8.5 Product Code- IRCH
IRCH – Interest Rate Options Hedge Cash Settled
Business Scenario
The financial product IRCH that is, Interest Rate Options Hedge Cash Settled helps corporates/banks to provide the buyer with speculation or protection of underlying assets against an adverse movement in interest rates while providing the 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 IRCH covers the interest rate options of cash settled hedge type deals. Product IRCH holds good for all the interest rate option types of both buy and sell with European expiry style, the exception being the swaptions which has three expiration styles like European, American and Bermudan.
Synopsis (ex. High level features etc.)
- Covers all the CO types of Yield-based.
- Payment/Settlement is done on schedule basis based on the arrear/advance method of payment type
- All IRO types covered uses only European style of expiry. Additionally American and Bermudan style are used by Swaptions.
- Amortization setup is done with daily frequency.
Detailed Coverage
Interest Rate Options can be cash settled as well as physically settled. Product IRCH is meant for cash settled interest rate options.
Product IRCH covers the following features:
Table 8-17 Detailed Coverage
Features | Type |
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Types of the Deal Covered |
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Types of the Contract Covered |
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Interest Rate Options Types Covered |
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Expiry Style’s Covered |
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Payment Method Covered |
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Amortization Covered |
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Events Covered (including brief information on accounting)
Table 8-18 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
Table 8-19 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 IRCH product as part of product life cycle.
Table 8-20 SWIFT Messages
SWIFT Messages | Contact Field |
---|---|
MT 360 | IRO Confirmation Message |
MT 360 | IRO Amendment Message |
MT 364 | IRO Termination Message |
MT 360 | IRO Cancellation Advice |
MT 362 | Rate Rest Message |
Premium/Charges/Brokerage
Premium
Product IRCH 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
- Flat Amount GBP 125
Special/Other Features
Product IRCH covers the following special features:
Only Manual Exercise is supported for all IRO types except Swaptions which is Auto as well as Manual Exercisable.
Additional information (ex. UDF & other Special Maintenance)
In case the Bank wants to capture any additional information regarding the agreement\customer, the same could be captured 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
Parent topic: Product Catalog - Treasury Options