4. T3tmm-t24 Money Market

MONEY MARKET

TEMENOS EDUCATION CENTRE

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Copyright 2006 TEMENOS HEADQUARTERS SA 1

Treasury – MM (T3TMM – R6)

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MM – Product overview MM Deposit / Loan

Call / Notice

Principal Bullet

Fixed period

Interest Fixed

Floating

Principal Bullet

Liquidate

Total repayment

Capitalisation

Yes

Defer

No

Rollover

Fixed Floating

Frequency Partial repayment

Interest

Partial repayment

Manual Periodic Automatic Bullet

Total repayment

Capitalisation Yes

No

Copyright 2006 TEMENOS HEADQUARTERS SA 2

The Money Market module provides dealer and management support for processing of standard product types in the commercial money market. The processing in this module is straightforward but flexible. Interest is always in arrears – cannot be paid in advance even for fixed term contracts, but it allows fixed or floating type of interest. The term can be at call or with notice or fixed. For call and notice contracts, interest schedule is mandatory, but interest payment could be deferred, if need be. Whenever interest is liquidated, it could be capitalised or not. Though the principal repayment is bullet and manual scheduling is not possible, principal increase and decrease, one at a time, could be indicated with a value date. Further, Payment and receipt functions allow for partial or total repayment of the contract also. Contracts can be matured, or rolled over into a new deal period.

Treasury – MM (T3TMM – R6)

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MM Dependencies

• All Business applications will make use of the following T24 functionality: – CUSTOMER – – – – –

ACCOUNTS DELIVERY ACCOUNTING LIMITS, and other STATIC TABLES

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These applications were discussed in ‘T24 User Introduction Course’. You will now see how they are integrated with MM module. We need to have Customer records to refer the counter party. We need accounts for draw down accounts and liquidation accounts. While loans could be given after setting up limits (and collateral if we attach collaterals to limits), it is possible to do so without creating limits also. When the override message notifying the absence of any limit is overridden and the record is authorised, the system will automatically create a default limit for the customer for the product.

Treasury – MM (T3TMM – R6)

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MM Dependencies – Product related

• The category codes are shared with Loans and Deposits module. The ranges are hard coded. – – – – – – – –

21001 - 21029 21030 - 21039 21040 - 21044 21045 - 21049 21050 - 21074 21075 - 21084 21085 - 21089 21090 - 21094

Deposit Taking Fiduciary Deposit Sundry Deposit (No Interest) Loan Placements Fiduciary Placement A/C Receivable (No Interest)

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This range of CATEGORY codes is shared with the Loans and Deposit module. Care should be taken when defining additional sub-classifications that sufficient detail does not already exist to provide the required breakdown. For example, you should not define separate CATEGORY codes for resident and non-resident customers or for local and foreign currency transactions, since this information is already available on an individual prime record. Sundry deposits and Accounts Receivable are for - Monies that we cannot deliver immediately - Funds that we are expecting shortly

Treasury – MM (T3TMM – R6)

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MM Dependencies – Interest related BASIC.RATE.TEXT

Floating interest BASIC.INTEREST

Possible to set a negative interest rate for MM A contract may be set to allow negative rate or not Also possible to give a negative spread The interest rate works out to –7.75% in this case If Negative rate not allowed, and spread is +2.5, effective rate will be +2.5% Copyright 2006 TEMENOS HEADQUARTERS SA 5

In the field Negative.Rate in MM, the values can be ‘YES’, ‘NO’ or Null. If set to YES, this would enable negative interest rates to be input in the following fields : (i) INTEREST.RATE (ii) MIS.INTEREST.RATE (iii) NEW.INTEREST.RATE (when subsequent rate amendments are to be made in a contract) (iv) In case of contracts where INT.RATE.TYPE is FLOATING , Interest key with a negative rate can also be stipulated in addition to mentioning a negative spread. The net effect could be a negative interest. In the case the field is set to NO or Null, the above functionalities will not be available. If a key with negative rate is keyed and a positive spread is mentioned, interest will be calculated only for the positive spread ignoring the negative rate. Any time during the tenure of the contract, if due to changes in the BASIC.INTEREST key, the interest rate on the contract becomes negative, such rate would be truncated to 0%. Once input and authorized, this field becomes non-inputtable. Default value is NO.

Treasury – MM (T3TMM – R6)

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MM Dependencies – Interest related

Periodic interest Bid rate for Deposits Offer rate for Loans Offer rate to be greater than Bid rate Negative rate input allowed. Applications to use them to be specified (DX,MM,SW) Generated daily. Back dated changes possible In MM, Used for Automatic Rollover and Interest tolerance checking

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This table is used for “LIBOR” type rates of this nature . Rates vary depending on the length of time and for Bid and Offer purposes. For contracts that are set to rollover automatically, this table can be linked for rate reviews. At the scheduled dates the system will refer to this table and automatically “pick up” the relevant rate and apply that to the contract until the next review date. This table maybe automatically updated/interfaced daily with an external feed such Reuters, or maintained manually by the user. Periodic.Interest keys are generated daily by the System. It is possible to effect changes in rates of dates prior to system date. As a result, all MM contracts which had accessed the (changed) key at an earlier date, will recalculate interest based on the changed interest rates. It is possible to stipulate the extent of interest tolerance to be allowed for MM contracts in the field Int Tolerance. A tolerance entered here will be used to check if an over-ride is required for any interest rate difference found on any money market contracts entered.

Treasury – MM (T3TMM – R6)

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MM Dependencies – Charges and Commissions

In MM contract, these Codes can be input directly

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Charges and commissions other than for accounts are defined in FT.CHARGE.TYPE and FT.COMMISSION.TYPE

Treasury – MM (T3TMM – R6)

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MM Dependencies – settlement related 1. CUSTOMER.SSI

2. SEC.ACC.MASTER

SPVCN Order can be changed through ACCOUNT.PARAMETER Draw down and liquidation accounts have to be only in contract currency

3. AGENCY for VOSTRO and CUSTOMER options

4. CUSTOMER.CCY.ACCT

5. NOSTRO.ACCOUNT

Interest liquidation account can be in currency chosen in Int Ccy field Both the currencies should have been pre defined as Equivalent Ccys and Interest should not be capitalised Exchange rates of Int Ccy Mkt applicable

INTERNAL SUSPENSE ACCOUNT (as defined in Account.Class under SUSPLMMCR / SUSPLMMDR)

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The defaulting order is called SPVCN – Settlement, Portfolio, Vostro, Customer and Nostro. The defaulting process for Draw down and liquidation accounts looks firstly at the CUSTOMER.SSI for standard settlement instructions. If no default found, looks at SEC.ACC.MASTER record using the portfolio no, If no default found, uses the AGENCY record of the customer. If the Auto route bank is called Vostro or Customer and Vostro Account or Customer’s account are mentioned then they are used. If not present, then CUSTOMER.CCY.ACCT is searched for the first account of the customer in that currency. If no default is found, looks at the NOSTRO.ACCOUNT table. These settings can be overridden by using ACCOUNT.PARAMETER to set the account default method. Alternately, an Internal suspense account as defined in Account.Class could be defaulted The Agency File contains settlement details of major customers and all banks irrespective of whether there is any business connection. This information is entered centrally to supply Automatic Routing instructions for remittances/cover to all banks and customers with whom the Bank has numerous dealings. This eliminates the need to re-enter the details at transaction level. Many banks may have different Nostro accounts in the same currency to settle for different products. T24 supports this kind of requirements by allowing for banks to maintain Currency-wise Nostro account records for different products

Treasury – MM (T3TMM – R6)

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MM Dependencies - Currency related

COUNTRY

CURRENCY.PARAM

CURRENCY

HOLIDAY

CURRENCY.MARKET

While inputting a contract, the holidays for the country of the dealing currency will be checked for scheduled activity and suitable overrides generated The Interest Day Basis will be defaulted from Currency table to the transactions. Possible to change at contract level

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The Holiday table will be used to check whether the maturity and/or other scheduled activity date is a working day or not at the time of inputting a contract. Interest day basis will be defaulted to the transaction records as per the currency used. Possible to change at contract level.

Treasury – MM (T3TMM – R6)

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MM dependencies – Currency related

• Different Interest day basis for calculation of interest possible depending on the methods followed for calculating number of days and days in a year – Basis "S" can be used for providing a – special interest amount • like rounding to the higher tens.

– Possible only for Fixed interest type. – Interest amount proposed is also entered – along with fixed interest rate – An override will be required where the tolerance is greater than 1%; and a variance greater than 5% will be rejected

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If basis "S" is used then the system will require an entry in field Tot Interest Amt. The amount entered will be compared with the likely interest arising out of the interest rate entered. Maximum tolerance allowed is 5%. An override will be generated where the variance is greater than 1%; and a variance greater than 5% will be rejected

Treasury – MM (T3TMM – R6)

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Application specific Parameters

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Treasury – MM (T3TMM – R6)

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MM - Parameter tables

• The Parameter tables to be set-up during implementation are given below: – – – – – –

LMM.INSTALL.CONDS LMM.ACTIVITY LMM.ADVICES LMM.TEXT MESSAGE.CONTROL ACCOUNT.CLASS

• Implementation methodology BRADDs can be used to set up these tables

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Treasury – MM (T3TMM – R6)

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LMM.INSTALL.CONDS

• Common parameter table for LD and MM. • Major groups of fields relevant to MM are – Days before reports – P & L category codes to be used – Accrual cycle for contracts in local and foreign currencies • Daily or monthly

– Accrual cycle for floating rate contracts • Daily or on rate changes

– Default charge code to be used

• IM BRADD – Treasury - General information and Accounting can be used

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Main parameter table that is common for LD and MM modules. Consists of six major groups of conditions; e.g. Interest Accrual cycles, P & L categories, default interest tolerance % on MM contracts.

Treasury – MM (T3TMM – R6)

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LMM.INSTALL.CONDS

• Other important fields – Whether additional advice required when a contract to be rolled over is amended – Whether MT202 message needed instead of 103 if the counterparty is a non-bank – Mandatory and subsequent No input fields • Possible to indicate which are – Mandatory fields for the front desk (Multi value field Mand Flds) – No input fields for the back desk (Multi value field T Noinput Field)

– Interest tolerance • In the absence of Interest tolerance value in PERIODIC. INTEREST record, interest rate entered in Int tolerance field here can be used to check variance between MM contract rate and market rates

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For money market contracts, when a rollover is scheduled, a rollover advice is scheduled through activity code 1070. If such a contract were to be amended pending roll over, additional advice with activity code 1020 for amendment advice can also be generated. A tolerance entered here will be used to check if an over-ride is required for any interest rate difference found on any money market contracts entered.

Treasury – MM (T3TMM – R6)

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LMM.ADVICES

• The various events in the life cycle of a MM contract are hard coded and detailed in LMM.ACTIVITY • In LMM.ADVICES, we can specify, product wise, the type of advice (s) to be produced for any activity. • For some activities, it is possible to produce the advices prior to the activity – like advice to claim Principal / Interest / Commission. • IM BRADD – Treasury – Advices can be used

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The LMM ADVICES table specifies, by product type, the activities for which confirmations/advices should be produced. i.e. the User can choose whether or not he wishes to have a confirmation/advice produced when an activity occurs on a particular type of contract. There must be an advices record present for the default Category Code for each product range. For example, for the product range 21-001 to 21-039 there must be an LMM ADVICES record with the key 21-001. List of applicable activities- New Contract N 1020 Change of Contract N 1030 Cancelled Contract N 1040 Liquidation of Contract N 1050 Early Liquidation of Contract N 1060 etc The last digit of the any of the codes, used by the System, may also be 1, 4, or 8. These other codes represent the same activities as those listed above, and therefore,have the same descriptions. The reason for the alternative last digits is to differentiate between Fixed Contracts (xxx0), Call/Notice Contracts (xxx1), and Syndicated Contracts (xxx4) and (xxx8) for S.W.I.F.T. purposes.

Treasury – MM (T3TMM – R6)

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LMM.ADVICES

• Other ways in which this table can be put to use are : – Fair value interest rate can be picked from Periodic.Interest and defaulted into MM and LD contracts, by inputting ID of PERIODIC.INTEREST in field Fv Rate Key and / or Fv Margin Key – Option to mature Money market deals at Start of day by inputting Yes in field Mature Mm at Sod

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Clients may maintain a set of benchmark deal rates for MM and LD contracts that could be used to denote a fair value. This rate can be used to gauge variations in agreed deal rates. This will commonly be a standard published borrowing or lending rate available through Reuters or other rate dissemination media. If a rate is identified, it must first be set up in PERIODIC.INTEREST This field is a link to the PERIODIC.INTEREST table and the record to use depends on the currency of the contract so if a value of 01 is entered here then a USD contract will look for a record such as 01USDYYYYMMDD.

Treasury – MM (T3TMM – R6)

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LMM.TEXT

• When settlement instructions of counter party are not known, the proceeds are kept in internal suspense accounts. The advice text printed on confirmations are specified in LMM.TEXT. The id of the record is the Category code mentioned in ACCOUNT.CLASS for SUSPLMMCR and SUSPLMMDR.

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LMM.TEXT : table of advice texts which are printed on confirmations when settlement information, in respect of a contract counter party, is not known: Only two records may be created on the LMM.TEXT table, viz text relating to payments and relating to receipts. The ID of these 2 records are category codes contained in ACCOUNT.CLASS (viz. SUSPLMMCR and SUSPLMMDR)

Treasury – MM (T3TMM – R6)

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MESSAGE.CONTROL

• The MESSAGE.CONTROL table contains the basic message control values for passing through to the delivery system whenever an application requests the delivery of an advice/confirmation or payment. • The MESSAGE.CONTROL table allows the User the flexibility of specifying various combinations of priority status (normal, urgent or priority) and delivery method (Swift, Telex or Print) • On Sundries and Account Receivable the Delivery link must specify PRINT or TELEX device because SWIFT confirmations require interest conditions (MT320).

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The MESSAGE.CONTROL table contains the basic message control values for passing through to the delivery system whenever an application requests the delivery of an advice/confirmation or payment.The delivery of these items can be specified on a transaction by transaction or contract by contract basis by input into the delivery link field on the transaction or contract. By far the largest number of contracts would call for standard delivery i.e. Delivery Link 1, which relates to the record 1 on the MESSAGE.CONTROL table. However, there may well be times when a User wishes to specify other than standard delivery, for example, for a particular customer, the User may want the delivery message to be sent as urgent or priority or the User may wish to specify that a delivery message be sent by a particular method such as Telex or Print. In this case the User must set up a record on this table (e.g. record 2) with these parameters and then input delivery link 2 in the transaction or contract. Thus the MESSAGE.CONTROL table allows the User the flexibility of specifying various combinations of priority status (normal, urgent or priority) and delivery method (Swift, Telex or Print). He would then input the corresponding delivery link code when loading up a transaction or contract and the system will then apply the delivery method specified on the MESSAGE.CONTROL file corresponding to that delivery code.

Treasury – MM (T3TMM – R6)

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MM Build sequence 1. ACCOUNT.CLASS Records SUSPLMMCR, SUSPLMMDR MERGEMM

Mandatory Optional

2. LMM.ACTIVITY

3. MESSAGE.CONTROL

4. LMM.ADVICES

LMM.ACTIVITY

LMM.CHARGE.CONDITIONS 5. LMM.INSTALL.CONDS

6. LMM.TEXT

For LD default Charge / Commission code

ACCOUNT.CLASS SUSPLMMCR, SUSPLMMDR

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The order in which these files should be created is stored within the automated tool for IM. For easy reference, the order sequence in the ascending build reference order is given in the left. The values required for population of the tables will be obtained from information analysed within the BRADDS. The mandatory and optional files are shown by different colour codes. Wherever there are dependencies for filling up values in the tables in build sequence, the dependencies are shown on the right.

Treasury – MM (T3TMM – R6)

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MM – Product features

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Treasury – MM (T3TMM – R6)

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Products handled

• MM.MONEY.MARKET - primary application to process Loans as well as Deposits of a bank . • MM.PAYMENT.ENTRY and MM.RECEIPT.ENTRY to effect principal increases and decreases • Assets include Loans, Placement and Account Receivable • Liability products include Deposits, Taking and Sundry deposits • Multi-level input allowed – basic deal inputs at front office – full settlement instructions and, – confirmation matching for customer and broker at back office

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The MM module caters to the two major activities of a bank viz. Accepting Deposits and making Loans. Credit activities are covered under contract products like LD, MG, MM or Account and AZ Accounts. The first stage in implementation would be to analyse the business product of the bank and identify which of the above application is best suited to handle that product. The MM module supports a range of products – both asset and liability types. All the products can be on a fixed term, call or notice basis. Interest bearing products can have fixed interest or floating interest linked to a base rate via a key. DEPOSIT is a contract to receive funds from a client. TAKING is a contract to receive funds from a Bank or other financial services counterparty. SUNDRY DEPOSIT is a simple one-shot deposit WITHOUT interest. Its purpose is to allow the bank to record amounts due to clients without having to pay interest. This can accommodate items such as payments due to clients in a currency for which the client has no account. LOAN is the extension of credit to a client. PLACEMENT is a contract to place funds at a Bank or other Financial services counterparty . ACCOUNTS RECEIVABLE is a simple one-shot loan without interest. Its purpose is to allow the bank to record amounts or miscellaneous items owing from clients without having to pay interest; this can accommodate items such as overdue payments, charges etc.

Treasury – MM (T3TMM – R6)

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Product features

• MM application can be used for Straightforward but flexible processing – Interest • Always in arrears. • Allows Fixed or floating

– Term • Call, Notice or Fixed

– Repayment • Partial or total. • Also possible to roll over into new deal period

– Brokerage • With or without

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The Money Market module provides dealer and management support for the processing of the standard product types in the commercial money market. The processing in this module is straightforward but flexible. Interest is always in arrears – cannot be paid in advance even for fixed term contracts, but it allows fixed or floating type of interest. The term can be at call or with notice or fixed. Payment and receipt functions allow for partial or total repayment of the contract. Brokerage calculation and processing is available via the BROKER application. Contracts can be matured, or rolled over into a new deal period.

Treasury – MM (T3TMM – R6)

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Product features - Schedules

• Automatic schedule – Bullet type of payment for principal at the end • Can schedule increase / decrease or effect adhoc repayments

– Interest at the end or during roll over • At the time of roll over, interest could be paid or capitalised

– Periodic Interest frequency for Call and Notice mandatory • If interest is not proposed to be paid, then could be deferred. • If interest is proposed to be liquidated, then could also be capitalised

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Treasury – MM (T3TMM – R6)

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Product features - Tenor

• FIXED: – Maturity date is a specific date – It can also be entered as number of days (D), weeks (W) or months (M) from the value date.

• CALL/NOTICE: – – – –

Maturity date is a number in the Range 0 to 999 0 = Call 1 to 999 = Number of Days Notice. For sundries and Account receivables, only Call maturity accepted

• Holiday table of country of currency involved in the transaction will be checked to ensure maturity date is a working day

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To input a fixed final maturity date, in field FIN.MAT.DATE, using the abbreviation D, W,M etc it is necessary to complete BUS.DAY.DEFN. This will be the country(ies) whose holiday tables will be checked to ensure the maturity date is a working day in that country. On validation it will default to the country of the currency of the contract, however the user can override or use the multi value field set to check more than one holiday table.

Treasury – MM (T3TMM – R6)

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Product features - Interest Types

• • • • •

FIXED 1 FLOATING 3 NONE 9 Periodic interest could be used while rolling over. Rollover int rate field could have : – 'Pnn', 'PnnB', 'PnnO' or 'PnnS' where • • • •

P - signifies that the Periodic Interest Table to be accessed nn - the Sequence Number on the Periodic Interest Table. B - 'Bid' Rate must be used ; O - 'Offer' Rate must be used S - INT.SPREAD.1 value will be applied to the Periodic interest rate for fixed rate contracts.

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FIXED: Where the rate of interest to be charged over the life of the contract is fixed at a specific percentage at the inception of the contract. This type of rate will require the input of the interest rate FLOATING: When the rate is liable to change over the life of the contract from time to time depending on the changes in anchor / reference rate. Interest key field is to be used and Interest spread if any fixed spread is to be applied on the floating rate. NONE: No interest. Applicable for Sundry or Account Receivable. While rolling over a contract, Rollover Int rate field input can also be made in the format 'Pnn', 'PnnB', 'PnnO' or 'PnnS' where: P - signifies that the Periodic Interest Table has to accessed to get the new Interest rate on the Rolled Contract for the New Maturity Date. nn - Signifies the Sequence Number on the Periodic Interest Table. B - Signifies that the 'Bid' Rate must be used from the Periodic Interest table. O - Signifies that the 'Offer' Rate must be used from the Periodic Interest Table. It is to be noted that if the Input is in the format Pnn only (with 'B' or 'O' at the end), the Bid Rate will be taken for Deposit Contracts and the Offer rate will be taken for Loan contracts S - Signifies that the INT.SPREAD.1 value will be applied to the Periodic interest rate for fixed rate contracts.

Treasury – MM (T3TMM – R6)

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Workshop - 1

• Input in the front office, a deposit of USD 100,000 for a period of 3 months at a fixed interest of 2%. Use your counterparty and dealer desk created earlier. Do not authorise the transaction. • The customer desires that the principal should be repaid to another account with your bank. He also wants the interest to be paid to his account with another bank. Make suitable changes in the settlement details as back office input. • Get the record authorised. Look at the accounting entries created by using Enquiry TXN.ENTRY and STMT.ENTRY and CONSOL.ENT.TODAY files. • Look also at future dated STMT.ENTRY. Use ENQ NOSTRO. FWD.BAL to look at forward balance position of your account

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Treasury – MM (T3TMM – R6)

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Workshop - 2

• Make a placement of USD 1 million with Allied Irish Bank (Customer No. 100000) for 3 months. • The placement is at a floating interest of Base rate minus 1.25 percent. Interest is to be paid in GBP. • Make the placement through your Broker. • Look at ENQ LIAB for the customer after authorisation • Look at the delivery messages produced • Look at the accounting entries for brokerage paid.

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Treasury – MM (T3TMM – R6)

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Workshop - 3

• For the Money market dealer desk you are using, and for USD currency, look at the enquiries – PM.CAS for the cash flow and – PM.GAP for the break-even rate upto which 3 month deposits could be raised to square the position.

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Treasury – MM (T3TMM – R6)

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Workshop - 4

•

For the customer to whom you had sanctioned time banded MM placement limits of 1 million USD in Workshop – 3 of Introduction session, input the following loans – Call loan of USD 300,000 with a floating interest rate with a spread of 0.5 per cent. Defer the interest. – 10 day notice loan of USD 300,000 with a fixed interest rate of 4 percent. Liquidate the interest but capitalise. – For both the loans give a interest payment frequency of twice a month (TWMTH).

• • • •

Look at the impact on time banded limit record Try to look at the Forward Stmt.Entry for both transactions as you have deferred interest in one case and capitalised interest in the other. Look at system maintained LMM.SCHEDULES for the next interest event Look at Enquiry PM.GAP and through Enquiry PM.INT observe the effect due to change in interest rates by –1, +0.5 and +0.75

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Treasury – MM (T3TMM – R6)

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Workshop - 5

• For the customer to whom you had sanctioned time banded MM placement limits of 1 million USD, input the following loan – Term loan of USD 250,000 for 4 months with a floating interest rate with a spread of -0.5 per cent. – Observe the override and authorise the transaction. See the effect on time banded limits.

• Set the loan for auto rollover at the end of four month period for every month. Fix the final maturity as 12 months. The interest is also to be automatically capitalised. • Collect LOAN charges from your customer’s GBP account. Authorise the record with these changes.

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Treasury – MM (T3TMM – R6)

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Workshop - 6

• Accept a deposit of USD 25,000 from your customer for 12 months with an initial interest rate of -3% by allowing negative interest • Set it to be automatically rolled over after every 2 months. Interest to be picked from PERIODIC.INTEREST with a spread of 0.5% • Look at the forward STMT.ENTRYs • Look at the Enquiries MM.UNCONF.BROKER and MM.UNCONF.CPARTY. • Mark a broker deal as One sided

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Treasury – MM (T3TMM – R6)

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Product features

• On Sundries and Account Receivable, the Delivery link must specify PRINT or TELEX device because SWIFT confirmations require interest conditions (MT320)

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Workshop - 7

• Input a sundry loan for your customer for USD 5,000.

• Input minimum details and after committing, look at the System defaulted fields

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Product features

• Amendments to Contracts – Interest Rate / Spread • When rolled over

– Charges • Can be collected any time

• Manual Rollover – Enter new maturity date in New Matur Date field – Old maturity date defaults as date for rollover in Rollover date field – Rollover Marker field has two options – 1 - Maturity date extension (No interest action) – 2 - Rollover with interest settlement (Liquidate or Capitalise)

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The MM module can be used to effect simple one-shot contracts for clients with settlement of principal and interest being made at maturity. However these type of contracts may require rolling over for further periods. The Money Market module has the functionality to do this process manually as well as automatically.

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Workshop - 8

• Pick out the contract opened in Workshop - 1. • Extend maturity by 3 more months. • Reduce Principal by 50,000 and increase interest rate to 3% with effect from the rollover date • After authorisation, see the changes in the Interest and the Prin Amount

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Product features

• Payments before maturity – For simple cases • Prin Increase and Incr Eff date fields could be used for partial repayments • Maturity date field could be amended for full repayments

– MM.RECEIPT.ENTRY • Used when Counterparty prepays loan principal or interest or both • Value date is either today or before today

– MM.PAYMENT.ENTRY • • • •

Used when Counterparty requests prepayment of Deposit Is for Principal only Value date is either today or before today. Also contains details of any automatic payments made

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This function can also be used to acknowledge receipts AFTER due dates. After authorisation, all necessary files are updated, accounting/ limit entries are passed and the delivery system is called to send an appropriate advice/confirmation where necessary. Once a receipt entry has been authorised, it cannot be changed. Any error will need to be corrected by the Reversal of the receipt entry and a new input with the correct information. Only the last entry receipt can be reversed. This application will not allow the processing of receipt entries for contracts which have been defined with the INTEREST BASIS equal to 'S'. The Payment Entry Function provides the user with two major facilities: (i) Input of 'manual' payment entries (ii) Display of both manual and automatic payment entries. Input of Manual Payment Entries: This facility can only be used for Liability type contracts (except Fiduciary Deposits), that is, where the user bank pays funds to a counterparty in respect of a deposit made by that counterparty and where the funds in question are paid away for any date other than the normal scheduled action due dates on that contract. Money Market contracts are always liquidated automatically on scheduled due dates and so this application can be used PRIOR to the due dates to register a prepayment of principal. Only Principal amount can be prepaid in the MM.PAYMENT.ENTRY facility.

Treasury – MM (T3TMM – R6)

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Workshop - 9

• Early mature the deal opened in Workshop –5. • Maturity date is 10th of next month. • Collect EARLYMATMM charges. • After authorisation, see the change in the Tot Interest Amt field • View the scheduled events of the contract using Enquiry MM.ETD

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Workshop - 10

• Through MM.PAYMENT.ENTRY, look at some of the automatic payments that have happened in Money market

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Product features

•

•

It is possible to merge secondary contracts with a primary contract if they have the same counterparty, category, currency and maturity. Merging will take place when the secondary contracts mature and the primary contract rolls over. Merged amounts will be recorded as separate principal increases Merging will take place via a Suspense account which should be set up in ACCOUNT.CLASS record MERGEMM – For example in the case of merged deposits the secondary contracts will have the principal and/or interest liquidation accounts set to the merge suspense account for the relevant currency. When the contract matures the suspense account will be credited. When the amounts are merged into the primary contract the suspense account will be debited.

•

Also possible to perform a normal principal increase on rollover on the primary contract. In this case the actual increase applied will be the total of the principal increase, the merged amounts plus any interest to be capitalised from the primary contract.

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The facility enables customers who wish to merge several contracts of the same type with the same maturity into one contract by having one contract roll over (the primary contract) at maturity and applying a principal increase for the total of the principal and/or interest to be transferred from the maturing (secondary) contracts. It is also possible to perform a normal principal increase on rollover on the primary contract in this case the actual increase applied will be the total of the principal increase, the merged amounts plus any interest to be capitalised from the primary contract. Additional principal increase accounting entries will be generated for the total of the merged amounts. Merging will take place via a Suspense account which should be set up via the ACCOUNT.CLASS record MERGEMM.

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Workshop - 11

• For your customer, input a deposit of USD 25,000 for 4 months at a fixed interest rate of 5%. Mark the liquidation accounts as internal account meant for Money market merger. • Input another deposit of USD 25,000 at a floating interest rate. Set this for an automatic roll over every month at the end of 4 months and upto one year. • Authorise the contracts. • Now, merge the first contract with the second contract

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Workshop - 12

• Use Enquiry PM.IRE to view the resulting P&L if the interest rate were to move down by 1%. Use CAS selection for your dealer desk for USD • Use Enquiry NOSTRO.POSITION to view actual balances of current and the next four days of USD • Drill down to Enquiry NOSTRO.FWD.BAL to view the value dated balances • Use Enquiry NOSTRO.FWD.BAL.DET to view complete details of cash flow of USD in the Nostro account drilled down in the previous enquiry • Use Enquiry PM.DPAL to view the discounted unrealised profit / loss flow for your dealer desk. Use CAS

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Product features - Others

•

COB input – New MM contracts can be input during COB provided NS has been installed

•

SOD maturing – MM deals can be matured at start of day so that customer has access to funds from a deposit and liable for a loan at the start of day on maturity • Mature at SOD field in a contract can get default value from LMM.ADVICES or inputter exercises option by filling Yes / No

•

On line maturing – Back-valued contracts can be matured during the day if the background phantom is running • Through Function Verify in EB.PHANTOM for record MM.ON.LINE.MATURITY

– All accounting entries passed during the day but delivery messages will not be produced

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Product features - Others

•

Tax on deposits – Could be collected by inputting the pre-defined TAX code in the Tax Interest Key field. System calculates tax on interest and populates the value in Tot Int Tax field. Beneficiary will get interest less this tax. Tax amount credited to internal account defined in TAX record – To default TAX code • Possible to set TAX.TYPE.CONDITION in which different Tax codes could be linked to different groups defined in APPL.GEN. CONDITION. Then Tax Type Condition Id could be input in Tax Interest Type field

•

USGAAP reporting – To obtain a Fair value interest and Fair value margin, it is possible to indicate PERIODIC.INTEREST table id in Fv Rate Key and Fv Margin Key fields. – To obtain these values by default, it is possible to indicate them at LMM.ADVICES for each Category code

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When a tax key is included on a new deposit contract record at the field TAX.INTEREST.KEY, the system will then refer to the tax table where it will find the tax rate which corresponds to that key. The system will then calculate tax due at a FLAT RATE on the amount of interest on the contract and will display the resulting amount at TOT.INT.TAX field. For tax keys with multiple tax rates, only the first tax rate of the key will be taken into consideration for the tax amount calculation. When the interest amount is liquidated, the proportion due in tax is automatically deducted and the counterparty to the contract will only be paid the net amount.

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Product features - Accounting

• The accounting entries passed for Money market deals are mostly Non Contingent in nature, except when the value date is forward – STMT.ENTRY and CATEG.ENTRY passed for Debit / Credit to Accounts and Interest and Charges – CONSOL.ENT.TODAY passed online when new contract is authorised. RE.CONSOL.SPEC.ENTRY is passed during batch job – Asset types used are •

FORWARDCR, FORWARDDB, LIVECR, LIVEDB, Interest accrual Category codes from LMM.INSTALL.CONDS

– Transaction codes 400 – 499 are used – RE.TXN.CODES used are FNW, FRP, ACC, LNW, LIN, CAP, MAT, REV, CUS, APP, TAB

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Accounting entries for a MM Deposit US$ 1 M deposited at spot (2 days forward) for 3 days earning US$ 2,500 per day CUSTOMER A/C

MM Contingent A/C 1,000,000 Value Date

1,000,000 Transaction Date

1,000,000

1,000,000 7,500

Value Date

Maturity

Forward CR RE.CONSOL.SPEC.ENTRY

MM Liability A/C 1,000,000 Maturity

1,000,000 Value Date

Live CR RE.CONSOL.SPEC.ENTRY

STMT.ENTRY

Interest Payable

Interest Expense P&L

7,500 2,500 2,500 2,500

2,500 2,500 2,500

Accrual

Accrual

Maturity

PL Category LMM.INSTALL.CONDS RE.CONSOL.SPEC.ENTRY

50XXX LMM.INSTALL.CONDS CATEG.ENTRY

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When a Money Market contract is first captured onto the system, for example a Taking, then it generates a consolidation credit entry of a FORWARDCR Contingent Liability position for the contract principal. When the Money market Taking deal starts the following entries are generated: a consolidation entry to debit the FORWARDCR Contingent Liability position for the principal a consolidation entry to credit the LIVECR liability type a statement entry to debit the Nostro/ Customer account supplying the funds for the deal. The daily accrual process will generate a Profit and Loss entry to debit P/L Interest Expense for the daily interest a consolidation entry to credit IENP (interest expense not paid) for the daily interest The contract maturity will generate the following entries a consolidation entry to debit the LIVECR liability type for the principal a consolidation entry to debit the IENP (interest expense not paid) for the total interest a statement entry to credit the Nostro account returning the deposit principal and total interest

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SWIFT messages supported SWIFT

Description

MT320

Confirmation for Fixed period contracts

MT330

Confirmation for Call / Notice contracts

MT324

Early liquidation

MT350

Liquidation of interest

MT390

Capitalisation of interest

MT103

Bank Transfer - Client

MT202

Bank Transfer - Bank

MT210

Advice to receive

Field Name

When the counterparty is not a bank, there is option to produce MT 103 or MT 202

Ctpy 202 Msg field in LMM. INSTALL.CONDS

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MM Other features

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Money Market Enquiries

• Position Enquiries – PM.CAS • Cash Flow / Liquidity Position - daily analysis of net, in & outflows + cumulative balance including forward interest movements

– PM.GAP • Interest rate gap and break-even enquiry

– PM.INT • Interest Rate Sensitivity - Shows P&L effect of increases in interest rates

– PM.DPAL • Discounted Unrealised P/L

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The Money Market module is an important source of detailed management information for the production of comprehensive general reports, including, Cash Flow/Liquidity Position - daily analysis of net, in and out flows plus cumulative balance including forward interest movements. The ENQUIRY is called PM.CAS Interest Rate Sensitivity - Show P&L effect of increases in interest rates in steps of 25 basis points to 100, then 200 and 300. The enquiry is PM.INT

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Money Market Enquiries

• General Enquiries – MM.UNCONF.BROKER – MM.UNCONF.CPARTY – MM.ETD • Money Market events enquiry

– NOSTRO.POSITION • Nostro account balance for the day and next four days.

– NOSTRO.FWD.BAL • Forward balance projection of Nostro account

– NOSTRO.FWD.BAL.DET • Details of Cash flow on Nostro Account

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Nostro Position gives the current and forward positions of the accounts by currency. This ENQUIRY is called NOSTRO.POSITION.

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MM Reports

• RG.MM0001:

Maturity List

• RG.MM0002:

Payments List

• RG.MM0003:

Contracts ‘Unconfirmed’ by broker

• RG.MM0004:

Contracts ‘Unconfirmed’ by Counterparty

• RG.MM0005:

Deals related to Fiduciary deposits

• RG.MM0006:

Missing payment instructions

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RG.MM0001 : This report represents a maturity list of all MM contracts are to mature within a defined period (As specified in LMM.INSTALL.CONDS) RG.MM0002: This report lists all payments made (Swift MT202) related to MM Deposit contracts (Interest and/or Principal + Interest) and settled within a defined period from the day the report was produced RG.MM0003: This report lists all MM contracts that await a deal confirmation from the broker (if any) RG.MM0004: This report lists all Money Market contracts executed, and that await receipt of a deal confirmation from the counterparty RG.MM0005: This report lists all deals related to Fiduciary contracts RG.MM0006: This report lists all deals that have missing payment instructions, and thus could not settle, hence may result in Nostro position imbalances, along with the corresponding risks involved.

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System maintained tables

• LMM.ACCOUNT.BALANCES Contains information relating to principal movements, interest accruals, commission accruals and funds paid / received in the contract

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Contains all financial information on LD and MM contracts: Four types of info, relating to principal movements, interest accruals, commission accruals, and funds paid/received in the contract Movements on asset contracts are always shown as negative values except for reductions in principal which are shown as positive. Movements on liability contracts are always shown as positive values except for reductions in principal which are shown as negative. Each time interest is accrued on a contract, the LMM .ACCOUNT BALANCES fields are updated (e.g. OUTS ACCRUED INT is debited on a placement contract) and an entry is posted to Profit and Loss

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System maintained tables


LMM.SCHEDULES Diary of future events for authorised contracts in LD and MM The key is made up by contract no. event date(in Julian format like 2001305 to indicate 305th day in the year 2001) and a suffix of 00.

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At authorisation of a Loans or Money Market deal, LMM.SCHEDULES records are written for each date that at least one schedule event is due to occur on the contract. This field is the key to those LMM.SCHEDULES records. The composition of the key is as follows:Contract number of e.g. MM/97255/00123 . Event date (Julian) e.g. 1997349. Suffix always 00 Each contract can have many LMM.SCHEDULES records Each record contains a list of the scheduled activities (principal draw downs, principal or interest liquidation, sending payment instructions relating to a financial movement, Rate Revisions)

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System maintained tables

• LMM.SCHEDULES.PAST


Events from LMM.SCHEDULES after the event date
Updated in Close of business processing
Same Key as in LMM.SCHEDULES

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System maintained Tables

• LMM.HISTORY.LIST –

Maintains every contract history

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MM Dependency diagram

FT.COMMISSION.TYPE

CUSTOMER CATEGORY

BASIC.RATE.TEXT

ACCOUNT

BASIC.INTEREST

CURRENCY

INTEREST.BASIS

CUSTOMER.SSI

PERIODIC.INTEREST

FT.CHARGE.TYPE LMM.INSTALL.CONDS

MM

SEC.ACC.MASTER CUSTOMER.CCY.ACCT AGENCY NOSTRO.ACCOUNT

LMM.ADVICES

LMM.ACCOUNT.BALANCES

ACCOUNT.CLASS

LMM.ACTIVITY

LMM.SCHEDULE.DATES

LIMIT

LMM.TEXT

LMM.SCHEDULES

COLLATERAL

LMM.SCHEDULES.PAST LMM.HISTORY.LIST

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Summary

• We have so far seen – the dependencies and linkages between MM module and T24 Core and other applications – main business features of the Money Market module

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MM Workshops and solutions – Handouts

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Workshop - 1

• Input in the front office, a deposit of USD 100,000 for a period of 3 months at a fixed interest of 2%. Use your counterparty and dealer desk created earlier. Do not authorise the transaction. • The customer desires that the principal should be repaid to another account with your bank. He also wants the interest to be paid to his account with another bank. Make suitable changes in the settlement details as back office input. • Get the record authorised. Look at the accounting entries created by using Enquiry TXN.ENTRY and STMT.ENTRY and CONSOL.ENT.TODAY files. • Look also at future dated STMT.ENTRY. Use ENQ NOSTRO. FWD.BAL to look at forward balance position of your account

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Workshop – 1 Solution

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Workshop – 1 Solution

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Workshop – 1 Solution

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Workshop - 2

• Make a placement of USD 1 million with Allied Irish Bank (Customer No. 100000) for 3 months. • The placement is at a floating interest of Base rate minus 1.25 percent. Interest is to be paid in GBP • Make the placement through your Broker • Look at ENQ LIAB for the customer after authorisation • Look at the delivery messages produced • Look at the accounting entries for brokerage paid.

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Workshop – 2 Solution

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Workshop – 2 Solution

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Workshop – 2 Solution

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Workshop - 3

• For the Money market dealer desk you are using, and for USD currency, look at the enquiries – PM.CAS for the cash flow and – PM.GAP for the break-even rate upto which 3 month deposits could be raised to square the position.

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Workshop – 3 Solution

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Workshop - 4

•

For the customer to whom you had sanctioned time banded MM placement limits of 1 million USD in Workshop – 3 of Introduction session, input the following loans – Call loan of USD 300,000 with a floating interest rate with a spread of 0.5 per cent. Defer the interest. – 10 day notice loan of USD 300,000 with a fixed interest rate of 4 percent. Liquidate the interest but capitalise. – For both the loans give a interest payment frequency of twice a month (TWMTH).

• • • •

Look at the impact on time banded limit record Try to look at the Forward Stmt.Entry for both transactions as you have deferred interest in one case and capitalised interest in the other. Look at system maintained LMM.SCHEDULES for the next interest event Look at Enquiry PM.GAP and through Enquiry PM.INT observe the effect due to change in interest rates by –1, +0.5 and +0.75

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Workshop – 4 Solution

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Workshop – 4 Solution

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Workshop – 4 Solution

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Workshop – 4 Solution

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Workshop - 5

• For the customer to whom you had sanctioned time banded MM placement limits of 1 million USD, input the following loan – Term loan of USD 250,000 for 4 months with a floating interest rate with a spread of -0.5 per cent. – Observe the override and authorise the transaction. See the effect on time banded limits.

• Set the loan for auto rollover at the end of four month period for every month. Fix the final maturity as 12 months. The interest is also to be automatically capitalised. • Collect LOAN charges from your customer’s GBP account. Authorise the record with these changes.

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Workshop – 5 Solution

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Workshop – 5 Solution

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Workshop - 6

• Accept a deposit of USD 25,000 from your customer for 12 months with an initial interest rate of -3% by allowing negative interest • Set it to be automatically rolled over after every 2 months. Interest to be picked from PERIODIC.INTEREST with a spread of 0.5% • Look at the forward STMT.ENTRYs • Look at the Enquiries MM.UNCONF.BROKER and MM.UNCONF.CPARTY. • Mark a broker deal as One sided

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Workshop – 6 Solution

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Workshop – 6 Solution

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Workshop - 7

• Input a sundry loan for your customer for USD 5,000. • Input minimum details and after committing, look at the System defaulted fields

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Workshop – 7 Solution

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Workshop - 8

• Pick out the contract opened in Workshop - 1. • Extend maturity by 3 more months. • Reduce Principal by 50,000 and increase interest rate to 3% with effect from the rollover date • After authorisation, see the changes in the Interest and the Prin Amount

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Workshop – 8 Solution

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Workshop - 9

• Early mature the deal opened in Workshop –5. • Maturity date is 10th of next month. • Collect EARLYMATMM charges. • After authorisation, see the change in the Tot Interest Amt field • View the scheduled events of the contract using Enquiry MM.ETD

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Workshop – 9 Solution

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Workshop - 10

• Through MM.PAYMENT.ENTRY, look at some of the automatic payments that have happened in Money market

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Workshop – 10 Solution

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Workshop - 11

• For your customer, input a deposit of USD 25,000 for 4 months at a fixed interest rate of 5%. Mark the liquidation accounts as internal account meant for Money market merger. • Input another deposit of USD 25,000 at a floating interest rate. Set this for an automatic roll over every month at the end of 4 months and upto one year. • Authorise the contracts. • Now, merge the first contract with the second contract

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Workshop – 11 Solution

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Workshop - 12

• Use Enquiry PM.IRE to view the resulting P&L if the interest rate were to move down by 1%. Use CAS selection for your dealer desk for USD • Use Enquiry NOSTRO.POSITION to view actual balances of current and the next four days of USD • Drill down to Enquiry NOSTRO.FWD.BAL to view the value dated balances • Use Enquiry NOSTRO.FWD.BAL.DET to view complete details of cash flow of USD in the Nostro account drilled down in the previous enquiry • Use Enquiry PM.DPAL to view the discounted unrealised profit / loss flow for your dealer desk. Use CAS

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Workshop – 12 Solution

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Workshop – 12 Solution

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Workshop – 12 Solution

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Workshop – 12 Solution

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