3.3 Interest Details

This topic describes the interest details of the product preferences screen.

1. On the Derivatives Product Preferences screen, click Interest.

   The Interest Details screen is displayed.

   Figure 3-6 Interest Details

   
   Description of "Figure 3-6 Interest Details"
2. On the Interest Details screen, specify the details as required.

   For information on fields, refer to the below table

   Table 3-6 Interest Details - Field description

   Field	Description
   Alternate Risk Free Rate	Identifies if the interest class is enabled for RFR
   Alternative Risk Free Rate Preferences	Select any one of the below RFR calculation methods check box from the below options: Lookback Payment Movement Lockout Interest Rollover Last Reset Last Recent Plain Observation Shift Weighted Average Cost The user can also select the combination of the below RFR calculation method: Lookback and Lockout Lookback, Lockout, and Payment Movement
   Lookback	The user can select Lookback as RFR preference if the Rate Method is In-Arrears. The observation period for the interest rate calculation starts and endsa certain number of days prior to the Interest period. As a result, youcan choose the interest payment to be calculated prior to the end ofthe interest period.
   Lookback Days	Specify the Lookback days. This field is relevant only if 'Rate Method' is 'In-Arrears' or bearing and RFR method is Lookback.
   Lockout	The user can select Lockout as RFR preference if the Rate Method is In-Arrears. Lockout means that the RFR is frozen for a certain number of days prior to the end of an interest period (lockout period). During this time, the RFR of lockout period days is applied for the remaining days of the interest period. As a result, the averaged RFR can be calculated a couple of days before the end of the Interest period.
   Lockout Days	Specify the Lockout Days. This field is relevant only if Rate Method is In-Arrears or bearing and RFR method is Lockout.
   Payment Movement	The user can select Payment Movement as RFR preference if the Rate Method is In-Arrears. In this method, Interest payments are delayed by a certain number of days and are due a few days after the end of an interest period.
   Payment Movement Days	This field is applicable only if Rate Method is In-Arrears or Bearing and RFR method is Payment Movement. Enter the Number of days by which the interest payments are delayed by a certain number of days and are thus due a few days after the end of an interest period.
   Negative Interest Allowed	Check this box to indicate the negative rate should be allowed for DV module.
   Negative Class Code	The system defaults this value from Treasury Interest Class Maintenance screen.
   Net Negative Interest	Check this box to indicate that the system should internally net the positive and negative amounts being paid to the customer during interest liquidation.
   Interpolation Method	Select the required interpolation method from the adjoining drop-down list. The list displays the following values: Not Applicable Linear If the option Linear is selected, then the system uses Interpolation formula. Rounding Rule and Precision is mandatory in this case
   Rounding Rule	Select the required rounding rule from the adjoining drop-down list. The list displays the following values: Blank Up Down Trunc Round Near
   Rounding Units	Specify the Rounding Units value to round daily index value to the nearest whole number and use it for interest calculation.
   Event Details	Specify the following fields.
   Rate Type	Select the rate type from the adjoining drop-down list. The list displays the following values: Inflation Fixed Floating Special
   Rate Revision Preferences	Specify the following fields.
   Lookback Months	Specify the number of months to look back to capture the Lag.
   Compounding Preferences	Specify the following fields.
   Computation Calendar	Select the Computation Calendar from the drop-down list, when RFR is selected for interest calculation. The available options are: Currency Financial Calendar
   Financial Center	This field is mandatory if the Financial Center is selected as computation calendar. Select the code of the financial center from the displayed list of values.
   Base Computation Method	The Base Computation Method is either simple or compounded.
   Spread\ Margin Computation Method	Spread\ Margin computation method can be maintained as either Simple or compounded.
   Spread Adjustment Method	Spread adjustment method is kept as either Simple or compounded.
   Rate Compounding	This represents whether the rate compounding is applied for each calculation period. When enabled, system opts for rate compounding instead of amount compounding, the amount difference comes into effect only if any pre-payment is done. For more information on RFR Rate Compounding, refer to the attached RFR Rate Compounding calculation worksheet.
   RFR Rounding Unit	Specify the Rounding Units value to round daily index value to the nearest whole number and use it for interest calculation. It is applicable only when RFR index value is used.
   Frequency	Select the compounding frequency of the interest from the adjoining drop-down list. The list displays the following values: Daily Weekly Monthly Quarterly Half Yearly Yearly Bullet
   Frequency Unit	Specify the frequency for compounding interest.
   Compound on Holidays	Check this box to indicate that the compounding must be done on holidays. The system allows to check this box only if the Frequency is selected as ‘Daily’
   Payment Preferences	Specify the following fields.
   Payment Date Movement	Select the date on when the payment movement is to be done. The list displays the following values: Lead Lag If the option Lead is selected, then the payment is preponed. If the option Lag is selected, then the payment is deferred.
   Payment Movement Calendar	Select the payment movement calendar. The list displays the following values: Calendar Business If the option Calendar is selected, then the system skips the Holiday Preferences selected at the contract level. If the option Business is selected, it considers holiday treatment specified for schedule as per the Holiday Preferences selected at the contract level.
   Interest Rollover	Check this box to indicate that interest rollover is allowed. Interest Rollover method can be used as a combined method along with one each of In-arrears & In-advance methods. Payments are set in advance and any missed interest relative to in- arrears is rolled over into the next payment period. This option combines a first payment (installment payment) known at the beginning of the interest period with an adjustment payment known at the end. The adjustment payment can be made a few days later or at the end of the next accrual period. Interest rollover with negative interest rate is allowed for In-arrear method.
   Plain	Check this box to indicate that Plain method is allowed. This field is relevant, only if Rate Method is In-Arrears or bearing. System uses averaged SOFR over current interest period, paid on first day of next interest period.
   Last Reset	Check this box to indicate that the Last Reset method is allowed. This field is relevant only if Rate Method is In-Advance. In this option, the system determines the interest payments on the basis of the averaged RFR of the previous period.
   Last Recent	Check this box to indicate that the Last Recent method is applicable. This field is relevant only if the Rate Method is In-Advance. Note: In this option, a single RFR or an averaged RFR for a short number of days, is applied for the entire interest period
   Base Computation Method	Select the base computation method from the adjoining drop-down list. The list display the following values: Simple Compounded
   Spread\ Margin Computation Method	Select the spread or margin computation method from the adjoining drop-down list. The drop-down list displays the following value: Simple Compounded
   Spread Adjustment Method	Select the spread adjustment method from the adjoining drop-down list. The drop-down list displays the following value: Simple Compounded
   Rate Compounding	This represents whether the rate compounding is applied for each calculation period. When enabled, system opts for rate compounding instead of amount compounding, the amount difference comes into effect only if any pre-payment is done. For more information on RFR Rate Compounding, refer to the RFR Rate Compounding calculation worksheet.
   Rate Compounding Method	Select the Rate Compounding Method from the drop-down list. The available options are: CCR NCCR This Rate Compounding method produces a rate for a period by applying the RFR compounding formula to the RFR rate and applying the compounded rate to the principal to calculate the interest due. Rate Compounding supports two methods: 1. Cumulative Compounded Rate (CCR) Calculates the compounded rate at the end of the interest period and it is applied to the whole period. It allows calculation of interest for the whole period using a single compounded rate. 2. Non-Cumulative Compounded Rate (NCCR) It is derived from Cumulative Compounded Rate i.e., Cumulative rate as of current day minus Cumulative rate as of prior Banking day. This generates a daily compounded rate which allows the calculation of a daily interest amount.Rate Compounding supports below RFR methods: Arrear Method Lookback Lockout Payment Movement Plain
   Index Value	Select the Index Value check box to use the RFR index rate. The RFR Index measures the cumulative impact of compounding RFR on a unit of investment over time. Index Value supports below RFR preferences: Arrear Method Lookback Lockout Payment Movement Plain Advance Method Last Reset Last Recent For more information on RFR Index Value, refer to the attached RFR Index Value calculation worksheet.
   Observation Shift	Select the Observation Shift check box to apply observation Shift to RFR calculation. The observation shift mechanism provides the rate to be calculated and weighted by reference to the Observation Period rather than the relevant interest period. Observation Shift Currently supports below RFR Methods and combination. Lookback Lockout Lookback and Lockout combination For more information on RFR Observation Shift, refer to the attached RFR Observation Shift calculation worksheet.
   Weighted Average	Select this check box to use weighted average calculation (WAC) as the RFR calculation method. The WAC here represent the simple average calculation and not compounded. The averaged RFR in this convention is the simple arithmetic mean of the daily RFRs. OBTR supports WAC to calculate base rate (BR), Credit Adjustment Spread (CAS), and Customer Margin. The WAC formula to calculate simple interest is: Description of the illustration wac-formula.png Here, db: the number of business days for the interest calculation period dc: the number of calendar days for the interest calculation period ri: reference rate for the day number i within the interest calculation period ni: the number of calendar days for which rate ri applied (on most days, ni will be 1, but on a Friday it will generally be 3, and it will also be larger than 1 on the business day before a holiday N: the number of calendar days in one year (360 to 365) For more information, refer to the WAC sheet.
   RFR Rounding Unit	Specify the Rounding Units value to round daily index value to the nearest whole number and use it for interest calculation. It is applicable only when RFR index value is used.

   During save, the system performs the following validations:

   • Attribute of derivative type must be encapsulated at derivative product.
   • Only the below fields are enabled for inflation rate type component:
   • Lookback
   • Lookback Months
   • Payment Movement
   • Payment Movement Days
   • Payment Date Movement
   • Payment Movement Calendar
   • During the process of selection or clearing the RFR flag, the respective rate code mapping is done.
   • The system allows the maintenance of two different RFR calculation methods on both the legs.
   • All the Amendment validations to RFR fields are applicable in the interest sub-screen.
   • Mapping of an interest class to in-advance RFR methods (Last reset and last recent) for an interest leg is allowed only when the derivative type of the product is with interest payment method as advance for that leg.
   • Mapping of an interest class to in-arrear RFR method (Lookback, Payment Movement, Lockout, Plain, Interest rollover) for an interest leg is allowed only when the derivative type of the product is with interest payment method as arrears for that leg. The system allows you to map RFR to only the primary component for each in and out legs.
   • System allows to map RFR only to the primary component for each in and out legs accrual frequency must be daily for the legs, which is RFR enabled.
   • Daily revision schedule is mandatory for RFR enabled interest component(s).
   • Ensure the Accrual required flag is selected for RFR enabled interest component(s).
   The system performs the following validations related to ‘Net Negative Interest’ and ‘Negative Interest Allowed’ fields:

   • If you have checked the ‘Net Negative Interest’ check-box, then during interest liquidation the system internally nets the positive and negative amounts being paid to the customer for the contract.
   • The system allows you to check this box, only for products with negative interest allowed main component. It will not allow you to modify once the authorization is done at the product level.

   To ensure that the rates stay within the stipulated limits, the Derivatives module supports Minimum and Maximum Rate pick up for RFR enabled contracts.

   If the derived RFR rate for a contract considering the base rate and spread adjustment is less than the minimum rate, the minimum rate maintained is applied on the contract.

   If the derived RFR rate for a contract considering the base rate and spread adjustment is greater than the maximum rate, the maximum rate is applied on the contract overriding the RFR rates.

3. On the Interest Details screen, click Rates.
   The Interest Currency Limits screen is displayed.

   Figure 3-7 Interest Currency Limits

   
   Description of "Figure 3-7 Interest Currency Limits"
4. On the Interest Currency Limits screen, specify the details as required.

   For Field Description, see the below table:

   Table 3-7 Interest Currency Limits - Field Description

   Field	Description
   Currency	Select the Currency from the list displayed.
   Rate Fixing Days	Specify the rate fixing days as required.
   Fixing Date Movement	Select the movement from the list displayed, the options are Forward and Backward.
   Minimum Rate	Specify the Minimum rate as required.
   Maximum Rate	Specify the Maximum rate as required.
   Default Rate	Specify the Default rate as required.
   Minimum Spread	Specify the Minimum Spread as required.
   Maximum Spread	Specify the Maximum rate as required.