Swap/Margin Accrual/Deferral

Use

The swap/margin accrual function divides the swap amount or margin pro rata temporis over the term of the forward (forward exchange transaction or forward bond) using the following principle:

Result of swap/margin accrual/deferral = Swap amount/margin

“Key date of current valuation” – “date of last valuation” / “payment date” – “contract date + 2 days”

You cannot vary the procedure for this step by applying different rules. In the case of forward exchange transactions, the system first calculates the accrual/deferral amount in valuation currency and then converts it to position currency using the current market exchange rate. For forward exchange transactions, the system always assumes that the position currency is the same as the valuation currency. The only exception is when the valuation currency is changed during the transaction term, which is a special case. In the case of forward bonds, the system first calculates the accrual/deferral amount in position currency, and then converts it to the valuation currency using the current book exchange rate.

Swaps and margins

  • The term 'swap' is used in conjunction with forward exchange transactions, while the term 'margin' is used for forward bonds. The swap is first calculated in the following currency on the basis of the contract data, and then translated into the valuation currency using market spot exchange rate for the contract date.

  • The margin is calculated on the basis of the contract data in position currency.

Book exchange rate

If one of the two book values is 0, or the book values have opposing +/- signs, the book exchange rate for a forward bond is set to the opening bond spot rate for the contract.

Flows are generated for the write-up or write-down amount. If the +/- sign differs from the total of all the earlier flows, the system generates a clearing flow. If the result of the valuation is that the position has to be written down, for example, and write-up flows already exist, the system would generate one flow to clear the write-ups, and one flow for the remaining write-down amount. The same applies if a write-up offsets former write-downs.

This valuation step can generate reset flows.