3.20 Negative Interest Rate

This topic provides the instructions to define the negative interest rate details.

Negative Interest Allowed Flag is enabled at MM Contract Interest Subsystem, giving you the option to choose not to have Negative interest rate. Contract level Negative Interest Allowed Flag defaults from the Product level. You can amend the flag at the Contract level when the flag is checked during contract creation, only if the product level flag is checked.

Note:

If Negative Interest Allowed flag is not checked at product level, then Contract level flag cannot be checked.

If the flag is unchecked during the Contract creation then interest accrual will stop for the period during which Effective Interest rate will be negative. This flag will not be amendable. It will be enabled only during contract creation.

This flag will not be enabled at VAMI screen.

Effective Interest rate is updated as zero, if the rate maintained for a given date is negative or the effective interest rate after adding the spread is negative and the Contract level flag is unchecked.

1. On the Money Market Contract Input screen, click Interest.

   ICCF screen is displayed.

   Figure 3-29 ICCF

   
   Description of the illustration mmdtronli_iccf.png
2. On the ICCF Screen, Specify the details as required.

   By Default, this option is disabled.

   • Contract level Flag is defaulted from the Product level and the same is enabled for modification. User can amend the flag at the Contract level when flag is checked during contract creation.
   • A New Validation is added, if Negative Interest Allowed flag is not checked at product level, then Contract level flag Negative Interest Allowed cannot be checked.
   • Net Negative Interest Flag is applicable only when Negative Interest is allowed for a contract.
   • This flag is amendable. This will be enabled only during creation of the Contract and is made available only in MMDTRONL screen.
   • If the flag is unchecked during the Contract creation then interest accrual will stop for the period during which Effective Interest rate (Interest rate + Spread) is negative.
   • Effective Interest rate is updated as zero in the contract processing tables for negative interest component if the rate maintained for a given date is negative and the Contract level flag is unchecked.
   • Interest accruals would not be passed in the period when the Effective interest rate for the contract would be negative.
   • Liquidation will not be fired for this period, as accrual has not passed.
   • Accruals and liquidation would pass only for the days in the month where the Effective interest rate is positive