Interest Rate Swaps

TEMENOS T24
Interest Rate Swaps
User Guide
Information in this document is subject to change without notice.
No part of this document may be reproduced or transmitted in any form or by any means,
electronic or mechanical, for any purpose, without the express written permission of TEMENOS Holdings NV.
Copyright 2005 TEMENOS Holdings NV. All rights reserved.

Interest Rate Swaps
Table of Contents
Overview.................................................................................................................................................. 4
Products ............................................................................................................................................... 6
IRS.................................................................................................................................................... 6
CIRS ................................................................................................................................................. 6
Loan.................................................................................................................................................. 7
Deposit ............................................................................................................................................. 7
Interest Options.................................................................................................................................... 8
Fixed Rate ........................................................................................................................................ 8
Floating Rate .................................................................................................................................... 8
Negative rates .................................................................................................................................. 8
Fixed Interest Amount ...................................................................................................................... 8
Interest Day Basis Option Actual/Actual .......................................................................................... 9
Setup ..................................................................................................................................................... 10
Parameter Files.................................................................................................................................. 10
SWAP.TYPE .................................................................................................................................. 10
SWAP.SCHEDULE.TYPE .............................................................................................................. 13
SWAP.AGREEMENT.TYPE .......................................................................................................... 15
SWAP.PARAMETER ..................................................................................................................... 16
SWAP.ACTIVITY............................................................................................................................ 18
SWAP.ADVICES ............................................................................................................................ 19
PERIODIC.INTEREST ................................................................................................................... 20
EB.ACCRUAL.PARAM................................................................................................................... 21
Deal/Transaction processing ................................................................................................................. 22
Swap Contracts.................................................................................................................................. 23
Interest Rate Swap ......................................................................................................................... 23
Currency Interest Rate Swap ......................................................................................................... 25
Loan/Deposit Contracts ..................................................................................................................... 26
Loan................................................................................................................................................ 26
Deposit ........................................................................................................................................... 27
Upfront Profit Allocation ..................................................................................................................... 28
Principal Effective Date ...................................................................................................................... 28
Group Fixing of floating legs .............................................................................................................. 29
Group Fixing of floating legs – Close of Business ............................................................................. 34
SWAP.BALANCES ............................................................................................................................ 35
SWAP.SCHEDULES ......................................................................................................................... 36
TEMENOS T24 User Guide

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Interest Rate Swaps
PX - Principal Exchange ................................................................................................................ 37

IP - Interest Payment...................................................................................................................... 37
RR - Rate Reset ............................................................................................................................. 37
PI - Principal Increase, PIN or NI - Notional Principal Increase ..................................................... 38
PD - Principal Decrease, PDN or ND - Notional Principal Decrease ............................................. 39
PM - Payment of Premium ............................................................................................................. 39
RV - Receipt of Premium................................................................................................................ 39
RX - Re-exchange Principal ........................................................................................................... 40
IS - Issue Price ............................................................................................................................... 40
AP - Annuity Payment .................................................................................................................... 40
Amortisation of Premium Paid/Received ........................................................................................... 41
PM/RV Schedule ............................................................................................................................ 41
Brokerage .......................................................................................................................................... 43
Swap NPV Revaluation...................................................................................................................... 44
Future Rate Calculation.................................................................................................................. 44
Zero Coupon Rate Calculation ....................................................................................................... 45
Swap Valuation .............................................................................................................................. 46
Revaluation Rate ............................................................................................................................ 47
Past Due ............................................................................................................................................ 48
Charges and Commissions ................................................................................................................ 49
Position Management ........................................................................................................................ 52
Non Stop Processing ............................................................................................................................. 54
Limits ..................................................................................................................................................... 54
Outward Delivery ................................................................................................................................... 54
Close of Business Services ................................................................................................................... 55
Start of Day Processing ..................................................................................................................... 56
Accounting process ............................................................................................................................... 57
Schedules .......................................................................................................................................... 57
Flexible Currency Swaps ................................................................................................................... 62
Mkt.Exch.Profit/Loss .......................................................................................................................... 64
Principal Effective Date ...................................................................................................................... 66
Enquiries................................................................................................................................................ 67

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Interest Rate Swaps
Overview
The T24 SWAP module supports the recording and administration of both IRS (Interest Rate Swaps)
and CIRS (Currency Interest Rate Swaps). It also supports ‘single-leg’ contract types (asset or liability),
which are essentially loans or deposits. Additionally, Swaps are incorporated into the T24 Limits,
Accounting and Position Management modules.
The module supports the following types of SWAP: -
• Plain vanilla interest rate swap

• Currency interest rate swap with or without exchange of principal
• Amortising swap
• Accreting swap
• Roller-coaster swap
• Balloon swap
And covers options such as: -
• IRS/CIRS Single Contract

• Simple Loan/Deposit Contract
• Definable Schedules (Date and Frequency Based)
• Fixed/Floating/Spread/Caps/Collars/Floors
• ISDA Day Convention
• Payment Netting
• Definable Delivery
• Full T24 Integration
The details supporting the SWAP transaction are held on a single contract. Transaction details stored
include the counterparty, the notional principal(s), interest rates, schedules for both swap legs, and
payment instructions.

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Interest Rate Swaps
The schedules for both swap legs (asset and liability) are maintained on the SWAP contract, and the
cash flows and balances are stored on the SWAP.BALANCES file. One SWAP.BALANCES record
exists for each leg; consequently any changes to the SWAP details, schedules, rate fixing, etc. take
place on the contract.

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Interest Rate Swaps
Products
The T24 SWAP module supports the following products: -
IRS
An interest rate swap is an agreement between two counterparties to exchange streams of interest
payments over a period of time. It does not involve exchange of principal, and interest is calculated on
the notional principal amount. Interest rates may be fixed or floating and the interest payment
schedules may be generated from a frequency or manually defined. The notional principal amount
may vary during the life of the swap according to the user definable payment schedule.
CIRS
A currency interest rate swap is the same as an interest rate swap where the two streams of interest
payments are in different currencies. Additionally, with a currency interest rate swap, the principal
amount may be exchanged between the counterparties at the beginning and end of the deal. Interest
rates may be fixed or floating and the interest payment schedules may be generated from a frequency
or manually defined. The principal amount may vary during the life of the swap according to the user
definable payment schedule.
Flexible currency swaps (CIRS with SWAP field FLEX.PRIN.PAYMENT set to ‘Yes’): -
• Can have PI, PD, NI, ND, PX and RX transactions added to them at any time, as long as
the deal has not matured and the transaction is in the future
• Can have the PX or RX transaction deleted at any time, as long as the deal has not
matured and the transaction is in the future
• Can have a RX without a PX or a PX without a RX on both asset and liability sides of
deal
• Allow early maturity by editing the maturity date and deleting all future transactions. If
the customer settles the accrued interest, the deal needs an IP schedule on the new
maturity date. If repayment is required, the deal needs a RX schedule on the new
maturity date.
Note that SWAP.SCHEDULE.TYPE NI and ND are required.

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Interest Rate Swaps
Loan
The loan product is the extension of credit to a client with interest being charged in arrears. Interest
or manually defined. The principal amount may vary during the life of the loan according to the user
definable payment schedule.
Deposit
The deposit product is the opposite of the loan. The interest is due to the client in arrears. Interest
or manually defined. The principal amount may vary during the life of the borrowing according to the
user definable payment schedule.

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Interest Rate Swaps
Interest Options
Fixed Rate
The interest rate is fixed, usually for the life of the contract, at input time. However, it is possible to
change the rate on an individual contract basis by specifying a ‘RR’ (rate reset) schedule.
Floating Rate
The interest rate is reviewed on a fixed period, usually 1 to 12 months. A rate key for the appropriate
floating rate is required, e.g. 03LIBOR, to differentiate it from the fixed rate. A spread can be applied to
the rate before the interest calculation. Cap and/or floor rates can also be specified so that the applied
interest rate is adjusted accordingly by the system.
Negative rates
The SWAP module also supports negative interest rates and amounts, and the downstream
processing of them. Negative interest rates can be in any of the forms of fixed rate, floating rate with or
without spread, ST.GROUP.FIX, or interest amounts. This can be defined in field NEGATIVE.RATES
in the SWAP application. This is a no change field defaulting to NULL, which is same as NO.
For negative rates to be allowed the LIQUIDATION.MODE field should only be set to ‘AUTOMATIC’.
Annuity Payments (AP) schedules cannot be input.
Fixed Interest Amount

The interest amount can be fixed by specifying an ‘IP’ (interest payment) schedule with an associated
amount. This is useful when there is a requirement of maintaining the same interest amount for every
interest period throughout the life of the contract.

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Interest Rate Swaps
Interest Day Basis Option Actual/Actual
The interest day bases C (366/366), C2 (366/366) and D (360/366) are available in the T24 SWAP
module.
The interest calculation is weighted in case the calculation period falls on part of a non-leap year and a
leap year. The Calculations differ on when the year period exists, between C (known as the ISDA
method) and C2 (known as the AFB method). For the ‘C’ calculation, the period is broken down into
actual years; for the ‘C2’ calculation the year starts at the maturity date and works backwards. If
February 29 exists in that period then it counts it as 366 days, otherwise it is 365. If the period lasts
more than a year, subsequent calculations are made for each yearly period.
For example: -
A loan of USD 100,000 at 11.5% for 3 months starts on 22/12/95 and matures on 22/03/96 with
interest day basis ‘C’.
No. of Days Days in Year Interest

10 365 315.07
81 366 2545.08
Total Interest 2860.15
A loan of USD 100,000 at 11.5% for 3 months starts on 22/12/95 and matures on 22/03/96 with
interest day basis ‘C2’.
No. of Days Days in Year Interest

91 366 2859.29
Total Interest 2859.29

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Interest Rate Swaps
Setup
Parameter Files
SWAP.TYPE
The SWAP.TYPE file contains definitions of all types of SWAP contracts allowed on the system.
For example: -
IRS - Interest Rate Swap

CIRS - Currency Interest Rate Swap
It also holds the following details with regard to the SWAP.TYPE: -
• Description of the SWAP.TYPE

• Product Category code
• Transaction Index to indicate the characteristic of the SWAP
• Balance Sheet to indicate whether the SWAP is to be treated as on-balance sheet or off-
balance sheet instrument
• Internal category code for the provision of unrealised profit generated by revaluation
• Internal category code for the provision of unrealised loss generated by revaluation
• Revaluation Type
• Booking of unrealised profit allowed or not.
• P&L Category for revaluation profit
• P&L Category for revaluation loss
• If the deal should be processed and limits updated during start of day (instead of Close of
Business).
• If the deal should default to a flexible currency swap (see CIRS).

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Interest Rate Swaps
Example of SWAP.TYPE record IRS
Example of SWAP.TYPE record CIRS

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Interest Rate Swaps
There are two other standard SWAP.TYPE records released with this module which cater for simple
loan and deposit contracts: -
• LOAN Asset side of swap

• DEPOSIT Liability side of swap
Example of SWAP.TYPE record LOAN

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Interest Rate Swaps
SWAP.SCHEDULE.TYPE
This file defines the schedules, which are permitted in a SWAP contract. The first two characters of
the Id determine the type of schedules and are fixed as follows: -
Type Description
AC Interest accrual current month (system generated)
AM Interest accrual previous month (system generated)
AY Interest accrual previous year (system generated)
CI Contract initiation (system generated)
CM Contract maturity (system generated)
NR NPV revaluation (system generated)
RL Currency revaluation (system generated)
PX Principal exchange
RX Principal re-exchange
PI Principal increase
PD Principal decrease
PIN Notional Principal increase
PDN Notional Principal decrease
IP Interest payment
RR Rate reset
PM Payment (premium, interest purchased, etc)
RV Receipt (premium, interest received, etc)
IS ISSUE price
AP Annuity payment

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Interest Rate Swaps
Different schedules can be added but the first two characters must be one of the above. For each
schedule defined, the following associated information is also held: -
• Description of schedule
• Transaction code to be used on entries (Mandatory except CI, CM, NR, RL and RR; must be
unique if IS)
• P&L category code (Mandatory if PM, RV or IS)
• Charge codes
• Fee codes
Example of SWAP.SCHEDULE.TYPE record

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Interest Rate Swaps
SWAP.AGREEMENT.TYPE
This file is used to store the types of agreements used in SWAP contracts, e.g. ISDA, BBAIRS, and
MASTER, etc. Each contract must be linked to an agreement type. The field AGREEMENT.TYPE on
the SWAP contract is validated against the agreement type definitions on this file and enriched with
the associated description.
Two swap agreement type records are released with this module: -
• ISDA the ISDA Definitions

• OTHER specific such as simple loan and deposit contracts
Example of SWAP.AGREEMENT.TYPE record

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Interest Rate Swaps
SWAP.PARAMETER
This file holds the system level parameters for the processing of SWAP transactions, in a single
SYSTEM record. This is the highest-level file within the SWAP module and must be set up before any
data can be entered into the module.
The SYSTEM record consists of four major groups: -
• Asset accrual categories

• Liability accrual categories
• Additional data such as transaction code to use on net payments and, date and frequency of
accruals.
• Revaluation related data such as P&L category for Currency Revaluation, revaluation transaction
codes, coupon curve rate, categories of Upfront Allocation of P&L and periodic interest rate
indices.
Please note that accruals are not performed until a valid accrual cycle has been defined.

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Interest Rate Swaps
Example of SWAP.PARAMETER record

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Interest Rate Swaps
SWAP.ACTIVITY
This file is used to control the delivery output from the SWAP module. The records on this file define
activities that produce delivery output. These activities relate to specific events during the life of the
contract. The delivery relating to each of these events may, if required, be produced prior to the event
itself. The number of days prior to event is defined on this file.
Whenever delivery output is produced via the SWAP module, the activity code of the relevant advice
is recorded on the contract. When the contract is subsequently viewed, these activity codes are
displayed and enriched with the description recorded on this file.
The Id is a three-digit code identifying the activity: -
ID Description
101 Contract Confirmation
102 Principal Exchange
103 Principal Increase / Decrease
104 Contract Amendment
105 Interest payment
106 Contract maturity
107 Contract Reversal
108 Rate Reset
109 Principal Re exchange
110 Payment of premium
111 Receipt of premium
112 Issue Price
113 Annuity payment
114 Rate Reset
115 Rate Reset amendment
202 Payment
210 Advice to receive

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Interest Rate Swaps
SWAP.ADVICES
This file controls the output of delivery messages for a SWAP.ACTIVITY. The record key is the
SWAP.ACTIVITY-SWAP.TYPE (the latter being optional) e.g. 101 or 101-CIRS.
A SWAP.ADVICES record can be linked to another defined SWAP.ADVICES record and provides
the ability to define multiple message types, print formats and deal slips. This gives the capability to
tailor the output of a SWAP activity.
The following details are held for each SWAP.ADVICES: -
• Description of advices to produce

• Use linked SWAP.ADVICES record
• Message type to produce (DE.MESSAGE)
• Delivery print format
• Optional deal slips to produce
Example of SWAP.ADVICES record

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Interest Rate Swaps
PERIODIC.INTEREST
Rates need to be defined within PERIODIC.INTEREST for each type of floating rate that is required.
For example, 3 month LIBOR and 6 month LIBOR need to be set up as two different records within
PERIODIC.INTEREST. E.g. 07USDyyyymmdd could represent the 3month LIBOR rate, and
08USDyyyymmdd could represent the 6month LIBOR rate for the same system date.
Each record must only have one entry other than the "Rest” entry. If a table has more than these two
entries only the first value (by nearest date) is used; the second and any other subsequent values is
ignored.
The system allows up to 99 different types of rate sets per day for each currency
PERIODIC.INTEREST

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Interest Rate Swaps
EB.ACCRUAL.PARAM
This table allows the user to define a principal effective date calculation routine, which can
subsequently be applied in the SWAP field EB.ACCRUAL.PARAM.
EB.ACCRUAL.PARAM record
The field PRIN.ADJUST.RTN should be populated with a valid principal effective date calculation
routine.

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Interest Rate Swaps
Deal/Transaction processing
A typical SWAP contract input screen consists of the following sections: -
• Contract details
• Asset details including schedules
• Liability details including schedules
• Settlement instructions
Most of the fields have default values except for the key elements such as counterparty, maturity date,
agreement type, currencies, and principal amounts. Schedules can be entered directly onto the
contract by using the schedule types, dates and frequencies, amounts, and rates. This simplifies the
input of a relatively complex SWAP contract.
All schedules are processed on-line and at Close of Business (COB), with the exception of the ‘IP’ and
the ’AP’ schedules which are due today. In the latter case, they are only processed at COB.
On validation, the system automatically checks and updates the customer’s credit limit, raises
accounting entries and forward entries, applies any charges and/or fees, updates the delivery fields on
the contract, and updates position management.
At the authorisation stage, the system generates all the necessary accounting entries and CRF entries
and, populates and sends the messages in the delivery fields by SWIFT.
Broker / Customer confirmation is carried out using the Verify function, and stamps the contract with
the terminal number, operator name and the time and date when the contract was confirmed. The type
of confirmation required is specified as a prefix to the contract number (which is ignored for other
functions) of either CU for customer confirmations or BR for broker confirmations.
By using the VERSIONs SWAP,CUSTOMER and SWAP,BROKER, and the default ENQUIRY
supplied with these VERSIONs, the appropriate prefix is automatically appended to the contract
number.

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Interest Rate Swaps
Swap Contracts
The following are two example SWAP contracts. The first is an IRS and the other a CIRS. As can be
seen from the examples, the input screens are similar apart from the default SWAP type.
Interest Rate Swap
Input of Asset Details on IRS transaction

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Interest Rate Swaps
Input of Liability Details on IRS transaction

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Interest Rate Swaps
Currency Interest Rate Swap
Input of Asset Details on Currency IRS transaction
Input of Liability Details on Currency IRS transaction

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Interest Rate Swaps
Loan/Deposit Contracts
As mentioned above, the T24 SWAP module is capable of handling loan and deposit contracts. Below
are two example contracts: -
Loan
Input of Asset Details on Loan Swap transaction

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Interest Rate Swaps
Deposit
Input of Liability Details on Deposit Swap transaction

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Interest Rate Swaps
Upfront Profit Allocation

The field TREASURY.CUSTOMER in the SWAP application is used to identify a customer as a Non
treasury customer and allow the input of a treasury rate if it is required.
This field either holds the value ‘NULL’ or ‘NO’. By default it holds the value as NULL, which means
the counterparty is a treasury customer. However, if set as ‘NO’, it is construed that the counterparty is
not a treasury customer
The difference between the Treasury rate and the Customer Rate will be the Market Exchange
Profit/Loss. The former is input in AS.TRSY.FIXED.RATE and the latter in AS.FIXED.RATE. The
prefix AS indicates the Asset side and the prefix LB indicates the Liability Side. Within the AS.TYPE
and LB.TYPE, the Treasury Rate has to be input in the field AS.TRSRY.RATE/LB.TRSRY.RATE and
the Customer Rate has to be input in AS.RATE/LB.RATE.
The Upfront Profit Allocation functionality does not support cases where the Interest Amount is
entered as an amount instead of a rate. The functionality supports Fixed Side only.
Principal Effective Date
SWAP record
The field EB.ACCRUAL.PARAM is used to identify which principal effective date calculation routine the
user wishes utilise.
By default the value set in this field is “NULL” and in the absence of this field being populated with a
valid value, standard T24 calculation methods apply.

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Interest Rate Swaps
Group Fixing of floating legs

The SWAP module provides the capability to allow the fixing of floating rates to be grouped in a semi-
or fully-automatic operation without the need to review each trade manually.
Trades matching certain user-specified parameters are fixed using the ST.GROUP.FIX application.
This application allows the group fixing (also known as rate reset) operation to be run intra day or at
Close of Business (COB), and may be rerun e.g. in cases where the wrong rate has been used.
The ST.GROUP.FIX application provides an interface for the User to select which swap trades are to
be fixed and then executes the fixing operation upon authorisation. A group fixing operation must be
authorised for it to be executed since it involves changes to transaction data.
When creating group rate fixing requests, various parameters are specified (e.g. instrument,
instrument type, currency, rate fixing code and effective date) along with operational parameters (e.g.
whether a report is necessary). This application will automatically detect trades requiring a rate reset
and sets the rate accordingly.
When a spread rate is defined, the fixing operation will add this to the fixing rate to derive the actual
fixing rate. This is needed for cases where a coupon with a floating rate is being fixed, such as LIB3M
+ 0.5%.
The fixing operation creates an individual “RR” schedule record for each effective date, containing the
fixing rate (which includes the spread component if defined for that trade).
If a frequency code is input in the “RR” schedule date field, the fixing program creates the next “RR”
schedule, after advancing the date to be that of the next reset date as determined by the frequency.

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Interest Rate Swaps
For example, for an existing schedule of: -
Schedule Date Rate

“RR” 20000228M0328 -
A rate fix of 5.4% for 28/2/2000 results in the following, after the fixing operation: -
“RR” 20000228 5.4%

“RR” 20000528M0328 -

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Interest Rate Swaps
An example of ST.GROUP.FIX is shown below: -
ST.GROUP.FIX
The instrument type defines the application. E.g. SWAP or FRA.
The effective date is the date on which the new rate takes effect and is not necessarily the date on
which the fixing operation itself happens. Typically, fixing occurs two days before or on the day the
new rate takes effect, depending on the currency.
The ST.GROUP.FIX record specifies whether the SWAP trade becomes authorised or unauthorised
after the fixing operation is executed.
The rate fixing code determines which PERIODIC.INTEREST rate set to use. The link to the
PERIODIC.INTEREST table is handled via the MARKET.RATE.TEXT record (in fields
SWAP.AS.RATE.KEY and SWAP.LB.RATE.KEY). The rate fixing code represents the
MARKET.RATE.TEXT key. The same code must be input in ST.GROUP.FIX as that used to flag
the floating rate within the trades.
Rates are derived from PERIODIC.INTEREST. The key to this table is NNCCYYYYMMDD e.g.
10GBP20020602, which allows up to 99 individual records be captured per currency per day. This
enables individual tables for individual products.

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Interest Rate Swaps
When an unfixed leg is due for fixing the SWAP application downloads the rate from the source rate
file and automatically updates the SWAP transaction record with the relevant rate.
Reports are available that provide details of the fixing operations carried out and any errors
encountered.
If several overnight requests are required, for example on an IMM fixing date, one record per
combination of instrument/currency/rate fixing code/effective date, will need to be input and authorised,
and marked to run at COB.

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Interest Rate Swaps
A detailed explanation of the ST.GROUP.FIX fields is as follows: -
INSTRUMENT- Defines the application (e.g. SWAP)

TYPE- Sub-type within SWAP group. This can be any type defined in the application
SWAP.TYPE.
CURRENCY- Currency to be fixed; only one currency may be specified.
RATE.CODE- The descriptor for the rate set supplying the fixing rates. In SWAP this is the value
in MARKET.RATE.TEXT.
RATE.SELECTION- Use mid or bid-offer rate from the rate table. Allowed values are: -
MIDDLE: The fixing process will calculate and use the mid rate between the BID
and OFFER rates as defined in the rate table.
BIDOFFER: The fixing process will use either BID or OFFER as appropriate for the
deal type (asset legs will use the OFFER, liability legs will use the BID).
EFFECTIVE.DATE- The date on which the new rate will take effect. For the SWAP application this is
the date in the “RR” schedule date/frequency field.
TIMING- Specifies when the operation is executed. Allowed values are: -
WID (Executed immediately the ST.GROUP.FIX record is authorised).
COB (Executed by ST.EOD.GROUP.FIX [see below] as a batch in the Close of
Business processing).
(Left blank) – The operation will be suspended.
REFIX- The fixing operation will overwrite rates for trades, which may already have been
fixed (manually or automatically) previously. Allowed values are YES or NO.
FIXING.LIST- Whether the list of trades fixed is required so that the user can see a list of trades
about to be fixed. Allowed values are YES or NO.
ERROR.LOG- Whether the process should write to the log. Values are YES or NO.
TRADE.STATUS- Whether a fixed trade goes directly to authorised status or whether it goes to
unauthorised status. Allowed values are: -
AUTH: Trade will be authorised.
WAIT: Trade will not be authorised.
LAST.RUN- Controlled and updated by the system; contains date as well as status
(started/completed) and number of errors if completed.

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Interest Rate Swaps
Group Fixing of floating legs – Close of Business

The ST.EOD.GROUP.FIX batch process detects any COB rate fixing requests that are created. The
COB process activates ST.GROUP.FIX using the up-to-date rates available in
PERIODIC.INTEREST.
If the request is made that trades are authorised by the fixing process, then the effect of the updated
transactions will be included in the same-day P&L.

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Interest Rate Swaps
SWAP.BALANCES
The SWAP.BALANCES file is automatically updated and maintained by the T24 SWAP module. The
record Id is made up of contract number and leg identifier (i.e. ‘A’sset or ‘L’iability). It holds all balance
information, principal outstanding, rates, accruals, past schedules, and charges details.
The fields relating to past schedules on the SWAP.BALANCES file are the basis of the ENQUIRY
SWAP.SCHEDULE.
The corresponding save file (SWAP.BALANCES.SAVE) and the history file

(SWAP.BALANCES.HIST) are copies of the data held in the SWAP.BALANCES file at various
stages. The save file stores the last authorised version of the balances record whereas the history file
stores the reversed version of it.
SWAP.BALANCES record

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Interest Rate Swaps
SWAP.SCHEDULES
SWAP.SCHEDULES is a live file that records data regarding the unprocessed schedules for a
SWAP contract, based upon the schedule date. The recorded data includes the activity to be triggered
from a Delivery viewpoint.
The field ORIG.SCHED.DATE records the original date of the schedule. When this falls on a non
business day, processing is handled according to the PROCESS.DATE which is arrived at as per the
DAY.CONVENTION on the SWAP contract. I.e.: -
• When the PROCESS.DATE is earlier than the ORIG.SCHED.DATE, the schedule is processed on
the PROCESS.DATE.
• When the PROCESS.DATE is after the ORIG.SCHED.DATE, a new SWAP.SCHEDULES record is
created during COB of the ORIG.SCHED.DATE, with the PROCESS.DATE as part of the Id.
• Contracts with a DAY.CONVENTION of ‘Modified F’ or ‘Following’ that cause the PROCESS.DATE
to be later than the Contract Maturity Date, are processed as if they bear the DAY.CONVENTION
‘Null/Day Adjustment Null’.
Whenever a SWAP contract is amended the SWAP.SCHEDULES record for the contract is deleted
and rebuilt. When the schedule is processed, the related SWAP.SCHEDULES record is removed.
SWAP.SCHEDULES record

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Interest Rate Swaps
An extensive set of SWAP.SCHEDULE.TYPE records are released with the T24 SWAP module.
These give the flexibility and capability to enter most types of SWAP contract.
All schedules are processed on-line and at Close of Business, except for IP and AP schedules which
are due today. In the latter case, these schedules are only processed at Close of Business.
PX - Principal Exchange
One off schedule, no amount or rate is allowed. Exchanges the principal amount specified on the
contract and changes NOTIONAL to ‘NO’.
These variations are allowed: -

• PX at start and RX at maturity on both asset and liability sides
• No PX or RX
• PX and RX on asset side only (exceptional; warning displays)
• PX and RX on liability side only (exceptional; warning displays)
For deals with the SWAP field FLEX.PRIN.PAYMENT set to ‘Yes’ (flexible currency swaps), the
following additional variations are allowed: -
• PX only on both asset and liability sides of deal
• PX can be added to or deleted from a deal before start date
IP - Interest Payment
Amount is mandatory if neither rate nor rate key is specified. Performs final accrual and will correct
interest amount if necessary.
Multiple IP schedules are allowed provided that there is no frequency attached to them. Also, the IP
schedules can have associated amounts.
RR - Rate Reset
No amount is allowed and will not be processed until a rate is entered. It updates the current rate on
the contract and the rate fields on the SWAP.BALANCES record.

Page 37 of 67
Interest Rate Swaps
PI - Principal Increase, PIN or NI - Notional Principal Increase

Amount is mandatory and rate is not allowed. It updates the principal fields on the
SWAP.BALANCES record.
All three schedules (PI, PIN and NI): -

• Increase the principal on the deal
• Result in changes to subsequent interest payments
• Affect the RX transaction, if there is one. It re-exchanges the modified principal
• Affect the customer's credit limit
The differences between the three schedules are illustrated below: -
Deal PI PIN NI
Swap with PX and RX The increase causes actual Causes Not allowed
movements of cash across nostro and cash
customer accounts movements
Swap without PX or RX The increase is notional – there are no No cash Not allowed
movements of cash movements
CIRS with SWAP field Causes cash movements Not allowed No cash
FLEX.PRIN.PAYMENT set movements
to ‘Yes’

Page 38 of 67
Interest Rate Swaps
PD - Principal Decrease, PDN or ND - Notional Principal Decrease

Amount is mandatory and rate is not allowed. It updates the principal fields on the
SWAP.BALANCES record.
All three schedules (PD, PDN and ND): -

• Decrease the principal on the deal
• Result in changes to subsequent interest payments
• Affect the RX transaction, if there is one. It re-exchanges the modified principal
• Affect the customer's credit limit
The differences between the three schedules are illustrated below: -
Deal PD PDN ND
Swap with PX and RX The decrease causes actual Causes Not allowed
movements of cash across nostro and cash
customer accounts movements
Swap without PX or RX The decrease is notional – there are No cash Not allowed
no movements of cash movements
CIRS with SWAP field Causes cash movements Not allowed No cash
FLEX.PRIN.PAYMENT set movements
to ‘Yes’
PM - Payment of Premium
Amount is mandatory and no rate is allowed. Amount is always payable regardless of asset or liability
leg.
RV - Receipt of Premium
Amount is mandatory and no rate is allowed. Amount is always receivable regardless of asset or
liability leg.

Page 39 of 67
Interest Rate Swaps
RX - Re-exchange Principal
The RX schedule is not allowed if neither PX nor IS are previously defined. It is a one off schedule and
no amount or rate is allowed. It re-exchanges the principal outstanding on the SWAP.BALANCES
record and changes either asset or liability status to ‘MAT’.
These variations are allowed: -
• PX at start and RX at maturity on both asset and liability sides

• No PX or RX
• PX and RX on asset side only (exceptional; warning displays)
• PX and RX on liability side only (exceptional; warning displays)
For deals with the SWAP field FLEX.PRIN.PAYMENT set to ‘Yes’ (flexible currency swaps), the
following additional variations are allowed: -
• RX only on both asset and liability sides of deal
• RX can be added to or deleted from a deal before start date
A flexible currency swap can be matured early, by bringing the maturity date and RX forward, and
deleting all forward transactions.
IS - Issue Price
A one off schedule and must have either amount or rate specified. As with the PX schedule, it changes
NOTIONAL to ‘NO’.
It is similar to the drawdown issue price in Loans and Deposits. The issue price can be expressed as
a % (0-500) of the nominal amount or a flat amount. It may be below or above 100% of the nominal
amount. The final drawdown issue price will be net of any charges and/or fees.
AP - Annuity Payment
The AP schedule is similar to the annuity in Mortgage. It uses the standard repayment calculation
routine to work out a theoretical repayment amount. If no amount is entered, the theoretical amount
will be used. Otherwise, the amount entered must be greater than or equal to the theoretical amount.
A PX schedule must be specified at the beginning of the contract in order to generate the principal
movement. Otherwise, the principal will remain NOTIONAL.

Page 40 of 67
Interest Rate Swaps
Amortisation of Premium Paid/Received
PM/RV Schedule
The field AS.AMORT.DATE or LB.AMORT.DATE, as the case may be, contains the date up to which
Amortisation of the PM/RV Schedule Amount is done, starting from the Schedule date: -
SWAP CONTRACT

Page 41 of 67
Interest Rate Swaps
The amount of Premium is credited to the customer if the PM Schedule is used, and debited to the
customer if the RV Schedule is used.
If the AS.AMORT.DATE or LB.AMORT.DATE is specified, then the amount of premium will be
amortised daily from Schedule date until the AS.AMORT.DATE/LB.AMORT.DATE. If the
AS.AMORT.DATE or LB.AMORT.DATE is not specified, then the premium/discount will be posted to
the Profit and Loss account on the same day without Amortisation.
The amount of Premium amortised is displayed in the SWAP.BALANCES file.
SWAP.BALANCES

Page 42 of 67
Interest Rate Swaps
Brokerage
Brokerage fields on SWAP record
The brokerage base, asset or liability, indicates which side of the contract is to be used for the
brokerage calculation. The brokerage amount will be calculated by reference to the BROKER record
indicated by the broker code, unless an overriding amount is entered. The broker currency, that is the
currency in which the brokerage will be paid, and the corresponding amount will also be defaulted
unless input. Refer to the BROKER section in the SYSTEM.TABLES User Guide for the explanation
of the brokerage calculation.
Brokerage is posted to the brokerage account contra profit and loss when the contract is authorised. It
cannot then be changed in the contract.

Page 43 of 67
Interest Rate Swaps
Swap NPV Revaluation

The T24 SWAP module provides a revaluation mechanism for all generic interest rate swaps. The
revaluation calculates the net present value of each leg of the SWAP by discounting all future cash
flows of that leg using the zero coupon rates.
The revaluation involves: -
1. Future Rate Calculation;

2. Zero Coupon Rate Calculation, and
3. Swap Valuation.
Future Rate Calculation

The future rate of the floating leg is calculated using the formula below (see the “FRA User Guide” for
further details): -
( R3 * D3) − ( R1 * D1) ⎛ R1 * D1 ⎞
FWD. RATE = ⎜ + 1⎟
D3 − D1 ⎝ B * 100 ⎠
Where: -
R1 = rate for short period (reval date to start date of next interest period)
D1 = number of days in short period
R3 = rate for long period (reval date to end date of next interest period)
D3 = number of days in long period
B = interest day basis

Page 44 of 67
Interest Rate Swaps
Zero Coupon Rate Calculation

The zero coupon rates are derived from the coupon curve rates using the formula below. The coupon
curve rates are theoretical rates constructed to represent the future rates on the fixed side of a SWAP.
N
100 CF
100 =
(1 + ZCRn ) n
+ ∑
i =1 ⎛ ZCRi * E ⎞
i
⎜1 + ⎟
⎝ YD ⎠
Where: -
N = number of interest payments between reval date and maturity date

CF = cash flow of interest period
(Coupon.Curve.Rate * E / YD)
ZCR = zero coupon rate of interest period
E = number of days in interest period
YD = number of days in year

Page 45 of 67
Interest Rate Swaps
Swap Valuation
The Profit/Loss of a SWAP is: -
Profit.or.Loss = NPV of Asset leg - NPV of Liability leg
The net present value of each leg is calculated using the following formula: -
N
CFi ⎛ A⎞
NPV = ∑ − ⎜ CF 1 * ⎟
i =1 ( i −1+
DSC
) ⎝ E⎠
⎛ ZCRi ⎞ E
⎜1 + ⎟
⎝ freq ⎠
N = number of interest payments between reval date and maturity date

CF = cash flow of interest period
ZCR = zero coupon rate of interest period
freq = number of interest payments per year
DSC = number of days from reval date to next interest payment date
E = number of days in interest period
A = number of days from start of interest period to reval date

Page 46 of 67
Interest Rate Swaps
This is illustrated by the example below: -
Example
Bank has on its books a 5-year interest rate swap of notional CHF 1,000,000. Counterparty pays fixed
6.5% and Bank pays CHF LIBOR +0.5%, interest paid net annually.
Assume that the forward 12-month LIBOR rates are 4.5%, 5.0%, 6.5%, 7.0% and 5.5% for year 1, 2, 3,
4 and 5 respectively. Also assume that the zero coupon rates are 5.2%, 5.4%, 6.7%, 7.0% and 6.1%
for year 1, 2, 3, 4 and 5 respectively.
The net present value of the fixed side will be: -
1 M * 0.065 1 M * 0.065 1 M * 0.065 1 M * 0.065 1 M * 0.065

NPV A = + + + +
.
1052 . )2
(1054 . )3
(1067 . )4
(107 . )5
(1061
= 61,787.07 + 58,510.27 + 53,50817
. + 49,58819
. + 48,34332
.
= 271,737.02
The net present value of the floating side will be: -
1 M * 0.05 1 M * 0.055 1 M * 0.07 1 M * 0.075 1 M * 0.06

NPV L = + + + +
.
1052 . )2
(1054 . )3
(1067 . )4
(107 . )5
(1061
= 47,528.52 + 49,508.69 + 57,62418
. + 57,21714
. + 44,624.60
= 256,50313
.
The Bank will therefore record an unrealised profit of CHF 15,233.89.
Revaluation Rate
The P/L is converted to the local currency using the MID.REVAL.RATE unless the REVAL.RATE field
is populated on the relevant CURRENCY record. All revaluation types except rebates (RB) use the
REVAL.RATE field, unless it is blank.

Page 47 of 67
Interest Rate Swaps
Past Due
The SWAP module links to the PAST.DUE module, in the same way as other modules i.e. MG, MM
and LD. Only the asset side of the SWAP is used to construct the corresponding PAST.DUE
contract.
The following two fields are available in the SWAP application.
LIQUIDATION.MODE This field identifies the manner in which overdue payments are handled.
The default for all contracts is AUTOMATIC, but can be changed to
MANUAL so as to invoke the PAST.DUE processing.
OVERDUE.STATUS This is a no-input field and identifies the status of the underlying
PAYMENT.DUE contract (GRA, PDO, NAB, WOF, CUR…)
The following rules apply: -
• If the PAST.DUE product is not defined for the current company or only the liability side is
specified then the only allowed setting is AUTOMATIC.
• AUTOMATIC is not allowed if the OVERDUE.STATUS is not ‘CUR’ or ‘WOF’.
• ‘PI’ (Principal increase) is not allowed on the asset side if OVERDUE.STATUS is not set to ‘CUR’
or is not null.

Page 48 of 67
Interest Rate Swaps
Charges and Commissions

Charges and fees are associated to schedule types in the SWAP module. Charges are always
receivable whereas fees are always payable. The calculation amount is the amount associated to the
schedule with the exception of the IS schedule where the calculation amount is the original principal.
Charge and fee codes on the schedule type records must be valid keys in the FT.CHARGE.TYPE
file or the FT.COMMISSION.TYPE file.
The FT.CHARGE.TYPE table defines the conditions relating to various types of standard flat charge
that are available for use within T24.
The FT.COMMISSION.TYPE table defines the conditions relating to all types of commission used
by SWAP and other T24 modules. Each commission type can be defined as a flat amount or as a
percentage. In the latter case different percentages can be defined for different Bands or Levels of
deal amounts. Minimum and maximum commissions can be specified for each Band or Level together
with overall min/max. commission charges.
The exact amount of the fee and/or charge is recorded on the SWAP.BALANCES record.

Page 49 of 67
Interest Rate Swaps
It is possible to either Amortize or to accrue the Charges and Fees attached to the Schedules by
appropriate definition in FT.COMMISSION.TYPE
A sample record of FT.COMMISSION.TYPE is shown below:
FT.COMMISSION.TYPE
Charges/Fees so defined can be attached to Schedules defined in SCHEUDULE.TYPE.

The Amortization/Accrual process for Charges/Fees will begin from the value date of the SWAP
Contracts. While Charges/Fees attached to Principal (Notional or otherwise) Increase/Decrease
schedules can either be amortized or accrued, Charges/Fees attached to Principal Exchange
schedules, Rate Reset Schedules, Premium Schedules will only be amortized. Charges/Fees attached
to Principal Re-Exchange Schedules and Interest Payment Schedules will only be accrued.
If the content of ACCRUE.AMORT field is not consistent with the type of schedule, then such
charge/fee will be treated as if on a cash basis. The charge/fee will be directly taken to the Profit and
Loss Account.

Page 50 of 67
Interest Rate Swaps
A value of the type “ nM / nY” in the field AMORTISN.PERIOD would mean that the amortization would
stop after the so many months/years for Principal Exchange Schedule and the accrual will commence
so many months/years before the maturity date for Principal Re-Exchange Schedule. For any other
value in this field, the period of Amortization/Accrual shall be from the Value date to the Maturity Date.
Contents of the field AMORTISN.PERIOD will not be reckoned for other Schedules, and the process of
Amortization/Accrual will be as below:
For Rate Reset Schedules, Interest Payment Schedules and Principal Increase/Decrease Schedules
which might have a periodicity, the Amortization/Accrual period shall be the period between Schedules
of similar type. If there is no other Schedule of the same type ahead, the end date shall be the date of
Principal Re-Exchange Schedule, if present, or else the Maturity date.
Charges/Fees attached to Premium Schedules will be amortized up to the date in the Field
AS.AMORT.DATE/LB.AMORT.DATE, if specified. Else it will be taken as if on cash basis on the
Schedule Date.
EB.ACCRUAL
The details of Amortization/Accrual will be recorded in EB.ACCRUAL. A sample record is shown
below:
EB.ACCRUAL

Page 51 of 67
Interest Rate Swaps
Position Management
The T24 SWAP module is fully interfaced with the T24 Position Management module. A set of position
classes is defined for the SWAP module. The parameter file, PM.SW.PARAMETER is used to
identify and breakdown the products associated with the SWAP processing into individual activities
and to allocate them a unique PM.POSN.CLASS.
A single record, IRS, is released with this module: -
PM.SW.PARAMETER record

Page 52 of 67
Interest Rate Swaps
PM.SW.PARAMETER record (cont'd.)

Page 53 of 67
Interest Rate Swaps
Non Stop Processing

The SWAP application can be enabled as a ‘Non Stop’ application. This allows the input of new Swap
transactions for the next day (backdated contracts not allowed), while the Close of Business is in
progress. These contracts can be amended, deleted and reversed while COB is in progress. Contracts
input prior to commencement of COB are viewable only, when the COB is in progress.
Limits
The SWAP module uses standard calls to the LIMIT module. Whenever an asset transaction is input,
it will check with the LIMIT module to verify the availability of a valid LIMIT for that product. If it does
not exist, a default one will be created according to the values defined in the LIMIT.PARAMETER
file and the product number range defined for SWAP. Checks are made against the expiry date,
available amounts, global or sub-product LIMIT records according to the unique LIMIT structure of
the bank. However, a default deposit LIMIT is always used for every liability transaction.
For more information see the LIMIT User Guide.
Outward Delivery
The SWAP module produces the following SWIFT messages to confirm financial events and, contract
input and amendments, as appropriate. It provides advices through the standard delivery interface in
T24 and accommodates the following message/advices: -
Message Description
MT100 Payment Advice for non bank counterparty
MT202 Payment Advice
MT210 Notice to Receive
MT360 Single Currency Interest Rate Swap Confirmation
MT361 Cross Currency Interest Rate Swap Confirmation
MT362 Interest Rate Swap Reset
SWIFT messages generated by the SWAP module

Page 54 of 67
Interest Rate Swaps
Close of Business Services

The T24 SWAP module includes Close of Business procedures, which process all the swap contracts,
which have not matured. The Close of Business process includes: -
• Processing of unauthorised contracts

• Processing of any schedules due
• Performance of interest accruals
• Currency Revaluation report
• Currency Revaluation
• Swap NPV Revaluation Report
• Swap NPV Revaluation
• Processing of any static changes
BATCH record for Swap Close of Business processing

Page 55 of 67
Interest Rate Swaps
BATCH record for Swap Close of Business processing (cont'd.)
Start of Day Processing

Swaps can be processed at Start of Day. The Swap is processed in the overnight batch before the
system goes live to intra day activities on the day of Value/Maturity. In this way funds are available to
meet other requirements as soon as the system is live on the day in question. This happens if
SOD.MAT is set to ‘Yes’.
The SW.START.OF.DAY batch job matures all contracts with SOD.MAT set to ‘Yes’, where the
maturity or value date equals the processing date. (The DATE.CHANGE task occurs before the
SW.START.OF.DAY and SYSTEM.LIMIT.SOD tasks in the overnight batch process so the
processing date now equals the appropriate start of day date).
All STMT.ENTRY, CATEG.ENTRY and CONSOL.ENT.TODAY are raised during the start of day
process. The system recognises that these accounting entries have been made so that they are not
duplicated in the Close of Business process. Similarly, the SYSTEM.LIMIT.SOD batch job updates
all limits during start of day.

Page 56 of 67
Interest Rate Swaps
Accounting process
Schedules
The accounting process is initiated from schedule processing in the SWAP module. As with schedule
processing, it can be called on-line as well as at Close of Business. The following table is a summary
of the accounting entries raised by various schedules: -
Schedule Asset Liability
AC Interest Accrual DB – IENC * DB – P&L
CR – P&L CR – IENC *
CI Contract Initiation
Forward DB – FORWARDDB CR – FORWARDCR
Live DB – NOTIONALDB CR – NOTIONALCR

(CR – FORWARDDB) (DB – FORWARDCR)
PX Principal Exchange – CIRS
with Principal Movements
(OFF Balance Sheet)
F Entry for Customer CR F Entry for Customer DR
F Entry for Internal Acc DR F Entry for Internal Acc CR
Live CR - FORWARDDB DB – FORWARDCR

DB – SWOFFBALDB CR – SWOFFBALCR
Live Entry for Customer CR Live Entry for Customer DR
Live Entry for Internal Acc Live Entry for Internal Acc
DR CR
PX Principal Exchange – IRS
without Principal Movements
(OFF Balance Sheet)
Forward DB – SWFWNOTLDB CR – SWFWNOTLCR
Live CR – SWFWNOTLDB DB – SWFWNOTLCR

DB - NOTIONALDB CR – NOTIONALCR
Accounting entries raised by Swap Schedules

Page 57 of 67
Interest Rate Swaps

PX Principal Exchange – CIRS
(ON Balance Sheet)
Live CR – FORWARDDB DB – FORWARDCR

DB – LIVEDB CR – LIVECR
RX Re-exchange Principal –
CIRS with Principal
Movements (OFF Balance
Sheet)
Forward No Spec Entry No Spec Entry
F Entry for Customer DR F Entry for Customer CR
Live CR – SWOFFBALDB DB – SWOFFBALCR

Live Entry for Customer DR Live Entry for Customer CR
CR DR
IRS without Principal
Movements (OFF Balance
Sheet)
Live CR – NOTIONALDB DB – NOTIONALCR

Page 58 of 67
Interest Rate Swaps

CIRS with Principal
Movements (ON Balance
Sheet)
Live CR – LIVEDB DB – LIVECR

CM Contract Maturity CR – NOTIONALDB DB – NOTIONALCR
PI Principal Increase – CIRS
(OFF Balance Sheet)
Live DB – SWOFFBALDB CR – SWOFFBALCR

DR CR
PI Principal Increase - IRS
(OFF Balance Sheet)

Page 59 of 67
Interest Rate Swaps

PI Principal Increase – CIRS
(ON Balance Sheet)
Live DB – LIVEDB CR – LIVECR

PD Principal Decrease – CIRS
(OFF Balance Sheet)
Live CR – SWOFFBALDB DB – SWOFFBALCR

CR DR
PD Principal Decrease – IRS
(OFF Balance Sheet)
Live CR – NOTIONALDB DB – NOTIONALCR

PD Principal Decrease – CIRS
(ON Balance Sheet)
Live CR – LIVEDB DB – LIVECR


Page 60 of 67
Interest Rate Swaps

IP Interest Payment
Forward DB – Client Forward CR – Client Forward
Live DB – Client CR – Client

CR – IENC * DB – IENC *
IS Issue Price
Forward CR – Client Forward DB – Client Forward
(issue price) (issue price)
Live CR – Client (issue price) DB – Client (issue price)

DB – LIVEDB (nominal CR – LIVECR (nominal
price) price)
CR/DB – P&L (price DB/CR – P&L (price
difference) difference)
AP Annuity Payment
Forward DB – Client Forward CR – Client Forward
(repay amount) (repay amount)
Live DB – Client (repay amount) CR – Client (repay amount)

CR – IENC* (interest amt) DB – IENC* (interest amt)
CR – LIVEDB (remain amt) DB – LIVECR (remain amt)
PM Payment of Premium
Forward CR – Client Forward
Live CR – Client
DB – P&L
RV Receipt of Premium
Forward DB – Client Forward
Live DB – Client
CR – P&L
Accounting entries (cont’d.)

* IENC - Interest Earned Not Collected

Page 61 of 67
Interest Rate Swaps
Flexible Currency Swaps

The following table is a summary of the accounting entries raised by various schedules for flexible
currency swaps (deals with the SWAP field FLEX.PRIN.PAYMENT set to ‘Yes’). Schedules not listed
are the same as those for normal swaps: -

CI Contract Initiation
Forward CR – FORWARDCR DB – FORWARDDB

(DB – FORWARDCR if (CR – FORWARDDB if
previously credit) previously debit)
PX Principal Exchange
Forward CR – Client Forward DB – Client Forward
CR – NOTIONALDB DB – NOTIONALCR
Live
CR – Client DB – Client
DB – Internal account CR – Internal account
RX Re-exchange Principal
Forward DB - Client Forward CR – Client Forward
DB – FORWARDDB CR – FORWARDCR

CR – Internal account DB – Internal account
(CR – FORWARDDB if (DB – FORWARDCR if
previously debit) previously credit)
CM Contract Maturity (CR – NOTIONALDB if no PX, (DB – NOTIONALCR if no PX,
or if NI or ND exists) or if NI or ND exists)
(DB – NOTIONALDB reverse (CR – NOTIONALCR reverse
ND) ND )

Page 62 of 67
Interest Rate Swaps

PI Principal Increase, real cash
Forward CR – Client Forward DB - Client Forward
CR – FORWARDCR DB – FORWARDDB
Live CR – Client DB – Client

DB – Internal account CR – Internal account
(DB – FORWARDCR if (CR – FORWARDDB if
previously credit) previously debit)
PD Principal Decrease, real cash
Forward DB – Client Forward CR - Client Forward
DB – FORWARDDB CR – FORWARDCR

CR – Internal account DB - Internal account
(CR – FORWARDDB if (DB – FORWARDCR if
previously debit) previously credit)
NI Principal Increase, Notional
Forward - -

ND Principal Decrease, Notional
Forward - -
Live CR – NOTIONALCR DB – NOTIONALDB

- Early maturity DB – P&L CR – P&L
CR – IENC DB – IENC
Flexible Currency Swap Accounting Entries

Page 63 of 67
Interest Rate Swaps
Mkt.Exch.Profit/Loss
The Mkt.Exch.Profit/Loss is booked immediately upon authorisation of the Contract and the entries
applied to accounts as per the Categories defined in SWAP.PARAMETER. For Forward Value dated
Swap Contracts, the Upfront Profit Entry is applied to the books on the Value date.
The Accounting Entries are as below (when there is Mkt.Exch.Profit) when the Fixed Rate is on the
ASSET SIDE: -
On the value date of Contract:
Debit Internal Account
Credit Mkt.Exch.Profit (PL Category) Account
On Accrual Date:
Debit Accrual Account
Credit PL Category Account
The accruals will take place at the Customer rate.
Debit PL Category Account

Credit Internal Account.
The Mkt.Exch.Profit/Loss pertaining to the period of Accrual is credited to the Internal Account.
On Interest Payment Date:

Debit Customer Account
Credit Accrual Account
On Maturity:
The entire Mkt.Exch.Profit amount applied to the Internal Account will be amortised to NIL.

Page 64 of 67
Interest Rate Swaps
LIABILITY SIDE: -
On the value date of Contract:
Debit Internal Account
Credit Mkt.Exch.Profit (PL Category) Account
On Accrual Date:
Credit Accrual Account

Credit Internal Account.
On Interest Payment Date:

Debit Accrual Account.
Credit Customer Account
On Maturity:
The entire Mkt.Exch.Profit amount applied to the Internal Account will be amortised to NIL.
Whenever there is an amendment to the Contract, the Mkt.Exch.Profit/Loss is recalculated. These

amendments can be made before First Accrual/Interest Payment Date, after Accrual but before
Interest Payment Date, after First Interest payment Date.
When the modification is before First Accrual Date/Interest Payment, the Mkt.Exch.Profit will be
recalculated from the value date of the contract. The existing Profit is reversed and the new profit is
posted.
When the modification is after the Accrual but before first Interest payment Date, in addition to the
above, the amortisation of the Internal account is adjusted in line with the new Mkt.Exch.Profit.
Any changes after the First Interest Payment, will be given effect only from the Last Interest Payment
Date.
The movement in Internal Account and the Category account will be recorded in the
SWAP.BALANCES file.

Page 65 of 67
Interest Rate Swaps
Principal Effective Date

The following example illustrates the effect of using a Principal Effective Date calculation routine.
Consider the following deposit transaction:

• Principal = 10,000
• Rate = 5%
• Value Date (Start Date) = 15/09/2005
• Maturity Date (End Date) = 15/10/2005
T24 calculates interest as follows where the number of days is the inclusive period between the Start
Date and the End Date less 1 calendar day.
• The deposit will earn interest for the nights of 15/9 to 14/10 inclusive and the interest will be on
15/10.
• This gives 30 days interest (16 days in September and 14 days in October).
Calculated Interest = 10,000 * 5% * 30/360 = 41.67
Assume a Principal Effective Date calculation routine that dictates that no interest should be earned
for the date the deposit is made (or subsequent additional deposit), or for the date of withdrawal.
Therefore, the following is the correct calculation:
• No Interest calculated for day of deposit so interest calculation starts 16/09/05 inclusive
• No interest calculated for day of withdrawal so interest calculation ends 14/10/05 inclusive
• Giving 29 days interest. 15 days in September and 14 days in October
Calculated Interest = 10,000 * 5% * 29/360 = 40.28

Page 66 of 67
Interest Rate Swaps
Enquiries
The following enquiries are available in the SWAP application: -
Enquiry Description
SWAP.RATE.SET.REP Contracts requiring rate fixing.
SWAP.OVERDUE.REP Contracts overdue for rate fixing.
SWAP.SCHEDULE Illustrates all schedules related to the
selected Swap contract.
SWAP.UNCONF.CPARTY Swap contracts awaiting Customer
confirmation.
SWAP.UNCONF.BROKER Swap contracts awaiting Broker
confirmation.
SW.CCY.REVAL Illustrates Swap Currency Revaluation.
SW.NPV.REVAL Illustrates Swap NPV Revaluation where
the Asset and Liability are in same
Currency. (Also available as a Close of
Business Report)
SWAP.SCHED.RR Illustrates Rate Reset schedule for
selected Swap contract.
CHECK.SWAP.BALANCES Lists Swap balance details.
SW.NPV.DIFF.CCY.REVAL Illustrates Swap NPV Revaluation where
the Asset and Liability are in different
Currency. (Also available as a Close of
Business Report)
Two additional enquiries %SWAP,CUSTOMER and %SWAP,BROKER are available that list
contracts awaiting customer/broker confirmation. These enquiries are invoked by default from the
VERSIONs, SWAP,CUSTOMER and SWAP,BROKER. When the contracts are selected by these
enquiries, the Verify function is used to stamp the contract as confirmed, and the appropriate prefix is
automatically appended to the contract number chosen.

Page 67 of 67

Interest Rate Swaps

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Interest Rate Swaps

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Copyright 2005 TEMENOS Holdings NV. All rights reserved.

TEMENOS T24 User Guide

PX - Principal Exchange ................................................................................................................ 37

TEMENOS T24 User Guide

The module supports the following types of SWAP: -

• Plain vanilla interest rate swap

And covers options such as: -

• IRS/CIRS Single Contract

TEMENOS T24 User Guide

TEMENOS T24 User Guide

The T24 SWAP module supports the following products: -

Note that SWAP.SCHEDULE.TYPE NI and ND are required.

TEMENOS T24 User Guide

TEMENOS T24 User Guide

Fixed Interest Amount

TEMENOS T24 User Guide

Interest Day Basis Option Actual/Actual

No. of Days Days in Year Interest

No. of Days Days in Year Interest

TEMENOS T24 User Guide

IRS - Interest Rate Swap

It also holds the following details with regard to the SWAP.TYPE: -

• Description of the SWAP.TYPE

TEMENOS T24 User Guide

Example of SWAP.TYPE record IRS

Example of SWAP.TYPE record CIRS

TEMENOS T24 User Guide

• LOAN Asset side of swap

Example of SWAP.TYPE record LOAN

TEMENOS T24 User Guide

TEMENOS T24 User Guide

Example of SWAP.SCHEDULE.TYPE record

TEMENOS T24 User Guide

• ISDA the ISDA Definitions

Example of SWAP.AGREEMENT.TYPE record

TEMENOS T24 User Guide

The SYSTEM record consists of four major groups: -

• Asset accrual categories

TEMENOS T24 User Guide

Example of SWAP.PARAMETER record

TEMENOS T24 User Guide

The Id is a three-digit code identifying the activity: -

TEMENOS T24 User Guide

The following details are held for each SWAP.ADVICES: -

• Description of advices to produce

Example of SWAP.ADVICES record

TEMENOS T24 User Guide

TEMENOS T24 User Guide

TEMENOS T24 User Guide

TEMENOS T24 User Guide

Interest Rate Swap

Input of Asset Details on IRS transaction

TEMENOS T24 User Guide

Input of Liability Details on IRS transaction

TEMENOS T24 User Guide

Currency Interest Rate Swap

Input of Asset Details on Currency IRS transaction