Corporate Actions for Total Return Swap

Corporate actions are part of position management in the securities area. They can also influence transaction management deals such as Forward Securities Transactions and Total Return Swaps (TRS). You can use this function to display changes made by the issuer to the capital structure for classes in your position. On the SAP Easy Access screen, choose Start of the navigation path Accounting Next navigation step Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Accounting Corporate Actions End of the navigation path (transaction FWK0).

Prerequisites

You have made the following settings for Total Return Swaps in Customizing for the Transaction Manager. See:

Activities

To process a TRS in the context of a corporate action there is a mixture of automatic steps performed by the system and of manual steps completed by the user:

Manual steps
- You may adjust the base rate, nominal amount
- You may adjust the dividend schedule

Automatic steps
- The system adjusts the number of stocks (if required):
  - in the TRS itself
  - in the restraint on disposal
  - in position management
- The system adjusts the security ID (if required):
  - in the TRS itself
  - in the restraint on disposal (in case of a forward sale)
  Note
  End of the note.
  
  There is no need to adjust the underlying security ID in position management (TRQ, TRL) because position management only stores the number of underlying stocks, not the security ID itself.

Example

In the following examples:

you have a corporate action with key date 26.06.08
you have an TRS on 100 A-Stocks

Position Date	Security ID	Number of Stocks
30/05/08	A-Stock	100

Total Return Swap

Contract Date	Security ID	Number of stock	Base Rate	Nominal Funding Leg	End of term
01/05/08	A-Stock	100	80.00 €	8,000.00 €	01/05/09

Stock Split

The stock split has a split ration 1:3, i.e. for each stock the stock holder gets additional three stocks. The resulting delivery structure after the corporate action is the following:

Position Date	Security ID	Number of Stocks
26/06/08	A-Stock	300

Total Return Swap

Contract Date	Security ID	Number of stock	Base Rate	Nominal Funding Leg	End of term
01/05/08	A-Stock	300	26.666667 €	8,000.00 €	01/05/09

Note Note

Use the same method for Capital increase from retained earnings.

End of the note.

Stock Swap

In the stock split one A-Stock is replaced by 4 B-Stocks. The resulting delivery structure after the corporate action is the following:

Position Date	Security ID	Number of Stocks
01/05/08	A-Stock	100
26/06/08	A-Stock	0
26/06/08	B-Stock	400

Total Return Swap

Contract Date	Security ID	Number of stock	Base Rate	Nominal Funding Leg	End of term
01/05/08	A-Stock	100	80.00 €	8,000.00 €	01/05/09
26/06/08	B-Stock	400	20.00 €	8,000.00 €	01/05/09

Note Note

Use the same method for Transfer new stock to old stock

End of the note.

Capital reduction

In the capital reduction 3 A-Stocks are replaced by one. The resulting delivery structure after the corporate action is the following:

Position date	Security ID	Number of stocks	Delivered	Type of Settlement
26/06/08	A-Stock	33.33333	No	Not yet specified

Total Return Swap

Contract Date	Security ID	Number of stock	Base Rate	Nominal Funding Leg	End of term
01/05/08	A-Stock	33.33333	240.00 €	8,000.00 €	01/05/09

Post subscription rights (SR)

As part of a normal capital increase, you must post the subscription rights for the 'old' stock in the position.

Swap Ratio: 3:1

Subscription Right Ratio: 1:1

Current Market Price: 83.00 €

Subscription price: 5.00 €

This graphic is explained in the accompanying text.

Value SR = 83.00 – 5.00 / (3:1) + 1 = 19.50 €

Accounting Value of the SR = 19.50 € *85/83 = 19.9699 €

Position date	Security ID	Number of stocks	Delivered	Type of Settlement	Old Book Value	New Book Value
30/05/08	A-Stock	100	No	Not yet specified	8,500 €
26/06/08	A-Stock	100				6,503.01 €
26/06/08	A-Stock Subscription Rights	100				1,996.99 €

Total Return Swap

Contract Date	Security ID	Number of stock	Base Rate	Nominal Funding Leg	End of term
01/05/08	A-Stock	100	80.00 €	8,000.00 €	01/05/09