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Total Return Swaps (TRS) on Futures Best Practices

Total Return Swaps (TRS) on Futures Best Practices

Overview

This document should be used in conjunction with the Eagle standard Total Return Swaps (TRS) Best Practices to obtain a complete understanding of how TRS are processed within the Eagle product suite. The purpose of this document is to highlight the unique characteristics of security master setup and trading for three types of TRS on Futures.

  1. Unfunded: the TRS does not come with any financing

  2. Partially Funded: the TRS pays or receives a fee at the time of the trade

  3. Fully Funded: the TRS transaction behaves similarly to an equity TRS, however the financing leg may have an additional component of Initial Margin that is a part of the accrued interest calculation

    1. Rates would have to be calculated offline and fed into eagle to process accruals

    2. See attached example

Reference Data

Example of Fully Funded TRS on Future

Contract

Finance Leg

The finance leg’s multiplier is entered into the Quantity Scale field.

  • Note: Accounting uses par-based conventions to calculate finance leg accruals, so in most cases the multiplier will have to be adjusted to reflect this

    • For example: if the multiplier on the contract is 3, it will need to be entered as 300 in the quantity scale field to calculate accruals correctly

For an Unfunded or Partially Funded TRS on Futures: Coupon = 0 and Coupon Type = Fixed.

Return Leg

The underlying asset, which has no accounting impact, must be an equity unless the panel-level edit is changed to allow futures in the Underlying Security fields. There are two options:

  • Set up the future as an equity to avoid having to modify Accounting

  • Leave these fields blank and then use Add Underlying Security to link the underlying future to the return leg

Trade Processing