Introduction to Interest Multiplier Facility
The Interest Multiplier Facility (IMF) is a structured or composite product with a pair of term loan in one currency and term deposit in different currencies. The maturity dates of the loan and the deposit are always the same. In case of roll over, the loan and deposit are rolled over as one composite product. The loan funds the deposit and the redemption of the deposit repays the loan at maturity. The risk lies in the FX rate fluctuation between the loan and deposit currencies.
Product Configuration
Temenos Transact can be parameterised to handle the entire life cycle of the contract (standard flow) or to work as a back office system (interface flow).
- Full or Standard Flow - Temenos Transact does an end to end processing of an IMF, including creation of the underlying loan and deposit.
- Interfaced Flow - The bank uses an external software for the life cycle management of an IMF contract and use Temenos Transact only as a back office system. The Temenos Transact does not do the full processing. Instead, the system is designed to get the information from external systems and hold them together to form a single structured product contract.
The events in the IMF contract life cycle are shown in the below table.
| Event | Description |
|---|---|
| Inception | The contract is recorded in the system. The underlying option deals are created |
| Rollover | Roll over of the contract |
| Maturity | On maturity date, the contract ceases to exist |
The terms of an IMF contract are given in the below table.
| Term Sheet Element | Description |
|---|---|
| Value Date | Indicates the effective date of the contract |
| Deposit Currency | Indicates the currency of the deposit |
| Deposit Amount | Indicates the amount of the deposit in deposit currency |
| Loan Currency | Indicates the currency of the loan |
| Loan Amount | Indicates the loan amount in loan currency |
| Deposit Interest Rate | Indicates the interest rate for the deposit |
| Loan Interest Rate | Indicates the interest rate for the loan |
| Maturity Date | Indicates the maturity date of the contract |
Illustrating Model Parameters
The model parameters for Interest Multiplier Facility (IMF) are explained below:
IMF is a structured or composite product consisting of a pair of term loan in one currency and a term deposit in another currency. The maturity dates of the loan and the deposit are always the same. In case of roll over, the loan and deposit are rolled over as one composite product. The loan funds the deposit, at maturity and the redemption of the deposit repays the loan. The risk here lies in the FX rate fluctuation between the loan currency and deposit currency.
Rollover can be a manual rollover before a maturity or the contract can be set up to rollover automatically. At the rollover time, it is possible to increase or decrease the loan or deposit amount. It is also possible to change the interest rate on the loan or the deposit. Temenos Transact can be parameterised to handle the entire life cycle of the contract (standard flow) or to work as a back office system (interface flow).
Unwinding or early termination can be effected by updating the Early Maturity Date field. Early termination might attract an unwinding charge or penalty, which is updated in the field Unwind Chg Amt.
SY.PRODUCT.DEFINITION
This parameter application is used to control the functioning and behavior of a IMF contract. The events in the life cycle of an IMF contract is defined in this application. The user cannot amend these events. The user however can amend the other parameters available in this application and set the category codes and transaction codes required to process a IMF contract. Refer the help text for more information on these parameter fields.
| Field | Description |
|---|---|
| Valuation Routine | Values the structured product based on the routine attached |
| Sweep Acct | System sweeps the transactions automatically from the customer segregated account to the customer source account, when this field is set to Yes |
| Sy Exclude Valuation | Reports the structured product deal only when this field is set to Yes. Otherwise, all transactions created by the structured product along with the structured product deal will be displayed. |
| Event | Displays the list of events that can occur in the product life cycle such as CREATE, INPUT, AUTHORISE, ROLLOVER etc and each event can be mapped with dependencies |
| Eb Activity | Invites the user to specify events that requires any delivery message(s) to be invoked |
| Cob Phase | Indicates the COB stage in which the associated event will be processed. For scheduled and/or rolling events the close of business processing will be invoked. |
| First Date and Last Date | Indicates the first and last date on which a deal for this product can be accepted into the system |
| Suppress Underlying | Denies the system from creating underlying transactions, when set to Yes and when set to No the underlying transactions are not suppressed and is created from the structured product contract. The life cycle events of the product is processed by Temenos Transact. |
| Sub Asset Type | Maps the valid record in Sub Asset Type with the application possibly |
| Fixing Routine | Holds a value only if Supress Underlying is set to No. Validation routines can be attached for fixing. |
| Mtm Routine | Facilitates attaching a routine for MTM (Mark to Market) or the user can manually define it by mentioning the categories |
| Ca Impact | Indicates whether Corporate Action is applicable or not for this definition |
Illustrating Model Products
Model products are not applicable for this module.
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