5.1.7.5 Accruing Delayed Compensation Fee

Delayed compensation fee is applicable for trades booked under SWOA quotation type, if the trade does not get settled on the expected settlement date. The DCF fee involved in such trades are accrued till the actual settlement date.

Currency-wise accounting entries are posted against each applicable DCF category. You can specify the preferences for DCF accrual in the Product Preferences screen. You need to select the Accrual Required option and specify the Accrual Frequency as daily. You also need to select the Allow Amendment of Non Accrual check box if you want to reverse/restart a DCF accrual. In addition, in the Product Fee Details screen you need to select the check box Status Tracking Required. The reversal or restarting of DCF accrual is based on whether the Stop DCF Accrual box in the DCF Accrual Status Change screen is enabled or disabled.

Accrual starts during the EOD on expected settlement date, if the trade settlement does not happen on that date. Further accruals happen as part of the EOD batch. During trade settlement, if you waive off DCF, then all the accrual entries posted gets reversed.

The DCF Accrual batch process can reverse or catch up accrual for DCF components, based on whether the Status Tracking Required box is selected or deselected. The processing is done as part of the EOD on the same day this check box is selected or deselected.

If Status Tracking Required is checked for the trade product, the system checks the DCF accrual status at the associated position contract level.

• If the check box Stop DCF Accrual is selected:
  • The system derives the Non-Accrual Effective date and finds the greatest of the contract value date and the last liquidation date for each drawdown before the Non- Accrual Effective date.
  • The basis amount for the DCF calculation is considered as 0 from the last liquidation/contract value date before the Non-Accrual Effective date till processing date of the batch.
  • If the last liquidation date derived is not the application date, the system reverses the DCF amount which has been accrued from the last liquidation date/contract value date, till processing date - 1 of batch. No accrual is posted for the application date.
• If the check box Stop DCF Accrual is not selected:
  • System derives the latest Non-Accrual Effective date as the application date on which the box Stop DCF Accrual is checked and finds the greatest of the contract value date and the last liquidation date for each drawdown before the latest Non- Accrual Effective date.
  • The basis amount for the DCF calculation is considered as per the functionality when Status Tracking Required is not checked for the trade product, but from the last liquidation date/contract value date before the latest Non-Accrual Effective date.
  • If the last liquidation date derived is not the application date, the system catch-ups the DCF amount from the last liquidation date/contract value date till processing date - 1 of batch. Daily accrual amount is added to the catch-up accrual amount and the total accrual amount is posted for the application date. One FACR event is registered for the catch up accrual till today
  During ticket settlement, the system re-calculates the DCF amount and posts catch up accrual.
• If the box Stop DCF Accrual is checked just before settlement and the last liquidation date arrived is not the application date, the system reverses the DCF accrual amount from the last liquidation date/contract value date till the actual settlement date - 1.
• If the box Stop DCF Accrual is unchecked just before settlement and the last liquidation date is not the application date, the system catches-up the DCF amount from the last liquidation date/contract value date till actual settlement date - 1 and post the catch up accrual.

  Note:

  • When the box Stop DCF Accrual is unchecked in later stages, even if there is any interest payment for the loan after the status has been changed to non performing, the system still checks the last interest payment date/value date when contract was in performing status and performs the catch-up accrual.
  • If you manually amend/specify the DCF amount during settlement, status tracking functionality for DCF accrual does not work. In such cases, catch-up accrual is done based on the DCF amount specified by you.

If ‘Status Tracking Required’ is not checked for the trade product, the system continues the accrual process for the trade as follows

• While passing the accounting entries during accrual, delayed compensation fee is calculated as the difference between the accrued value till date and the accrued value till the previous date. Hence, any changes in the outstanding amount or the spread is considered for the current date.

The following example illustrates the accrual of DCF and the corresponding accounting entries involved:

Assume that the Expected Settlement Date is 11-Dec-2006.

Remarks	Date	DD LIBOR outstanding	Spread	Accrued Amount	Accounting Entry	Balance in Deferred Fee Payable A/c
Accrual entry commences from 11th Dec EOD	11- Dec-06	1,000,000	3.50%	97.22	Dr Int exp - 97.22 Cr Def Fee Payable - 97.22	97.22
Spread is changed on 12- Dec, hence accrual from 12-Dec is computed using the new spread	12- Dec-06	1,000,000	4.00%	111.11	Dr Int exp - 111.11 Cr Def Fee Payable - 111.11	208.33
Payment performed on 13- Dec with VD 12- Dec, hence accrual is recomputed from 12-Dec and entry is posted for the net amount	13- Dec-06	400,000	4.00%	-22.22	Dr Int exp - (22.22) Cr Def Fee Payable - (22.22)	186.11
Trade Settled on 14-Dec But user updates the Delayed Comp Fee = 190.00	14- Dec-06				FACR Dr Int exp - 3.89 Cr Def Fee Payable - 3.89 TSTL Dr Def Fee Payable - 190.00 Cr Trade Sett A/c - 190.00	0