8.9 Product Code- IRFR
IRFR – Interest Rate Options Trade Cash Settled
Business Scenario
The financial product IRFR 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 IRFR covers the interest rate options of cash settled trade type deals. Product IRFR 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 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.
- This instrument product supports risk free rates and supports all arrear Methods.
- Issued by a large banks and corporations
- IRFR product is configured with Alternate Risk Free Rate preference as Plain Method but it can be changed to any of the arrear method and also the below combination methods:
- Lookback and Lockout
- Lookback, Lockout, and Payment Delay
Detailed Coverage
Currency Options can be cash settled as well as physically settled. Product IRFR is meant for cash settled currency options.
Product IRFR covers the following features:
Table 8-33 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 8-34 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 8-35 Advices Supported
Advices | Description |
---|---|
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 IRFR product as part of product life cycle.
Table 8-36 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 Reset Message |
MT 202 | Bank Transfer |
MT 205 | Bank Institutional Transfer |
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.
Special/Other Features
Product COHH covers the following special features:
- Exotic Options (Options with barriers) are covered.
- Payment of Rebate Amount is covered on Knock out Of Options either at Hit or Maturity.
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
Parent topic: Product Catalog - Treasury Options