Product Code- IRCH

Business Scenario

The financial product IRCH that is, Interest Rate Options Hedge 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 IRCH covers the interest rate options of cash settled hedge type deals. Product IRCH 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 CO types of Yield-based.
Payment/Settlement is done on schedule basis based on the arrear/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 setup is done with daily frequency.

Detailed Coverage

Interest Rate Options can be cash settled as well as physically settled. Product IRCH is meant for cash settled interest rate options.

Product IRCH covers the following features:

Table 8-17 Detailed Coverage

Features	Type
Types of the Deal Covered	Buy Deal
Types of the Contract Covered	Trade Deal Hedge Deal
Interest Rate Options Types Covered	Caps Floors Collars Corridors Swaptions
Expiry Style’s Covered	European for Caps, Floors, Collars, and Corridors European/ American/ Bermudan for Swaptions
Payment Method Covered	Actual/365 – Per Annum Basis Arrears Rate Fixing is Setup on the each Schedule and Reset Days is 0
Amortization Covered	Amortization of Deferred Inception Gain for Hedge deals. Amortization of Deferred Time Value for Hedge deals.

Events Covered (including brief information on accounting)

Product IRCH has the Life Cycle as listed below:

Table 8-18 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 IRCH Product as part of Product Life Cycle:

Table 8-19 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 IRCH product as part of product life cycle.

Table 8-20 SWIFT Messages

SWIFT Messages	Contact Field
MT 360	IRO Confirmation Message
MT 360	IRO Amendment Message
MT 364	IRO Termination Message
MT 360	IRO Cancellation Advice
MT 362	Rate Rest Message

Premium/Charges/Brokerage

Premium

Product IRCH 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 IRCH product following Charge Component is parametrized

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

Special/Other Features

Product IRCH covers the following special features:

Only Manual Exercise is supported for all IRO types except Swaptions which is Auto as well as Manual Exercisable.

Additional information (ex. UDF & other Special Maintenance)

In case the Bank wants to capture any additional information regarding the agreement\customer, the same could be captured 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