Product Code

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	Buy Deal Sell Deal
Types of the Contract Covered	Trade Deal Hedge Deal
Delivery Type	Cash Settled
Currency Option Types Covered	Call Put
Options Styles Covered	Plain Vanilla
Expiry Style’s Covered	European American Bermudan
Payment Method Covered	Actual/365 – Per Annum Basis Arrears
Exotic Options covered	Double Knock-in (DKIN) Double Knock-out (DKOT). Up and In Knock-in (UIKI) Down and In Knock-in (DIKI) Up and Out Knock-out (UOKO) Down and Out Knock-out (DOKO)
Rebate Payment At	Hit Maturity
Exercise fixed Payment At	Hit Maturity
Payment Method Covered	Actual/365 – Per Annum Basis
Other Features Covered	Amortization of Deferred Inception Gain for trade deals Fair Value Revaluation

Events Covered (including brief information on accounting)

Product SWT2 has the Life Cycle as listed below:

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

Following Advices setup done in the SWT2 Product as part of Product Life Cycle:

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

In SWT2 product following Charge Component is parametrized

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

Product SWT2 covers the following special 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