Product Code

Business Scenario

The financial product IRSW that is, Interest Rate Options Trade Physically Settled Swaptions helps corporate/banks to provide the buyer with speculation or protection against adverse movement in floating interest rates compared to fixed interest rates while providing potential for profit in case of favorable movement of rates.

Targeted Customer Segment: Corporates/Banks who seek speculation/protection against adverse interest rate movement.

Introduction

Product IRSW covers the interest rate swaptions of physically settled trade type deals. Product IRSW holds good for all the swaptions types of both buy and sell with European, American as well as Bermudan style of expiry. Using the product IRSW an underlying Single Currency Interest Rate Swap gets initiated on the exercise of the swaptions which is to be physically settled.

Synopsis (ex. High level features etc.)

Product IRSW is setup by linking with the underlying Single Currency Interest Rate Swap (IRS) derivative product.
Covers Interest Rate Swaptions of Price-Based.
Payment\Settlement is done on schedule basis based on the arrear method of payment type.
Expiry Styles covered by swaptions are European, American and Bermudan.
Amortization and Revaluation setup is done with daily frequency.

Detailed Coverage

Interest Rate Swaptions can be cash settled as well as physically settled. Product IRSW is meant for physically settled interest rate swaptions. Product IRSW covers the following features:

Table 8-5 Detailed Coverage

Features	Type
Types of the Deal Covered	Buy Deal Sell Deal
Types of the Contract Covered	Trade Deal
Delivery Type	Cash
Interest Rate Option Types Covered	Swaptions
Expiry Style’s Covered	European American Bermudan
Payment Method Covered	Actual/365 – Per Annum Basis Arrears
Amortization and Revaluation Covered	Amortization of Deferred Inception Gain for trade deals. Fair Value Revaluation

Events Covered (including brief information on accounting)

Product IRSW has the Life Cycle as listed below:

Table 8-6 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

Advices Supported

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

Table 8-7 Advices Supported

Advices	Description
OT_IRO_AMND	IRO Amendment Advice
OT_IRO_CANC	IRO Cancellation
OT_IRO_CONF	IRO Confirmation
OT_IRO_DEAL_TKT	IRO Deal Ticket
OT_IRO_TERM	IRO Termination Advice
PAYMENT_MESSAGE	Payment Message
REVSWIFT	Cancellation of Contract

Messages

Following SWIFT Messages setup done in the IRSW product as part of product life cycle.

Table 8-8 SWIFT Messages

SWIFT Messages	Contact Field
MT 360	IRO Confirmation Message
MT 360	IRO Amendment Message
MT 360	IRO Cancellation Advice
MT 364	IRO Termination Message
MT 362	Rate Reset Message

Premium/Charges/Brokerage

Premium

Product IRSW 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 IRSW product following Charge Component is parametrized

Component - OTBOOKCHG - OT Options Booking Charge
Rule - OTBKCHG - OT Options Booking Charge Rule
Flat Amount GBP 125

Special/Other Features

Product IRSW covers the following special features:

Product IROP covers all the three types of expiry styles like
- American
- European (Default)
- Bermudan.
Revaluation is done on basis of the Confirmed Fair Value and ignored if it is Unconfirmed.

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
DV Rate Type Maintenance
DV Float Rate Code Maintenance
Floating Rate Maintenance
Advice Format Maintenance
Other General Maintenance Needed For Branch