About Processing Trades for Caps and Floors

Before you can process a cap/floor contract, you must:

1. Set up an entity record with the Net Cap/Floor field set to a value of Yes or No.

2. Correctly set up a cap/floor Security Master File (SMF) record with all required fields populated and the coupon dates in sync with the payment frequency of the bond.

3. Set up an amortization rule to process cap or floor securities with an Amortization Method of Straight Line, Straight Line/Actual, or None.

After these steps are complete, an entity can process cap/floor securities transactions against established cap/floor SMFs. To process cap/floor transactions, you can use the Open and Close Caps/Floors panel that you can access using the Book Trade tool. For details, see Book Trades for Caps/Floors.

Depending on whether you set the entity's Net Cap Floor field to Yes or No, certain event types are available in the Book Trade tool's Open and Close Caps/Floors panel.

Open/Close Transaction Event Types Available when Entity's Net Cap Floor Option is No

If you set the entity's Net Cap Floor field to No, you can select the following values for the Event Type field (tag 55):

• BUY (Open Long)

• SELL (Close Long)

• WRITE (Open Short)

• BUYCVR (Close Short)

The value in the Event Type (tag 55) field that you select determines the trade's Long Short Indicator field (tag 15) value. An Open Long position is closed by a Close Long transaction. An Open Short position is closed by a Close Short position.

Open/Close Transaction Event Types Available when Entity's Net Cap Floor Option is Yes

If you set the entity's Net Cap Floor field to Yes, you can select the following values for the Event Type field (tag 55):

• BUY (Open Long)

• SELL (Close Long)

The Long/Short Indicator (tag 15) is set to Long when the Net Cap Floor field is set to Yes. An Open Long position is closed by a Close Long transaction. A Close Long position, that creates a technically short position, is closed by an Open Long position.