11.2 Transfer Pricing Methodologies and Rules

The transfer pricing methodologies supported by Oracle Funds Transfer Pricing can be grouped into the following categories:

Cash Flow Transfer Pricing Methods: Cash Flow transfer pricing methods are used to transfer price instruments that amortize over time. They generate transfer rates based on the Cash Flow characteristics of the instruments.

To generate cash flows, the system requires a detailed set of transaction-level data attributes, such as, origination date, outstanding balance, contracted rate, and maturity date, which resides only in the Instrument tables. Consequently, Cash Flow methods apply only if the data source is Account tables. Data stored in the Management Ledger Table reflects only accounting entry positions at a particular point in time and does not have the required financial details to generate cash flows, therefore, preventing you from applying Cash Flow methodologies to this data.

The Cash Flow methods are also unique in that Prepayment rules are used only with these methods. You can select the required Prepayment rule when defining a Transfer Pricing Process.

Oracle Funds Transfer Pricing supports the following Cash Flow Transfer Pricing methods:

• Cash Flow: Average Life
• Cash Flow: Duration
• Cash Flow: Weighted Term
• Cash Flow: Zero Discount Factors

Non-Cash Flow Transfer Pricing Methods: These methods do not require the calculation of cash flows. While some of the non-cash flow methods are available only with the Account tables data source, some are available with both the Account and Ledger table data sources.

Oracle Funds Transfer Pricing supports the following Non-Cash Flow Transfer Pricing methods:

• Moving Averages
• Straight Term
• Spread from Interest Rate Code
• Spread from Note Rate
• Redemption Curve
• Reference Period's Compounded Rate
• Tractor Method
• Caterpillar
• Weighted Average Perpetual
• Unpriced Account

Oracle Funds Transfer Pricing also allows Mid-period Repricing. This option allows you to take into account the impact of high market rate volatility while generating transfer prices for your products. However, the mid-period repricing option applies only to adjustable-rate instruments and is available only for certain Non-Cash Flow transfer pricing methods.

Note on Bulk Updates versus Row-by-Row Processing: Any TP method that does not refer to individual account characteristics utilizes a bulk update to assign a single transfer rate to a group of instrument records. Any TP Method that needs to refer to individual account characteristics to process will execute on a row-by-row basis. In general, Bulk updates are faster than row-by-row processing.

The following TP methods, when not defined through a conditional assumption and not utilizing Mid-Period Repricing, use Bulk Updates:

• Redemption Curve (Assignment Date = As-of-Date only)
• Moving Average
• Spread from Note Rate
• Spread from IRC (Assignment Date = As-of-Date only)

All other TP Methods like Tractor, Caterpillar, and Weighted Average Perpetual are processed row-by-row. When Conditional Assumptions or Mid Period Repricing are used, processing will always be row-by-row, regardless of the TP Method selection.