6       Time Buckets

Time Bucketing is the process of allocating cash flows to defined time intervals, to identify, measure, and manage liquidity risk. The purpose of time bucketing is to increase operational efficiency as it helps process and report efficiently. A preliminary step in data preparation for application processing is to bucket the cash flows into the defined time buckets. Since the basic functionality of Asset and Liability Management (ALM) liquidity buckets and Liquidity Risk Solution (LRS) liquidity buckets are the same, there is a provision for a common bucket definition for OFS ALM and OFS LRS applications.

NOTE:   

Every SKU in the Liquidity Risk Solution (LRS) pack leverages this common user interface.

Topics:

·        Liquidity Buckets 

·        Intraday Buckets 

·        Understanding Time Buckets Summary 

·        Cash Flow Bucketing 

Liquidity Buckets

This section includes information about the liquidity buckets.

Topics:

·        Overview 

·        Liquidity Time Buckets 

·        Inputs Required for Bucketing Cash Flows 

·        Types of Liquidity Time Buckets 

·        Time Bucketing Process Flow 

·        Defining a New Time Bucket 

·        Creating Reporting Bucket 

Overview

The functionalities in the Time Buckets module are as follows:

·        Multiple time bucket definition

The application allows you to define multiple time bucket definitions and use them for different reporting purposes. For instance, FR 2052a, FR 2052b and LCR reporting and liquidity gap reporting require time buckets of different granularities.

·        Additional bucket levels supported

The application supports five-time bucket levels for each bucket definition. This is performed by grouping the defined level 0 buckets. There is a window to define multiple levels.

·        Reporting time bucket definition

The application allows you to define multiple reporting time buckets on a selected computational bucket definition. The Level 0 buckets of the computational and reporting time buckets are the same. The granularity of the other levels of reporting time buckets is different from that of the computational buckets. These are used for aggregating cash flows for reporting purposes. They are not used for defining business assumptions or for carrying out computations.

In the Time Bucket summary screen, click  to define the reporting time bucket for the selected time bucket. When you click , a new bucket definition screen appears with level 0 buckets for the selected time bucket. You can define the name and higher levels through the new window.

·        Pre-configured LRM Time Buckets

The list of pre-packaged definitions is as follows:

§       FR 2052b Reporting Buckets: This time bucket definition is used to address US Regulatory report  - FR 2052b

§       FR 2052a Reporting Buckets: This time bucket definition is used to address US Regulatory report - FR 2052a

§       LRM Time Bucket: This time bucket definition is used in OOB assumptions.

·        User-specific Time Buckets

OFS ALM and OFS LRS users have access to their respective time bucket definitions only.

Liquidity Time Buckets

The following default time buckets are required by the application:

·        Open maturity time bucket: All products which do not have a maturity associated with them are bucketed here. This time bucket is used to bucket all cash flows that have an open maturity. This will be the first-time bucket in the list. The start date and end date are not displayed for this time bucket. The start days and end days are set to -99999. These include products such as Current Account, Savings Account (CASA), and so on.

·        Overnight Bucket: This will be the second time bucket in the list. The frequency and multiplier are 0 and days respectively. The start date and end date are set to as of date.

·        Unspecified bucket: This is the bucket where all cash flows that are not included in normal computations such as the delinquent cash flows which will not be recovered are moved. This bucket is provided to view these cash flows and not for calculation purposes. This is available at all bucket levels and will not have a time period associated with it. The unspecified bucket will be the last time bucket in the list. The start date and end date are not displayed for this time bucket. The start days and end days are set to 99999.

Inputs Required for Bucketing Cash Flows

The following inputs are required for bucketing cash flows:

·        Defining time buckets.

·        Cash flows and cash flow dates.

·        Legal entity details of the account to which the cash flow relates.

·        Legal entity-specific holiday list.

Types of Liquidity Time Buckets

OFS LRS supports multiple time bucket definitions. Time bucket definitions are segregated as Computational Time Buckets and Reporting Time Buckets.

Topics:

·        Computational Time Buckets 

·        Reporting Time Buckets 

Computational Time Buckets

Computational time buckets are defined to enable business assumption definition and for carrying out liquidity risk calculations. LRS supports multiple sets of computational buckets with each set containing multiple time bucket levels. Users can define and maintain a library of such time bucket definitions and use it across business assumptions and runs for satisfying the varied regulatory as well as management requirements.

Time buckets are defined in terms of days and displayed in a hierarchical format. The definition of a day, whether business day or calendar day, will be a set-up parameter.

NOTE:   

·        There is no restriction on the permitted number of bucket sets to be defined.

·        The number of bucket levels is restricted to five for a given computational bucket set.

·        You are allowed to provide bucket names for all bucket levels other than level 0. Level 0 bucket names will be displayed as a combination of the start and end days as the bucket. For instance, 2 - 2 Day for a 1-day bucket starting on day 2.

The following example shows Computational Time Bucket Definition 1:

The following example shows Computational Time Bucket Definition 2:

Reporting Time Buckets

Reporting time buckets are defined over an existing computational time bucket set for the purpose of cash flow aggregation and reporting. This functionality allows liquidity gaps and cumulative gaps to be viewed across aggregation levels different from that of the computational bucket without re-executing the computations. This is enabled by ensuring that level 0 buckets of both the computational time buckets and the corresponding reporting time buckets are consistent.

To define a reporting time bucket set, Level 0 buckets of an existing computational time bucket set are obtained and are further grouped into multiple levels in case of computational buckets. Multiple reporting time bucket sets, consisting of multiple levels, are allowed to be defined for each computational time bucket set. The cash flows computed based on the contractual, baseline, or stress Runs are aggregated based on the reporting buckets and displayed in the ALM BI analytics on the selection of the relevant reporting bucket. Time buckets are displayed in a hierarchical format.

NOTE:   

·        These buckets are used purely for aggregation and reporting purposes. Business assumptions are not allowed to be defined based on reporting time buckets.

·        The computational bucket set is automatically saved as a reporting bucket set.

·        You are allowed to view the reporting bucket sets in the Metadata browser.

·        There is no restriction on the number of reporting bucket sets defined based on a single computational bucket set.

·        The number of bucket levels for a given reporting bucket set is restricted to five.

·        You are allowed to provide bucket names for all bucket levels other than level 0. Level 0 bucket names will be displayed as a combination of the start and end days as the bucket name. For instance, 2 - 2 Day for a 1-day bucket starting on day 2.

The following example shows reporting time bucket set 1:

The following example shows reporting time bucket set 2:

Time Bucketing Process Flow

Time bucket definitions are uploaded in the Dimension Result Bucket table. Once time buckets are uploaded, they can be viewed in the Time Buckets window.

The process flow for Time Bucketing is as follows:

1.     Calculate the number of holidays between the execution date and cash flow date.

2.     Calculate the number of business days for a cash flow based on cash flow date and holidays.

3.     Assign the cash flow to the time buckets based on the business days.

Defining a New Time Bucket

1.     In the Oracle Financial Services Analytical Applications Infrastructure home screen, select Financial Services Liquidity Risk Management.

2.     To open the Time Buckets window, select Liquidity Risk Management, then select Time Buckets on the Left-Hand Side (LHS) menu.

3.     Click . The Time Bucket Details - New window is displayed.

Figure 15 Time Bucket

4.     Enter the time bucket definition Name.

5.     Enter the time bucket Description.

NOTE:   

Active option and dynamic start date selection are disabled for LRM users.

6.     Select the Folder from the drop-down list.

7.     Define the Frequency (number of days) and Multiplier (Dates/Months/Years).

NOTE:   

The time buckets tab name must be Liquidity Buckets for the purpose of defining time buckets used in LRM.

8.     Click Calendar  to select the Start Date from the MIS Date format.

9.     You are allowed to add the bucket rows in the following ways:

a.     a.       Click Add to add individual bucket rows and specify the frequency and multiplier.

Or,

Add multiple bucket rows by clicking Add multiple Rows  , which displays Add Multiple Rows  to  select 3, 5, or 10 pre-specified bucket rows to be added or add a custom number of rows by specifying the number and click. In this case, frequency and multiplier must be specified by the user individually for each bucket row added.

Or,

b.     Specify multiple time buckets of varying lengths by clicking Add Multiple Buckets . It opens up a window that allows you to specify multiple time buckets in a single instance as a combination of the number of buckets, frequency, and multiplier as illustrated below.

Figure 16 Time Bucket Liquidity Buckets

10.  Click Add  to add new rows. Each row allows you to specify the number of buckets of a particular size to be generated. In the previous example, you can define 10 one day buckets by specifying the number of buckets as 10, the bucket size frequency as 2, and bucket size multiplier as days. The application automatically generates 10 rows of time buckets, each with a bucket size of 2 days as part of the level 0 bucket definition.

11.  Click OK. The application saves the bucket definition and the defined time bucket appears in the Time Bucket Summary window.

Once you define Level 0 time buckets, you can create multiple levels for this definition up to a maximum of 5 levels inclusive of level 0 buckets. This is optional. The time bucket definition is still saved with one level.

12.  Once you define Level 0 time buckets, click Apply to define multiple bucket levels. The Time Bucket Grouping icon is enabled to create less granular time bucket levels.

13.  Click Add levels . The Liquidity Bucket Grouping window is displayed.

Figure 17 Liquidity Bucket Grouping

14.  Click  against a time bucket and click Add  to group the time buckets. You can select multiple time buckets that form a single higher-level bucket at a single instance by clicking the last time bucket. A dialog box is displayed to define the Level 1 Bucket name that is, a user-specified name for the higher-level time bucket is created.

15.  Enter the Node Name and then click OK. Repeat steps 10 and 11 to group the other level 0 buckets into the level 1 bucket.

16.  Click Refresh  to reset all the levels defined for the time bucket definition.

17.  Once all level 0 buckets are grouped, click Group  to save the grouping. On clicking , the level 1 grouping is displayed in a new section named Level 2 Bucket Definition.

The process of grouping level 1 bucket to level 2 buckets is similar to Steps 10 through 12.

18.  Once you have defined your multi-level time buckets, click OK to save the definition. The hierarchy for the specified time bucket definition is now created and can be used for further computations.

NOTE:   

·        The application supports up to five levels.

·        A multi-level time bucket definition is optional. You can save the time bucket with a level less than or equal to five.

·        You cannot modify an intraday bucket to a liquidity bucket or vice-versa. You can only define one bucket at a time.

Creating Reporting Bucket

The Time Bucket definition screen allows you to define multi-level time buckets. Reporting time buckets are defined over an existing computational time bucket set.

To create a reporting bucket, follow these steps:

1.     On the Oracle Financial Services Analytical Applications Infrastructure window under Time Bucket Summary window, select a created Computational Time Bucket and then click  to create a reporting bucket.

The Time Bucket Details - Edit window is displayed.

Figure 18: Time Bucket Details - Edit window

2.     Enter the time bucket Name.

3.     Enter the time bucket Description.

NOTE:   

Active option and dynamic start date selection are disabled for LRM users.

4.     Select the Folder from the drop-down list.

5.     Under the Liquidity Buckets section, the level 0 buckets defined as part of the selected computational bucket are displayed.

6.     Click  to select the Start Date from the MIS Date format.

7.     To group, click Apply. The Time Bucket Grouping icon is now enabled to group different levels. Only the Level 0 buckets defined in computational time bucket are displayed. You must define new higher levels. It is possible to group up to 5 levels. Once the grouping is done you can save it.

8.     Click Add Levels . The Time Bucket Grouping window is displayed.

The process of grouping more granular buckets in higher-level buckets is consistent for all bucket levels.

Figure 19: Time Bucket Grouping window

9.     Click  against a time bucket and click Add to group the time buckets. You can select multiple time buckets that form a single higher-level bucket at a single instance by clicking the last time bucket. A dialog box is displayed to define the Level 1 Bucket name that is, a user-specified name for the higher-level time bucket is created.

10.  Enter the Node Name and then click OK. Repeat steps 10 and 11 to group the other level 0 buckets into the level 1 bucket.

11.  Click Refresh  icon to reset all the levels defined for the time bucket definition.

12.  Once all level 0 buckets are grouped, click the Group  icon to save the grouping. On clicking the  icon, the level 1 grouping is displayed in a new section named Level 2 Bucket Definition.

The process of grouping level 1 bucket to level 2 buckets is similar to that detailed in points 10 through 12.

13.  Once you have defined your multi-level time buckets, click OK to save the definition. The hierarchy for the specified time bucket definition is now created and can be used for further computations.

NOTE:   

·        For all bucket types, you are allowed to specify a bucket called Unspecified Bucket. This is available at all bucket levels and will not have a time period associated with it.

·        The Overnight bucket will be the second time bucket in the list. The frequency and multiplier are 0 and days respectively. The start date and end date are set to as of date.

·        Additionally, a time bucket called Open Maturity is present. This is the time bucket used to bucket all cash flows from accounts that have do not have a maturity associated with them.

·        On execution of a Run, the start and end date are stored against each time bucket. This is for reporting purposes only. All definitions will use bucket names.

Intraday Buckets

This section provides information about the Intraday Buckets.

Intraday time buckets are used for intraday metrics calculation and reporting. The maximum duration of an Intraday bucket definition is 24 hours. The granularity of definition is in hours, minutes, and seconds instead of days as in liquidity buckets.

NOTE:   

An intraday bucket is by default, a computational bucket. Reporting buckets are not a part of the Intraday bucket definition.

Topics:

·        Bucket Definition 

·        Defining an Intraday Bucket 

Bucket Definition

An Intraday bucket definition can support a maximum of 24-hour interval of time buckets. This interval is defined by the Start Time and End Time which is taken as an input by the application. The Start and End time are referred to as the bucket limits. Within each level, there are numerous buckets spanning from the start time up to the end time. Up to five levels can be defined within a time bucket definition. Level 0 definition is mandatory for defining an intraday bucket definition.

The inputs required and rules for defining an intraday bucket are as follows:

1.     In the Start Time and End Time field, you can enter the maximum start and end times of payment systems with reference to a legal entity. For example, if a legal entity has 3 payments systems with the start time as follows:

§       Payment system 1: 09:00 to 17:00

§       Payment system 2: 00:00 to 13:00

§       Payment system 3:10:00 to 20:00.

In this case, the from and to values are chosen as 00:00 and 20:00.

Only HH and MM are taken as input. The seconds part is automatically added by the application and SS is always 00. In this example; from and to values to be stored are 00:00:00 and 20:00:00.

2.     The multiplier is in the form of Seconds, Minutes, and Hours.

3.     Only uniform interval time buckets can be defined.  For every level, the frequency and multiplier chosen under that level applies to the entire duration of the bucket limits.

4.     The number of buckets at each level is computed by the application based on the bucket limits, frequency, and multiplier. For example: If bucket limits are 09:00 to 16:00 and level zero has frequency and multiplier of 1 second, then every second between 09:00:00 and 16:00:00 serves as one bucket.

5.     Additionally, consider the following points before defining an intraday bucket:

a.     Maximum Frequency is 59 in case of seconds and minutes; and 23 in case of hours.

b.     Frequency cannot be zero or fractions. Frequency must be a whole number greater than zero always.

c.     Level 1 and the higher levels must be at a greater granularity than the underlying levels. The following must be considered before defining higher levels:

§       A multiplier of a higher level must always be equal to or greater than multiplier at a lower level. This implies that if level zero is defined in minutes, then the higher levels can only be in minutes/hours. Drop-down values for multipliers in the higher level reflect the same.

§       If the multiplier between higher and lower levels are the same, then it must be ensured that the frequency of the higher level must be greater than the frequency of the lower level.

§       The (frequency x multiplier) of the higher level must be a whole multiple of the (frequency x multiplier) of the lower level.

—    Example 1: Level 0= 1 second, Level 1 can be 5 seconds, 1 minute, 10 minutes, and so on.

—    Example 2: If Level 0 =5 seconds, then level 1 can be 10 seconds, 15 seconds, 1 minute, and so on. Level 1 in this case cannot have values like 7 seconds, 8 seconds, and so on.

Defining an Intraday Bucket

1.     In the Oracle Financial Services Analytical Applications Infrastructure home screen, select Financial Services Liquidity Risk Management. To open the Time Buckets window, select Liquidity Risk Management, then select Time Buckets on the Left-Hand Side (LHS) menu.

2.     In the Time Bucket summary window, click Add  to add an intraday bucket.

The Time Bucket Details window is displayed.

Figure 20 Time Bucket

3.     Select the Intraday Buckets tab in the Time Buckets window.

NOTE:   

By default, the Liquidity Buckets tab is selected.

4.     Enter the time bucket definition Name.

5.     Enter the time bucket Description.

NOTE:   

Active option is checked by default for LRM users.

6.     Select the Folder from the drop-down list.

7.     Define the Start Time and End Time based on the Bucket Definition provided.

8.     Define the Frequency (a whole number greater than zero) and Multiplier (Seconds/Minutes/Hours).

Once you define Level 0 time buckets, you are allowed to create multiple levels for this definition up to a maximum of 5 levels inclusive of level 0 buckets. Creating higher levels is optional.

9.     Once you have defined the multi-level time buckets, click Apply and Save the definition. The hierarchy for the specified time bucket definition is now created and can be used for further computations.

10.  The application saves the bucket definition and the defined intraday bucket appears in the Time Bucket Summary window.

NOTE:   

·        The application supports up to five levels.

·        A multi-level time bucket definition is optional. You can save the time bucket with level less than or equal to five.

·        You cannot modify an intraday bucket to a liquidity bucket or vice-versa. You can only define one bucket at a time.

Understanding the Time Buckets Summary

1.     In the Oracle Financial Services Analytical Applications Infrastructure under Select Applications, select Financial Services Liquidity Risk Management.

2.     To open the Time Bucket Summary window, select Liquidity Risk Management, then select Time Bucket Summary on the Left-Hand Side (LHS) menu.

Figure 21 Time Buckets Summary

The Time Bucket Summary window displays the following fields. The definitions based on the search criteria are listed under the list of Time Buckets.

This is the search section, which contains multiple parameters. You can specify one or multiple search criteria in this section. When you click Search, depending upon the search criteria, it filters and displays the relevant search combination parameters under the Time Bucket summary as a list.

NOTE:   

It is not possible to switch from Intraday buckets to non-intraday buckets and vice versa from the Time Bucket Summary window.

Cash Flow Bucketing

The application computes the time buckets based on Calendar Days and Business Days.

The two aspects of Cash Flow Bucketing are as follows:

·        Time buckets are generated based on calendar days and business days daily.

·        Cash flows are bucketed based on the time buckets.

Topics:

·        Calendar Days 

·        Business Days 

Calendar Days

Under the calendar days approach, the start and end date of each time bucket are computed based on the number of calendar days. The time bucket dates are in running calendar day sequence. The time bucket dates are consistent across multiple legal entities, each with different holidays.

The process of computing the time buckets based on calendar days and subsequent bucketing of cash flows based on each business day convention is illustrated as follows.

1.     Inputs

a.     Cash Flows

The following table illustrates the cash flows based on each date for legal entities 1 and 2.

b.     Holiday Calendar

The following table illustrates Holidays (including weekends) based on each date for legal entities 1 and 2.

c.     Time Bucket Definition

The time bucket start, and end date are calculated by each of the level 0 time buckets which are specified as part of the time bucket definition above.

d.     As of Date

The time bucket As of Date is calculated as follows.

2.     Calculation

a.     Time Bucket Start and End Date

The following is an example of a time bucket start and end date.

b.     Cash Flow Bucketing for Legal Entity 1

The following is an example of cash flow bucketing under each Business Day Convention for legal entity 1:

c.     Cash Flow Bucketing for Legal Entity 2

The following is an example of cash flow bucketing under each Business Day Convention for legal entity 1:

Business Days

Under the business days approach, the start and end date of each time bucket are computed based on the number of business days. The time bucket dates are not continuous calendar days in this approach but will exclude holidays. The time bucket dates will be different for each legal entity based on its respective holiday calendar.

The process of computing the time buckets based on business days and subsequent bucketing of cash flows based on each business day convention is illustrated below.

1.      Input

For Input data refer to the Calendar Days approach.

2.     Calculation

a.     Time Bucket Start and End Date for Legal Entity 1

The following is an example of a time bucket stand and end date for legal entity 1.

b.     Time Bucket Start and End Date for Legal Entity 2

The following is an example of a time bucket stand and end date for legal entity 2.

c.     Cash Flow Bucketing for Legal Entity 1

The following is an example of cash flow bucketing under each Business Day Convention for legal entity 1:

d.     Cash Flow Bucketing for Legal Entity 2

The following is an example of cash flow bucketing under each Business Day Convention for legal entity 2:

NOTE:   

The method of calculating the time buckets based on business days is applicable only when the Business Day Convention in the Run Management window is selected as either Prior, Conditional Prior, Following, or Conditional Following.

If the Business Day Convention is selected as No Adjustment, then the process followed for calendar day based calculation is followed here as well. The time bucket start and end dates are calculated based on calendar days irrespective of the selection of Time Buckets Based On in the Run Management window. Cash flows are then bucketed without considering special treatment for holidays as illustrated in the Calendar Days section.