Overview

South African bonds may have an ex-date that is prior to the traditional coupon payment date. On ex-date, the client expects to see the full coupon paid to the holder. However, since the entire coupon has not yet been earned, a liability must be shown at the security level until the actual coupon payment date. This liability will decrease (or move toward zero) daily until it reaches zero.

Reference Data

Since Accounting does not track ex-date for these bonds, the SMF set up will be based upon actual coupon payment dates. Tracking of ex-dates may be available in a future release.

Example for a South African bond with the following characteristics:

• 6,000,000 par

• Pays semiannually on 2/28 and 8/31

• 6% coupon

• 180,000 coupon payment

• Ex-date is 1/31

Special Transaction Processing

1. On ex-date (1/31/2011 in this example), post a Miscellaneous Expense, Asset Specific transaction. The trade date will be equal to ex-date, and the settlement date will be equal to the coupon date. This creates a liability at the security level for income that has been received but not yet earned.

2. On ex-date, post a Miscellaneous Income, Asset Specific transaction for the amount of the misc-expense that you just posted. This is to create a receivable for the full coupon amount on ex-date that hits the traded cash balance. The trade date, settlement date, and accounting date will be equal to ex-date.

Examples

See attached spreadsheet with position, cash activity, and performance examples ().

Results

• Security level performance will be correct for the individual cash on ex-date.

• Total fund performance will be correct for all periods.

• A liability will be shown at the asset level for the income that has been received but not yet earned.

• The traded cash balance will be accurate showing the interest receivable as of ex-date.

• No additional transactions need to be posted on coupon date.

Other Notes

There is one shortcoming with this approach: the settled cash balance will be incorrect. However, the sum of all negative miscellaneous income receivable is equal to the amount of the overstatement of the settled cash balance. There are two options to correct this settled balance, if required:

1. Create an exporter that computes the sum of the negative miscellaneous income receivable and adjusts the settled cash balance accordingly. Since settled cash balance is typically a value that is not reviewed historically, this exporter could run for current date only. If historical data is required, then it could be run for all dates that have changed.

2. Create a report that adjusts the settled cash balance by the sum of the negative miscellaneous income receivable.