Over the Counter Options Oracle FLEXCUBE Universal Banking Release 12.0 [June] [2012] Oracle Part Number E51527-01 Over the Counter Options Table of Contents 1. ABOUT THIS MANUAL ................................................................................................................................ 1-1 1.1 INTRODUCTION ........................................................................................................................................... 1-1 1.2 AUDIENCE .................................................................................................................................................. 1-1 1.3 ACRONYMS AND ABBREVIATIONS .............................................................................................................. 1-1 1.4 ORGANIZATION .......................................................................................................................................... 1-1 1.5 RELATED DOCUMENTS ............................................................................................................................... 1-2 1.6 GLOSSARY OF ICONS .................................................................................................................................. 1-2 2. OVER THE COUNTER OPTIONS – AN OVERVIEW ............................................................................. 2-1 2.1 INTRODUCTION ........................................................................................................................................... 2-1 2.2 OTC INSTRUMENTS AND TRANSACTIONS ................................................................................................... 2-1 2.2.1 Interest Rate Options (IROs) ............................................................................................................. 2-2 2.2.2 Swaptions ........................................................................................................................................... 2-2 2.2.3 Currency Options (COs) .................................................................................................................... 2-3 2.3 DEPENDENCIES ........................................................................................................................................... 2-3 3. GENERAL MAINTENANCE ........................................................................................................................ 3-1 3.1 INTRODUCTION ........................................................................................................................................... 3-1 3.1.1 Maintaining Branch Parameters ....................................................................................................... 3-1 3.1.2 Maintaining Contract Fair Values ..................................................................................................... 3-2 3.1.3 Maintaining Limit Tracking (Other Exposure) Details...................................................................... 3-5 4. DEFINING ATTRIBUTES SPECIFIC TO OTC PRODUCTS .................................................................. 4-6 4.1 INTRODUCTION ........................................................................................................................................... 4-6 4.1.1 Indicating Exchange Rate Variance .................................................................................................. 4-2 4.1.2 Specifying OTC Product Preferences ................................................................................................ 4-3 4.1.3 Specifying Main Details ..................................................................................................................... 4-3 4.1.4 Specifying Currency Option Preferences ......................................................................................... 4-10 4.1.5 Exotics ............................................................................................................................................. 4-12 4.1.6 Specifying Interest Rate Option Preferences ................................................................................... 4-14 4.1.7 Specifying Interest Rate Option Schedules Preferences .................................................................. 4-14 4.1.8 Specifying Rate Fixing Details......................................................................................................... 4-21 4.1.9 Specifying Swaption Details ............................................................................................................ 4-22 4.1.10 Defining Interest Rate Option Schedules ......................................................................................... 4-23 4.1.11 Defining Charge Components for a Product ................................................................................... 4-24 4.1.12 Defining Taxes for Product .............................................................................................................. 4-25 5. PROCESSING OTC OPTION INSTRUMENTS ......................................................................................... 5-1 5.1 INTRODUCTION ........................................................................................................................................... 5-1 5.2 ENTERING DETAILS OF OTC OPTION CONTRACT ....................................................................................... 5-1 5.2.1 Format of Options Contract Input Screen ......................................................................................... 5-2 5.2.2 Specifying Common Details (Main Tab) ............................................................................................ 5-4 5.2.3 Specifying Details Specific to Currency Option............................................................................... 5-10 5.2.4 Settlement Method for Currency Options ........................................................................................ 5-15 5.2.5 Specifying Details Specific to Interest Rate Option ......................................................................... 5-16 5.2.6 Settlement Method for IROs ............................................................................................................. 5-24 5.3 SPECIFYING OTHER DETAILS FOR OTC OPTION CONTRACT ..................................................................... 5-25 5.3.1 Processing Brokerage on Contract .................................................................................................. 5-25 5.3.2 Specifying Advices for Contract ....................................................................................................... 5-27 5.3.3 Viewing Event Details ...................................................................................................................... 5-28 5.3.4 Selecting User Defined Fields ......................................................................................................... 5-28 1-1 5.3.5 Levying Charges for Transaction .................................................................................................... 5-29 5.3.6 Maintaining Settlement Instruction Details ..................................................................................... 5-31 5.3.7 Levying Tax on Contract .................................................................................................................. 5-32 5.4 MANUAL KNOCK-IN KNOCK-OUT ............................................................................................................ 5-33 5.5 TERMINATING OPTION CONTRACTS ......................................................................................................... 5-33 5.6 UPLOADING OPTIONS CONTRACTS ........................................................................................................... 5-34 5.6.1 Uploading Options Contract for Amendment .................................................................................. 5-35 5.7 EXERCISING OPTION ................................................................................................................................. 5-36 6. AUTOMATIC DAILY PROCESSING ......................................................................................................... 6-1 6.1 INTRODUCTION ........................................................................................................................................... 6-1 6.2 AUTOMATIC EVENTS EXECUTED DURING END OF DAY .............................................................................. 6-1 6.2.1 Revaluation (REVL) ........................................................................................................................... 6-1 6.2.2 Amortization ...................................................................................................................................... 6-2 6.2.3 Auto Exercise and Rate Reset (RTFX and EXER) ............................................................................. 6-3 6.2.4 Knock In and Knock Out (Event KNIN and KNOT) .......................................................................... 6-4 6.2.5 Auto Settlement (EXST, KNST, KIST, PRPT) .................................................................................... 6-5 6.2.6 Auto Expiry (EXPR) ........................................................................................................................... 6-5 7. ANNEXURE A – EVENT-WISE ACCOUNTING ENTRIES AND ADVICES FOR YOUR OTC OPTIONS ................................................................................................................................................................