1. User Guide
  2. Business Rules Administration
  3. Add-on Rate Rules
  4. Defining Assumptions with the Default Currency
  5. Add-on Rate Calculation Methods
  6. Add-on Rate Rule - Use TP Method from Selected TP Rule

3.14.5.1.4 Add-on Rate Rule - Use TP Method from Selected TP Rule

The Use TP Method from Selected TP Rule selection allows the user to calculate the add-on rate based on any TP Method available in the selected Transfer Pricing Rule.

Figure 3-66 Add-on Rate Rule – Use TP Method (Transfer Pricing Rule Selection)


Add-on Rate Rule – Use TP Method (Transfer Pricing Rule Selection)

Users can attach any Transfer Pricing Rule on the Add-on Rate Rule Summary Page separately for each type of add-on rate. The TP Methods mapped to product hierarchy members in the TP Rule will be read during the add-on rate calculation process and applied during the calculation of the Add-on Rate(s). Outputs will be written to the respective Add-on Rate column, for example, Basis Risk Cost Rate, Liquidity Premium Rate, Pricing Incentive Rate, or Other Add-on Rate.

  • Term: The following Term Types are available:
    • Standard Term: Add-on rate would be calculated as per the repricing period for adjustable-rate instruments and use the original term (maturity date - origination date) for fixed-rate instruments.
    • Original Term: Add-on Rates would be calculated as per the original term like a fixed-rate instrument.

Figure 3-67 Add-On rate Method – Use TP Method (Term Selection)


Add-On rate Method – Use TP Method (Term Selection)

If the underlying TP method is (Cash Flow: Average Life or Cash Flow: Duration) and output average life or duration is selected.

A table FSI_O_FTP_ADJ_TP_VALUES has been introduced to store average life or duration values for each of the Add-on Rate types. Each value will be tagged to a particular Add-on Rate type based on the following Code Values:

  • Liquidity Rate (1)
  • Basis Risk Cost (2)
  • Pricing Incentive (3)
  • Other Add-on Rate (4)

The same account can have multiple average life/duration values stored against each particular Add-on Rate type as values are not overwritten and can be uniquely identified using Batch Run ID.

Add-on Rate using cash flow TP methods will generate cash flows and be stored in the FTP_O_CASH_FLOW_OUTPUT table, irrespective of whether TP Average Life or TP Duration is updated in the instrument record or not.

Additionally, a Delete Batch procedure is introduced – This purge batch has been provided to delete records in FSI_O_FTP_ADJ_TP_VALUES as per selected from and to “As-of-Date”.

Note:

Add-on Rates are always processed row by row rather than in bulk, so care should be taken when selecting a TP Method for use in calculating an Add-on Rate. Specifically, bulk methods should be tested to ensure results and performance are as expected.