8.12 Product Code- OTRF
OTRF- (RFR) Interest Rate Options Trade Cash settled
Business Scenario
The financial product IRFS that is, Interest Rate Options Trade Cash Settled helps corporates/banks to provide the buyer with speculation or protection of underlying assets against an adverse movement in interest rates while providing the potential for profit in case of favorable movement of rates.
Targeted Customer Segment: Corporates/Banks who seek speculation/protection against adverse interest rate movement.
Introduction
Product OTRF covers the interest rate options of cash settled trade type deals. Product OTRF holds good for all the interest rate option types of both buy and sell with European expiry style, the exception being the swaptions which has three expiration styles like European, American and Bermudan.
Synopsis (ex. High level features etc.)
- Covers all the IRO types of Yield-based
- Payment\Settlement is done on schedule basis based on the advance method of payment type.
- All IRO types covered uses only European style of expiry. Additionally American and Bermudan style are used by Swaptions.
- Amortization and Revaluation setup is done with daily frequency.
- This instrument product supports risk free rates and supports all arrear Methods.
- Issued by large banks and corporations
- OTRF product is configured with Alternate Risk Free Rate preference as Plain Method but it can be changed to any of the arrear method.
Detailed Coverage
Interest Rate Options can be cash settled as well as physically settled. Product OTRF is meant for cash settled interest rate options. Product OTRF covers the following features:
Table 8-45 Detailed Coverage
Features | Type |
---|---|
Types of the Deal Covered |
|
Types of the Contract Covered |
|
Delivery Type | Cash |
Interest Rate Option Types Covered |
|
Expiry Style’s Covered |
|
Payment Method Covered |
|
Events Covered (including brief information on accounting)
Table 8-46 Events Covered
Events Covered | Terminology |
---|---|
AMDG | Amortization of Deferred Gains-Hedge |
AMND | Amendment Option Deal Contract |
AMRT | Amortization Of Deferred Inception Gain |
BOOK | Booking of the deal Contract |
EXER | Exercise Of Option |
EXPR | Expiry Of Option |
EXST | Exercise Settlement Of Option |
PRPT | Premium Payment\Premium Collection |
KNIN | Knock In of Currency Options |
KIST | Knock In Settlement |
KNOT | Knock Out of Currency Options |
KNST | Knock Out Settlement |
REVL | Revaluation Of Option |
REVR | Reversal Of Deal |
TERM | Termination of Option Contract |
Advices Supported
Table 8-47 Advices Supported
Advices | Description |
---|---|
OT_CO_AMND | Currency Options Amendment Advice |
OT_CO_CANC | Currency Options Cancellation |
OT_CO_CONF | Currency Options Confirmation |
OT_CO_DEAL_TKT | Currency Options Deal Ticket |
OT_CO_TERM | Currency Options Termination Advice |
OT_CO_TRIG | Currency Options Barrier Event |
CUST_PMT_ADV | Credit Debit Message Generation |
PAYMENT_MESSAGE | Payment Message |
REVSWIFT | Cancellation of Contract |
Messages
Following SWIFT Messages setup done in the IRFR product as part of product life cycle.
Table 8-48 SWIFT Messages
SWIFT Messages | Contact Field |
---|---|
MT 360 | Confirmation Message |
MT 360 | Amendment Message |
MT 364 | Termination Message |
MT 360 | Cancellation Advice |
MT 362 | Rate Reset Message |
MT 202 | Bank Transfer |
MT 205 | Bank Institutional Transfer |
MT 210 | Receive Notice |
MT 900 | Debit Message |
MT 910 | Credit Message |
Premium/Charges/Brokerage
Premium
Product IRFR enables the Premium Collection or Premium Payment through:
- Option Premium is expressed as a percentage of the notional principal / contract amount.
- Option Premium can be a flat amount as well.
OT Options Module Maintenance
OT Options module has to be setup with the following furnished maintenance,
- Option Branch Parameter Maintenance
- Role To Head mapping Class Maintenance
- Accounting Event Class Maintenance
- OT Product Maintenance
- Floating Rate Source Maintenance
- DV Rate Type Maintenance
- DV Float Rate Code Maintenance
- Floating Rate Maintenance
- Advice Format Maintenance
General Maintenance Needed For Branch
- Branch Parameters Maintenance
- Contract Fair Values Maintenance
- Limit Tracking (other) Details Maintenance
Parent topic: Product Catalog - Treasury Options