TERM - F&O Trades Maintenance
How to Use
What is TERM
(full F&O/CFD/Pricing Mechanisms maintenance) TERM is the open F&O trades maintenance program. It is used for the entry of Orders (GTCs etc), Giveups and Executed trades, deleting, amending, exercise, splitting, abandonment of Futures, Options (Vanilla) and CFD (Contract For Difference).
TERM can also be used to enter OTC trades e.g. Exotic Options, and any other derivation of TCCM codes. ITAS handles these derivatives with the same settlement procedures as standard F&O instruments i.e. there is no specialist exotic handling. Any exotic price derivation will need to be actioned manually. The main details (trade date, commodity, lots, price, broker, etc) are entered with code driven verification. This is the manual method for trades to be registered in ITAS. BRKIMPORT can handle direct feeds from specific broker systems e.g. ABN, R&N, eMIDAS, Liffe. BRKIMPORT can also import new business from a specific (S01 defined) structured .csv data source. Hivedome would need to develop other specialist broker interfaces as a charge to the customer. The import of new business is controlled by TERM/Confirm, where the front-desk trade captured trades are confirmed and incorporated into the F&O executed positions. There are web services & API for Real-time capture of F&O trading, usually with TERM/Confirm being required before acceptance in ITAS as an executed trade. The reason for that process step is that the 'sending' system would probably not have any knowledge / data of any hedging requirements i.e. the physical TRADE reference, whether a AA, BEO, SEO, BB ..
Before a new instrument trade can be entered, the TCCM static must be setup and activated as 'Active' as a TCCM code and 'Active' on the Company Page. When TERM recognises that the futures entry is the first time use , a display box of calculations is shown for the user to verify that the correct factors have been setup in TCCM. When the first occurrence of an instrument/prompt month trade is being entered, the system attempts to verify the expiry/declaration date and will secure in a table that is viewed from TCCM. Where an ITAS Entity is operating Pricing Mechanisms (PRICEMEC) and has setup (TCCM) Accumulators, Bonus Repricing Contracts and Swaps; additional TERM processes are enabled i.e. Exchange for Swap, Exchange for Swap Other Currency, Reverse Exchange for Swap, Convert Accumulators. See help? in TERM for more detail.
The TERM feature 'Square House Positions', (CMP privilege AUTOINTERNAL ) creates Internal trades between the selected House Accounts for the Prompt Month. This enables a more precise P&L to be produced per Department, when House Accounts are structured per dept.
TERM is NOT used for Futures settlements, see SETTLE The TERM form presents a list of functions where the user can then search/filter for trade details extraction for amendment, abandonment, exercising and splitting etc. All the functions can be controlled for user access by CMP/Privilege; please see the CMP code inside [] brackets below
The functions are: -
Create new business [CREATEFUT], there are ITAS options for double-entry, broker-side only or House/client single-side only. Hivedome will setup the necessary internal coding after consultation with user company. There is a S01 configuration that enables the entry of F&O orders i.e. not executed and therefore not included in any Equity Reporting.
Create Internal trades [CREATEINT], this feature produces a buy + sell trade between 2 client/house accounts. This is useful for the situation where hedge/pricing business needs to moved between different profit centers (departments)/allocations. Internal trades do NOT create broker deals.
Create internal trade [AMENDINT] by matching instructions, this feature will pick trade instructions (not executed deals) and match them for the purpose of bypassing the market floor being used to both buy and sell the same 'paper'. This is useful for an organisation that has different locations/traders entering their Futures deals instructions to the terminal trading desk for execution.
Amend trades [AMENDFUT], user makes filter selections and amends/deletes trades.
Split trades [SPLIT] & [SPLITINT], useful when original transaction needs splitting for different TRADE assignments. There is a right-click feature (Split and Assign) from the grid that enables the user to apply multiple splits/assignments
Exercise Options [EXERCISE], user makes filter selections and enters number of lots to exercise to become a FUTUREs trade.
Abandon Option [ABANDON], user filter selects and enters number of lots to abandon.
Exercise and/or Abandon Internal options. [EXERCISEINT]& [ABANDONINT] A separate (controlled by S01) process so that any futures created are also linked for subsequent maintenance.
Update Open position trade details with the latest TCCM static [UPDATESTATIC] . This is sometimes needed when a new commodity is setup incorrectly with wrong price factors and commission calculations and margining is subsequently found to be wrong, this is where the initial display box is useful if the entry clerk is familiar with all the commodity/instruments.
Giveups, new and amendment of execution only business [CREATEGIVEUPS] & [AMENDGIVEUPS]. These trades are not included in any of the standard F&O reports e.g. EQUITY, TOPEN, VALUATION, CLIDOC but are included in the Commissions earned report and the special statements process GIVEUPS. They are recorded as a single record and are removed by the OFFBOARD and GIVEUPS processes.
Import Confirm/Instruction [CONFIRM] & [CONFIRMGIVEUP], new business is confirmed by a single click command whereby error data is highlighted for correction before save as executed business. There are right click features, after Edit has commenced: Confirm All trades, Delete all trades, delete all trades that have their Account = ‘ERROR.T’ and Consolidate (not available for all companies). Consolidate will merge confirmed trades that have the same Account, Trade date, Broker, Floorbroker, Commodity, Prompt Month, Option data, Price, Code and Dept.
Amend broker side of trade [AMENDBRK], only when the F&O is setup as dual entry.
Amend broker commission [AMENDCOMSN], only when the F&O is setup as dual entry. The standard ITAS entry presentation only shows House/client commission
Broker merge [BROKERMERGE], only when the F&O is setup as dual entry.
Client/House merge [CLIENTMERGE], only when the F&O is setup as dual entry.
Create Internal trades using F&O instructions [CREATEINSTR] as a basis
Delete a trade [DELETE], need privilege for this secure task
Create documentation [FORMS]
Enable maintenance of trades [TRADESET] that have a specific trade code i.e. SET
Create House account square positions [AUTOINTERNAL]. This is NOT a roll procedure, it only creates Internal trades between the selected House Accounts for the Prompt Month. When the ITAS Entity is operating Single-side entry and Settlement mode is ‘Post to Broker’ and the Broker/Commodity/Prompt Month is a square position i.e. ready to liquidate, it may be needed to create square positions for any of the House accounts involved. The user will then choose the Settlement price and the process will create the necessary Futures trades to enable OFFBOARD, SETT processes for that Broker/Commodity/Prompt. The Futures deals created will be Internal trades whereby the ITAS process will create the pairs arbitrarily i.e. pick accounts with long / short positions.
When the ITAS Entity is operating Dual-side entry, it may be needed to create square positions for any of the House accounts involved. The user will select the Commodity/Prompt Month and the list of non-square House account positions is displayed. The user will choose the Settlement price and the process will create the necessary Futures trades to enable OFFBOARD, SETT completion. The Futures deals created will be Internal trades whereby the ITAS process will create the pairs arbitrarily i.e. pick accounts with long / short positions. The final result may still have House positions that are either all long or all short.
Recap reports are available of all tasks actioned.
TERM can be linked to physicals TRADE for the purpose of hedge/fixing assignments, either on a specific contract basis or bucket accounting. When fixings are requested from TERM, associate emails/letters can be automatically produced for recaps to the counter-party. This is actioned on completion of the executed trades entry with user-selected output media e.g. emails and print for each individual recap. Futures deals that are assigned to a TRADE can be instructed to create TRADE/Fixation records immediately. If an Option deal is assigned to a TRADE for the purpose of hedging, TERM can be instructed to create a Fixation BUT the actual TRADE fixation will not be created until the option has been Exercised whereby the EFS process is completed and the new Future is applied and the P&L effect of Option trading/settlement is also handled.
How to use TERM
Once you have opened the TERM window, in order to use TERM you must do one of the following:
1) If entering new business (instruction, give up or execution), you must select the appropriate New Business feature; this will lead you straight to the grid where you will be able to enter the trade details.
2) If amending/exercising/abandoning/splitting an existing record you must select to populate a grid of the relevant trade details ready for edit/print etc.
Hedge/price-fixing assignment tasks can be completed by the relevant data being entered/ticked (if information remains consistent since instruction entry/verification).
If a previously entered instruction needs to be authorised as an executed trade or deleted, you need to use the Confirm Import/Instruction process.
Trade recall
Trade recall is as simple as entering the known details of the trade(s) to be amended/ exercised/ abandoned/split in the search fields above the grid. Having entered the details to restrict the search you must click the button that corresponds to the action you want to do with the recalled trades (Exercise button for exercising, and so on). Results are displayed on the grid and cells are enabled accordingly.
Amending/Splitting/Exercising/Abandoning Trades
These tasks are simple to operate, recall the required trades and specify the number of lots for the task. When exercising options, the future trades (confirmed) are created with full audit report.
Double Entry
When the operating company is using dual-side entry, amendments/deletions to trades are applied to both sides (with error messages if any failure). However exercises and abandonments MUST be actioned on each side individually.
Settlement/Deletion
The main settlement processes are SETT, OFFBOARD whereby bulk close/archiving can be actioned. Be careful when applying deletions. If one of the sides has already been settled; messages will occur and single side amendments will be required.
Exotic Options
In finance, an exotic option is a derivative which has features making it more complex than commonly traded products (vanilla options). These products are usually traded over-the-counter (OTC). Consider an equity index, a straight call or put, either American or European would be considered non-exotic (vanilla). An exotic product could have one or more of the following features:
· The payoff at maturity depends not just on the value of the underlying index at maturity, but at its value at several times during the contracts life (it could be an Asian option depending on some average, a lookback option depending on the maximum or minimum, a barrier option which ceases to exist if a certain level is reached or not reached by the underlying, a digital option, range options, etc.)
· It could depend on more than one index (as in a basket options, Himalaya options, or other mountain range options, out performance options, etc.)
· There could be call and put rights.
· It could involve foreign exchange rates in various ways, such as a quanto or composite option.
ITAS does NOT handle any of these payoff features, the automated ITAS settlement process would follow Vanilla options.
Accounting Entries
TERM can be used to generate accounting documents, with the relevant S01 settings activated. The direction of the postings is determined by S01 settings i.e. where to locate what accounts are to be posted. In the situation where the account reference is not setup or not available yet, the posting will be directed to a nominated Suspense account (ctrl20_lostsettacc). If that condition occurs, then it is the users responsibility to redirect the entry to its correct account, when known