4.16 Settling Trades Individually

The following activities take place during the settlement of a trade contract:

• The generation of funding memo during the save or authorization of the trade settlement, based on the advice generation parameter specified in product event advice screen for FMEM event.
• Generation of accounting entries linked to the event.
• Generation of payment message upon authorization of trade settlement.
• Update of LB infrastructure on authorization of the trade settlement, for trades having LB Infrastructure, mainly the bank-agency deals. For trades where bank is silently participating, the LB infrastructure gets created after the settlement.

You can initiate the settlement of a trade contract in the Trade Settlement Detailed screen.

Figure 4-30 Trade Settlement Detailed

Description of "Figure 4-30 Trade Settlement Detailed"

Refer the topic Capturing Funding Memo Details for more details on this screen.

You need to manually initiate the settlement of a trade on, before or after the Expected Settlement date. You need to specify the Actual Settlement Date, greater than or equal to the trade booking date.

The settlement of the trade happens as follows:

1. Funding memo details are extracted and payment messages are generated before the trade settlement.

   If the actual settlement date is less than or equal to the system date, funding memo generation, payment message generation and trade settlement happens together. If the actual settlement date is a future date, then funding memo and payment messages are generated in advance and trade settlement happens as part of the BOD batch process on actual settlement date. Payment message can be generated either during trade settlement authorization or during the EOD batch process, depending on the number of settlement days maintained for the combination of branch and currency.

2. All fee components, except broker and amendment fees are liquidated as part of trade settlement.
3. Settlement amount is computed as follows:

   Settlement Amount = Funded Amount - Original trade amount x (1-price)

4. In case of multi currency funding, the settlement amount is computed as follows:

   For the trade currency:

   Settlement Amount = F–F*(1-price)–UF*(1-price)–[CR1*(CRP1-price)+CR2*(CRP2-price) +….+ CRn*(CRPn-price)]

   Where,
   • F = Funded Amount
   • UF = Unfunded Amount
   • Price = Trade price
   • CR1 = First Commitment Reduction
   • CRP1 = First Commitment Reduction price
   • CR2 = Second Commitment Reduction
   • CRP2 = Second Commitment Reduction price
   The settlement formula is further derived as follows:

   Settlement Amount = F – F* (1-price) – UF * ( 1-price) – Net_CR * (Avg_Cr_Price – price)

   Where,
   • Net_CR = (CR1 + CR2 + …. + CRn)
   • Avg_Cr_Price = [(CR1*CRP1+CR2*CRP2+…+CRn*CRPn) / (CR1+CR2+…CRn)]
   For the other funded currencies,

   Settlement Amount = Funded Amount * Price

5. The difference between the Funded amount and the Settlement amount gets posted to the premium/discount account.

   In case of any benefit that needs to be accrued in the event of commitment reduction, BCR (Benefit of commitment reduction) fees are separately calculated and displayed in the funding memo. But it is not considered for settlement separately. Likewise, the upfront fee calculated and displayed in the funding memo also not considered for settlement separately.

   The formula for BCR (Benefit of commitment reduction) fee is computed as follows:

   BCR Fee = Net_CR * (Avg_Cr_Price – price)

   The formula for the upfront fee is computed as follows:

   Upfront Fee = UnFunded Amount * (1-price)

   Note:

   • Settlement Date can be back-valued but can not be less than the value date of the any agency activity of underlying agency contract.
   • If the Funding memo status is Regenerate FMEM due to the agency operations, then you are not allowed to proceed with trade settlement until the funding memo regeneration happens.

This topic contains following sub-topic:

• External Counterparty Mnemonic Details