11.4.1.4 Adjustment - 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 11-25 Adjustment Rule (Edit Mode)


This screen allows you to edit the parameters that are defined earlier for the Adjustment Rule. Also, you can define the Product Hierarchy Selection, Currency Selection, and Adjustment Type Selection.

Figure 11-26 Adjustment Rule Details - TP Method


You can attache any Transfer Pricing Rule on this screen 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 adjustment rate calculation process and applied during the calculation of the Adjustment Rate(s). Outputs will be written to the respective Adjustment Rate column, for example, Basis Risk Cost Rate, Liquidity Premium Rate, Pricing Incentive Rate, or Other Adjustment Rate.

Users can attach any Transfer Pricing Rule on the Adjustment 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 adjustment rate calculation process and applied during the calculation of the Adjustment Rate(s). Outputs will be written to the respective Adjustment Rate column, for example, Basis Risk Cost Rate, Liquidity Premium Rate, Pricing Incentive Rate, or Other Adjustment Rate.

  • Term:
    • Standard Term: Adjustment 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: Adjustments would be calculated as per the original term like a fixed-rate instrument.

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 adjustment types. Each value will be tagged to a particular adjustment type based on the following ADJUSTMENT_TYPE_CD’s:

  • Liquidity Adjustment (1)
  • Basis Risk Cost (2)
  • Pricing Incentive (3)
  • Other Adjustments (4)

The same account can have multiple average life/duration values stored against a particular adjustment type; as values are not overwritten and can be uniquely identified using Batch Run ID.

Adjustments using cash flow TP methods will generate cash flows and be stored in the FSI_O_PROCESS_CASH_FLOWS 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:

Adjustment 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 Adjustment Rate. Specifically, bulk methods should be tested to ensure results and performance are as expected.