Show TOC

Background documentationNegative Interest in SAP Treasury and Risk Management Locate this document in the navigation structure

 

SAP Treasury and Risk Management allows you to portray negative interest.

Note the points listed under "Constraints" below and check thoroughly whether all of the changes that are relevant to your business process have been made.

Note also that you need to make some settings in Customizing. If you use reference interest rates outside of Treasury and Risk Management (such as your own add-on programs), you need to check whether there could be problems there with negative interest rates.

Note Note

This function is delivered with business function TRM, New Instruments, Accounting Enhancements, Reporting (FIN_TRM_LR_FI_AN_3), enhancement package 5, Support Package 09, as well as enhancement package 6, Support Package 02.

If you have not yet implemented the above-mentioned Support Packages but you would still like to use this function, see SAP Note 1657221 and then import the following SAP Notes, as required:

End of the note.

Note Note

Activating the Soft Modification for Portraying Short Sales / Short Positions

If you would also like to pay off short positions, you need to activate the soft modification 1633648 in accordance with SAP Note 732499. Then activate SAP Note 1633648 in method IF_JBR_SOFT_MODIFICATIONS~IS_ACTIVE of class ZCL_SOFT_MODIFICATIONS_CUST using the CASE bar (see Activating a New SAP Note in delivery note 732499). Delivery note 732499 also contains information about the principle of a soft modification.

In the case of a short sale of a bond, negative repayments can occur (in other words, the repayment causes the position to be increased). The new functions also allow such cases to be portrayed.

End of the note.

Prerequisites

  • To activate the functions for negative interest, you need to set the Sign indicator for the domain AZINSSATZ on the Definition tab in the ABAP Dictionary (transaction SE11).

    Note Note

    • The change to the domain should not usually cause any database conversions. However, activation can be time-consuming because a large number of fields use this domain.

    • The domain is located in the application basis (SAP_ABA) and is used beyond the confines of Treasury and Risk Management.

    • From Basis Release SAP_ABA 732, the Sign indicator is already set, so you can leave the default setting as it is.

    End of the note.

  • In Customizing for the Transaction Manager, you need to create, assign, and set up update types (for example, account determination) for negative interest flows (as well as for any negative repayment flows).

  • For the accrual/deferral of negative interest, you can decide whether the negative and positive interest payments are accrued/deferred separately, or whether netting is performed for the negative and positive interest payments:

    • Separate Accruals/Deferrals for Negative and Positive Interest Payments

      For this, you need to go to Customizing for accruals/deferrals and assign the relevant update types for negative and positive interest payments as profit-related flows for accruals/deferrals. Since the sign of a flow is not considered for accruals/deferrals, you need to define alternative update types for the accrual/deferral of negative interest payments. In this way, the accrual/deferral for positive interest payments is posted using a revenue account, and the accrual/deferral for negative interest payments is posted using an expense account.

    • Netting Negative and Positive Interest Payments on the Same Revenue Account

      In Customizing, choose   Transaction Manager   General Settings   Accounting   Accrual/Deferral   Update Types   Assign Update Types for Accrual/Deferral  . Select the relevant area and then choose Update Rules from the hierarchy on the left.

      Enter the update type for the negative interest payment in the settings for the accrual/deferral of the positive interest payment in the Accrual/Deferral: Update Type for Expense Flow field.

      The prerequisite for this is that the update types for positive and negative interest payments are posted using the same revenue account (account determination).

Features

  • You can enter negative interest in the interest tables.

  • In the class data (transaction FWZZ), you can create bonds with negative interest flows and repayment flows. Interest payments and redemption payments can be paid and posted in the usual way.

  • You can enter negative interest rates in all interest-related financial transactions.

  • Amortization (in accordance with LAC and SAC) considers negative interest payments and redemption payments.

  • The accrual/deferral of expenses and revenues (transaction TPM44) can handle negative and positive interest payments separately, or perform netting for positive and negative interest payments and then accrue them using a revenue account.

  • Considering Negative Interest in the Market Risk Analyzer

    • Yield Curves

      • The mathematical basis for constructing interest curves (in particular for bootstrapping) is left unchanged, even when interest rates are negative at one or more grid points.

      • Negative interest can lead to discount factors that are greater than one.

      • The system does not support interest rates that are less than or equal to -100%, nor does it support discount factors that are greater than or equal to 10.

    • Statistics Calculator

      If the Logarithmed element type is stored as the statistics type, the statistics calculator handles the sign change of the interest rate as missing market data. This is because the logarithm would otherwise have to be calculated from a negative number, which does not make mathematical sense.

    • Value at Risk

      For the VaR calculation using historic simulation, sign changes for interest rates are also handled as missing market data.

    • Money Market Transactions

      Negative interest can be included in the calculation of the net present value of money market transactions.

    • Swaps

      Negative interest can be included in the calculation of the net present value of interest rate swaps and cross-currency interest rate swaps. For this, negative interest is supported on the fixed side of the transaction as well as on the variable side.

    • Forward Rate Agreements

      Negative interest can be included in the calculation of the net present value of forward rate agreements. For this, both the fixed interest rate and the reference interest rate can become negative.

    • Floors, Caps, and Swaptions

      • The net present value of floors, caps, and swaptions can also be determined for negative forward rates. This is possible by extending the definition area of the Black-Scholes model for option prices. In such cases, the price calculator issues a warning message with explanatory documentation.

      • If, however, the interest on the fixed side of the underlying of an option is also set as negative, meaning that the strike in the Black-Scholes model is negative, valuation is not possible using the Black-Scholes model.

    • When negative interest is processed, it is irrelevant whether the interest was entered explicitly as negative, whether it became negative as a result of a shift, or whether it was caused by forward calculation in the case of plummeting interest curves.

Constraints

  • When scenarios (transaction TV21) are entered in the Market Risk Analyzer, negative interest is not supported.

  • The net present value calculation for bonds with negative interest in the Market Risk Analyzer is not supported.

  • Transactions cannot be created for a short position if redemption payments are still planned before the date of the position change.