1. Asset Liability Management User Guide
  2. User Defined Behavior Patterns
  3. Creating Behavior Patterns
  4. Defining Non-Maturity Behavior Patterns (for Tractor TP Method use)

12.1.3 Defining Non-Maturity Behavior Patterns (for Tractor TP Method use)

Note:

This is applicable only for FTP application.

The Tractor Transfer Pricing Method, utilizes a replicating portfolio concept. Replicating Portfolio's are a special type of Non-Maturity Behavior Pattern and are created and managed through the Non-Maturity Behavior Pattern UI.

Through the replicating portfolio UI, users can define one or more core balance amounts. Users assign a term to each core and generate balance strips at any granularity (e.g. typically daily or monthly, depending on the frequency of the transfer pricing process). To maintain the portfolio over time, users must roll and re-balance the portfolio to update the volatile plug amount and if needed re-balance the core amount.

To define a non-maturity behavior pattern for Tractor TP method use, follow these steps:

  1. In the Behavior Pattern details page, select Non Maturity as the Behavior Pattern Type.
  2. Enter the following details:

    Table 12-1 Key Terms used in the Behavior Pattern Details page

    Term Description
    Core Allocation Input This drop-down is a mandatory selection. The drop-down values are Amount and Percentage. If the Non-Maturity profile method is selected as the Non-Maturity Products Model, then allocation will always be in percentage.

    Core Allocation

    		 The amount that is apportioned to each core. The Allocation amount in absolute or percentage for each strip is automatically determined (when Strip Tenor is "Days", or "Months") by evenly spreading the defined Core Amount across the number of strips for the portfolio. When Strip Tenor is "At Maturity", the entire amount is placed at the maximum term, determined by the inputs for "Term " and "Multiplier". If the user selects 'Amount' in the Core Allocation Input drop-down , then the 'Core Allocation' text box accepts values from 0.0000 to 9,999,999,999.9999. If the user selects 'Percentage' in the Core Allocation Input drop-down , then the 'Core Allocation' text box accepts only a percentage value between 0.0000 and 100.0000.
    Tenor

    Used to specify the maturity term for the portfolio. This term defines the maximum term for the initial strip balance and the rollover term for each rollover strip.

    When you manually select or schedule the replicating portfolio process, the Org term of the volatile strip is calculated. Replicating Portfolio generates the volatile strips that sets the ORG_TERM equal to the Period between Maturity date and Origination date.
    Multiplier

    The unit of time applied to the Tenor. The choices are:

    • Days
    • Months
    • Years
    Type For replicating portfolio, type is defaulted to core. The Volatile strip is generated automatically as a reconciling plug entry to balance the portfolio. The term of the plug entry is defaulted to 1 Day, unless a holiday calendar is used, in which case the volatile amount maturity can be extended to the next business day.
    Strip Tenor Indicates the frequency of the strips generated for the portfolio. Available options are "Days", "Months" or "At Maturity". For example, if "Days" is selected, strips will be generated for each day from the as-of-date to the maturity term. If "At Maturity" is selected, a single strip will be generated and the balance will be placed at the maturity term.
    Source Balance Selection The source balance selection allows the user to define the source Instrument Table (or Ledger Table) and product / currency against which the core balance will be reconciled. The difference between the core balance and the actual instrument balance will determine the amount of the Volatile Plug strip for the current period.
    Balance Type The Balance type allows you to select the type of the Balance. It can be either Average Balance or Ending Balance. This option will be enable if the Source Balance is selected as Management Ledger.

    Enable Holiday Calendar

    		 Replicating Portfolio's allow users to enable a holiday calendar. If this option is selected, portfolio strips will not be generated on weekends or holidays. In addition, during rollover of maturing strips new maturity dates will be adjusted to ensure maturities fall only on working days.
    Holiday Calendar Code The holiday calendar code allows users to select the applicable holiday calendar.
    Holiday Calendar Rolling Convention The rolling convention within replicating portfolios is defaulted to next business day. Related to this method is an additional date adjustment to ensure that only one core strip falls on a single date. We refer to this secondary adjustment as an exclusive business day convention.
    Default Portfolio Roll Frequency The default portfolio roll frequency option allows you to set default rolling frequency of replicating portfolio.
    Merge Delta Strips on Re-balancing If Merge Delta Strips on Re-balancing option is enabled, then the core strips will be merged during the rebalancing.
    Generate the Portfolio

    After initially creating (and saving) the replicating portfolio definition, users should Generate the Portfolio. This action launches a background process which generates the strip records for the portfolio. Prior to running this process be mindful of the As-of-date defined in your Application Preferences, as this date will be used as the initial Origination Date for the newly created strips.

    If % is selected as the Core Allocation Input type, the procedure will read the current period balance (CUR_BOOK_BAL or Ending Balance), for the selected “Product Member” (from Source Balance selection) and determine the Required Core Amount based on the resulting Balance x Core %. This applies to both Management Ledger (Ending Balance) and Instrument table (CUR_BOOK_BAL).
    Roll the Portfolio Each period (day or month), users will need to roll the portfolio forward. The new as-of-date for the portfolio will be determined based on the existing as-of-date plus the default roll frequency. As a general rule, users should update their as-of-date in application preferences prior to running the Roll Portfolio Process.
    Re-balance the Portfolio

    After rolling the portfolio, users will need to re-balance the portfolio. There are two options provided for re-balancing:

    • Plug to Volatile Strip: This option should be selected when no changes to the core allocation have been made. This process will compare the current period source balance with the current portfolio strip balance. The difference will be posted to the new volatile strip.

    The Plug to Volatile Strip Re-balance method will not be relevant when the Core input type is % as the portfolio balance will change with every new as-of-date and new balancing/delta strips will be required to re-balance the portfolio.

    • Rebalance Core Strips: This option should be selected only when users have modified the Core Allocation or when the Core input type is %. If the Core Allocation has increased or decreased, balancing strips will be generated for each tenor to bring the core strip balance back in line with the Core Allocation Balance. This process will additionally run the Plug to Volatile process to create the plug strip.
    View the Portfolio This option allows you to view the portfolio strips.

    This table describes various fields in the Behavior Pattern Details page. You can enter or select the relevant details to populate the screen to define the Non-maturity Behavior Patterns for the Tractor TP Method use.

  3. Make your required selections in the Source Balance Selection section.
  4. Click Add Core (one or more) to input the core amount, associated maturity term and strip frequency.
  5. To delete a row, select the check box corresponding to the row you want to remove and click Delete.
  6. Click Save.

    The Behavior Pattern is saved and the Behavior Pattern summary page is displayed.

  7. Return to the Behavior Pattern / Replicating Portfolio in EDIT mode and execute the portfolio maintenance activities, including:
    • Generate Portfolio
    • Roll Portfolio
    • Rebalance Portfolio
    • View Portfolio

    Note:

    Once the Replicating Portfolio is generated and the volatile plug has been updated for the current period, it is ready for processing by the FTP Engine. FTP Processes utilizing the Tractor TP Method should not be run until all Replicating Portfolio's have been updated.