Clearing Broker FX Rates Processing Notes

Owned by Jawann Swislow
Last updated: Jul 31, 2024 by Jawann Swislow
4 min read

Overview

For foreign Futures, Options, and Cleared Swaps, clearing brokers sometimes use FX rates that differ from a client's source. This can cause breaks between a broker's variation margin (VM) statement and the cash amounts calculated by Accounting. Alternate rates are supported for Futures and Options via Accounting's Broker Currency and Broker Rates functionality, without affecting the FX rates used for other processing. It must be configured prior to processing variation margin.

When using this functionality, each day's VM is calculated in the security's local currency. That amount is then converted to the Broker Currency using the most recently available Broker Rate. If none is available, the most recent rate from the entity's FX Source (1344) is used. This does not affect base values on the income lots, which are calculated directly from the security's local currency using the entity's FX Source.

The table below demonstrates a cross-currency example for a Future, where the security's local currency (GBP) and the Broker Currency (CAD) are both different than the fund's base currency (USD). This scenario is only supported for Futures and Options. For a Cleared Swap, VM must settle in the base currency of the fund holding it (Broker Currency matches fund's base currency).



Day 1

Day 2

Day 3

Notes



Day 1

Day 2

Day 3

Notes

Income - Unaffected by Broker Rates

Urgl Sec Delta L (4363)

30,000

-20,000

70,000

= daily VM
(Calculated in GBP)

Var Margin Ltd Local (5020)
Urgl Security Local (489)

30,000

10,000

80,000

= accumulated VM
(Calculated in GBP)

Local to Base FX Rate

0.95

0.94

0.96

GBP to USD using FX Source

Var Margin Ltd Base (5021)
Urgl Security Base (491)

31,578.95

10,638.30

83,333.33

= Var Margin Ltd Local / Local to Base FX Rate
(Calculated in USD)

Urgl Sec Delta B (4364)

31,578.95

-20,940.65

72,695.03‬

= day-over-day change in Var Margin Ltd Base
(Calculated in USD)

Cash - Uses Broker Rates

Broker FX Rate

0.59

0.60

0.58

GBP to CAD

Net Amount Local (50)
Settle Amt S (64)

50,847.46

-33,333.33

120,689.66

= Urgl Sec Delta L / Broker FX Rate
(Settled in CAD)

Broker Currency to Base FX Rate

1.35

1.30

1.25

CAD to USD using FX Source

Net Amount Base (478)

37,664.79

25,641.02

96,551.73

= Net Amount Local / Broker Currency to Base FX Rate
(Calculated in USD)

Configuration

The relevant currency must be defined and rates must be entered prior to processing VM. The screens can be located by searching for Broker Currency and Broker Rates.

Although Cleared Swaps are not currently supported with this functionality in core, it is possible to enable them locally. Cross currency scenarios (where a security's local currency and settlement currency are both different than the fund's currency) and Cleared Swaps must have Settlement Currency (63) on the security master file (SMF) set to the currency in which variation margin will settle. This is not required for futures and options, where Settlement Currency can be equal to Asset Currency (85) on the SMF and then overridden at the trade level.

Add Broker Currency

Specifies currency for conversion of VM. Example: if all VM for a given clearing broker is moved in USD, enter USD as the Broker Currency.

  • Entity ID (1163) & Name (1164): entity that has VM for foreign futures moved in a base currency

  • Clearing Broker (1236) & Code (1237): clearing broker that moves VM for foreign futures in a base currency

  • Asset Currency (85): currency for VM settlement

  • Entry Type (1882): Future or Option

  • Effective Date (1109): this should be left NULL, unless you want to limit the time period to which the Broker Currency is applied

Add Broker Rates

Specifies FX rates that will be used to convert local VM amounts to cash movements in the settlement currency.

  • Entity ID (1163) & Name (1164): same as above

  • Clearing Broker (1236) & Code (1237): same as above

  • Entry Type (1882): same as above

  • From Currency (363): local currency of a Future or Option contract to be converted using these rates

  • To Currency (313): currency for VM settlement

    • This should match Asset Currency entered above

  • Effective Date (1109)

  • Spot Rate (96): FX rate specified by clearing broker

Book Trades

  • Settlement Currency (63): must be set to currency for VM settlement

Processing

Once a Broker Currency has been defined and Broker Rates have been loaded, they will be picked up automatically by the VM approval process. The calculations in local and base currencies are unchanged. VM is converted to the settlement currency using Broker Rates from the relevant dates, if available. If none are available, the most recent rates from the entity's FX Source are used.

Reporting

For cross currency scenarios on Futures and Options where the security's local currency and your Broker Currency both differ from the base currency of your fund, you must use the Cash Position - Different Settlement Currency report in Position Viewer to view the cash records. This is available in the ribbon under Additional Reports in V17 and above, or in the left nav below Cost/Cash/Income Positions in versions prior to V17.

Note: after approving VM, local currency records remain in the Unapproved columns of the Variation Margin report because they never technically settle in that currency. The settlement currency records appear in the Approved columns. This has no impact on cash or ledger postings.

Automation

Broker Rates can be loaded via EagleML. A template is attached (). The message should be submitted to eagle_ml-2-0_default_in_xml_reference.