8.2 Product Code - IRSW
IRSW – Interest Rate Options Trade Physically Settled Swaption.
Business Scenario
The financial product IRSW that is, Interest Rate Options Trade Physically Settled Swaptions helps corporate/banks to provide the buyer with speculation or protection against adverse movement in floating interest rates compared to fixed interest rates while providing 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 IRSW covers the interest rate swaptions of physically settled trade type deals. Product IRSW holds good for all the swaptions types of both buy and sell with European, American as well as Bermudan style of expiry. Using the product IRSW an underlying Single Currency Interest Rate Swap gets initiated on the exercise of the swaptions which is to be physically settled.
Synopsis (ex. High level features etc.)
- Product IRSW is setup by linking with the underlying Single Currency Interest Rate Swap (IRS) derivative product.
- Covers Interest Rate Swaptions of Price-Based.
- Payment\Settlement is done on schedule basis based on the arrear method of payment type.
- Expiry Styles covered by swaptions are European, American and Bermudan.
- Amortization and Revaluation setup is done with daily frequency.
Detailed Coverage
Interest Rate Swaptions can be cash settled as well as physically settled. Product IRSW is meant for physically settled interest rate swaptions. Product IRSW covers the following features:
Table 8-5 Detailed Coverage
Features | Type |
---|---|
Types of the Deal Covered |
|
Types of the Contract Covered | Trade Deal |
Delivery Type | Cash |
Interest Rate Option Types Covered |
|
Expiry Style’s Covered |
|
Payment Method Covered |
|
Amortization and Revaluation Covered |
|
Events Covered (including brief information on accounting)
Table 8-6 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 |
REVL | Revaluation Of Option |
REVR | Reversal Of Deal |
RTFX | Rate Fixing |
TERM | Termination of Option Contract |
Advices Supported
Table 8-7 Advices Supported
Advices | Description |
---|---|
OT_IRO_AMND | IRO Amendment Advice |
OT_IRO_CANC | IRO Cancellation |
OT_IRO_CONF | IRO Confirmation |
OT_IRO_DEAL_TKT | IRO Deal Ticket |
OT_IRO_TERM | IRO Termination Advice |
PAYMENT_MESSAGE | Payment Message |
REVSWIFT | Cancellation of Contract |
Messages
Following SWIFT Messages setup done in the IRSW product as part of product life cycle.
Table 8-8 SWIFT Messages
SWIFT Messages | Contact Field |
---|---|
MT 360 | IRO Confirmation Message |
MT 360 | IRO Amendment Message |
MT 360 | IRO Cancellation Advice |
MT 364 | IRO Termination Message |
MT 362 | Rate Reset Message |
Premium/Charges/Brokerage
Premium
Product IRSW 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.
Charges
- Component - OTBOOKCHG - OT Options Booking Charge
- Rule - OTBKCHG - OT Options Booking Charge Rule
- Flat Amount GBP 125
Special/Other Features
- Product IROP covers all the three types of expiry styles like
- American
- European (Default)
- Bermudan.
- Revaluation is done on basis of the Confirmed Fair Value and ignored if it is Unconfirmed.
Additional information (ex. UDF & other Special Maintenance)
In case the Bank wants to capture any additional information regarding the agreement/customer, the Bank can capture the same by defining the User Defined Fields (UDF).
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
- Other General Maintenance Needed For Branch
Parent topic: Product Catalog - Treasury Options