Example reference data screens and fixed leg accrued interest calculations are attached:

Entity Setup

Before any trades can be booked, the target entity must be set up appropriately. Refer to Swaps Entity Setup Processing Notes for details.

Reference Data

Storage & Configuration

Eagle has modeled ILAS as three rows in Data Management, each with its own Security Alias (10), linked by a common Primary Asset ID (14). Eagle Accounting must be set up to allow duplicate IDs for swaps by following the steps in Allow Duplicate Cross Reference Identifiers Processing Notes.

Refer to Multi-Leg SWAPIDs Processing Notes for information about the unique SWAPID identifiers that are automatically created for the contract and each leg of a multi-leg swap.

Market Data

The underlying inflation index must be set up and populated with the appropriate periodic values. If the underlying bond is a United States Treasury Inflation-Protected Security (US TIPS), this means monthly Consumer Price Index (CPI) values. Refer to Inflation-Linked Bonds (ILB) Best Practices and Inflation-Linked Bonds (ILB) Best Practices for more information about creating and populating underlying inflation indexes.

For floating legs, the underlying floating rate index must also be set up and populated with the appropriate periodic rates. Refer to Interest Rate Swaps (IRS) Best Practices for more information about creating and populating floating rate indexes.

Security Data

ILAS can be set up and maintained in Reference Data Center (RDC) or Issue Viewer. Most data is entered on the contract and propagated to the legs. Specific accrual conventions are entered separately on each leg.

Contract

• Issue Name (961)

• Primary Asset ID (14) & Type (1432): ensure duplicate IDs are allowed (see Storage & Configuration section above)

• Processing Security Type (3931) = SWCOIF (Inflation Linked Swap Contract)

• Price Multiplier (18): the default of 0.01 will be correct in most cases, but may need to be changed to 1.00 (ILAS prices are sometimes supplied having already been multiplied by 0.01)

• Issue Country (1418)

• Asset Currency (85)

• Cleared Security (5027) = null or No

  • If you trade cleared ILAS, please contact Instrument Engineering

• Issue Date (68): first trade date of the swap

• Dated Date (1183): date accruals start, "Effective Date" in ISDA contracts

• Maturity Date (38): date swap expires, "Expiration Date" or "Termination Date" in ISDA contracts

Inflation Leg

Most accrual terms are identical to the underlying ILB. Key fields are noted below. Refer to Inflation-Linked Bonds (ILB) Best Practices for more information about configuring the accrual terms for inflation-linked securities.

• Processing Security Type (3931) = SWLEIF (Swap Leg Inflation Linked Interest Accrual)

• Coupon (70): same as underlying bond

• Coupon Type (97): same as underlying bond

• Day Count Basis (471): same as underlying bond

• Payment Frequency (472): same as underlying bond

• Business Day Convention (1536): typically Modified Following, which is ADJMBC (Modified Following - Adjusted)

  • Coupon Day of Month (10551): day of the month that payments are scheduled to be made, which will be automatically adjusted based on the Business Day Convention

  • Business Calendar (1480): as specified in the contract; a composite calendar (including dates from two different calendars) may need to be setup in some cases

• First (473) & Last Payment Date (474): as specified in contract

  • These dates will align with the underlying bond payment schedule during the tenor of the ILAS contract

• Underlying Security (1347): populate with the appropriate underlying inflation index (CPI, RPI, etc.)

• Dated Date CPI (1550): reference inflation index value on dated date

• ILB Calculation Type (11808): select based on country of issue and series

• ILB Index Precision (11017): number of decimal places to which the ILB index ratios will be calculated (Eagle Accounting supports up to 12)

• ILB Deflation Protected Maturity (11809): defines if the initial principal investment is protected at the time of maturity

• ILB Min Index Ratio (3854): defines the lowest index ratio to which amortization will be calculated for the purposes of realizing gain/loss at maturity

  • This only applies when the entity-level Min ILB Ratio Flag = Yes

Interest Leg

The interest leg works identically to an IRS leg. It can be either fixed or floating rate. Refer to Interest Rate Swaps (IRS) Best Practices for more information about configuring the accrual terms for fixed or floating legs.

Trade Processing

Open and close trades are booked identically to IRSs. The price is entered on the contract and accrued interest, if applicable, is calculated on the appropriate leg. Refer to Interest Rate Swaps (IRS) Best Practices for more information about booking trades.

The one additional field for ILAS processing is ILB Index Ratio (4483) on the inflation leg. This is retrieved automatically and is used in the traded interest calculation.

Conversion

The CONVERSION event is supported for ILAS. This uses the core open swap screen, rather than the dedicated conversion screen.

Cancel & Rebook

Faulty transactions must be cancelled using Batch Cancel Trades, with the transaction rebooked using the Book Trade module. Ensure Level of Batchcancel (1256) is set to Entity Level. ILAS are not supported in the Cancel & Rebook Trade process. Maturities must also be canceled using Batch Cancel Trades.

Accounting

Once an ILAS trade is booked it will be picked up in Eagle’s global workflow. Inflation-adjusted daily accruals and periodic coupon payments are generated using underlying CPI values as part of the earnings process, Accounting valuation is calculated when posting unrealized gain/loss, and Data Management valuation is calculated in STAR to PACE. These can be scheduled or triggered manually.

Valuation

Eagle Accounting values ILAS using clean unit prices on a par-zero basis (around zero rather than around 100). Prices must be entered at the contract level using Add Issue Price or Pricing Center. The market value formula is:

• Market Value = Notional Amount * Price * Price Multiplier * Quantity Scale
  
  

  • Leg-level accrued interest is captured in Market Value Income on each leg

  • Inflation leg accrued interest includes the inflation adjustment

  • The total value of the ILAS is the net MVI across the contract and legs