8.14 Product Code - SWT2
SWT2 – Currency Options with Plain Vanilla Cash Settled
Business Scenario
The financial product SWT2 that is Currency Options with plain Vanilla trade Cash Settled helps Corporate/Banks to speculate or hedge against adverse movements in exchange rates.
Targeted Customer Segment: Corporates/Banks who seek speculation/hedging against foreign currency risk.
Introduction
Product (SWT2) covers the currency options of cash-settled trade type deals. Product (SWT2) holds good for all the currency options types of both buy and sell with European, American as well as Bermudan style of expiry. The product covers the various kinds of exotic options (options with barriers).
Synopsis (ex. High level features etc.)
- Covers all the CO types of Yield-Based.
- Payment\Settlement is done on the maturity date or exercise date provided the option is In the Money.
- European, American and Bermudan Expiry styles covered for CO’s.
- Amortization and Revaluation setup is done with daily frequency.
- Option Style is Plain Vanilla
- This product supports up and in Knock in (UIKI) Barrier type. However at the contract level, we can change the barrier types to other applicable barrier types such as:
- Down and In Knock-in (DIKI)
- Up and In Knock-out (UOKO)
- Down and Out Knock-out (DOKO)
- Double Knock-in (DKIN)
- Double Knock-out (DKOT)
Detailed Coverage
Currency Options can be cash settled as well as physically settled. Product SWT2 is meant for Plain Vanilla with cash settled currency options.
Table 8-53 Features
Features | Type |
---|---|
Types of the Deal Covered |
|
Types of the Contract Covered |
|
Delivery Type | Cash Settled |
Currency Option Types Covered |
|
Options Styles Covered |
|
Expiry Style’s Covered |
|
Payment Method Covered |
|
Exotic Options covered |
|
Rebate Payment At |
|
Exercise fixed Payment At |
|
Payment Method Covered | Actual/365 – Per Annum Basis |
Other Features Covered |
|
Events Covered (including brief information on accounting)
Table 8-54 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 |
TRST | Termination Settlement |
KNIN | Knock in of Currency Option |
KNOT | Knock out of Currency Option |
KNST | Knock out Settlement |
KIST | Knock in Settlement |
Advices Supported
Table 8-55 Advices Supported
Advices | Description |
---|---|
OT_CO_AMND | CO Amendment Advice |
OT_CO_CANC | CO Cancellation |
OT_CO_CONF | CO Confirmation |
OT_CO_DEAL_TKT | CO Deal Ticket |
OT_CO_TERM | CO 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 SWT2 product as part of product life cycle.
Table 8-56 SWIFT Messages
SWIFT Messages | Contact Field |
---|---|
MT 306 | CO Confirmation Message |
MT 306 | CO Amendment Message |
MT 306 | CO Cancellation Advice |
MT 306 | CO Termination Message |
MT 210 | Receive Notice |
MT 202 | Bank Transfer |
Premium/Charges/Brokerage
Premium
Product SWT2 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
- Component - OTBOOKCHG - OT Options Booking Charge
- Rule - OTBKCHG - OT Options Booking Charge Rule
Brokerage
SWT2 product is parametrized to handle Brokerage feature. The details are available below:
- Broker Identification\Code
- Rule Code: OTBROK
Special/Other Features
- Limit Tracking Methods through which customer exposures are tracked,
- Fair Value Limit Tracking
- Notional Limit Tracking
- Risk Weighted Limit Tracking
- Exotic Options (Options with barriers) are covered
- Payment of Rebate Amount is covered on Knock out of Options either at Hit or Maturity
- Fixed Payment is covered on knock in 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 Bank can capture the same 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
- OT Rate Type Maintenance
- OT Float Rate Code Maintenance
- Floating Rate Maintenance
- Advice Format Maintenance
- Other General Maintenance Needed For Branch
Parent topic: Product Catalog - Treasury Options