Structured Floating Rate Notes

A structured floating rate note is a structured security that pays a variable coupon determined by a reference rate that resets periodically.

The reference rates of a structured floating rate note can be term rates, such as the 6-month London Interbank Offered Rate (LIBOR), European Interbank Offered Rate (EURIBOR), Secured Overnight Financing Rate (SOFR), Effective Federal Funds Rate (EFFR), U.S. Treasury Note Rate (T-Bill), or a prime rate.

In some of the operational systems, a structured floating rate note is a combination of a bond and an OTC interest rate option (cap, floor, collar) derivative.

Data Model

The SAP Financial Services Data Management data model enables you to represent structured floating rate notes by using the Debt Instrument diagram.

The bond component of a structured floating rate note can be stored in the Debt Instrument entity (in the Financial Instrument table) and the relevant entities in the Debt Instrument diagram.
Note

The Structured attribute in the Financial Instrument entity indicates that the repayment amount or interest payment amount for a financial instrument depends on the occurrence of an event that is still uncertain when the financial instrument is issued.

The value of the Structured attribute has to be set to TRUE for structured securities in the following cases:
1. The principal or interest cash flow of a security is determined by an underlying, such as a reference rate, an index, an equity, or any event as described above.
2. The security has an embedded derivative contract, such as an OTC option or a swaption.
3. The security has an embedded option but no derivative contract linked to it.
The Embedded with Derivative Contract attribute in the Security entity can be used to indicate that the structured security is embedded with an OTC derivative contract, for example, if a structured floating rate note is embedded with an OTC interest rate option contract.
Data related to the embedded derivative contract can be stored in the Financial Contract table with the financial contract category Embedded Derivative.
The financial contract category Embedded Derivative can be used to represent embedded derivative contracts of a structured security, for example, if an OTC interest rate option is embedded to a structured floating rate note. It has the same structure as that of an OTC Derivative entity and its sublevels. The financial contract category Embedded Derivative is a component of a structured security and can't exist as a stand-alone entity.
The Embedded Derivative has same structure as that of OTC Derivative relationship (for documentation purposes only) is used to represent that each embedded derivative has the same structure as that of an OTC derivative, including its sublevels.

Example

FinancialContractID	FinancialContractCategory	OTCDerivativeContractCategory	_FinancialInstrument.FinancialInstrumentID
FC10006100	OTCDerivative	InterestBearingSwap
FC10006101	EmbeddedDerivative	InterestRateOption	DE000ABC1000

The financial contract with ID FC10006100 denotes an OTC derivative as shown in the FinancialContractCategory column, and it is a separate, non-embedded, interest-bearing swap contract as shown in the OTCDerivativeContractCategory column.

The financial contract with ID FC10006101 denotes an embedded OTC derivative as shown in the FinancialContractCategory column, and it is an interest rate option of a structured floating rate note with financial instrument ID DE000ABC1000.

As illustrated in the example above, the Financial Contract Category column is used to differentiate between non-embedded OTC derivatives and OTC derivatives that represent a component of a structured security.

The following is an example of how structured floating rate notes can be modeled in the conceptual data model (CDM):

More Information

For more information, see the related entities and their definitions in the data model represented in SAP PowerDesigner.