Product Code

Business Scenario

The financial product COPH that is, Currency Options Trade Physically Settled helps Corporate/Banks to own or sell the underlying asset (underlying currency) when the options are exercised and hedge against adverse movements in exchange rates.

Targeted Customer Segment: Corporate/Banks who seeks hedging against foreign currency risk and thereby providing the opportunity to exchange the currencies if the option is found worth exchanging.

Introduction

Product COPH covers the currency options of physically settled trade type deals. Product COPH holds good for all the currency option types of both buy and sell with European, American as well as Bermudan style of expiry. Product covers the various kinds of exotic options (options with barriers). Using the product COPH an underlying Forex Spot Contract gets initiated on the exercise of the options which is to be physically settled.

Synopsis (ex. High level features etc.)

Covers all the CO types of Price-based.
Exchange of currency\Settlement is done on the maturity date or exercise date provided the option is In the Money.
European, American and Bermudan Expiry styles covered for CO’s.
Amortization and Revaluation setup is done with daily frequency.
Delta Accounting is covered in this product.

Detailed Coverage

Currency Options can be cash settled as well as physically settled. Product COPH is meant for cash settled currency options.

Product COPH covers the following features:

Table 8-13 Detailed Coverage

Features	Type
Types of the Deal Covered	Buy Deal Sell Deal
Types of the Contract Covered	Trade Deal Hedge Deal
Delivery Type	Cash
Currency Option Types Covered	Call Put
Options Styles Covered	Plain Vanilla Binary Digital No Touch
Expiry Style’s Covered	European American Bermudan
Other Features Covered	Amortization of Deferred Inception Gain for trade deals Fair Value Revaluation Delta Accounting

Events Covered (including brief information on accounting)

Product COPH has the Life Cycle as listed below:

Table 8-14 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

Following Advices setup done in the COPH Product as part of Product Life Cycle:

Table 8-15 Advices Supported

Advices	-
OT_CO_TRIG	Currency Options Barrier Event
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
PAYMENT_MESSAGE	Payment Message
REVSWIFT	Cancellation of Contract

Messages

Following SWIFT Messages setup done in the COPH product as part of product life cycle.

Table 8-16 SWIFT Messages

SWIFT Messages	Contact Field
MT 306/MT 305	CO Confirmation Message
MT 306/MT 305	CO Amendment Message
MT 306/MT 305	CO Cancellation Advice
MT 306/MT 305	CO Termination Message
MT 3306/MT 305	Currency Options Barrier Hit Message

Premium/Charges/Brokerage

Premium

Product COPH 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

In COPH product following Charge Component is parametrized

Component - OTBOOKCHG - OT Options Booking Charge
Rule - OTBKCHG - OT Options Booking Charge Rule
Flat Amount GBP 125

Charges

COPH product is parametrized to handle Chargse feature. The details are available below:

Component - OTBOOKCHG - OT Options Booking Charge
Rule - OTBKCHG - OT Options Booking Charge Rule
Flat Amount GBP 125

Special/Other Features

Product COPH covers the following special features:

Exotic Options (Options with barriers) are covered.
Auto Exercise as well as Manual Exercise is supported.
Money will be settled through the foreign exchange spot deal (on exercise of the option).

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