Forex

Foreign Exchange

Contents:

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Overview

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Main Setup

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Deal / Transaction Processing

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Non-Deliverable Forwards

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Enquiries

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Limits

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Reports

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Outward Delivery

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Close of Business Services

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Non-Stop Processing

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Accounting Process

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Revaluation

Temenos Systems 2013

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Overview The Foreign Exchange module (FOREX ) has been designed to meet the growing needs of current day dealing operations in the Foreign Exchange Market. It covers the accurate recording of all types of SPOT, FORWARD and FX.SWAP transactions, complete with limit exposure, position updating, brokerage and delivery of the related advices, confirmations and payments. 

Foreign Exchange Ma in Pr oduc ts The FOREX module encompasses the following products:  Spot contract The buying or selling of foreign currency (normally within seven calendar days of the date the contract is made unless a shorter period is customary or required in the local market). The exchange rate applied is called the spot rate.  Forward contract A forward contract is the buying or selling of foreign currency for delivery in the future, i.e. at a date later than the locally defined spot date. The exchange rate applied is called the forward rate.  Swap contract A swap contract is the exchange of currencies at spot with one or more associated forward deals, or "legs", where one currency amount is fixed. The different rates applied on the spot and forward deals reflect the interest rates of the respective currencies. Both spot and forward transactions are usually, but not necessarily, done with the same Counterparty. T24 maintains the link between the spot and forward deals automatically and processes them as a unit.  Option contract The buying or selling of foreign currency where the delivery may take place at any time between two specified dates at the customer's choice without incurring any penalty costs. This option occurs when the customer decides to take delivery of all, or part, of the transaction before the final value date. The rate applied caters for the fact that the bank may need to conclude the deal at any date up to the maturity date. Multi-rate option contract This is similar to the option contract above but different exchange rates may be set for periods within the contract. A transaction type may be specified so as to differentiate it from Single Rate Option. This is usually a Non-Bank counterparty contract with the following features: l

Between the start date and the maturity date, there are defined time periods for which the transaction can be exercised by the counterparty. These option periods are agreed upon at the start of the deal.

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After defining the option periods, no amendment to the first option period is possible. Amendments to the subsequent periods are possible only outside the current option period and after the farthest scheduled delivery date.

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Either the buy or sell currency is nominated as the option currency.

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The full contracted amount will be updated in the LIMIT application for the final maturity date of the deal even if no delivery is scheduled at the time when option contract is input.  The limit will be re-instated to the extent of delivered amount on the delivery date.

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As in Single Rate option, it is presumed that any undelivered portion will be delivered on the final day of the option period.  Position will therefore be raised for the last date of the first option period initially.  On crossing the last date of the current option period, Position for the undelivered amount will be re-cycled to the last date of the next option period.

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In each option period there will be defined exchange rate(s).

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Multiple deliveries are allowed, which can take place at any time between the option date and the final (value) date. Each delivery (takedown), uses the exchange rate pre-defined for that option period in which the value date of the delivery date falls.

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The total takedown amount cannot exceed the original amount bought or sold in the option currency.

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When takedown takes place it is possible to take a charge / fee.

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Confirmation is produced for initial contract entry.

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Confirmation is produced for each takedown.

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Confirmation is produced for contract amendment.

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It may be noted that all such confirmations will be produced only in the form of a PRINT message even for contracts having a Bank as counterparty.

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Each takedown (the delivered amount) will be revalued separately against the market rate till the delivery date.

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On the Value date of the contract, should there be any residual option amount that is undelivered. T24 will liquidate the contract during COB by automatically scheduling a delivery for the residual option amount at the exchange rate applicable for the last option period.

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A report containing the list of contracts that underwent such automatic scheduling of delivery on a day shall be produced during COB.

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T24 will produce a report during COB to help the bank identify those contracts which have residual balance of option amount, ‘n’ number of days before the Value date, where ‘n’ is defined in the field OPT.OS.RP.DAYS in FX.PARAMETERS.

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Market exchange profit/loss calculation is not supported for multi-rate options.

Non Deliverable Forwards Ty pe s of Pr oduc ts There are two types of NDF transactions to take into account: Vanilla This is a standard NDF transaction type, which has an agreed rate fixing date (usually 2 working days before settlement date). With this type the customer cannot change the fixing date. Exotic An exotic NDF is a variation that allows the fixing date to be set at any date during the life of the transaction before the vanilla date. If the NDF is fixed and settled “early”, the fixing profit or loss is discounted. The discount amount will be amortised from the settlement date to the value date of the NDF. A Non Deliverable Forward (NDF) is classed as an event where a currency is unable to be settled. Because of this the deal must be fixed at a time and from a rate source arranged at the time of the original trade. When the rate is fixed on the fixing date, the settlement will be a net settlement in the deliverable currency only. This is calculated by using the difference between the original FX rate and the fixing rate. The Non Deliverable Forward functionality is incorporated into the LIMITS, ACCOUNTING and the POSITION.MANAGEMENT modules. (c)

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Main Setup Othe r Ty pe s Contract types such as Antespot, Tom-Next or Spot-Next are by-products of the above deal types. 

D e a l Sub Ty pe s The FOREX module is capable of handling the following deal sub-types. The field DEAL.SUB.TYPE is used to define deals which are internal or non-standard as they affect future validation/processing. IN - Internal deal Internal deals are handled differently from standard deals due to the fact their only purpose is to allow transfers between different positions or dealer desks. Obviously, there is no need for accounting entries, payments, advices etc. When an internal spot or forward deal is entered, the system will automatically update the positions of both dealer desks entered into the contract. NE - Negotiated deal Departments other than Treasury may wish to book deals in advance and/or ‘negotiate’ a special (non-default) rate for the customer with the Treasury. This, for example, will be the case when a department wants to book a transaction involving conversion of currencies for an amount greater than the negotiable amount defined on the currency table. The FOREX module allows the dealer to record such deals, which are then automatically reconciled with the departments' eventual input of the actual transaction. This ensures that the Exchange position always reflects all committed deals even if the actual transaction has not yet been entered. Negotiated deals cannot be authorised, as they are only temporary substitutes for the departmental deal. BR - Broker deal Where a deal has been struck through a Broker and the Counterparty is not acceptable or known, 'BR' can be entered as the sub-type. The system will then expect Broker but not Counterparty details to be entered. As no Counterparty is present it will not be possible for the contract to be authorised. When the Counterparty name is known, the user will only need to erase 'BR' from this field and complete the Counterparty details. A special enquiry facility, FX.ENQ.BR allows the user to search, by Broker, those contracts where the Counterparty is still missing. This is to allow the banks position to be updated with the committed deal amounts.

Configuring T24 Foreign Exchange Tables The FOREX module initiates all confirmations, payments, charges, commissions, advices, account entries and updates all relevant positions. The detailed action to be taken by the module for a particular Foreign Exchange deal is defined in a series of user-controlled tables. The following tables have to be set up to enable FOREX to function efficiently.

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FX.PA R A METER S

A typical FX.MARAMETERS record. Within this table are defined parameters that determine some of the rules by which the system operates. These are as follows: Classification of the contracts between SPOT and FORWARD is dependent on the local Central Bank and internal reporting rules. l

Definition of the 'Spot' default value date.

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Definition of OFS.SOURCE and versions used for inputting Bulk Orders.

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Definition of product and profit/loss categories for neutralisation of forward interest.

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Definition of alternative FX trading holidays.

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Definition of currencies, which should be used in all spot date calculations.

FX.TR A N SA C TION .TYPE The FX.TRANSACTION.TYPE tables define parameters for processing different types of FOREX deals. Minimum details are supplied with the system for types SP, FW and SW deal types, which have the same codes for their transaction types. Option deals should have the transaction types of the form FWxx.

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The ACTIVITY.CODE field relates to the codes in FX.ACTIVITY, which act as triggers for the associated message types and formats. These will probably only be used with multi-rate option deals, which will require more elaborate confirmations. The remaining fields describe rules to be applied to the transaction type. The TRANSACTION.TYPE in the FOREX record will usually be input automatically via the VERSION in operation.

A typical FX.TRANSACTION.TYPE. The TRANSACTION.TYPE field defaults to the value of the DEAL.TYPE. The value of the field should be set by the VERSION in use for input.

A FOREX Version.

FX.R EVA L.TYPE Within the FX.REVAL.TYPE table are defined the revaluation types available in the Foreign Exchange application. The system caters for the following different Revaluation methods.  Interest Method (IN) The primary factor, influencing the change of forward rates with time, is the difference in the interest yields of the currencies. Example: Assume the yield on GBP is 12% and that on USD is 14% with a Spot rate of 1.25. Then, over 12 months l

GBP 1000 would yield GBP 120 interest.

Likewise, if exchanged (@1.25)

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USD 1250 would yield USD 175 interest.

Thus, in order not to sustain a loss, the 12 month Forward USD sell rate should be (USD 1425/GBP1120) or 1.2723 i.e. l

USD 1425 / 1.2723 = GBP 1120

In practice, one of the amounts on the Forward deal is held at the same value as for the Spot deal. So, in this example, if the forward deal is also for GBP 1000 the USD amount would be USD 1275 (i.e. USD 1250 plus 2% interest differential thereon of USD 25). Therefore, it is argued that the Discount on the forward USD 12 month rate is simply to offset the 2% USD interest premium prevailing at the time of the deal. This apparent exchange Profit or Loss, therefore, should be accrued over the life of the forward deal as in the manner of the straight line method except that Profit and Loss Interest entries will now be booked for both the currency bought (credit to Interest Received Exchange) and the currency sold (debit to Interest Paid Exchange). Using the same example: A loan of USD 1250 will yield USD 175 over 12 months. Over the same time a debit (revaluation) accrual is made of USD 25 (i.e. USD 1250 * 2%). Thus the net result is interest received of USD 150. As proof that this is correct, GBP 1000 at 12% would have given rise to GBP 120 interest, which converted at spot of 1.25 is also USD 150. The effect of this accrual (to discount the forward premium or discount) is to value the position at spot rate so it is, therefore, necessary each day to perform spot revaluation. This method is obviously most appropriate to the transaction type 'Swap' where an actual loan and deposit could be booked with a spot and forward deal and the real interest rates can be used on the forward leg, so rendering the deal entirely neutral. That is, the difference between interest paid and received will be eliminated by the forward accrual and the spot deal will be cancelled, in its effect, by the spot revaluation of the forward leg. Rebate Method (RB) This is the most straightforward method as it is based (like the spot revaluation) on the cost or profit attributable to closing the position i.e. to enter into a deal at today's rates to exactly cover each deal at its maturity (buy back approach). In the case of forward deals, the rate varies not only because of change in the market (supply and demand factors) but also because rates vary with time. For any given forward deal, as it ages, the rate to cover it, converges with the spot rate as it gets closer to maturity, until it will, eventually be covered at spot rate. Given a set of forward rates (FORWARD.RATES tables), you can still choose from 3 methods to find the forward rate applicable to each forward contract viz. l

Interpolation.

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Next available rate.

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Rate at closest date.

Indicate your choice on the REVALUATION.PARAMETER table. Interpolation of forward Exchange Rates: l

The rates on the forward exchange rate table (FORWARD.RATES) can be defined for any period required by the user, (e.g. 1 week, 2 weeks, 15 days, 1 month, 2 months, 3 months etc).

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The actual date that the forward rates apply to are calculated as the reporting date + 2 working days + number of months.

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If this date is not a working day, then the next working day is used.

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When a rate is required for a date that falls between the dates of two rates on the table, then it is calculated by linear interpolation.

Straight Line Method(SL) As previously stated, there is generally a difference between spot and forward rates. Under this method the difference, as an amount in local currency, is isolated as a profit or loss at the start of the contract and then simply amortised over the life of the deal as a daily accrual between the appropriate interest profit and loss category code (Interest Paid Exchange or Interest Received Exchange) and the exchange reserve adjustment account. (The following ACCOUNT.CLASS records are used to obtain the internal account category: RESFWDCR                 Forward deals credit.

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RESFWDDR                 Forward deals debit. RESSWAPCR               Swap deals credit. RESSWAPDR               Swap deals debit). Effectively this deal is now being carried at spot rate (since the forward discount or premium is being accrued) and therefore, it is necessary to revalue it each day just as if it was a spot deal using the technique described in 'Spot Revaluation'.  The rate at which it is re-valued is the REVAL.RATE if specified on the CURRENCY table, else the MID.REVAL.RATE will be used. Straight Line Funding Method (SF) This method is primarily for the Swap contract type and is similar to the SL method except that the premium/discount of a Swap is amortised over the contract period in the currency in which the premium/discount arises i.e. the currency, which differs in amount between the legs of the deal.

D EA LER .D ESK The DEALER.DESK table allows the bank to specify to the system how its dealing room activity is organised. For example, dealer desks can be defined for the major currencies. The dealer desk is used as part of the key to the POSITION file. This enables the bank to view their currency position by dealer desk, if required and to book the revaluation Profit/Loss at dealer desk level.

A DEALER.DESK example.

B R OK ER The BROKER table allows the bank to identify its authorised Brokers.

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A Broker record Example.

FX.D EA L.METH OD Foreign Exchange deals can be initiated in many different ways. They can be agreed through an intermediary such as a Broker, in which case the BROKER needs to be identified, or through means such as Reuters, Telex or telephone. The FX.DEAL.METHOD table allows users to define which deal methods are applicable and to use this information on advices.

FOR WA R D .R A TES The FORWARD.RATES table allows the user to define, for each currency and market, forward exchange rates. These periods can be defined either in months, e.g. 1 month, 2 months, 3 months, 6 months or in days, e.g. 7 days, 15 days, 30 days. The details are in the form of a premium or discount (preceded by the minus sign). This premium or discount must refer to the currency of the ID against the local currency. In accordance with the value of the field QUOTATION.PIPS, defined on the CURRENCY table for the ID currency, the system will automatically add/subtract this premium/discount from the CURRENCY tablemiddle rate. Forward rates are used by the Forward revaluation (Rebate method) and also to provide tolerance checks for forward rates on input of a Forward Foreign Exchange transaction.

FX.TEXT FX.TEXT is a table of advice texts that will be printed on advices/confirmations when settlement information for a Counterparty is not known. It is used where the Counterparty has not specified settlement details and entries will be posted to an internal account if the settlement details are not completed by the value date. Nine options are available within this table and each one will have a unique text that will be printed on the advice confirmation. The user can then choose which text to print by keying a number between 1 and 9 at the appropriate account field when loading a contract. One record is used for payments (credits) the other for receipts (debits). Each can be posted to the same or different suspense accounts (as defined in ACCOUNT.CLASS) by currency. Accordingly, use of text 1 will default a different advice text if used in both the buy and sell account fields.

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Configuring T24 Non Deliverable Forward Tables Basic information about the way that Non Deliverable Forward deals are processed is held in a series of parameter files: For NDF contract to be reported correctly and incorporated into the T24 General Ledger The parameter file CONSOLIDATE.COND needs to be configured.

Sample record in CONSOLIDATE.COND

N D .PA R A METER The ND.PARAMETER file is the main parameter record and must be set up before any data can be entered. This file holds system level parameters for the processing of NDF transactions in a single SYSTEM record. The SYSTEM record consists of the following details: •          A list of currencies allowed for NDF contracts. •          Fixing date related data such as default fixing date, specific fixing date for particular currencies etc. •          Accounting transaction codes to use on each NDF operations such as NDF fixing, settlement, deal reversal, etc.

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A typical ND.PARAMETER record.

N D .TYPE The ND.TYPE file contains definitions of all types of NDF contracts allowed on the system. It also holds the following details with regard to the NDF type: •          Description of NDF. •          The basic information to be defaulted to the NDF contract when the NDF type is used. •          Product Category code. •          An indicator to classify whether it is a Vanilla NDF or an Option NDF. •          The types of agreements used in NDF contracts, e.g. ISDA, BBAIRS, MASTER. •          Additional data such as delivery activity, currency market, etc.

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A typical ND.TYPE record.

EB .A GR EMEN T.TYPE The EB.AGREEMENT.TYPEfile is used to store the types of agreements used in NDF contracts, e.g. ISDA, BBAIRS, MASTER etc. Each contract must be linked to an agreement type. The field AGREEMENT.TYPE on the NDF contract is validated against the agreement type definitions on this file and enriched with the associated description. MM-LU2 - MM Parameters (c)

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Deal / Transaction Processing Foreign Exchange Input of deals can be made by the dealers directly inputting the key elements of their deals (currencies, amounts, value date and Counterparty). This avoids the need for hand-written deal tickets. It ensures the real-time update of positions and risk (i.e. immediately after input by the dealer the Counterparty’s liability/exposure, the exchange position and daily Foreign Exchange movements will reflect this deal). Almost all elements of Foreign Exchange transactions, except the key information entered by the dealer, have default values. Thus, for any given Counter party, payment methods and instructions are loaded automatically from a user definable table and need only be confirmed or, exceptionally, amended by the back-office. The ability to arrive at intelligent defaults also has another benefit in that for swaps nearly all information on the second and subsequent legs can be derived from the first leg. Information that needs to be input by the dealer is thus reduced to a minimum. After completion of the input by the dealer, deal slips can be printed for the back-office. Then, at the authorisation stage, the system invokes the generation and delivery of confirmations, the passing of any accounting entries such as brokerage, commissions and charges, and the issue of any required pay/receive instructions. Otherwise, there are 'overnight' processes that handle eventual settlement, revaluation and accruals and exception/maturity reporting.

Ma in input The majority of input in the FOREX module will comprise initial input of the contract with a limited amount of these contracts actually requiring any changes. Where changes are required they tend to be to the settlement accounting details.

Spot de a l input The examples below outline the main components of a typical spot deal. The amount of information required is quite limited, and the spot VERSION has been tailored to reflect this. In order to assist the dealer in inputting the deals, and to reflect the usual practice of buy and sell contracts, the VERSION have been split into similar categories.

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Forex Spot Buy Input (Example 1). The main inputs required are the Counterparty, currency, amount, and the foreign exchange rate. Where the settlement details for the Counterparty are stored on the system they will be set by default in the contract.

For wa r d c ontr a c t Similarly to the input of a spot contract, the forward contract has VERSION for buy and sell. Naturally these have the additional fields for the input of the forward rate, revaluation type and the buy/sell interest rates.

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Forex Forward Buy.

Swa p c ontr a c t The first leg of the swap contract is a straightforward spot deal, although the user also selects the currency amount that will remain static (defined by the SWAP.BASE.CCY) as in the example below:

A FOREX Swap Buy (Example 1).

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After validation of the spot contract you are automatically taken to the forward leg. Note that the static amount is now the sell amount.

A FOREX Swap Buy (Example 2).

B ullion c ontr a c t The FOREX application allows for the input of metals if these are configured in the table CURRENCY inthe PRECIOUS.METAL field as follows:

Precious Metals field set to YES. Fields are available in the FOREX application to input the data required to be able to produce the relevant SWIFT messages required for metal trades. Bullion trades can be for spot or forward value, exactly the same as a normal currency trade. These fields are as follows: Example table: Fields in FX for Bullion trades

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Field

Comment

IDENTIFICATION

The user cannot enter into this field as its value will be created by the concatenation of the next 4 new fields which the user will have to input into if one or both of the entered currencies for the trade is defined as a metal.

DELIVERY.DETAILS

CIF or no entry producing a zero length string. This is an optional field in the SWIFT message.

AVAILABILITY

This is the location where the metal is available.

ALLOCATION

ALLOC (allocated) or UNALL (unallocated)

TYPE

Defines whether the trade is for a quantity of metal or whether coins are being traded. The list of metals consists of: GOLD, SILV, PLAT, PALL, RHOD (Rhodium), RUTH (Ruthenium), OSMI (Osmium), IRID (Iridium).

FURTHER.IDENT

Options TRANSFER or DELIVERY

QUANTITY

Options: FOZ (Fine ounce), GOZ (Gross ounce), GRM (Gramme), KLO (Kilo), LOT (Lot), TAL (Tael), TON (MetricTonne), TOZ(Troy Ounce) TOL (Tola), UNT (Unit)

These fields are mandatory if one of the currencies of the trade is configured in CURRENCY as a metal. The data in these fields is needed for the DELIVERYmodule to produce the SWIFT messages MT600, MT604 and MT605. Example of a Bullion trade to purchase GOLD.

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A FOREX SPOT to purchase gold. SWIFT MT600 Delivery produced based on the above transaction.

SWIFT MT600 with Sequence B. As this transaction is the purchase of GOL then Sequence B is evoked whereby we must pay USD for the purchase. In this case the following fields are utilized. :32F:(Quantity of the Metal) i.e. GOZ2500,00 values taken from fields QUANTITY and AMOUNT.BOUGHT. :87A, B or D:(Receiver of the Metal) i.e. Our Correspondent Nostro BKENGB2L - BANK OF ENGLAND LONDON value taken from field OUR.ACCOUNT.REC. :34P:(Consideration) i.e. DATE, CURRENCY and AMOUNT value taken from fields VALUE.DATE.SELL, CURRENCY.SOLD and AMOUNT.SOLD. :53A, B or D:(Senders Correspondence) Optional Tag i.e. Our Paying Nostro MLNYUS33 - MERRILL LYNCH BANK NEW YORK value taken from field OUR.ACCOUNT.PAY. :57A, B or D:(Account with Institution) i.e. The Counterparty receivers correspondent CITIUS33 – CITIBANK NEW YORK value taken from field CPARTY.CORR.NO. Example of a Bullion trade to sell GOLD.

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A FOREX FORWARD to sell gold. SWIFT MT600 Delivery produced based on the above transaction.

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SWIFT MT600 with Sequence C. As this transaction is the sell of GOL then Sequence C is evoked whereby we will receive USD for the sale. In this case the following fields are utilized. :32F:(Quantity of the Metal) i.e. FOZ2352,94 values taken from fields QUANTITY and AMOUNT.SOLD. :87A, B or D:(Deliverer of the Metal) i.e. Their Correspondent Agent MGTCBEBEECL – EUROCLEAR BRUSSELS value taken from field CPARTY.CORR.NO. :34R:(Consideration) i.e. DATE, CURRENCY and AMOUNT value taken from fields VALUE.DATE.BUY, CURRENCY.BOUGHT and AMOUNT.BOUGHT. :57A, B or D:(Account with Institution) i.e. Our receiving agent MLNYUS33 - MERRILL LYNCH BANK NEW YORK value taken from field OUR.ACCOUNT.REC.

N e utr a lis a tion of for wa r d inte r e s t A dealer may wish to sell the interest from a deposit or placement in foreign currency through a forward deal. Setting the AMORTISE.POSITION field to ‘YES’ will amortise the position to reflect the interest accruals. Setting this field to ‘NO’ will raise the whole position on input of the deal. Setting the AMORTISE.POSITION field to ‘BOTH’ will amortise both foreign and local currency positions. In this case the positions are written off to Profit and Loss on a daily basis. The existing fields on FX . PARAMETER FWD.INT.PROFIT.CAT and FWD.INT.LOSS.CAT should be defined as the interest receivable and interest payable category respectively. Position amortisation may take place daily, monthly etc. according to the value of the AMORTISE.CYCLE field. The AMORTISE.START.DATE field defaults to the spot date but can be changed by the user unless amortisation has already started.

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N e utr a liza tion of for wa r d inte r e s t (A m or tis ing pos itions ) A dealer may wish to sell the interest from a deposit or placement in foreign currency through a forward deal. This optional facility allows the position arising from such deals to be amortised and reflect the interest accruals. This differs from a normal forward contract where the whole position would be raised immediately after input. There are two options available with in the AMORTISE.POSITION field, one to amortise the foreign currency (Y) and other to amortise the local and foreign currencies (BOTH) on a cyclic frequency e.g. daily or weekly as selected in AMORTISE.CYCLE field on the deal record. The amortisation start date defaults to the spot date (two working days forward from the TRADE.DATE). Foreign Currency For this option only the foreign currency amount is amortised and for this, the input to the field AMORTISE.POSITION is Y. The accrual entries are raised on the FCY position only. The contra entry is raised to reflect the exchange profit/loss and the other side entry is to clear the balance on the local currency reserve account. The amortised positions are written to Profit and Loss on cyclic frequency. The final adjustment entry is generated at the maturity. Both Currencies For this option the foreign and local currency amounts are amortised and for this, the input to the field AMORTISE.POSITION is BOTH. The accrual entries are raised on both FCY and LCY positions. The amortised amounts are posted to the Profit and Loss categories on the cyclic frequency day.  In this case, the contra entries to the local currency reserve accounts are not posted. The deal amount is still shown on the dealer's position. The net of the FWD.INT.PROFIT.CAT and FWD.INT.LOSS.CAT will be the exchange profit or loss. There is no adjustment entry on maturity as done in the case Foreign Currency (AMORTISE.POSITION is YES). The user has the ability to define the Profit and Loss category codes on the FX.PARAMETER file in fields FWD.INT.PROFIT.CAT and FWD.INT.LOSS.CAT.

B ulk Or de r s Bulk orders enable an account officer to request the purchase and sale of currency on behalf of several clients in a single order. The account officer defines the type of transaction (Spot or Forward), the value date and the currency bought and sold by the bulk order. Then the account officer lists the clients who are using the bulk order, with the amount of currency to buy or sell for each client. When the bulk order is authorised, an FX.ORDER can be created. This allows the treasury department and back office to complete the details required to create FX transactions for the bank and the clients. The treasury department must input the rates and the covering Counterparty. The back office must input the pay and receive settlement instructions. When the FX.ORDER is authorised, if CREATE.RECORDS is set to Y, T24 creates FX deals in OFS format. One 'master' deal is created for the bank side. When this deal is authorised, T24 creates a deal for each customer who has specified an amount on the FX.BULK.ORDER. limits are checked. Configuring T24 Bulk Orders FX Deals arising out of the Bulk Orders will be created through a Service (OFS.MESSAGE.SERVICE) and by appropriate configuration of OFS. OFS can be configured by adding a record called FX.BULK.OFS to OFS.SOURCE:

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OFS.SOURCE record. Edit FX.PARAMETERso that:

Field

Content

Example

BULK.OFS.SOURCE

The OFS.SOURCE record

FX.BULK.OFS

BULK.MASTER.VER The FX deal version

FOREX,SP.BUY

BULK.CHILD.VER

FOREX,SP.BUY

The FX deal version

 Services can be defined Company wise.

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TSA.SERVICE – BNK/OFS.MESSAGE.SERVICE. Authorising of the FX.BULK.ORDER will create a Consolidated FX.ORDER which when authorised will create a FX Master Deal when service is running. FX Master Deal will create the corresponding FX Child Deals.

Bulk Order Example For example, a bulk order contains these details:

BULK.ORDER.ID

FXT0324100001

The 1 st Bulk Order of the 29th August 2003

COVER.BULK.ID

Blank

Blank

ACCOUNT.OFFICER

90 George Hogen

The account officer responsible for the customer

DEALER DESK

01 Forex Spot

The position which will be updated by the new deals

DEAL.TYPE

SP = Spot

The deals will be forward deals (value date after spot)

DEAL.DATE

29 AUG 2003

The date on which the bulk order was made

CURRENCY.BOUGHT

EUR

The currency which is purchased

CURRENCY.SOLD

USD

The currency which is sold

VALUE.DATE

01 SEP 2003

The date when the deal matures

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CUSTOMER.ID

SEC.ACC.NO

AMOUNT.BOUGHT

AMOUNT.SOLD

BUY.OR.SELL OUR.ACCTOUNT.PAY

50060 Airboure

50060-1

(The counter party to the transaction)

(The customer's portfolio)

100020 Bank Bumiputra

Blank

EUR 100,000

Blank

BUY

Blank

Blank

Blank

USD 120,000

SELL

26751

100020

TOTAL.BOUGHT.AMT

1,200,000

1,200,000 USD bought

TOTAL.SOLD.AMT

1,500,000

1,000,000 + 500,000 = 1,500,000 EUR sold

FX Bulk Order example. Once the FX.BULK.ORDER is authorised the system will pool this transaction and others and create an FX.order with a system generated ID.

FX.ORDER (with defaults) The FX order contains these details: ORDER.ID

FXO0324100001

The 1 st FX Order of the 29th AUGUST 2003

ACCOUNT.OFFICER

90 George Hogen

The account officer from the FX.BULK.ORDER record

DEAL.DATE

29 AUG 2003

The deal date from the FX.BULK.ORDER record

VALUE.DATE

01 SEP 2003

The value date from the FX.BULK.ORDER record

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BASE.CCY

EUR

The BASE.CCY.RANK on CURRENCY.PARAM for EUR is 1. For USD it is blank. Therefore the base currency is EUR.

CONTRA.CCY

USD

As the base currency is EUR, the contra currency is USD.

TOTAL.BASE.AMT

Empty

TOTAL.CONTRA.AMT

Empty

DEAL.SUB.TYPE

Empty

COUNTERPARTY

Empty

BUY.RATE

Empty

SELL.RATE

Empty

TREASURY.RATE

Empty

FORWARD.POINTS

Empty

BULK.ORDER.ID

FXT0324100001

The ID of the bulk order which this FX.ORDER was created from

CREATE.RECORDS

NO

The default

Example FX.ORDER with defaults.

FX.ORDER (with more information) The user must fill in more details: FX Order ORDER.ID

FXO0324100001

The 1 st FX Order of the 29th AUGUST 2003

ACCOUNT.OFFICER

90 George Hogen

The account officer from the FX.BULK.ORDER record

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DEAL.DATE

29 AUG 2003

The deal date from the FX.BULK.ORDER record

VALUE.DATE

01 SEP 2003

The value date from the FX.BULK.ORDER record

BASE.CCY

EUR

The BASE.CCY.RANK on CURRENCY.PARAM for EUR is 1. For USD it is blank. Therefore the base currency is EUR.

CONTRA.CCY

USD

As the base currency is EUR, the contra currency is USD.

TOTAL.BASE.AMT

T24 calculates this

The sum of the amounts sold in the BASE.CCY, plus the sum of the amounts bought in the CONTRA.CCY converted to the BASE.CCY at the SELL.RATE = 1,000,000 + 1,333,333.33 + 500,000 = 2,833,333.33 EUR

TOTAL.CONTRA.AMT

T24 calculates this

The TOTAL.BASE.AMT converted at the SELL.RATE  = 2,833,333.33 ´ 0.9 = 2,550,000.00 USD

COUNTERPARTY

100550

The ID of the counter party to the master deal (the bank side)

DEALER.DESK

Blank

Leave blank as the master deal will be with a counter party

DEAL.SUB.TYPE

Blank

Leave blank as the master deal will be with a counter party

BUY.RATE

Blank

Leave blank as it will not be used on this deal (because the bought currency from the bulk order is not the base currency)

SELL.RATE

0.9 EUR/USD

The SELL.RATE is used because FX.BULK.ORDER SOLD.CURRENCY = FX.ORDER BASE.CCY. Note that this is the Sell rate from the client's point of view and therefore is lower than the Buy rate.

TREASURY.RATE

0.9

Defaults to the MID.REVAL.RATE of the CURRENCY EUR.

FORWARD.POINTS

0.01

Treasury.rate + fwd.points + cust.spread = CUST.RATE.

FXT0324100003

The ID of the bulk order which this FX.ORDER was created from

YES

When the FX.ORDER is authorised, T24 will create FX deals.

BULK.ORDER.ID CREATE.RECORDS

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FX.ORDER with more information.

The FX master deal T24 creates the master deal. This is the deal between the bank and the counterparty specified on the FX.Order. It contains the following details (amongst others): DEAL.TYPE

SP

From FX.BULK.ORDERDEAL.TYPE

COUNTERPARTY

100550

From FX.ORDER COUNTERPARTY or FX.ORDER. DEALER.DESK

DEALER.DESK

01

From FX.BULK.ORDERDEALER.DESK

CURRENCY.BOUGHT

EUR

From FX.ORDERBASE.CCY

AMOUNT.BOUGHT

231,147.54

From FX.ORDERTOTAL.BASE.AMT

VALUE.DATE.BUY

01 SEP 2003

From FX.BULK.ORDERVALUE.DATE

CURRENCY.SOLD

USD

From FX.ORDERCONTRA.CCY

AMOUNT.SOLD

209,188.52

From FX.ORDERTOTAL.CONTRA.AMT

VALUE.DATE.SELL

01 SEP 2003

From FX.BULK.ORDERVALUE.DATE

SPOT.RATE

0.905

From FX.ORDERTREASURY.RATE

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FORWARD.RATE

DEFAULT

From FX.ORDERTREASURY.RATE + FX.ORDERFORWARD.POINTS

DEAL.DATE

29 AUG 2003

From FX.BULK.ORDERDEAL.DATE

FX.BULK.ORDER.ID

FXT0324100003

From FX.BULK.ORDER ID

FX.ORDER.ID

FXO0324100003

From FX.ORDER ID

A FOREX master deal.

The FX child deals Once the above master deal is authorised T24 creates the child deals. These are the deals between the bank and the customers specified on the FX.BULK.ORDER.

Lim it Or de r s The underlying idea is that Relationship Managers can record requests from their clients for buying or selling of Foreign Currency at a desired rate, for a specified value date. The orders will remain in the system till either they are caused to be expired or executed or cancelled. The application FX.LIM.ORDER will hold these Orders. The executed orders will lead to creation of the appropriate FOREX deals automatically. Configuring T24 Limit Orders To facilitate automatic creation of FOREX records on execution of the order, an OFS.SOURCE records needs to be created. An example records is shown below.

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OFS.SOURCE record OFS.FX.LIM.ORDER. A company wise record for OFS.MESSAGE.SERVICE in TSA.SERVICE is necessary for generation of FX deals from FX.LIM.ORDER. An Example record is shown below:

TSA.SERVICE with BNK/OFS.MESSAGE.SERVICE.

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The OFS.SOURCE record needs to be entered in the field TRADE.ORD.OFS.SRC in the FX.PARAMETERS file.

FX.PARAMETERS with OFS.SOURCE record attached. In the LIMIT.PARAMETER record a new limit has to be defined for the FX.LIMIT.ORDER application. You can define different limits for different categories.

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LIMIT.PARAMETER with FX.LIM.ORDER defined. The application FX.LIM.ORDER is used to enter the orders received from the customer. The following is an example order received and entered on the 4th June 2003 and expires on the 5 th June 2003 at 14:00 hours. It is an SP type FOREX Contract with value date of 15 th June 2003. The order currency is GBP which is a buy of 15,000 against USD, the order type is SINGLE.

An FX.LIM.ORDER. Note that the ORD.ITEM.STAUS is OPEN and ORDER.STATUS is ACTIVE ORDER after EXECUTION The order can be executed by setting EXECUTE.ORDER to YES and by supplying the rate at the EXEC.RATE field. If a rate of 1.865 is used on execution this will be populated in the new FOREX contract.

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The same FX.LIM.ORDER after execution. Note that the ORD.ITEM.STAUS is EXECUTED and ORDER.STATUS is DONE. Also note that the Reference number of the FOREX Contract the Order has given rise to has been shown at FOREX.ID field The rate at which the FX.LIM.ORDER has been executed is NOT stored on the Contract but the USD Equivalent has been arrived at 27,975.00 = (15,000 * 1.865) FX CONTRACT After order execution the FOREX contract is created in IHLD status ready for any further processing by the user. As shown below the FX.LIM.ORDER contract reference is stored on the contract created.

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A FOREX contract created after execution.

C onfir m a tions FOREX will automatically generate confirmations following the appropriate events (e.g. deal authorisation, changes, replacement, etc.). Both Counter party and Broker confirmations received may be matched to the deals input and ‘V’erified. This process automatically passes a user identification date and time stamp into the corresponding field, CONFIRMD.BY.BROKER or CONF.BY.CPARTY Special confirmation ENQUIRY facilities allow for the extraction of unconfirmed deals. l

FX.UNCONF.BROKER

- Unconfirmed Broker deals

l

FX.UNCONF.CPARTY

- Unconfirmed Counter party deals

External packages can be used for confirmation matching.

C ha r ge s a nd C om m is s ions The standard T24 table FT.CHARGE.TYPE defines the conditions relating to various types of standard flat charge that are available for use in FOREX. Each Commission type can be defined as a Flat Amount or as one, which varies according to the amount of the Foreign Exchange deal. In this 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. For Option contracts, which may involve partial deliveries, charges or commissions may be levied on each delivery.

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Commission Groups FX.COMM.GROUP is used to define commission groups. The COMM.GROUP.ID field on a SEC.ACC.MASTER record identifies the FX.COMM.GROUP for a portfolio. FX.COMM.GROUP specifies the fee schedule for each currency and range of amounts. The fee shown is a percentage; the fee charged is that percentage of the deal rate.

FX.COMM.GROUP 2. FX.COMM.GROUP 2 is set up so that the cash amount from 0 to 1,000,000.00 USD a rate of 0.0005 is applied and from 1,000,001.00 and above a rate of 0.001 is applied. Therefore the customer spread is: First set = (treasury rate + forward points) ´ commission = (0.9 + 0.01) ´ 0.0005 = 0.000455 Second set = (treasury rate + forward points) ´ commission (0.9 + 0.01) ´ 0.001 = 0.00091 Linked Commission Groups The Forex spread can also be expressed as a percentage of the FX commission of another group, by using the GROUP.LINK field. For example, FX.COMM.GROUP 1 is set up like this: COMM.CCY

USD

START.AMOUNT

0

END.AMOUNT

100,000.00

SPREAD

0.6

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GROUP.LINK

2

START.AMOUNT

100,000.01

END.AMOUNT SPREAD

0.5

GROUP.LINK

2

FX.COMM.GROUP2 is set up like this: COMM.CCY

USD

START.AMOUNT

0

END.AMOUNT

150,000.00

SPREAD

0.04

GROUP.LINK START.AMOUNT

150,000.01

END.AMOUNT SPREAD

0.01

GROUP.LINK

The amount is 120,000 USD, using commission from FX.COMM.GROUP1. The commission rate is 50% of 4% – that is, 2%.

A lloc a tion of Ex c ha nge Pr ofit The relationship between Treasury and other units can be established very easily. Any transaction processed for a non-Treasury customer can have exchanges between the Treasury and that department at one rate (treasury rate) and between that department and the customer at another. Exchange Profit is passed to the department as the spread between these two rates and a balancing entry is passed to a suspense account at the time of contract entry. The suspense account entry is then reversed when the contract matures effectively leaving a profit or loss on the department’s Profit and Loss category. It is necessary to have an ACCOUNT.CLASS record MARKETING if you are using marketing exchange within FOREX . The category code entered on this record will be used for the suspense account for dealer desk’s marketing exchange profit and loss. The currency positions raised will reflect the true position on the dealer desk. In other words the local equivalent figures raised in the currency positions would be at the TREASURY.RATE rather than the deal rate in the case of TREASURY.RATE having been entered. The transaction enters the Exchange position at the Treasury rate and, it therefore follows, that all profit (or loss) arising from this position (through revaluation) will be allocated to the Treasury during the revaluation process. Under this system the Treasury should be responsible for setting the base (treasury) rates and marketing units responsible for policy on customer rates. Treasury rates should reflect real market rates. Accounting Conventionally, the marketing exchange in a Forex contract has been accounted for as under. On Input : Debit : Internal Suspense A/c Credit : P&L Marketing Exchange On Maturity : Debit : Customer a/c *

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Credit: Customer A/c * Credit : Suspense a/c The difference between the Debit and credit entries for customer a/c would reverse the Suspense a/c balance on maturity. Alternative Method of Accounting: An alternative method of accounting for marketing exchange is available to make it compatible with the overall working where the Position Accounting is switched on. The same works as under. System raises two category entries to post the Marketing Exchange Profit/loss. For this, the field MKT.EXCH.ACCT.METHOD in FX.PARAMETER has to be set to P&L. The other value that can be given against this field is INTERNAL which means the conventional method of Accounting wherein the entries are raised between and Internal Suspense Account and P&L. Under the alternative method, CATEGORY entries will be raised in the following way. Debit P&L Marketing Exchange of Treasury USD 1000 Credit P&L Marketing Exchange of Customer USD 1000 (Customer Marketing Dept Category). The impact of this method on POSITION is that the LCY Equivalent of the FCY will be built at the contract rate and not at the Treasury Rate. As a result, the BUY.LCY.EQUIV and SELL.LCY.EQUIV in FOREX will be identical so long as the Revaluation method is SP or RB. Since no internal suspense account is involved, there will be no need for any reversal entries to be posted during the maturity of the deal. Through ACCOUNT.CLASS, one or two P&L category codes can be defined for marketing exchange depending on whether the credit and debit should go to one category or to different categories.

Pr inc iple s of c ontr a c t r e v a lua tion The purpose of this section is to explain and illustrate the revaluation process applicable to foreign exchange contracts performed by the end of day activities of the FOREX application. The revaluation process applicable to balance sheet items (assets and liabilities) is described elsewhere and is therefore not included in this section. Examples of both spot and forward revaluation processing are highlighted and the different revaluation methods of forward contracts are illustrated.

SPOT CONTRACT REVALUATION For the purpose of illustration, assume that 2 deals have been input and authorized as follows: Deal 1

Deal 2

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At this stage, it is already important to understand how the local currency equivalents (BUY .LCY.AMT and SELL LCY AMT) are established for SPOT Exchange contracts.  The following rules will be followed: a) Where either the actual amount bought or amount sold happens to be in the local currency of the country (Deal 1), this amount will be adopted as the local currency equivalent for the other currency so that the fields BUY.LCY.AMT andSELL.LCY.AMT on the main FOREX contract will contain this same value. It is also this local currency value, which will be used to update the foreign exchange position once the deal has been successfully validated. b) Where the local currency is neither the currency bought nor the currency sold (Deal 2), the system will calculate the local currency equivalent of the BASE currency/amount and apply it to both currencies of the contract so that fields BUY.LCY.AMT andSELL.LCY.AMT on the main FOREX contract will also contain the same value. To calculate this local currency equivalent of the BASE amount, the system will use the REVAL.RATE for the given currency found on the CURRENCY application.  For example, on the CURRENCY table the revaluation rate  GBP/USD is equal to 1.50.  As in the previous case it is also this local currency equivalent, which will be used to update the foreign exchange position once the deal has been successfully validated. Before the Close of Business process the Position file is as follows: Dealer Desk 01

Dealer Desk 02

The signs follow the accounting conventions, i.e. the '-' sign indicates a 'LONG' position (overbought) while the '+' sign indicates a 'SHORT' position (oversold). At the Close of Business, assuming that the deals have been fully authorized and that a complete Close of Business has been performed, the position in each foreign currency will be revalued, by dealer desk, against local currency. For SPOT contracts, the rate used for revaluation is that of the REVAL.RATE from the CURRENCY table of the currency being revalued.  Let us suppose the user has entered the following REVAL.RATE on the CURRENCY table before the close of business. CURRENCY

REVAL.RATE

USD                            1,5100 DEM                            3,3100

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Taking into account the new exchange rates, the revaluation process calculates the new local currency equivalents i.e. the revalued amount with a Profit/Loss to date and a Profit/Loss today as detailed below:

It can be seen from the above example that a total loss of GBP (local currency) 6,815.93 has been generated and is composed as follows: Dealer Desk: 1.    LOSS IN USD Position = GBP 4,415.02 2.    LOSS IN USD Position = GBP 4,415.02 3.    PROFIT in DEM Position = GBP 2,014.11 The system will then automatically generate the following entries (please see note at end of this section regarding accounting entries): CATEG ENTRY DR 53001 SPOT REVALUATION Amounts: 4,415.02 Desk 1 CCY USD 4,415.02 Desk 2 CCY USD CR 53001 SPOT REVALUATION Amount: 2,014.11 Desk 2 CCY DEM STMT.ENTRY CR GBP 6,815.93 EXCHANGE ADJUSTMENT (From ACCOUNT.CLASS file) The next day, assume that we remain with the same 2 Spot contracts and that new REVAL.RATE has been input to the CURRENCY table for both DEM and USD as detailed here below:

In the Close of Business process, these new exchange rates will be taken into account by the revaluation process, which will calculate new local currency equivalents as indicated in the table below:

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It can be seen from the above revaluation that a supplementary loss of GBP (local currency) 12,754.28 has been generated and that the total to date is equal to GBP 19,570.21 i.e. GBP 6,815.93 + GBP 12,754.28. This supplementary loss is composed as follows: l

Dealer Desk 1: LOSS IN USD Position = GBP 4,356.92

l

Dealer Desk 2: LOSS IN USD Position = GBP 4,356.92

l

LOSS IN DEM Position = GBP 4,040.44

As can be seen from the figures, the overall Loss has been increased to GBP 19,570.21 DR on Day 1. The principal adopted to reflect this change properly is that only the difference between the Profit/Loss to Date from the previous day and the Profit/Loss to Date on the current revaluation is posted namely 'TODAY'S total' on the revaluation report i.e. GBP 12,754.28 DR. DAY 0 (deal date) Profit/Loss to date

6,815.93 DR

DAY 1 (next day) Profit/Loss to date 

19,570.21 DR ------------

TODAYS TOTAL

12,754.28 DR

The accounting entries will be generated as explained earlier, i.e. 3 Profit and Loss entries against a total statement entry of GBP 12,754.28 in the Internal account corresponding to the EXCHANGE ADJUSTMENT as defined on ACCOUNT.CLASS file. On day 2, i.e. when the value date of the contract is reached, both contracts will be liquidated in the Balance Sheet and the relevant entries passed over Customer accounts, Nostro accounts or Internal accounts.  The net outstanding amount in the EXCHANGE ADJUSTMENT account (GBP 19, 570.21 in our example) will be reversed (i.e. credited in our case) against the original Profit and Loss Category code and the transaction will now be part of the Asset/Liability position.  It will be posted in the Balance sheet with its original values (as defined in BUY.LCY.AMT andSELL.LCY.AMT of the contract) and from now on will be revalued within the Asset/Liability revaluation process.

FORWARD CONTRACT REVALUATION The Revaluation process within T24 allows the following five methods for the revaluation of Forward contracts: l

Rebate

l

Straight Line Funding

Rebate revaluations use the MID.REVAL.RATE found on the CURRENCY table, while the other types use the REVAL.RATE also found on the CURRENCY table. The system can be made to use REVAL.RATE in CURRENCY table instead of MID.REVAL.RATE for calculating the Revaluation Rate for Rebate revaluations, by inputting a value YES in the field REVAL.RATE in the REVALUATION.PARAMETER for RB Method. If there was no value entered in REVAL.RATE, then the MID.REVAL.RATE for that CURRENCY will be used. An example will be given for each one of these methods.

Straight Line Revaluation ('SL') Assume that the following 2 deals have been input and authorised as follows:

Deal 1 Currency & Amount Bought

USD 1,000,000.00

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Rate of Exchange

1.48

(Spot Rate)

(1.50)

Currency & Amount Sold

GBP 675,675.68

Value Date

6 Months

Dealer Desk

01

Revaluation Type

SL

SPOT LCY AMT

666,666.67

BUY LCY AMT

-

SELL LCY AMT

666,666.67 675,675.68

Deal 2 Currency & Amount Bought

USD 1,000,000.00

Rate of Exchange

2.18

(Spot Rate)

(2.20)

Currency & Amount Sold

DEM 2,180,000.00

Value Date

6 Months

Dealer Desk

02

BASE Currency

USD

Revaluation Type

SL

SPOT.LCY.AMT

666,666.67

BUY.LCY.AMT SELL.LCY.AMT

-

666,666.67 660,606.06

At this stage, it is important to understand how the local currency equivalent is established for FORWARD Exchange contracts using the Straight Line revaluation method.  The following rules will be followed: When the contract involves local currency The local currency amount of the contract will be kept to generate the local currency value in its corresponding BUY LCY EQUIV or SELL LCY EQUIV i.e: If AMOUNT BOUGHT islocal currency, then AMOUNT.BOUGHT = BUY.LCY EQUIV If AMOUNT.SOLD is local currency, then AMOUNT.SOLD = SELL.LCY.EQUIV The foreign currency amount of the contract will be converted at the contract SPOT rate to generate the local currency value in its corresponding BUY.LCY.EQUIV or SELL.LCY.EQUIV. When the contract does not involve local currency The BASE amount of the contract will be converted at the CURRENCY table MID.REVAL.RATE of the BASE currency to generate the local currency value in its corresponding BUY.LCY.EQUIV or SELL.LCY.EQUIV.

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The other foreign currency amount of the contract will be converted at the contract SPOT rate and the CURRENCY table MID.REVAL.RATE of the BASE currency to generate the local currency value in its corresponding BUY.LCY.EQUIV or SELL.LCY.EQUIV. These spot local currency equivalents will also be used to update the foreign exchange position once the deal has been successfully validated. After the validation of the 2 deals, the POSITION file is as follows: Dealer Desk 01

For

-

1,000,000.00 USD

+

675,675.68 GBP

Against

+

675,675.68 GBP

-

1,000,000.00 USD

Local equiv.

-

666,666.67 GBP

+

675,675.68 GBP

For

-

1,000,000.00 USD

+

2,180,000.00 DEM

Against

+

2,180,000.00 DEM

-

1,000,000.00 USD

Local equiv.

-

666,666.67 GBP

+

660,606.06 GBP

|       ACCRUALS       | 9,009.01 Dealer Desk 02

|       ACCRUALS       | 6,060.61

The signs follow the accounting conventions. Under the Straight Line revaluation method, this difference between the local currency equivalent of the amount bought and the amount sold is isolated as a Profit or Loss amount at the start of the contract and then simply amortized over the life of the deal as a daily accrual between an exchange reserve adjustment internal account and an interest Profit and Loss Category code [Interest Paid Exchange (defined in REVALUATION.PARAMETERS) if contract is done at a loss and Interest Received Exchange (defined in REVALUATION.PARAMETERS) if contract is done at a profit]. At the close of business, assuming that the deals have been fully authorised, the position in each foreign currency is be revalued at SPOT rate, by dealer against local currency. SPOT rates will be used for the revaluation during the complete life of these 2 contracts because they have entered the Foreign Exchange position also with SPOT rates as explained earlier.  The revaluation process will then be the same as a spot contract. When the SPOT date is reached, an additional process will take place, namely the accruals on the local currency difference.  These accruals will continue up to the value date of the contract (6 months in our example). If we suppose that this 6-month period contains 181 days on Deal 1 a daily accrual of GBP 49.77 (i.e., 9009.01 divided by 181) will take place while on deal 2 a daily accrual of GBP 33.48 (6060.61 divided by 181) will be booked.  The following daily entries will be generated for these accruals:

Deal 1 (Loss) Dr  INTEREST PAID EXCHANGE

49.77 (CATEG 50000)

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Cr  EXCH RES ADJUSTMENT     

49.77

Deal 2 (Profit) Dr EXCH RES ADJUSTMENT      

33.48

Cr INTEREST RECEIVED EXCHANGE

33.48 (CATEG 51000)

When the value date of the contract is reached, both contracts will be liquidated in the Balance Sheet and the relevant entries passed over customer accounts, nostro accounts or internal accounts. In addition to the process described for the liquidation of a SPOT contract, one supplementary statement entry will be generated, i.e. the liquidation of the EXCH RES ADJUSTMENT account, which was used for the accruals.  This supplementary entry also allows the transfer of the FOREX position to the Asset/Liability Position with movements balancing in local currency i.e.

Deal 1 Dr Nostro 1,000,000 USD

<----->

666,666.67 GBP

Dr EXCH RES ADJUSTMENT

9,009.01 GBP

Cr CLEARING/CASH

675,675.68 GBP

Deal 2 Dr Nostro 1,000,000 USD

<----->

Cr Nostro 2,180,000 DEM

<-------->

666,666.67 GBP 660,606.06 GBP

Cr EXCH RES ADJUSTMENT

6,060.61 GBP

As illustrated, the Foreign Exchange transaction will be posted in the Balance sheet on value date with its original values (Fields BUY.LCY.EQUIV and SELL.LCY.EQUIV of the contract) and from then on (i.e. value date) will be revalued within the Asset/Liability revaluation process.

Interest Revaluation (IN) For the sake of simplicity, let us take as an example the same 2 deals as the one used for the straight-line method.  We will only exchange the value of the field REVALUATION.TYPE from 'SL' to 'IN' and indicate the values of the interest rates applicable to both currencies (bought and sold).

The rate of exchange will be the REVAL.RATE if it is specified on the CURRENCY table; otherwise it will use the MID.REVAL.RATE.

Deal 1 Currency & Amount Bought

USD 1,000,000.00

Rate of Exchange

1.48

(Spot Rate)

(1.50)

Currency & Amount Sold

GBP 675,675.68

Value Date

6 Months

Dealer Desk

01

Foreign Exchange- Release R13.00 -Page 43 of 110 - (c) Temenos Systems 2013 05/07/2013

Revaluation Type

IN

Interest rate buy

6.964504654

Interest rate sell

9.75

SPOT LCY AMT

666,666.67

BUY LCY AMT

-

SELL LCY AMT

666,666.67 675,675.68

Deal 2 Currency & Amount Bought

USD 1,000,000.00

Rate of Exchange

2.18

(Spot Rate)

(2.20)

Currency & Amount Sold

DEM 2,180,000.00

Value Date

6 Months

Dealer Desk

02

BASE Currency

USD

Revaluation Type

IN

Interest rate buy

6.00

Interest rate sell

4.191863385

SPOT LCY AMT

666,666.67

BUY LCY AMT SELL LCY AMT

-

666,666.67 660,606.06

Again, let us understand how the local currency equivalent (BUY.LCY.EQUIV and SELL.LCY.EQUIV) is established for FORWARD Exchange contract using the Interest Revaluation Method. The same rules as those defined for the Straight Line method will be followed i.e. When the contract involves local currency The local currency amount of the contract will be kept to generate the local currency value in the corresponding BUY.LCY.EQUIVor SELL.LCY.EQUIV i.e. If AMOUNT.BOUGHT = Local currency, then AMOUNT.BOUGHT = BUY.LCY.EQUIV If AMOUNT.SOLD = Local currency, then AMOUNT.SOLD = SELL.LCY.EQUIV The foreign currency amount of the contract will be converted at the contract SPOT rate to generate the local currency value in its corresponding BUY.LCY.EQUIV or SELL.LCY.EQUIV. When the contract does not involve local currency The BASE amount of the contract will be converted at the CURRENCY table middle rate of the BASE currency to generate the local currency value in its corresponding BUY.LCY.EQUIV or SELL.LCY.EQUIV. The other foreign currency amount of the contract will be converted at the contract SPOT rate and the CURRENCY table MID.REVAL.RATE of the BASE currency to generate the local currency value in its corresponding BUY.LCY.EQUIV or SELL.LCY.EQUIV. These SPOT local currency values will also be used to update the Foreign Exchange position once the deal has been successfully validated.

Foreign Exchange- Release R13.00 -Page 44 of 110 - (c) Temenos Systems 2013 05/07/2013

After the validation of the 2 deals, the position file will look exactly the same as in the case of the Straight Line method i.e. Dealer Desk 01

FOR

-

1,000,000.00 USD

+

675,675.68 GBP

AGAINST

+

675,075.68 GBP

-

1,000,000.00 USD

Local equiv.

-

666,666.67 GBP

+

675,675.68 GBP

FOR

-

1,000,000.00 USD

+

2,180,000.00 DEM

AGAINST

+

2,180,000.00 DEM

-

1,000,000.00 USD

Local equiv.

-

666,666.67 GBP

+

660,606.06 GBP

Dealer Desk 02

Please note that the signs follow the accounting conventions. Under the Interest revaluation method, this difference between BUY.LCY.EQUIVand SELL.LCY.EQUIVis also isolated as a Profit and Loss amount at the start of the contract.  However, this reserve will now be amortized between an exchange reserve adjustments internal accounts offset by two Profit and Loss entries as follows: A Credit to Interest Received Exchange for the currency bought. A Debit to Interest Paid Exchange for the currency sold. The net between the two Profit and Loss entries will represent exactly the amount booked in Exchange reserve adjustment, and also the single accrual amount booked under the Straight Line revaluation method.  As already explained in the main file documentation, the 2 daily Profit and Loss entries will correspond exactly to one day's interest on the amount bought and the amount sold using the interest rates generated in the contract record. At the close of business, assuming that the deals have been fully authorized, the position in each foreign currency will be revalued at SPOT rate against the local currency. SPOT rates will be used for the revaluation during the complete life of these 2 contracts because they have entered the Foreign Exchange position also with SPOT rates as explained earlier. The revaluation process will then be identical to the one explained under the caption 'SPOT REVALUATION'.  The same revaluation rates and accounting entries will be produced. When the SPOT date is reached, an additional process will take place namely the accruals on the local currency difference.  These accruals will continue up to the value date of the contract (6 months in our example) and the daily accrual amount will be calculated as follows: For the currency bought Amount bought x INTEREST RATE BUY INTEREST BASIS OF CCY BOUGHT = Daily accrual amount for currency bought I.e. in our example deal 1 1,000,000.00 USD X 6.964504654 = USD 193.46 36000

Foreign Exchange- Release R13.00 -Page 45 of 110 - (c) Temenos Systems 2013 05/07/2013

When the contract involves local currency the foreign currency accrual amount will always be converted at the contract FORWARD RATE (1.48 in our case).  The daily accrual in local currency will therefore be GBP 130.72. In our example deal 2 1,000,000.00 USD x 6 = USD 166.67 36000 When the contract does not involve the local currency of the country, the BASE currency accrual amount will always be converted at the CURRENCY table REVAL.RATE. For the currency sold Amount sold x INTEREST RATE SELL INTEREST BASIS OF CCY SOLD       =       Daily accrual amount for currency sold i.e. in our example deal 1 675,675.68 GBP ´ 9.75

= GBP 180.49

36500 This amount, being a local currency amount, does not need to be converted and represents the daily accrual in local currency for the sold currency. In our example deal 2 2,180,000.00 ´ 4.191863385 =       DEM 253.84 36000 When the contract does not involve the local currency of the country, the NON BASE currency accrual amount will always be converted at the contract FORWARD RATE and the CURRENCY table reval rate of the BASE currency.  In our case, this rate will be 2.18 ´ 1.50 = 3.27.  The equivalent local currency accrual will therefore be 253.84 ¸ 3.27 = GBP 77.63. The following accruals accounting entries will therefore be generated by the system:

Deal 1 Cr EXCH RES ADJUSTMENT

GBP  49.77

Cr INTEREST RECEIVED EXCHANGE

GBP 130.72

Dr INTEREST PAID EXCHANGE

GBP 180.49

Deal 2 Cr INTEREST RECEIVED EXCHANGE

GBP 111.11

Dr EXCH RES ADJUSTMENT

GBP  33.48

Dr INTEREST PAID EXCHANGE

GBP  77.63

Foreign Exchange- Release R13.00 -Page 46 of 110 - (c) Temenos Systems 2013 05/07/2013

When the value date of the contract is reached both contracts will be liquidated and the relevant entries passed over after customer accounts, nostro accounts or internal accounts.  In the same way as described for the Straight Line revaluation method, one supplementary statement entry will be generated i.e. the liquidation of the EXCH RES ADJUSTMENT account which was used for the accruals. This supplementary entry also allows the transfer of the FOREX position into the Asset/Liability position on the value date of the contract with movements balancing in local currency i.e.

Deal 1 Dr Nostro 1,000,000.00 USD

----->

Dr EXCH RES ADJUSTMENT

666,666.67 9,009.01

Cr CLEARING/CASH

675,675.68

Deal 2 Dr Nostro 1,000,000.00 USD

----->

666,666.67

Cr Nostro 2,180,000.00 DEM

------------->

660,606.06

Cr EXCH RES ADJUSTMENT

6,060.01

As illustrated, the Foreign Exchange transaction will be posted in the Balance Sheet on value date with its original values (BUY.LCY.EQUIV and SELL.LCY.EQUIV of the contract) and from then on (i.e. value date) will be revalued within the Asset/Liability revaluation process.

Interest/Hedged Revaluation (IH) The example used for the straight line and interest methods can be modified slightly to illustrate the interest/hedged revaluation method.  The value of field REVALUATION.TYPE is 'IH'. The interest rate of the currency sold (INT.RATE.SELL) is kept, but the calculation of the other currency's rate is, in this case, performed differently.

Deal 1 Currency & Amount Bought

USD 1,000,000.00

Rate of Exchange

1.48

(Spot Rate)

(1.50)

Currency & Amount Sold

GBP 675,675.68

Value Date

6 Months

Dealer Desk

01

Revaluation Type

IH

Interest rate buy

6.836285

Interest rate sell

9.75

SPOT LCY AMT

666,666.67

BUY LCY AMT SELL LCY AMT

-

666,666.67 675,675.68

Deal 2 Currency & Amount Bought

USD 1,000,000.00

Foreign Exchange- Release R13.00 -Page 47 of 110 - (c) Temenos Systems 2013 05/07/2013

Rate of Exchange

2.18

(Spot Rate)

(2.20)

Currency & Amount Sold

DEM 2,180,000.00

Value Date

6 Months

Dealer Desk

02

BASE Currency

USD

Revaluation Type

IH

Interest rate buy

6.00

Interest rate sell

4.137318

SPOT LCY AMT

666,666.67

BUY LCY AMT SELL LCY AMT

-

666,666.67 660,606.06

Again, let us understand how the local currency equivalent (BUY.LCY.EQUIV and SELL.LCY.EQUIV) is established for FORWARD Exchange contract using the Interest/ Hedged Revaluation Method. The same rules as those defined for the Straight Line and Interest methods will be followed i.e. When the contract involves local currency The local currency amount of the contract will be kept to generate the local currency value in the corresponding BUY.LCY.EQUIV and SELL.LCY.EQUIV For example: If AMOUNT.BOUGHT = Local currency, then AMOUNT.BOUGHT = BUY.LCY.EQUIV. If AMOUNT.SOLD = Local currency, then AMOUNT.SOLD = SELL.LCY.EQUIV. The foreign currency amount of the contract will be converted at the contract SPOT rate to generate the local currency value in its corresponding BUY.LCY.EQUIV or SELL.LCY.EQUIV. When the contract does not involve local currency The BASE amount of the contract will be converted at the CURRENCY table MID.REVAL.RATE of the BASE currency to generate the local currency value in its corresponding BUY.LCY.EQUIV or SELL.LCY.EQUIV. The other foreign currency amount of the contract will be converted at the contract SPOT.RATE and the CURRENCY table MID.REVAL.RATE of the BASE currency to generate the local currency value in its corresponding BUY.LCY.EQUIV or SELL.LCY.EQUIV. These spot local currency values will accompany the eventual postings to the balance sheet in the same manner as for straight-line or interest methods.  However, the way in which the foreign exchange positions are updated differs significantly from the other methods of revaluation.  This difference can be explained by first describing the other calculations which the system will perform for interest/hedged deals. The interest/hedged method of revaluation is intended to account for a situation where the forward foreign exchange contract is hedged against other items in the balance sheet.  It follows that the various effects of interest accruals and currency revaluations arising from the two sources should largely cancel one another out. The interest/hedged method is, in fact, based on the assumption that the foreign exchange deal can be matched against a loan or deposit in the currency of the sold or bought currencies respectively.  The actual amounts of the deal are therefore considered to be the product of a matching loan or deposit in the currencies concerned.

Foreign Exchange- Release R13.00 -Page 48 of 110 - (c) Temenos Systems 2013 05/07/2013

This means that the system must first calculate, given the applicable interest rate and term of the contract, the principal amount which would give an interest yield exactly sufficient to generate the contract amount. The formula for calculating this figure is as follows:

Where the following abbreviations are used: l

NP                =       notional principal

l

DA               =       deal amount

l

IR                =       interest rate

l

STV              =       spot-to-value number of days

l

IDB              =       interest day basis

The figures calculated on the amount bought and the amounts sold are recorded in NOTIONAL.BUY.AMT and NOTIONAL.SELL.AMTrespectively. The interest amount associated with each side of the deal is calculated by a simple subtraction:

Where the following abbreviations are used: l

IA  = interest amount

l

NP = notional principal

l

DA = deal amount

The interest figures calculated on the amount bought and the amount sold are recorded in fields TOTAL.INT.BOUGHT and TOTAL.INT.SOLD respectively. An equivalent value of these interest amounts is recorded in fields EQUIV.INT.BOUGHT and EQUIV.INT.SOLD. Because the entire difference in BUY.LCY.EQUIV and SELL.LCY.EQUIV is attributable to forward discount or premium implied by the difference in interest rates, it follows that same difference should be shown between the figures in these two fields. An adjustment is made by the system in order to ensure this. Another way of expressing this reasoning is to say that the local equivalents of the NOTIONAL.BUY.AMT and NOTIONAL.SELL.AMT must, by definition, be the same according to the contract SPOT.RATE. These additional system-generated fields take the following values for the current examples:

Deal 1 (USD/GBP) NOTIONAL BUY AMT

966,770.81

NOTIONAL SELL AMT

644,513.88

TOTAL INT BOUGHT

33,229.19

Foreign Exchange- Release R13.00 -Page 49 of 110 - (c) Temenos Systems 2013 05/07/2013

TOTAL INT SOLD

31,161.80

EQUIV INT BOUGHT

22,152.79

EQUIV INT SOLD

31,161.80

INT BASIS BOUGHT

B 366/360

INT BASIS SOLD

E 366/365

Deal 2 (USD/DEM) NOTIONAL BUY AMT

970,716.71

NOTIONAL SELL AMT

2,135,576.77

TOTAL INT BOUGHT

29,283.29

TOTAL INT SOLD

44,423.23

EQUIV INT BOUGHT

19,522.19

EQUIV INT SOLD

13,461.58

INT BASIS BOUGHT

B 366/360

INT BASIS SOLD

B 366/360

The interest day basis applicable to each currency is recorded for internal purposes. After the validation of the 2 deals, the position file will be updated, not with the full amounts of the deal, but with the notional principal amounts only:

Dealer Desk 01

FOR

-

966,770.81 USD

+

644,513.88 GBP

AGAINST

+

644,513.88 GBP

-

966,770.81 USD

Local equiv.

-

644,513.88 GBP

+

644,513.88 GBP

Dealer Desk 02

FOR

-

970,716.71 USD

+

2,135,576.77 DEM

AGAINST

+

2,135,576.77 DEM

-

970,716.71 USD

Local equiv.

-

647,144.48 GBP

+

647,144.48 GBP

Note that the signs follow the accounting conventions. Under the interest/hedged revaluation method, the local equivalent amounts that are positioned on each side of the deal are identical at the outset because they correspond to the notional principal amounts at their spot rates at the time of entering the deal.

Foreign Exchange- Release R13.00 -Page 50 of 110 - (c) Temenos Systems 2013 05/07/2013

The difference between the local currency equivalent of the AMOUNT.BOUGHT and the AMOUNT.SOLDis also isolated as a Profit and Loss amount at the start of the contract. However, this reserve will now be amortized between an exchange reserve adjustment internal account in the currency bought/sold offset by 2 Profit and Loss entries as follows: l

A Credit to Interest Received Exchange for the currency bought.

l

A Debit to Interest Paid Exchange for the currency sold.

The two daily Profit and Loss entries will correspond to one day's interest on the notional amount bought and the notional amount sold using the interest rates generated in INT.RATE.BUY and INT.RATE.SELL respectively. The local equivalent of each of these entries is calculated at the prevailing day's spot rate for each currency.  The foreign currency amounts are added into the currency position file as each accrual is made. At the close of business, assuming that the deals have been fully authorized, the position in each foreign currency will be revalued at SPOT rate against the local currency. SPOT rates will be used for the revaluation during the complete life of these two contracts because they have entered the Foreign Exchange position also with SPOT rates as explained earlier.  The revaluation process will then be identical to the one explained under the caption 'SPOT REVALUATION'. The same revaluation rates and accounting entries will be produced. When the spot date is reached, the system will start to process accruals on the interest bought and sold.  These accruals will continue up to the value date of the contract (6 months in our example). On each side of the deal, the daily accrual amount can be calculated by the formula:

Where the following abbreviations are used: l

DAA    =       daily accrual amount

l

NPA    =       notional principal

l

IR       =       interest rate

l

IDB     =       interest day basis

The system actually performs the equivalent calculation by subtracting the amount accrued to date from the total interest due over the period since spot date.  This calculation carries with it a running adjustment and respects both non-working days and 360-day interest bases.  In this way, the effects of a corresponding loan or deposit in the balance sheet can be mirrored exactly. When the value date of the contract is reached both contracts will be liquidated and the relevant entries passed over after customer accounts, nostro accounts or internal accounts.  In the same way as described for the straight line and interest revaluation methods, supplementary statement entries will be generated i.e. the liquidation of the EXCH RES ADJUSTMENT account, which was used for the accruals.  This supplementary entry also allows the transfer of the FOREX position into the Asset/Liability position on the value date of the contract with movements balancing in local currency i.e.

Deal 1 Dr Nostro 1,000,000.00 USD Dr EXCH RES ADJUSTMENT Cr CLEARING/CASH

----->

666,666.67 9,009.01 675,675.68

Foreign Exchange- Release R13.00 -Page 51 of 110 - (c) Temenos Systems 2013 05/07/2013

Deal 2 Dr Nostro 1,000,000.00 USD

----->

666,666.67

Cr Nostro 2,180,000.00 DEM

------------->

660,606.06

Cr EXCH RES ADJUSTMENT

6,060.01

As illustrated, the Foreign Exchange transaction will be posted in the Balance Sheet on value date with its original values (BUY.LCY.EQUIV andSELL.LCY.EQUIV of the contract) and from then on (i.e. value date) will be revalued within the Asset/Liability revaluation process.

Rebate Revaluation (RB) This is the most straightforward method as it is based (like the Spot Revaluation) on the cost or profit attributable to closing the position i.e. to enter into a deal at today's rates to exactly cover each deal at its maturity (buy back approach). Rebate revaluation types use the MID.REVAL.RATE found on the CURRENCY table by default. The system can be made to use REVAL.RATE in the CURRENCY table instead of MID.REVAL.RATE for calculating the Revaluation Rate, by inputting a value YES in the field REVAL.RATE on the REVALUATION.PARAMETER for RB Method. If there was no value entered in REVAL.RATE, then the MID.REVAL.RATE for that CURRENCY will be used. Within this method, for any given forward deal as it ages, the rate to cover it, converges with the spot rate as it gets closer to maturity, until it will eventually be covered at spot rate. Given a set of forward rates (FORWARD.RATEStable), the user can still choose between 3 methods to find the forward rate applicable to each forward contract i.e.: l

Interpolation

l

Next Available rate

l

Closest rate

The choice will be indicated on the REVALUATION.PARAMETER table. We will suppose in this document the closest rate.  Assume again, as an example, the same two deals as the ones used previously.  We are now changing the value of the field REVALUATION.TYPE to 'RB' to indicate the Rebate Revaluation method. Assume also that we have the following Spot and Forward rates loaded on the CURRENCY and FORWARD.RATES table.

SPOT GBP/USD

=

1.50

SPOT GBP/DEM

=

3.30

FWD 6MTH GBP/USD

=

1.48

FWD 6MTH GBP/DEM

=

3.24

Deal 1 Currency & Amount Bought

USD 1,000,000.00

Rate of Exchange

1.48

(Spot Rate)

(1.50)

Currency & Amount Sold

GBP 675,675.68

Foreign Exchange- Release R13.00 -Page 52 of 110 - (c) Temenos Systems 2013 05/07/2013

Value Date

6 Months

Dealer Desk

01

Revaluation Type

RB

SPOT LCY AMT

666,666.67

BUY LCY AMT

-

SELL LCY AMT

675,675.68 675,675.68

Deal 2 Currency & Amount Bought

USD 1,000,000.00

Rate of Exchange

2.18

(Spot Rate)

(2.20)

Currency & Amount Sold

DEM 2,180,000.00

Value Date

6 Months

Dealer Desk

02

BASE Currency

USD

Revaluation Type

RB

SPOT LCY AMT

666,666.67

BUY LCY AMT

-

SELL LCY AMT

672,839.51 672,839.51

Let us review again how the local currency equivalent BUY.LCY.EQUIV and SELL.LCY.EQUIV is established for FORWARD exchange contracts using the REBATE revaluation method.  The principle is different from the other revaluation methods. The following rules will be followed: When the contract involves local currency It is always the local currency amount [bought or sold], which will be used to generate the local currency value in BOTH fields BUY.LCY.EQUIV and SELL.LCY.EQUIV. When the contract does not involve local currency The BASE amount of the contract will be converted at contract FORWARD.RATE and the forward rate of the other currency (non-base currency) to generate the local currency value in BOTH fields BUY.LCY.EQUIV and SELL.LCY.EQUIV. These forward local currency values will also be used to update the Foreign Exchange position once the deals have been successfully validated. After the validation of the two deals, the Position file will look as follows:

Dealer Desk 01

FOR

-

1,000,000.00 USD

+

675,675.68 GBP

AGAINST

+

675,675.68 GBP

-

1,000,000.00 USD

Local equiv.

-

675,675.68 GBP

+

675,675.68 GBP

Foreign Exchange- Release R13.00 -Page 53 of 110 - (c) Temenos Systems 2013 05/07/2013

Dealer Desk 02

FOR

-

1,000,000.00 USD

+

2,180,000.00 DEM

AGAINST

+

2,180,000.00 DEM

-

1,000,000.00 USD

Local equiv.

-

672,839.51 GBP

+

672,839.51 GBP

Note that the signs follow the accounting conventions. At the close of business, assuming that the deals have been fully authorized, the position in each foreign currency will be revalued, against the local currency. For forward contracts using the Rebate Method used for revaluation, will be either the MID.REVAL.RATE or the REVAL.RATE on the CURRENCY table (according to the configuration in the field REVAL.RATE in the REVALUATION.PARAMETER table for the APPLIC.ID “FX.RB”) plus/minus the premium/discount on the nearest rest period within the FORWARD.RATES table. Let us suppose that the user has entered the following 6 months forward premium/discount on the FORWARD.RATES table before the close of business: GBP/USD: - 175 PIPS (Discount on the GBP) GBP/DEM: - 700 PIPS (Discount on the GBP) And GBP/USD: 1.50 GBP/DEM: 3.30 Based on these two tables, the system will establish the 6 months forward rates (1,4825 and 3.23 respectively) and calculate the new local currency equivalent i.e. the revalued amount with a Profit/Loss to date and a Profit/Loss today as detailed below:

It can be seen from the above example that the revaluation process has caused a total loss of 1,525.77 GBP (local currency). The accounting entries (CATEG.ENTRY and STMT.ENTRY files) will be generated in exactly the same way, as the SPOT revaluation except that the Profit and Loss Category code used will now be that defined in REVALUATION.PARAMETER. Any subsequent revaluation will be performed in the same way. It must be noted that in the Revaluation Profit report produced during the End of Day process, the system will not segregate Spot and Forward deals with the same currency and done by the same dealer.  If for example, dealer 1 makes a Spot and Forward purchase of 1 million dollars, the USD figure will be accumulated on the report to show only one total.  The revaluation process, however, will handle the two deals separately thus performing a spot and forward revaluation as described earlier. If this individual deal posting is required the field REVAL.DEAL.POST should be set to YES in REVALUATION.PARAMETER.

R ounding R ule A Rounding Rule can be specified in the FX.PARAMETERS file.

Foreign Exchange- Release R13.00 -Page 54 of 110 - (c) Temenos Systems 2013 05/07/2013

The field ROUNDING.RULE will accept any value defined in EB.ROUNDING.RULE and based on this setting T24 will round the calculated currency amount accordingly.

FX.PARAMETERS with ROUND.UP specified. In the EB.ROUNDING.RULE application other rounding types can be defined. Rounding rules are defined in the ROUNDING.TYPE field.

EB.ROUNDING.RULE listing. Whatever rule is defined in FX.PARAMETERS will be defaulted into the FOREX Application. This however can be modified by the user. If modified an OVERRIDE will be generated notifying the user of the change.

C ha r ge s a nd C om m is s ions The standard T24 table FT.CHARGE.TYPE defines the conditions relating to various types of standard flat charge that are available for use in FOREX. Each Commission type can be defined as a Flat Amount or as one, which varies according to the amount of the Foreign Exchange deal. In this 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. For Option contracts, which may involve partial deliveries, charges or commissions may be levied on each delivery.

Foreign Exchange- Release R13.00 -Page 55 of 110 - (c) Temenos Systems 2013 05/07/2013

Commission Groups FX.COMM.GROUP is used to define commission groups. The COMM.GROUP.ID field on a SEC.ACC.MASTER record identifies the FX.COMM.GROUP for a portfolio. FX.COMM.GROUP specifies the fee schedule for each currency and range of amounts. The fee shown is a percentage; the fee charged is that percentage of the deal rate.

FX.COMM.GROUP 2. FX.COMM.GROUP 2 is set up so that the cash amount from 0 to 1,000,000.00 USD a rate of 0.0005 is applied and from 1,000,001.00 and above a rate of 0.001 is applied. Therefore the customer spread is: First set = (treasury rate + forward points) ´ commission = (0.9 + 0.01) ´ 0.0005 = 0.000455 Second set = (treasury rate + forward points) ´ commission (0.9 + 0.01) ´ 0.001 = 0.00091

Linked Commission Groups The Forex spread can also be expressed as a percentage of the FX commission of another group, by using the GROUP.LINK field. For example, FX.COMM.GROUP 1 is set up like this: COMM.CCY

USD

START.AMOUNT

0

END.AMOUNT

100,000.00

Foreign Exchange- Release R13.00 -Page 56 of 110 - (c) Temenos Systems 2013 05/07/2013

SPREAD

0.6

GROUP.LINK

2

START.AMOUNT

100,000.01

END.AMOUNT SPREAD

0.5

GROUP.LINK

2

FX.COMM.GROUP2 is set up like this: COMM.CCY

USD

START.AMOUNT

0

END.AMOUNT

150,000.00

SPREAD

0.04

GROUP.LINK START.AMOUNT

150,000.01

END.AMOUNT SPREAD

0.01

GROUP.LINK

The amount is 120,000 USD, using commission from FX.COMM.GROUP1. The commission rate is 50% of 4% – that is, 2%.

D a te C a lc ula tions in For e x Sta nda r d Spot D a te C a lc ula tion The default operation of the system spot date calculation is described below. The default calculation will take place if the fields FX.LCL.REGION and SPOT.BASE.CCY are not specified in the FX.PARAMETERS record. When no SPOT.DATE or in the case of a Spot deal (or the first leg of a Swap), the VALUE.DATE.BUY/SELL is not entered, the system will attempt to default the dates. The dates are calculated by addition of the SPOT.MARKET number of days defined in FX.PARAMETERS to the DEAL.DATE to give a common working day for the country of the two currencies involved in the deal. Example 1

Holidays

Foreign Exchange- Release R13.00 -Page 57 of 110 - (c) Temenos Systems 2013 05/07/2013

Using the common holidays (Comm) 2 working days gives a spot date of 5 th July. The SPOT.DATE, VALUE.DATE.BUY and VALUE.DATE.SELL would therefore be 5 th July; this is a common working day in both countries and respects the Spot Market period for both. Example 2 If the holidays were as follows for the same deal:

Using the common holidays in this case gives a spot date of 6th July. The default date would therefore be 6th July.

A lte r na tiv e Loc a l C ur r e nc y FX H olida y s There may be cases where an alternative holiday table is required for FX trading in the local currency. A possible scenario is described as follows: A system with LOCAL.CURRENCY GBP is running in London, the local country is GB giving a local holiday table of GB00. The system is also used to enter trades by the New York office. As a result the system must be available to the New York users on UK holidays. This means that the local holiday table is in fact a common table of working days between the two countries. Using the previous example:

Both 4th July (holiday in US) and 5 th July (holiday in UK) are working days in the system so that the New York users can work on 5 th July. If a FX deal were done involving GBP and USD on 2 nd July as in the previous example a spot date of 5 th July would result. This date should not be defaulted in practice, as 5 th July is not a true working day in the UK; the correct date would be 6th July. To avoid this problem, an alternative holiday table for the local currency can be defined, and if specified in the FX.LCL.REGION field of the FX.PARAMETERS record this will be used instead of the default holiday table for the currency (in this case GB00). It is recommended that a REGION be created for the local currency for FX trading, a specific holiday table containing the true local holidays can then be created for this region. The region code should then be defined in FX.PARAMETERS as shown. Region GB99

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FX.PARAMETER Input. Any deal involving the local currency will now use the FX.LCL.REGION defined GB99 rather than the standard GB00. Using this definition the previous deal will give the following results: Example 3 Local Currency

GBP

Spot Market

2

System Date

2nd July

Local Country

GB

Spot Deal

USD/GBP

(defined in COMPANY)

Holidays

(Note that GB00 is shown for information only). The common holiday table between GB99 and US00 now give the correct spot date of 6th July.

Spot B a s e C ur r e nc y Some Banks and markets operate on the principal that Spot Dates should always fall on a working day in a certain currency, e.g. USD, even if the deal does not involve that currency. This method of spot date calculation, referred to as the SPOT.BASE.CCY, is controlled by the field of the same name in FX.PARAMETERS.

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Spot Base Currency. If this mode of date calculation is used the following rules are followed: Deal Involves SPOT.BASE.CCY The spot date for the NON-spot base currency is calculated. If an FX.LCL.REGION is defined this will be used as per the rules in the previous section.  This date is then compared to the Spot Base Ccy holidays, if the date is a holiday it is adjusted to the next common working day in both currencies after this date Deal does not involve SPOT.BASE.CCY A common spot date is obtained for the two currencies involved in the same way as the standard processing. If an FX.LCL.REGION is defined this will be used as per the rules in the previous section. The common date calculated will then be compared to the SPOT.BASE.CCY holidays. If the date is a holiday it is adjusted to the next common working day for both currencies and the SPOT.BASE.CCY.

Both sides of the deal are SPOT.BASE.CCY A common working day is obtained for both currencies. The common date calculated is compared to all the SPOT.BASE.CCY holidays. If the date is a holiday it is adjusted to the next common date for both deal currencies and all currencies defined in SPOT.BASE.CCY. This method can result in a different date calculation to the standard calculation. Example 4 Local Currency

GBP

Local Country

GB

Spot Market

2

Spot Base

CCY

System Date

2nd

USD

July

Holidays

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Deal USD/GBP GB spot date is 4th July. This is a holiday in Spot Base Ccy so the date is adjusted to the next common working day in GB and US, i.e. 6th July. If this deal were done on 3rd July the spot date would also be 6th July. The spot date calculated for GB would be 6th July, which is a working day in US. In the standard calculation the spot date would be calculated as 9 th July as 2 common working days would be taken between US and GB. Example 5 Deal GBP/CHF on 2nd July Neither currency is a SPOT.BASE.CCY so a common spot date is obtained for GB/CH:

This gives a SPOT.DATE of 4th July. This is a holiday in SPOT.BASE.CCY so the date (4th July) is adjusted to the next common working day for all three countries:

The next common day after 4th July for all three countries is 9th July. Using the standard rules a spot date of 4th July would be generated, as the US holidays would not be taken into consideration. If the same deal were entered on 3rd July the spot date would also be 9th July using the SPOT.BASE.CCY: Common Spot GB/CH is 9th July In US 9th July is a working day. If the same deal were entered on 3rd July using the standard calculation would also result in a spot date of 9th July.

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C LS for Thir d Pa r ty Se r v ic e s CONTINUOUS LINKED SETTLEMENT (CLS) allows banks to eliminate Foreign Exchange Settlement Risk. Sold or bought currencies are settled on a “payment versus payment” (PVP) basis – simultaneously and irrevocably – ensuring that the principal of each counterparty is protected. The field CLS.CCY in Currency needs to be set to YES to indicate participation into CLS.

A CURRENCY record with CLS.CCY set to YES. The field CLS.CPARTY in CUSTOMER needs to be set to YES to identify a CLS participant.

A CUSTOMER record with CLS.CPARTY set to YES A valid FX.CLS.CPARTY record needs to be established per counterparty detailing the CURRENCY and Nostro accounts to be used for CLS netting.

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A FX.CLS.CPARTY record for GBP and USD currencies. The field CLS.DEAL in the FOREX contract defaults to YES, if a valid FX .CLS.CPARTY table has been established which has matching CURRENCY fields.

FOREX contract with CLS.DEAL defaulted to YES. An OVERRIDE will be given if a transaction is entered where the buy or sell value dates are over the respected cut-off times in the FX.CLS.CPARTY tables. When these type of contracts are entered the payment messages MT202/103 and advice to receive messages (MT210) that would normally be generated will be suppressed.

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If a deal is sent to CLS, CLS Nostro accounts needs to be used in place of the default nostro. This means that a CLS Nostro should be identifiable. It should be possible to book both “CLS” and “non-CLS” deals with the same counterparty, special care should be taken on how on this should impact the NOSTRO.ACCOUNT and AGENCY tables. DELIVERY Currently the CLS support is as a ‘Third Party Member’ and as such there are two methods of CLS delivery that can be done: In the standard SWIFT header field 103 can be used to include the CLS Member code. This instructs the SWIFT system to generate a duplicate message “T-Copy” to the bank CLS Member.  Alternatively, SWIFT fields 56 & 57 are used to identify the settlement member and that this is a CLS message Support for CLS is based on local modifications, as from feedback from clients indicates a mixed variety of usage. Accordingly, you must add a few fields to FOREX to feed the relevant information to delivery. NB Delivery allows local mapping and population of the SWIFT Header fields and is detailed in the delivery User

Ge ne r a tion of MT2 0 2 m e s s a ge s for N os tr o The field NOSTRO.202.MSG in application FX.TRANSACTION.TYPE can be used to control whether a MT202 SWIFT message is generated when a trade is transacted directly with the banks own Nosto agent.

FX.TRANSACTION.TYPE with OVERRIDE and a setting of YES. A value of NO or NULL will suppress the MT202 SWIFT message, a value of YES will always generate the SWIFT message. (c)

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Delivery Overview Non-Deliverable Forwards ND.DEAL is the application that is used to enter transactions. An NDF contract input screen consists of 3 major parts: •          Contract information •          Fixing and Settlement •          Settlement instructions The key elements of NDF deals are currencies (deal ccy and settlement ccy), notional amounts, dates (value date and settlement date), Counterparty, notional rate and buy/sell. Almost all elements of NDF transactions, except the key information mentioned, have default values.

A typical NDF Contract screen. On validation, the system will automatically check and update the customer’s credit limit, raise accounting entries and forward exposure entries, update the delivery fields on the contract and update position management etc. At the authorisation stage, the system will generate all the necessary accounting entries, populate and send the messages in the delivery fields by SWIFT etc. The consol entry will only be raised during the COB run.  In order to input the NDF vanilla deal, the NDF.METHOD field in ND.TYPE file must be set to ‘FIXED’. Similarly, for the input of an exotic deal, the NDF.METHOD field in ND.TYPE file must be set to ‘OPTION’. This type then allows the fixing to be made on any date on or before the vanilla fixing date.

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Fix ing tr a ns a c tions On the fixing date, the user needs to update the originally contract and enter a rate in the FIXED.RATE field. The system will then calculate the settlement amount in field SETTLEMENT.AMT based upon the notional rate and the fixing rate. 

Pr ofit a nd Los s c a lc ula tion After the fixing rate has been entered, the FIXED.AMOUNT field will be automatically calculated. Profit and Loss at this stage now becomes realised and is also automatically calculated. The value is recorded in the field SETTLEMENT.AMT.  The settlement amount will be calculated differently between a Buy contract and a Sell contract for the same deal currency and settlement currency.

For a Vanilla Buy contract Settlement amount = Fixed amount – Notional settlement amount.

For a Vanilla Sell contract Settlement amount = Notional settlement amount – Fixed amount  For an Exotic transaction, which is fixed before a recognised fixing date, the discount factor will be applied to the Settlement amount field SETTLEMENT.AMT to calculate the final Settlement Profit and Loss. The discounted Profit and Loss DISCOUNT.PL will be amortised from the settlement date to the value date of the transaction.

For an Exotic contract Settlement amount = Settlement amount * discount factor where discount factor is 1 / (1 – r)t. r is annual interest rate and t is time in a year

U nfix e d N D Fs Potential exposure amount field NOTIONAL.SETTL.AMT will be used to decrease the customer limit.

Fix e d N D Fs Once

the

deal

is

fixed,

there

will

be

no

more

exposure.

In

other words,

the

customer’s

limit

will

be

Sa m ple N e tting Assuming that a new LIMIT.REFERENCE for an ND product is set as 1300 and 1320, where FX.OR.TIME.BAND is set to ‘FX’. Input contract 1 for Buy HKD 1, 000.00 Sell and USD transaction.

DEAL.CURRENCY: HKD DEAL.AMOUNT: 1,000.00 SETTLEMENT.CCY: USD

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reinstated.

NOTIONAL.RATE: 7.744677 NOTIONAL.AMOUNT: 129.12

Input first contract. Input contract 2 for Sell HKD 1,000.00 and Buy USD with the same counterparty, same value date as the first contract.

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Input second contract. The current available limit for customer 95003 HANG SENG BANK is $500 and two equal and opposite deals take place for the same counterparty, for the same value date, then the available limit will still be $500. LIMIT displays the maximum amount, the available amount, and the outstanding amount with currency.

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Customer’s Limit. LIMIT.DAILY.OS will retain the netting information for the entire equal and opposite deals, in which case both contract 1 and 2 will be held in the same daily record.

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Corresponding LIMIT.DAILY.OS. LIMIT.TXNS displays both transactions which involve the same limit number.

Corresponding LIMIT.TXNS.

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N D F B a la nc e s The ND.BALANCES file is a read-only file, automatically updated and maintained by T24. For each NDF contract there will be two separate records to keep buy and sell booking. This segregation is for T24 G/L purpose, whereby the id of the buy side will consist of a contract id with ‘.B’ as a suffix, and the sell side will be suffixed with ‘.S’. Essentially this file will keep track of: •          contract status - OPE, FIX, MAT or REV. •          exposure - value date, buy / sell currencies and amounts. •          settlement - settlement date, pay currency, PL amount and discount (if any). •          accrual - (amortisation) to date. The information in ND.BALANCES is used to generate accounting entries and may be used to report trade information as at the last close of business.  The history file ND.BALANCES.HIST is not only a backup file of ND.BALANCES for static change process purposes, but also an archive of ND.BALANCESfor contracts when the deal eventually falls due (with MAT status).

Pos ition Ma na ge m e nt The NDF functionality is fully interfaced with the Position Management module. Essentially its PM class will be categorized as an FX exposure type of class.  The PM.PARAMETER record needs to be amended and the value ND added where applicable.  The application PM.UPDATE.APPL needs to be used to add the ND value, to make this effective a Close of Business needs to be run. 

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PM.PARAMETER with ND added.

The FX positions in both the deliverable and non-deliverable currency will be updated with regular FX forward contracts. On fixing date these positions will be unwound automatically. The PM.POSN.CLASS record NDFXP will represent the FX exposure of unfixed NDF deals. It is worth noting that this PM entry class will be raised for both DEAL currency and SETTLEMENT currency.

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NDFXP - PM.POSN.CLASS record.

Ope ning From a T24 General Ledger point of view, the NDF CONSOL entry will be similar to a Forex forward entry. In which case, a buy side will raise FXFWDBUY and sell side will be FXFWDSELL. For example, we have the detail of the deal as follows:

BUY.SELL.IND: BUY DEAL.CURRENCY: HKD DEAL.AMOUNT: 1,000,000.00 SETTLEMENT.CCY: USD NOTIONAL.RATE: 7.744677 NOTIONAL.AMOUNT: 129,120.94

The account will post: DB FXFWDBUY                HKD 1,000,000.00 CR FXFWDSELL                  USD 129,120.94

Fix ing Once the deal is fixed, the NDF will reverse CONSOL entries in correspondence to the entries raised prior. The profit or loss will be realized immediately.

Fixed.RATE: 7.5 FIXED.AMOUNT: 133,333.33 SETTLEMENT.AMT: 4,212.39

DB FXFWDSELL              USD 129,120.94 CR FXFWDBUY                   HKD 1,000,000.00 DB Customer Acct    USD 4.212.39 CR NDF-PL                        USD 4,212.39

A m or tis ing If there is a discount (this will only happen when NDF.METHOD is ‘OPTIONAL’), NDF will book the full discount amount in suspense account and dip into P&L daily from SETTLEMENT.DATE until VALUE.DATE. The suspense account category will be specified in ACCOUNT.CLASS NDFTAKEN and NDFGIVEN class will be classified as a credit bucket and a debit bucket respectively. Assuming that the fixed rate is 8.0, the customer will take the profit with the discount from T24.

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FIXED.RATE: 8.0 FIXED.AMOUNT: 125,000.00 SETTLEMENT.AMT: -4,120.94 SETTL.INT.RATE: 12% SETTL.INT.BASIS: B 366/360 DISCOUNT.PERIOD: 10 DISCOUNT.PL: 13.74

Online Booking: DB FXFWDSELL              USD 129,120.94 CR FXFWDBUY                   HKD 1,000,000.00 DB NDF-PL                              USD 4,120.94 CR NDF-PL                        USD 4,107.20 CR NDF-TAKEN

USD 13.74

Amortised during COB for 10 days: DB NDF-TAKEN                USD 1.374 CR NDF-PL                        USD 1.374

A c tiv itie s At present, NDF functionality provides 4 pre-defined activities in EB.ACTIVITY, which in turn can be attached to the ND.PARAMETER these can be seen below.

EB.ACTIVITY records for NDF.

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Activity records attached to ND.PARAMETER.

C la s s e s For each message and receiver, it is represented by the message class EB.MESSAGE.CLASS.These classes in turn will be attached to ND.TYPE.

The message class attached in ND.TYPE.

A dv ic e s a nd Pa y m e nt Me s s a ge s After the NDF deals have been fixed and authorised, the system invokes the generation and delivery of any required pay/receive instructions (depending on the message type and class attached in EB.ADVICES in accordance with activity). The following message types are supported:

List of Delivery messages supported by NDF

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(c)

SWIFT Type

Description

103

Bank Transfer –Client

202

Bank Transfer –Bank

210

Advice to receive

900

Confirmation of Debit

910

Confirmation of Credit

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Enquiries In common with other T24 applications, all data can be enquired upon or selectively analysed and researched. The Application maintains the overall exchange position for the bank with appropriate enquiry facilities.  The exchange position can be viewed at several levels of consolidation. At the highest level the spot and forward exposure for each currency are available and can then be selectively broken down and studied on the basis of one or a combination of the following attributes:

Each of the above attributes is defined in tables maintained by the user in order that he may decide their actual scope or special meaning.

FOR EX pos ition by da te (FX.B Y.D A TE) This ENQUIRY allows details of the Bank's Foreign Exchange position to be shown by value date, i.e. all the Foreign Exchange deals maturing on the same value date will be shown. The selection criteria defined are: VALUE.DATE CURRENCY.FOR CURRENCY.AGAINST MARKET

Forex Position by date enquiry.

FOR EX B r ok e r D e a ls (FX.EN Q.B R ) This ENQUIRY will allow the bank to view those transactions, which have been made through the mediation of a Broker. Both authorised and unauthorised deals can be displayed. The selection criteria defined are:

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TRANSACTION.REF.NO DEAL.TYPE COUNTERPARTY CURRENCY.BOUGHT VALUE.DATE.BUY CURRENCY.SOLD BROKER LIMIT.REFERENCE.NO

Forex Position by broker enquiry.

FOR EXTr a ns a c tion de ta ils (FX.EN Q.SU MMA R Y) This ENQUIRY allows the bank to view Foreign Exchange deals using their own selection criteria. It displays Foreign Exchange contracts according to the value of parameters defined by the user. Unlike the other ENQUIRY facilities, only authorised deals will be selected in the retrieval process, i.e. Foreign Exchange deals, which have not yet been authorised will not be shown on this ENQUIRY. The selection criteria defined are: TRANSACTION.REF.NO DEAL.TYPE DEAL.SUB.TYPE COUNTERPARTY CURRENCY.BOUGHT VALUE.DATE.BUY CURRENCY.SOLD BROKER LIMIT.REFERENCE.NO

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 Forex Transaction details.

FOR EX Tr a ns a c tion de ta ils (FX.EN Q.H ISTOR Y) This ENQUIRY allows the bank to view Foreign Exchange deals using their own selection criteria. It displays Foreign Exchange contracts according to the value of parameters defined by the user. The ENQUIRY is aimed at users wishing to retrieve details of matured deals, which have been written to history.  The selection criteria defined are: TRANSACTION.REF.NO DEAL.TYPE DEAL.SUB.TYPE COUNTERPARTY CURRENCY.BOUGHT VALUE.DATE.BUY CURRENCY.SOLD BROKER LIMIT.REFERENCE.NO

Forex Transaction details (FX.ENQ.HISTORY)

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FOR EXPos ition C ur r e nc y A ga ins t C ur r e nc y (FX.GA PS) This ENQUIRY allows details of the Bank's Foreign Exchange position to be shown as one currency in terms of another showing all the various dates on which FOREX transactions in the two selected currencies exist. It displays, by value date, the currency position of the two selected currencies. The selection criteria defined are: CCY.SELECT CCY.CCY MARKET

Forex Position Currency Against Currency (FX.GAPS)

N OSTR O Pos itions (N OSTR O.POSITION ) This is a general ENQUIRY, commonly used by both the FOREX and lending parts of the treasury operations area. It displays the balances in the currency selected on NOSTRO ACCOUNT records in that currency. The balances shown are for today and the next 4 days. The selection criteria defined are: CURRENCY LONG.POS.SIGN

Nostro Positions (NOSTRO.POSITION).

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N OSTR O For wa r d B a la nc e s (N OSTR O.FWD .B A L) This is also a general ENQUIRY commonly used by both the FOREX and lending parts of the treasury operations area as well as the back-office staff. It displays the balances and movements on a specific ACCOUNT and permits the user to obtain details of the entries shown down to the deal level. The selection criteria defined are: ACCOUNT.ID LONG.POS.SIGN

NOSTRO Forward Balances (NOSTRO.FWD.BAL).

FOR EX pos ition m ov e m e nts for toda y (POS.MVMT.TOD A Y) This ENQUIRYdetails position movements for the current business day. It will show the opening position, today’s movements and the current position. The selection criteria defined are: DEALER.DESK CCY.SELECT AGAINST.CCY.SELECT MARKET VALUE.DATE

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FOREX position movements for today (POS.MVMT.TODAY).

N on D e liv e r a ble For wa r ds – Lis t of N D D e a ls e nte r e d toda y - (N D .TOD A Y)

ND deals today (ND.TODAY).

N on D e liv e r a ble For wa r ds – Lis t of N D de a ls fix e d toda y - (N D .FIX.TOD A Y)

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ND deals fixed today (ND.FIX.TODAY).

N on D e liv e r a ble For wa r ds – Lis t of N D de a ls due for fix ing- (N D .EOD .FIXED ) Deals will be included in the enquiry, on the basis of set up in the fields FIXING.REP.DAYS (for Vanilla Deals) and OPTION.REP.DAYS (for Exotic Deals) in ND.PARAMETER

ND deals due for fixing (ND.EOD.FIXED).

(c)

Temenos Systems 2013

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Limits Foreign Exchange The application of Limits within the Foreign Exchange operation applies to all products handled by the module.  The T24 LIMIT module provides a control mechanism for the FOREX module and when called at the time of input will check the availability of an authorised credit line for the deal Counter party. The LIMIT system is designed to monitor, in real-time, the availability and utilisation of customer limits. Back end reports are available to allow the monitoring of limits for commodities, countries, country group and currencies. The word limit describes a Facility or Credit Line available to a customer or group of customers, while the term LIMIT.REFERENCE describes a type of LIMIT, e.g. Foreign Exchange Limit. For the Foreign Exchange type of limits, the limit amount can be associated with a 'Clean' risk, the purpose of which is to allow the specification of a 'Delivery' or 'Settlement' risk on any particular day. The LIMIT system covers two types of exposure as far as the Foreign Exchange application is concerned. These are:

Ov e r a ll For e ign Ex c ha nge Lim it Each deal is monitored against the overall foreign exchange limit of the respective Counter party to ensure that the bank is not overly exposed to this specific Counterparty. 

C le a n R is k or D e liv e r y R is k Lim it The clean risk limit is the maximum allowable value of foreign exchange transactions from the same Counter party to mature on any single day. For example, the bank may be prepared to have an Overall Foreign Exchange limit of GBP 20 Million with a given Counter party, but may want to limit the delivery risk on any one day to GBP 5 Million. The system also allows netting of the Overall Foreign Exchange Limit for opposing deals with the same Counter party when the two opposing deals involve the same two currencies and mature on the same day. For example, if the bank buys USD 100,000 from a Counter party for GBP 70,000 to be settled on 31st December and then sells USD 50,000 to the same Counter party for GBP 35,000 to be settled on the same day (December 31st), the net effect would be an overall foreign exchange exposure of USD 50,000. Note that within this approach the Clean Risk is never netted. The overall Foreign Exchange Limit netting facility is controlled by the field NET.OUTSTANDING in the LIMIT.PARAMETER application. This can be changed by using the application LIMIT.CHANGE. Once the LIMIT has been established for a particular CUSTOMER, the system is then able to use this information to ensure that the LIMIT is not exceeded, though an override facility is provided whereby a duly authorised officer of the bank may permit a LIMIT excess. If more than one LIMIT of the same type exists the Foreign Exchange module will default to the first LIMIT (i.e. the LIMIT with serial number 01) unless the user specifically indicates otherwise by input of a LIMIT.REFERENCE number in the field LIMIT.REFERENCE.NO provided for this purpose on the Contract record. Occasionally the required LIMIT does not exist or is already fully utilised. If it does not exist the user must make a decision as to whether or not to generate a default LIMIT. If the transaction causes an excess the user must decide whether the excess is to be allowed. At the maturity of a Foreign Exchange transaction the module will provide notification of the event to the LIMIT System, which will then reset the utilisation figures.

C ur r e nt e x pos ur e c a lc ula tions for Lim it e nquir ie s A new method of measuring Credit riskis to calculate the outstanding value of the contract and combine this with an estimate of the likely movement of the asset (in this case currencies) over a configured timeframe. (This is a rough approximation of Volatility, which is called ‘Potential exposure’)

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This methodology is also known in the market as ‘Current exposure’ which takes account not only the Potential exposure calculated by multiplying a deal’s Principal by a configured fraction, but also the transaction’s value in the market at current rates. So the credit exposure for clients assessed under this method will be: Credit exposure= Replacement cost/current exposure+ ‘Add-on’ Replacement cost This is the actual market value of the contract or the profit or loss if the open position is covered. The replacement cost is positive if the client is showing a loss and negative if the client is in profit. This is because if the client were losing money the contract is profitable for the Bank. If the client defaults and therefore the deal has to be cancelled then the Bank will lose money by having to go into the market and cover the trade at current levels. You could see this as ‘Profit at risk’ if the client defaults. Add-on This is a defined and configured percentage of the nominal (cash transactions) or underlying (option transactions) contract amount. The percentage depends on the type of contract and the maturity of the contract and is defined by the volatility of those asset types. As well as FX these calculations could be applied to any asset (at present only FX forwards, the forward legs of swaps, futures and long options are covered).

C onfigur a tion ta ble for s e tting ‘a dd-on’ pe r c e nta ge s Users can define several different sets of add-on percentages to be stored (for example one set for Regulatory Credit monitoring and another for Internal Credit monitoring). These different sets of percentages can be configured in the table REVAL.ADDON.PERCEN. The relevant fields for configuring the percentages in this table are shown below:

ID

MODULE.SEQUENCE_NUMBER.METHOD_ TYPE. Where: MODULE = Allowed Modules (currently FX or DX), SEQUENCE.NUMBER starts at 1 and is ascending, and METHOD.TYPE is either RM for Remaining Time or IN for Initial Time. (N.B. ‘IN’ is for future use and currently only RM will be allowed.)

CURRENCY.CODE

Specifies the CURRENCY to which the percentages specified under TIME.PERIOD would apply. Only required if the Application is FX

SUB.ASSET.TYPE

Not relevant to FX. Specifies the SUB.ASSET.TYPE to which the rates specified under TIME.PERIOD would apply. Input only allowed if the Application is DX. Either, but not both CURRENCY and SUB.ASSET.TYPE must be populated.

TIME.PERIOD

Specifies the period for which the following rates would apply for the above-defined CURRENCY.CODE. The format could be nnnD, nnnW, nnnM or nnnY where nnn>0 or it could be R to specify Rest Period. ‘R’ is mandatory being the remaining period band (i.e. From the last defined band to ‘infinity’)

REG.PERCENTAGE

Specifies regulatory add-on percentage should be greater than or equal to 0 and less than or equal to 100. Either REG.PERCENTAGE or INT.PERCENTAGE should have a value greater than 0.

INT.PERCENTAGE

Specifies Internal add-on percentage. Should be greater than or equal to 0 and less than or equal to 100. Either REG.PERCENTAGE or INT.PERCENTAGE should have a value greater than 0.

The new method to calculate Credit exposure will use this table to derive the required add-on percentages (Potential exposure) to build reports and enquiries for the Bank’s use to monitor and report exposures to the relevant authorities.

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A pplic a tion for r e que s ting C ur r e nt e x pos ur e r e v a lua tion a nd r e por t The application, FX.CURRENT.EXPOSURE allows users to request a revaluation and report on the credit usage using the new current exposure method. FX.CURRENT.EXPOSURE has fields for entering details of which reporting method (which ‘add-on’ percentages configuration) they wish to use and which customer or customers (multi-valued list of customers or ‘ALL’) to report usage for. There is an option for the user to run an ad hoc revaluation on the requested customer or group of customers or whether to use the data held in POS.TRANSACTION. This is because the revaluation may have been run recently so the marked to market value of the transactions will be relatively up to date. There will be no need to re-run the process and use system resources unnecessarily. In the case where a revaluation is being run all the contracts for the counter party or group of counter parties will be re-valued using the ‘Rebate’ methodology for FX contracts regardless of what methodology was initially entered for the transaction. For accounting purposes the original methodology will be used but FX.CURRENT.EXPOSURE will use ‘RB’. The profit or loss of the trade in local currency will be determined. This figure is the Current exposure (Replacement Value) of the trade.  It will be negative if there is a loss on the trade from the Banks perspective (i.e. the customer is making money on the transaction) and positive if there is a gain on the trade from the Banks perspective (i.e. the customer is losing money on the transaction). Examples User has configured add on percentages for FX: <6MTH = 2% >6MTH & <12 MTHS = 4% Example 1 Trade at outset = Bank buys £1 million against -$1,520,000 at 1.5200, 8 months outright Re-valued at entry rate so Current exposure (Replacement Value) = zero Add-on = £1 million X 1.5200 X 0.04 = $ 60,800 Utilisation =  MAX ([$60,800+ $0], ZERO) = $  60,800

Revaluation after 3 months @ 1.5300: -£1 million against +$1,530,000. Bank P/L in local ccy ($) = +$10,000 (profit of $10,000 i.e. Customer is losing money) Current exposure (Replacement Value) = $10,000 Add-on = £1 million X 1.5300         X 0.02 = $ 30,600 Utilisation = MAX ([$30,600+ $10,000], ZERO) = $  40,600 Example 2 Trade at outset = Bank buys £1 million against -$1,520,000 at 1.5200, 6 months outright Re-valued at entry rate so Current exposure (Replacement Value) = zero Add on = £1 million X 1.5200 X 0.02 = $ 30,400 Utilisation = MAX ([$30,400+ $0] , ZERO) = $  30,400 Revaluation after 1 month @ 1.4800: -£1 million against +$1,480,000. Bank P/L in local ccy ($) = -$40,000 (loss of $40,000 i.e. Customer is making money) Current exposure (Replacement Value) = -$40,000 Add on = £1 million X 1.4800 X       0.02 = $ 29,600 Utilisation = MAX ([$29,600+ (-$40,000) ] , ZERO) =  ZERO

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The system will use REVAL.ADDON.PERCEN to calculate the required ‘add-on’ percentage for the product (FX), timeframe and reporting type, before applying the add-on percentage to the Principal of the trade and calculating the notional utilisation. The timeframe of the deal is calculated from the system date (today) up to the maturity date of the trade. Then this number of days is compared to the time buckets in the REVAL.ADDON.PERCEN table to determine the add-on percentage.  The deal principal is converted to local currency at the mid rate defined in CURRENCY table and then multiplied by the add-on percentage to find the notional add on amount in the local currency. E.g. An FX trade with a principal of 10 million Euro, an exchange rate of 0.95 and with a ‘add-on’ of 0.01 (1%) will give a notional utilisation of USD 0.095 million ($10 million X 0.95 X 0.01= $0.095 million). This figure will be added to the Current exposure (Replacement Value) value obtained from the revaluation process.  If the Current exposure figure is negative the resultant figure will be a net figure, but it can never be negative. I.e. if the Current exposure value is a greater negative amount than the ‘add-on’ calculation is positive then the utilisation will be zero. The information, collated and stored in the revaluation table POS.TRANSACTION can be accessed by enquiries, which can be easily set up and implemented. Each record in this table can only be input into once. After that the record can only be viewed in ‘SEE’ mode.  This is for audit purposes and at the Close of Business all authorised records are destroyed, as there is no point in keeping the data and no history files will exist for records in this table.  Local implementation of versions should be used to make sure there is a ‘Zero authorisation’ version so that users can quickly call the routine and get data on Total utilisation without having to have the record authorised. An explanation of the fields is as follows: REPORT.METHOD Defines the record in the add-on table to search for the add-on percentages. Can be any valid entry in E.g. ‘INTERNAL’, ‘REGULATORY’ etc. CUSTOMER.GROUP Incorporates any valid entry from the CUSTOMER table. Accepts either the 8-digit customer number or the customer MNEMONIC a multivalue for inputting several customers. Will also accept ‘ALL’ to get the data for all customers in the CUSTOMER file. The system will warn the user if ‘ALL’ is selected so that the user can be sure that they want to select a revaluation for all customers, which will take longer. RUN.REVAL Determines whether there will be a new revaluation done using the latest FX rates or whether the latest figures, which are stored in POS.TRANSACTION for Current exposure plus add-on, will be used again. The default will be ‘NO’.

A pplic a tion to gr oup For e x de a ls for r e por ting pur pos e s When a client concludes a FX contract that closes one or several other open position(s) for the same value date, FX module has now been enabled to perform the following: l

To define a “closing” group containing FX contracts closed against each others.

l

To produce reports on a portfolio in such a way so as to display groups of closed FX contracts aggregated in a single line, with a corresponding realised PL figure. Other FX contracts are displayed normally.

However, this functionality does not cover FX SWAPS and contracts of subtypes BR (broker), IN (internal), NE (negotiated). For this purpose the application FX.CLOSING.GROUP can be used and will contain the list of FX contract IDs which match with the specified counterparty and value date and have not already been included in any other closing group nor matured. Further, grouping of FX contracts is not allowed, if there is balance in more than one currency. FX.CLOSING.GROUP records will also move to history as per DAYS.POST.MATURITY definition in FX.PARAMETER.

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Also, a new field CLOSING.ID has been added to FX contract which will hold the ID of FX.CLOSING.GROUP record under which the relevant FX contract has been grouped. So, a FX contract can’t be reversed so long as it contains a value in the field CLOSING.ID.

Non Deliverable Forwards There will be new types of limits generated for NDFs which will separate limits from normal FOREX contracts. The core LIMIT application will be used to set up new line for NDF. There will be two scenarios in respect of NDF operations:

N D F Lim it N e tting The limit netting will be active when all deals are equal and opposite deals, in which case an equal, is defined as follows: •          Value date is the same. •          Counterparty is the same. •          Both currencies are the same e.g: •          Deal 1 BUY.SELL.IND is BUY, deal currency A and settlement currency B. •          Deal 2 BUY.SELL.IND is SELL, deal currency A and settlement currency B. Example Assuming that the local currency and limit currency is USD, and that the currencies involved in the trades are USD and GBP with a USD amount of 1,000,000. If the current available limit for customer A is $5,000, 000 and two equal and opposite deals take place for the same customer for the same value date at the current mid revaluation rate, then the available limit will still be $5,000,000. If limit netting is not enabled, then the available limit will be $3,000,000. Similar to FX netting, to enable NDF limit netting the NET.OUTSTANDING field on LIMIT.CHANGEshould be set to Y. To disable this functionality the same field can be set to N. This flag can only be set to the opposite value to the NET.OUTSTANDING field on the LIMIT.PARAMETERSYSTEMrecord. The actual change will take place during the next T24 close of business run. For more detail set-up, please refer to the Netting section in the LIMIT chapter. (c)

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Reports Foreign Exchange The System also provides comprehensive reporting facilities such as:

Non Deliverable Forwards Since T24 provides a reporting tool for an end user to create there own report at ease, only one sample report is given as a guideline. The report ND.EOD.FIXED will display unfixed ND deals as on the day of report. Deals will be included in the report according to the set up in the fields FIXING.REP.DAYS (for Vanilla Deals) and OPTION.REP.DAYS (for Exotic Deals) in ND.PARAMETER (c)

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Outward Delivery Foreign Exchange Throughout the life of a deal, the Foreign Exchange module will automatically recognise when the various events associated with a contract (e.g. new contract, change in liquidation instructions etc.) occur. The module will then pass control to the T24 Delivery module with the appropriate information, which will be interpreted by Delivery. This module will then transform the information into the appropriate message - either advice, payment or confirmation which will then be sent by SWIFT, Telex or Print (Mail). The following message types are supported:

SWIFT Type

Description

300

Forex Confirmation

103

Bank Transfer –Client

202

Bank Transfer –Bank

210

Advice to receive

600

Metals FX confirmation

604

Fund transfer order for metals

605

Fund entry pre-advice for metals

The FOREX application is now set up to select new bullion messages in favour of the usual FX trade confirmations when one or both of the currencies traded is configured as a metal. (c)

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Close of Business Services The Close of Business will process all records contained within the Foreign Exchange System. The processing will include:

(c)

l

Processing of unauthorised contracts.

l

Processing of accruals on Foreign Exchange contracts.

l

Revaluation of all contracts for which revaluation parameters have been specified.

l

Performance of any scheduled Delivery.

l

Closure of completed contracts and the movement to History files.

l

Generation of reports.

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Non-Stop Processing Both FOREX application and ND.DEAL applications are fully integrated with the Non Stop Process and its usual work flows. FX deals can be processed at start of day. The deal is processed in the overnight batch before the system goes live to within day activities on the day of maturity/taking value. This means that the customer has access to funds from a purchased currency and is liable for a sold currency at the start of day on the maturity or value dates. 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 the field SOD.MAT in FX.TRANSACTION.TYPE is set to YES. The FX.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 BATCH jobs FX.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 records are raised during the start of day process. The system recognises that these accounting entries have been made so they are not duplicated in the Close of Business process. Similarly, the SYSTEM.LIMIT.SOD BATCHjob updates all limits during Start of Day. (c)

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Accounting Process Product Category Codes Range 20000 - 20999 has been assigned to the Foreign Exchange application.  Default category codes must be defined on the FX.PARAMETERStable for SPOT, FORWARD and SWAP. The following two codes have been predefined:

20000

=

SPOT REVALUATION

20001

=

FWD REVAL and FWD ACCRUALS

The product category codes used in Spot and Rebate revaluation may be varied using the appropriate fields in REVALUATION.PARAMETERS.

Profit and Loss Category Codes •          Brokerage = 53005 •          Marketing Exchange Profit = 53006 Charge and Commissions: as defined on the FT.CHARGE.TYPE and FT.COMMISSION.TYPE. Accruals - Please refer to the Accounting chart below Revaluation - Please refer to the Accounting chart below

Transaction Codes

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C.R.F. Asset Types Applicable to Forex

Examples: a)

Spot Contract: Buy 10M $ @ 1,70 --> Sell 17M DEM On Deal Date FXSPOTBUY NEW -10M FXSPOTSELL NEW +17M On Value Date FXSPOTBUY MAT +10M FXSPOTSELL MAT -17M +Entries in the Our Account Pay and Receive

b)

Forward Contract: Buy 10M $ @ 1,68 --> Sell 16.8M DEM On Deal Date FXFWDBUY NEW -10M FXFWDSELL NEW +16.8M On Spot Date FXFWDBUY SPT +10M FXFWDSELL SPT -16.8M FXSPOTBUY SPT -10M FXSPOTSELL SPT +16.8M On Value Date

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FXSPOTBUY MAT +10M FXSPOTSELL MAT -16.8M + Entries in the Our Account Pay and Receive

Contingent Entries Contingent entries will be raised in the Close of Business process for any contract, which has been created with a value date greater than the System date. These contingent entries will be raised for both the amount bought and the amount sold.  All contingent entries are of the type 'Special Consolidation Entries' and will use the Transaction codes and C.R.F. Asset Types described earlier in accordance with the contract type.  The following table summarizes all contingent entries.

The foreign current amount(s) will be taken directly from the contract (AMOUNT.BOUGHT and/or AMOUNT.SOLD) and the local currency equivalent will be taken respectively from the fields BUY.LCY.EQUIV and SELL.LCY.EQUIV also directly from the contract. It must be noted that in the case of option contract with multiple deliveries, contingent entries will be raised individually for each delivery set.

Local Currency Equivalent The rules to calculate the local currency equivalent of the amount bought and amount sold and to convert foreign currency accruals from forward contracts using the 'IN' revaluation method are summarized in the next table. LOCAL CURRENCY EQUIVALENT - RULES SUMMARY

CONVERSION RATES APPLICABLE ON FCY ACCRUALS - 'IN' METHOD

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= Middle Rate from the CURRENCY table TMR CSR

= Spot Rate from the contract.

BMR = Middle Rate of Base Currency (from CURRENCY table). TFR

= Forward Rate from the FORWARD.RATES table.

CFR

= Forward Rate from the contract.

Real Accounting Entries Statement and Category entries will be raised both during the on-line and the Close of Business process.All these Assets and Liabilities entries are summarized in the table, which follows.  It must be noted that: 1.    Brokerage, Charges, Commissions, Taxes and Marketing exchange Profit entries are raised on line at authorization of the contract. 2.    Our Account Receive and Pay entries are generated in the Close of Business process on the value date. However, for any contract value, same day entries will be raised on-line on authorization of the contract. 3.    Forex accrual entries are generated in the Close of Business process and will start on the Spot date of the contract. 4.    Revaluation entries (Forex and Assets and Liabilities) are also generated during the Close of Business process.

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(c)

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Revaluation Introduction FOREX module provides the daily revaluation of the Foreign Exchange position, producing a daily profit for each dealer or group of dealers. Forward positions can be re-valued either on a 'Rebate' basis, (i.e. cost to cover the deal today) or on a straight-line basis, (i.e. amortization of the apparent exchange profit/loss over the life of the deal). Exchange profit, as in the case of swaps, may also be treated and accrued as interest. These parameters allow the rebate revaluation method to be applied to currency positions arising from non-FX applications such as SW – Swaps, SC – Securities and FT – Funds Transfer. A point to note in the Rebate revaluation is that the module, according to the value defined in the REVALUATION.PARAMETER table, can interpolate rates to the actual deal value date (i.e. it will interpolate a rate between the known rates for the closest dates before and after a given date).

R e v a lua tion R a te FOREX revaluation processing uses the REVAL.RATE, if defined, for a particular currency in the same way as asset and liability revaluation. This is applied to both on and off balance sheet contracts. For FX contracts with RB and SP type methods of Revaluation, User has an option to select either REVAL.RATE or MID.REVAL.RATE. Where the option is REVAL.RATE and the same does not contain a value, system goes with MID.REVAL.RATE. All revaluation types except for RB (Rebate) will use the REVAL.RATE field if it is populated. If it is left blank, then the value in MID.REVAL.RATE field will be used from the CURRENCY table. However, for both RB and SP type methods of revaluation, the User has the option to select either REVAL.RATE or MID.REVAL.RATE by doing appropriate set-up in REVALUATION.PARAMETER.

Currency Input

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FX Revaluation in T24 is categorized into SPOT and FORWARD based on the period - Revaluation date to Value date.

SPOT c ontr a c ts For contracts falling within the spot period (contract inputted as a SPOT deal or a Forward contract moving into Spot period), the User has two options. 1. Common rate for Tom and Spot periods - REVAL.RATE or MID.REVAL.RATE in CURRENCY record as per the set-up in REVALUATION.PARAMETER. 2. Different rates for Tom and Spot periods. If the User sets the field REVAL.WITHIN.SP in REVALUATION.PARAMETER to ‘YES’, system refers to FORWARD.RATES table, wherein the Premium/Discount for ON and TOM are defined under the Rest.Period as -2D and -1D. Following is the screen shot of FORWARD.RATES table.

The method of deriving the Revaluation rate is as follows:

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l

For TOM positions, the revaluation rate is derived by adding/subtracting the premium (or) discount for Tom Next (TN) (as mentioned in the Rest.Period -1D) to the MID.REVAL.RATE or REVAL.RATE as the case may be.

l

For SPOT Positions, either the MID.REVAL.RATE or REVAL.RATE will be applicable as per the parameter set-up.

l

For TODAY’s position (which is essentially AL position), a provision is created to populate today’s rate in the field REVAL.RATE in CURRENCY record if the User requires. Today’s rate is derived by adding or subtracting the Premium/Discount defined for both ON and TN (-2D)+(-1D) to the MID.REVAL.RATE. User is required to populate the rate in REVAL.RATE field by a local routine.

l

Revaluation results on account of TOM and SPOT positions can be subjected to discounting to find the PV. This is dealt under the heading ‘Revaluation at Deal Level and at Net Present Value” as per IFRS Accounting.

For wa r d c ontr a c ts For Forward positions, whose value date is greater than Spot date, the Revaluation rate is derived as below: l

The Forward Premium/Discount is added/subtracted from Spot rate. User can decide whether the Spot rate should be same as REVAL.RATE or MID.REVAL.RATE. The option is available in REVALUATION.PARAMETER.

l

When a Forward position moves into Spot position, it will be dealt with the same way as explained above in Spot Contracts. However, such positions will be revalued with either REVAL.RATE or MID.REVAL.RATE as defined for RB method.

Se tting of R e v a lua tion Pa r a m e te r s Revaluation is controlled through a set of parameters that are defined in the REVALUATION.PARAMETER file. The parameters can be specified at an application level and in the case of FOREX can also be defined for the ‘SP’ – Spot method or the ‘RB’ – Rebate method as illustrated below.

Revaluation Parameter Input.

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Revaluation Parameter Continued. As seen above the REVALUATION.PARAMETER application indicates for other applications in the system a revaluation method to be used by the revaluation process. If this field is set to ‘SP’ then spot revaluation method is performed by the system otherwise if set to ‘RB’ the rebate revaluation method is performed. The following fields in the REVALUATION.PARAMETER application deliver the functionality as explained below: a. REVAL.WITHIN.SP (with values ‘Yes’ or ‘Null’) is meant to specify whether the contracts within the spot period have to be revalued at different rates for TOM and SPOT or not. For Today’s Positions (AL), option is provided to populate the derived rate in the field REVAL.RATE. If given ‘Yes’, system performs revaluation of Tom and Spot positions with different rates, provided the Forward Rates table contains the values for TN (Tom Next) bucket. b. REVAL.RATE (set up with values ‘Yes’ or ‘Null') in the Multi value field Appl.ID as FX.RB and FX.SP, provides an option between MID.REVAL.RATE and REVAL.RATE. c. IFRS.DISC.PERIOD (set up with values ‘SPOT’ or ‘TODAY’) provides an option on the discounting period which is either from TODAY or SPOT date. This field accepts input only when IFRS.REVALUE is set to ‘Yes’. This works independent of the set-up in REVAL.WITHIN.SP.

R e v a lua tion a t D e a l Le v e l a nd a t N e t Pr e s e nt Va lue Under the guidelines for International Financial Reporting Standards (IFRS), users may book the revaluation profit or loss for the deal as an unit at the Present Value by setting up REVALUATION.PARAMETER as shown below:

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If the field IFRS.REVALUE is set to ‘YES’, then the re-valuation profit or loss will be booked at deal level after discounting. The discounting rate shall be obtained from the PERIODIC.INTEREST table key defined in the field IFRS.DISC.RATE.KEY. For further details,refer to the chapter REVALUATION under IFRS. Posting Style of Revaluation Entries The system allows for the selection of a POSTING.STYLE for the entries to be raised for revaluation. The two types allowed are: 1. ‘I/O’ (Input – Output method) - The previous revaluation figure is reversed then re-posted. 2. ‘ADJ’ (Adjustment method) - The difference between the previous revaluation amount and the latest is posted. In the case of change from profit to loss the entire profit/loss figure is reversed and a new loss/profit amount posted. The exact manner in which these methods work has been illustrated below with examples: Posting only unrealised losses In many countries the posting of unrealised profits is not allowed. This option can be set by using the field BOOK.PROFITS. If set to YES, both unrealised profit and loss is posted, if not set only unrealised losses will be booked.

A c c ounting R ule s in R e v a lua tion The accounting rules in revaluation has been illustrated with two examples below: Example 1 Day 1 Prevailing Exchange rates (Multiply figures)

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Day 2 Prevailing Exchange rates (Multiply figures)

Day 3

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Forward position becomes Asset and Liability and therefore needs to be reversed out of the Profit and Loss and Reserve A/C and the POS.TRANSACTION record needs to be deleted.

Revaluation from now onwards will be done on the consolidated asset and liability amounts.

Example 2 Day 1 Prevailing Exchange rates (Multiply figures)

Day 2 Prevailing Exchange rates (Multiply figures)

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After the first days of revaluation we obtain two sets of Profit and Loss and reserve account entries as shown under.

Day 3 Because the deal matures, it hits the Asset and Liability bucket and therefore needs to be reversed out of the unrealised Profit and Loss and Reserve Account. The POS.TRANSACTION record has also to be deleted.

Revaluation from now onwards is done on the consolidated asset and liability amounts.

Revaluation - NDF To include the NDF contracts in FX forward position and create POSITION records, you need to set-up a REVALUATION.PARAMETER record as shown below (this is only a guide line).

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Show NDF set-up in REVALUATION.PARAMETER. NDF contracts will be revalued as in the case of FOREX deals under the RB method and will be included in the revaluation report along with other FX deals. RB method of Revaluation uses the MID.REVAL.RATE found on the CURRENCY table by default. The system can be made to use REVAL.RATE in the CURRENCY table instead of MID.REVAL.RATE for calculating the Revaluation rate, by entering a value 'Yes' in the field REVAL.RATE in the REVALUATION.PARAMETER table for ND. If there were no value entered to the REVAL.RATE field, then the MID.RATE for that CURRENCY would be used.

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Revaluation Parameter for ND

Revaluation - IFRS Due to regulatory requirements under International Financial Reporting Standards (IFRS), some users may prefer to reckon the re-valuation profit or loss on Forex and NDF Deals at deal level rather than at currency level. Usually, such deal level profit or loss is booked at the present value. T24 provides that when the field IFRS.REVALUE in REVALUATION.PARAMETER is set to ‘YES’, the system will calculate the deal level profit or loss by netting the re-valuation profit or loss of each leg in Local Currency and then discount the net amount. The discounting rate will be obtained from the PERIODIC.INTEREST record for the key defined in the field IFRS.DISC.RATE.KEY in the REVALUATION.PARAMETER file. The discount rate will be interpolated if no direct rate is available for the value date of the deal. So far as the discounting period is concerned, the field IFRS.DISC.PERIOD in REVALUATION.PARAMETER with permitted values of ‘Spot’ or ‘Today’ provide the following functionality. l

Spot Position : Discounting happens only when the value is set to ‘Today'.

l

Forward Position : Discounting period is reckoned from today to Value date if the value set is ‘Today’ . Otherwise, from Spot to Value date if the value set is ‘Spot’.

Example If the rate key is ‘10’ and the Local Currency is EUR, then 10EURYYYYMMDD will be the curve used for calculating the discount rate. Deal Level Profit or Loss Example: (Cross Currency) Consider a Cross Currency Forex Deal in CAD and INR. The Local Currency is EUR. CAD 1,000,000 is bought against INR 40, 000,000 and the Local Currency Equivalent is EUR 702,619.16. The deal is under RB Revaluation Method.

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Instead of reckoning the re-valuation profit or loss currency wise, the re-valuation profit will be taken as EUR 54,120.64 Example: (Involving Local Currency) Consider a FOREX Deal in INR and EUR. The Local Currency is EUR. INR 55, 000,000 is bought against EUR 1,000,000 and the Local Currency Equivalent is EUR 1,000,000. The deal is under RB Revaluation Method.

Deal Loss is EUR -97,322.50 which will be reckoned as the Deal Loss. Net Present Value of Re-valuation Profit or Loss The revaluation profit or loss will be booked to the Profit Loss Account at the Net Present Value. The Net Present Value is arrived at by discounting the deal level profit or loss at the appropriate discount rate for the period either from the Spot Date to the Value Date of the Deal (only Forward contracts with RB method are eligible) or from Today to the Value date of the Deal (contracts in Spot period are also eligible) Discounting from Spot to Value Date: If the Value Date of the deal falls within the Spot Period for the currency pair, then no discounting is done. Discounting from Today to Value Date: Deals falling within the Spot period for the currency pair including those Forward contracts with Reval type other than RB are also considered for discounting. Basis for Applying Simple or Compound Formula for Discounting. If the Value Date falls within one year from the Spot Date for the currency pair, discounting will be done under Simple Method. If the Value Date falls beyond one year from the Spot Date for the currency pair, discounting will be done under Compound Method. This basis is applicable in both the cases where the discounting period is reckoned either from Today or from Spot. The Spot Date for the currency pair will be reckoned as on run date. The year is always calendar year. Simple Method

Compound Method

(Where ‘ r ’ is the rate of interest from the PERIODIC.INTEREST Table and ‘ n ’ is the number of days the value date is from the Spot Date as on run date and 365 is the basis (The basis is as applicable to the Local Currency.)

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Forex deals under Re-valuation Method ‘RB’, and all NDF deals only will be subject to discounting. When the IFRS functionality is turned on, the deals that had been re-valued earlier under regular method will continue to be re-valued as before. Only the new deals will be subject to the IFRS method of re-valuation and discounting. Any Option deal that has been once re-valued before the IFRS set-up, will be re-valued as before including any future take downs. Each leg of a Swap deal will be treated as a separate deal. Reports The users are provided with two Revaluation reports as mentioned below: REVAULATION.NPV.DETS

Will give leg wise revaluation figures (for the date and up to the date) and the discounted NPV of the revaluation (for the date and up to the date).

REVALUATION.NPV.DEAL Will give deal wise netted revaluation figures (for the date and up to the date) and the discounted NPV of the revaluation (for the date and up to the date). IFRS.REVALUE Functionality Based on the parameterization set up, the following list of options are available in T24 for revaluation and discounting: a. Revaluation of TOM and SPOT positions at same rate and No Discounting. b. Revaluation of TOM and SPOT positions at different rates and No Discounting. c. Revaluation of TOM and SPOT positions at same rate and Discounting period from SPOT date for Forward Position and no discount option for Spot Position. d. Revaluation of TOM and SPOT positions at same rate and Discounting period from Today for both FWD and SPOT Positions. e. Revaluation of TOM and SPOT positions at different rates and Discounting period from Spot for Forward Positions and no discount option for Spot Position. f. Revaluation of TOM and SPOT positions at different rates and Discounting period from Today for both Spot and Forward Positions.

Foreign Exchange- Release R13.00 -Page 109 of 110 - (c) Temenos Systems 2013 05/07/2013

Workflow of 'IFRS.REVALUE' based on the parameterization setup

Foreign Exchange- Release R13.00 -Page 110 of 110 - (c) Temenos Systems 2013 05/07/2013