You can establish a cap/floor Security Master File (SMF) record using the Caps & Floors panel in Issue Viewer.
A cap/floor must adhere to the same requirements as all fixed income securities. For example, the First Coupon Date and Last Coupon Date values must be in sync with the payment frequency of the bond, and you must enter all required fields before submitting the record. Also, the values for the First Coupon Date, Last Coupon Date, and Maturity Date must not include Delay Days.

For more information about reference setup, see "Reference Data."

Set Up Caps & Floors Panel Options

When you use the Caps& Floors panel to set up a cap or floor security, the following setup information is specific to caps and floors:

• Processing Security Type (tag 3931). To allow the system to recognize a security as a cap or floor, select:
  • OPIRCA (Interest Rate Option Caps) to establish a cap SMF record.
  • OPIRFL (Interest Rate Option Floors) to establish a floor SMF record.
• Coupon Type (tag 97). Required. Eagle Accounting supports the following coupon types for cap/floor contracts:
  • Variable Rate. If you select this value, you need to populate coupon rates in the Variable Rate table to accrue interest income. Eagle Accounting uses the coupon rates directly from the Variable Rate table. The Strike Rate field is not used in the calculation of coupon rates.
  • Unscheduled Variable Rate. If you select this value, you need to populate coupon rates in the Variable Rate table to accrue interest income. Eagle Accounting uses the coupon rates directly from the Variable Rate table. The Strike Rate field is not used in the calculation of coupon rates.
  • Floating Rate. If you select this value, Eagle Accounting requires the following fields:
    • Underlying Issue Name (tag 1141)
    • Underlying Ticker (tag 1349)
    • Underlying Asset ID (tag 1348)
    • Underlying Security Asset ID (tag 1347)
    • First Rate Reset Date (tag 10911)
    • Reset Frequency Code (tag 1788)

For cap/floor security master records set up with a Floating Rate coupon type, Eagle Accounting uses the coupon rates of the attached underlying security on the Rate Reset Date from the Variable Rate table. Eagle Accounting then adds any applicable Index Offset (tag 215) to the coupon rate selected from the Variable Rate table. Eagle Accounting then compares the sum of the underlying security Coupon Rate and Index Offset with the Strike Rate to determine what the coupon rate should be.

• • Inverse Floating Rate. If you select this value, Eagle Accounting requires the following fields:
    • Underlying Issue Name (tag 1141)
    • Underlying Ticker (tag 1349)
    • Underlying Asset ID (tag 1348)
    • Underlying Security Asset ID (tag 1347)
    • First Rate Reset Date (tag 10911)
    • Reset Frequency Code (tag 1788)
    • Inverse Floater Rate (tag 1553)
    • Inverse Floater Multiple (tag 4532)
• Maturity Price (tag 42). Required. The Maturity Price defaults to 0 because both cap and floor contracts are interest-only and there is no repayment of principal.
• OID Indicator (tag 218). Required. Because the Maturity Price (tag 42) of a cap/floor defaults to 0; the OID Indicator is set to No.
• Trading Flat (tag 3949). Required. As a general rule, cap and floor contracts trade without interest (trades flat). Therefore this field has a default value of Yes. In the event that a contract does trade with interest, you can change the value to No.
• Strike Rate (tag 11850). Required. Stores the ceiling rate for cap contracts and stores the floor rate for floor contracts. If you set up the security with a Floating Rate or Inverse Floating Rate coupon type, Eagle Accounting uses the value in the Strike Rate field along with the rate of the underlying security on the reset date to determine at what rate the contract accrues interest. If the coupon type on the cap/floor contract is not Floating or Inverse Floating, the Strike Rate field is for reference only.

Cap Coupon Rate Example

A Cap Security has:

• Strike Rate of 8%
• Underlying Index on the cap contract is LIBOR
• Index Offset is 250 basis points
• The security Resets and Pays coupons on January 1, April 1, July 1, and October 1.

Rates are as follows.

On January 1, Eagle Accounting compares the All in Rate (Total Rate), which is 8.5%, against the Strike Price of 8%. Because the security is a Cap contract and the All in Rate is greater than the Strike Price, Eagle Accounting accrues the difference between the All in Rate and the Strike Rate. In this example, Eagle Accounting accrues at a rate of .5% (8.5% - 8.0%).
In the following quarters, the rates are not greater than the Strike Rate, so Eagle Accounting accrues at a Coupon Rate of 0.00%.

Floor Coupon Rate Example

A Floor Security has:

• Strike Rate of 8%
• Underlying Index on the Cap Contract is LIBOR
• Index Offset of 250 basis points
• The security Resets on January 1, April 1, July 1, and October 1.

Rates are as follows.

On January 1, Eagle Accounting compares the All in Rate (Total Rate), which is 8.5%, against the Strike Price of 8%. Because the security is a Floor contract and the All in Rate is greater than the Strike Price, Eagle Accounting accrues 0.00% for the period.
In the quarter starting April 1, the All in Rate is less than the Strike Rate. Therefore Eagle Accounting calculates a coupon rate using the following formula:
Strike Rate - All in Rate = Coupon Rate, or 8.0% - 7.5% = .5%
Inverse Floaters act in the similar manner with the following exception: the All in Rate is calculated using this formula:
All in Rate = Inverse Floating Rate - (Coupon Rate from the underlying security + Index Offset) * Inverse Multiplier

Caps and Floors SMF Setup Example

The Caps & Floors panel's fields follow in this example.