Banking Back-Office
Processing
OTC Options
Administration Guide
Copyright
2001, Unisys Corporation.
All rights reserved
Unisys is a trademark of Unisys Corporation
NO WARRANTIES OF ANY NATURE ARE EXTENDED BY THIS DOCUMENT.
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consequential damages.
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About This Guide
Purpose
This guide describes the Over-The-Counter (OTC) Options functions offered by the Unisys
e-@ction Banking Back-Office Processing product.
The information contained in this guide is also available as online help.
Scope
This guide provides background information associated with OTC Options, and describes the data
entry screens associated with the processing of these transactions. An example is provided of
each of the screens.
Audience
This guide is intended for personnel preparing information for, and entering data associated with,
OTC Options deals.
Prerequisites
Any person using this guide should be familiar with the user documentation and understand the
banking terminology associated with OTC Options. Users of this guide should have read the
Starter’s Guide that provides instruction in the use of the screens.
How To Use This Guide
This guide should be used as a reference tool when preparing information for data entry. Use the
guide in conjunction with your Guide to Setting Up and, Core Functions and Inquires Guide.
Refer to the Core On-Demand Reports Guide for instructions on how to select and run the reports
that provide this information.
About Urbis
The usage of the product name Urbis is due to be phased out as part of the Unisys re-branding
exercise. The replacement will be the generic term "Banking Back-Office Processing" solution or
"Banking Back-Office" for short. To provide continuity with existing product documentation, the
name Urbis is used within this document, but is synonymous with Banking Back-Office
Processing.
Organisation
This document consists of three sections and one appendix:
Section 1: OTC Options Overview
This section provides a background to the OTC Options transactions processed by the system.
Section 2: OTC Option Contract Screens
This sections describes each of the screens used to enter, perform valuation, exercise and inquire
on OTC Options deals, together with screens to define the OTC products and instruments. A short
description covering data entry, is supplied with each screen. The description is accompanied by
an illustration of the screen.
Section 3: Definition of Field Names
This section provides definitions of the field names on OTC Options screens. The field names are
listed alphabetically and in full, regardless of whether or not they are abbreviated on screens.
Details of valid entries are given as part of the definition.
Appendix A: Calculations
This appendix provides the formulae used by the system for calculations associated with the
processing of OTC Option transactions.
Related Product Information
Product Overview (3937 0234)
This document describes the capabilities and benefits of the modules of the Banking Back-Office
Processing system. It consists of an overview of the system, and a description of each of the
modules and interfaces available. It is intended for use by senior management.
Operations Reference Card (3937 0986)
This document is a single card that provides a list of screen names and their mnemonics. The list
is organised according to the menu structure of the Graphical User Interface. The card also
describes how to log on and off the system, enter data, make inquiries and print reports. These
instructions are relevant to the Graphical User Interface only.
Starter’s Guide (3937 0531)
This guide describes how to enter data and make online inquiries. It also includes a description
and example of commonly used data entry and inquiry screens. This guide is intended for all new
and inexperienced personnel who need to enter data and make inquiries.
Guide to Setting Up (3937 0945)
This guide describes how to set up parameters that govern the operating environment of the
system. It describes the procedures for setting up the business and operational tables, and setting
up usercodes and access security. The procedures for setting up blueprint parameters are provided
with a description of each parameter. It should be used by all persons involved in installation,
implementation and maintenance of these system parameters.
Core Functions and Inquiries Guide (3937 0952)
This guide describes the kernel functions that are used regularly for the maintenance of
information utilised by a number of modules. It describes the procedures for setting up and
maintaining data, such as market rates and dealers. It also describes inquiries that are common to
all contracts. This guide is relevant to all users.
Clients and Accounts Administration Guide (3937 0960)
This guide describes the data entry and inquiry screens associated with setting up and maintaining
client details. This guide also describes the set up and maintenance of client accounts, including
automatic payments (standing orders). An appendix covers the calculations used by client
accounts. This should be used by personnel preparing information for data entry.
Settlements Guide (3937 0366)
This guide describes the processes associated with settlements and customer transfers. It details
how to administer the settlement queues. This guide also describes how to use the Straight
Through Processing and Netting functions. It should be used by personnel managing the
settlements department.
General Ledger Administration Guide (3937 0457)
This guide describes the data entry screens associated with General Ledger transactions. This
should be used by personnel preparing information for data entry.
Risk Management Administration Guide (3937 0358)
This guide describes the data entry screens associated with setting up limits and exposures. The
guide also describes the screens associated with portfolios. The amounts that represent book and
market values are listed by module in an appendix. This guide is intended for personnel preparing
information for data entry and those concerned with controlling risk.
Commercial Loans Administration Guide (3937 0150)
This guide describes the data entry screens associated with Commercial Loan transactions. This
includes entry of commitments, various types of drawdown and contract schedules. An appendix
gives the calculations used in the processing of Commercial Loan transactions. This guide is
intended for personnel preparing information for data entry.
Foreign Exchange and Money Market Administration Guide (3937 0135)
This guide describes the data entry screens associated with Foreign Exchange and Money Market
transactions. An appendix gives the calculations used in the processing of Foreign Exchange and
Money Market transactions. This guide is intended for personnel preparing information for data
entry.
Forward Rate Agreements and Interest Rate Swaps Administration Guide (3937 0168)
This guide describes the data entry screens and some related inquiries associated with Forward
Rate Agreement and Interest Rate Swaps transactions. An appendix gives the calculations used in
the processing of Forward Rate Agreement and Interest Rate Swap transactions. This guide is
intended for personnel preparing information for data entry.
Futures Administration Guide (3937 0176)
This guide describes the data entry screens associated with Futures transactions and some related
inquiries. An appendix gives the calculations used in the processing of Futures transactions. This
guide is intended for personnel preparing information for data entry.
Traded Options Administration Guide (3937 0184)
This guide describes the data entry screens associated with Exchange-Traded Options
transactions. An appendix gives the calculations used in the processing of Exchange-Traded
Options transactions. This guide is intended for personnel preparing information for data entry.
Securities Administration Guide (3937 0341)
This guide describes the data entry screens associated with Interest Bearing Securities,
Discounted Securities and Repurchase Agreements transactions and some related inquiries. An
appendix gives the calculations used in the processing of Securities transactions. This guide is
intended for personnel preparing information for data entry.
Trade Finance Administration Guide (3937 0119)
This guide describes the data entry screens used by the Trade Finance department. This guide is
intended for personnel preparing information for data entry.
Generalised Fees Administration Guide (3937 0374)
This guide describes the data entry screens associated with Fee transactions and supporting
business table. This guide is intended for personnel preparing information for data entry.
Core On-Demand Reports (3937 0853)
This guide describes how to run online reports that are provided in the core of the system and
which will be relevant to most implementations of the system. Any options available when
producing a report are detailed as well as any specific calculations.
On-Demand Reports Guide (3937 0937)
This guide describes on-demand reports in alphabetical order. Any options available when
producing a report are detailed as well as any specific calculations. Note: core reports are
described in the Core Demand Reports Guide; retail reports are described in the Retail
On-Demand Reports Guide.
Overnight Reports (3937 0861)
This guide describes how to run offline reports. This includes an overview of overnight
processing. Instructions on how to initiate reports are given. This guide should be used by all
personnel who need to understand the reports and the overnight process.
Data Dictionary (3937 0226)
This document provides details of data fields within every dataset on your banking systems
database. This document should be used by staff preparing the accounting models and writing
SQL reports to inquire on the database.
Guide to Interfaces with External Systems (3937 0911)
This guide describes the running of all the interfaces between your Banking Back-Office system
and external systems. This guide is intended for personnel involved in setting up and running
external interfaces.
Order Transport Management System (3937 1018)
This guide describes how to enter stock exchange securities contracts using the Order Transport
and Management System. The screens in this guide allow users to add, maintain and inquire on
deals, convert deals into stock exchange securities contracts, and liaise with brokers to complete
settlement of a deal. This guide is intended for personnel preparing information for data entry.
Portfolio Management (3937 1026)
This guide describes how to create portfolios for the clients and agents who will be trading stock
exchange securities with your institution. A large array of inquiry screens for managing these
portfolios is also described. This guide is intended for personnel preparing information for data
entry.
Stock Exchange and Securities Management (3937 1000)
This guide describes how to set up and maintain the securities master file, allowing you to record
details of stock exchange securities. This guide also describes how to create, maintain and inquire
on contracts based on stock exchange securities, including the necessary static data.
Loan Administration System Guide (3937 0994)
This guide describes the data entry screens associated with Syndicated Loans. It includes entry of
facilities, and contracts such as drawdowns, guarantees and acceptances and their schedules. The
screens in this guide allow users to enter data using workflows. This guide is intended for
personnel preparing information for data entry.
Static Database Transaction Input Guide (3937 0093)
This guide, in conjunction with the static database, enables users to evaluate the functions and
features of many of the modules. It should be used by persons who are familiarising themselves
with the systems functionality.
Section 1. OTC Options Overview
Introduction
...
1–1
OTC Currency Options
...
1–2
System Functionality
...
1–2
Schedule Events ...
1–3
Contract Statuses ...
1–3
Premium Accrual ...
1–4
Mark to Market Valuation ...
1–4
OTC Options Exposure ...
1–5
Confirmations and Payment Advices
...
1–6
Nostro and Agent Combinations
...
1–6
Section 2. OTC Options Contract Screens
Introduction to OTC Options
...
2–1
Screen Flow
...
2–2
Prerequisites
...
2–3
OTC Options Product Default Maintenance (OTDFM)
...
2–4
OTC Options Instrument Maintenance (OTINM)
...
2–5
OTC Options Outline Deal Add (OTDEA)
...
2–6
OTC Options Contract - Add (OTCOA)
...
2–7
OTC Options Underlying Maintenance (OTCUA)
...
2–9
OTC Options Contract - Change (OTCOC)
...
2–10
OTC Options Contract – Inquire/Delete (OTCOI)
...
2–12
OTC Options Underlying Inquiry (OTCUI)
...
2–14
OTC Options Settlement Maintenance (OTSTL)
...
2–15
OTC Options Valuation Maintenance (OTVSM)
...
2–17
OTC Options Instrument Browse (OTINI)
...
2–19
OTC Options Contract Browse (OTCBR)
...
2–20
OTC Options Valuation/Settlement Inquiry (OTVSI)
...
2–21
OTC Options Positions Inquiry (OTPSI)
...
2–22
Section 3. Definition of Field Names
Appendix A. Calculations
Introduction
...
A–1
Premium Amount
...
A–1
Intrinsic Status
...
A–2
Intrinsic Value
...
A–2
Total Settlement Value (at Exercise/Assignment)
...
A–4
1–1
Valuations changing over time ...
1–5
2–1
OTC Options Data Entry and Management Screens ...
2–2
2–2
OTC Options Product Default Maintenance screen ...
2–4
2–3
OTC Options Instrument Maintenance screen ...
2–5
2–4
OTC Options Outline Deal Add screen ...
2–6
2–5
OTC Options Contract - Add screen ...
2–8
2–6
OTC Options Underlying Maintenance screen ...
2–9
2–7
OTC Options Contract - Change screen ...
2–11
2–8
OTC Options Contract – Inquire/Delete screen ...
2–13
2–9
OTC Options Underlying Inquiry screen ...
2–14
2–10 OTC Options Settlement Maintenance screen ...
2–16
2–11 OTC Options Valuation Maintenance screen ...
2–18
2–12 OTC Options Instrument Browse screen ...
2–19
2–13 OTC Options Contract Browse screen ...
2–20
2–14 OTC Options Valuation/Settlement Inquiry screen ...
2–21
2–15 OTC Options Positions Inquiry screen ...
2–22
1–1
Entries in Nostro and Agent Fields ...
1–7
3–1
Definition of Field Names ...
3–1
OTC Options Overview
Introduction
Options provide the purchaser with the right but not the obligation to purchase (Call) or sell (Put)
a specified amount of a financial instrument or commodity at a price agreed today (the exercise
price), for delivery on some future date. The product actually traded is known as the “Underlying
Instrument”. Urbis supports both Exchange-Traded and Over-The-Counter (OTC) Options.
Exchange-Traded Options (see the Traded Options User Guide) are standardised products traded
on exchanges, whereas OTC Options are individual contracts between two parties, who can set
characteristics, such as the option's size and expiry date, as they wish. OTC Options can thus be
tailored precisely for use in specific situations, but are much less liquid than Exchange-Traded
Options.
Options contracts are entered into for two principal reasons, either to reduce the risk of loss
through adverse movements in the market, or to profit from changes in the underlying instrument
prices.
The grantor, or seller, of the Option, receives from the purchaser or taker, a premium. The
premium reflects the value of the Option, and compensates the seller for the granting of the
Option and the consequent risk of adverse price movements.
If an option is "European", the buyer may exercise the option only at expiry, but if it is
"American" the option may be exercised at any time up to the expiry date.
When an option is exercised the result is that an underlying transaction is executed between the
parties at the exercise price, or, less commonly, that a cash sum (the "total settlement value" of
the option at the time of exercise) is paid by the seller to the buyer.
OTC Currency Options
Urbis supports the purchase and sale of OTC Currency Options that have the following
characteristics:
•
An underlying instrument that is an FX outright contract (either spot or forward)
•
American-style or European-style
•
Traded (speculative) or Hedged (risk offsetting)
•
Premium paid on an agreed date or upon exercise/expiry
•
Exercise leading either to a contract in the underlying instrument, or to a cash settlement.
System Functionality
The system provides security and multi-level access control throughout; this also applies to the
OTC Options module. This includes a record of log-on, log-off and attempted violations, and an
audit, in the form of before and after images for OTC Options deal entry and processing screens.
Each contract is linked to an OTC Options General Ledger Master Number, an Accounting
Centre, a Dealer Identifier and a Bank Portfolio. All but the General Ledger Master can be
defaulted from the Users Maintenance (USERS) screen onto the contract screens. A default
General Ledger Master can be set up for each contract type and client type combination. The
defaults may be overridden on the contract entry screens. The General Ledger Master determines
the ledger category for the contract, see the General Ledger Administration Guide for further
information on General Ledger Masters.
The user can define any number of OTC Option Instruments using the OTC Option Instruments
Maintenance (OTINM) screen. Here the user references a Product Type for the underlying
instrument, which must already be defined as an FX Product Type.
Back-valued contracts can be entered. These contracts can be back-valued to the earliest history
retention date as set up at installation.
For each contract you can enter narratives against scheduled events. These narratives can then be
used for reporting purposes. Each contract can have any number of narratives associated with
events, provided that each event has a different value date.
An FX contract may be created manually when the exercise of an OTC Currency Option results
in the right to buy/sell such an FX contract (instead of settling in cash). The user can cross-refer
the FX contract to the associated OTC Currency Option contract, via the Related Contract field.
The user should also mark the FX contract to indicate that it is the “result of option exercise”; this
fact is then recorded on the MT300 confirmation generated.
There are two methods of entry for OTC Options Contracts:
•
Using the Contract Input (LEAD1) screen, the system allows you to input the key fields for
any contract, for example the “Client Shortname” and “City”, and the “Instrument Identifier”.
The system then takes you automatically to the OTC Options Contract Add (OTCOA) screen.
This allows you to initiate direct contract entry.
•
Using the Outline Deal (DEAL) screen, the basic details are entered and the system then
takes you automatically to the OTC Options Deal Add (OTDEA) screen. The outline deal is
selected on the Outline Deal Queue (DEALQ) for confirmation by the Back Office.
For more information on Contract Entry, see the Starter’s Guide and Section 2 for a Screen Flow
of OTC Options Contracts.
Schedule Events
When a contract is entered, diary events for input, start, premium and maturity are generated. The
following events are relevant to OTC Options contracts:
•
Input (IP): The date of contract entry.
•
Premium (PR): The date on which the option premium is paid or received. The Premium
Value Date may be different from any other date, or it may be the same as the Start Date, or
the Exercise Date, or the Maturity (Expiry) date.
•
Start (ST): The diary associated with the deal date - not the Start Date - of the contract. (The
Start Date is only used to identify the first date on which an American-style option can be
exercised. It is left blank on European-style option contracts).
•
Exercise (EC): Records the fact that an American-style option has been exercised prior to its
expiry date. Note that the buyer of the option is said to "exercise" it, while the seller is said to
be “assigned”. Both exercise and assignment are recorded as an Exercise (EC) event.
•
Maturity (MA): The expiry date of the option. For options exercised on this date, the
Maturity diary can also be used to record the fact that it has been exercised, so that a separate
Exercise (EC) diary is not needed.
Note:
For a given Options Instrument, a lag period can be defined after the expiry date.
During this period, the option can still be exercised, but this is treated as having taken
place on the expiry date. This allows for the case where a notification of assignment is
received late.
Contract Statuses
A contract goes through a number of statuses during its life. These statuses are triggered as
follows:
•
Unstarted: The contract has been entered. The contract remains Unstarted until:
-
It reaches its Deal Date for European-style options
-
It reaches its Start Date for American-style options
-
It is closed manually
-
It reaches its Expiry Date (this occurs if the Expiry Date is changed to end the contract)
•
Active: The contract becomes Active when:
-
It reaches its Deal Date for European-style options
-
It reaches its Start Date for American-style options
The contract remains Active until:
-
It is exercised
-
It reaches its Expiry Date
-
It is closed manually
-
It is expired manually
-
It is deleted
•
Exercised: The contract becomes Exercised when it is manually updated to this status. Only
Active contracts can be exercised.
•
Closed: A contract can only be set to this status manually. A contract is normally set as
Closed when it has been offset by an equal and opposite contract with the same counterparty.
It is the users responsibility to set both contracts to Closed manually. For any such contract,
no further actions will take place.
•
Expired: The contract becomes Expired at the beginning of the day after the Expiry Date. In
addition, a contract can only be expired manually on its expiry date (i.e. to represent the
expiry time during that date).
The contract status can move from Expired to Exercised if it is exercised during the lag
period.
Premium Accrual
Both traded and hedged OTC Options can be set up. However, only hedged contracts accrue.
For hedged OTC Options, premium is accrued on a daily basis. The accrual is performed on a
simple straight-line basis during the period that the contract is Active. This means that accrual is
performed from the Deal Date to the Expiry Date for a European-style option, or from the Start
Date to the Expiry Date for an American-style option. Exercise of an American option does not
affect this accrual. If a contract has been closed and the Premium Date has been reached, all
non-accrued premium will be posted on closure.
Mark to Market Valuation
For an OTC Options contract, three valuations are made daily. These are the Intrinsic Value, the
Market Value and the Theoretical Value. These values are made available for posting for both
traded and hedged OTC Options.
The Intrinsic Value is based on the difference between the exercise price and the current price of
the underlying instrument. In the case of an OTC Currency Option, the current price is the current
spot FX rate in the relevant currency pair.
The Intrinsic Value shows the gross profit (if any) that would be made by the buyer if the option
were to be exercised today. If the current price of the underlying is lower than the exercise price,
the Intrinsic Value is zero and the option is said to be “Out of the Money” (this is the Intrinsic
Status within the system). If the current price is the same as the exercise price, the Intrinsic Value
is also zero, but the Intrinsic Status is “At the Money”. If the current price is better than the
exercise price, then the Intrinsic Value is greater than zero, and the Intrinsic Status is “In the
Money”.
The Market Value shows what the market considers that the option is worth. This does not
necessarily mean that the OTC Option can be sold for this price. The Market Value is manually
entered on the OTC Options Valuation Maintenance (OTVSM) screen.
The Theoretical Value shows what the option is worth using a theoretical model that uses such
parameters as current price of underlying and the volatility of that price. The calculation is
complex and will be performed by specialist software outside of the system. The Theoretical
Value is manually entered on the OTC Options Valuation Maintenance (OTVSM) screen.
The following figure shows an example of the Intrinsic Value, Market Value and Theoretical
Value of an OTC Option changing over time. At each end-of-day, the revaluation is based on the
“closing” price for the day. (The example shows the Theoretical Value above the Market Value
but of course this is not always the case.)
Figure 1–1. Valuations changing over time
When the option is exercised all three values are set to the Intrinsic Value at the time of exercise.
This value will be the final valuation and will be used for postings in the end-of-day processing
for the option.
Note:
If the Intrinsic Value is zero (“Out-of-Money”) at the time of exercise, the Market Value
and Theoretical Value will also be set to zero.
OTC Options Exposure
For Start (ST), Premium (PR) and Maturity (MA) events the following values are available for
exposure:
•
Premium (in original and settlement currencies)
•
Underlying currency amount
•
Counter currency amount
For Premium (PR) and Maturity (MA) events the following values are also available for
exposure:
•
Intrinsic value
•
Market value
•
Theoretical Value
The method for setting up and maintaining exposures is described in the Risk Management
Administration Guide.
Theoretical
Market
Intrinsic
Close (a)
Close (b)
Close (c)
Exercise
Confirmations and Payment Advices
Input confirmations are printed (or S.W.I.F.T. messages are generated) when a contract is
entered. Confirmations and payment advices for subsequent events are produced a number of
days in advance of the event (for each country). These subsequent confirmations are produced
during the overnight processing.
For each contract entered, you can specify the priority of the S.W.I.F.T. messages generated for
that contract by making an entry in the ‘Message Priority’ field. If you leave this field blank, the
default value selected at installation is used (see the Guide to Setting Up for details).
Nostro and Agent Combinations
The system automatically identifies the accounts between which payments are made, on the basis
of the nostros and agents that have been set up for each particular contract giving rise to the
notice or payment. Default nostros and agents may be allocated according to rules set up on the
Nostro Settlement Defaults (NSDFM) and the Agent Settlement Defaults (AGDFM) tables.
A nostro account is defined as “our account with another bank” (the correspondent). In order to
correctly reflect any money held with another bank, the system maintains a copy of the nostro
account in its own books. Nostro accounts are set up using the Nostro Details (NSTRO) table.
They are identified by a nostro number and currency or a nostro name and currency.
An agent is defined as a “third party responsible for paying or receiving funds on a contract”.
Agents are set up using the Agent Details (AGNTM) table. They are identified by an agent
nickname.
For details of how to set up nostros and agents see the Settlements Guide.
Nostros and Agents are specified when entering OTC Options contracts. In order that instructions
for the transfer of funds are correctly generated (using either the S.W.I.F.T. network, if
applicable, or printed messages), the system ensures that only valid combinations of nostros and
agents can be specified for each contract.
Table 1-1 lists and describes valid combinations of entries in the nostro and agent fields. The
following rules apply:
•
A nostro can be identified by
either
its name
or
number.
•
The use of an Agent does not necessarily indicate that an account relationship exists between
the bank and the agent. For example settlement messages may be sent by the bank to its pay
nostro, with information for onward transmission to the client's agent. Similarly, settlement
messages may be received from the client's agent by the bank's receive nostro, with
information for onward transmission to the bank.
•
The SSI codeword cannot be used for OTC Options.
Note
: The default settings for both the agent and the nostro can be entered using other
methods. Entering the number or name for the default agent or nostro will display the
entered detail for the agent or nostro. Leaving the agent or nostro blank will result in
the system applying the default, if available, or ‘T’ (To be advised).
Table 1–1. Entries in Nostro and Agent Fields
Nostro Agent Description
Number/Name Name Your correspondent and the client’s agent are different. The agent’s nickname is entered in the Agent field.
Number/Name Number/Name The client’s agent is one of your correspondents:
1. The nostro number/name in the Nostro field can be different from the nostro number/name in the Agent field. 2. If your correspondent and the client’s
agent are the same, the nostro
number/name entered in the Nostro field can refer to the same nostro as that entered in the Agent field.
Number/Name S Your correspondent and the client’s agent are the same. (This is equivalent to 2. above).
Number/Name U There is no agent.
Number/Name T Your correspondent is known; the client’s agent is to be advised. If a S.W.I.F.T. message would normally have been sent, this combination will result in it not being sent - printed messages will be generated instead.
V Vostro A/C No. Posting is to be made using a vostro. The Agent field identifies the account to be used. D Name Posting is to be made directly from/to your
bank to/from the client’s agent. You can enter either an agent’s nickname or a nostro number/name in the agent field.
D U There is no agent. Posting is to be made directly from your bank to the error suspense account. When the receive account is known, use the batch postings facility to effect the transfer.
D T Posting is to be made directly from your bank to a client’s agent who is to be advised. If a S.W.I.F.T. message would normally have been sent, this combination will result in it not being sent - printed messages will be generated instead.
T Name Your correspondent is to be advised; the client’s agent is known. You can enter a nostro number/name in the Agent field. This combination will result in S.W.I.F.T. messages not being sent - printed messages will be generated instead.
Nostro Agent Description T U Your correspondent is to be advised and the
client doesn’t have an agent. This combination will result in S.W.I.F.T. messages not being sent - printed messages will be generated instead. T T Both your correspondent and the client’s
agent are to be advised. The settlement message will be sent directly to the nostro, when entered. This nostro/agent combination should be used with care when payment takes place at the start event. This combination will result in S.W.I.F.T. messages not being sent - printed messages will be generated instead. Number/Name NSTD Settlement instructions specific to the
contract are to be used for the agent. Enter ‘NSTD’ in the “Their Receive Agent” field and clicking “Settlement Instructions” will link to the Non Standard Settlement Instructions (NSTDM) screen.
Any of the Agent identifiers shown in Table 1-1 can be replaced by the exact S.W.I.F.T. address
of the agent. Only do so if you are certain of the address, which
must
be entered using an ‘@’
symbol followed by the appropriate 8 or 11 character S.W.I.F.T. address.
Only the following formats should be used:
•
@BBBBCCLL
•
@BBBBCCLLXXX
Where:
BBBB = Four alphabetic characters representing the S.W.I.F.T. bank identifier
CC
= Two alphabetic characters representing the S.W.I.F.T. country code
LL
= S.W.I.F.T. location code
XXX
= Three alphabetic/numeric characters representing the S.W.I.F.T. branch code (if
applicable)
OTC Options Contract Screens
Introduction to OTC Options
Before attempting to enter an OTC Option, you must be familiar with:
•
‘Entering and Inquiring on Contracts’ as described in the Starter's Guide and Core Functions
and Inquiries Guide.
•
General information on OTC Options contracts, see ‘Options Overview’ in Section 1
•
General information on settlements, see ‘Overview of Settlements’ in the Settlements
Screen Flow
Figure 2–1. OTC Options Data Entry and Management Screens
Set up details of underlying FX product FX Default Maintenance (FXDFM) OTC Options Product Default Maintenance (OTVSM) Set up defaults for OTC Options
product OTC Options Instrument Maintenance (OTINM) Enter details of OTC Options instrument Outline Deal Add (DEAL) Begin outline deal entry OTC Options Outline Deal Add (OTDEA) Enter outline deal details Begin contract
entry ContractInput
(LEAD1) Outline Deal Queue (DEALQ) Select outline deal for verification Enter contract details OTC Options Contract - Add (OTCOA) Enter details of contract’s underlying OTC Options Underlying Maintenance (OTCUA) Change status of contract (for example, exercise contract) OTC Options Settlement Maintenance (OTSTL) OTC Options Valuation Maintenance (OTVSM) Manually enter underlying and market prices and view valuation
The data entry screens used to enter and manage OTC Options products, instruments and
contracts are illustrated in the preceding Figure.
A full description of the fields on the screens, and valid entries, is given in Section 3, “Definition
of Field Names”. Please refer to the Starter’s Guide for a description of how to access and use
screens.
Prerequisites
Before you can enter any type of OTC Options contract, certain items referenced by the contract
must be set up. The following list shows the mandatory items and the business tables on which
they are set up:
•
Accounting Centre - Accounting Centres Maintenance (ACNTM), see the Guide to Setting
Up
•
Portfolio - Portfolio Definition (PFDFM), see the Risk Management Administration Guide
•
Product Type - Product Types Maintenance (PRTPM), see the Core Functions and Inquiries
Guide
•
Principal Currency - Currencies (CCYS), see the Guide to Setting Up
•
Foreign Exchange Product for Underlying Instrument - Foreign Exchange Default
Maintenance (FXDFM), see the Foreign Exchange and Money Market Administration Guide
•
General Ledger Master - General Ledger Master (GLMAM), see the General Ledger
Administration Guide
You can set default General Ledger Masters for OTC Options Buy and OTC Options Sell
contracts using the Default General Ledger Masters (GLDFM) screen, see the General Ledger
Administration Guide.
OTC Options Product Default Maintenance
(OTDFM)
Before you can enter an OTC Options instrument, you must define the product that is traded on
the Product Types Maintenance (PRTPM) screen. When an OTC Options product has been
defined, you can set up defaults for it on the OTC Options Product Default Maintenance
(OTDFM) screen.
These defaults are designed to save you time when entering instrument details. The values that
are displayed do not constitute a complete instrument record. You may overwrite the defaulted
details. However, if the Option Type of a product is set to Call or Put, then any instruments based
upon it must have the same Option Type.
Product defaults can be deleted if there are not any instruments that use the product.
The following figure shows an example of the OTC Options Product Default Maintenance screen.
OTC Options Instrument Maintenance (OTINM)
This screen is used to enter details of an OTC Options instrument. Before an instrument can be
defined, the product on which it is based must have been set up on the Product Types
Maintenance (PRTPM) and OTC Options Product Default Maintenance (OTDFM) screens.
Instruments defined on this screen provide the basic characteristics for OTC Options. If an
instrument is identified as the basis of a contract, then the instrument’s details will be displayed as
defaults on the OTC Options Contract Add (OTCOA) screen. The defaulted values do not
constitute a complete contract record and you may overwrite them.
Note:
If the Option Type of the product was set to Call or Put on the OTC Options Product
Default Maintenance (OTDFM) screen, then any instrument based upon it must have the
same Option Type. Similarly if the Option Type is set to Call or Put on the OTC Options
Instrument Maintenance (OTINM) screen, then any contract based upon it must have the
same Option Type.
Similarly, if the Trade Type of the instrument is set to Traded or Hedged, then any
contract based upon it must have the same Trade Type.
An instrument can be deleted if there are not any contracts that use it.
The following figure shows an example of the OTC Options Instrument Maintenance screen.
OTC Options Outline Deal Add (OTDEA)
You will be routed to this screen if you enter an OTC Options instrument and an action of
purchase or sale on the Outline Deal Add (DEAL) screen, see the Starter's Guide for details.
Use the OTC Options Outline Deal Add (OTDEA) screen to submit an outline deal to the Outline
Deal Queue (DEALQ) from which it can be verified and the contract added to the system. See
'Entering an Outline Deal' in the Starter's Guide for full details of outline deals.
The following figure shows an example of the OTC Options Outline Deal Add screen.
OTC Options Contract - Add (OTCOA)
This screen is used to enter both OTC Options Purchase and Sale contracts. You begin data entry
by specifying the instrument on which the contract is to be based in the Instrument Code field.
You then click the
OK
button and the details of the instrument will be displayed on the OTC
Options Contract – Add (OTCOA) screen. These details can be overwritten as necessary.
Note:
If the Option Type of the instrument is set to Call or Put on the OTC Options Instrument
Maintenance (OTINM) screen, then any contract based upon it must have the same
Option Type. Similarly, if the Trade Type of the instrument is set to Traded or Hedged,
then any contract based upon it must have the same Trade Type.
If the instrument is not set to allow for both Bought and Sold OTC Options contract types, then
the Agreement Type entered must correspond to contract type of the product that underlies the
instrument.
The Premium Amount field need not be entered – The premium will be calculated when the
“Underlying Currency Amount” has been entered on the OTC Options Underlying Maintenance
(OTCUA) screen.
If the Exercise Outcome is set to Deal, then the right to buy or sell an FX Market contract exists
when the option is exercised.
The OTC Options Underlying Maintenance (OTCUA) screen is used to record details of the
underlying and counter currency amounts and the exercise price. To transfer to the OTC Options
Underlying Maintenance (OTCUA) screen, complete the OTC Options Contract – Add (OTCOA)
screen, but before confirming the details, switch on the “Add Underlying Details” field and click
on the
OK
button.
Non standard settlement instructions for the payment agent may be created by linking through to
the Non Standard Settlement Instructions (NSTDM) screen (see the Settlements Guide). To do
this, enter “NSTD” in the “Their Receive Agent” field and click
Settlement Instructions
.
When you have completed all the details on both the OTC Options Contract – Add (OTCOA)
screen and the OTC Options Underlying Maintenance (OTCUA) screen, then to add the contract
switch on the “Confirm” field and click on the
OK
button.
OTC Options Underlying Maintenance (OTCUA)
When you are adding an OTC Options contract, you must complete both the OTC Options
Contract – Add (OTCOA) screen and the OTC Options Underlying Maintenance (OTCUA)
screen. You use the OTC Options Underlying Maintenance (OTCUA) screen to record details of
the underlying and counter currency amounts and the exercise price. The screen can only be
accessed via the OTC Options Contract – Add (OTCOA) screen.
The Underlying Currency Amount and Exercise Price must be entered. The Exercise Price is used
as the exchange rate between the Underlying Currency Amount and the Counter Currency
Amount.
Note:
The Underlying Currency and Counter Currency cannot be altered - they must be the
same as those specified in the defaults of the Underlying FX Product.
When you have completed the Underlying Currency Amount and Exercise Price fields, then click
on the
OK
button. The Counter Currency Amount will be calculated and displayed.
When you have finished adding the underlying option on the OTC Options Underlying
Maintenance (OTCUA) screen, switch on the “Confirm” field and click on the
OK
button. You
will be returned to the OTC Options Contract – Add (OTCOA) screen.
The following figure shows an example of the OTC Options Underlying Maintenance screen.
OTC Options Contract - Change (OTCOC)
The OTC Options Contract - Change (OTCOC) screen can be used to change the deal date, start
date, premium value date or expiry date in the following circumstances:
•
If the date has not passed
•
If the date is not changed to a date earlier than today
Changes to the contract’s dates will have the following effects:
•
Start date: This will reduce the length of an American-style contract.
•
Deal date: This will move the start (ST) diary event and reduce the length of the contract.
The premium accruals are adjusted for hedged contracts.
•
Expiry date: This will move the maturity (MA) diary and change the length of the contract.
The premium accruals are adjusted for hedged contracts.
•
Premium Value Date: This will move the premium (PR) diary.
For a description of diaries relevant to OTC Options, see Schedule Events in Section 1.
Note:
If changing a date, such as the expiry date, means that an action should be performed,
then this will be carried out during the following Overnight processing.
Non standard settlement instructions for the payment agent may be created by linking through to
the Non Standard Settlement Instructions (NSTDM) screen (see the Settlements Guide). To do
this, enter “NSTD” in the “Their Receive Agent” field and click
Settlement Instructions
.
The following figure shows an example of the OTC Options Contract - Change screen.
OTC Options Contract – Inquire/Delete (OTCOI)
Details of OTC Options contracts are available from the OTC Options Contract - Inquire/Delete
(OTCOI) screen. After performing an inquiry on a contract you can:
•
Copy it
•
Delete it. If the contract has matured, then it cannot be deleted unless the blueprint parameter
BP-CNT-MATDEL-DYS (see the Guide to Setting Up) has been used to specify that matured
contracts can be deleted. Using the blueprint parameter you specify the period after maturity
during which a contract may be deleted.
When a contract is deleted:
•
All associated account postings are reversed
•
S.W.I.F.T. confirmation of input is reversed
•
S.W.I.F.T. payments of premiums are reversed
•
Premium accruals are reversed
•
Any position and exposure updates are deleted
When you have the details of an OTC Options contract displayed, you can switch to the OTC
Options Underlying Inquiry (OTCUI) screen to view details of the underlying transaction. To
transfer to the OTC Options Underlying Inquiry (OTCUI) screen, switch on the “Inquiry
Underlying Details” field and click on the
Inquire
button.
If there are non standard settlement instructions for the payment agent these can be viewed by
linking through to the Non Standard Settlement Instructions (NSTDM) screen (see the
Settlements Guide). To do this click
Settlement Instructions
.
To view the details of the diary for the contract, click
Diary
and the Diary by Contract (DICNI)
screen will be displayed.
The following figure shows an example of the OTC Options Contract – Inquire/Delete screen.
OTC Options Underlying Inquiry (OTCUI)
The OTC Options Underlying Inquiry (OTCUI) screen is used to display details of the underlying
and counter currency amounts and exercise price. These details are entered using the OTC
Options Underlying Maintenance (OTCUA) screen.
This screen can only be reached via the OTC Options Inquire/Delete (OTCOI) screen. To return
to that screen click on the
OK
button.
The following figure shows an example of the OTC Options Underlying Inquiry screen.
OTC Options Settlement Maintenance (OTSTL)
The OTC Options Settlement Maintenance (OTSTL) screen is used to exercise, close, or expire
an option.
You first perform an inquiry by entering the Contract Number and clicking
OK
.
The “Underlying Price When Exercised” field initially displays the current price of the
underlying. This field can be updated to record the underlying price to be used when the option is
exercised.
The Exercise Outcome and settlement instructions fields can also be changed if necessary. If there
are non standard settlement instructions for the payment agent these can be viewed by linking
through to the Non Standard Settlement Instructions (NSTDM) screen (see the Settlements
Guide). To do this click
Settlement Instructions
.
If the Exercise Outcome is set to Deal, then the right to buy or sell an FX Market contract exists
when the option is exercised. If required details of the FX Market contract can be set up using the
Foreign Exchange Market Add (FXMKA) screen, see the Foreign Exchange and Money Market
Administration Guide for details. When the FX Market contract is created, an indicator can be set
showing that it was produced due to an OTC Option being exercised.
If an option has been manually exercised, closed or expired it can be ‘Re-Activated’. This can
only be performed on the day of the manual status change. Select ‘Re-Activate (R)’ in the Action
field and the status will be changed back to Active. If the settlement details, the exercise outcome
and/or the underlying price were changed, then they will not revert back to their original values,
but they can be changed again.
The rules for performing actions (see Schedule Events and Contract Statuses in Section 1 for
further details) are:
•
Exercise (E) – For American-style options that are Active, exercising can be performed on
any date from the Start Date up to (and including) the Expiry Date. For European style
options that are Active, exercising can only be performed on the Expiry Date.
For both American-style and European-style ‘sold’ options, exercising can be performed after
the Expiry Date up to (and including) the Lag Date. Lag periods do not apply if an option is
expired manually before its Expiry Date.
•
Expire (X) – For Active options, expiry can be performed on the Expiry Date only.
Performing manual expiry allows you to record an Expiry Time (this time is for documentary
purposes only, expiry is actually performed during the Overnight processing).
•
Close (C) – For Unstarted or Active options, closing can be performed at any time between
the Input Date and the Expiry Date.
Note:
If an option is expired or closed manually on its Expiry Date it can be ‘Re-Activated’
and then exercised on that day.
When you have completed changes to the option’s details and have set the action to be performed
click
OK
.
The Action/option changes entered will not be activated until the OTC Options End-of Day
(OTCEOD) report is run during the overnight process.
The following figure shows an example of the OTC Options Settlement Maintenance screen.
OTC Options Valuation Maintenance (OTVSM)
The OTC Options Valuation Maintenance (OTVSM) screen allows you to:
•
Inquire on the intrinsic value and market value of an option
•
Enter different underlying, market and/or theoretical prices to review how they change the
option’s value
•
Enter the current underlying, market and theoretical prices for an option, for use during
overnight revaluation processing
See “Mark to Market Valuation” in Section 1 for full details of the intrinsic, market and
theoretical value of an option.
You first perform an inquiry by entering the Contract Number and clicking
OK
. The default
prices will be given and their respective option valuations. The default prices are:
•
Current Underlying Price - The mid-market spot rate for the currency pair of the underlying
instrument’s “Underlying Exchange Rate Group”
•
Current Market Price - The “Option Price” as originally set up for the contract
•
Theoretical Price - Zero
You can manually change any of these prices and click
OK
to view the effect on the value.
However, unless you switch the “Use This Value in Overnight?” field on, the price(s) entered will
only be held temporarily while you are working on the screen. If you want the price(s) recorded
and used for revaluation in the overnight process, then switch the “Use This Value in Overnight?”
field on and click
OK
.
Note:
Any price(s) entered manually are only valid for the day of entry. The default prices will
be used on subsequent days unless you overwrite them again.
The following figure shows an example of the OTC Options Valuation Maintenance screen.
OTC Options Instrument Browse (OTINI)
The OTC Options Instrument Browse (OTINI) screen can be used to view the OTC Options
instruments that have been set up. You can use the “Start Instrument” field to start the list of
instruments from a specific instrument.
If you select an instrument, you can view:
•
More details of that instrument by clicking the
Instrument Maintenance
button to move to
the OTC Options Instrument Maintenance (OTINM) screen
•
The contracts that utilise the instrument by clicking the
Contract Inquiry
button to move to
the OTC Options Contract Browse (OTCBR) screen
The following figure shows an example of the OTC Options Instrument Browse screen.
OTC Options Contract Browse (OTCBR)
The OTC Options Contract Browse (OTCBR) screen can be used to overview the OTC Options
contracts. You can use the “Start Contract Number” field to start the list of contracts from a
specific contract. The fields in the window at the top of the screen allow you to specify the
contracts to be displayed.
If you select a contract, you can:
•
View the settlement messages that are awaiting authorisation by clicking the
Message
Authorisation
button to move to the Authorise Release of Event Messages (SETTA) screen
•
View more details of that contract by clicking the
Contract Inquiry
button to move to the
OTC Options Contract - Inquire/Delete (OTCOI) screen
•
Move to the OTC Options Contract - Change (OTCOC) screen by clicking the
Contract
Change
button
•
View the current value of the contract by clicking
Valuation
to move to the OTC Options
Valuation Maintenance (OTVSM) screen
•
View the settlement details for the contract by clicking
Settlement
to move to the OTC
Options Settlement maintenance (OTSTL) screen
The following figure shows an example of the OTC Options Contract Browse screen.
OTC Options Valuation/Settlement Inquiry (OTVSI)
The OTC Options Valuation/Settlement Inquiry (OTVSI) screen can be used to overview
valuation and settlement details of the OTC Options contracts. You can use the “From Contract”
field to start the list of contracts from a specific contract. The fields in the window at the top of
the screen allow you to specify the contracts to be displayed.
If you select a contract, you can view:
•
The current value of the contract by clicking
Valuation
to move to the OTC Options
Valuation Maintenance (OTVSM) screen
•
The settlement details for the contract by clicking
Settlement
to move to the OTC Options
Settlement maintenance (OTSTL) screen
The following figure shows an example of the OTC Options Valuation/Settlement Inquiry screen.
OTC Options Positions Inquiry (OTPSI)
The OTC Options Positions Inquiry (OTPSI) screen displays the net position of the underlying
currency for options that are identified by the following criteria: Instrument Code, Option Type,
Exercise Price, Exercise Style and Expiry Date. If positions are needed for options that have
Expiry Time/Zone defined, then these fields must also be completed on the OTC Options
Positions Inquiry (OTPSI) screen.
This screen is only applicable to contracts with a status of “Active”.
For the purposes of netting, “Bought” contracts have a negative value and “Sold” contracts have a
positive value.
The following figure shows an example of the OTC Options Positions Inquiry screen.
Definition of Field Names
Introduction
This section provides a definition of all the field names on screens associated with Options. The
fields are listed alphabetically and details of valid entries are given.
If the field is prefilled with a value on the screen, or defaults to a value if left blank, these values
are also given.
Many of the codes and mnemonics given in this section may be changed when the system is
installed at your bank.
Table 3–1. Definition of Field Names
Field Name Field Description
Accounting Centre This is the identifier of the Accounting Centre associated with the contract. It is set up on the Accounting Centres
Maintenance (ACNTM) screen. All Accounting Centres are linked to a location maintained using the Location Code Maintenance (LOCTM) screen.
On contract add screens, this field is pre-filled with the Accounting Centre associated with your usercode on the Users Maintenance (USERS) screen.
Action On the OTC Options Settlement Maintenance (OTSTL) screen, this field is used to perform the following functions on an option:
•
Exercise (E)•
Expire (X)•
Close (C)•
Re-Activate (R)For a full description of the above functions and the rules for their use see the OTC Options Settlement Maintenance (OTSTL) screen in Section 2.
On the Outline Deal Add (OTDEA) screen, this field is used to define whether this is a purchase or sale. Any other actions are only relevant to Securities contracts and must be ignored for OTC Options.
Add Underlying Details
To complete details of the contract’s underlying, switch this field on to move to the OTC Options Underlying Maintenance (OTCUA) screen.
Field Name Field Description
Agreement Type This field identifies whether the OTC Option is being Bought (B) or Sold (S).
On the OTC Options Valuation/Settlement Inquiry (OTVSI) screen, this field can be used to limit the display to those contracts that are either Bought (P), Sold (S) or Both (B).
Available Amount When the screen is initially displayed, this field displays the amount available before the client limit is exceeded. This amount is the "Current Limit" minus the "Current Exposure".
When you enter details of a new money market or interest bearing securities outline deal, but do not complete the "Confirm" field, then the available amount is updated to reflect any additional exposure that would be caused by the deal. Bank Portfolio The Bank Portfolio is used to hold the Bank’s principal positions.
This field shows the identifier of the Bank Portfolio to which this deal belongs. The identifier is defined on the Portfolio Definition
(PFDFM) screen.
On contract add screens, this field is pre-filled with the Portfolio associated with your usercode on the Users Maintenance (USERS) screen.
Broker or Via This field shows either the broker that arranged the contract, or the method by which the contract was arranged. The field can contain one of the following:
•
The nickname of the broker through which the contract was arranged. These are set up on the Brokers (BRKRM) table.•
ELEC•
PHON•
REUTERS•
SWIFT•
TELEXIf you are not entering a brokerage amount, the entry in this field is used for documentary purposes.
See Brokerage Method.
Brokerage Amount The amount of brokerage to be paid on the contract. See Brokerage Method.
Brokerage Currency The mnemonic of the currency in which the brokerage amount is entered. Currency mnemonics are set up on the Currencies table (CCYS). See Brokerage Method.
Field Name Field Description
Brokerage Method A code identifying the method used to calculate brokerage rates. This is defined by the user on the Non-FX Brokerage Rates (NONFX) screen. In conjunction with the contract type and broker number it constitutes the key to the brokerage method.
The brokerage fields are entered in the following combinations:
•
Complete the Broker or Via and Brokerage Method fields if you want the system to calculate brokerage•
Complete the Broker or Via, Brokerage Currency and Brokerage Amount fields if you want to enter the brokerage amount•
If you do not want to enter a brokerage amount, only complete the Broker or Via and Brokerage Currency fields•
If you are not entering any brokerage details, leave all the brokerage fields blank.On the OTC Options Product Defaults (OTDFM) screen, this field need only be completed if you want a default brokerage method displayed on the OTC Options Contract Add (OTCOA) screen. City Each counterparty is uniquely identified by a Client Shortname and
City combination. This field identifies the mnemonic of the City as defined on the General Purpose Narratives (GNARR) table, type CI. Client Portfolio The Client Portfolio is used to hold a client’s positions. This field
shows the identifier of the Client Portfolio to which this contract belongs. The identifier is defined on the Portfolio Definition (PFDFM) screen.
Client Shortname This is the shortname of the counterparty with whom the OTC Option contract is made.
Client mnemonics are set up on the Client Details - Banking (CIWSL) screen.
Comments This field is used for documentary purposes. Any comments entered here are displayed when details of the deal are displayed on the Outline Deal Inquiry (DEALI) screen, and on the Authorise Release of Event Messages (SETTA) screen. Use of this field is defined on the System Parameters (SPMTR) screen (see the Guide to Setting up the Urbis Banking System).
