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Oracle Transfer Pricing User Guide
Release 12.1
Part Number E13524-03
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Transfer Pricing Process Rules

This chapter discusses the procedure for working with and managing the Transfer Pricing Process rules.

This chapter covers the following topics:

Overview of Transfer Pricing Process Rules

The Transfer Pricing Process rule allows you to perform the following tasks:

See: Setting Transfer Pricing Process Rule.

The procedure for working with and managing the Transfer Pricing Process rule is similar to that of other Oracle Transfer Pricing business rules. It includes the following steps:

The Transfer Pricing Process rule has a separate Run page. The Run page allows you to execute a Transfer Pricing Process rule. See: Executing a Transfer Pricing Process Rule.

Related Topics

Standard Navigation Paths

Creating a Transfer Pricing Process Rule

Create a Transfer Pricing Process rule:

Prerequisites

Procedure

This table describes some terms in the pages used for this procedure.

Selected Terminology
Term Description
Transfer Pricing rule This LOV allows you to select a Transfer Pricing rule. The Transfer Pricing rule provides the application with assumptions that you want to apply to products to calculate their transfer rates and option costs.
Transfer Pricing Rule Hierarchy Displays the product hierarchy, if any, associated with the selected Transfer Pricing rule. A read only field, it gets populated automatically when you select a Transfer Pricing rule.
Prepayment Rule This LOV allows you to select a Prepayment rule, a Transfer Pricing parameter. The Prepayment rule provides the application with prepayment assumptions that you want to apply to products in conjunction with cash flow transfer pricing methods.
Prepayment Rule Hierarchy Displays the product hierarchy, if any, associated with the selected Prepayment rule. A read only field, it gets populated automatically when you select a Prepayment rule.
Term Structure Model An Option Cost parameter, it governs the generation of one-month stochastic rates, discount factors for each scenario, and discrete rates for any maturity used in calculating the option-adjusted spread.
Smoothing Method An Option Cost parameter, it is used to interpolate rates on the valuation curve for terms that fall between given points.
Rate Index Rule An Option Cost parameter, it is used to define the rates used to index adjustable-rate Instruments under the different Rate Paths generated by stochastic processing. The rates are defined automatically in terms of the valuation curve.
Number of Rate Paths An Option Cost parameter, it ranges between 1 and 2000.
Greater numbers of rate paths increase accuracy but also increase processing time. Experiment to find the optimal level for your institution's portfolio.
Random Number Generation Method An Option Cost parameter, it determines how the Monte Carlo process selects random numbers. The Random Number Generation Method has two variations:
  • Low Discrepancy Sequences: Low-discrepancy sequences, also known as quasirandom sequences, are designed to fill the space uniformly. These achieve better accuracy than pseudorandom sequences when applied to numerical problems, integration in high dimension, and so on.

  • Pseudorandom Sequences: These are the traditional random numbers generated by most compilers. They are designed to do well on some statistical tests: low auto correlation, high period before the sequence repeats itself.

Adjustments Rule This LOV allows you to select an Adjustments rule. The Adjustments rule lets you apply transfer pricing rate adjustments to an instrument record for purposes of determining specific charge and credit amounts.
Alternate Rate Output Mapping Rule This LOV allows you to select an Alternate Rate Output Mapping rule. The Alternate Rate Output Mapping rule lets you select the alternate columns to output transfer rate, option cost, and adjustment calculation results for each instrument record in an account table for a transfer pricing process run. This functionality allows you to output more than one transfer rate, option cost, or adjustment calculation result for each instrument record in the account table through multiple transfer pricing process runs.
Charge/Credit Accrual Basis A migration parameter, Charge/Credit Accrual Basis denotes the basis on which the interest accrual is calculated. You need to select the accrual factor to be applied when calculating the cost of funds.
The cost of funds is calculated using the following formula:
Cost of Funds = Balances x Assigned Transfer Rate x Charge/Credit Accrual Factor
Oracle Transfer Pricing offers the following accrual basis options:
  • 30/360: This is the default Charge/Credit Accrual Basis option. It applies the accrual basis calculation of 30 days divided by 360 days.

  • Actual/360: Applies the accrual basis calculation of number of days in the month divided by 360 days.

  • Actual/Actual: Applies the accrual basis calculation of number of days in the month divided by number of days in the year.

  • 30/365: Applies the accrual basis calculation of 30 days divided by the 365 days.

  • 30/Actual: Applies the accrual basis calculation of 30 days divided by the number of days in the year.

  • Actual/365: Applies the accrual basis calculation of number of days in the month divided by 365 days.

Currency Output A migration parameter, it allows you to select the output currency. Oracle Transfer Pricing offers you the following currency output options:
  • Entered and Functional Currency

  • Functional Currency Only


The following example illustrates the difference between entered and functional currency. A bank's loan may have Yen as entered currency. However, the bank might use US dollar to display its consolidated annual results. In this case, US dollar is the functional currency. In other words, the currency in which an organization keeps its books is its functional currency.
Migration Dimensions Dimensions for which you want to migrate charges or credits, for funds provided or used, to the Management Ledger Table (FEM_BALANCES). Oracle Transfer Pricing provides you with a Shuttle Control component to specify migration dimensions.
Available Dimensions One of the two Shuttle Control windows, it contains the names of the dimensions available, in addition to the mandatory Line Item dimension, for inclusion during the migration process. The dimensions available are:
  • Channel

  • Company Cost Center Organization

  • Natural Account

  • Product

Note: In addition, you can include the user-defined dimensions, 1 through 10, during the migration process.

Tip: Only the Management Table, FEM_BALANCES, processing key dimensions are available for inclusion during the migration process. This is because Oracle Transfer Pricing displays only the processing key dimensions on the user interface.

Selected Dimensions One of the two Shuttle Control windows, it contains the names of the dimensions, in addition to the mandatory Line Item dimension that have already been selected for migration.
  1. Navigate to the Transfer Pricing Process rule home page.

  2. Complete standard steps for this procedure. See: Creating Rules.

    Important: While creating Transfer Pricing Process rule and version, you need to perform the following subgroup of steps as part of the Standard Step 10.

Additional Steps to Specify Transfer Pricing Process Version Parameters

  1. Select the Transfer Rate parameters:

  2. Specify the Option Cost parameters:

  3. Select an Adjustments rule.

  4. Select an Alternate Rate Output Mapping rule.

    Note: Propagation and Ledger Migration do not apply when using an Alternate Rate Output Mapping rule. Propagation and Migration are only supported for the original transfer rate and option cost result columns, and not for the alternate columns.

    Important: You cannot create a Transfer Pricing Process rule without selecting either a Transfer Pricing Rule or an Adjustments Rule.

  5. Select the Migration parameters:

Related Topics

Overview of Transfer Pricing Process Rules

Standard Navigation Paths

Overview of the Oracle Transfer Pricing Process

Transfer Pricing Rules

Prepayment Rules

Rate Index Rules

Propagation Patterns

Adjustments Rules

Alternate Rate Output Mapping Rules

Executing a Transfer Pricing Process Rule

You execute a Transfer Pricing Process rule:

Executing a Transfer Pricing Process rule involves specifying the parameters necessary for successfully running an active version of the rule, and running the version.

Important: Only a single version of a Process Rule can be executed. This version must be active in the production environment to generate production results.

Prerequisites

Procedure

This table describes some terms in the pages used for this procedure.

Selected Terminology
Term Description
Propagation The propagation process copies historical results, either transfer rates or option costs, or both, that were generated by the application in a previous run for an earlier period to the current period records. Some instruments do not require recalculation of transfer rates or options costs because these do not change for them from previously calculated results. For example:
  • The transfer rates of fixed-rate instruments (repricing frequency equals zero) do not change over the life of the instruments.

  • The transfer rates of some adjustable-rate instruments (repricing frequency greater than zero) may not change from the previous run if their last repricing date is less than or equal to the calendar period end date of the prior period.

Skip Non-Zero Transfer Rate Records When this calculation option is used in conjunction with the Transfer Rate calculation type, transfer rates are generated only for records that do not have previous transfer rate information. All records that already have this information are skipped.
Skip Non-Zero Option Cost Records When this calculation option is used in conjunction with the Option Cost calculation type, option costs are generated only for records that do not have previous option cost information. All records that already have this information are skipped.
Skip Non-zero Adjustment Records When this calculation option is used in conjunction with the Adjustments calculation type, adjustments are calculated only for records that do not have previous adjustments information. All records that already have this information are skipped.
Calculation Mode You can calculate transfer rates or option costs, or both, in either of the following calculation modes:
  • Standard: Select Standard calculation mode to calculate transfer rates for instrument records based on the Origination Date or Last Repricing Date of the instruments. It can also be used to calculate option costs based on the Origination Date.

    For all transfer pricing methods, Standard calculation mode writes instrument results to the Transfer Rate and Matched Spread columns.

    For all option cost calculation methods, Standard Calculation mode writes instrument results to Historic Option Adjusted Spread and Historic Static Spread columns (Option Cost = Static Spread - Option Adjusted Spread)

  • Remaining Term: Select Remaining Term calculation mode to calculate transfer rates and option costs for instrument records based on the remaining term of the instrument from the Effective Date (Calendar Period End Date) of the data, rather than the Origination Date or Last Repricing Date of the instrument. This option treats your portfolio as if you acquired it on the Effective Date of your data.

    For all transfer pricing methods, Remaining Term Calculation Mode writes instrument results to Remaining Term Transfer Rate column and no matched spread is calculated.

    For all option cost calculation methods, Remaining Term calculation mode writes instrument results to Current Option Adjusted Spread and Current Static Spread columns (Option Cost = Static Spread - Option Adjusted Spread).

Audit Options Oracle Transfer Pricing offers you the following audit options:
  • Detailed Cash Flows: Detailed Cash Flows record all events (Cash Flow and Repricings) that occur for five separate records (the first five records processed). Each of these records has all financial elements for all relevant cash flow dates populated in the FTP_PROCESS_CASH_FLOWS table. The data in this table uses the Transfer Pricing Process Rule OBJECT_ID as one of the main identifying keys. This table enables you to validate your transfer pricing results in a spreadsheet.

  • Forward Rates: This option allows you to audit the static spread calculations by writing out calculated forward rates.

  • 1 Month Rates: This option allows you to audit the option-adjusted spread calculations by writing out the different paths of one-month rates.

Ledger Migration The process in which the application generates charges or credits, for funds provided or used, for migration to the Management Ledger table based on the transfer rates or option costs obtained from Propagate or Calculate processing.
Processing Tables Account tables that can be, or are already, included in a Transfer Pricing Process rule run. Oracle Transfer Pricing provides you with a Shuttle Control component to select the processing tables.
Available Tables One of the two Shuttle Control windows, it displays the Account tables which you can include during a Transfer Pricing Process rule run. Only the account tables for which you have access privileges are displayed.
Selected Tables One of the two Shuttle Control windows, it displays the tables that you select from the Available Tables. This window retains the names of the tables that you selected previously. For example, if you select two tables and save the Process Rule, the application will show these two tables the next time you open the rule.
Condition Allows you to filter processing table records.
  1. Navigate to the Transfer Pricing Process rule home page.

  2. Search for the rule you want to execute.

  3. Click Run corresponding to the version you want to execute. The Transfer Pricing Process run page is displayed. The run page has the following seven sections for which you can define parameters before executing the rule:

  4. Select the Transfer Pricing Process run page parameters.

    Note: The application also displays in read only mode the names of the rules (Transfer Pricing, Prepayment, Adjustments, Rate Index, and Alternate Rate Output Mapping rules) that contain the assumptions you want to execute.

  5. Select the Propagation parameters:

    Important: You can choose to propagate either transfer rates or option costs, or both, or none.

    Note: Propagation and Ledger Migration do not apply when using an Alternate Rate Output Mapping rule. Propagation and Migration are only supported for the original transfer rate and option cost result columns, and not for the alternate columns.

  6. Select the Transfer Rate and Option Cost Calculation parameters. You need to specify the following calculation parameters:

    1. Calculation Type: You can calculate either Transfer Rates or Option Costs, or both. You have the option of calculating transfer rates or option costs either for all records in the tables that satisfy the terms of the condition rule or skip nonzero records.

      Tip: The option cost calculation related parameters are disabled, if the Transfer Pricing Process rule does not have a Rate Index rule associated with it.

    2. Calculation Mode: You may select either the Standard or the Remaining Term calculation mode, as required.

      Important: Even if you do not choose to calculate either transfer price or option cost, the choice of the calculation mode impacts the Ledger Migration process as follows:

      • Standard: This leads to the migration of Transfer Rate and Historic Option Cost results.

      • Remaining Term: This leads to the migration of Remaining Term Transfer Rate and Current Option Cost results.

  7. Select the Adjustment Calculation parameters:

  8. Select the Audit Options. You may select some or all of the following audit options.

  9. Select the Ledger Migration options. The available options are:

    Note: Propagation and Ledger Migration do not apply when using an Alternate Rate Output Mapping rule. Propagation and Migration are only supported for the original transfer rate and option cost result columns, and not for the alternate columns.

  10. Select the Processing Tables.

    If required, you can apply a condition to filter records. You can either directly enter the name of the condition or search for it through the list of values provided and select it.

    Note: Oracle Transfer Pricing provides you with a Shuttle Control component to select the processing tables. The two areas of the Shuttle Control are Available Tables and Selected Tables.

    A table name shown in Selected Tables will not appear in Available Tables. Tables can be moved from Available Tables into Selected Tables and vice versa by using the Move, Move All, Remove, and Remove All buttons.

  11. Click Submit to execute (run) the rule. The Requests page is displayed.

    Important: In case you do not want to run the rule immediately, click Apply to save the settings, and make a note of the Job ID displayed by the application. You can use the Job ID to schedule the execution of the rule on the Process Management tab. See: About Concurrent Programs and Requests, Oracle Enterprise Performance Foundation User's Guide.

Procedure to Determine the Object ID of the Transfer Pricing Process

  1. Click Refresh periodically on the Requests page until the Phase (status) of the Transfer Pricing process is displayed as completed.

  2. Click Output.

  3. Note the Process ID, which is also the Object ID of the transfer pricing process.

    You can use the Object ID to view the results of the transfer pricing process, such as detail cash flow audit results as follows:

    Important: You can also use the Requests subtab on the Process Management tab to determine the Object ID of the transfer pricing process. See: About Concurrent Programs and Requests, Oracle Enterprise Performance Foundation User's Guide.

Related Topics

Overview of Transfer Pricing Process Rules

Standard Navigation Paths

Overview of the Oracle Transfer Pricing Process

Transfer Pricing Rules

Prepayment Rules

Rate Index Rules

Propagation Patterns

Adjustments Rules

Alternate Rate Output Mapping Rules