11 OFS Funds Transfer Pricing Overview

Oracle Funds Transfer Pricing (FTP) application is based on the Oracle Financial Services Analytical Applications Infrastructure (OFSAAI). OFSAAI is the central, integrated data source on which Oracle Financial Services Analytical (OFSAA) applications are built. This description of the Oracle Funds Transfer Pricing process assumes that your system administrator has set up the OFSAAI data repository and has populated it with your enterprise-wide business data. For more information, see the OFS Analytical Applications Infrastructure User Guide.

Oracle Funds Transfer Pricing allows you to transfer price instruments, such as mortgages and commercial loans, stored in your Instrument tables, as well as aggregated information, such as cash and other assets, and equity, residing in the Management Ledger table. Consequently, in transfer pricing you need to select the Account tables as the data source for instruments and the Management Ledger Table for aggregated information.

The Oracle Funds Transfer Pricing process comprises the following steps:

Tip:

Although the following list of steps is sequential, not all users must follow all of these steps. While some steps might not apply to your product portfolio, others are optional, and you can decide whether to include them to fine-tune your transfer pricing results. All required steps are explicitly marked as mandatory in the list of steps, as well as in the sections where they are described in detail.
  • Reconciling the data
  • Cleansing the data by Performing Cash Flow Edits
  • Setting Application Preferences
  • Capturing instrument behavior by:
    • Defining Behavior Patterns
    • Defining Payment Patterns
    • Defining Repricing Patterns
  • Activating Currencies and loading exchange rates
  • (Mandatory) Deciding on historical rate information and managing it by Creating Interest Rate Codes
  • Setting Stochastic Rate Index Rules
  • (Mandatory) Defining Transfer Pricing Rules
  • Setting Prepayment Model Rules
  • Defining Prepayment Rules
  • Defining Adjustment Rules
  • Defining Alternate Rate Output Mapping Rules
  • Creating a Propagation Pattern
  • (Mandatory) Defining and Executing the Transfer Pricing Process
  • Reviewing Processing Errors
  • Accessing Transfer Pricing, Detail Cash Flow Results for Audit Purposes
  • Accessing Transfer Pricing, Interest Rate Audit Results
  • Analyzing Results
  • Reprocessing Erroneous Accounts
  • Define Transfer Pricing Rules
    Defining Transfer Pricing rules is a mandatory step in the Oracle Funds Transfer Pricing process. You must define Transfer Pricing rules, to transfer price your products. A Transfer Pricing rule is used to manage the association of transfer pricing methodologies to various product-currency combinations. It can also be used to manage certain parameters used in option costing.
  • Transfer Pricing Methodologies and Rules
    The transfer pricing methodologies supported by Oracle Funds Transfer Pricing can be grouped into the following categories:
  • Define Prepayment Rules
    One of the major business risks faced by financial institutions engaged in the business of lending is prepayment risk. Prepayment risk is the possibility that borrowers might choose to repay part or all of their loan obligations before the scheduled due dates. Prepayments can be made by either accelerating principal payments or refinancing.
  • Define Adjustment Rules
    Adjustment Rules allow users to define Transfer Pricing Add-on rates that are assigned incrementally to the base FTP rate to account for a variety of miscellaneous risks such as Liquidity risk or Basis risk or to supplement strategic decision-making with Pricing Incentives, Breakage Charges, or other types of rate adjustments.
  • Define Alternate Rate Output Mapping Rules
    Within the Standard Transfer Pricing Process, users can select an appropriate Alternate Rate Output Mapping rule to output transfer pricing results to the seeded or user-defined alternate columns instead of the standard default column.
  • Define and Execute a Transfer Pricing Process
    Defining and executing a Transfer Pricing Process is one of the mandatory steps in Oracle Funds Transfer Pricing. The Transfer Pricing Process allows you to:
  • Define and Execute a Break Identification Process
    Break Identification processing should be run if automatic break detection is the preferred approach to populating the break events table (FSI_D_BREAK_FUNDING_CHARGES). Users also have the option to populate this table manually during data loading or use a hybrid approach. The Break Funding Charges table is the source table for calculating breakage charges.
  • Ledger Migration Process
    This section discusses the process for generating charges or credits, for funds provided or used, and their migration to the Management Ledger table when using the Ledger Level- Charge or Credit migration option in the TP Process.
  • Define Behavior Patterns
    A prerequisite for transfer pricing your product portfolio is capturing instrument behavior. Payment and repricing characteristics for most instruments can be accommodated through the data attribute values in the Instrument tables. However, certain instruments may not have contractual cash flows or may have cash flows that are based on unique payment and repricing patterns that are too complex to be accommodated in the standard fields of the Instrument tables. Oracle Funds Transfer Pricing allows you to define custom behavior, payment, and repricing patterns to accurately model the unique characteristics for such instruments.
  • Define Payment Patterns
    A prerequisite for transfer pricing your product portfolio is capturing instrument behavior. Payment and repricing characteristics for most instruments can be accommodated through the data attribute values in the Instrument tables. However, certain instruments may not have contractual cash flows or may have cash flows that are based on unique payment and repricing patterns that are too complex to be accommodated in the standard fields of the Instrument tables. Oracle Funds Transfer Pricing allows you to define custom behavior, payment, and repricing patterns to accurately model the unique characteristics for such instruments.
  • Define Repricing Patterns
    User-Defined Repricing Patterns provide a mechanism to capture the repricing structure of instruments whose rates change according to complex schedules which cannot be captured in the standard fields of account tables.
  • Perform Cash Flow Edits
    The data in the Instrument tables must be clean, accurate, and complete before it is used to generate cash flows and for further processing. Oracle Funds Transfer Pricing provides seeded Cash Flow Edit Rules to edit (clean and prepare) Instrument table data. You can create multiple Cash Flow Edit Processes depending on the data to be cleansed. You can also view the actual results of Cash Flow Edits by accessing the audit data written into the FSI_PROCESS_ERRORS table.
  • Create Interest Rate Codes
    Oracle Funds Transfer Pricing uses historical interest rate information to transfer price your balance sheet. The final transfer rate or add-on rate assigned to the records in your instrument tables is based on the historical rates information stored in the system. Consequently, you must decide on the type and amount of historical rate information you require to satisfy your Transfer Pricing requirements at the outset of an Oracle Funds Transfer Pricing implementation.
  • Access Transfer Pricing Detail Cash Flow Results for Audit Purposes
    Detailed cash flow results for individual account records can be written to an audit table for validation purposes. If you select the Detailed Cash Flows audit option on the Transfer Pricing Process Audit Block, the detailed cash flow results are written to the FSI_O_PROCESS_CASH_FLOWS table.
  • Access Transfer Pricing Interest Rate Audit Results
    Forward Rates and 1 Month Rates audit results can be written to an audit table to facilitate validation of option cost results.
  • Analyze Results
    You should always analyze results obtained from the Transfer Pricing Engine. For example, you should review the historical rate information (Interest Rate Codes) to ensure that the new cost of funds reflects the current interest rate reality.
  • Review Processing Errors
    There is always the possibility that errors may occur during the execution of a Transfer Pricing Process. A log of such errors is generated during processing and can be accessed by selecting the "View Log" link from both Standard or Stochastic Transfer Pricing Process summary page. Within this log, the report lists the specific transaction for which an error was generated and provides the internally generated identifier of the Transfer Pricing Process that generated it.
  • Reprocess Erroneous Accounts
    While reviewing your results, you might discover accounts with invalid results that need to be reprocessed. Transfer Pricing Processes allow you to rerun a subset of information to make corrections to appropriate products when needed.
  • Reconcile the Data
    Reconciliation is the process of comparing the information carried in the Instrument tables to the General Ledger balances (contained in the Management Ledger table).