3. General Maintenance

As part of the general maintenance required for the successful functioning of the OTC Options module you should maintain:

The necessity for maintaining these details is explained in sections dedicated to these topics in the sections that follow.

3.1 Branch Parameters

This section contains the following topics:

3.1.1 Maintaining Branch Parameters

You can maintain branch level parameters that govern the processing of OTC Interest Rate/Currency options in a particular branch of your bank through the ‘Options Branch Parameters’ screen. You can invoke the ‘Option Branch Parameter’ screen by typing ‘OTDXBRPM’ in the field at the top right corner of the Application tool bar and clicking the adjoining arrow button.

In this screen, you must identify the code of the branch for which you are specifying Branch Parameters. Additionally, you are required to indicate the manner in which events (liquidation, charges etc) falling due on a holiday are to be processed.

Therefore you will need to indicate whether the batch process should process automatic events falling due on a holiday either:

For example, assume today is 15th November, 16th November and 17th November are holidays. If you check this field, during the Automatic Batch Update function run, only the events scheduled for 15th November will be processed.

The events scheduled for the holidays, i.e., 16th November and 17th November will be processed during the Automatic Batch Update function run during beginning of day operations on 18th November.

Delta Accounting Required

Delta is the change in the option value for every point change in the stock price. In the system, this is applicable for Physically Settled Currency Options only. On maintaining this parameter and giving the delta factor value while maintaining fair value record (OTDXCNVL), system triggers Delta accounting events (DLTA) and accounting entries. As part of specifying the branch preferences you have to indicate whether delta accounting is required for the branch. You will not be allowed to modify this parameter if any active physical currency options are being processed for the branch.

You can open the ‘User Defined Fields’ screen by clicking the ‘UDF Details’ button.

3.1.2 Maintaining Contract Fair Values

The fair value of an option keeps fluctuating depending on the market rates. As a result, you need to revalue the price of each option maintained in Oracle FLEXCUBE on a daily basis.

Option Fair Values can be updated through the ‘Contract Fair Value Maintenance’ screen. You can invoke the ‘Option Contract Fair Values’ screen by typing ‘OTDXCNVL’ in the field at the top right corner of the Application tool bar and clicking the adjoining arrow button.

You can capture the following data in this screen:

Contract Reference Number

To indicate the revaluation price, you should first select the reference number of the contract, which requires revaluation. Select the appropriate reference number the adjoining option list.

Reval Effective Date

In this field, specify the date on which the contract fair value becomes effective for revaluating the deal.

Delta Factor

Delta is the change in the option value for every point change in the stock price. You have to specify the delta factor used for the contract only if you have enabled the Delta Accounting Required option at the branch parameter level. Delta factor entered is multiplied by the contract amount to arrive at the delta accounting revaluation amount.

Fair Value

It indicates the value of the contract at inception.

Transaction Date

Specify the date of transaction. The system defaults it to the branch date. However, you can modify it.

User Reference Number

Based on the contract reference number specified, the system displays the user reference number. However, you cannot change it.

Counterparty

Specify the CIF number of the counterparty to the deal. Select the appropriate value from the adjacent option list. Based on the CIF number, the system displays the name of the corresponding counterparty.

Option Premium

The system defaults the option premium from the contract. It is the price or fee that the user pays or receives respectively for buying or writing an option.

Counter Currency

The system displays the counter currency on saving the contract.

Contract Currency

The system displays the contract currency on saving the contract.

Confirmed

The system picks up and processes only confirmed records for revaluation during the EOD batch. Hence, after entering the values, you need to confirm the same.

Date

On confirming the details as indicated above, the system defaults the current branch date in this field.

The current market value of the option that you specify is always considered in the same currency as the option premium currency.

In order for the system to pick-up only the latest fair value for revaluation, a user other than the one who created or authorized the Contract Fair Value record has to confirm the new fair value.

Refer to Annexure A and B for accounting entries and examples pertaining to Delta Accounting.

During bulk upload of these fair values for multiple contracts, Oracle FLEXCUBE expects the following information to be present in the upload message:

If any of these values is missing for any record, the system will terminate the upload process and raise an error.

The single record and bulk record uploads requests are handled in bulk requests itself for the following:

The system will also raise an error if:

You can run the fair value upload process any time before the OTC batch is processed during the day. During the OTC batch, contract revaluation will be done based on the fair value uploaded.

3.1.3 Maintaining Limit Tracking (Other Exposure) Details

Limits tracking is done only for Purchased options. Limits are always tracked at the contract level for the sum of Current Value of the option, Interest exposure and exposure due to FX movement.

On Inception of the contract, you can specify the Line, the Master Agreement Code, the marked-to-market value of the option, exposure to be tracked due to interest rate fluctuation and exchange rate movements. After the booking of the contract you can specify the various exposures through the ‘Options Other Exposure Maintenance’ screen.

You can invoke the ‘Options Other Exposures Maintenance’ screen by typing ‘OTDXLMVL’ in the field at the top right corner of the Application tool bar and clicking the adjoining arrow button.

Contract Reference Number

The system displays the reference number of the contract.

Transaction Date

This is the date on which the transaction is processed.

Current Value

Current value represents the mark-to-market value of the contract. This value will change as and when the contract is revalued.

Interest Exposure

It indicates the exposure to fluctuation in interest rates.

User Reference Number

The system displays the user reference number, based on the contract reference number.

FX Exposure

It indicates the exposure to fluctuations in exchange rates only when foreign currency is involved.

You can identify the contract for which you would like to record the Interest and FX exposures by selecting the Reference Number of the contract. The Transaction Date is defaulted to the application date you will not be allowed to change it.

If a contract is amended and the limit line is changed in the ‘Contract Online’ screen, utilization will be deleted for the previous line and the latest utilization will be recorded for the new line.