3.4.3 Maintain Nominal Based Yield Computation

For your bank, you can specify whether the yield computation for securities must be based on Nominal Cash Flows or Face value (per unit). You can maintain this parameter in the CSTB_PARAM (Bank-Level Parameters) table. Maintain the parameter COMMON_YLD_ACCR as ‘Y’.

Once this parameter is maintained as Y, the system will compute the yield and NPV for Bonds and T Bills using Nominal based cash flows.

Subsequently, the system triggers the Yield accrual event YACR. The value passed for the event YACR is inclusive of the discount/premium accrual for the deal and the events ACRD and ACRP will not be passed separately.

To compute yield using nominal based cash flows, the following validations are performed in the system:

• Coupon Rate Revision – If you have specified the bank parameter ‘COMMON_YLD_ACCR’ as ‘Y’, then
• The system does not allow a coupon rate revision before an existing IRR effective date. The IRR record can be a result of a sell deal or an earlier coupon rate change.
• If the revision date is less than the application date, the coupon rate revision is populated with the future revision details on confirmation of the coupon rate revision.
• Buy Deal – In case the Security is a Bond, and you have specified the bank parameter ‘COMMON_YLD_ACCR’ as ‘Y’ then
• Buy Deal – In case the Security is a Bond, and you have specified the bank parameter ‘COMMON_YLD_ACCR’ as ‘Y’ then
• Yield is computed based on actual cash flows instead of the face value.
• Securities Batch:
• Coupon rate revision – during EOD processing, the IRVN process initiates the coupon rate revision activity on the effective date of coupon rate revision. This is triggered before the YTMCALC – YTM Recalculation and ALPL processes. The system triggers the IRR re-computation before ALPL (profit/loss realization) processing. As a result of the revision, the ‘CRVN’ event for the deal is passed based on the new coupon rate
• Sell Deal – the system triggers an IRR effective on the sale date during the processing of a sell deal. In this case, the Yield value does not change but the cash flows are recomputed based on the current outstanding amount. Yield is recomputed only if the selling dealer is backdated and a rate change has happened after the DSTL date of the sale deal. The system throws up an override is a backdated sell or buy deal is input for a security for which rate revision has already occurred.
• Reversal of Sell Deal – in case of reversal of a sell deal, the IRR record as of the DSTL date of the sale deal is deleted and a new IRR record is created as of the earliest IRR re-computation date. The re-computed date can be the date of the coupon rate revision date or the DSTL date of the re-computed sell deal.