7. Annexure A – Event-wise Accounting Entries and Advices for your OTC Options

7.1 Accounting Entries

This section contains details of the suggested accounting entries that can be maintained, while setting up a Interest Rate and Currency Option products for the OTC module of Oracle FLEXCUBE. The details of the suggested accounting entries are listed event-wise.

This chapter contains the following sections:\

7.2 OTC Events

The following is an exhaustive list of events that can take place during the lifecycle of an OTC deal. In the subsequent paragraphs we shall examine the accounting entries for each of the events listed below.

Event Code Event Description
BOOK Contract Booking
AMND Contract Amendment
REVR Contract Reversal (Cancellation)
EXPR Contract Expiry
TERM Contract Termination
EXER Exercise of options
EXST Exercise Settlement
AMRT Amortization of inception Gain/Loss
REVL Revaluation of option
RTFX Rate Fixing
PRPT Premium Payment
KNIN Knock In of Currency Option
KIST Knock In Settlement
KNOT Knock Out of Currency Option
KNST Knock Out Settlement
AMDG Amortization of Deferred Gains-Hedge
DOPT Booking of underlying IRS in a Swaption
DLTA Delta Accounting.

7.3 Amount Tags

The Amount Tags listed below are provided in Oracle FLEXCUBE.

Amount Tag Description
PUR_OPTION_PREM Premium on Purchased Options
WRI_OPTION_PREM Premium on Written Options
PUR_INCEP_LOSS Inception Loss on Purchased Options
WRI_INCEP_LOSS Inception Loss on Written Options
PUR_INCEP_GAIN Inception Gain on Purchased Options
PUR_INCEP_GAIN_DEF Deferred Inception Gain on Purchased Options
WRI_INCEP_GAIN Inception Gain on Written Options
WRI_INCEP_GAIN_DEF Deferred Inception Gain on Written Options
PUR_INCEP_IV Intrinsic Value at Inception
PUR_INCEP_TV Time Value at Inception
PUR_INCEP_TV_DEF Deferred Time Value at Inception
PUR_REVAL_GAIN Revaluation Gain on Purchased Options
PUR_REVAL_LOSS Revaluation Loss on Purchased Options
PUR_LAST_REVAL_GAIN Previous Revaluation Gain on Purchased Options
PUR_LAST_REVAL_LOSS Previous Revaluation Loss on Purchased Options
WRI_REVAL_GAIN Revaluation Gain on Written Options
WRI_REVAL_LOSS Revaluation Loss on Written Options
WRI_LAST_REVAL_GAIN Previous Revaluation Gain on Written Options
WRI_LAST_REVAL_LOSS Previous Revaluation Loss on Written Options
NET_AMORT_TV Net Amortized Time Value
PUR_NET_INCEP_GAIN Net Amortized Inception Gain
PUR_NET_INCEP_LOSS Net Amortized Inception Loss
WRI_NET_INCEP_GAIN Net Amortized Inception Gain
WRI_NET_INCEP_LOSS Net Amortized Inception Loss
PUR_TERM_FV Fair Value of Purchased opt at Termination
PUR_TERM_GAIN Gain on Termination of Purchased Option
PUR_TERM_LOSS Loss on Termination of Purchased Option
WRI_TERM_FV Fair Value of Written opt at Termination
WRI_TERM_GAIN Gain on Termination of Written Option
WRI_TERM_LOSS Loss on Termination of Written Option
HED_TERM_GAIN Termination Gain on Hedge Option
HED_TERM_LOSS Termination Loss on Hedge Option
HED_TERM_GAIN_DEF Termination Gain Deferred on Hedge Option
PUR_INTR_SETL_AMT Settlement Amount on Intermediate Exercise
WRI_INTR_SETL_AMT Settlement Amount on Intermediate Exercise
PUR_SETL_AMT Final Exercise Settlement Amount on Purchased Option
WRI_SETL_AMT Final Exercise Settlement Amount on Written Option
PUR_INTR_FLR_AMT Intermediate Exercise Settlement Amount for Collars on Purchased options when Floor is in the money
WRI_INTR_FLR_AMT Intermediate Exercise Settlement Amount for Collars on Written options when Floor is in the money
PUR_INTR_CAP_AMT Intermediate Exercise Settlement Amount for Collars on Purchased options when the Cap is in the money
WRI_INTR_CAP_AMT Intermediate Exercise Settlement Amount for Collars on Written options when the Cap is in the money
PUR_FLOOR_AMT Final Exercise Settlement Amount for Collars on Purchase options when the Floor is in the money
PUR_CAP_AMT Final Exercise Settlement Amount for Collars on Purchase options when the Cap is in the money
WRI_FLOOR_AMT Final Exercise Settlement Amount for Collars on Written options when the Floor is in the money
PUR_CAP_AMT Final Exercise Settlement Amount for Collars on Written options when the Cap is in the money
PUR_SWAP_AMT Swap Value of Physically Settlement Swaption
WRI_SWAP_AMT Swap Value of Physically Settlement Swaption
HED_EXER_GAIN Exercise Gain on Hedge Option
HED_EXER_LOSS Exercise Loss on Hedge Option
PUR_INCEP_IV_SWAP Intrinsic Value at Inception
PUR_REBATE_AMT Rebate received for a purchased currency option if the option is knocked out or not knock in
WRI_REBATE_AMT Rebate paid for a written currency option if the option is knocked out or not knock in
NET_GAIN_DEF Net Amortized Deferred Gain
WRI_CALL_AMT Notional Principal for Written Call option
PUR_CALL_AMT Notional Principal for Purchased Call Option
WRI_CALL_AMT_EQ Notional Principal offset for Written Call Option
PUR_CALL_AMT_EQ Notional Prin. offset for Purchased Call Option.
WRI_PUT_AMT Notional Principal for Written Put Option.
WRI_PUT_AMT_EQ Notional Principal offset for Written Put Option.
PUR_PUT_AMT Notional Principal for Purchased Put Option.
PUR_PUT_AMT_EQ Notional Principal offset for Purchased put Option.
PREV_DELTA_AMT Previous Delta Amount.
PREV_ANTI_DELTA_AMT Previous Anti Delta Amount.
DELTA_AMT Delta Amount.
ANTI_DELTA_AMT Anti Delta Amount.

In addition to these, you can define any number of amount tags as per your requirement.

7.4 Accounting Roles

The following list contains details of the accounting Roles that are applicable to deals involving OTC options.

Accounting Role Description Role Type
CUSTOMER Counterparty X type
OPT_PREM_PAY Option Premium Payable Liability
OPT_PREM_REC Option Premium Receivable Asset
MKT_VAL_PUR_OPT Market Value of Purchased Option Asset
MKT_VAL_WRI_OPT Market Value of Written Option Liability
PUR_INCEP_LOSS Inception Loss on Purchased Options Expense
WRI_INCEP_LOSS Inception Loss on Written Options Expense
PUR_IN_GAIN_DEF Deferred Inception Gain on Written Options Asset
WRI_IN_GAIN_DEF Deferred Inception Gain on Written Options Asset
PUR_IV_DEF Deferred Intrinsic Value Asset
PUR_TV_DEF Deferred Time Value Asset
RV_GAIN_PUR_OPT Revaluation Gain on Purchased Option Income
RV_LOSS_PUR_OPT Revaluation Loss on Purchased Option Expense
RV_GAIN_WRI_OPT Revaluation Gain on Written Option Income
RV_LOSS_WRI_OPT Revaluation Loss on Written Option Expense
EXP_ON_HEDGE Expense on Hedge Options Expense
PUR_IN_GAIN_OPT Inception Gains on Purchased Options Income
WRI_IN_GAIN_OPT Inception Gains on Written Options Income
PUR_OPT_INCOME Income on Purchased Options Income
WRI_OPT_INCOME Income on Written Options Income
PUR_OPT_EX­PENSE Expense on Purchased Options Expense
WRI_OPT_EXPENSE Expense on Written Options Expense
PUR_GAIN_DEF Deferred Gains on Purchased Options Asset
PUR_HED_EX­PENSE Expense on Hedge Options Expense
MKT_VAL_PUR_IRS Market Value of purchased Interest Rate Swap Expense
MKT_VAL_WRI_IRS Market Value of WRITTEN Interest Rate Swap Expense
PUR_OPT_SET_REC Payout amount receivable on Purchased Options Asset
WRI_OPT_SET_PAY Payout amount Payable on Written Options Liability
PUR_OPT_SET_PAY Payout amount Payable on Purchased Options Liability
WRI_OPT_SET_REC Payout amount receivable on Written Options Asset
PUR_REBATE_REC Rebate amount receivable on Purchased Options Asset
PUR_REBATE_PAY Rebate amount payable on Written Options Liability
CON_WRI_CALL Notional Principal for written Call options Contingent
CON_WRI_CAL_OFF Offset for Notional Principal for written Call options Contingent
CON_WRI_PUT Notional Principal for written Put options. Contingent
CON_WRI_PUT_OFF Offset for Notional Principal for Written Put options. Contingent
CON_PUR_CALL Notional Principal for purchased Call options Contingent
CON_PUR_­CAL_OFF Offset for Notional Principal for purchased Call options Contingent
CON_PUR_PUT Notional Principal for purchased Put options Contingent
CON_PUR_PUT_OFF Offset for Notional Principal for purchased Put options Contingent
CON_DELTA_AC Contingent Delta amount Contingent
CON_DELTA_OFF Offset for Contingent Delta Amount Contingent
CON_ANT_DEL_AC Contingent Anti Delta amount Contingent
CON_ANT_DEL_OFF Offset for Contingent Anti Delta amount Contingent

7.5 Event-Wise Accounting Entries

In the subsequent sections we have defined suggested accounting entries for each of the events in the lifecycle of deals involving OTC products.

Also note that some of the Amount Tag’s linked to the Accounting Roles are user defined.

This section contains the following topics:

7.5.1 BOOK – Contract Booking

Accounting Role Amount Tag Dr./Cr.
MKT_VAL_PUR_OPT PUR_OPTION_PREM Debit
OPT_PREM_PAY PUR_OPTION_PREM Credit
OPT_PREM_REC WRI_OPTION_PREM Debit
MKT_VAL_WRI_OPT WRI_OPTION_PREM Credit
PUR_INCEP_LOSS PUR_INCEP_LOSS Debit
MKT_VAL_PUR_OPT PUR_INCEP_LOSS Credit
WRI_INCEP_LOSS WRI_INCEP_LOSS Debit
MKT_VAL_WRI_OPT WRI_INCEP_LOSS Credit
MKT_VAL_PUR_OPT PUR_INCEP_GAIN_DEF Debit
PUR_IN_GAIN_DEF PUR_INCEP_GAIN_DEF Credit
MKT_VAL_WRI_OPT WRI_INCEP_GAIN_DEF Debit
WRI_IN_GAIN_DEF WRI_INCEP_GAIN_DEF Credit

If the Inception Gain is not amortized, then the entries passed will be:

Accounting Role Amount Tag Dr./Cr.
MKT_VAL_PUR_OPT PUR_INCEP_GAIN Debit
PUR_OPT_INCOME PUR_INCEP_GAIN Credit
MKT_VAL_WRI_OPT WRI_INCEP_GAIN Debit
PUR_OPT_INCOME WRI_INCEP_GAIN Credit
PUR_IV_DEF PUR_INCEP_IV Debit
OPT_PREM_PAY PUR_INCEP_IV Credit
PUR_TV_DEF PUR_INCEP_TV_DEF Debit
OPT_PREM_PAY PUR_INCEP_TV_DEF Credit

If the Time Value is not amortized, then the entries passed will be:

Accounting Role Amount Tag Dr./Cr.
EXP_ON_HEDGE PUR_INCEP_TV Debit
OPT_PREM_PAY PUR_INCEP_TV Credit

7.5.2 PRPT - Premium Payment

Accounting Role Amount Tag Dr./Cr.
OPT_PREM_PAY PUR_OPTION_PREM Debit
CUSTOMER PUR_OPTION_PREM Credit
CUSTOMER WRI_OPTION_PREM Debit
OPT_PREM_REC WRI_OPTION_PREM Credit

7.5.3 REVL - Revaluation of Option

Accounting Role Amount Tag Dr./Cr.
MKT_VAL_PUR_OPT PUR_REVL_GAIN Debit
RV_GAIN_PUR_OPT PUR_REVL_GAIN Credit
MKT_VAL_WRI_OPT WRI_REVL_GAIN Debit
RV_GAIN_WRI_OPT WRI_REVL_GAIN Credit
RV_GAIN_PUR_OPT PUR_LAST_REVL_GAIN Debit
MKT_VAL_PUR_OPT PUR_LAST_REVL_GAIN Credit
RV_GAIN_WRI_OPT WRI_LAST_REVL_GAIN Debit
MKT_VAL_WRI_OPT WRI_LAST_REVL_GAIN Credit
RV_LOSS_PUR_OPT PUR_REVL_LOSS Debit
MKT_VAL_PUR_OPT PUR_REVL_LOSS Credit
RVL_LOSS_WRI_OPT WRI_REVL_LOSS Debit
MKT_VAL_WRI_OPT WRI_REVL_LOSS Credit
MKT_VAL_PUR_OPT PUR_LAST_REVL_LOSS Debit
RV_LOSS_PUR_OPT PUR_LAST_REVL_LOSS Credit
MKT_VAL_WRI_OPT WRI_LAST_REVL_LOSS Debit
RV_LOSS_WRI_OPT WRI_LAST_REVL_LOSS Credit
EXP_ON_HEDGE NET_AMORT_TV Debit
PUR_TV_DEF NET_AMORT_TV Credit

7.5.4 AMRT - Amortization of Inception Gain/Loss

Accounting Role Amount Tag Dr./Cr.
PUR_IN_GAIN_DEF PUR_NET_INCEP_GAIN Debit
PUR_IN_GAIN_OPT PUR_NET_INCEP_GAIN Credit
WRI_IN_GAIN_DEF WRI_NET_INCEP_GAIN Debit
WRI_IN_GAIN_OPT WRI_NET_INCEP_GAIN Credit

7.5.5 TERM - Contract Termination

Trigger Revaluation at current FV as specified while terminating Trade contracts.

Trigger AMRT for residual Amortization for Trade Contracts

For Hedge contracts trigger Revaluation to amortize the remaining time value.

Accounting Role Amount Tag Dr./Cr.
CUSTOMER PUR_TERM_FV Debit
MKT_VAL_PUR_OPT PUR_TERM_FV Credit
MKT_VAL_WRI_OPT WRI_TERM_FV Debit
CUSTOMER WRI_TERM_FV Credit
CUSTOMER PUR_TERM_GAIN Debit
PUR_OPT_INCOME PUR_TERM_GAIN Credit
WRI_OPT_EXPENSE WRI_TERM_LOSS Debit
CUSTOMER WRI_TERM_LOSS Credit
PUR_OPT_EXPENSE PUR_TERM_LOSS Debit
CUSTOMER PUR_TERM_LOSS Credit
CUSTOMER WRI_TERM_GAIN Debit
WRI_OPT_INCOME WRI_TERM_GAIN Credit

Termination Loss = FV @ Termination - Termination Value

Termination Gain = Termination Value - FV @ Termination

Termination Loss = Termination Value - Termination FV

Termination Gain = Termination FV - Termination Value

Entries for moving all Revaluation Gain/Loss to Income/Expense and Inception Gain to Income

Accounting Role Amount Tag Dr./Cr.
RV_GAIN_PUR_OPT PUR_REVL_GAIN Debit
PUR_OPT_INCOME PUR_REVL_GAIN Credit
RV_GAIN_WRI_OPT WRI_REVL_GAIN Debit
WRI_OPT_INCOME WRI_REVL_GAIN Credit
PUR_OPT_EXPENSE PUR_REVL_LOSS Debit
RV_LOSS_PUR_OPT PUR_REVL_LOSS Credit
WRI_OPT_EXPENSE WRI_REVL_LOSS Debit
RV_LOSS_WRI_OPT WRI_REVL_LOSS Credit
PUR_IN_GAIN_OPT PUR_INCEP_GAIN Debit
PUR_OPT_INCOME PUR_INCEP_GAIN Credit
WRI_IN_GAIN_OPT WRI_INCEP_GAIN Debit
WRI_IN_GAIN_OPT WRI_INCEP_GAIN Credit
PUR_OPT_EXPENSE PUR_INCEP_LOSS Debit
PUR_INCEP_LOSS PUR_INCEP_LOSS Credit
WRI_OPT_EXPENSE WRI_INCEP_LOSS Debit
WRI_INCEP_LOSS WRI_INCEP_LOSS Credit
CUSTOMER PUR_INCEP_IV Debit
PUR_IV_DEF PUR_INCEP_IV Credit
CUSTOMER HED_TERM_GAIN_DEF Debit
PUR_GAIN_DEF HED_TERM_GAIN_DEF Credit

If termination gain is not to be amortized then the following entries are passed for ter­mination gain

Accounting Role Amount Tag Dr./Cr.
CUSTOMER HED_TERM_GAIN Debit
PUR_OPT_INCOME HED_TERM_GAIN Credit
PUR_HED_EXPENSE HED_TERM_LOSS Debit
CUSTOMER HED_TERM_LOSS Credit
PUR_HED_EXPENSE PUR_INCEP_TV Debit
EXP_ON_HEDGE PUR_INCEP_TV Credit

7.5.6 EXER - Exercise of Options

Trigger Reval @ current FV (Which is same as Settlement Amount) for final Exercise.

Trigger AMRT for residual Amortization for final Exercise

Accounting Role Amount Tag Dr./Cr.
PUR_OPT_SET_REC PUR_INTR_SETL_AMT Debit
PUR_OPT_INCOME PUR_INTR_SETL_AMT Credit
WRI_OPT_EXPENSE WRI_INTR_SETL_AMT Debit
WRI_OPT_SET_PAY WRI_INTR_SETL_AMT Credit
PUR_OPT_SET_REC PUR_SETL_AMT Debit
MKT_VAL_PUR_OPT PUR_SETL_AMT Credit
MKT_VAL_WRI_OPT WRI_SETL_AMT Debit
WRI_OPT_SET_PAY WRI_SETL_AMT Credit

Second set of Entries are passed for Physically settled Swaptions.

For physical Currency options, Reval is triggered @ 0. No entries are passed on Exercise.

Accounting Role Amount Tag Dr./Cr.
MKT_VAL_PUR_IRS PUR_SWAP_AMT Debit
MKT_VAL_PUR_OPT PUR_SWAP_AMT Credit
MKT_VAL_WRI_OPT WRI_SWAP_AMT Debit
MKT_VAL_WRI_IRS WRI_SWAP_AMT Credit

In Case of Collars, the following entries will be passed. Collars are not allowed for Hedge Contracts

Accounting Role Amount Tag Dr./Cr.
PUR_OPT_EXPENSE PUR_INTR_FLR_AMT Debit
PUR_OPT_SET_PAY PUR_INTR_FLR_AMT Credit
WRI_OPT_SET_REC WRI_INTR_FLR_AMT Debit
WRI_OPT_INCOME WRI_INTR_FLR_AMT Credit
PUR_OPT_SET_REC PUR_INTR_CAP_AMT Debit
PUR_OPT_INCOME PUR_INTR_CAP_AMT Credit
WRI_OPT_EXPENSE WRI_INTR_CAP_AMT Debit
WRI_OPT_SET_PAY WRI_INTR_CAP_AMT Credit

In the case of Purchased or Written Collar, if the Floor is in the money during final settlement, Revaluation has to be triggered @ 0 Fair Value. If the Cap is in the money, Revaluation has to be triggered @ final settlement amount (PUR_CAP_AMT or WRI_CAP_AMT) and the following entries would be passed.

Accounting Role Amount Tag Dr./Cr.
PUR_OPT_EXPENSE PUR_FLOOR_AMT Debit
PUR_OPT_SET_PAY PUR_FLOOR_AMT Credit
WRI_OPT_SET_REC WRI_FLOOR_AMT Debit
WRI_OPT_INCOME WRI_FLOOR_AMT Credit

Entries for moving all Revaluation Gain/Loss to Income/Expense and Inception Gain to Income:

Accounting Role Amount Tag Dr./Cr.
RV_GAIN_PUR_OPT PUR_REVL_GAIN Debit
PUR_OPT_INCOME PUR_REVL_GAIN Credit
RV_GAIN_WRI_OPT WRI_REVL_GAIN Debit
WRI_OPT_INCOME WRI_REVL_GAIN Credit
PUR_OPT_EXPENSE PUR_REVL_LOSS Debit
RV_LOSS_PUR_OPT PUR_REVL_LOSS Credit
WRI_OPT_EXPENSE WRI_REVL_LOSS Debit
RV_LOSS_WRI_OPT WRI_REVL_LOSS Credit
PUR_IN_GAIN_OPT PUR_INCEP_GAIN Debit
PUR_OPT_INCOME PUR_INCEP_GAIN Credit
WRI_IN_GAIN_OPT WRI_INCEP_GAIN Debit
WRI_IN_GAIN_OPT WRI_INCEP_GAIN Credit
PUR_OPT_EXPENSE PUR_INCEP_LOSS Debit
PUR_INCEP_LOSS PUR_INCEP_LOSS Credit
WRI_OPT_EXPENSE WRI_INCEP_LOSS Debit
WRI_INCEP_LOSS WRI_INCEP_LOSS Credit
PUR_OPT_SET_REC PUR_INCEP_IV Debit
PUR_IV_DEF PUR_INCEP_IV Credit

Gain on Exercise is not Deferred. It is taken directly to Income.

Accounting Role Amount Tag Dr./Cr.
PUR_OPT_SET_REC HED_EXER_GAIN Debit
PUR_OPT_INCOME HED_EXER_GAIN Credit
PUR_HED_EXPENSE HED_EXER_LOSS Debit
PUR_OPT_SET_REC HED_EXER_LOSS Credit
MKT_VAL_PUR_IRS PUR_INCEP_IV_SWAP Debit
PUR_IV_DEF PUR_INCEP_IV_SWAP Credit

The following entries are to move the Inception TV to Final Expense A/c from the Revaluation Expense account.

Accounting Role Amount Tag Dr./Cr.
PUR_HED_EXPENSE PUR_INCEP_TV Debit
EXP_ON_HEDGE PUR_INCEP_TV Credit

7.5.7 EXST - Exercise Settlement

Accounting Role Amount Tag Dr./Cr.
CUSTOMER PUR_SETL_AMT Debit
PUR_OPT_SET_REC PUR_SETL_AMT Credit
WRI_OPT_SET_PAY WRI_SETL_AMT Debit
CUSTOMER WRI_SETL_AMT Credit

Following entries are passed for settlement of Payout in case of Floor being in the money.

Accounting Role Amount Tag Dr./Cr.
PUR_OPT_SET_PAY PUR_FLOOR_AMT Debit
CUSTOMER PUR_FLOOR_AMT Credit
CUSTOMER WRI_FLOOR_AMT Debit
WRI_OPT_SET_REC WRI_FLOOR_AMT Credit

7.5.8 EXPR – Contract Expiry

No entries required for intermediate expiry. Only final Expiry has entries

Trigger Reval @ 0 as the value of the option would be 0 on expiry for Trade contracts

Trigger AMRT for residual Amortization of inception gain for Trade

Entries for moving all Reval Gain/Loss to Income/Expense and Inception Gain to Income.

Accounting Role Amount Tag Dr./Cr.
RV_GAIN_PUR_OPT PUR_REVL_GAIN Debit
PUR_OPT_INCOME PUR_REVL_GAIN Credit
RV_GAIN_WRI_OPT WRI_REVL_GAIN Debit
WRI_OPT_INCOME WRI_REVL_GAIN Credit
PUR_OPT_EXPENSE PUR_REVL_LOSS Debit
RV_LOSS_PUR_OPT PUR_REVL_LOSS Credit
WRI_OPT_EXPENSE WRI_REVL_LOSS Debit
RV_LOSS_WRI_OPT WRI_REVL_LOSS Credit
PUR_IN_GAIN_OPT PUR_INCEP_GAIN Debit
PUR_OPT_INCOME PUR_INCEP_GAIN Credit
WRI_IN_GAIN_OPT WRI_INCEP_GAIN Debit
WRI_IN_GAIN_OPT WRI_INCEP_GAIN Credit
PUR_OPT_EXPENSE PUR_INCEP_LOSS Debit
PUR_INCEP_LOSS PUR_INCEP_LOSS Credit
WRI_OPT_EXPENSE WRI_INCEP_LOSS Debit
WRI_INCEP_LOSS WRI_INCEP_LOSS Credit

For Hedge deals Amortization of TV should have been completed before Final Expiry. Only Inception IV entries are passed.

Accounting Role Amount Tag Dr./Cr.
PUR_HED_EXPENSE PUR_INCEP_IV Debit
PUR_IV_DEF PUR_INCEP_IV Credit

7.5.9 AMDG - Amortization of Deferred Gains-Hedge

This event is meant only for Hedge deals.

Accounting Role Amount Tag Dr./Cr.
PUR_GAIN_DEF NET_GAIN_DEF Debit
PUR_OPT_INCOME NET_GAIN_DEF Credit

7.5.10 KNOT - Knock Out of Currency Option

These entries are meant for Trade and Hedge deals.

Accounting Role Amount Tag Dr./Cr.
PUR_REBATE_REC PUR_REBATE_AMT Debit
PUR_OPT_INCOME PUR_REBATE_AMT Credit
WRI_OPT_EXPENSE WRI_REBATE_AMT Debit
PUR_REBATE_PAY WRI_REBATE_AMT Credit

Trigger Revaluation at 0 for Trade. For Hedge do residual amortization of Time Value.

Trigger AMRT for residual Amortization for Trade.

Entries for moving all Revaluation Gain/Loss to Income/Expense and Inception Gain to Income.

Accounting Role Amount Tag Dr./Cr.
RV_GAIN_PUR_OPT PUR_REVL_GAIN Debit
PUR_OPT_INCOME PUR_REVL_GAIN Credit
RV_GAIN_WRI_OPT WRI_REVL_GAIN Debit
WRI_OPT_INCOME WRI_REVL_GAIN Credit
PUR_OPT_EXPENSE PUR_REVL_LOSS Debit
RV_LOSS_PUR_OPT PUR_REVL_LOSS Credit
WRI_OPT_EXPENSE WRI_REVL_LOSS Debit
RV_LOSS_WRI_OPT WRI_REVL_LOSS Credit
PUR_IN_GAIN_OPT PUR_INCEP_GAIN Debit
PUR_OPT_INCOME PUR_INCEP_GAIN Credit
WRI_IN_GAIN_OPT WRI_INCEP_GAIN Debit
WRI_IN_GAIN_OPT WRI_INCEP_GAIN Credit
PUR_OPT_EXPENSE PUR_INCEP_LOSS Debit
PUR_INCEP_LOSS PUR_INCEP_LOSS Credit
WRI_OPT_EXPENSE WRI_INCEP_LOSS Debit
WRI_INCEP_LOSS WRI_INCEP_LOSS Credit

For Hedge deals Amortization of TV should have been completed before Final Expiry. Only Inception IV entries are passed.

Accounting Role Amount Tag Dr./Cr.
PUR_HED_EXPENSE PUR_INCEP_IV Debit
PUR_IV_DEF PUR_INCEP_IV Credit

The following entries are to move the Inception TV to Final Expense A/c from Revaluation Exp A/c.

Accounting Role Amount Tag Dr./Cr.
PUR_HED_EXPENSE PUR_INCEP_TV Debit
EXP_ON_HEDGE PUR_INCEP_TV Credit

7.5.11 KNST - Knock Out Settlement

Accounting Role Amount Tag Dr./Cr.
CUSTOMER PUR_REBATE_AMT Debit
PUR_REBATE_REC PUR_REBATE_AMT Credit
PUR_REBATE_PAY WRI_REBATE_AMT Debit
CUSTOMER WRI_REBATE_AMT Credit

7.5.12 KNIN - Knock In of Currency Option

No entries are passed for this event.

If an option is not Knocked in during the Barrier Window, entries for rebate will be passed on KIST at Expiry.

7.5.13 KIST - Knock In Settlement

Accounting Role Amount Tag Dr./Cr.
CUSTOMER PUR_REBATE_AMT Debit
PUR_OPT_INCOME PUR_REBATE_AMT Credit
WRI_OPT_EXPENSE WRI_REBATE_AMT Debit
CUSTOMER WRI_REBATE_AMT Credit

7.5.14 Delta Accounting

Given below is an event-wise list of accounting entries for Purchase/Written – Call/Put options. For an example on Written and Call physical Currency option refer to Example III in Annexure B.

Contingent Entries on BOOK

 

 

 Accounting Role Amount Tag Dr./Cr. CCY
Written Call CON_WRI_CALL WRI_CALL_AMT Debit Counter CCY and Amount
    CON_WRI_­CAL_OFF WRI_­CALL_AMT_EQ Credit Contract CCY and Amount
Written Put CON_WRI_PUT WRI_PUT_AMT Debit Contract CCY and Amount
    CON_WRI_PUT_OFF WRI_PUT_AMT_EQ Credit Counter CCY and Amount
Pur­chase Call CON_PUR_CALL PUR_CALL_AMT Debit Contract CCY and Amount
    CON_PUR_­CAL_OFF PUR_­CALL_AMT_EQ Credit Counter CCY and Amount
Pur­chase Put CON_PUR_PUT PUR_PUT_AMT Debit Counter CCY and Amount
    CON_PUR_PUT_OFF PUR_PUT_AMT_EQ Credit Contract CCY and Amount

 

Reversal of contingent Entries will be triggered for the following events - KNOT/TERM/EXPR/EXER and the following entries will be passed:

 

 

 Accounting Role Amount Tag Dr./Cr. CCY
Written Call CON_WRI_CALL WRI_CALL_AMT Credit Counter CCY and Amount
    CON_WRI_­CAL_OFF WRI_­CALL_AMT_EQ Debit Contract CCY and Amount
Written Put CON_WRI_PUT WRI_PUT_AMT Credit Contract CCY and Amount
    CON_WRI_PUT_OFF WRI_PUT_AMT_EQ Debit Counter CCY and Amount
Pur­chase Call CON_PUR_CALL PUR_CALL_AMT Credit Contract CCY and Amount
    CON_PUR_­CAL_OFF PUR_­CALL_AMT_EQ Debit Counter CCY and Amount
Pur­chase Put CON_PUR_PUT PUR_PUT_AMT Credit Counter CCY and Amount
    CON_PUR_PUT_OFF PUR_PUT_AMT_EQ Debit Contract CCY and Amount

DLTA – Delta Accounting

New delta entries will be passed and previous day's entries will be reversed

On KNOT/TERM/EXER/TERM events, the delta entries will be reversed and only the accounting entries with tags PREV_DELTA_AMT AND PREV_ANTI_DELTA_AMT will be passed.

 

 

 Accounting Role Amount Tag Dr./Cr. CCY
Written Call CON_DELTA_AC DELTA_AMT Debit Counter CCY and Amount
    CON_DELTA_OFF DELTA_AMT Credit Counter CCY and Amount
    CON_ANT_DEL_AC ANTI_DELTA_AMT Credit Contract CCY and Amount
    CON_ANT_DEL_OFF ANTI_DELTA_AMT Debit Contract CCY and Amount
    CON_DELTA_AC PREV_DELTA_AMT Credit Counter CCY and Amount
    CON_DELTA_OFF PREV_DELTA_AMT Debit Counter CCY and Amount
    CON_ANT_DEL_AC PREV_AN­TI_DELTA_AMT Debit Contract CCY and Amount
    CON_ANT_DEL_OFF PREV_AN­TI_DELTA_AMT Credit Contract CCY and Amount
Written Put CON_DELTA_AC DELTA_AMT Debit Contract CCY and Amount
    CON_DELTA_OFF DELTA_AMT Credit Contract CCY and Amount
    CON_ANT_DEL_AC ANTI_DELTA_AMT Credit Counter CCY and Amount
    CON_ANT_DEL_OFF ANTI_DELTA_AMT Debit Counter CCY and Amount
    CON_DELTA_AC PREV_DELTA_AMT Credit Contract CCY and Amount
    CON_DELTA_OFF PREV_DELTA_AMT Debit Contract CCY and Amount
    CON_ANT_DEL_AC PREV_AN­TI_DELTA_AMT Debit Counter CCY and Amount
    CON_ANT_DEL_OFF PREV_AN­TI_DELTA_AMT Credit Counter CCY and Amount
Pur­chase Call CON_DELTA_AC DELTA_AMT Debit Contract CCY and Amount
    CON_DELTA_OFF DELTA_AMT Credit Contract CCY and Amount
    CON_ANT_DEL_AC ANTI_DELTA_AMT Credit Counter CCY and Amount
    CON_ANT_DEL_OFF ANTI_DELTA_AMT Debit Counter CCY and Amount
    CON_DELTA_AC PREV_DELTA_AMT Credit Contract CCY and Amount
    CON_DELTA_OFF PREV_DELTA_AMT Debit Contract CCY and Amount
    CON_ANT_DEL_AC PREV_AN­TI_DELTA_AMT Debit Counter CCY and Amount
    CON_ANT_DEL_OFF PREV_AN­TI_DELTA_AMT Credit Counter CCY and Amount
Pur­chase Put CON_DELTA_AC DELTA_AMT Debit Counter CCY and Amount
    CON_DELTA_OFF DELTA_AMT Credit Counter CCY and Amount
    CON_ANT_DEL_AC ANTI_DELTA_AMT Credit Contract CCY and Amount
    CON_ANT_DEL_OFF ANTI_DELTA_AMT Debit Contract CCY and Amount
    CON_DELTA_AC PREV_DELTA_AMT Credit Counter CCY and Amount
    CON_DELTA_OFF PREV_DELTA_AMT Debit Counter CCY and Amount
    CON_ANT_DEL_AC PREV_AN­TI_DELTA_AMT Debit Contract CCY and Amount
    CON_ANT_DEL_OFF PREV_AN­TI_DELTA_AMT Credit Contract CCY and Amount

For all the delta entries mentioned above the amount will be Contract CCY Amt/Counter CCY Amount *delta factor depending on the WRI/PUR and CALL/PUT combination.

7.5.15 Event-wise Amount Tags

Given below is a list of event-wise Amount Tags which can be used for the OTC module.

Entries in blue (Italics) are meant only for hedge deals. Entries in pink can be used for Hedge as well as Trade deals. Also note, for hedge deals, entries are relevant for only purchase options. Collars are not allowed for hedge deals.

Event Amount Tag Value Remarks
BOOK PUR_OPTION_PREM WRI_OPTION_PREM User Input Option Pre­mium at Inception Trade Deals
PUR_INCEP_GAIN PUR_INCEP_GAIN_DEF WRI_INCEP_LOSS Inception Fair Value - Option Premium Trade Deals
PUR_INCEP_LOSS WRI_INCEP_GAIN WRI_INCEP_GAIN_DEF Option Premium – Inception Fair Value Trade Deals
PUR_INCEP_IV Intrinsic Value at Incep­tion (System Calcu­lated) Hedge Deals
BOOK PUR_INCEP_TV PUR_INCEP_TV_DEF Time Value at Inception (System Calculated) Hedge Deals
PRPT PUR_OPTION_PREM WRI_OPTION_PREM User Input Option Pre­mium at Inception Hedge and Trade Deals
AMND - - Only ICCF
AMRT PUR_NET_INCEP_GAIN WRI_NET_INCEP_GAIN Inception Gain to Amortize till date – Gain already amortized Trade Deals
REVL PUR_REVL_GAIN WRI_REVL_LOSS Contract Fair Value – Option Premium Trade Deals
WRI_REVL_GAIN PUR_REVL_LOSS Option Premium - Con­tract Fair Value Trade Deals
PUR_LAST_REVAL_GAIN WRI_LAST_REVAL_GAIN Last Revaluation Gain Trade Deals
PUR_LAST_REVAL_LOSS WRI_LAST_REVAL_LOSS Last Revaluation Loss Trade Deals
NET_AMORT_TV TV to Amort till date – TV already amortized Hedge Deals
CANC -- -- Reversal of entries and pro­cessing Charges. Trade and hedge deals
RTFX - -  
TERM PUR_TERM_FV WRI_TERM_FV Fair Value of the con­tract as input at the time of termination Hedge and Trade deals
PUR_TERM_GAIN WRI_TERM_LOSS Termination Value –FV at the time of termina­tion Trade Deals
PUR_TERM_LOSS WRI_TERM_GAIN FV at the time of termi­nation –Termination value Trade Deals
HED_TERM_GAIN HED_TERM_GAIN_DEF Termination Value –Inception IV Hedge Deals
HED_TERM_LOSS Inception IV –Termina­tion value Hedge Deals
PUR_INCEP_IV Intrinsic Value at Incep­tion Hedge Deals
REVAL ON TERM PUR_REVL_GAIN WRI_REVL_LOSS Contract Fair Value at termination (User I/P)– Option Premium Trade Deals
WRI_REVL_GAIN PUR_REVL_LOSS Option Premium - Con­tract Fair Value at termi­nation (User I/P) Trade Deals
PUR_LAST_REVAL_GAIN WRI_LAST_REVAL_GAIN Last Revaluation Gain Trade Deals
PUR_LAST_REVAL_LOSS WRI_LAST_REVAL_LOSS Last Revaluation Loss Trade Deals
NET_AMORT_TV Inception TV – TV amortized till date (Remaining Time Value) Hedge Deals
AFTER REVAL ON TERM PUR_REVL_GAIN WRI_REVL_GAIN (Recognition of total revalua­tion Income) Current Revaluation Gain After triggering revalua­tion process at termina­tion Trade Deals
PUR_REVL_LOSS WRI_REVL_LOSS (Recognition of total revalua­tion Expense) Current Revaluation Loss After triggering revalua­tion process at termina­tion Trade Deals
PUR_INCEP_TV Time Value at Inception Hedge Deals
AMORT ON TERM PUR_NET_INCEP_GAIN WRI_NET_INCEP_GAIN Total Amt to Amort (Inception gain)– Amt amortized till date. This is the remaining incep­tion gain Trade Deals
AFTER AMORT ON TERM PUR_INCEP_GAIN WRI_INCEP_LOSS (Recognition of Inception Gain/Loss) Inception Fair Value-Inception Fair Value Trade Deals
PUR_INCEP_LOSS WRI_INCEP_GAIN (Recognition of Loss/Gain) Option Premium - Inception Fair Value Trade Deals =
AMDG NET_GAIN_DEF (Amortization of Deferred ter­mination Gains) Amt to Amort –Amt Amortized till Date Hedge deals.
EXER PUR_INTR_SETL_AMT Calculated Settlement Amt Intermediate Exercise except Collars. Trade and Hedge deals.
  WRI_INTR_SETL_AMT Calculated Settlement Amt Intermediate Exercise except Collars. Trade and Hedge deals.
  PUR_SETL_AMT Calculated Settlement Amt Final Exercise except Collars. Trade deals.
  WRI_SETL_AMT Calculated Settlement Amt Final Exercise except Collars. Trade deals.
  PUR_INTR_FLR_AMT WRI_INTR_FLR_AMT Calculated Settlement Amt for Collars if Floor is in-the-money Intermediate Exercise for Col­lars. Trade deals.
  PUR_INTR_CAP_AMT WRI_INTR_CAP_AMT Calculated Settlement Amt for Collars if Cap is in-the-money Intermediate Exercise for Col­lars. Trade deals.
  PUR_FLOOR_AMT WRI_FLOOR_AMT Calculated Settlement Amt for Collars if Floor is in-the-money for final exercise Final Exercise for Collars. Trade deals.
  PUR_CAP_AMT WRI_CAP_AMT Calculated Settlement Amt for Collars if Cap is in-the-money for final exercise Final Exercise for Collars. Trade deals.
  PUR_SWAP_AMT Swap Value (User I/P). This is the settlement Amount for cash set­tled swaptions On initiation of underlying swap or cash settle­ment. Swaptions.
  PUR_INCEP_IV Intrinsic Value at Incep­tion Hedge Deals Only except col­lars
  HED_EXER_GAIN Payoff (System Calcu­lated) – Inception IV Hedge Deals Only except col­lars
  HED_EXER_LOSS Inception IV - Payoff (System Calculated) Hedge Deals Only except col­lars
  PUR_INCEP_IV_SWAP Inception IV Hedge Deals (Swaptions) Only
REVAL ON EXER PUR_REVL_GAIN WRI_REVL_LOSS Settlement Amt (Calcu­lated)– Option Premium Final Exercise except Collars with Floor in the money. Trade deals Only
  WRI_REVL_GAIN PUR_REVL_LOSS Option Premium - Set­tlement Amt (Calcu­lated) Final Exercise except Collars with Floor in the money. Trade deals Only
  PUR_REVL_GAIN WRI_REVL_LOSS 0 Final Exercise for Collars with Floor in the money. Trade deals only.
  WRI_REVL_GAIN PUR_REVL_LOSS Option Premium-0 Final Exercise for Collars with Floor in the money. Trade deals only.
  PUR_LAST_REVAL_GAIN WRI_LAST_REVAL_GAIN Last Revaluation Gain Final Exercise. Trade deals only.
  PUR_LAST_REVAL_LOSS WRI_LAST_REVAL_LOSS Last Revaluation Loss Final Exercise. Trade deals only.
  NET_AMORT_TV (Hedge Deals) Inception TV – TV amortized till date Remaining Time Value.
AFTER REVAL ON EXER PUR_REVL_GAIN WRI_REVL_GAIN (Recognition of total revalua­tion Income) Current Revaluation Gain After triggering revalua­tion process at Exercise Final Exercise. Trade deals only.
  PUR_REVL_LOSS WRI_REVL_LOSS (Recognition of total revalua­tion Expense) Current Revaluation Loss After triggering revalua­tion process at Exercise Final Exercise Only. Trade deals only
  PUR_INCEP_TV Time Value at Inception Hedge Deals Only except col­lars
AFTER AMORT ON EXER PUR_INCEP_GAIN WRI_INCEP_LOSS (Recognition of Inception Gain/Loss) Option Premium –Inception Fair Value Trade deals Only
  PUR_INCEP_LOSS WRI_INCEP_GAIN (Recognition of Loss/Gain) Inception Fair Value - Option Premium Trade deals Only
EXST PUR_SETL_AMT Settlement amount Cal­culated at EXER event for purchased options Both Hedge and Trade deals
  WRI_SETL_AMT Settlement amount Cal­culated at EXER event for Written Options Trade deals only
  PUR_FLOOR_AMT Settlement amount Cal­culated at EXER event for Collars if Floor is in the money Trade deals only
  PUR_CAP_AMT Settlement amount Cal­culated at EXER event for Collars if Cap is in the money Trade deals only
KNIN - - Will be followed by KIST if Rebate is to be paid on Maturity. Both for trade and Hedge.
KIST PUR_REBATE_AMT WRI_REBATE_AMT Rebate amount (User I/P at Inception) Both for trade and Hedge. This event will be triggered along with EXPR (Expiry)
KNOT PUR_REBATE_AMT WRI_REBATE_AMT Rebate amount (User I/P at Inception) Will be followed by KNST if Rebate is to be paid on Hit or Maturity. Both for trade and Hedge
  PUR_INCEP_IV Inception Intrinsic Value Hedge deals only
REVAL ON KNOT PUR_REVL_GAIN WRI_REVL_LOSS 0 Since the option gets Knocked Out
  WRI_REVL_GAIN PUR_REVL_LOSS Option Premium – 0 Option premium is the revalua­tion gain for writ­ten options
  PUR_LAST_REVAL_GAIN WRI_LAST_REVAL_GAIN Last Revaluation gain  
  PUR_LAST_REVAL_LOSS WRI_LAST_REVAL_LOSS Last revaluation Loss  
  NET_AMORT_TV (Hedge Deals) Inception TV – TV amortized till date Remaining Time Value.
AFTER REVAL ON KNOT PUR_REVL_GAIN WRI_REVL_GAIN (Recognition of reval Income) Current Revaluation Gain After triggering revalua­tion process at Knock Out This will be 0 on Knock Out
  PUR_REVL_LOSS WRI_REVL_LOSS (Recognition of reval Expense) Current Revaluation Loss After triggering revalua­tion process at Knock Out This will be option premium on knock Out
AMRT ON KNOT PUR_NET_INCEP_GAIN WRI_NET_INCEP_GAIN Inception gain – Amt amortized till date Remaining Inception Gain
AFTER AMRT ON KNOT PUR_INCEP_GAIN WRI_INCEP_LOSS (Recognition of Inception Gain/Loss) Option Premium –Inceptinon Fair Value  
  PUR_INCEP_LOSS WRI_INCEP_GAIN (Recognition of Loss/Gain) Inception Fair Value - Option Premium  
EXPR PUR_INCEP_IV Inception Intrinsic Value Hedge deals only
REVAL ON EXPR PUR_REVL_GAIN WRI_REVL_LOSS 0 Since the option expires worth­less
  WRI_REVL_GAIN PUR_REVL_LOSS Option Premium – 0 Option premium is the revalua­tion gain for writ­ten options
  PUR_LAST_REVAL_GAIN WRI_LAST_REVAL_GAIN Last Revaluation gain  
  PUR_LAST_REVAL_LOSS WRI_LAST_REVAL_LOSS Last revaluation Loss  
  NET_AMORT_TV (Hedge Deals) Inception TV – TV amortized till date Remaining Time Value.
AFTER REVAL ON EXPR PUR_REVL_GAIN WRI_REVL_GAIN (Recognition of reval Income) Current Revaluation Gain After triggering revalua­tion process at Expiry This will be 0 on expiry
  PUR_REVL_LOSS WRI_REVL_LOSS (Recognition of reval Expense) Current Revaluation Loss After triggering revalua­tion process at Expiry This will be option premium on expiry
AMRT ON EXPR PUR_NET_INCEP_GAIN WRI_NET_INCEP_GAIN Inception gain – Amt amortized till date Remaining Inception Gain
AFTER AMRT ON EXPR PUR_INCEP_GAIN WRI_INCEP_LOSS (Recognition of Inception Gain/Loss) Option Premium –Inception Fair Value  
  PUR_INCEP_LOSS WRI_INCEP_GAIN (Recognition of Loss/Gain) Inception Fair Value - Option Premium  
AMDG ON Expiry NET_GAIN_DEF (Amortization of Deferred ter­mination Gains) Total Amt to Amort –Amt Amortized till Date Remaining ter­mination gains Hedge deals Only. This is separate from EXPR. Either EXPR or AMDG will trigger on maturity.

7.6 Advices Generated

Following is a list of messages generated for different events in the lifecycle of an OTC Option contract:

Event Unformatted Message Swift (IRO) Swift Remarks
BOOK Initiation of Contract Contract Confirma­tion MT360 MT306 MT 305 for Plain Vanilla COs
AMND Amendment Modification Confirma­tion MT360 MT306 MT 305 for Plain Vanilla COs
TERM Termination Termination Confirma­tion MT364 MT 306 MT 305 for Plain Vanilla COs
RTFX Rate Fixing Rate Fixing Advice MT362 Not Appli­cable  
EXER Exercise     Not appli­cable MT 362 sent on rate reset suffices for IROs
REVR Cancella­tion Confir­mation MT362 MT306 MT 305 for Plain Vanilla COs
KNIN Knock In Confirma­tion N/A MT306 MT 305 for Plain Vanilla COs
KNOT Knock Out Confirma­tion N/A MT306 MT 305 for Plain Vanilla COs