5.5 Manual Netting Process

This topic describes the manual netting process.

• Bilateral settlement netting is the practice of combining all trades of the counterparties due on the particular settlement date and calculating a single net payment in each currency. Netting can be Currency-wise Netting or Pair-wise Netting and different deal types.
• Netting is the process of offsetting the receivables with the payables for a counterparty to generate a single accounting entry in the counterparty’s account.
• Linked to the same counterparty (customer), contracts with same Value Date in the same currency (currency-wise Netting) or involve same currency pair (pair-wise Netting) and Netting deal type.
• The system will net the contracts on Netting Date. The netting days are added to the system date/ processing date to arrive at the netting date (Value date - netting days). FX netting days are picked up from the currency definition screen. If FX netting days is not maintained for the currency, the currency spot days is considered as netting days.
• All the contracts with a bought value date / sold value date lesser than on equal to the respective netting date are picked up for Netting. The establishment of ‘settlement netting agreements’ between counterparties can thus reduce settlement risk, operational risk, and clearing costs.
• The Manual Netting process picks up only contracts for the specified customer/customer group, currency/currency pair, Deal type and Value date.
• On Fetch, the system retrieves all the deal for the specified combination. Deal to be netted is listed. User is allowed to remove any of the deal before Netting. Once the deal for Netting is finalized user can click Netting consolidated button to view the netting details before saving.
• On clicking the consolidated Netting, subsystem gets launched. User needs to click on the View details button to view the consolidated Netting.
• On clicking the View details, buttons system computes the final netting amount for each currency/ currency pair and the deal type.
• In Case of currency wise Netting, same currency leg in the different contract for a counterparty with same value date is netted.
• In Case of currency ‘ALL’ for each currency with the same value date is netted and for each currency different Netting reference number is generated. In Case of pair-wise Netting, contracts with the same currency pair are netted. For each currency, a separate Netting reference number is generated.
• If currency ‘All’ or currency pair ‘All, All’ has been chosen, an override is displayed, to confirm whether Netting needs to be performed for all the currencies.
• User can view the Sibling deals netted for each Netting reference before save, on double click on the Netting reference number netting sibling details screen is launched.
• Netting sibling details screen will display the deals related to the netting reference number. This is a display screen. On saving the Manual netting system computes the netting amount and generate the Netting reference number for each currency and deal type. The system validates on saving, if the user does not input Agreed by and Agreed Text.
• User is allowed to modify the netting details before saving.
• On querying the Reference number user can unlock the Manual netting details and do the modification.
• To remove a single or multiple netted deal from the existing netting reference number user can directly remove the record from multigrid.
• User cannot amend any of the details apart from Adding or removing deals to the reference number.
• User can add Un-netted single or multiple deals to the existing Netting reference number.
• User has to fetch the deal available for netting again. On fetch, new un-netted deals are added to the netting reference number. On modification of the existing netting reference number, the system recomputes the netting amount. User is able to authorize the Netting.
• User is able to amend, i.e. Add or remove netting deals to the existing netting reference number after authorization.
• Once Netting is ready for Payment TRDMNNET Intraday batch can be run, and outgoing credit payment is sent to the external payment system.
• External Payment interface is called for Payment Processing.
• Intermediate accounting entries are passed to debit the FX Netting suspense GL maintained at the Branch parameter level, and credit Inter System Bridge GL maintained in External Payment System Maintenance screen.
• External Payment interface will validate and populate the queue table with message details.
• External Payment Queue reference number is stored in the appropriate data stores.
• User is able to view the Queue reference details in IFDEPSQU screen.
• MT202 Message generation and the view is within the External payment system. User can view the record in External Payment system with FX netting reference number as source reference number.
• MT210 for receive is generated in OBTR as per existing functionality.
• Payment is generated for FX Netting reference number.
• TRDMNNET new intraday batch is provided to send payment before EOD.

  Note:

  The user has to run this intraday batch to process all the pending manual-netted contracts before EOD and send payment to an external payment processor.
• On the liquidation date, only an accounting entry to reverse the original contingent entry is posted in FX sibling deals.
• No accounting entry is posted in FX sibling contracts for settlement.
• Netted accounting entry will get posted in the external payment system using the netting suspense GL. Once the contract is netted, the netting details will get updated in the 'Netting Tab' at the FX contract level.
• Once the contract is netted, the netting details will get updated in the 'Netting Tab' at the FX contract level.

While processing the Netting contract, system should force the user to capture the following two fields related to Audit trail on the netting process.

• Agreed By - This should be a drop down with possible values as Phone, FAX, and In Person. Default value on this field will be Phone.
• Agreed Text - This is a free format field to capture user comments on the netting agreement. Maximum length of the field is 100 characters