an underlying to the BSB/SBB, which can be used for reference and reporting purposes.

Market Data

BSBs/SBBs are always priced at 100 in Eagle Accounting. The cash flows from a BSB/SBB are derived directly from the interest rate on its underlying collateral. It is critical that the collateral SMF be set up prior to booking BSB/SBB trades.

Security Data

Security master file (SMF) setup is not required for BSB/SBB securities prior to entering BSB/SBB trades. When trade data is entered, Eagle Accounting will create the SMF record for the BSB/SBB trade automatically (on the fly). The system assigns these security records a processing security type of DBIBSB.

• Before booking trades, the collateral security's SMF must be set up and include the appropriate fixed or variable rate. This information is required to calculate the net settlement amount, as well as the amount lent or borrowed as part of the BSB/SBB trade

Trade Processing

Open (BUY or SHORTSELL)

Trades are initiated using Open Buy Sellback/Sell Buyback once entity and collateral security reference data have been configured. The SMF will be created automatically upon entering the trade.

The list below contains all fields that must be entered to book a BSB/SBB trade, plus notes on additional fields.

• Entity ID (1163) & Entity Name (1164)

• Issue Name (961)

• Issue Description (962)

• Primary Asset ID Type (1432)

• Primary Asset ID (14)

• Issue Country (1418)

• Issue Currency (85)

• Income Currency (1186)

• Issue Tax Type (668)

• Primary Exchange (17)

• Coupon (70): interest rate for calculating accruals

• Day Count Basis (471): ACT/360 or ACT/365

• Accrual Convention Offset Override (1604)

  • Override entity election and use settlement date: accruals will start on settlement date regardless of entity setup

  • Use election on entity: the entity-level value for Accrual Convention Offset will be used, with accruals starting either on Settlement Date or Settlement Date + 1

• Underlying Security ID (1348) & Underlying Issue Name (1141)

• Trade Date (35)

• Settlement Date (37)

• Maturity Date (38)

• Days Until Maturity (1567): calculated automatically

• Event Type (55): select BUY to open a BSB position or SHORTSELL to open an SBB position

• Notional Amount (3779): par value of the underlying collateral security provided on BSB/SBB trades

• Clean Price (1594)

• Underlying Principal (7350): calculated automatically based on Notional Amount and Clean Price

• Underlying Accrued Interest Local (1595): calculated automatically while processing a trade, but can be overridden

• Haircut Percentage (1579): to be applied on the Clean Price

• Haircut Flag (1580): specifies whether to Multiply or Divide the clean price by the haircut percentage to calculate Par Value

• Par Value (40): calculated automatically as (Underlying Principal + Underlying Accrued Interest Local) multiplied or divided by (Haircut Percentage / 100)

• Interest at Maturity (114): accrued interest that will be paid at maturity, calculated based on Par Value, Coupon, Day Count Basis, and Days Until Maturity 

• Forward Clean Price (1600): for the second leg of the BSB/SBB trade

• Underlying Accrued Interest Local at Maturity (1601): calculated automatically while processing a trade, but can be overridden

• Settle Amount At Maturity (1603): calculated automatically based on Notional Amount, Forward Clean Price, and Underlying Accrued Interest Local at Maturity, but can be overridden

Close (SELL or BUYCVR)

In rare situations, it may be necessary to close out a BSB/SBB position prior to its maturity date. This could be due to default of the counterparty, default of the underlying collateral's issuer, or other exceptional circumstances. In these cases, a close transaction can be entered using Close Buy Sellback/Sell Buyback.

Closes are entered based on Par Value, rather than Notional Amount. Ensure you select the correct Event Type for closing a BSB (SELL) or SBB (BUYCVR).

Underlying Collateral Coupon Reinvestment

During the life of the BSB/SBB, a coupon payment on the underlying security may occur. Generally, this coupon payment is deducted from the final settlement amount at maturity, as the coupon payment is owed to the underlying security buyer (lender of cash). To offset the underlying coupon, the Underlying Collateral Coupon Reinvestment corporate action should be used.

• V17 & Above: Reference Data Center > Corporate Actions > Announcements > Create Underlying Collateral Coupon Reinvestment

• Prior to V17: Reference > Corporate Action Announcements > Underlying Collateral Coupon Reinvestment

Populate the corporate action announcement data as described below.

• Asset ID (14): Primary Asset ID of the BSB/SBB

• Sweep Date (1197): date when the global corporate action process will pick up and execute the corporate action

  • Typically the same as Ex Date (65), which is the underlying security's coupon date

  • Note: this is a strictly operational data element for global processing; the corporate action will take effect on Ex Date

• Ex Date (65): date when the corporate action takes effect (Trade Date for the event)

  • Typically the coupon of the underlying security

  • Used as the interest accrual end date for the underlying security coupon payment

  • Note: due to certain panel-level date restrictions, a partial coupon amount may be calculated

    • In these cases, an additional Miscellaneous Income or Miscellaneous Expense transaction will be required at maturity to exactly match the settlement

• Corporate Action Status (54) = Released

• Corporate Action Sub Priority (3961): order of priority for corporate actions processed on the same day

  • Enter 1 unless you have this scenario

• Mandatory/Voluntary Indicator (1734) = Mandatory

• Reinvestment Rate (1001): for reference and reporting purposes only (does not affect processing)

  • Defaults to Coupon from the BSB/SBB security that was entered on the open trade

• Corporate Action Type (1728): specifies the direction to offset the underlying coupon

  • Buy Sell Back: results in a negative coupon offset to the maturity settlement

  • Sell Buy Back: results in a positive coupon offset to the maturity settlement

• Corporate Action Notes (1740): user-defined field for reference and reporting purposes

Triggering Corporate Action

• V17 & Above: Accounting Center > Processing and Exceptions > Global Processes > Corporate Actions > Reinvest Collateral Coupon Processing

• Prior to V17: Global Process Center > Factor Processing > Reinvest Collateral Coupon

Set Corporation Action Begin (220) & End Sweep Date (221) to a range that includes the Sweep Date entered on the announcement.

Maturity/Termination

BSBs/SBBs are captured by Eagle’s core maturity process, at which point any outstanding units are closed down, accrued interest is exchanged, and journal entries are posted. Maturities are triggered using:

• V17 & Above: Accounting Center > Processing and Exceptions > Global Processes > Expirations & Maturities > Run Mature Process

• Prior to V17: Global Process Center > Expirations > Mature

Conversion

Use Convert Buy Sellback/Sell Buyback to convert BSB/SBB positions.

Pledging

Refer to Pledging & Restrictions Best Practices for instructions on pledging collateral securities.

Accounting

Once a BSB/SBB trade is booked, it will be picked up in Eagle’s global workflow. Daily accruals and periodic coupon payments are generated as part of the earnings process, Accounting valuation is calculated when posting unrealized gain/loss, and Data Management valuation is calculated in the STAR to PACE push.

Accruals & Amortization

Entity-level Accrual Convention Offset and trade-level Accrual Convention Offset Override are used to determine if accruals will start from Settlement Date or Settlement Date + 1. Negative Coupon rates are also supported.

BSB/SBB positions are not subject to amortization as they are purchased at 100, priced daily at 100, and mature at 100.

Valuation

There are no posting for unrealized gain/loss because BSB/SBB positions are always traded and valued at a price of 100. There are two options to generate valuations in Eagle Accounting:

• When regulatory categories are established for an entity/accounting basis, the unrealized gain/loss accounting rules can be defined to always value BSB/SBB positions at cost

• Each BSB/SBB security can be priced at 100 on a daily basis

BSB/SBB positions denominated in a foreign security are subject to FX revaluation. They are processed the same way as other foreign securities in the entity/accounting basis’ FX revaluation process.

Reporting

STAR to PACE (S2P)

Almost all reports in Eagle leverage data from Data Managament, which is populated by the S2P process. This will be scheduled as part of the daily workflow, but can also be triggered manually as described in the Accounting section.

The S2P process creates a single row for each BSB/SBB in the POSITION, POSITION_DETAIL, TRADE, and CASH_ACTIVITY tables.

Accounting Reports

Eagle has a core set of accounting reports that can be used to review BSB/SBB information. These are designed to support the daily operational workflow for business users, allowing Grid Reports to be easily exported to Excel and customized to provide additional details as needed. Advanced Reports are intended to be client-facing and do not provide the same level of customization.

Data Management Reporting

General Reporting (Eagle OLAP)

OLAP reports provide the maximum level of customization, allowing any column in Data Management to be pulled into a report. These go beyond the Eagle Accounting Grid Reports because they are not limited by core queries, can support multiple sources and various types of calculations, and provide drill-down functionality based on user-defined groupings.

Performance

The performance toolkit has full functionality to calculate market value based performance for BSB/SBB securities. The toolkit process is pre-configured to read data supplied by the S2P process and calculate performance.

Automation

BSB/SBB trades can be loaded through a standard Message Center (MC) stream. Like Forwards, the SMF does not need to be loaded prior to the trade. Instead, the trade will spawn an SMF automatically. Reinvest Underlying Collateral Coupon corporate action announcements can also be entered via MC. Refer to Supported Generic Interfaces V17 for more information.

Below are the standard interfaces provided out-of-the-box for MC.

Configuration

In V17, a few additional fields must be mapped in the rule file as described below. In versions prior to V17, additional configuration is required to enable both message streams (contact Instrument Engineering for details).

• Open Message Center Editor > eagle_default > in > csv > csv-shareoffer.xml

• Right-click within the Message Mapping tab grid and select Auto Include > Create csv-shareoffer_columns_after.inc (or Edit if an Auto-Include After already exists)

• Insert the following tags:

• Within the Panel Router section, insert a new row at the top where Expression = :tag1257: = 'REINVEST_COLLCPN' and Pan file = eagle/star/reference/pan-addbssb.htm

• Once complete, the Message Mapping tab should appear as below

• Save and close the rule

• Click Tools > Reinitialize Message Center Cache before testing

Open