SAP Treasury and Risk Management 1592296173, 9781592296170

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SAP PRESS is a joint initiative of SAP and Galileo Press. The know-how offered by SAP specialists combined with the expertise of the Galileo Press publishing house offers the reader expert books in the field. SAP PRESS features first-hand information and expert advice, and provides useful skills for professional decision-making. SAP PRESS offers a variety of books on technical and business-related topics for the SAP user. For further information, please visit our website: www.sap-press.com. Eleazar Van Ortega Maximizing Cash Management with SAP ERP Financials 2011, 362 pp., hardcover ISBN 978-1-52992-324-7 Vincenzo Sopracolle Financial Accounting with SAP—Quick Reference Guide to SAP FI 2010, 665 pp., hardcover ISBN 978-1-52992-313-1 Janet Salmon Controlling with SAP—Practical Guide 2012, 582 pp., hardcover ISBN 978-1-52992-392-6 Balaji Kumar Alamanda and Arjun Krishnan SOX Compliance with SAP Treasury and Risk Management 2009, 437 pp., hardcover ISBN 978-1-52992-200-4

Rudolf Bryša, Thomas Fritzsche, Markus Heß, Sönke Jarré, Reinhold Lövenich, Andreas Martin, Klaus G. Müller

SAP® Treasury and Risk Management

Bonn  Boston

Dear Reader, When this book was first published in 2008, the world was a different place. In the past five years, changes have influenced world politics and economics, which of course has altered the way that people and companies do business. This book has been updated and expanded by over 300 pages to reflect how these changes affect the SAP IT solution of SAP Treasury and Risk Management. If you’re reading this comprehensive reference for the first time, you’ll find all of the latest and most relevant information on how to address the challenges you face. If you’re joining us for the second time, you’ll find added topics, such as correspondence and exposure management, as well as expanded explanations based off of reader feedback. No matter what your experience is, I’m confident that you’ll find the information you need to work efficiently with SAP Treasury and Risk Management. We at SAP PRESS are always eager to hear your opinion. What do you think about the second edition of SAP Treasury and Risk Management? As your comments and suggestions are our most useful tools to help us make our books the best they can be, we encourage you to visit our website at www.sap-press.com and share your feedback. Thank you for purchasing a book from SAP PRESS! Laura Korslund

Editor, SAP PRESS

Galileo Press Boston, MA [email protected] http://www.sap-press.com

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The Library of Congress has cataloged the printed edition as follows: Bryša, Rudolf. SAP treasury and risk management / Rudolf Bryša, Thomas Fritzsche, Markus Heß, Sönke Jarré, Reinhold Lövenich, Andreas Martin, and Klaus G. Müller. -- 2nd edition. pages cm ISBN-13: 978-1-59229-433-6 ISBN-10: 1-59229-433-2 ISBN-13: 978-1-59229-617-0 ISBN-13: 978-1-59229-618-7 1. Corporations--Finance--Computer programs. 2. Finance--Computer programs. 3. Risk management. 4. SAP ERP. I. Title. HG4012.5.B79 2013 658.15’5028553--dc23 2013006487

ISBN 978-1-59229-433-6 (print) ISBN 978-1-59229-617-0 (e-book) ISBN 978-1-59229-618-7 (print and e-book) © 2013 by Galileo Press Inc., Boston (MA) 2nd edition 2013 2nd German edition published 2013 by Galileo Press, Bonn, Germany

Contents 1

Introduction .................................................................

21

1.1

21 22 24 24 31 31 33 35

1.2 1.3

1.4

1.5

1.6

2

Welcome to SAP Treasury and Risk Management ........... 1.1.1 Target Audience ................................................. 1.1.2 Working with this Book ..................................... Content and Structure of the Book ................................. Overview of Financial Instruments .................................. 1.3.1 OTC Financial Instruments ................................. 1.3.2 Listed Financial Instruments ............................... History of SAP Treasury and Risk Management ............... 1.4.1 New Developments in Release SAP R/3 Enterprise 2.0 .................................................... 1.4.2 New Developments in Release SAP ERP 2004 .... 1.4.3 New Developments in Release SAP ERP 6.0 ....... Enhancement Packages for SAP ERP 6.0 ......................... 1.5.1 Enhancement Packages and Business Functions ........................................................... 1.5.2 An Overview of Business Functions in SAP Treasury and Risk Management .......................... 1.5.3 Business Functions for EHP3 .............................. 1.5.4 Business Functions for EHP4 .............................. 1.5.5 Business Functions for EHP5 .............................. 1.5.6 Business Functions for EHP6 .............................. Rapid Deployment Solution and SAP Treasury and Risk Management ........................................................... 1.6.1 Rapid Deployment Solution—An Overview ........ 1.6.2 Rapid Deployment Solution for SAP Treasury and Risk Management .......................................

36 37 37 38 38 40 41 42 44 47 48 48 49

Master Data .................................................................

53

2.1

54 54 55 56

Central Customizing Settings .......................................... 2.1.1 Types and Categories ......................................... 2.1.2 Product Type ..................................................... 2.1.3 Transaction Type ................................................

7

Contents

2.1.4 Commodity Type ................................................ 2.1.5 Company Code ................................................... Commodity Master Data ................................................. Class Master Data ........................................................... 2.3.1 Entering Class Master Data ................................. 2.3.2 Customizing of Class Master Data ....................... 2.3.3 Listed Commodity Derivatives ............................ 2.3.4 Additional Tabs for Class Master Data ................ 2.3.5 Classification ...................................................... Business Partners ............................................................ 2.4.1 House Banks ...................................................... 2.4.2 Business Partner Roles ........................................ 2.4.3 Standing Instructions .......................................... Organizational Elements ................................................. 2.5.1 Securities Account .............................................. 2.5.2 Futures Account ................................................. 2.5.3 Portfolio ............................................................. 2.5.4 Other Organizational Elements ...........................

58 59 60 62 62 71 73 73 76 76 76 77 79 82 82 84 85 86

Transaction Management ............................................

87

2.2 2.3

2.4

2.5

3

3.1

3.2

3.3

8

Financial Transaction ...................................................... 3.1.1 Conventions of Use ............................................ 3.1.2 Transaction Management Entry Screen ............... 3.1.3 Data Screen ........................................................ 3.1.4 Flows ................................................................. 3.1.5 Conditions ......................................................... 3.1.6 Underlying ......................................................... 3.1.7 Listed Financial Instruments ............................... 3.1.8 Field Selection .................................................... 3.1.9 Activities ............................................................ Trading ........................................................................... 3.2.1 Preparation ........................................................ 3.2.2 Decision-Making Tools ....................................... 3.2.3 Trading Functions ............................................... Back-Office Processing .................................................... 3.3.1 Interest Rate Adjustment .................................... 3.3.2 Price Adjustment ................................................ 3.3.3 Exchange Rate ....................................................

88 89 94 98 104 110 119 121 122 123 125 126 128 129 133 134 139 140

Contents

3.4

3.5

3.6

3.7

3.3.4 References ......................................................... 3.3.5 Settlement ......................................................... 3.3.6 Status Management ........................................... 3.3.7 Workflow ........................................................... 3.3.8 Change Documents ............................................ Operative Reporting ....................................................... 3.4.1 Controlling ......................................................... 3.4.2 Overview ........................................................... Product Categories ......................................................... 3.5.1 Securities ........................................................... 3.5.2 Fixed-Term Deposit ........................................... 3.5.3 Deposit at Notice ............................................... 3.5.4 Commercial Paper .............................................. 3.5.5 Cash-Flow Transaction ....................................... 3.5.6 Interest-Rate Instrument .................................... 3.5.7 Facility ............................................................... 3.5.8 Fiduciary Deposit ............................................... 3.5.9 Foreign Exchange Transaction ............................ 3.5.10 Cap/Floor ........................................................... 3.5.11 Interest Rate Swap ............................................. 3.5.12 Forward Rate Agreement (FRA) .......................... 3.5.13 Total Return Swap ............................................. 3.5.14 Future ................................................................ 3.5.15 Repo .................................................................. 3.5.16 Forward Securities Transaction ........................... 3.5.17 Listed Option ..................................................... 3.5.18 OTC Option ....................................................... 3.5.19 Securities Lending .............................................. 3.5.20 Forward ............................................................. 3.5.21 Forward Loan Purchase ...................................... 3.5.22 Commodity Forward .......................................... 3.5.23 Commodity Swap ............................................... Architecture ................................................................... 3.6.1 Database ............................................................ 3.6.2 Application Framework ...................................... 3.6.3 Customer-Specific Tab Page ............................... Specific Topics ................................................................ 3.7.1 Roles .................................................................

141 143 143 145 146 147 148 149 151 152 153 154 154 155 155 155 156 157 157 158 158 159 159 160 160 161 162 163 163 164 164 164 165 165 166 171 174 175

9

Contents

3.7.2 3.7.3

4

Correspondence ............................................................ 183 4.1 4.2 4.3

4.4

4.5

4.6

10

Mirror Transactions ............................................ 176 Internal Foreign Exchange Trading ...................... 179

The Old Correspondence Functions ................................ Migration ....................................................................... Basic Principles ............................................................... 4.3.1 History ............................................................... 4.3.2 Terms ................................................................. 4.3.3 Correspondence Framework ............................... 4.3.4 Correspondence Object ...................................... Customizing and Master Data ......................................... 4.4.1 Technical Communication Profile ....................... 4.4.2 Correspondence Partner ..................................... 4.4.3 Assignments for the Inbound Process ................. 4.4.4 Assignments for the Outbound Process .............. 4.4.5 Additional Settings ............................................. 4.4.6 Document Management ..................................... 4.4.7 SAPscript Forms ................................................. 4.4.8 PDF Forms ......................................................... Outbound Process .......................................................... 4.5.1 Correspondence Object for a Financial Transaction ........................................................ 4.5.2 Correspondence Object for a Securities Account Transfer ................................................ 4.5.3 Manual Creation of Correspondence Objects ...... 4.5.4 Release Process for a Correspondence Object ..... 4.5.5 Sending .............................................................. Inbound Process ............................................................. 4.6.1 Starting the Inbound Process .............................. 4.6.2 BAdIs Used ........................................................ 4.6.3 Split and Merge .................................................. 4.6.4 Mapping ............................................................ 4.6.5 Standard Messages ............................................. 4.6.6 Cancellation Messages and Amendment Messages (CANC/AMND) ................................... 4.6.7 Acknowledgment Messages (ACK/NACK) ........... 4.6.8 Inbound Process in the Examples .......................

185 189 190 190 191 192 194 196 196 205 211 213 215 219 219 220 221 221 224 225 226 228 230 231 233 234 235 235 236 236 237

Contents

4.7

4.8

4.9

4.10

4.11

4.12

5

Mapping ......................................................................... 4.7.1 Principles of Mapping Rules ............................... 4.7.2 View Cluster ...................................................... 4.7.3 Graphical Mapping Tool ..................................... Matching ........................................................................ 4.8.1 Customizing ....................................................... 4.8.2 Automatic Matching .......................................... 4.8.3 Forced Matches ................................................. Alerts ............................................................................. 4.9.1 Customizing ....................................................... 4.9.2 Alert Types ........................................................ 4.9.3 Monitoring and Triggering Alerts ....................... Display ........................................................................... 4.10.1 Display in the Financial Transaction ................... 4.10.2 Display for a Securities Account Transfer ............ Correspondence Monitor ................................................ 4.11.1 Selection Screen ................................................. 4.11.2 Data Screen ....................................................... Enhancements (BAdIs) .................................................... 4.12.1 ES_TCOR_MONITOR Enhancement Spot ........... 4.12.2 ES_TCORF_CONFIG Enhancement Spot ............. 4.12.3 ES_TCORF_MSG_INT Enhancement Spot ........... 4.12.4 FTR_TR_ALERT Enhancement Spot ....................

238 239 241 242 243 244 245 246 247 247 249 250 250 251 251 251 252 254 258 258 260 260 262

Position Management .................................................. 263 5.1

5.2

5.3

Basic Terms .................................................................... 5.1.1 External and Internal Positions ........................... 5.1.2 Update Type ...................................................... 5.1.3 Business Transaction .......................................... 5.1.4 Parallel Accounting Principle .............................. External Position Management ....................................... 5.2.1 Securities Account Management ........................ 5.2.2 Corporate Actions .............................................. 5.2.3 Rights ................................................................ 5.2.4 Futures Account Management ........................... Basic Principles of Internal Position Management ........... 5.3.1 Architecture of Internal Position Management ... 5.3.2 Defining Valuation Areas ...................................

264 264 267 269 271 272 273 291 297 304 314 315 323

11

Contents

5.4

5.5

6

326 328 336 342 349 355 355 358 361 389 396 407 411 411 415

Integration with Other Modules ................................. 419 6.1 6.2

6.3

6.4 6.5

12

5.3.3 Valuation Classes ................................................ 5.3.4 Differentiation .................................................... 5.3.5 Position Indicator ............................................... 5.3.6 Position Management Procedure ........................ 5.3.7 Derived Business Transactions ............................ Processes of Internal Position Management .................... 5.4.1 Executing a Key Date Valuation .......................... 5.4.2 Impairments and Unscheduled Valuations .......... 5.4.3 Customizing the Valuation ................................. 5.4.4 Accruals/Deferrals .............................................. 5.4.5 Transfer .............................................................. 5.4.6 Intragroup Transactions ...................................... Sample Scenarios ............................................................ 5.5.1 Bonds in the "Available for Sale" Holding Category ............................................................ 5.5.2 Loans with Annuity or Installment Repayments .......................................................

Paying Valuation Area ..................................................... Financial Accounting ....................................................... 6.2.1 Posting Processes ............................................... 6.2.2 Account Determination ...................................... 6.2.3 Parallel Accounting Principles in Financial Accounting ......................................................... 6.2.4 Customizing the Accounts Approach .................. 6.2.5 Customizing Options for the Ledger Approach in New G/L ........................................................ 6.2.6 Customizing the Ledger Approach with Special Ledgers .................................................. Processing Payments ....................................................... 6.3.1 Customer Subledger ........................................... 6.3.2 Payment Requests .............................................. 6.3.3 SAP In-House Cash ............................................. SAP Cash and Liquidity Management .............................. Public Sector Management ............................................. 6.5.1 Entering Account Assignment Objects ................ 6.5.2 Funds Transfer ....................................................

420 421 422 433 444 449 451 453 454 456 458 463 466 469 469 472

Contents

6.5.3 6.5.4 6.6

7

Investment Pools ............................................... 472 Activating and Setting the Integration with Public Sector Management ................................ 474 Regulatory Reporting ...................................................... 475

Market Data ................................................................. 479 7.1 7.2

7.3

7.4

7.5

7.6 7.7

7.8 7.9

7.10

Foreign Exchange Rates and Foreign Exchange Swap Rates ..................................................................... Security Prices ................................................................ 7.2.1 Maintaining Security Prices ................................ 7.2.2 Security Price Calculation for Bonds ................... 7.2.3 Reading Security Prices ...................................... Reference Interest Rates and Yield Curves ...................... 7.3.1 Reference Interest Rates .................................... 7.3.2 Yield Curves ....................................................... 7.3.3 Market Data Maintenance for Interest Rates ...... Commodity Prices and Commodity Forward Curves ........ 7.4.1 Commodity Prices from Logistics ........................ 7.4.2 Future-Style Commodity Forward Curves ........... 7.4.3 Forward-Style Commodity Forward Curves ......... Indexes ........................................................................... 7.5.1 Stock Indexes ..................................................... 7.5.2 Price Indexes ..................................................... Credit Spreads ................................................................ Volatilities ...................................................................... 7.7.1 First Volatility Database ..................................... 7.7.2 Central Volatility Database ................................. 7.7.3 Access Rules for Volatilities ................................ Correlations .................................................................... Net Present Value Repository ......................................... 7.9.1 Net Present Value Repository ............................. 7.9.2 Maintaining Net Present Values ......................... 7.9.3 Determination of Net Present Values ................. Scenarios and Market Data Shifts .................................... 7.10.1 Scenarios ........................................................... 7.10.2 Market Data Shifts ............................................. 7.10.3 Scenario Processes .............................................

479 481 481 483 484 486 486 489 495 499 500 501 504 506 506 507 507 508 509 512 514 516 517 518 519 519 521 521 523 524

13

Contents

7.11

8

8.2

8.3

8.4

8.5

8.6

Basic Principles ............................................................... 8.1.1 Usage ................................................................. 8.1.2 Terms ................................................................. Raw Exposure ................................................................. 8.2.1 Raw Exposure Maintenance ............................... 8.2.2 Overview of Raw Exposures ............................... 8.2.3 Defining a Commodity Split ................................ Raw Exposure Customizing ............................................. 8.3.1 Global Settings ................................................... 8.3.2 Exposure Activity Type ....................................... 8.3.3 Free Attributes ................................................... Releasing Raw Exposures ................................................ 8.4.1 Manual Release and Automatic Release .............. 8.4.2 Connection to SAP Business Workflow ............... 8.4.3 Derivation Strategy for Exposure Fields .............. 8.4.4 Product Type ...................................................... 8.4.5 Exposure Position Type ...................................... 8.4.6 Non-Derived Exposure Transactions ................... Exposure Position ........................................................... 8.5.1 Position Values for Exposure Positions ............... 8.5.2 Exposure Position Flows ..................................... 8.5.3 Commodity Exposure Report .............................. Integration of Logistics into Treasury ............................... 8.6.1 Logistics Outbound Processing ........................... 8.6.2 Treasury Inbound Processing ..............................

538 538 539 541 541 546 548 550 550 551 553 554 555 555 556 557 558 561 562 563 565 567 569 570 572

Hedge Accounting for Exposures ................................. 575 9.1

14

524 525 528 534

Exposure Management ................................................ 537 8.1

9

Market Data Interface ..................................................... 7.11.1 Market Data Transfer via File Interface ............... 7.11.2 Datafeed ............................................................ 7.11.3 Market Data Transfer via Spreadsheet ................

Processes in Hedge Accounting for Exposures ................. 9.1.1 Hedge Plan ........................................................ 9.1.2 Exposures ........................................................... 9.1.3 Hedged Item ......................................................

576 577 580 582

Contents

9.1.4 9.1.5 9.1.6

9.2

9.3

9.4

Hedging Relationship ......................................... Calculating Net Present Values ........................... Prospective and Retrospective Effectiveness Tests ............................................. 9.1.7 Hedge Accounting in the Key Date Valuation ..... 9.1.8 End of a Hedging Relationship ........................... 9.1.9 After the End of a Hedging Relationship ............. 9.1.10 Reporting in Hedge Accounting ......................... Customizing .................................................................... 9.2.1 Central Customizing: Hedge Accounting for Exposures as an Internal Add-On .................. 9.2.2 Settings for the Effectiveness Test ...................... 9.2.3 Market Risk Analyzer Settings ............................ 9.2.4 Position Management Settings ........................... Ways to Create Exposures ............................................... 9.3.1 Direct Entry ....................................................... 9.3.2 Creating Exposures When Creating a Hedge Transaction ........................................................ 9.3.3 Transfer from Exposure Management ................. 9.3.4 Upload ............................................................... 9.3.5 Entry Using Generic Financial Transactions ......... Implementation Guide .................................................... 9.4.1 Full Fair Value Hedging ...................................... 9.4.2 Exchange Rate Risk Hedging .............................. 9.4.3 Interest Rate Risk Hedging .................................

583 586 587 592 595 600 602 605 605 607 617 619 624 625 625 629 630 632 633 635 638 644

10 Hedge Accounting for Positions .................................. 651 10.1

10.2

Processes in Hedge Accounting for Positions .................. 10.1.1 Hedge Accounting as an Integral Part of Position Management ........................................ 10.1.2 Hedging Relationship ......................................... Position Management in Hedging Relationships ............. 10.2.1 Designation in Position Management— Phenomenology ................................................. 10.2.2 Concept of the Sub-Position .............................. 10.2.3 Valuation and Hedge Accounting ....................... 10.2.4 Dedesignation .................................................... 10.2.5 Customizing .......................................................

653 653 654 674 674 676 677 681 683

15

Contents

10.3

Effectiveness Test ............................................................ 10.3.1 Effectiveness Test With and Without Value Calculation ........................................................ 10.3.2 Effectiveness Test Method ................................ 10.3.3 Settings for Market Data Retrieval in the PET .... 10.3.4 Test Execution .................................................. 10.3.5 Effectiveness Test Results .................................. 10.3.6 Effectiveness Test Framework ............................

689 689 690 698 703 706 709

11 Reporting with the Information System ...................... 713 11.1

11.2

11.3

11.4

Logical Databases ........................................................... 11.1.1 Logical Database FTI_TR_DEALS ....................... 11.1.2 Logical Database FTI_TR_POSITIONS ................ 11.1.3 Logical Database FTI_TR_PERIODS ................... 11.1.4 Logical Database FTI_TR_PL_CF ........................ 11.1.5 Logical Database FTI_TR_FLOWS ...................... 11.1.6 Logical Database FTI_TR_THX_HEDGE .............. 11.1.7 Logical Database FTI_TR_COMM_DEAL_EXP .... 11.1.8 Logical Database FTI_TR_HEDGE ...................... 11.1.9 Logical Database FTLM_DB01 ........................... 11.1.10 Performance and Parallelization of the Logical Databases ............................................. 11.1.11 Settings for Authorization Checks ...................... SAP Query ...................................................................... 11.2.1 SAP Queries for Standard Reports ..................... 11.2.2 Maturity List ..................................................... 11.2.3 Report–Report Interface .................................... Function Module LDB_PROCESS and RAPIs .................... 11.3.1 Function Module LDB_PROCESS ....................... 11.3.2 RAPIs ................................................................ SAP NetWeaver BW ........................................................ 11.4.1 Extracting Position Data .................................... 11.4.2 Extracting Market Data .....................................

714 717 727 742 750 751 753 754 756 758 759 760 760 761 761 763 766 767 771 776 778 784

12 Portfolio Controlling with the Analyzers ..................... 787 12.1

16

The Analyzer Family ........................................................ 788 12.1.1 Market Risk Analyzer .......................................... 788 12.1.2 Portfolio Analyzer ............................................... 789

Contents

12.2

12.3

12.4

12.5

12.6

12.1.3 Accounting Analyzer .......................................... 12.1.4 Credit Risk Analyzer ........................................... Basic Principles, Architecture, and Data Retention .......... 12.2.1 Basic Concepts ................................................... 12.2.2 Financial Object Position Parts and Maintenance ...................................................... 12.2.3 Analysis Characteristics and Analysis Structure ... 12.2.4 Characteristics in the Credit Risk Analyzer .......... 12.2.5 Financial Object Integration ............................... 12.2.6 Risk Objects and Generic Transactions ............... Common Control and Structuring Entities ....................... 12.3.1 Cash Flow Indicator ........................................... 12.3.2 Evaluation Type and Valuation Rules .................. 12.3.3 Filter .................................................................. 12.3.4 Portfolio Hierarchy ............................................. Value at Risk .................................................................. 12.4.1 Basic Principles .................................................. 12.4.2 Risk Hierarchy .................................................... 12.4.3 Statistics Calculator ............................................ 12.4.4 Value at Risk Calculation .................................... 12.4.5 Backtesting ........................................................ 12.4.6 Other Key Figures .............................................. Online Analyses of the Market Risk Analyzer .................. 12.5.1 Net Present Value Analysis ................................. 12.5.2 Key Figure Analysis ............................................ 12.5.3 Value at Risk Individual Analysis ........................ 12.5.4 Overview of Other Online Analyses .................... The Results Database of the Market Risk Analyzer, Portfolio Analyzer, and Accounting Analyzer ................... 12.6.1 Introduction to the Results Database ................. 12.6.2 Key Figures and Key Figure Categories ............... 12.6.3 Evaluation Procedures ........................................ 12.6.4 Maintenance of Key Figures and Evaluation Procedures ......................................................... 12.6.5 Calculation of the Single Records and Final Results ....................................................... 12.6.6 Portfolio Analyzer: Yield Methods and Determination ...................................................

790 791 791 792 795 802 822 823 838 840 840 841 852 858 863 864 866 869 879 890 891 892 893 896 901 905 907 907 912 921 925 937 944

17

Contents

12.7

12.8

12.6.7 Portfolio Analyzer: Benchmarking ....................... 952 12.6.8 Portfolio Analyzer: Risk-Adjusted Key Figures ..... 960 12.6.9 Analyzer Information System .............................. 967 Credit Risk Analyzer ........................................................ 976 12.7.1 Global Settings ................................................... 977 12.7.2 Attributable Amount Determination ................... 978 12.7.3 Limit Management ............................................. 990 12.7.4 Automatic Financial Object Integration .............. 996 12.7.5 Integrated Single Transaction Checking and End-Of-Day Processing ....................................... 996 12.7.6 Reporting ........................................................... 1000 12.7.7 Additional Functions and Tools .......................... 1002 Tools: Parallel Processing ................................................ 1002

13 Interfaces and Enhancements ......................................1005 13.1

13.2

13.3

BAPIs .............................................................................. 1006 13.1.1 Introduction to BAPIs ......................................... 1006 13.1.2 Financial Instrument–Specific BAPIs ................... 1012 13.1.3 Cross-Financial Instrument BAPIs ....................... 1014 13.1.4 BAPIs for Financial Transaction as a Whole ......... 1016 13.1.5 BAPIs for Master Data ........................................ 1018 13.1.6 BAPIs for Exposure Management and Hedge Accounting for Exposures ................................... 1019 PI Message ..................................................................... 1020 13.2.1 PI Interface TreasuryDealNotification ................. 1020 13.2.2 Example of Routing and Mapping in PI .............. 1022 13.2.3 Mapping in the Target System ............................ 1026 Enhancements ................................................................ 1030 13.3.1 Customer Exit ..................................................... 1031 13.3.2 BAdI ................................................................... 1033 13.3.3 Enhancement Spot ............................................. 1038

14 Legal Regulations .........................................................1045 14.1

18

Sarbanes-Oxley Act ......................................................... 1046 14.1.1 SAP Solutions for Governance, Risk, and Compliance ........................................................ 1046 14.1.2 Management of the Internal Control System ...... 1047

Contents

14.2

14.1.3 Controls in the Treasury ..................................... Tax Authority Requirements ........................................... 14.2.1 The Tax Auditor in the System ........................... 14.2.2 Surrendering Tax-Relevant Data .........................

1047 1049 1049 1051

15 Integration and System Tools ......................................1057 15.1

15.2

15.3

15.4 15.5

Attribute Derivation Tool ................................................ 15.1.1 Step Types ......................................................... 15.1.2 Usage and Examples ........................................... Legacy Data Transfer ...................................................... 15.2.1 Legacy Data Transfer for OTC Transactions ......... 15.2.2 Legacy Data Transfer for Securities ..................... 15.2.3 Legacy Data Transfer for Futures and Listed Options ............................................................. 15.2.4 Customizing the Legacy Data Transfer ................ Initialization ................................................................... 15.3.1 Initialization for OTC Transactions ...................... 15.3.2 Initialization for Securities .................................. 15.3.3 Initialization of Futures, Listed Options, and Loans .......................................................... Migration ....................................................................... Archiving ........................................................................ 15.5.1 Transaction Management ................................... 15.5.2 Correspondence ................................................. 15.5.3 Position Management ........................................ 15.5.4 Exposure Management ...................................... 15.5.5 Hedge Accounting ............................................. 15.5.6 Analyzer .............................................................

1057 1058 1058 1062 1063 1065 1068 1069 1071 1073 1074 1074 1075 1078 1079 1079 1080 1081 1082 1082

Appendices .........................................................................1083 A B C

Bibliography .............................................................................. 1085 The Authors .............................................................................. 1087 Acknowledgments ..................................................................... 1091

Index ................................................................................................ 1093

Service Pages ............................................................................... Legal Notes ..................................................................................

I III 19

SAP Treasury and Risk Management is an integral part of the SAP treasury solution portfolio. You use it to manage financial instruments, as well as monitor and hedge risks.

1

Introduction

In the next few pages, you’ll gain an insight into the contents of this book, its target audience, and what prompted us to write it. We’ll also provide a brief summary of the developmental changes that have been incorporated into Enhancement Package 6, which is the current enhancement package for SAP ERP 6.0.

1.1

Welcome to SAP Treasury and Risk Management

Before we gave any thought to writing, typesetting, and printing this book, we had to address the issue of conceptual design: which topics needed to be covered, and to what extent? Furthermore, what information did the reader hope to acquire from reading this book? When we came together to answer these questions for the second edition, it quickly became apparent that we needed to expand upon several sections of the first edition and add some new topics. From your own experience, you know that SAP Treasury and Risk Management is a very complex topic with many ever-changing aspects: the financial markets, driven by banks, are inundated with new innovations in financial products. Accounting rules are constantly evolving. Parts of the new International Financial Reporting Standards (IFRS) have already entered into force, while other parts are still being debated. The financial crisis has also left its mark in the form of new compliance regulations, such as the European Market Infrastructure Regulations (EMIR) and the Dodd-Frank Act.

21

1

Introduction

All of this means that you and your team have to deal with an increasing workload, and you probably spend a lot of time going back and forth between various systems, spreadsheets, presentations, and meetings. Equally confusing and complex is the specialist literature available to you. When it refers to analytical subject areas in particular, this literature is usually very mathematical in nature. In order to deal with these changes, SAP Treasury and Risk Management has been developed on an ongoing basis in recent years. Even though this book now comprises over 1,100 pages, it’s still nowhere near enough to describe the world of SAP Treasury and Risk Management in detail. At several points in this book, we had to limit the amount of information we provided. Furthermore, we had to completely omit topics such as the somewhat new topic of central clearing. Consequently, this book does not reflect the SAP Treasury and Risk Management module in all its complexity. Rather, we have tried to identify topics and questions of particular concern to us and, we suspect, to many of you. It is on this basis that we have jam-packed this book with information about the essentials of the module; for example, what SAP Treasury and Risk Management is, how it works, and how you can operate the system and tailor it to your requirements. We believe that this book gives you a thorough and balanced insight into the SAP Treasury and Risk Management solution. We hope that you enjoy reading it and we wish you every success in your business endeavors. We also look forward to receiving your feedback!

1.1.1

Target Audience

If you are wondering if this book is for you, allow us to describe the readership we had in mind for our book. Treasurers & asset managers

As a treasurer, you know exactly how to steer your enterprise through the stormy waters of the markets. You ensure the liquidity of your enterprise, formulate and analyze risks, optimize the enterprise's risk structure, and manage surplus funds. If you’re an asset manager, you manage vast sums for insurance companies, pension funds, or other clients. You’re familiar with the market situation and know the internal require-

22

Welcome to SAP Treasury and Risk Management

1.1

ments and guidelines, as well as the ever-changing underlying statutory conditions. You’re the true "treasurer" of your enterprise. It is not our intention to write a treasury manual; other books already fulfill this purpose. What we want to do is introduce you to a powerful, integrated treasury system that can be tailored to your individual requirements. As either a member or the head of your company's IT team, you are responsible for selecting, implementing, and further developing SAP components in your company. You are familiar with the processes and tools provided by SAP. You have to deal with requirements from your company's business departments on an ongoing basis and are looking for a solution that represents the best possible value for your company’s money. In this book, we provide all the basic knowledge you need of the overlap that exists between business aspects and technical implementation in the system.

IT team

As a consultant working on a particular project, you want to come to grips with implementing, enhancing, and upgrading SAP Treasury and Risk Management. You may already be familiar with another component and now want to know what treasury is all about. Alternatively, you may already know other treasury systems and now need to familiarize yourself with the SAP component. In addition to providing sound and extensive knowledge, this book will provide several tips and tricks, numerous optimization and customizing options, and a great deal of background information in relation to the architecture and integration with other ERP components.

Consultants

You know what treasury is and you have always wanted to know how SAP implements it and how treasurers use the SAP solution. You would like to look beyond pure theory and gain an insight into practice. Alternatively, you are a software developer interested in business topics. This book will give you the insight into the SAP Treasury and Risk Management component you are looking for. It is based on our own experiences as software developers, as well as hundreds of discussions, telephone conversations, and visits to new and existing customers, users, consultants, and external developers.

Teachers, students, and other interested parties

23

1

Introduction

1.1.2

Working with this Book

One option is to read this book from start to finish. However, if you’re approaching this book with a specific question in mind, you should also feel free to skip straight to the relevant chapter. To make this easier for you, each chapter contains references to other sections that introduce or go into more information on the subject in question. If you need information on a specific topic, you will also find references to the relevant sections in the index. Additionally, we provide an overview of the contents of the book as well as an introduction to SAP Treasury and Risk Management in Section 1.2. To make it easier for you to work with this book, we use symbols to highlight certain sections. These symbols are explained as follows: Caution We use this symbol to warn you about potential sources of errors and stumbling blocks. Note Boxes marked with this symbol provide detailed information and particularly important tips on the topic under discussion. Tip Throughout this book, we give tips and recommendations that we have found useful in practice. This kind of information is contained in boxes marked with this symbol. Example Examples are used to explain and discuss a topic in greater detail. Our examples are highlighted using this symbol.

1.2

Content and Structure of the Book

The central tasks of SAP Treasury and Risk Management are to map a wide range of financial instruments in a variety of application scenarios, provide tools for daily business, ensure that the various accounting standards are reflected correctly in the system, and provide powerful analyses of the financial instruments. To this end, the system supports financial

24

1.2

Content and Structure of the Book

instruments in the areas of money market, foreign exchange, derivatives, and securities. This section is intended to do two things: give you an overview of the components included in SAP Treasury and Risk Management and inform you about the chapters in this book that deal with each topic. Section 1.3, on the other hand, contains information about the financial instruments that the system supports. Figure 1.1 shows the subcomponents in SAP Treasury and Risk Management. We will now briefly explain the role of each component and tell you where you can find a more detailed explanation of each. SAP Treasury and Risk Management Credit Risk Analyzer/ Credit Limit

Market Risk Analyzer/ Portfolio Analyzer

Accounting Analyzer

External Account Transaction Management

Position Management Securities Account Position

Reporting

Correspondence Framework

OTC Transaction "Position"

Futures Account Position External Position Exposure Management

Hedge Accounting Master Data

Market Data

Figure 1.1 The Subcomponents of SAP Treasury and Risk Management and How They Interact with Each Other Internally

A basic requirement of a functioning treasury system is that you can tailor it to your application scenario. Because Customizing activities are not

25

Customizing

1

Introduction

part of the daily job of a treasury user, we do not go into systematic detail on the options available. Nonetheless, at some points in the book, we do touch on Customizing issues so that you get to know some important settings and options. Master data

Master data is the basis of all functions and processes. Without master data for securities, you would not be able to buy or manage securities; by the same token, without business partner data, for instance, you would not be able to create any financial transactions. Chapter 2, Master Data, describes the master data you need and how to use it.

Market data

A reliable supply of quality market data is essential for you to be able to analyze financial instruments in operative, accounting, and analytical processes from a market-specific perspective. Chapter 7, Market Data, explains how the system maps and deals with market data. It also describes the functions available to you for market data management.

Transaction management

You have decided to create a position for a specific financial instrument as part of your own application scenario. For this purpose, you will create a financial transaction that, in turn, will create the position. To do this, you will use transaction management. What does it do? Transaction management manages the operative flow of all types of transactions (sometimes referred to as financial transactions) for all financial instruments: from initiating, reaching agreement on, and processing a transaction (including confirmation management for counterparties and payment processing) to transferring transactions to position management and from there, to accounting. Chapter 3, Transaction Management, provides a comprehensive insight into the many functions of transaction management.

External position versus ledger position

The following two terms will be used throughout this book: ledger position and external position. Because both terms have specific meanings in SAP Treasury and Risk Management, let us define them now, at the very outset.

External position

The term external position refers to the position values of a financial instrument, such as nominal values and units, which are also visible outside the system to the counterparty or the depository bank. In other words, the external position is managed on the basis of entities that are

26

Content and Structure of the Book

1.2

also visible to external parties. These values are managed in many different places: 왘

Transaction management (for OTC financial instruments)

왘

Securities account management (for standardized, non-derivative financial instruments)

왘

Futures account management (for standardized derivative financial instruments)

In the case of OTC transactions, each individual financial transaction describes its own position. For this reason, the financial transaction for OTC products contains and manages not only the structure features of the financial instrument, but also its external position, including the history of the external position. Management of the OTC transaction position is not a self-contained subcomponent; rather, it’s an integral part of transaction management.

OTC transaction position

The one-to-one mapping of a transaction to an external position does not apply in the case of standardized financial instruments. In this case, transactions mainly involve a position change within an external position. Therefore, because the external position and the transaction diverge in this case, an explicit position management function is required for the external position. This external position management function consists of securities account management for standardized nonderivative financial instruments and futures account management for futures and listed options.

Securities account management and futures account management

The term ledger position refers to internally visible values. These are defined only within an accounting rule (for example, the book value or an amortization component). In contrast to the quantity position, they can be recorded for entities that are different and, in some cases, known only internally. Unlike the quantity position, their structures can be aggregating, apportioning, or completely independent of the external position management values. Several accounting rules can be mapped in parallel in valuation areas. Because of the importance of this central component for managing the internal position, the term position management was established. For a detailed description of these functions, see Chapter 5, Position Management, and Chapter 6, Integration with Other Modules.

Internal position: ledger position and position management

27

1

Introduction

External account

The external account is a new entity1 that facilitates margin management of a bilateral or central margin account (clearing account). When OTC transactions are assigned to an external account, this external account becomes responsible for all payments to counterparties. The external account can upload and regulate margin calls whereby the margin call information can be distributed and assigned to the designated OTC transactions, but it does not have to be. Unassigned payments are represented by self-contained external and internal positions in the external account. Unfortunately, we are unable to provide any further information on this new function because it was delivered at the same time as this book was being completed.

Correspondence

You can use the correspondence framework to create or receive correspondence in relation to financial transactions or securities accounts. Correspondence is suitable for both internal documentation, such as the dealing slip, and external communication, such as the confirmation of financial transactions with business partners by various means such as email, fax, and SWIFT2 messages. For a more detailed look at these functions and how they are used, see Chapter 4, Correspondence.

Exposure management

Exposure management enables you to manage and model risks associated with exchange rates and commodity prices. Such risks can be created in the system manually or they can be automatically uploaded from logistical business processes (by means of BAPIs and integrated interfaces). In exposure management, risks can be sorted and aggregated according to user-defined characteristics. Furthermore, they can provide the basis for hedging decisions in relation to operative hedge transactions. If hedge accounting is necessary, these exposures can be transferred to Hedge Accounting for Exposures. This new component of SAP Treasury and Risk Management is described in greater detail in Chapter 8, Exposure Management. This chapter is new to the second edition of this book. Consequently, the description provided here for exposure management does not correspond to the description provided in Section 7.4 of the first edition. It referred to Exposure Management Release 1.0, while this 1 Delivered under the business function FIN_TRM_CCC in EHP5 Support Package 10 and EHP6 Support Package 6 2 SWIFT or S.W.I.F.T. stands for the cooperative Society for Worldwide Interbank Financial Telecommunication (http://www.swift.com).

28

Content and Structure of the Book

1.2

edition refers to a newer submodule known in the system as Exposure Management 2.0, which has a more flexible architecture and an enhanced concept. Financial instruments are often used to safeguard against ("hedge") existing financial risks. If you also want to map these risks correctly in your system in accordance with accounting rules such as International Accounting Standards (IAS)/IFRS or United States Generally Accepted Accounting Principles (US GAAP), you will have to manage the hedging relationships between the exposures to be hedged or the underlying transactions, on the one hand, and the hedging instruments on the other hand. Hedge accounting in accordance with IAS/IFRS or US GAAP is permitted only if the hedging relationships are managed in accordance with the associated processes and functions (for example, effectiveness test).

Hedge accounting

SAP Treasury and Risk Management has two hedge accounting components tailored to the type of underlying transactions involved. First, Hedge Accounting for Exposures is suitable for hedge accounting related to risks whose origins lie outside SAP Treasury and Risk Management and are mapped using exposures. Here, the focus is on risks associated with exchange rates and commodity prices. For more information, see Chapter 9, Hedge Accounting for Exposures. Second, Hedge Accounting for Positions is suitable for hedge accounting related to risks within the financial instruments of SAP Treasury and Risk Management, such as interest rate risks or stock price risks. For more information, see Chapter 10, Hedge Accounting for Positions. All parts of the SAP Treasury and Risk Management component contain several reports tailored to the requirements of each process. However, this is not enough to fulfill your reporting requirements. Chapter 11, Reporting with the Information System, describes the tools available to you for creating reports quickly, effectively, and across all parts of Transaction Manager. This chapter finishes with a description of BW content.

Reporting

The Market Risk Analyzer contains a range of analytical applications that enable you to analyze positions in terms of market risks. Some of the facilities available include reports on sensitivities, net present value analyses with and without market data scenarios, and value-at-risk

Market Risk Analyzer

29

1

Introduction

reports. Besides a large number of online reports, an extensive results database is also available for additive and non-additive key figures. A description of the Market Risk Analyzer is included in Chapter 12, Portfolio Controlling with the Analyzers. Portfolio Analyzer and Accounting Analyzer

The Portfolio Analyzer provides methods and key figures that enable you to generate key figures for performance analyses (of yields, for example) and for comparison with benchmarks. The Portfolio Analyzer uses the same results database as the Market Risk Analyzer but has very few online reports. The Accounting Analyzer also stores position management values in the same results database so that they can be reported together with the results obtained by the Market Risk Analyzer and the Portfolio Analyzer. For more information, see Chapter 12.

Credit Risk Analyzer

The attributable amount determination, limit management, and transaction-checking components of the Credit Risk Analyzer enable you to measure, analyze, and control default risks by specifying limits. SAP Treasury and Risk Management determines only the counterparty/issuer risk. The Credit Risk Analyzer is described in Chapter 12 along with the other two analyzers.

Transaction Manager and analyzers

The aforementioned transaction management, position management, and hedge management subcomponents represent the transactional part of SAP Treasury and Risk Management, which is called Transaction Manager (also known as Transaction Management), while the Credit Limit, Market Risk Analyzer, and Portfolio Analyzer subcomponents are collectively known as analyzers.

Interfaces and enhancements

In Chapter 13, Interfaces and Enhancements, we describe the options available to you for using interfaces (for example, BAPIs or PI messages) and enhancements (for example, BAdIs or customer exits) to manipulate the business processes and data in SAP Treasury and Risk Management.

SOX and GdPDU

Along with accounting rules, there are also an increasing number of legal regulations in the treasury area that you need to comply with. In Chapter 14, Legal Regulations, we discuss how the system supports you in ensuring your compliance with the Sarbanes-Oxley Act, for example.

30

Overview of Financial Instruments

Tools such as the derivation tool, the legacy data transfer function, and the initialization process are available in order to make it easier for you to work within SAP Treasury and Risk Management. Detailed explanations are provided in Chapter 15, Integration and System Tools.

1.3

Integration and system tools

Overview of Financial Instruments

When choosing a treasury software solution, you often have to ask yourself which financial instruments will need to be mapped in the software. In this section, we present an overview of the range of financial instruments that SAP Treasury and Risk Management can manage. For some products, we give more detailed information on the supported subtypes and important functions. We describe over-the-counter (OTC) instruments first and then take a look at listed financial instruments.

1.3.1

OTC Financial Instruments

SAP Treasury and Risk Management maps a wide range of financial instruments.

Money Market Instruments Standard instruments such as fixed-term deposits, overnight and time deposits, deposits at notice, and commercial paper can be mapped in the area of OTC money market instruments. Interest rate instruments offer several functions that are also required for loans.

Standard instruments

Cash flow transactions are a unique case because, unlike other money market instruments in which the conditions determine the cash flow, cash flow transactions do not contain any explicit conditions. Instead, cash flow transactions are simply described by their cash flow, which gives them considerable flexibility. Money market instruments also support both bilateral and syndicated facilities, along with their drawings and other functions. The relevant management functions are located in the menu under Treasury and Risk Management  Transaction Manager  Money Market.

Cash flow transactions

31

1.3

1

Introduction

Foreign Exchange Trading Instruments A wide range of financial instruments

Because of the importance of foreign exchange trading in almost all enterprises, a wide range of financial instruments is available in this area. Besides spot exchange transactions, forward exchange transactions (both also with intercompany functions), foreign exchange swaps, and plain vanilla currency options (both European and US types), there are also several more specialized instruments: barrier options (knock-in barrier option, knock-out barrier option, and double barrier option), digital currency options (hit-at-end binary option and one-touch binary option), non-deliverable forwards, compound options, FX average rate options, FX basket options, FX forward rate volatility agreements, and correlation options. The functions required to manage these financial instruments are located in the menu under Treasury and Risk Management  Transaction Manager  Foreign Exchange.

Derivative Interest Rate Instruments Swaps

Since the terminology in the area of swaps is very complex, we give only a brief insight into the area here. Interest rate swaps, currency swaps, and cross-currency interest rate swaps belong to one classification of swaps, while payer swaps and receiver swaps belong to another. In addition to these more classic structures, all of which can be mapped, there is also a wide variety of types and subtypes of swaps. Because their names are very heterogeneous and hardly standardized at all, we simply mention here that several types of swaps are supported, such as discount, constant maturity, cancelable, compound, and EONIA swaps. Other common derivative OTC interest rate instruments are also supported, such as forward rate agreements (FRAs), in both normal style and discount style, as well as caps, floors, swaptions, and interest rate guarantees (IRGs). The relevant management functions are located in the menu under Treasury and Risk Management  Transaction Manager  Derivatives.

32

Overview of Financial Instruments

1.3

Other OTC Instruments In addition to the optional OTC instruments for interest rates and foreign exchange mentioned previously, there are also OTC options for both European and US stocks, with cash settlement or physical delivery. It is also possible to map repos, reverse repos, and securities lending from the viewpoint of the lender.

OTC instruments for stocks

All the usual OTC instruments, such as forwards, swaps, and options, can be mapped in the area of commodity management, thus completing the portfolio of OTC products. As before, these financial instruments are available in the system under Treasury and Risk Management  Transaction Manager  Derivatives.

1.3.2

Listed Financial Instruments

The management functions for all standardized listed financial instruments are arranged in the menu as follows: 왘

Securities account-managed financial instruments The functions for all securities account-managed financial instruments, such as stocks, bonds, investment fund units, warrants, and so on, are located in the menu under Treasury and Risk Management  Transaction Manager  Securities.

왘

Futures account-managed financial instruments The functions for all futures account-managed financial instruments, such as futures and listed options, are located in the menu, together with the OTC derivatives, under Treasury and Risk Management  Transaction Manager  Derivatives.

Bonds When it comes to bonds and similar standardized interest-bearing instruments, there is, once again, a wide variety in the financial markets. For this reason, the system supports a large number of bond types with various condition tables for asset management: fixed-interest-rate bonds (plain vanilla), step-up and step-down bonds, variable-interest-rate

33

Interest payment structures

1

Introduction

bonds (floaters), amortizing structures, zero bonds, multicurrency bonds, unit-quoted bonds, and index-linked bonds. Bond repayment structures

Besides this wide variety of interest payment structures, asset managers also have access to an equally wide range of bond repayment structures: bonds with installment repayment, drawable bonds, bonds with termination rights (on the side of both the issuer and the holder), assetbacked securities (ABS), and mortgage-backed securities (MBS). Some structured bonds, such as warrant bonds and convertible bonds, are also supported. Bond issue functions are provided for debt management in companies that want to issue bonds. These bond issue functions are located in the menu under Treasury and Risk Management  Transaction Manager  Debt Management.

Time-Based Market Instruments Futures and listed options

Futures and listed options are available for the purpose of trading and managing listed derivatives. In the area of futures, which are deterministic instruments, the following can be managed: futures on securities, futures on indexes, futures on interest rates, and futures on commodities. In the area of optional instruments, the following can be managed: listed stock options, listed index options, and listed future options.

Equity Capital Instruments and Other Capital Market Instruments Stocks

The area of equity capital instruments is dominated by stocks. These stocks can be mapped along with all the usual corporate actions, such as capital increases, stock splits, stock swaps, and associated instruments such as subscription rights, new stock, and newest stock. In addition to stocks, shareholdings and investment fund units (funds) can also be managed.

Other listed instruments

In the area of optional financial instruments, warrants can be mapped in addition to listed options. Warrants for indexes, currencies, stocks, and interest rates are available here.

34

History of SAP Treasury and Risk Management

1.4

1.4

History of SAP Treasury and Risk Management

The information presented below is based on the SAP Treasury and Risk Management component of SAP ERP 6.0. For the sake of simplicity, we subsume here all functions contained in the menu under Accounting  Financial Supply Chain Management  Treasury and Risk Management. Today's SAP Treasury and Risk Management component has a very long history, one that is characterized by functional changes, deletions, splits, fusions of multiple components, functional enhancements, and name changes. All of this shows us that the role of SAP Treasury and Risk Management has not only changed but expanded in recent years. In the early 1990s, when the DARWIN solution, a financial asset management product for insurance, came onto the market, the main changes to take place included the name change to Treasury Management alongside the spin-off of the real estate solution, the addition of the first risk modules, such as Market Risk Management (MRM), and the spin-off of the loans component, CML. A far-reaching development occurred next, namely the change to a pure add-on on the basis of SAP R/3 Release 4.6C under the new name Corporate Finance Management (CFM). At this stage, major changes and new developments in terms of architecture and functions took place, such as position management in parallel valuation areas and the implementation of the three largest analytical subcomponents, namely the analyzers. Other modules were also brought under the umbrella of CFM, such as Liquidity Manager, which today is part of Financial Supply Chain Management (FSCM), and In-House Cash. Then, with the return to the ERP standard and the reorganization under FSCM, the treasury functions reverted to their former names, with the addition of the words Risk Management. (The generic term SAP Financial Supply Chain Management was taken away, but the solutions previously provided under this term continue to exist.) A hallmark of the past decade has been the extremely active and comprehensive further development of SAP Treasury and Risk Management. In one release after another, a lot of energy has been invested in creating an improved, future-oriented architecture, mapping new products and

35

Corporate Finance Management (CFM)

1

Introduction

functions, and implementing important accounting rules such as IAS/ IFRS and US GAAP correctly and quickly. Today, the treasury system is a balanced one that is used in enterprises in a range of industries, from international groups to small producer cooperatives that relate sales of their products to the commodity futures exchanges. Other users of the treasury component include companies that carry out internal and external hedging, companies that analyze and hedge risks, and companies that want to optimize their financing or even just their cash management processes. Then there are insurance companies that manage dozens of millions and even hundreds of millions of Euros and US dollars in assets, as well as several banks that use the treasury component in own-account trading, for example. However, having an instrument this comprehensive comes at a price: SAP Treasury and Risk Management is much more complex than most other SAP ERP components. Development in the releases up to SAP ERP 6.0

At this point, we would like to give you a brief overview of the new developments that have been added to the various releases of the SAP Treasury and Risk Management component in recent years. This section gives you an insight into how the components interact with each other, both now and in the future. If you are using an earlier release of SAP Treasury and Risk Management, this section gives you an idea of the functional enhancements you can expect to receive with an upgrade to SAP ERP 6.0.

1.4.1 Parallel position management

New Developments in Release SAP R/3 Enterprise 2.0

In Release Enterprise 2.0, Transaction Manager was fully migrated to the new parallel position management architecture. What this meant for all existing customers was a data migration to the new release. In this release, it was then possible to map the impairments required for IAS/ IFRS within position management. The following new instruments were provided: repurchase agreements (repos) and short positions. There were also new BAPIs for interest rate derivatives. In addition to that, the position monitor provided support in operative foreign currency hedging. Lastly, in the NPV calculator, improvements were made to the valuation of Bermuda options (Hull-White model).

36

History of SAP Treasury and Risk Management

1.4.2

New Developments in Release SAP ERP 2004

The following new instruments were introduced with Release SAP ERP 2004: FX average rate option, FX basket option, and FX forward volatility agreement. Annuity repayments also became available for interest rate instruments. In the area of period-end closing, this new release also enabled users to carry out foreign currency valuations for futures and listed options. There were several improvements in the area of hedge management. In the area of exposure handling, it was then possible to upload a loan cash flow from CML and to create exposures and hedge plans directly on the screen in which you create hedge transactions. In the area of the effectiveness test, the procedure for hypothetical derivatives on options was extended. In terms of price calculators, a function was created to calibrate implicit Black-Scholes volatilities on Hull-White volatilities, while in the area known as Value at Risk, improvements were made to the log in the single value analysis function, and the statistics calculator was extended. This calculator now calculates annualized volatilities. Furthermore, the Rebonato procedure was also added. The key figures and evaluation procedure monitor was created in the results database. Within the Credit Limit area in this release, it was possible, for the first time, to use a derivation rule to determine the business partner, which is used in risk analysis. The settlement risk for loans (from CML) and for money market transactions could then be calculated in this release. In the areas of Credit Limit and BI, a DataSource generation tool was developed for the purpose of creating DataSources for credit limit data.

1.4.3

New Developments in Release SAP ERP 6.0

The new asset instruments available to you in Release SAP ERP 6.0 are known as ABS and MBS. Simple pass-through and pay-through structures can be mapped using these new instruments. Syndicated facilities and securities lending transactions from the viewpoint of the lender can now be created in this release. Another major new development is the addition of a function for mapping bond issues. In the area of foreign exchange, new BAPIs have been made available for FX spot and FX forward transactions.

37

1.4

1

Introduction

As before, the hedge management area has also experienced many new developments. BAPIs that enable users to load exposures from any source are now available in the exposure handling area. Also, the new exposure management tool makes it possible to manage foreign currency exposures. New hedging instruments such as caps, floors, and FRAs have also been introduced. The integration of hedge management into position management is now complete, thus making hedge accounting possible in multiple parallel valuation areas. A damping factor, which limits erratic effectiveness values in the area of small offsets, can now be added to effectiveness measurements performed using the dollar-offset method. In this release, calculating and saving the starting net present value, which is necessary when designating a hedging relationship, can now be carried out implicitly without any additional step. It is now also possible to time-resolve any OCI and equity components that have to be reclassified at the end of a hedge relationship. In Reporting, a new logical database for financial transactions has been created, and the RAPIs concept has been introduced. The Portfolio Analyzer now has a benchmarking function, which includes composite benchmarks. Finally, in the Credit Limit area, you can now automatically start a workflow when a limit is exceeded. Limits at individual transaction levels are also possible.

1.5

Enhancement Packages for SAP ERP 6.0

In this section, we provide a brief overview of SAP's new delivery model, which comprises enhancement packages (EHPs) and business functions. This is followed by a description of the various SAP Treasury and Risk Management enhancements contained in the individual EHPs.

1.5.1

Enhancement Packages and Business Functions

Enhancement package (EHP)

Since 2006, all functional enhancements to the SAP ERP application based on SAP ERP 6.0 have been made available in the form of enhancement packages.

Business function

SAP's concept of enhancement packages facilitates easier, selective access to new and modified functions while keeping existing functions

38

Enhancement Packages for SAP ERP 6.0

stable. As part of this concept, all new and modified functions are encapsulated into related business units known as business functions. Each business function contains a range of deactivated functions that become active only when you use the switch framework technology to activate the respective business function. In other words, all new features contained in an enhancement package are technically available but inactive. By using business functions to facilitate a decoupled activation of a new function, any adjustment to or customizing of business processes is decoupled from the technical import. At the same time, all old processes and user interfaces remain unaffected. In contrast to importing a traditional release, EHPs can, from a technical perspective, be imported at any time. Afterwards, only those business functions required by the company are activated in order to release the functions within them. Note that when you perform a technical import of an EHP, you must compare the imported objects against any customer modifications to these objects (in Transactions SPAU and SPDD). From a technological perspective, a business function "clamps" together one or more of the switches in the SAP Switch Framework. Therefore, when you activate a business function, the corresponding switches are also activated. The switches, in turn, control whether or not source code will run in the system and therefore whether or not new functions will become active. Reversibility Despite its many advantages, you should not activate a business function without first giving it due consideration. Many business functions cannot be reversed. If you activate such a business function, the only way it can be reversed is with a great deal of manual effort.

Extensive information on enhancement packages is available in the SAP Enhancement Package Center (http://service.sap.com/erp-ehp) or, for example, in the book Implementing SAP Enhancement Packages, by Martina Kaplan and Christian Oehler (SAP PRESS 2010).

39

Switch

1.5

1

Introduction

1.5.2

An Overview of Business Functions in SAP Treasury and Risk Management

In SAP Treasury and Risk Management, a whole range of business functions has been delivered, up to and including EHP6. The business functions cannot always be activated independently. Frequently, dependencies exist whereby a business function cannot be activated unless the prerequisite business function is also activated. These dependencies are indicated by arrows in Figure 1.2. The business functions in color are licensed separately. All other business functions shown here can be activated and used with an existing license for SAP Treasury and Risk Management.

Business Functions up to EHP6

LOG_TRM_INT_1

FIN_TRM_COMM_RM_2

FIN_TRM_INS_LOCFR

FIN_TRM_CCC

FIN_TRM_INS_HM_2

FIN_TRM_LR_FI_AN_3

EHP6

FIN_TRM_CORR_FW_2

FIN_TRM_COMM_RM

EHP5

FIN_TRM_CORR_FW

FIN_TRM_INS_HM

FIN_TRM_LR_FI_AN_2

FIN_TRM_PSM_INTEGRATION

FIN_TRM_LR_FI_AN

Financial Services (EA-FS)

EHP4

EHP3 Public Services (EA-PS)

ECC 600

Figure 1.2 Overview of the Business Functions in SAP Treasury and Risk Management

Due to the large number of (in some cases, very different) new functions within each business function, we have created only a bulleted summary of the most important new developments in each business function.

40

Enhancement Packages for SAP ERP 6.0

Some functions were delivered later within a Support Package. When this happened, they are listed under the relevant Support Package (SP).

1.5.3

Business Functions for EHP3

Enhancement Package 3 (EHP3) contains, among other things, the business function listed in Table 1.1. Technical name

FIN_TRM_LR_FI_AN

Description

TRM, Hedge Management, Exposure Management, and a New Financial Instrument

Can be reversed?

No

Functional Content Area

Function

Instruments

왘

Commodity forward

왘

Commodity future

왘

Listed options, normal style: enhancements such as exercise

왘

New accrual/deferral accounting for OTCs with functional enhancements (Transaction TPM44 instead of TBB4; requires data migration)

왘

Amortization for money market transactions

왘

Intragroup transactions: elimination of profit and loss from consolidation

왘

Enhancements to the valuation class transfer (Transaction TPM15M)

왘

Portfolio transfer for securities

Hedge Accounting for Exposures

왘

Documentation

왘

Hedging of a net investment

Market Risk Analyzer

왘

Yield to maturity

왘

Modified duration

왘

Mean excess loss

왘

Marginal VaR (Value at Risk)

왘

VaR contribution

Position Management

Table 1.1 Business Function FIN_TRM_LR_FI_AN

41

1.5

1

Introduction

Portfolio Analyzer

왘

Risk-adjusted key figures: Sharpe ratio, Treynor ratio, Sortino ratio, Jensen's alpha, and information ratio

Credit Limit

왘

Relative limits

왘

Online limit check for security transactions

Table 1.1 Business Function FIN_TRM_LR_FI_AN (Cont.)

1.5.4

Business Functions for EHP4

Enhancement Package 4 (EHP4) contains, among other things, the business functions listed next (see Table 1.2 to Table 1.5). Technical name

FIN_TRM_LR_FI_AN_2

Description

TRM, Hedge Management, Exposure Management, and a New Financial Instrument

Can be reversed?

No

Functional Content Area

Function

Instruments

왘

Forward securities transaction

왘

Non-deliverable forward (NDF, as of SP 9)

Exposure Management Initial delivery of the Exposure Management 2.0 subcomponents Hedge Accounting for Exposures

Effectiveness test with linear regression

Reporting

왘

Logical database FTI_TR_POSITIONS_1

왘

Logical database FTI_TR_PERIODS_1

Table 1.2 Business Function FIN_TRM_LR_FI_AN_2

Technical name

FIN_TRM_CORR_FW

Description

TRM, Correspondence Framework

Can be reversed?

No

Table 1.3 Business Function FIN_TRM_CORR_FW

42

Enhancement Packages for SAP ERP 6.0

Functional Content Area

Function

Correspondence Framework

Initial delivery of the subcomponents

Table 1.3 Business Function FIN_TRM_CORR_FW (Cont.)

Technical name

FIN_TRM_INS_HM

Description

TRM, Hedge Management for Positions

Can be reversed?

No

Functional Content Area

Function

P-Hedge Accounting

Initial delivery of the subcomponents

Table 1.4 Business Function FIN_TRM_INS_HM

Technical name

FIN_TRM_PSM_INTEGRATION

Description

TM, Integration into Funds Management

Can be reversed?

No

Functional Content Area

Function

Instruments

Assignment of (security or money market) transactions to one or more funds or grants

Position Management

왘

Support for fund or grant as a value that differentiates between positions

왘

Transfer of funds and grants from TRM to the general ledger and to SAP Cash and Liquidity Management (also requires the business function FIN_ TRM_CM_DIMENSIONS)

왘

Fund/grant transfers

왘

Investment/endowment pools

Table 1.5 Business Function FIN_TRM_PSM_INTEGRATION

43

1.5

1

Introduction

1.5.5

Business Functions for EHP5

Enhancement Package 5 (EHP5) contains, among other things, the business functions listed next (see Table 1.6 to Table 1.11). Technical name

FIN_TRM_LR_FI_AN_3

Description

TRM, New Instruments, Accounting Enhancements, and Reporting

Can be reversed?

No

Functional Content Area

Function

Operations/General

왘

Separation of payments and postings for OTC transactions

왘

Standardized FX rate type handling at companycode level for conversion into the local currency and at valuation-area level for conversion into a valuation currency

왘

Addition of reporting attributes to securities master data

왘

Refinement of the authorization check for security price maintenance

왘

Support for negative interest rates (as of SP 8)

왘

Total return swap

왘

Fiduciary deposits

왘

Forward loan purchases

왘

Retrospective amortization in accordance with Financial Accounting Standards Board (FASB) 91

왘

Valuation: simulated reset without posting

왘

Valuation: year-end valuation with reset for securities

왘

Valuation: rounding rules for the position management procedure for an FX conversion

왘

Single position management can be activated at portfolio level

Instruments

Position Management

Table 1.6 Business Function FIN_TRM_LR_FI_AN_3

44

Enhancement Packages for SAP ERP 6.0

왘

Single position management: consumption sequence procedure depending on the business transaction category

왘

Single position management: new consumption sequence procedures, namely Highest In–First Out (HIFO) and Lowest In–First Out (LIFO)

왘

Manual posting with portfolio for differentiation purposes

왘

Derivation tool in account assignment reference determination

왘

Position management archiving (as of SP 9)

Reporting

FAS 157 reporting

Analyzers

왘

Accounting Analyzer

왘

Accounting positions: financial object integration for TRL positions (for the Market Risk Analyzer and the Portfolio Analyzer)

왘

Futures: financial object integration for future lots (for the Market Risk, Portfolio, and Accounting Analyzers)

Table 1.6 Business Function FIN_TRM_LR_FI_AN_3 (Cont.)

Technical name

FIN_TRM_CORR_FW_2

Description

TRM, Correspondence Framework 2

Can be reversed?

No

Functional Content Area

Function

Correspondence Framework

왘

Support for SWIFT message MT 566

왘

Transmission of alerts from the Correspondence Monitor

왘

Mass release of correspondence objects

Table 1.7 Business Function FIN_TRM_CORR_FW_2

45

1.5

1

Introduction

Technical name

FIN_TRM_INS_HM_2

Description

TRM, Hedge Management for Positions 2, Additional Scenarios

Can be reversed?

No

Functional Content Area

Function

P-Hedge Accounting

왘

New scenarios for fair value hedge accounting, cash flow hedge accounting, and valuation units

왘

New methods for effectiveness tests (for example, the prospective effectiveness test with linear regression)

왘

Greater flexibility within the effectiveness test framework (for example, an optional test plan)

Table 1.8 Business Function FIN_TRM_INS_HM_2

Technical name

FIN_TRM_COMM_RM

Description

TRM, Financial Risk Management for Commodities

Can be reversed?

No

Functional Content Area

Function

Instruments

왘

Commodity swaps

왘

Commodity OTC options

Reporting

Commodity exposure report

Analyzers

Commodity forward curve

Table 1.9 Business Function FIN_TRM_COMM_RM

Technical name

FIN_TRM_CCC

Description

TRM, Central Counterparty Clearing

Can be reversed?

Yes

Table 1.10 Business Function FIN_TRM_CCC

46

Enhancement Packages for SAP ERP 6.0

Functional Content (Delivered as of SP 10) Area

Function

External Account

왘

Implementation of an external account with margin functions

왘

Assignment of OTC transactions to an external account including novation; the external account assumes responsibility for all payment obligations

왘

Import and payment of margin calls

왘

Assignment of margin call cash flows back to OTC transactions

왘

Management of initial and variation margins, also independent of OTC transactions

왘

External account as a new product group in position management

Table 1.10 Business Function FIN_TRM_CCC (Cont.)

Technical name

FIN_TRM_INS_LOCFR

Description

TRM, Transaction Management Localization for France

Can be reversed?

No

Functional Content Area

Function

Position Management

왘

Impairments (France)

왘

FIFO reevaluation

왘

Capitalization reserve

왘

Amortized costs: SAC/LAC

Table 1.11 Business Function FIN_TRM_INS_LOCFR

1.5.6

Business Functions for EHP6

Enhancement Package 6 (EHP6) contains, among other things, the business function listed in Table 1.12.

47

1.5

1

Introduction

Technical name

FIN_TRM_COMM_RM_2

Description

TRM and Financial Risk Management for Commodities 2

Can be reversed?

Yes

Functional Content Area

Function

Exposure Management

왘

Mapping of floating-price and fixed-price commodity exposures

왘

Transfer of floating-price and fixed-price logistic contracts. Prerequisite: The business function LOG_TRM_INT must have been activated.

Reporting

Logical database FTI_TR_COMM_DEAL_EXP for the integrated reporting of commodity paper deals and commodity exposures

Table 1.12 Business Function FIN_TRM_COMM_RM_2

1.6

Rapid Deployment Solution and SAP Treasury and Risk Management

For many years, customers had to jump through several hoops in order to get an SAP ERP system up and running, whether it concerned SAP Treasury and Risk Management or another module. First, they had to choose their system and adopt an implementation project, which included a requirements specification and a description of the configuration. They then had to complete various customizing, testing, and validation stages before they had a production system that was fully up and running. This generally took several months. Since 2010, however, SAP has provided a more efficient way of doing this.

1.6.1 Implementation at a fixed price

Rapid Deployment Solution—An Overview

Rapid Deployment Solution is a new product by SAP for the rapid implementation of key business processes for an application scenario at a fixed price. Since 2010, Rapid Deployment Solution is offered in various areas, including SAP Treasury and Risk Management. In the case of

48

Rapid Deployment Solution and SAP Treasury and Risk Management

1.6

traditional ERP software, a company purchases the actual software and implementation of this software separately. With a rapid deployment solution, however, a packaged solution comprising the software license and the implementation is available at a fixed price. Rapid Deployment Solution has been designed, planned, and structured in such a way that it can be used productively within a short period of 8 to 12 weeks. A rapid deployment solution comprises four core components: 왘

Software The license for using a specific range of functions is procured in accordance with the SAP price list. In general, the range of functions within a rapid deployment solution covers the essential business processes associated with an implementable step.

왘

Content The rapid deployment solution contains preconfigured customizing and configuration content based on SAP's best practices, as well as rapid implementation tools such as copiers, automation scripts, consistency check routines, and so on.

왘

Enablement The delivery contains documents that provide a detailed description of the range of functions provided and the customizing delivered, as well as the business blueprint and training materials.

왘

Service The complete software implementation (as described), from installation of the software a fully up-and-running system, is contained in the Rapid Deployment Solution package at a fixed price.

1.6.2

Rapid Deployment Solution for SAP Treasury and Risk Management

At present, two different rapid deployment solutions are available within SAP Treasury and Risk Management. The first solution focuses on the core functions of Corporate Treasury (see Figure 1.3), while the second solution contains the most important aspects of Commodity Risk Management (see Figure 1.4). Please note that the light gray boxes in both figures do not form part of the respective rapid deployment solution.

49

Core components of a Rapid Deployment Solution

1

Introduction

Core Process Overview v2.605 and v2.606 Credit Risk Analyzer

Market Risk Analyzer

Limit Management:

Fair Value Calculation Stress Test Sensitivity Analysis

by Company Code by Business Partner/Company Code

Market Data

Standard Reporting  Deal Processing

Status

File Upload:

 Position List  Results List

Exchange Rates Reference Interest Rates

 Posting Journal  Cash Flow List  Correspondence

Monitor

Fair Value (Key Date)

 Simulated

Transaction Manager Master Data

Deal/Product Types

Business Partner:

Money Market: Investment, Borrowing

Internal Business Partner External Business Partner Counterparty Address/Communication Authorizations Derived Flows, e.g. Tax Payment Method Correspondence: Profiles & Assignments

Foreign Exchange: Spot, Forward, SWAP, NDF (Non Deliverable Forwards)

Figures

Deal Conclusion

Deal Creation

Deal Valuation

 Listing of Limits  Limit Utilization  FX Key Figures  IR Key Figures

Deal Posting

 Advanced Risk

Reporting with Portfolio Hierarchies

Straight through Correspondence (MT300, MT320. Email)

Payment (MT101 or Manual) SWIFT

SWIFT or Email

Financial Accounting Classic or New G/L Chart of Accounts Company Code(s)

Cash Position & Liquidity Forecast Cash Position in Currency Liquidity Forecast from AR and AP Manual Planning Drilldown by Company Code, Product / Transaction Type, Business Partner and Account

Project-Specific

 Periodic Key

Post Realized P&L (Deal End)

Interest Rate Swap: Payer, Receiver, Basis

Implementation

Positions

Calculate and Post Accruals

BALANCE SHEET

P&L

Bank

VALUATION IFRS and/or U.S. GAAP, German GAAP

Figure 1.3 Content of a Rapid Deployment Solution Focused on Classic Corporate Treasury, Available in EHP5 and EHP6 (Source: SAP)

Core Process Overview v1.606 Commodity Master Data

Market Data

Commodity Master Data Future Master Data Quotation Master Data Commodity Price Curves

File Upload:

Example Exposure Setup

Commodity Risk Reporting

Credit Risk Analyzer

Example Exposure Attributes Example Book Structure Example Position Structuring

Commodity Position Exposure Position Key Figure Analysis

Limit Management: by Company Code by Business Partner/ Company Code

CPE Quotations Future Quotations Forward Quotations

      

Deal Processing Status Position List Simulated Positions Position Flow List Posting Journal Periodic Changes

Fair Value (Key Date)

Transaction Manager

Business Partner

Standard Reporting

Calculate and Post Accruals

Product Types

Post Realized P&L (deal end)

Roles: Counterparty Issuer Depository bank Address/Communication Authorizations Derived Flows, e.g. Tax Payment Method

Forwards SWAPS OTC-Options Futures Listed Options

Deal Creation

Deal Conclusion

Deal Valuation

Deal Posting

Payment

Cash Position & Liquidity Forecast Reporting: Cash Position in Currency Liquidity Forecast from AR and AP Drilldown by Company Code, Product/Transaction Type, Invoice and Account

Financial Accounting Classic or New G/L Chart of Accounts Company Code(s) BALANCE SHEET

P&L

Bank

VALUATION IFRS and/or U.S. GAAP, German GAAP

Figure 1.4 Content of a Rapid Deployment Solution Focused on Commodity Risk Management, Available in EHP6 (Source: SAP)

50

Rapid Deployment Solution and SAP Treasury and Risk Management

For more information, refer to the RDS web page on the SAP AG website (at http://www.sap.com/usa/solutions/rapid-deployment/index.epx). Here, you will find further information on this and other rapid deployment solutions. You will also find a list of partner companies that provide RDS implementations at a fixed price in your country. This concludes our discussion of the RDS and our introduction to this book. We hope you enjoy the next 1,000 pages.

51

1.6

Besides making the Customizing settings, you need to maintain the master data before you enter your financial transactions into the system. This applies to securities transactions in particular, as every transaction of this kind references a securities class and a securities account.

2

Master Data

Data that serves for identification, classification, and characterization and remains unchanged over a long period of time is referred to as master data. In SAP Treasury and Risk Management, this includes product types with which you can classify your financial transactions, class master data for securities, and also specific information about the business partner with whom you conclude financial transactions. If master data must not be created or changed in live operation of SAP Treasury and Risk Management, it is available in Customizing; this applies to product types, for example. Master data, however, which may be created and changed during live operation, is available in the menu (for example, class data of a security). In this chapter, we describe the central master data in SAP Treasury and Risk Management and define the most important customizing terms. First, in Section 2.1, we deal with master data available in Customizing, especially the product type, transaction type, and commodity type. With these types, you make elementary statements about your financial instruments in SAP Treasury and Risk Management. The trading in the area of commodities and securities mainly takes place via standardized financial instruments. Their properties are defined via their master data, and Section 2.2 and Section 2.3 describe how you must enter this information in the system. Besides the master data for financial instruments, specific information about the business partner as a counterparty or issuer is required for

53

2

Master Data

each financial transaction. This information is discussed in Section 2.4. Lastly, in Section 2.5, we take a look at additional organizational elements for financial instruments.

2.1

Central Customizing Settings

In this section, we first discuss some central Customizing settings that are prerequisites for the correct handling of master data that is discussed in the following. We also use these settings to make you familiar with an important schema on which the customizing for SAP Treasury and Risk Management is based: the freely definable types based on types that are predefined by the system.

2.1.1

Types and Categories

Customizing allows you to firm up the differences between financial instruments. There are, on one hand, attributes that are essential for program logic, and on the other hand, attributes that don't need to be considered. Customizing is intended to give you as much flexibility as possible while keeping the complexity of the system as manageable as possible. It fulfils these intentions by enabling you to freely define several terms and then assign the essential system properties to these terms by means of a central attribute. We demonstrate this procedure in the next section based on the product type and the product category. Freely definable types

The settings you can freely define are usually called types, and include product type, transaction type, condition type, and flow type. You have to define a key and enter a description for each type. These types are always shown with their descriptions in the various SAP Treasury and Risk Management transactions so that you become familiar with the terms you work with on a daily basis.

Predefined categories

The central attributes that control the system are always called categories. These include product categories, transaction categories, condition categories, and flow categories, among others. You use categories to give types their central properties, which influence the behavior of the system. For example, you could create one product type for fixed-interest

54

Central Customizing Settings

2.1

bonds and another for zero bonds, and then assign the product category "bond" to both product types. The values of the categories are predefined by the system. Besides bonds, other examples of product categories are stocks, fixed-term deposits, deposits at notice, foreign exchange transactions, and interest swaps. Besides the categories, other switches and assignments are also linked to the types, so it is sometimes a good idea to create multiple types on the basis of the same categories. For example, interest rate conditions are allowed for fixed-rate bonds, but not for zero bonds. The abstract concept of categories and types is easier to understand in the context of the settings that we will look at in the following sections.

2.1.2

Product Type

The product type classifies a financial instrument in SAP Treasury and Risk Management. If we look at all the financial instruments, we see that they are very different in terms of their properties and features. Therefore, the system divides them into a number of large areas, which are reflected both in Customizing and in the menu: 왘

Money market

왘

Foreign exchange trading

왘

Derivatives

왘

Securities

Figure 2.1 shows the details of a product type in the money market area. The Customizing section is located under Treasury and Risk Management  Transaction Manager  Money Market  Transaction Management  Product Types  Define Product Types. As shown in the figure, you assign Product Type 51A to Product Category 510. Because you have total freedom in defining the product types, you can also assign a more meaningful key than 51A, if you like. Many screens also display the short or long description of the product type, which you can set in the Text fields. In assigning the Product Category 510, you have made the essential settings.

55

Product types in money market

2

Master Data

For example, the system now expects this product type to contain conditions for interest rates and a final repayment. Otherwise, the system will output an error message if you attempt to create a transaction for this product type. Also, the number of possible actions for a product type is restricted usefully. For example, you can roll over a fixed-term deposit, but you cannot exercise it as you would an option. Besides the product category setting, you also have to enter the default values for the interest calculation method (Int. Calc. Method field) and the effective interest method (Eff. Int. Method field), as shown in Figure 2.1. The fields in the Facility box are important for the facility product category only.

Figure 2.1 Defining the Product Type in the Money Market Area

Proceed in the same way for the product types in the other areas. It is always necessary to assign a product category to the product type. The other entries that you need to make for the product type differ considerably from each other in the various areas.

2.1.3

Transaction Type

The transaction type differentiates among the various transactions that you can trigger by means of a product type. For example, you can take or give fixed-term deposits, or purchase or sell stocks. You set up transaction types in Customizing under Treasury and Risk Management  Transaction Manager  Money Market/Foreign Exchange/Securities /OTC Derivatives/Listed Derivatives  Transaction Management 

56

Central Customizing Settings

Transaction Types  Define Transaction Types. Figure 2.2 shows the Customizing screen in the money market area.

Figure 2.2 Defining the Transaction Type in the Money Market Area

Transaction types are always defined in relation to a product type. Again, you can see the categories and types schema here: a transaction category is assigned to the transaction type, a value that you can freely define. The possible transaction categories depend on the product category, which for its part depends on the product type. Entries under Number ranges are linked to the transaction types. You also enter information on processing here by defining in the Processing Category field which processes a transaction must pass through—for instance, from order, to contract, to settlement. The other entries have to do with the various groups of financial instruments. See the relevant (F1) help in each case for detailed descriptions.

57

2.1

2

Master Data

Automatic Settlement for Counterconfirmation If you use the new correspondence, you can automatically settle transactions when the counterconfirmation is received for the correspondence sent. If this automatic settlement for counterconfirmation is to take place for a transaction type, you must set the Automatic Settlement for Counterconfirmation indicator. Chapter 4 provides more information on the new correspondence.

2.1.4

Commodity Type

To create, manage, and evaluate the risk of commodity derivatives and commodity exposures in SAP Treasury and Risk Management, you require master data of the underlying commodity. Analogous to a financial instrument, you must classify a commodity using the commodity type. You can find the corresponding Customizing activity under Treasury and Risk Management  Transaction Manager  Listed Derivatives/OTC Derivatives  Master Data  Commodities. Commodity category

By means of the Customizing activity Define Commodity Types, you can specify the types you require for classifying your commodities. You enter the name of the commodity type and its description, and assign the commodity type to a commodity category that specifies to which group the commodity belongs. The commodity categories are predefined in the system. The following values are available for selection: 왘

Metals

왘

Base Metals

왘

Minor Metals

왘

Grains

왘

Oil Seeds

왘

Livestock

왘

Softs

왘

Energy

왘

Power

왘

Gas

58

Central Customizing Settings

왘

Oil

왘

Weather

2.1

With the Customizing activities Define Commodity Group 1 and Define Commodity Group 2, you can create two groupings. You can use them for further classifying your commodities when you create the commodity master data in the Commodity transaction (TPM_CTY_MASTER). Finally, under Define Incoterms, you can create Incoterms, which you require for your commodities. The following values are possible for subdividing the Incoterms: 왘

Departure

왘

Main Carriage Unpaid

왘

Main Carriage Paid

왘

Arrival

Incoterms

Although you can maintain the Incoterms, they are not used in the commodity master data. For this reason, it is not necessary to maintain the Incoterms, either.

2.1.5

Company Code

In the SAP system, the company code describes the smallest independent accounting unit; in most cases, this is the company. It is not relevant for SAP Treasury and Risk Management, but it applies across several modules. A system can contain several company codes, and usually the company group corresponds to one client in the SAP system. So company code, for example, corresponds to a branch of this corporate group.

Smallest independent accounting unit

You enter all transaction events and a lot of master data in the Transaction Manager with reference to a company code. Additionally, large parts of Customizing explicitly depend on a company code. In the system, this allows you to map differences between different companies within a group in the process flow and in accounting processes.

Influence of the company code

The internal position management function in the Transaction Manager refers to the company by the term accounting code. The company code

Accounting code

59

2

Master Data

and the accounting code have to be uniquely assigned to each other. We will come back to the topic of the accounting code in Chapter 5.

2.2

Commodity Master Data

You can maintain the master data of a commodity, which is required for creating and managing commodity derivatives in SAP Treasury and Risk Management, using the Commodity transaction (TPM_CTY_MASTER). You can find this transaction in the menu under Treasury and Risk Management  Transaction Manager  Commodities  Master Data. Figure 2.3 shows the transaction with the Basic Data tab. Specifically, when you create the class data of a commodity future, the commodity master data is directly transferred to the class data of the future.

Figure 2.3 Transaction TPM_CTY_MASTER with the Basic Data Tab Abstract commodity

Commodity master data can be created both independent and dependent of the details under which it is traded. We recommend first creating a super-ordinate abstract commodity independent of the trading details. You can then use this abstract commodity as a template for commodities that depend on the trading details and also subordinate them

60

Commodity Master Data

2.2

to the abstract commodity. You specify the classification into an abstract commodity, or "plain" commodity, when you create the master data in the Create Commodity window using the Commodity Kind. There, for a commodity, you must also enter a Commodity ID of a superordinate abstract commodity. The Basic Data tab shows the Commodity Name, the corresponding Parent Commodity ID, and, in the Commodity Classification area, the Commodity Kind. Beyond, you must select the Commodity Type for the classification from which the Commodity Category derives. You can also specify a value for Group 1 and Group 2.

Basic data

In the Commodity business data area, you create the Unit of Measures, the Default currency, the Currency Unit, and the Location of pricing for a non-abstract commodity. You can maintain the pricing locations using the Define Pricing Location transaction (Transaction TPM_ LOCATION), which you can find in the menu under Treasury and Risk Management  Financial Risk Management for Commodities  Master Data. If the Active indicator is set, you can use the master data of the commodity for creating a commodity derivative—for instance, a commodity future or commodity forward. In the Future Contract Basic Data tab, you specify the Exchange and Quantity per Contract (contract volume) of a future contract with the corresponding Unit of Measures, the Tick with its Currency unit and Issuer. The Tick Value is calculated by multiplying the quantity and the tick. You can create future contract basic data for various exchanges in which the commodity is traded. These values are transferred to the basic data when you create the class data of a commodity future.

Future contract basic data

In the Spot Quotation Sources, you can define the QSource of Quotation and, thus, the provider of the commodity market data which the Market Risk Analyzer requires for net present value calculation. A quotation source can be set as the default quotation source. You can find the customizing of quotation sources in Customizing under Treasury and Risk Management  Basic Functions  Market Data Management  Master Data  Commodities  Commodities (Treasury)  Define Quotation Sources and Assign logistics Quotation Sources.

Quotation sources

61

2

Master Data

OTC forward prices data

For an OTC commodity derivative, you can stipulate the required structure for entering or transferring forward prices data using the OTC Forward Prices Data tab. Besides the Provider, Valid From date, Currency Unit, and Unit of Measure of Quotation, you specify the number of months, quarters, and years, respectively for which forward prices are delivered. Chapter 7 discusses the customizing and management of market data for commodities in more detail. We discuss future-style curves for listed derivatives and forward-style curves for OTC derivatives in particular. Furthermore, we detail which BAPIs are available for creating and changing the commodity master data. Overview of your Commodity Master Data When you use the Commodity Overview transaction (Transaction TPM_ CTY11), you obtain an overview of your commodity master data. From there, you can navigate to the maintenance of master data or the screen for location details and quotation.

2.3

Class Master Data

All financial instruments are described by master data, which rarely changes over the lifetime of the instrument. In the area of stock exchange–listed financial instruments, the master data is the information directly linked with the ID number of the class. Class refers to both securities and futures, as well as listed options. In this section, we will first look at the class master data. The master data for OTC transactions does not come into being until the transaction is concluded. Therefore, in SAP Treasury and Risk Management, the master data for OTC transactions is part of the transaction itself and is not managed with additional transactions, but within the scope of transaction management. You can find further information in Chapter 3.

2.3.1

Entering Class Master Data

Class master data exists independently of whether you actually own the security, etc., in question. The master data must exist in the system

62

Class Master Data

2.3

before you enter the first transaction for a class. Therefore, open Transaction Class Master Data (Transaction FWZZ) to start entering the master data. You can find this transaction in the menu under Treasury and Risk Management  Transaction Manager  Securities  Master Data. Figure 2.4 shows the initial screen of Transaction FWZZ. This screen is displayed if you want to enter a new class. In a previous step, you specified in a pop-up the product type to which you want the new class to belong. In the Search Terms tab, the system displays the Product Type and the Product Category to you once more. The system decides on the basis of the product category which information is required or not in each case. Also linked with the product type is the field selection control function, which you can use to control which fields are shown and hidden, and to permit or request entries. You can enter more information on Descriptions, Secondary Indexes, Classification, and Ratings on the Search terms tab.

Figure 2.4 Definition of a Class

63

Entering class data

2

Master Data

Basic data

You enter information on the Issuer, Term, and the Issue Rate on the Basic data tab. Figure 2.5 shows the tab for a security with the product category Bond with Installment repayment. This product category is mainly intended for asset-backed securities. Note on Further Presentation Because the product category Bond with Installment repayment has some unique characteristics and requires entries on most tabs, we will use it as an example of securities in general.

In the case of futures, listed options, warrants, and convertible bonds, you also need to make entries for the underlying on the Basic data tab—for instance, for the underlying commodity for a commodity future.

Figure 2.5 Basic Data of a Class Further tabs

Before we turn our attention to the conditions of a security, let us first clarify which information is contained on the other tabs.

64

Class Master Data

왘

Exchanges The Exchanges tab lists the exchanges on which the class is traded and specifies which exchange is the home exchange. Market data on a class always refers to an exchange (see Section 8.2).

왘

Notice The Notice tab contains the notice periods of the issuer or purchaser. Documenting these rights in this way also has the result that the ID number is known to the function to exercise rights (see Section 5.2).

왘

Asset Pool Data The Asset Pool Data tab is visible for the Bond with Installment repayment product category only.

왘

Freely definable tabs Furthermore, as described in Section 2.3.4, you can activate two additional tabs that can be defined according to your own requirements— for example, to enter customer-specific data that you want to store together with the master data.

왘

Classification An additional tab called Classification opens if you activate the link between the class data and the SAP classification tool (see Section 2.3.5).

왘

Administrative Data and Regulatory Reporting Lastly, there are tabs for system Administrative Data and Regulatory Reporting (see Section 6.5).

As shown in Figure 2.6, the tab Conditions enables you to describe how the cash flow of a security is structured, using the conditions.For example, there are conditions for fixed and variable interest rates, repayments, dividends, distributions of profit, and interest rate fixings. This tab is relevant only to securities. The most important information on conditions is contained in the Condition Items list in the lower part of the screen. The condition type is both the main task and the defining characteristic of a condition. You can click the Redemption Schedules button to view conditions as well, namely those of installment repayments. Because installment repayments for securities have to be specified as a percentage value, the system represents them differently than the conditions in the Condition Items list.

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Figure 2.6 Conditions of a Securities Class

Installment Repayment Conditions Always use the Securities with Installment Repayments product category and redemption schedules if you want to map installment repayments in your system. Using another product category or other conditions will cause incorrect cash flows to be calculated. Cash flow

The system calculates the cash flows of security positions on the basis of the conditions. Besides the conditions, the business transactions that modify positions—in other words, mainly purchases and sales—are necessary for the calculation of a cash flow. You also need to make some more settings in the system, which is described in Section 5.2. If you click the Cash Flow button above the tabs, the system creates a cash flow on the basis of a fictional purchase at the issue start. In this way, you can ensure that the cash flow meets your expectations.

Condition details

Double-click a condition to open the detail screen for it. On the Amounts tab, enter the amounts of dividend payments or the percentages for interest rates. The Dates tab, which is shown in Figure 2.7, allows you to set the various dates of the flows to be created in a highly

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flexible manner. The two most important dates are the Calculation date and the Due date. For flows based on conditions, the latter corresponds to the position date in position management. In many cases, cash flows are Regular; in Figure 2.7, for example, they are every six months. In the case of a once-off condition, you don't make any entries in the fields after Regular. You can also make the Relative setting, in which case the date in question is derived from the non-relative date, and you cannot enter any other date. Other date-related specifications you can make here are Inclusive, Month End, and Next working day (working day shift). The latter requires a reference to a Calendar.

Figure 2.7 Detail Screen of an Interest Rate Condition

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Regular Cash Flow Figure 2.7 shows the definition of a regular interest rate condition, which generates biannual interest flows. The due date is always shifted to the following working day. Redemption schedule and redemption schedule set

Now, let’s look at how to enter a redemption schedule. The redemption schedule is the tool used to map securities with installment repayments. In it, you specify the percentage of the issue volume that is outstanding for each installment repayment day. If you click the Redemption Schedules button on the Conditions tab (see Figure 2.6), the system takes you to the redemption schedule set (see Figure 2.8). The redemption schedule set is the "framework" for the redemption schedules of a security. You can use it to make entries that apply to all redemption schedules. The system can handle multiple redemption schedules for the same class, with the aim of documenting the change history of the redemption schedules and making this history available for accounting analysis purposes. You do not need to worry about when a new redemption schedule is necessary—you can simply make your changes. If necessary, the system creates new redemption schedules and prevents you from changing data for which you have already posted business transactions, for example.

Figure 2.8 Setting Up a Redemption Schedule Set

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In order to help you better understand the settings for the redemption schedule set, let’s first look at the redemption schedule (see Figure 2.9). You open this redemption schedule by clicking on the Edit button ( ) in the Change RS column in the list of redemption schedules (see Figure 2.8).

Figure 2.9 Entering the Factors of a Redemption Schedule

The redemption schedule is basically the list of Factors and their associated dates (Eff. From column), for which the system creates installment repayments. The date in the Effective From column is always the calculation date of an installment repayment. Besides the factors, the system also displays the remaining Nominal Amount of the issue volume that we entered with the basic data (see Figure 2.5). The Fixing column indicates any individual factors that can no longer be changed due to posted securities transactions or installment repayments. The Status Factor column lets you specify whether you estimated a factor yourself

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Redemption schedule of an ABS

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or it was published by an exchange. The start of the effectiveness of the redemption schedule as a whole is located in the Effective From fields in the Dates area. For the first redemption schedule of a class, you usually set the effectiveness start date as the start of term; for the subsequent redemption schedules, the system proposes a value that you do not need to change. This date may be after the first installment repayment. However, installment repayments before this date are fixed because posted business transactions already exist. Entering a redemption schedule

You can manually enter the factors of a redemption schedule and select any dates for your valid-from date. Frequently, the installment repayments are regular; in our example, they are biannual. In this case, you do not need to make all entries manually. Instead, select Distribute Repayments Regularly in the redemption schedule set shown in Figure 2.8, and in the fields that appear, enter the Frequency and the date of the First and Last Redemption. If you then click the Installments button in the redemption schedule (see Figure 2.9), the system creates the corresponding list of factors. Now, we can also specify the remaining entries in the redemption schedule set (see Figure 2.8). Under Entry Type, you specify whether you want to enter the installment repayment by means of factors (F) or by means of the current face (C). The applicable one of these columns is then ready for input in the redemption schedule. The system always calculates the cash flow on the basis of the factors. You can set the accuracy of the factors in the Number of Decimal Places field. Your entries in the Due Date area control how the system determines this date in relation to the calculation date. Unlike in the case of conditions, it is not possible to enter an absolute due date (see Figure 2.7). Installment Repayments and Interest Rates Make sure that the interest rate conditions on the Conditions tab (see Figure 2.6) always lead to interest payments on the installment repayment dates. While you can set multiple interest coupons between two repayment installments, the period of an interest coupon may not extend beyond the date of a repayment installment. The system does not check for compliance with this restriction, but it does create incorrect cash flows if the restriction is violated.

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2.3.2

2.3

Customizing of Class Master Data

For securities, unlike futures, you need to undertake some more customizing settings in order to be able to set up the class master data and define the product types. The Customizing section is located under Treasury and Risk Management  Transaction Manager  Securities  Master Data  Product Types  Define Product Types. We saw on the Conditions tab (see Figure 2.6) that the most important characteristic of a condition is the condition type. Figure 2.10 shows how to define a condition type. Simply enter a key (Cond column) and assign a financial/mathematical calculation category (FiM… column) to it. This is the condition category in the sense of the classification into categories and types we discussed in Section 2.1.1. Variable interest-bearing securities require a condition type for the interest rate adjustment (see the subsection “Variable Interest and Interest Rate Adjustment“ in Section 5.2.1). You specify the underlying interest rate condition as a reference condition type (Ref column). The field selection control function (Field Selection button) for inputting the condition is also linked with the condition type (see Figure 2.7).

Defining condition types

Figure 2.10 Defining Condition Types

Finally, you have to assign the condition types for securities to the various product types. You do this via the interim step called condition groups. You use condition groups to initially create sets of condition types that can be used jointly in a financial instrument. For example, you can create a condition group for fixed-interest bonds that consists of

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the two condition types for interest and final repayment. You assign the condition groups, in turn, to the product types. You can enter conditions in the class master data for condition types of an assigned condition group only. Condition Type for Repayment Installment You have to create a condition type of the FiMa category TTRA (repayment installment) for bonds with repayment installments (product category 042). However, you cannot select this condition type on the Conditions tab (see Figure 2.6); the system uses it to create repayment installments from the redemption schedules.

When you assign condition types to the condition groups (see Figure 2.11), you can save default values for the fields in the conditions detail screen at the same time (see Figure 2.7).

Figure 2.11 Assigning Condition Types to a Condition Group

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Default Values for Repayment Installments The default values for repayment installments have a particular significance, as they are entered using redemption schedules rather than normal conditions. The redemption schedules do not permit you to override all default settings, as you can see by comparing Figure 2.8 and Figure 2.11. To ensure that the due dates are calculated correctly, especially in the case of a working-day shift, you have to set the interest calculation method (Int.calc.method field) to 2, 3, 4, or E. You can use any interest calculation method for the interest itself. You also have to enter 3 in the Due Date Method field.

In other Customizing activities under the previously mentioned path, you can specify the Repayment Type that is displayed on the Conditions tab (see Figure 2.6). You can also specify the value sets of various classifying attributes (Security Classification and Classification of bond in Figure 2.4).

2.3.3

Listed Commodity Derivatives

The Transaction Manager enables you to create commodity futures and option in commodity futures. The two financial instruments are listed derivatives whose master data you create analogous to the master data of other listed derivatives using the Class transaction (Transaction FWZZ). A commodity is assigned to a commodity future as underlying. For this reason, you must specify the underlying commodity and its exchange when creating the commodity future. With this key, the system transfers the master data of the commodity, which you have maintained using the Commodity transaction (Transaction TPM_CTY_MASTER), for the future. An option in a commodity future is created analogous to other listed options, however, with a commodity future as underlying.

2.3.4

Additional Tabs for Class Master Data

Two tabs are available to you to enter class master data. You can adapt these tabs according to your requirements. The first two additional tabs offer predefined text fields, date fields, and currency fields whose values

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you can specify in Customizing. The second tab is implemented via a BAdI, and you can therefore specify it freely. First additional tab

You activate the first additional tab or its fields via the product type-specific settings of the field selection. For securities, you can find them in Customizing under Treasury and Risk Management  Transaction Manager  Securities  Master Data  Product Types  Define Product Types (Field Selection Customer data) and for listed derivatives in Customizing under Treasury and Risk Management  Transaction Manager  Listed Derivatives  Master Data  Specific Class Data  Define Field Selection for Class Data (Field Selection Basic Data). Because the fields are selected with reference to the product type, you can maintain the first additional tab depending on the product type (see Figure 2.12).

Figure 2.12 First Additional Tab

The following predefined fields are available: 왘

Five long text fields (20 characters) for your own predefined values

왘

Ten short text fields (five characters) for your own predefined values

왘

Five fields for free text

왘

Two currency fields

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왘

Two date fields

왘

A period with beginning and end

2.3

The maintenance of these fields is available in Customizing under Treasury and Risk Management  Transaction Manager  Securities/ Listed Derivatives  Master Data  Specific Class Data  Additional Tab Pages in Class Data  Predefined Tab Page. You define the heading of the tab using the Customizing activity Define Heading for Tab Page. The long text of the entry marked as Default will be used as the heading. Furthermore, you can maintain the names (identifiers) of the currency fields, date fields, and free text fields. For the long and short text fields with predefined values, you can specify the identifier as well as the respective predefined values of the fields with additional text for the value. In the maintenance of class master data, you can select values for these text fields using the (F4) help, and the value and its text will be displayed. You can implement the second additional tab using the BAdI TPM_SEC_ CUST_DATA and thus develop it freely. You can create and maintain the implementation of this BAdI using the BAdI Builder Implementation transaction (Transaction SE19) or via Customizing under Treasury and Risk Management  Transaction Manager  Securities/Listed Derivatives  Master Data  Specific Class Data  Additional Tab Pages in Class Data  User-Defined Tab Page BAdI: Additional Tab Page in Class Data. You must create a dynpro extension for your fields and extend a table of class master data with an append structure. To implement the necessary programming logic, the BAdI offers the IF_EX_TPM_ SEC_CUST_DATA interface. The standard version includes a sample implementation of the BAdI TPM_SEC_CUST_DATA, which you can use as a template.

Second additional tab

You can also create and maintain the two additional tabs via the BAPIs of class master data. For the predefined fields of the first tab, the interfaces of BAPIs are extended with the BAPI1076_CUSTDATA structure. The methods, BAPI_SET_CUSTOM_DATA and BAPI_GET_CUSTOM_DATA, are available in the IF_EX_TPM_SEC_CUST_DATA interface of the BAdI TPM_SEC_CUST_DATA for the fields of the second tab.

BAPI

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2.3.5 SAP class system

Classification

The class master data can also be connected with the SAP class system so that you can integrate securities and listed derivatives with the class system by assigning your self-defined classification characteristics. As a prerequisite, you must set up the SAP class system with your required classes, characteristics, and their characteristic values in Customizing under Cross-Application Components  Classification System. Subsequently, you can activate the connection to the class system depending on the product type for securities and listed derivatives in Customizing under Treasury and Risk Management  Transaction Manager  Securities/Listed Derivatives  Master Data  Product Types  Activate Link to Classification Tool. The class master data then contains an additional tab, Classification, in which you can assign classes and maintain characteristics.

2.4

Business Partners

Treasury departments handle a large number of transactions with the small number of house banks in an enterprise. Besides the house banks, there are only a few other business partners. Therefore, it makes sense for the Treasury department to be able to link settings for the process flows with the relevant business partner. Business partner master data is thus particularly significant in SAP Treasury and Risk Management.

2.4.1 House bank and house bank account

House Banks

In the purchasing and sales processes of an enterprise, house banks usually function as a third party in the payment handling process, in addition to the seller or purchaser and the enterprise itself. In the SAP system, the house bank is mapped as a separate area rather than as a normal business partner. Figure 2.13 shows the entries you need to make in relation to the house bank. The Edit House Banks and Bank Accounts transaction (Transaction FI12) is located in the menu under Treasury and Risk Management  Basic Functions  Master Data  House Banks. On the House Bank level, the most important data besides Bank Country and Bank Key is the address data. The system shows you these

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2.4

entries in the lower part of the Bank Accounts maintenance screen. The house bank account is addressed in the system by means of the Account ID. A G/L account number is assigned to the house bank account in the general ledger (G/L field). The system then uses this in the account determination process (see Section 6.2).

Figure 2.13 Defining House Banks and House Bank Accounts

2.4.2

Business Partner Roles

The same business partner can fulfill different roles in dealing with an enterprise. Different information about the business partner will be of interest, depending on the role. Because it is always the same business partner, however, it is desirable that you maintain its master data centrally. The Edit Business Partner transaction (Transaction BP) provides a comprehensive view of the business partner for this purpose and is

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located in the menu under Treasury and Risk Management  Business Partners. As you can see in Figure 2.14, the information is divided into different tabs. Only a small number of the tabs are active if you create the business partner without a specific role. Depending on the role, other tabs may be activated or deactivated specifically. The most important roles in SAP Treasury and Risk Management are as follows: 왘

Counterparty The business partner assumes this role if you complete a transaction with him or her in the Transaction Manager. The Transaction Manager uses this role to connect many specific properties of a business partner.

왘

Payer The payer is the one who accepts your payments or pays them, depending on the direction of the payment flow. Usually, the payer is also the counterparty, but it can also be another business partner.

왘

Depository bank A depository bank holds and manages your securities account (see Section 2.5.1). Usually, this business partner is a house bank. Several payment flows for security positions go through the depository bank.

왘

Issuer You enter the issuer in the master data for security (see Figure 2.5).

왘

Customer If you want to use the customer subledger to process payments, the business partner has to exist in this role (see Section 6.3).

왘

Main borrower This role is significant if you use SAP Treasury and Risk Management in conjunction with the SAP Loans Management function (formerly Consumer Mortgage Loans CML).

Business partner and house bank

The house bank is not designed to be a business partner role. If you want to use it in transactions in the Transaction Manager, you have to create the house banks as business partners in the counterparty role.

Company code dependencies

A lot of business partner data, such as the address, is independent of the company—that is, the company code—with which it does business. Figure 2.14 shows the maintenance screen for Payment Transactions. The

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data shown here is the business partner's bank details—that is, the bank (Ctry and Bank Key columns) and the Bank Account that the business partner uses to receive payments from you. You need this information mainly for business partners that do not also function as your house bank. If the data of a role depends on the company code, the system offers you the General Data and Company Code buttons so that you can switch between the two. Information on the business partner in his or her role as counterparty is dependent on the company code.

Figure 2.14 Maintaining the Business Partner

2.4.3

Standing Instructions

It greatly lightens the workload of staff in Treasury departments if they can store agreements on process flows along with the small number of business partners that are relevant to those process flows in the business partners' master data. This data is known as standing instructions and is linked with the counterparty role. The corresponding tabs have the additional prefix SI (see Figure 2.15). You can specify standing instructions for the following areas: 왘

Payment details

왘

Correspondence

왘

Authorizations

왘

Derived flows

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Payment details

The standing instructions for Payment Details enable you to specify how payments that you make are to be handled. This is in contrast to the Payment Transactions tab in Figure 2.14, which describes the payee. A set of payment details is identified by its key (Pay.Det.ID column) and always refers to payments in a particular Currency. The minimum information that you have to provide is the House Bank and Account ID columns of your house bank account, from or to which money is paid. If the counterparty is your house bank, this data is usually sufficient, as the house bank can process payments after a telephone call, for example, without the need for any further action by you. The payment details EURO1 represent this kind of case. If specific action from you is required, you have to make entries in the other fields. For example, the payment details EURO1 show how payment processing is handled by means of a payment request (also see Section 6.3). In the case of active payment, you have to specify the recipient of the payment (Payer/Payee column) and their bank account (PBank column). In the PBank field, enter the ID of a payer bank account from the Payment Transactions tab (see Figure 2.14).

Figure 2.15 Setting up the Company Code–Dependent Data of a Business Partner in the Counterparty Role

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To ensure that payment details can be used automatically, you have to assign them to elements of the Transaction Manager. Assign all standing instructions to combinations of product types and transaction types. In the case of payment details, select a set of payment details and click the Assign button (see Figure 2.15). The screen shown in Figure 2.16 is displayed. As you can see, the product types are sorted hierarchically, and you can make assignments on a higher level for all the underlying product types and transaction types. This also applies to the remaining standing instructions. For payment details, make an assignment for outgoing (P-ID Outgoing column) and incoming payments (PmntID Incoming column). To do so, select an entry from the hierarchy and click the Select/Deselect Row button ( , see Figure 2.16). The payment details you specify and assign in this way are copied over by the system every time a transaction is entered, with the result that you have to modify them in the transaction in special cases only.

2.4

Assigning payment details

Figure 2.16 Assigning Payment Details to Product Types

The Correspondence tab in the standing instructions belongs to the customizing of classic correspondence. In this tab, you assign correspondence types throughout the hierarchy to various transfer routes and specify whether counter confirmations are required. Information on

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how to use these settings in classic correspondence and through which settings they are replaced in the new correspondence is detailed in Chapter 4. Authorizations

The standing instructions for authorizations are concerned with authorizations for business partners to deal with you, not with authorizations for users of your system. For example, you can specify here that you want to deal in fixed-term deposits, but not forward-exchange transactions, with a certain business partner.

Derived flows

Standing instructions for derived flows are used first and foremost to automatically calculate charges for which business partners regularly invoice you. For this purpose, you can define derivation procedures that you can then use to map even complex calculation rules in the system. You can do this in Customizing under Transaction Manager  Money Market/Foreign Exchange/Securities/OTC Derivatives  Transaction Management  Flow Types  Derived Flows. You then assign these derivation procedures in the standing instructions.

2.5

Organizational Elements

To create transactions for securities, futures, and listed options, you need other master data besides the class master data—namely, securities accounts and futures accounts. These master data items organize your listed positions for external purposes. The portfolio, on the other hand, is an internal organization entity that is not restricted to securities—it can also comprise OTC transactions. In this section, we look at all these organizational elements, starting with the securities account.

2.5.1 Securities account and securities account type

Securities Account

The bank posts securities positions to securities accounts. You use the Edit Securities Account transaction (Transaction TRS_SEC_ACC) to create securities accounts in the Transaction Manager. You can find this transaction in the menu under Treasury and Risk Management  Transaction Manager  Securities  Master Data  Securities Account  Edit. As you can see on the left-hand side of the screen shown in Figure 2.17, this transaction gives you an overview of your

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securities accounts, structured by company code. When creating a securities account, as well as the key, give the account a description and assign a Securities Account Type to it. You can set up the range of possible securities account types in Customizing under Treasury and Risk Management  Transaction Manager  Securities  Position Management  Securities Account Management  Define Securities Account Types. The securities account types enable you to group together securities accounts for reporting purposes. The assigned Securities Account Category, which is also shown in Figure 2.17, determines how a securities account is used and classifies the positions that are managed in the securities account. The following securities account categories exist: 왘

Asset securities account You use this securities account category for your assets. Securities accounts of this category are the same as the normal securities accounts that you hold at your depository bank.

왘

Liability securities account Securities accounts of this category are used to manage issued bonds in the system. They do not correspond to actual securities accounts in the real world.

왘

Lending securities account Securities accounts of this category contains securities for the duration of a security lending.

Figure 2.17 Setting up a Securities Account

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Payment details

On the Bank Data tab in Figure 2.17, besides information such as the Securities Account Number and the Clearing Account at the Depository Bank, the main information you enter here is the payment details. The system uses these payment details as default values for cash flows of securities positions, such as interest rates, repayments, and dividends. The payment details specified in the standing instructions under securities (see Figure 2.16) apply only to securities transactions—that is, purchases and sales. The data entered for the payment details for the securities account is identical, but in this case, dependent on the update type as well as the currency. The update type describes the flow of a cash flow in position management. In the case of asset securities accounts, most cash flows of a securities account position are incoming, which means that you do not usually have to actively trigger the payment process. Therefore, you only have to enter the House Bank and the Account ID, as in the example of Figure 2.17. The house bank account is the same as the clearing account, although the system does not check this.

Assign the securities account

The Other tab enables you to specify a beneficiary and disposition blocks. You can also assign the securities account and, thus, its positions to a business area and a securities account group. While business area is a cross-module term from the SAP ERP Financials area, the securities account group is specific to the Transaction Manager. It enables you to manage internal positions in a less specific way than the securities account positions (see Section 5.3). You can also assign the securities account to a portfolio.

2.5.2

Futures Account

Similarly to securities accounts, banks manage futures positions and listed options in futures accounts. The transaction for editing futures accounts (Transaction TPM4) is the same as that for securities accounts shown in Figure 2.17. You can find the transaction under Treasury and Risk Management  Transaction Manager  Derivatives  Master Data  Listed Derivatives  Futures Account. Besides inflows and outflows, the cash flow of a futures account position consists of variation margin and close margin flows, which the exchange uses on a daily basis to calculate the change in the market value of a position against a margin

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account. Margins are not usually paid straight away; they are usually paid only if the balance of the margin account drops below a certain minimum level. The Transaction Manager does not map the margin account; therefore, payment details are not that important for futures account positions. Nevertheless, Transaction TPM4 enables you to maintain payment details as in the securities account. Furthermore, like a securities account, you can assign a futures account to a business area or portfolio. Frequently, the futures accounts do not correspond to real accounts of brokers but are used for structuring future positions. For this reason, you can assign the account number of a broker account to a futures account using the Broker Acct No. field. This account number is then available in the selection of future positions, like in the Class Position List in Futures Account transaction (Transaction TPM9).

2.5.3

Broker account number

Portfolio

The portfolio is usually a concept used to group and structure positions of financial instruments. In SAP Treasury and Risk Management, the portfolio is also used for this purpose, although in two very different ways. One use of a portfolio is as a grouping concept for reporting transactions. You can create a portfolio for any transaction, activate it in most reports, and use it for your own reporting purposes. However, in this role, it initially classifies transactions and not positions. In the securities area, several transactions can refer to the same position. By the same token, several securities flows refer to a position and not to a transaction, such as interest rates, repayments, and dividends. In the case of OTC transactions—that is, financial instruments in the areas of money market, foreign exchange trading, and OTC derivatives—a transaction is the same as a position. Because the portfolio as a reporting characteristic initially refers to transactions, it can be seen only in those flows that are clearly assigned to a transaction. Because of the overlap between transaction and position in OTC transactions, the portfolio is available in all flows in this context—even in flows of a valuation for accounting purposes, for example. Therefore, it is also available for OTC transactions as

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Portfolio for grouping transactions in reporting

2.5

2

Master Data

a selection criterion in many areas. In the case of securities, the portfolio is contained in this role only in flows for purchases and sales. Portfolio for securities positions

The portfolio can have another role for securities positions. The position management function of the Transaction Manager allows your accounting positions to be divided up in a flexible manner. You can specify that you want to distinguish between securities positions by portfolio (see Section 5.3.4). In this case, two purchases of the same security with different portfolios, for example, would give rise to different accounting positions, even if the purchases were made in the same securities account. The portfolio is therefore a differentiating characteristic of a securities position. This is usually referred to as portfolio as differentiation. This portfolio role has its own column in many reports. It is filled for securities only, and even then only if you use the portfolio to differentiate between positions. Note that although the portfolio is linked to the position, it originates from the transactions that make up the position—that is, it originates from the same field that is also used as a reporting characteristic. You can create your portfolios in Customizing under Treasury and Risk Management  Transaction Manager  General Settings  Organization  Define Portfolio.

2.5.4

Other Organizational Elements

Besides the organizational elements for financial instruments, organizational elements play only a minor role in corporate organization in Treasury and Risk Management (apart from the company code). We have seen that you can assign a business area to a securities account, for example. Besides the business area, you can also assign positions to cost centers (see Section 6.2). You can use BAdIs to implement more farreaching requirements, such as profit centers and segments (see Section 13.3.2).

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Transaction management deals with the operative flow of financial transactions, namely trading, back office processing, and operative reporting. It forms the basis for all other business processes within a company.

3

Transaction Management

Financial transactions are agreements on financial rights and obligations. Their operative flow is managed within transaction management. Traditionally, transaction management is divided into three subareas: trading, back-office processing, and operative reporting. SAP Treasury and Risk Management has adopted this traditional division. This chapter starts by introducing you to how different financial instruments are mapped as financial transactions and how these transactions can be created and processed. We then examine trading, which is the first subarea of transaction management and involves the preparation and creation of financial transactions, as well as the exercising of rights. The section after that deals with back-office processing, which is the second subarea of transaction management and involves monitoring, controlling, and releasing financial transactions (settlement, for example). The last subarea, operative reporting, is discussed in Section 3.4. Here, you learn how to check deadlines, monitor the progress of financial transactions, and gain an overview of existing transactions. In the section after that, we introduce you to all the financial instruments available in transaction management. This is followed by a brief introduction to the transaction management architecture. We use a sample implementation of customer-specific tab pages for this purpose. We then take a look at three special topics that go beyond the basics of transaction management: roles, mirror transactions, and internal foreign exchange trading.

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Transaction Management

System Transaction Paths in This Chapter This chapter does not include any menu paths for system transactions. Depending on the financial instrument used, these system transactions can be found in the menu under Treasury and Risk Management  Transaction Manager  Money Market/Foreign Exchange/Derivatives/Commodities/ Securities/Debt Management and then in the corresponding subfolder, depending on the section you are reading. Due to the large number of system transactions used in transaction management, omitting them from the text makes it much easier to read. We specify the path in only a few exceptional cases.

3.1

Financial Transaction

Definition of a financial transaction

A financial transaction is a contract between at least two business partners governing the exchange of ownership of a financial instrument or a right in the form of a financial instrument. The variety of different financial instruments is also reflected in the variety of financial transactions. The structure of financial transactions in SAP Treasury and Risk Management comprises a description of the actions for a financial transaction and a description of the general components of a financial transaction.

Creating and processing actions

The actions for a financial transaction are divided into creating actions and processing actions: 왘

When creating a financial transaction, you refer to a financial instrument in the context of a company code, transaction type, product type, partner, and possibly some other specific data.

왘

When processing a financial transaction, however, you use the unique ID, which is based on the company code and the financial transaction number, to select an existing transaction.

These two basic procedures are reflected by the system transactions in transaction management. Most of these transactions are two-screen transactions. The first screen is known as the entry screen. When creating a financial transaction, you must specify the context here (see Figure 3.3), and when processing the financial transaction, you must select the financial transaction here, by means of its unique ID (see Figure 3.4).

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The second screen is known as the data screen. The same screen is used whether you are creating or processing a financial transaction. Financial transaction data is entered here. In addition to creating and processing financial transactions, numerous other reports concern two-screen transactions whereby a selection is made on the first screen and the results of the selection are displayed on the second screen. In this case, the first screen is called a selection screen and the second screen is called a result screen. Because there is a great deal of financial transaction data, the data screen is structured using tab pages. Most of these tab pages contain characteristics and key figures that are required for every financial transaction and are independent of the characteristics of the financial instrument. These tab pages are identical for all financial transactions.

Data screen layout

However, it is the structure data that distinguishes between the different financial instruments. For this reason, every financial instrument has its own individual tab pages. The structure data is set out in basically the same way and is based on flows, conditions, underlyings, and/or master data. It is the financial instrument itself that determines upon which data a financial instrument is based and how the data is set out. You can individually configure which fields are used for data entry on the corresponding tab pages. You can then use the field modification settings in Customizing to define whether a field is hidden, displayed, ready for input, or mandatory.

Field selection

A financial transaction has different status values as it passes through different trading or back-office processing functions. Activities are used to reflect and represent these status values clearly. The financial cash flow is assigned to an activity in the form of flows and conditions, making it clearer and easier to follow.

Activities

3.1.1

Conventions of Use

The transactions within transaction management, especially those associated with creating and processing transactions, follow certain conventions of use. As soon as you learn these conventions, you will find it relatively easy to use new transactions without the need for any further instruction.

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These conventions of use include the use of icons on buttons for quick recognition of their function, the specification of precise dates using inclusive and month-end indicators, and input helps through the use of shortcuts for date entries and amounts. This section describes these conventions in greater detail.

Using Icons As is generally the case in SAP systems, SAP Treasury and Risk Management also uses two types of buttons. On one hand, buttons are assigned a descriptive text (for example, the Cash Settlement button in Figure 3.2). Sometimes, this type of button also contains an icon. Over the course of this book, we also use the descriptive text provided with such buttons. On the other hand, buttons are frequently assigned only an icon (in other words, no descriptive text). Generally, the function represented by the icon is easily recognizable from the symbol used. If you place your cursor over an icon, the exact meaning of the icon (or the underlying function) is displayed in the form of a tooltip. In this book, we cite both the meaning of the tooltip and show the icon itself directly in the text. Figure 3.1 shows the icons most commonly used in transaction management.

Create

Insert Line

Correspondence

Copy

Delete Line

User Status

Change

Flip Back

Worklist

Display

Flip Ahead

Other Main Flows

Delete

Get Variant

Other Main Flows Available

Save

Display

Expand

Execute

Detail Screen

Compress

Cancel

Overview

Calculate

Confirm

Check

Date Preview

Update

Other Object

Figure 3.1 Commonly Used Icons in Transaction Management

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Date Both flows and conditions contain numerous date entries. In order for these date entries to be uniquely organized for the purpose of calculations, a date field often has an inclusive indicator that specifies whether the date entered is also included in the period it delimits. In some cases, a month-end indicator is also used to indicate whether the date falls on the last day of the month.

Inclusive and month-end indicators

Period Calculation The most important example of the use of inclusive and month-end indicators is period calculation. If April 30, 2012 is set as a period end with a monthly frequency and the Inclusive indicator is selected, the subsequent period ends will be May 30, 2012 inclusive, June 30, 2012 inclusive, and so on. If the Month-end indicator is also selected with a monthly frequency, then the period ends would be May 31, 2012 inclusive and month end, June 30, 2012 inclusive and month end, and so on.

Period Calculation in February For interest calculation methods based on 30 days and a period end of February 28, 2012 inclusive, interest is applied to 28 days. When the period end is February 28, 2012 exclusive and month end, interest is applied to 29 days. Finally, when the period end is February 28, 2012 inclusive and month end, interest is applied to 30 days.

Input Help When creating financial transactions, many fields are already assigned values that make sense in the relevant context. For example, the start of term is already set as the current date. If, in your particular case, different pre-assigned values would make more sense, you can use BAdIs to change them, in some cases. In other cases, you can change only preassigned values by modifying the standard SAP code. Pre-assignments can also be imported from Customizing (for example, payment details from the standing instructions for a business partner).

Pre-assignment

In the user settings, you can configure the date format (e.g., MM/DD/ YYYY). In transaction management, a date can be entered as an absolute value. Abbreviated notations are also recognized (e.g., 042612 as 04/26/ 2012). A date can also refer to another date. For example, the end of the

Date

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term is relative to the start of the term. This relationship between date fields is not visible on the screen, but it is stored within the system. You can use various shortcuts to specify the direction of a relative date entry (see Table 3.1). Shortcut

Meaning

+

Following day

++

Following month

+++

Following year

-

Previous day

--

Previous month

---

Previous year

Table 3.1 Shortcuts for Date Entries

Shortcuts can be used alone or be combined (see Table 3.2). Example

Meaning

0

Same day

+2

In two days

--4

Four months ago

+++1++3

In one year and three months

Table 3.2 Examples of Shortcuts for Date Entries Amount

For amounts, you can define which abbreviations you want to use for thousands and millions in Customizing under Treasury and Risk Management  Transaction Manager  General Settings  Organization  Define User Data. In the standard system, these settings are preassigned with the abbreviations listed in Table 3.3. Abbreviation

Meaning

T

Thousand

M

Million

Table 3.3 Abbreviations for Amounts

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Here, too, it is possible to combine shortcuts (see Table 3.4). Example

Meaning

2T

2,000

5.2M

5,200,000

3M20T

3,020,000

Table 3.4 Examples of Shortcuts for Amounts

The shortcut is converted after you press (Enter) or execute an action. You can then check whether it corresponds to the required entry. Even though Create Financial Transaction (Transaction FTR_CREATE) will not be explained until the next section, we are using its data screen here to provide an example of shortcut usage. We are performing a forward-exchange transaction on 04/26/2012 involving the exchange of 100,000 EUR into USD on 05/26/2012 at a rate of 1.3. The value date is a relative date entry, and we are using a standard abbreviation for the amount (see Figure 3.2).

Figure 3.2 Data Screen for a Foreign Exchange Transaction

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3.1.2

Transaction Management Entry Screen

The transaction management entry screen for creating and processing financial transactions can be accessed via many different transactions and functions. The user will proceed differently depending on the activity he or she is currently pursuing. The section below describes the most important transactions.

Creating a Financial Transaction Transaction FTR_CREATE

The main way of accessing the screen for creating a financial transaction is via Create Financial Transaction (Transaction FTR_CREATE), where you can create a financial transaction for every financial instrument in transaction management (see Figure 3.3). Also, every financial instrument has its own transactions for creating a financial transaction. These are no longer listed in the menu, however.

Figure 3.3 Creating a Financial Transaction in Transaction FTR_CREATE

Transaction FTR_CREATE allows you to enter the values you want directly via the keyboard. However, the fields are also provided with input helps. You can use the expanded list box shown in the Financial Transaction field in Figure 3.3 to restrict the values at the financialinstrument level so that only fields relevant to the current financial instrument are ready for input and you only view input helps relevant to that specific financial instrument.

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Processing a Financial Transaction The main way of accessing the screen for processing a financial transaction is via Process Financial Transaction (Transaction FTR_EDIT). When using this transaction, you not only enter the financial transaction you want to execute, but also select the action you want to perform. The list box allows you to restrict the displayed actions to those actions relevant for the current financial instrument (see Figure 3.4).

Figure 3.4 Processing a Financial Transaction in Transaction FTR_EDIT

As is the case with creating a financial transaction, every financial instrument has its own transaction for each action associated with processing a financial transaction. The entry screen in such transactions comprises the Company Code and Transaction Number fields. You can also use these transactions even though they are not listed in the menu.

Collective Processing As an alternative to central or financial instrument–specific entry transactions, you can also access the financial transaction processing screen via the collective processing function. Collective processing displays an overview list of financial transactions and gives you the option to navigate directly from the list to financial transaction processing.

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Collective processing for financial instruments

Transaction FTR_00

The following collective processing functions are available for the various financial instruments: 왘

Money market (Transaction TM00)

왘

Foreign exchange (Transaction TX06)

왘

OTC options (Transaction TI91)

왘

Interest rate derivatives (Transaction TI92)

왘

Futures and listed options (Transaction TI00)

왘

Repos (Transaction TF00)

왘

Securities lending (Transaction TSL00)

왘

Securities (Transaction TS00)

There is also central Collective Processing: Transaction Management (Transaction FTR_00), which provides an overview of the financial transactions across all financial instruments. You can also use this transaction for operative reporting (for example, using variants and their comprehensive selection options—see Figure 3.5).

Figure 3.5 Selection Screen for Central Collective Processing (Transaction FTR_00)

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In this case, bear in mind that the characteristics of the financial instruments are so different that they cannot be represented in a standardized way. Therefore, the result screen contains the Transaction structure field, which specifies the most important characteristics of a financial instrument as body text (see Figure 3.6).

Figure 3.6 Result Screen for Central Collective Processing (Transaction FTR_00)

Fast Entry and Fast Processing Some financial instruments also offer a fast entry option. This combines the data from the entry screen and data screen on a single screen. Both the input-ready data and the functionality are restricted in such a way that you can create only simple standard financial transactions using fast entry. The following fast-entry transactions are available: 왘

Fixed-term deposit fast entry (Transaction TM0F)

왘

Deposit-at-notice fast entry (Transaction TM1F)

왘

Commercial-paper fast entry (Transaction TM3F)

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Transaction TM20

You can process the two financial instruments, namely fixed-term deposit and deposit at notice, using the Money Market: Fast Processing transaction (TM20), which is a fast-processing transaction. Several fixedterm deposits and deposits at notice are displayed on the same screen, and you can change the amount, interest rate, end of term, interest rate handling in the event of a rollover, and interest capitalization here.

3.1.3 Data screen layout

Data Screen

After you access the entry screen for creating or processing financial transactions, you reach the data screen. This screen has the same layout for all financial instruments. The financial transaction header is displayed at the top of the screen. Depending on the financial instrument, this includes information on the company code, financial transaction number, activity, product type, transaction type, and security ID number (see Figure 3.7).

Figure 3.7 Data Screen for the Fixed-Term Deposit Financial Instrument

The area below the header contains the tab pages. In principle, all financial transactions have the same tab pages, but the system displays only those tab pages needed for the financial instrument. For example, the Int.rate.adj. tab page is displayed only for financial instruments with a variable interest rate calculation; it is hidden for all other financial instruments.

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You can also hide unwanted tab pages (apart from the Structure tab page) by changing the relevant settings in Customizing under Treasury and Risk Management  Transaction Manager  General Settings  Transaction Management  Define Field Selection.

Field selection

We will now discuss each of the tab pages available on screen.

Tab pages

왘

Structure tab page On this tab page, you can enter structure features to differentiate financial instruments from one another. We describe these features in greater detail in Section 3.1.4 to Section 3.1.7. The system also displays the business partner at the top of the financial transaction and provides the option to go to business partner administration (the Details icon in Figure 3.7). At the bottom, in the Contract data screen area, you can enter contract conclusion data such as the close date and time, contact person, trader, and an external reference.

Because the Structure tab page sometimes isn't sufficient to enter all structure features for a financial instrument, you can also use up to three additional tab pages for this purpose. Table 3.5 shows which financial instruments use this option. When used, some of the additional tab pages can also be named Structure. Financial Instrument Tab Page

Tab Page

Securities

Trading

Structure

Facility

Charges

Profiles

Fiduciary deposit

Collateral

Total return swap

Dividends

Futures

Trading

Structure

Listed options

Trading

Structure

OTC option

Underlying

Securities lending

Collateral

Forward

Underlying

Tab Page

Rules

Table 3.5 Additional Tab Pages for Structure Features

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왘

Hedge Management tab page The Hedge Management tab page is displayed if the financial transaction is part of a hedging relationship. The data for the hedging relationship is displayed in SAP List Viewer (formerly known as ABAP List Viewer, or ALV). Double-clicking a row will display the hedging relationship. For further information on hedge management, see Chapter 9.

왘

Customer-specific tab page There are two tab pages on which you can use BAdI technology to add your own screens and to display, enter, and save data for a financial transaction. For more information, see Section 3.6.3.

왘

Administration tab page The Administration tab page provides data for managing financial transactions. In the Position assignment screen area, you use the general valuation class to classify financial transactions according to assets (for example, short-term assets). In the Additional fields screen area, you can mark a financial transaction or specify connections to other financial transactions. In the Authorization screen area, you can define authorization groups in such a way that only particular individuals are allowed to process this financial transaction. In the Central clearing data screen area, you can determine whether the financial transaction is to be processed from a central location and, if so, how this will happen. Finally, in the Rating screen area, you enter data in relation to the business partner and the evaluating credit rating institute.

왘

Other flows tab page You can use the Other flows tab page to map flows other than nominal, interest, or repayment. These could be charges or taxes, for example. In this case, you must have maintained corresponding flow types in Customizing using the Other flow/condition flow category.

After entering the flow type, direction, payment amount, currency, and payment date, you can navigate to a detail screen by double-clicking a row that contains another flow and then storing calculation bases there. For more information on other flows, see Section 3.1.4.

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왘

Payment details tab page The Payment details tab page contains details on payment transactions with the corresponding business partner. This data is not entered separately for every flow, but applies generally for the entire financial transaction. An ID that comprises the direction and currency, as well as a possible restriction in relation to the validity and flow type, is used to assign payment details to the flows. If several different payment details are possible for a flow, the payment detail with the most precise ID is selected. Using the ID to Assign Payment Details For example, let's say you specify two different sets of payment details, the first with direction + and currency EUR, and the second with the same direction and currency but also with flow type 1900. For the appropriate direction and currency, only the first payment detail is possible for an interest rate flow with flow type 1200 and it is assigned to the flow. For another flow with flow type 1900 and the appropriate direction and currency, both payment details are possible, but the second, more specific payment detail is assigned.

If you double-click a row that contains payment details, this brings you directly to the detail screen for these payment details. This is where you can enter more specific details on the posting and payment request. When doing this, you can use a repetitive code that stands for the data that remains unchanged in a payment transfer and therefore reduces the administrative workload for recurring payments with the same payment details. Payment details must be created for all payment-relevant currencies and directions of a financial transaction. The system supports you in this task by displaying the payment details in the business partner's standing instructions as preassigned values when you create a new financial transaction (see Section 2.4.3). 왘

Cash flow tab page The cash flow provides you with an overview of all flows associated with a financial transaction. It is displayed in an ALV. You can execute various functions here. The most important are: 왘

Filter You can use filters to hide unwanted flows. A filter is set by

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default, displaying only structure flows. You can, however, delete or change this filter in order to also show accrual/deferral flows, valuation flows, and transfer posting flows. 왘

Variants You can use variants to specify which features and key figures are visible for flows. Some variants are delivered in the standard SAP system. You can use these as templates for your own variants or create completely new variants.

왘

Flow detail Double-clicking a flow will take you to the flow detail screen, which displays further information.

왘

Changing or reversing flows You can use the Flows ( ) button or the Edit flow entry in the context menu to change a flow manually. It is also possible to flag posted flows for reversal in the same manner. Both functions are subject to the status of the financial transaction or flow. If the transaction or flow status does not permit the functions, you will not be able to select them.

왘

Outgoing and Incoming tab pages For swap transactions such as the swap for OTC interest derivatives, you can divide the cash flow into the outgoing and incoming cash flows. This is covered by the Outgoing and Incoming tab pages. The Cash flow tab page is not affected by this but is also displayed.

왘

Interest rate adjustment, Security price adjustment, and Commodity price adjustment tab pages Variable interest is applied to all OTC interest rate derivatives. Variable interest can also be applied to the interest rate instrument and total return swap. An overview of interest rate adjustments performed and pending for these transactions is displayed on the Interest rate adjustment tab page. For further details on interest rate adjustment, see Section 3.3.1.

In the case of a total return swap, the Security price adjustment tab page contains the same type of information for floating security prices. Similarly, in the case of a commodity swap, the Commodity price adjustment tab page contains the same type of information for floating commodity prices (see Section 3.3.2).

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Just as for the cash flow, the adjustment data is displayed in an ALV for which you can also create your own variants. Double-clicking the icon in the Interest fixing column will display the detailed data for this row in the area below the ALV. 왘

Memos tab page You can use the Memos tab page to store additional information on a financial transaction in plain text. To do this, you must have maintained the corresponding memo types in Customizing under Treasury and Risk Management  Transaction Manager  General Settings  Transaction Management  Define Memo Book. The memos represent a central function provided by SAP Basis. Therefore, you may well have already learned how to use this function in other areas.

왘

Partner assignment tab page The Partner assignment tab page provides a partner overview with all relevant data on the corresponding partner for the financial transaction. You can navigate directly to business partner administration, make additional partner assignments, or create partners for the financial transaction.

왘

Status tab page A financial transaction can have various status values, all of which are displayed together on this tab page: 왘

Correspondence Depending on the business partner, you can use Customizing to define whether external correspondence is to take place in the form of a confirmation and, if necessary, a counter-confirmation. The system displays the correspondence status here and thus, implicitly, the Customizing setting.

왘

Activity The system displays the current activity category for the activity, as well as its status.

왘

Financial transaction The system displays the processing category, status, active activity, release status, creator, and last-changed-by information for the financial transaction. It also provides you with the option of navigating to status management.

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왘

왘

Status management Transaction management is linked to general status management (see Section 3.3.6). This is where you are provided with information on the status. You can also see which business activities are possible for the financial transaction.

Tab pages for the financial object The tab pages for the financial object are used only for OTC transactions. For standardized financial transactions, the corresponding data is created in the background for external positions.

For active financial object integration, a separate tab page is displayed for the following financial object components: Analysis Param. and Default risk limit. You can use these to maintain the corresponding data of the financial object that corresponds to the financial transaction. For further information, see Section 12.2.5.

3.1.4 Classification

Flows

A flow is the transfer of an amount between different accounts on a specific date. This transfer can be made between business partners, as well as internally. All flows together represent the cash flow and are displayed on the Cash flow tab page. By default, a filter is set on the Cash flow tab page so that it displays only structure flows that describe the financial transaction. If this filter is not set, it is possible to view all flows. These flows are roughly classified into four categories: 왘

Structure flows

왘

Transfer posting flows

왘

Valuation flows

왘

Accrual/deferral flows

Transfer posting flows, valuation flows, and accrual/deferral flows are no longer used in transaction management. However, they are used in position management because they occur when you manage a position. Due to legacy data transfers, these flows may still exist for some financial transactions in transaction management.

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Up to Release Enterprise 1.10, the option premium could be set in the financial transaction being exercised. This was due to the Customizing settings associated with exercising OTC options. Furthermore, up to Release Enterprise 1.10, valuation was performed in transaction management, and valuation flows were also created there. Furthermore, since SAP ERP 6.0, Enhancement Package 3, the accrual/deferral flows that occur during an accrual/deferral are contained in position management. By contrast, structure flows represent a description of the financial transaction. Let’s discuss some structure flows in greater detail, namely main flows, other flows, and derived flows. In order to categorize structure flows, you must maintain the flow types in Customizing and assign them to the transaction type. For example, you can define flow types for money market under Treasury and Risk Management  Transaction Manager  Money Market  Transaction Management  Flow Types  Define Flow Types. For main flows, you require the Principal increase or Principal decrease flow category. For other flows, you require the Other flow/condition flow category. You must then assign the flow type to the transaction type under Treasury and Risk Management  Transaction Manager  Money Market  Transaction Management  Flow Types  Assign Flow Types to Transaction Type. Assigning a Condition-Based Flow Type to a Transaction Type It is not necessary to assign flow types to flows created from conditions. This is already done implicitly via the condition type.

Main Flows The main flows contain the amount-based structure of a financial transaction. Therefore, they are also called changes in capital structure or changes in nominal value. There are flows for both increasing and decreasing the amount-based structure of a financial transaction. If a financial instrument has main flows, you will see them on the Structure tab page. The tab displays the first main flow (chronologically). You

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can enter or change the amount, currency, and (to a certain extent) flow type. Example: fixedterm deposit

An example of this is provided in Figure 3.8, wherein a fixed-term deposit of 100,000 EUR is invested on 04/26/2012 for a period of one year at 4%. The data is entered in the Investment screen area of the Structure tab page.

Figure 3.8 Main Flow on the Structure Tab Page

You can choose the Other changes in capital structure icon ( ) to navigate to the overview screen for main flows. This is where you can enter more main flows. The Other changes in capital structure icon ( ) on the Structure tab page changes color if other main flows already exist in the financial transaction. On the overview screen, you can select a flow type stored in Customizing. After entering the payment amount, currency, and payment date, you can also define a different calculation date for some financial instruments. Main Flow for Fixed-Term Deposits For the fixed-term deposit financial instrument, the main flow entered on the Structure tab page is not displayed on the overview screen. Rather, you can view it only using the Detail button ( ) in Figure 3.8. Example: fixedterm deposit

For the fixed-term deposit we have created, the capital amount increases by 25,000 EUR to 125,000 EUR on 10/26/2012. The data to be entered is shown in Figure 3.9.

Detail screen

From the overview screen, you can double-click the corresponding row or choose the Details icon ( ) to navigate to the detail screen. This displays more information on the main flow (see Figure 3.10). If the payment currency is not the local currency, an additional screen area is displayed. Here, you can specify a fixed rate or fixed amount, or the use of a current rate from the rate table.

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Figure 3.9 Overview Screen for Main Flows

Figure 3.10 Detail Screen for a Main Flow

Early Repayment In addition to nominal interest calculations, accrued interest calculations are also supported. You can specify this when you define the flow type for the nominal flow. If a change in nominal value occurs, you can then specify the clean price (nominal amount without interest) or the dirty price (nominal amount including interest). Within a financial transaction, it is not possible to specify a nominal flow with an accrued interest calculation and nominal interest calculation simultaneously.

Other Flows You can use other flows to map flows other than nominal, interest, or repayment. These could be charges or taxes, for instance. There is a separate tab page for other flows, which includes an overview screen of

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other flows that exist. This is where you can enter the side (party), direction, flow type, amount, currency, and payment date. Example: fixedterm deposit

For our fixed-term deposit, an acquisition fee of 300 EUR needs to be paid at the start of the term on 04/26/2012 (see Figure 3.11).

Figure 3.11 Other flows Tab Page Detail screen

From the Other flows tab page, you can double-click or choose the Details icon ( ) to navigate to the detail screen. This is where you can enter further calculation details. The acquisition fee in Figure 3.11 is relevant for accrual/deferral for the entire term from 04/26/2012 to 04/26/ 2013. This is shown in the detail screen in Figure 3.12.

Figure 3.12 Detail Screen for Other Flow

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Derived Flows Derived flows are flows that are calculated from other flows. This could, for example, be the trader's commission on a stock sale or the stock exchange tax. Similar to other flows, derived flows also belong to the Other flow/condition flow category. To create these flows, define rules in Customizing under Treasury and Risk Management  Transaction Manager  Money Market  Transaction Management  Flow Types  Derived Flows  Define Derivation Procedures and Rules. These rules determine the flow type from which the flows are derived and the structure they have.

Maintaining the derivation

For the business partner in the Counterparty role, you must also make additional settings in the corresponding company code in business partner administration (Transaction BP). Therefore, on the SI: Derived Flows tab page, you assign the relevant derivation procedure to the product type. Displaying Derived Flows Even if derived flows belong to other flows, they are not displayed on the Other flows tab page on the screens for creating or processing financial transactions. Rather, they can be seen only on the Cash flow tab page. They can also be changed there.

Derived flows can be used to pay a tax on interest to be capitalized. This tax can then be taken into account when calculating the nominal amount. You can use the BAdI FTR_TR_FIMA_CALLBACK to implement individually defined net interest capitalization. Aggregated Derived Flows If a financial transaction contains several flows with the same payment date, but only one flow is to be posted, you can create a corresponding derived flow by choosing the Sum Of incoming flows option in the Calculation by setting in Customizing for defining the derivation rule. This function is introduced and described in more detail in SAP Note 1703542.

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3.1.5 Condition category

Conditions

Conditions are unique calculation rules for flows, and they are used for flows that recur on a regular basis. The amount-based structure of such flows depends on the amount of capital. A condition category is a categorization of conditions. The condition categories include interest, repayment, and, for some financial instruments, premiums. You cannot define two parallel conditions for a condition category. That is why every condition has a valid-from date. A condition is valid until there is a new condition with the same condition category and a more up-to-date valid-from date (i.e., a subsequent condition). This makes it possible, for example, to express a changed interest rate with a subsequent condition. The valid-from date also has an inclusive indicator. However, this is not visible on screen. Rather, it is determined from the inclusive indicator for the start of the term or for the previous interest period. In this way, it is possible for you to specify the valid-from date as 04/26/2012, which is assumed to be exclusive, and therefore the interest period does not start until 04/27/2012.

Calculation

Conditions are also used in other areas (e.g., loans). Therefore, a flow calculation based on conditions is applied generally in financial mathematics (FIMA). If a financial instrument has conditions, you will see them on the Structure tab page. For some condition categories, this tab page provides information on the first condition (chronologically). The condition categories for which the system provides information differ from one financial instrument to another.

Condition overview

You can use the Condition button in the menu bar or follow the menu to navigate to an overview screen of all conditions for the financial transaction (see Figure 3.13).

Figure 3.13 Overview Screen for Conditions

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You can double-click a row or choose the Details icon ( ) to go to the detail screen. Alternatively, the Structure tab page provides a Details button next to the information on the first condition of a condition category that allows you to navigate directly to the detail screen. The detail screen, in turn, allows you to navigate to possible subsequent conditions or previous conditions, or to create subsequent conditions.

Condition details

You must define the condition types in Customizing (e.g., for the money market) under Treasury and Risk Management  Transaction Manager  Money Market  Transaction Management  Condition Types  Define Condition Types and then assign them to the transaction type. When defining the condition type, you specify which flow type is to be created. You no longer need to assign this flow type to the transaction type. This is done implicitly via the condition type.

Maintaining the condition type

Interest Condition On the detail screen for the interest condition, you can select the required condition type from all the condition types for nominal interest rates and interest capitalization, which have been assigned to the financial instrument. In the Interest structure screen area, you must specify the interest calculation method, type of interest calculation, and form of interest clearing. There are also three different types of interest structure, although all three types are not available for every financial instrument. 왘

The first type of interest structure is fixed amount. The amount has to be entered here. Because the first and last periods can be shortened, you must specify whether the fixed amount is to be included in full, proportionately, or not at all in these periods.

왘

The second interest structure, fixed interest, requires a percentage that specifies the fixed level of interest. By specifying a payment rate, you can specify how much of the calculated interest is actually paid.

왘

The third type of interest structure is variable interest. Here, you specify a reference interest rate with a possible spread. If this is not sufficient, you can even create an entire formula for calculating the amount of interest. Some predefined formulas are provided for this. If necessary, you can change these in the formula editor to create your

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own formulas (see SAP Note 594637). Condition formulas such as those below are also possible: IF THEN ELSE

You can also enter a different payment rate for variable interest. Interest period and due dates

You need two recurring date sequences for an interest condition—one for the end of interest period and one for the due date (see Figure 3.15, End of interest period and Due date screen areas). The update method determines how these recurring date sequences are calculated (Update screen area in Figure 3.15). The Regular update method makes it possible to specify both recurring date sequences independently, each by specifying the first date and a shared frequency. For the Adjusted and Unadjusted update methods, both recurring date sequences are specified relative to one another. For Adjusted, a frequency is specified for one recurring date sequence, while the other recurring date sequence is relative according to the working-day date shift. This is identical for Unadjusted, except that the relative entry is made before the working-day date shift. The Standard radio button is used to define that the end of the interest period is calculated relative to the due date. Conversely, the Special radio button causes the due date to be calculated relative to the end of the interest period (see Figure 3.15). The other update methods are self-explanatory, either due to their names or the explanations already provided for methods. Date Preview On the detail screen, you can use the Date preview button in the menu bar to see what date information will be calculated by the settings made for recurring date sequences.

Example: interest rate instrument

Let's use the example of creating an interest rate instrument of 100,000 EUR, starting on 04/26/2012, for one year. Variable interest will be applied at 1.5 times the reference interest rate of EUR_03_J_M minus 1%. Interest is due every three months, and the end of the interest period is supposed to be one day before the due date (see Figure 3.14).

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Figure 3.14 Data Screen for the Interest Rate Instrument

You can use the Details button ( ) in the Interest structure screen area to navigate to the detail screen for the interest condition, where you can make additional entries (see Figure 3.15). The interest structure described in this example can be achieved only using a formula. You can use the Formula button shown in Figure 3.15 to select existing formulas. The standard version includes the formulas V1 * V2 + V3 and V1 * V2 + V3 * V4. After choosing the required formula, you must navigate to the screen for entering the formula values (see Figure 3.16).

Interest Rate–Adjustment Condition An interest rate–adjustment condition specifies when the interest rate is defined for a reference interest rate (interest fixing) and when this interest rate becomes valid for the financial transaction (interest rate adjustment). Of course, interest rate–adjustment conditions are needed only for transactions with variable interest rates. These include interest rate instruments that have variable interest as the interest structure, as well as all OTC interest derivatives and the total return swap.

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Figure 3.15 Detail Screen for the Interest Condition

Figure 3.16 Detail Screen for the Formula

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The interest rate adjustment–condition comprises two recurring date sequences: one for interest rate adjustment and one for interest fixing. In the case of interest fixing, absolute specifications by means of the Regular update rule and relative specifications by means of the Relative update rule are possible for a reference date.

Interest rate adjustment and interest fixing

In our sample interest rate instrument, we want the interest rate adjustment for the reference interest rate EUR_03_J_M to take place at the start of the period, but we want interest fixing to happen two days before (see Figure 3.17).

Example: interest rate instrument

Figure 3.17 Detail Screen for Interest Rate Adjustment

Capitalized Interest Payment Condition For interest capitalization, the interest is added to the capital that is reduced again during repayment. The capitalized interest is paid back by the last repayment, at the latest. With OTC interest derivatives, the capital often isn't exchanged at all, but merely serves as a basis for calculation. In this case, the repayments are not relevant for payment, either. Nevertheless, to facilitate interest capitalization, the Capitalized Interest Payment condition category was implemented especially for OTC interest derivatives. If you use this condition category, the capitalized interest is still assigned to the capital and is not relevant for posting. However, it is not reduced with repayment, but via the new condition category, which has a posting-relevant flow. This means that it is also possible to pay back capitalized interest during the term.

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Example: EONIA swap

For the purposes of this example, we want to create an EONIA swap that represents a special case of a compound swap. The term runs from 04/ 26/2012 to 05/26/2012. On the incoming side, there is a fixed interest rate of 4% for 100,000 EUR, which is paid at the end of the term. On the outgoing side, the same amount has variable interest via the EONIA reference interest rate, which is also paid at the end of the term, but which is subject to a daily interest rate adjustment. On weekends, the interest rate for Friday is used. The detail screen for the outgoing interest is shown in Figure 3.18.

Figure 3.18 Detail Screen for the Interest Condition

After entering a condition type for which interest capitalization settings are made in Customizing, another button is provided on the Structure tab page, allowing you to navigate to the detail screen for the capitalized interest payment. The interest for the EONIA swap is calculated from an

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average value rounded to four decimal places (see Figure 3.19, Calculation screen area).

Figure 3.19 Detail Screen for the Capitalized Interest Payment Condition

Premium Condition For the cap and floor financial instruments, the premium is mapped as a condition. For these two financial instruments, there is either a one-time premium payment or a recurring premium for every hedging period. We can use the creation of a cap as an example. The term is from 04/26/ 2012 to 04/26/2013 with a nominal amount of 100,000 EUR. The reference interest rate EUR_03_J_M is hedged with a three-month period with an upper limit of 4%. A premium of 200 EUR is paid at every period start. The detail screen for the premium is shown in Figure 3.20.

Example: cap

Repayment Condition Repayments are used to reduce the capital for a financial transaction. Most financial instruments use final repayment upon which the entire capital is repaid at the end of the term. The interest rate instrument also uses installment repayments, where a fixed amount is repaid at regular intervals. Furthermore, the interest rate instrument uses annuity repayments, in which a repayment of an amount that always comes to the

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same total when added to the interest amount is made at regular intervals.

Figure 3.20 Detail Screen for the Premium

On the detail screen for the final repayment, you can change only the flow type and, for some financial instruments, the payment date. For installment repayments and annuity repayments, the entire capital is paid back at the end of the term. If the capital has been repaid in full before the end of the term, the amount of the last installment is adjusted to the remaining capital. Example: interest rate instrument

For the purposes of this example, let's use the creation of an interest rate instrument of 100,000 EUR on 04/26/2012 for one year. Fixed interest of 4% is applied and must be paid at the end of the term. Also, the nominal amount is repaid monthly at 5,000 EUR (see Figure 3.21).

Price Compensation Condition The change in the market price for an underlying security is regularly paid for a total return swap. As with the interest condition, you must also define two recurring date sequences here—one for the end of the interest period and one for the due date. This has already been described in detail for the interest condition (see the subsection "Interest Condition" at the start of Section 3.1.5).

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Figure 3.21 Detail Screen for Repayment

3.1.6

Underlying

The structure of the OTC option financial instrument consists of information on the exercise, premium, and underlying transaction. The European and US exercise types are both supported. In Customizing for the product type of the OTC option, you must specify the product type and transaction type for the underlying. You then see the corresponding information in the Underlying screen area (see, for example, Figure 3.22). If you choose the value Cash settlement in the Settlement field, a payment equal to the value of the underlying is made when the OTC option is exercised. If, however, you choose the Physical exercise value, the underlying becomes a financial transaction when the OTC option is exercised. The underlying is mapped on its own Underlying tab page, which is similar to the Structure tab page for the corresponding financial instrument. An example of an underlying is the completion of a currency option on 04/26/2012, with a European exercise deadline of one month, and a premium of 1,000 EUR, on 04/26/2012 (see Figure 3.22).

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Figure 3.22 Data Screen for Currency Option

The example is based on a forward-exchange transaction for the exchange of 100,000 EUR into USD on 07/26/2012 at a rate of 1.3 (see Figure 3.23).

Figure 3.23 Underlying Tab Page

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This tab page is similar to the Structure tab page for a foreign exchange transaction displayed in Figure 3.2. Because the header of the data screen contains the currency option data, however, the general data for the underlying is displayed in a separate Underlying screen area on the Structure tab. It is also not possible to perform cash settlement for the foreign exchange transaction, because it exists only as an underlying.

3.1.7

Listed Financial Instruments

Listed financial instruments include securities, repos, futures, and listed options. The structure features for these financial instruments are stored in their class master data (see Chapter 2). A class is uniquely identified by its security ID number (SID), which you must specify in the entry screen when creating the financial transaction. For this reason, when entering data on the Structure tab page on the data screen for creating a financial transaction, you need to enter only the price or rate, quantity, date, and position affected, and specify the securities account or futures account. Further, trading data can be entered on the Trading data tab page. An example of this is the purchase of 100 shares of SAP stock, with security ID number 716460, at a rate of 50.00 EUR, on 04/26/2012. They will be assigned to the securities account DEPOT4711 (see Figure 3.24).

Figure 3.24 Data Screen for a Security Transaction

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3.1.8

Field Selection

The fields on the data screen for transaction creation and transaction processing are pre-assigned. Because the data screen is used in different situations, however, it is important to be able to influence its appearance based on its application. For example, after posting a flow, the fields of the corresponding condition are only displayed and can no longer be changed. Maintaining the field selection

In Customizing (under Treasury and Risk Management  Transaction Manager  General Settings  Transaction Management  Define Field Selection), you can influence the display attributes for a field by setting a tab page, field group, or individual field to Hide, Required entry, Optional entry, or Display. If conflicts arise between the application and the settings made by the user, the pre-assigned application settings will override the user settings.

Example: field selection for OTC interest rate swap

If, for example, you are working with an OTC interest rate swap with product type 62A and company code 0001, and you want to define that only fixed interest on the outgoing side can be swapped for variable interest on the incoming side, you can create a corresponding field selection and assign it to the product type. To do this, proceed as follows: 1. In Customizing under Treasury and Risk Management  Transaction Manager  General Settings  Transaction Management  Define Field Selection, double-click Field selection definition. 2. To create a new field selection, choose the New Entries button and assign the name (SWAP_PAYER) and product category (620). After double-clicking the row, set field groups 862 and 865 to Required entry and set field groups 863, 864, and 866 to Hide. Then save your entries. 3. The system returns you to the starting point in Customizing, namely Define Field Selection. Double-click Assignment to product types and company codes and choose the New Entries button to make a new entry with product type 62A, company code 0001, and field selection SWAP_PAYER. You can use the same method to set all fields for the Settlement activity to Hide, for example.

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Finding an Active Field Selection To see whether a field selection is active in the data screen during transaction creation, enter "FMOD" into the OKCODE field and press (Enter). A message is displayed in the status bar, specifying whether, and, if so, which field selection bar is active for the financial transaction.

3.1.9

Activities

A financial transaction has different status values as it passes through different trading or back-office processing functions. Activities are used to reflect and represent these clearly. A new activity is created as soon as a new status is reached. At any given point in time, there is only one active activity. During an activity transition, the previous activity is set to Replaced and the new activity is activated. One exception to this rule is interest rate adjustment (see Section 3.3.1). Table 3.6 shows the possible activity types.

Activity types

Activity Type

Financial Instrument

Contract

All

Contract Settlement

All

Order

Securities, foreign exchange, OTC interest derivatives, futures, listed options, OTC options, and forwards

Order Expiration

Securities, foreign exchange, OTC interest derivatives, futures, listed options, OTC options, and forwards

Fixing

Foreign exchange

Termination

Deposits at notice, commercial paper, OTC interest derivatives, total return swaps, OTC options, securities lending, forwards, and commodity swaps

Table 3.6 Activity Types for Financial Instruments

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Activity Type

Financial Instrument

Termination Settlement

Deposits at notice, commercial paper, OTC interest derivatives, total return swaps, OTC options, securities lending, forwards, and commodity swaps

Rollover

Fixed-term deposits, deposits at notice, forward securities transactions, and securities lending

Rollover Settlement

Fixed-term deposits, deposits at notice, forward securities transactions, and securities lending

Knock-In

OTC options

Knock-In Settlement

OTC options

Knock-Out

OTC options

Knock-Out Settlement

OTC options

Exercise

Forward securities transactions, OTC options, and forward loans

Exercise Settlement

OTC options

Expiration

OTC options

Expiration Settlement

OTC options

Offer

Fixed-term deposits, deposits at notice, commercial paper, and foreign exchange

Simulation

Fixed-term deposits, deposits at notice, commercial paper, and foreign exchange

Due Date

Repos

Forward Fixing

Forward

Forward Fixing Settlement Forward Advance Maturity

Forward securities transactions

Advance Settlement

Forward securities transactions

Corporate Action

Total return swaps and forward securities transactions

Table 3.6 Activity Types for Financial Instruments (Cont.)

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Activity Type

Financial Instrument

Dividend Adjustment

Total return swaps and forward securities transactions

Deal Adjustment

Fiduciary deposits

Deal Adjustment Settlement

Fiduciary deposits

Deal Correction

Fiduciary deposits

Deal Correction Settlement

Fiduciary deposits

3.2

Table 3.6 Activity Types for Financial Instruments (Cont.)

In Customizing, you must specify a processing category when defining the transaction type. This defines the possible activities and their sequence. If the possible processing categories for a financial instrument are stored in the system, then the sequence of Order, Contract, and Give Notice is possible, for example. Because of the large number of possible activities, OTC options also have a lot of different processing categories. You can use the processing categories to specify the specific processes you are using.

Processing category

History You can use the History trading function (see Section 3.2.3) to display not only the current activity for every single financial transaction, but also all previous activities.

3.2

Trading

In transaction management, trading begins with the preparation of financial transactions that can be followed by a trading decision. A trading decision leads to a trading function, which leads to the creation of transactions or the exercising of rights. To prepare financial transactions for the fixed-term deposit and foreign exchange financial instruments, you can solicit offers and perform simulations. You also have a range of tools you can use on all financial instruments to help you to make the right trading decision.

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Trading function

With a trading decision, you can reach an agreement with your business partner on a new financial transaction or a change to an existing transaction. To implement the trading decision, you must perform a trading function. You can do this using the creating and processing a financial transaction processes described in Section 3.1.2. Exercising Rights In the past, the exercising of rights was a type of trading function in transaction management. However, with the introduction of position management and its division into external and internal position management, the next logical step was to move the exercising of rights to external position management. This is described in detail in Section 5.2.3.

3.2.1

Preparation

For the fixed-term deposit and foreign exchange financial instruments, you can prepare financial transactions by soliciting and managing offers, as well as performing simulations.

Offer Creating an offer

If you have solicited an offer for a fixed-term deposit or foreign exchange financial instrument, you can create this offer in the system using the Create Offer transaction (TMCA). For a business partner, enter the interest rate for fixed-term deposits (see Figure 3.25), and for foreign exchange transactions, enter the exchange rate, spot rate, and swap rate. The offers entered are sorted according to quality. In SAP Treasury and Risk Management, an offer is created as a financial transaction within a special number range reserved for offers. When you execute an offer, a financial transaction with the Contract activity is created in the normal number range. All offers, as well as a possible resulting financial transaction, are linked together by means of a reference.

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Figure 3.25 Creating an Offer in Transaction TMCA

Offer in Reporting If you want to restrict selections to offers in the Reporting section of transaction management, you must enter the value "4" in the Active status field.

Simulation For analyses and evaluations in market risk management, you can create simulated or fictitious financial transactions for fixed-term deposits and foreign exchange transactions in the Create Simulation transaction (TMSA). Compared to creating a financial transaction, you have only a limited choice of input fields here (see Figure 3.26). For example, it is not possible to enter a business partner. After saving the data, you can display, change, execute, or delete a simulation. A simulation is also created as a financial transaction within a special number range reserved for simulations. Executing a simulation creates a real financial transaction. This transaction is in the Contract activity, and it is within the normal number range. Simulation in Reporting If you want to restrict selections to simulations in the Reporting section of transaction management, you must enter the value "5" in the Active status field.

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Figure 3.26 Creating a Simulation in Transaction TMSA

3.2.2 Help when making trading decisions

Decision-Making Tools

The following decision-making tools are available to assist you in making the right trading decisions: 왘

Cross-rate calculator When creating a financial transaction for the foreign exchange financial instrument, you navigate from the data screen to the cross-rate calculator dialog box by choosing the Cross-rate calculator button or using the Extras  Cross-rates menu path. This is where you can enter the rate for the purchase currency and sales currency to the local currency. The calculator then uses this information to calculate the rate between the purchase currency and the sales currency.

왘

Option price calculator In the Calculation of Option Premiums transaction (TXAK), you can use the option price calculator to perform premium and market calculations for the OTC option financial instrument. If yield curves are maintained, you can perform up-to-date market data, interest, swap, or premium calculations. Furthermore, you can define the volatility

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behind the calculation of a known option premium. You can determine the sensitivities of one or all premiums and display the sensitivities, market data, and premiums. 왘

Net present value calculator for commercial paper In the Commercial Paper: NPV Calculator transaction (TM30), you can use the information on the term and the capital, as well as the alternative information on the exchange rate and the interest rate, to determine the following information for the commercial paper financial instrument: payment amount, interest amount, interest rate, exchange rate, and number of days. (For further information on calculating the net present value, see Section 12.5.1.)

왘

Limit checks You can use the Change Transaction Authorization for Traders transaction (TBT1) to restrict authorization for a trader at the contracttype, product-category, product-type, and transaction-type levels so that the trader can close financial transactions up to only a certain volume. Authorizations at higher levels automatically encompass authorizations at lower levels. You can find Transaction TBT1 in the menu under Treasury and Risk Management  Transaction Manager  Utilities.

왘

Date checks You can use the Check Dates Against Calendar transaction (TM22) to check dates before agreeing on a financial transaction. This transaction allows you to check two calendars to see whether a date is a business day and to see the day of the week on which the date falls. If the date is not a business day, the previous and following business days are displayed.

When making your trading decision, you can also use the operative reporting options described in Section 3.4.2 to get an overview of existing financial transactions.

3.2.3

Trading Functions

Trading functions are used to implement trading decisions. You can therefore use trading functions to process a financial transaction in its current activity status or to create a new activity for this transaction.

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Because a financial transaction can only ever have one active activity, the previous activity is replaced, and the new activity is activated in the event of an activity transition. When creating a financial transaction in Transaction FTR_CREATE, the Create trading function is used. When processing a financial transaction in Transaction FTR_EDIT, this transaction contains buttons to represent the various possible trading functions (see Figure 3.4). We describe these trading functions below. Create, change, and display

You use the Create function to create a financial transaction with the required Contract, Order or Fixing activity. Transaction creation is described in greater detail in Section 3.1. You use the Change function to change the data for the active activity of a financial transaction. In the case of the Create and Change functions, the system performs checks to confirm the consistency of your entries. You use the Display function to display all of the data from the active activity of a financial transaction.

Reverse

You use the Reverse function to reverse the active activity for a financial transaction. This reactivates the previous activity. If there is no previous activity, the financial transaction is set to Inactive with active status "3". If flows have already been posted in the activity you want to reverse, they are reversed after the user has been issued an appropriate warning message. They are assigned the To be reversed status so that position management can reset the posting. Reversal Cannot Be Undone It is not possible to undo a reversal. If you perform a reversal accidentally, you must create the reversed activity again.

History

You use the History function to display the activities for a financial transaction with its current status. You can double-click to navigate to the relevant activity. The system then displays data as it was when the activity was active. An Exact Historical Reconstruction Is Not Possible This historical reconstruction of data is not always possible, however. For example, to terminate OTC interest derivatives, you must use the interest condition either from the Contract activity or from the Settlement activity,

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depending on the processing category. If the interest condition changes after the termination, the history for the activity will also use the changed interest condition when displaying the Contract or Settlement activities.

You use the Give Notice function to effect an activity transition to the Termination activity. When doing this, you can create other flows to map settlement payments, for example. The termination has different effects, depending on the financial instrument: 왘

Usually, only flows with a calculation date before the date of notice are retained and displayed in the cash flow. All other flows are blocked.

왘

For the deposit at notice financial instrument, the otherwise endless cash flow is cut off on the date of notice, and only flows with a calculation date before the date of notice are created.

왘

For OTC interest derivatives, it is also possible to shift the final repayment back to the date of notice.

왘

OTC options are written off by the termination. In other words, before the exercise date is reached, you forego exercising the right. The payments required to reflect this are created as other flows.

왘

In the case of securities, bonds can be terminated. In this case, the repayment is brought forward to the date of notice, and the entire bond, or a part of it, is paid back at a rate to be defined.

Rollover of the fixed-term deposit, deposit at notice, securities lending, and forward securities transaction financial instruments creates an activity transition to the Rollover activity. The end of the term is moved forward to a point in the future, and it is also possible to set a change in capital or make other structure changes. Rollover of the foreign exchange financial instrument creates two new individual financial transactions. The first financial transaction uses contradictory conditions to even up parts or all of the original transaction, while the second financial transaction contains the original data as default values. You can adjust this data and, in particular, redefine the exchange rate and determine the value date that has been moved forward in relation to the original transaction. The two new transactions

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Rollover

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are connected via the SWP (swap unit) reference. Also, the original financial transaction and the two new transactions are connected via the PRL (rollover) reference. Premature settlement

In the case of the foreign exchange financial instrument, the Premature Settlement function behaves in exactly the same way as the Rollover function, except that the value date for the second transaction is in the past compared to the original financial transaction. For a foreign exchange transaction, two new individual transactions are created again. You can also prematurely settle a part of an amount and roll over the other part. In the case of a total return swap, however, the date when the units are returned and the nominal amount is repaid is brought forward, and all flows that lie after this date are blocked. In the case of a forward-securities transaction, it is possible only to settle parts of an amount prematurely.

Execute

The Execute function causes an activity transition from the Order activity to the Contract activity. You can also change or supplement the financial transaction data here. Mass Order Execution You can use the Mass Order Execution transaction (FTR_MASS_EXEC) to execute several financial transactions in the Order activity simultaneously.

Knock-in and Knock-out

As soon as a knock-in option reaches the agreed limit, the function of the same name causes an activity transition to the Knock-In activity. You can then exercise an OTC option or allow it to expire. When a knock-out option reaches the agreed limit, the Knock-Out function causes an activity transition to the Knock-Out activity. You can then no longer exercise this OTC option; you can only allow it to expire.

Exercise/fixing/ delivery

Even though there are differences from a business perspective, the Exercise, Fixing, and Delivery trading functions have the same principle. The financial transaction is completed and the underlying transaction is created, or a settlement payment is created: 왘

You use the Exercise function to exercise an OTC option and cause an activity transition to the Exercise activity. For OTC options with cash settlement, the cash payment is calculated as the difference between

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the strike and the market price. For OTC options with physical exercise, the financial transaction is generated from the underlying. If working with knock-in options, you must have first performed a knock-in before exercising. If working with knock-out options, you must not have performed a knock-out before exercising. 왘

If a foreign exchange transaction is initially created without an exchange rate (foreign exchange fixing transaction), you can use the Fixing function to enter the exchange rate. With a forward, however, the Fixing function (as with exercising an OTC option) creates the underlying currency options.

왘

Forward securities transactions and forward loan purchases are unconditional financial transactions and must therefore be Delivered at the end.

The Expiration function causes the expiration of a financial transaction in the Order activity, or the expiration of a securities transaction, listed option, repo, or OTC option in the Contract activity. An activity transition to the Expiration activity occurs. This activity makes it possible to settle the transaction later, in back-office processing.

Expiration

Mass Order Expiration You can use the Mass Order Expiry transaction (FTR_MASS_ORDR_EXPIRY) to expire several financial transactions in the Order activity simultaneously.

If a dividend is paid during the term of a forward securities transaction or a total return swap for the security, the Adjust Dividend trading function is used to enter this dividend into the financial transaction.

Adjusting dividends

You can use the Correction function to correct existing flows of a trust transaction and the Adjustment function to change the market value of a flow.

Adjustment/ correction

3.3

Back-Office Processing

Within transaction management, back office processing involves monitoring, controlling, and releasing financial transactions. SAP Treasury and Risk Management provides various functions for back-office

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processing. Depending on your business-process flow, you select the corresponding functions and configure these functions in your system. Monitoring

The functions performed during the term of a financial transaction are grouped together in monitoring. These include the interest rate adjustment for variable interest, foreign exchange rate fixing for foreign exchange fixing transactions, and links to financial transactions by means of references. Internal and external correspondence is also part of monitoring (see Chapter 4).

Controlling

Controlling defines the sequence of activities and status values through which a financial transaction passes. You use the processing category to define the activity sequence and, most importantly, decide whether settlement is performed for the transaction. The connection to general status management also allows you to implement the transaction flow you want using different status values. Every individual activity or status can trigger a workflow. The workflow implements an approval procedure that leads to the release of the activity or status. All changes to the transaction are logged at the database level with change documents. In the next section, we describe the back-office processing functions you can use to monitor, control, or release the financial transaction.

3.3.1 Planned record

Interest Rate Adjustment

With variable interest, the amount of interest upon agreement of the financial transaction is not yet known; it is merely based on a reference interest rate or a formula using several reference interest rates. Until the amount of interest is known, the interest rate flows are indicated as being planned records. In Customizing, you can make settings in relation to how these planned records are updated in the financial transaction and in SAP Cash and Liquidity Management. To ensure that these areas have the most up-todate figures, we recommend that you refresh the planned records on a regular basis. As soon as the interest rate is determined, interest rate adjustment can be performed automatically or manually. A separate

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activity is created for every interest rate adjustment. As long as the interest rate adjustment is not reversed, this interest rate adjustment activity has the status Active. This means that there can be several activities with the status Active for a financial transaction, but only one activity can have the status Active and not be an interest rate adjustment.

Planned Record Update Usually, planned records are visible in the cash flow with the best possible estimated value and then transferred to SAP Cash and Liquidity Management. As long as the interest rate has not been adjusted, it will be updated in the manner in which the update has been defined in Customizing. For this purpose, you must configure one of the following planned record update methods in the Settings for variable interest rates area under Treasury and Risk Management  Transaction Manager  General Settings  Organization  Configure Company Code Additional Data: 왘

Zero update Interest rate flows that have not yet been adjusted receive an interest rate of 0% and therefore the amount 0.

왘

Update with automatically maintained interest rates The interest rate is the last interest rate adjusted automatically in the system for the reference interest rate.

왘

Update with manually maintained interest rates The interest rate is the last interest rate adjusted manually in the system for the reference interest rate.

왘

Update with current interest rates The interest rate used is the last interest rate adjusted in the system for the reference interest rate, regardless of whether it was created manually or automatically.

왘

Update with automatically/manually maintained interest rates The interest rate is the last interest rate adjusted automatically in the system for the reference interest rate. If there is no automatically adjusted interest rate, the last manually adjusted interest rate is used.

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Planned Record Refresh Because the current market data or interest rate adjustments change the estimated values of other financial transactions for reference interest rates, you should refresh the planned records for financial transactions at regular intervals. This also ensures that the data in SAP Cash and Liquidity Management remains as up to date as possible. A change to a calendar or a correction within financial mathematics can also make it necessary to adjust the planned records or entire cash flow according to these changed framework conditions. You refresh the planned records for an individual financial transaction according to the planned record update method by calling a financial transaction in change mode and saving it. If you want to refresh planned records for several financial transactions simultaneously, you can use the Update Planned Records transaction (TJ09), which you can also execute in batch processing. Transaction: TJ09

After you start Transaction TJ09, you access a selection screen (see Figure 3.27). For the Interest Rate Adjustment kind of adjustment, you make restrictions to the company code and the fixing date up to and including when the interest rate adjustments will be performed (General Selections screen area). You can also restrict the reference interest rates to be adjusted and specify whether you will select all financial transactions or single transactions (Specific Reference Interest Rates for Interest Rate Adjustment and Specific Transactions screen areas). The SAP system provides you with the standard selection tools when making these restrictions. You can use these tools to enter or exclude values and value ranges.

Log

After execution, the system displays a log that specifies for all financial transactions in the selection range whether and at what interest rate a planned record refresh was performed. You can navigate directly from the log to the transaction display screen. Cash Flow Recalculation The Money Market: Generate Cash Flow transaction (TMFM) regenerates the cash flow for fixed-term deposits, deposits at notice, and commercial paper. Events such as calendar changes can make it necessary to recalculate even fixed-interest financial instruments.

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Also, for deposits at notice, the cash flow is generated in advance for the number of half years defined in Customizing under Treasury and Risk Management  Transaction Manager  Money Market  Transaction Management  Define Transaction Types. If the deposit at notice is not terminated during this period, you can use the Deposit at Notice Cash Flow Update transaction (TM21) to regenerate the cash flow in advance for this period.

Figure 3.27 Selection Screen for Interest Rate Adjustment

Manual Interest Rate Adjustment You can use the following transactions to manually process interest rate adjustments: Create Interest Rate Adjustment (TI10), Change Interest Rate Adjustment (TI11), Display Interest Rate Adjustment (TI12), and Reverse Interest Rate Adjustment (TI37). Since all these transactions use

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the same screens, it is sufficient to describe only one of these transactions in detail. Transaction TI10

After you have started Transaction TI10, use the company code and financial transaction number for the Interest Rate Adjustment kind of adjustment and access the interest rate adjustment screen (see Figure 3.28). You can double-click the icon in the Int.fixing column to display details on this interest rate adjustment in the Interest rate adjustment: Detail view screen area. You can enter the interest rate for all interest rate adjustments with the status In process.

Figure 3.28 Manual Interest Rate Adjustment Reversal

When reversing an interest rate adjustment in Transaction TI37, select the interest rate adjustment you want to reverse together with all subsequently performed interest rate adjustments.

Automatic Interest Rate Adjustment Transaction TJ05

The Automatic Interest Rate Adjustment transaction (TJ05) uses the same selection screen (see Figure 3.27), log, and functions as the planned record update. You can create several interest rate adjustments at the same time. The requirement for this is that you have used the data feed or a file interface to import market data for the reference interest rates (see Chapter 7).

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You can use the Reverse Automatic Interest Rate Adjustment transaction (TJ05_REV) to reverse only interest rate adjustments that were created automatically. When doing this, the interest fixing date on the selection screen is the decisive date up to which the reversal must be performed.

3.3

Reversal

Update Interest Rate Adjustment If the For reference interest rate entry option is selected as a date update rule in the interest rate adjustment condition, interest rate adjustments will be made if the market data table contains an entry (on any date) during the term. Before the start of the term, there is usually no market data for dates during the term.

Recalculation

You can use the Update Interest Rate Adjustment Dates transaction (TJ13) to recalculate the interest rate adjustment dates during the term.

3.3.2

Price Adjustment

Just as variable interest is possible, variable prices (known as floating prices) are also possible. The commodity swap can refer to a quotation in relation to a commodity, while the total return swap can refer to a quotation in relation to a security (which can also have variable interest at the same time). The price adjustment runs in the same way as or identical to the interest rate adjustment described in Section 3.3.1. For the commodity and securities price adjustments, identical planned record update methods are defined for the interest rate adjustment. For commodities, there is one additional planned record update method: the commodity price is calculated using the commodity curve, which must also be specified.

Planned record update

The planned record refresh and manual/automatic price adjustments are executed using the same transactions (TJ09, TI10, TI11, TI12, TI37, TJ05, and TJ05_REV). For these transactions, you make a selection in the Kind of Adjustment screen area to indicate whether the adjustment concerns an interest-rate adjustment, commodity-price adjustment, or securities price adjustment. Once you make your selection, the associated selection parameters become ready for input (see Figure 3.27).

Planned record refresh and price adjustment

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3.3.3 Fixing the exchange rate

Exchange Rate

The financial instrument known as a foreign exchange fixing transaction relates to a middle rate quoted on the stock exchange on a specified day. As soon as this rate is determined, use automatic or manual fixing to enter it in the financial transaction. The fixing creates an activity transition from the Fixing activity or the Fixing Settlement activity to the Contract activity. It is also necessary to fix the foreign exchange rates for some financial instruments from the OTC options area. In these cases, fixing is not an activity in itself. Rather, it is the exchange-rate entry made in the financial transaction. The OTC option can be exercised only when all fixings have been performed for a transaction.

Automatic Fixing Processing Automatic fixing processing for the foreign exchange financial instrument by means of the Automatic Fixing Processing transaction (TBCS) inserts the middle rate with exchange rate type M from the currency table TCURR into the financial transaction. For spreads that deviate from the ask rate and bid rate, a markup/markdown is taken into account for the amount of the separately stored fixing spread. The financial transaction is then saved in the Contract activity. The requirement for automatic fixing processing is that you have used the data feed or a file interface to import market data for current foreign exchange rates (see Chapter 7).

Manual Fixing You can also use the Fixing button in the Execute Fixing Transaction transaction (TXV5) or Process Financial Transaction transaction (FTR_EDIT) to fix the foreign exchange financial instruments. You can use both transactions to access a financial processing transaction data screen in order to enter a currency rate and save the financial transaction in the new Contract activity.

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3.3

Average Rate Fixing The Fix Average Rate transaction (TAV1) fixes exchange rates for the average-rate option, basket option, and correlation option financial instruments. For these financial instruments, the dates by which foreign exchange rates must be fixed are saved upon creation of the financial transaction. The settlement amount is determined from the foreign exchange rates when the option is exercised.

Fixing

The selection screen for the transaction contains general selections for the financial transactions. You can use the Up to and including rate date parameter to define the date by which fixing is to be performed.

Selection screen

If you have set the Only exact day rates permitted indicator, the system takes into account only rates with a date that concurs with the fixing date for the financial transaction when determining foreign exchange rates. The system issues an error message if no foreign exchange rate is defined in the system for the specified date. If this indicator is not set, the system first tries to find a to-the-day rate when determining foreign exchange rates. If this is not possible, the system also considers rates that are in the past from the perspective of the specified fixing date. After you make your selections, the system displays a log with the results and error messages.

Log

The Reset Average Rate Fixing transaction (TAV2) resets the foreign exchange rate fixings performed in Transaction TAV1. You can then perform the fixings again.

Reset fixing

The selection screen in Transaction TAV2 is similar to the selection screen in Transaction TAV1 (Fix Average Rate). The As of and including rate date field specifies from which key date the fixed rates are to be deleted. The log is structured in exactly the same way.

3.3.4

References

A reference establishes a relationship between any numbers of financial transactions. The reference category determines the meaning of a reference. Some references are automatically created for actions in the financial transactions, while others are created manually by the user. You can

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use the following transactions to process references: Create Reference (TBR6), Change Reference (TBR7), Display Reference (TBR8), and Reverse Reference (TBR9). Reference categories

Table 3.7 displays the reference categories available in the system. Reference Category

Description

Creation

BID

Offer

Automatic

CON

SWIFT confirmation files

Automatic

EUR

Euro transaction currency changeover

Automatic

MIR

Mirror transaction links

Automatic

KMP

Nettings

Manual

OPT

Option reference derivatives

Automatic

PRL

Rollover of foreign exchange transactions

Automatic

REF

General reference

Manual

SWP

Foreign exchange swap

Automatic

ICH

Issuance contract hedge

Manual

Table 3.7 Reference Categories

Except for the mirror transaction links, you can also perform manual changes for automatically created references. For example, after reversing a currency option that belonged to an option spread, you could reassign the newly created currency option manually to the other currency option. However, such manual intervention is necessary only in exceptional cases. Collective processing of references

You can use the Collective Processing of References transaction (TBRL) to monitor references. The result list contains the following functions for accessing reference processing: Create, Change, Display, and Reverse.

Overview via a reference category

To gain an overview of all nettings with a partner, for which money market transactions are involved, proceed as follows: start Transaction TBRL and select the reference category KMP and the money-market application. Now, restrict the selection to one or more partners.

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Overview of the References In the creating a financial transaction data screen, you can gain an overview of the references associated with a financial transaction via Environment  Object links. Double-clicking a reference takes you to the detailed display screen for the reference. You can navigate to the relevant financial transactions from there.

3.3.5

Settlement

The processing category mentioned in Section 3.1.9 also defines whether there are settlement activities. For example, settlement category 00101 is defined for product category 600 and transaction category 100 with the activity sequence: Order – Contract – Settlement. In this way, you can use the processing categories to exert a control function for creating a financial transaction.

Settlement activity

Settlement causes an activity transition from the current activity to the corresponding settlement activity. When doing this, you can change data, and the system checks the consistency of the data. In the central entry transaction for processing a financial transaction (Transaction FTR_EDIT), the settlement function is represented by the Settle button. Mass Settlement You can use the Mass Settlement of Financial Transactions transaction (FTR_ MASS_SETTLE) to settle several financial transactions simultaneously.

3.3.6

Status Management

Transaction management is linked to the general status management function. This is where the system status is defined and an assignment is defined for which business activities are possible for a status. Because all the transactions in transaction management represent business activities, status management also defines how an activity can set or delete one or more system status value. In addition, you can define the user status for yourself, as well as configure how it is controlled. The current status and resulting business activities are displayed on the Status tab page of the data screen.

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Example: user status

For fixed-term deposit 51A with transaction type 100, when the contract is created, it should not be possible to settle the transaction until the counter-confirmation is received. To do this, create a profile in Customizing under Treasury and Risk Management  Transaction Manager  General Settings  Transaction Management  Status Management  Define Status Profile and assign a name to the status profile, enter some text, and specify a maintenance language. If you double-click a row that contains a status profile, you access the screen shown in Figure 3.29 and can define the status here. You can use the Object Types button to assign it to the money-market financial instrument.

Figure 3.29 Customizing Screen for Defining a Status Profile

If you double-click the user status displayed in a row, the system takes you to the activity control screen for the status profile described as transaction business in Figure 3.30. This is where you make the settings to ensure that the Settle business activity (described as a business transaction in Figure 3.30) is forbidden by the status. Setting the status ABC is the next action for the Create Contract activity, while deleting the status is the next action for the Confirm activity.

Figure 3.30 Customizing Screen for Transaction Control for a Status Profile

After saving your entries, you must assign the new status profile to the required transaction type in Customizing under Treasury and Risk

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3.3

Management  Transaction Manager  Money Market  Transaction Management  Transaction Types  Define Transaction Types. Correcting the Status If the status of a financial transaction becomes inconsistent, you can use the report RFTB_STATUSOBJECT_CREATE to restore the correct status.

3.3.7

Workflow

You can use a workflow to define release procedures for creating or processing a financial transaction, and to include the release in a user's worklist. The status management function triggers events for the business object BUS2042 (financial transaction) and thereby sets off workflows. For product type 51A with transaction type 100, you want to implement a one-step release procedure for creating a contract so that another processor must concur before the contract can be created and subsequent processes, such as settlement, can be performed. It should also be possible to process the financial transaction and, in this case, reset the release procedure. In Customizing, under Treasury and Risk Management  Transaction Manager  General Settings  Transaction Management  Release  Define Release Procedure, you can make the corresponding entry for the product type and transaction type and set the Release procedure flag. Select the row and double-click the Release conditions folder. You can now create a new release (see Figure 3.31).

Figure 3.31 Customizing Screen for Defining Release Conditions

In Customizing, under Treasury and Risk Management  Transaction Manager  General Settings  Transaction Management  Release 

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Adjust/Copy Workflow Template, you should then copy the specified rule 20000034 and workflow 20000139 and adjust them according to your requirements. If you have created a new workflow, you must still use the Display/ Maintain Event Type Linkages transaction (SWETYPV) to add the new task to the event type linkage for the business object BUS2042. This transaction is located in the menu under Tools  ABAP Workbench  Development  SAP Business Workflow  Definition Tools  Events  Event Linkages. If you now create a financial transaction of this kind as a contract, a new work item is created for approval in the worklist of the specified processor.

3.3.8

Change Documents

The changes to every financial transaction are logged in the database and written to change documents. You can navigate from the transaction creation data screen to the selection screen for change documents (see Figure 3.32) via the main menu: Environment  Change documents. Alternatively, you can call the Treasury: Change Docs Transactions transaction (TBCD) directly.

Figure 3.32 Selection Screen for Change Documents

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You can now enter a financial transaction and other parameters. After execution, the system issues a list of all the changes that correspond to the selection parameters (see Figure 3.33).

Figure 3.33 Result Screen for Change Documents

3.4

Operative Reporting

You can use operative reporting to control dates within transaction management, check the progress of financial transactions, and gain an overview of existing financial transactions. Operative reporting provides you with standard reports you can call via transactions or parameter transactions. Parameter transactions call the corresponding program together with a variant that fills the input fields with pre-assigned default values. Parameter transactions often have longer transaction codes than those of transactions. For example, the transaction code S_ALR_87014407 calls the Journal of Financial Transactions transaction (TJ01), which restricts itself to money market and is pre-assigned with the values 510 to 560 for product categories.

Parameter transaction

The report flow is always the same. First of all, you can select financial transactions on a selection screen according to different perspectives. After making your selections, the system displays a result list of the

Report layout

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selected financial transactions formatted according to your specifications. You can usually double-click the relevant transaction or use the Details button to navigate from this list to the individual display screen for a financial transaction, or to select another function for a transaction. This section describes the most important standard reports and distinguishes between reports according to their function, namely controlling and overview. The information system of Transaction Manager provides more information on reporting and data analysis functions, which we describe in Chapter 11.

3.4.1

Controlling

The control function in transaction management includes dates for specific events (such as interest-rate adjustment for variable interest), as well as the financial transaction process itself (e.g., to clarify whether correspondence has been performed). The following is a selection of the most important reports that focus on control functions. 왘

Alert monitor The Financial Transaction: Alert Monitor transaction (FTR_ALERT) combines several special control transactions. Messages are displayed in the financial transactions in compressed format. This provides you with a comprehensive view of the following areas: settlement, release, payment and posting, and correspondence. Variants You can use variants to save dynamic date entries (e.g., "Today minus 3 days") using the shortcuts described in Section 3.1.1. This enables you to perform periodic checks very easily.

왘

Correspondence monitor The Correspondence Monitor transaction (FTR_COMONI) is the main tool in correspondence (see Chapter 4).

왘

Maturity schedule for OTC options The Option Expiration transaction (TJ06) displays a clear overview of OTC options and their due dates.

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From the result screen, you can navigate to the transaction processing screen for individual OTC options and execute the Display, Exercise, or Expiration trading functions. 왘

Expiration/barrier check You can use the Collective Monitoring of Options transaction (TI94) to check the instrikes and outstrikes of currency barrier options. The system compares the financial transaction data with the relevant rates and proposes one of the Knock-in, Knock-out, or Expiration trading functions.

왘

Interest rate and price adjustment schedule The Interest Rate and Price Adjustment Schedule transaction (TJ07) shows when interest rate adjustments, commodity price adjustments, or securities price adjustments need to be made for the financial transactions you have selected, and the status of each of these adjustments.

3.4.2

Overview

To meet different requirements, it is important to gain an overview of existing financial transactions from different perspectives. The following are the most important reports that focus on providing an overview of financial transactions: 왘

Collective processing We introduced you to collective processing in Section 3.1.2. Transaction FTR_00 provides central collective processing as well as financial instrument–specific collective processing. You can use collective processing to get an overview of existing financial transactions and to navigate to processing a financial transaction from the respective result lists.

왘

Offer overview As with collective processing, you can use the Evaluate Offers transaction (TCOM) to get an overview of the offers created. You can navigate from the result list to the offer display screen in order to obtain more detailed information.

왘

Journal of financial transactions In the Journal of Financial Transactions transaction (TJ01), financial transactions are selected according to the selection parameters and

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then issued according to the product type, transaction type, creation date, and/or activity category. You can double-click to navigate to the individual display screen for a financial transaction. 왘

Transactions with cash flows You can use the Journal: Transactions with Cash Flows transaction (TJ12) to display the cash flows for pre-assigned financial transactions. Information on the activity category and the posting status of a flow are also displayed in addition to the usual cash flow data. Further data can be shown as required. Here, too, you can double-click to navigate to the display screen for an individual financial transaction.

왘

Money market payment schedule You can use the Payment Schedule transaction (TJ04) to obtain an overview of the payment-relevant flows for the financial transactions you have selected, and their status values. The flows are sorted by payment date. You can double-click a row to navigate to the corresponding financial transaction.

왘

Position monitor You can access the position monitor via the Dealer Position transaction (FTR_DEALPOS). This transaction lists the positions of currencies for the key dates. You can double-click an amount to have it explained, as the system displays the corresponding financial transactions in a list. Double-clicking this list will display the individual financial transaction. You can use the BAdI FTR_TR_POSMON to influence the selection and evaluation of the data.

왘

Transaction release Provided that the workflow has been activated in Customizing, the Transaction Release: Work Item List transaction (TJ08) displays all release workflows that have been triggered in SAP Treasury and Risk Management. You can double-click a row in the result screen to display the transaction-specific workflow log.

왘

Securities lending You can use the Securities Lending, Collateral, Revenues transaction (TSL10) to display all the financial transactions for the securities lending financial instrument on a given key date, together with their quantity, market price, and market value. Furthermore, all cash securities deposits and securities collateral are displayed with their market

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value. The collateral rate is calculated from the market value of the lent position, as well as the market value of the securities, and is displayed as a percentage. You can enter a time interval on the Securities lending revenues tab page of the selection screen. The proportion that is omitted for this time interval is calculated, and the securities lending revenues are displayed. 왘

Facility The Line of Credit and Utilization transaction (TM_60) displays a facility and its utilization. You can also navigate to the display screen for the financial transaction and the display screen for the partner.

The Lines of Credit, Drawings, Fees transaction (TM_60A) is used to calculate the commitment of lines of credit for the primary and secondary market, drawings, and fees key figures per facility, bank, and line of credit. You can perform the calculation for either a key date or a time interval. For the key date, the system does not display the drawings, but rather the utilization of the facility. 왘

Securities account list You can use the Securities Account List transaction (FWDP) to display and print, if required, master data for the purpose of selecting a securities account. When selecting the securities account, you can use various parameters to restrict your selections (e.g., company code, securities account type, securities account category, or portfolio).

왘

Class You can use the Class Information transaction (FWDG) to output all the class data to a printer. You can restrict the selection by ID number and product type. If required, it is also possible to print the cash flow for a bond, generated from its master data.

3.5

Product Categories

The previous sections introduced you to the principles and basics of transaction management. We will now turn our attention to the product categories available, which constitute the formation of the financial instruments. These product categories use the conditions, flows, and

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underlyings that have already been described. In this section, you will learn exactly how these elements are used and in what way, as well as about additional structure features and properties of each product category. However, each product category will not be described in full. Therefore, if you find that a function or property is missing below, you should ask an SAP consultant if it is available.

3.5.1

Securities

Transaction management is solely concerned with the management of financial transactions—that is, the purchase or sale of a securities on a specific key date. We discuss the securities position and its properties in Chapter 5. Product categories: securities

Input

The following product categories are summarized under the term securities: 왘

Stock

왘

Investment certificate

왘

Subscription right

왘

Bond

왘

Drawable bond

왘

Bond with installment repayment

왘

Warrant bond

왘

Convertible bond

왘

Index warrant

왘

Equity warrant

왘

Currency warrant

왘

Bond warrant

왘

Shareholding

You can first create the purchase or sale of securities as an order. The order book is managed in position management. This order can be executed or expire.

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The structure features are defined in the securities master data (see Chapter 2). In the financial transaction, the securities ID number is used to make reference to the securities master data (see Figure 3.24). In the Securities Acct field, you specify the securities account used by position management to manage this position. This means that you have to specify only the securities quantity and price, possibly with an exchange rate or the amount in the local currency, for example. The accrued interest calculation is displayed and can be suppressed for the purchase or sale of a bond. You can use the coupon information to influence the accrued interest. All standard scenarios relating to accrued interest calculation are supported here. The effective interest rate is also calculated and displayed. You can also calculate the securities price by specifying an effective interest rate. The physical delivery of securities can be confirmed via correspondence and displayed in the financial transaction and in the position. You use the Position Value date field to control when the financial transaction will have an effect on the position and, therefore, whether you produce financial statements on the trade date (trade date accounting) or on the settlement date (settlement date accounting).

3.5.2

Fixed-Term Deposit

In the case of a fixed-term deposit, interest is applied to an amount at a fixed-percentage rate for an agreed term. The following points are of particular interest here: 왘

Nominal amount You can enter a premium/discount by specifying a payment amount that differs from the nominal amount. Changes in nominal value can occur at any time during the term of the fixed-term deposit. A premium/discount is possible even if this happens.

왘

Interest You use an interest condition to enter the interest. The first interest condition is displayed. You can enter all other subsequent conditions on the detail screen. Interest capitalization is possible. Similarly, the interest payment can be specified as an amount.

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왘

Repayment At the end of the term, the remaining nominal amount is repaid in the form of a final repayment. A rollover moves the end of the term, thus making it possible to change a nominal amount and enter new interest conditions.

3.5.3

Deposit at Notice

Nominal amount and interest

In the case of a deposit at notice, interest is applied to an amount at a fixed-percentage rate until further notice. Nominal amounts and interest have the same scope for both deposits at notice and fixed-term deposits. The period of notice enables you to announce the period of time between agreeing to the termination and making it effective. In the case of a termination, the nominal amount is returned in the form of a final repayment.

Calculation

In the case of deposits at notice, the cash flow is calculated only for a time in the future, configured in Customizing. Occasionally, it is necessary to update this information by changing the financial transaction or using the Deposit at Notice Cash Flow Update transaction (TM21).

3.5.4

Commercial Paper

Commercial paper defines the nominal amount to be repaid at the end of the term for a financial transaction and the interest rate. The purchase value of commercial paper at the start of the term for a financial transaction equates to the nominal amount less the interest. In Customizing, you can choose whether the net present value or nominal value is the basis for this transaction. Furthermore, the interest-rate flow can also be shown in the cash flow or represented by a premium/discount, in the case of a nominal flow. Calculation

You can specify either the interest rate or payment rate in the financial transaction. The other value will then be calculated. A yield or cash discount can be used to calculate the net present value. Linear discounting is applied for terms of less than one year, while exponential discounting is also possible for terms longer than one year.

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3.5.5

Cash-Flow Transaction

You can use a cash-flow transaction to map any cash flow. Each flow must be created individually. If you wish, you can enter further information on any of the flows in the flow detail screen. The cash-flow transaction also makes it possible to enter a premium/discount for nominal flows. At the end of the term, the system checks whether the position is to be completely returned again.

3.5.6

Interest-Rate Instrument

In the case of an interest-rate instrument, interest is applied to a nominal amount within the term. The nominal amount can change during the term. Furthermore, a premium/discount is possible. Fixed and variable interest rates are possible. Interest can also be a specified amount. If you wish, you can use a subsequent condition to change the interest several times during a term. Interest capitalization is possible. A combination of interest capitalization and nominal interest rates is also permitted.

Interest

The nominal amount can be repaid in the form of a final repayment, annuity repayment, or installment repayments. Installments can be predetermined or calculated.

Repayment

3.5.7

Facility

A facility defines lines of credit as the framework conditions for a series of credit exposures known as drawings. The facility is entered as a separate financial transaction within transaction management. Drawings can vary in time and amount up to the approved line of credit amount. A drawing is performed when one of the following financial instruments is created and the facility is entered on the Administration tab of the data screen during transaction creation: fixed-term deposit, deposit at notice, cash-flow transaction, or interest-rate instrument.

Drawings

A confirmed facility guarantees availability of a limited-credit total at any time. The borrower must pay a fee for this. For an unconfirmed facility, however, every single drawing must be agreed upon.

Confirmed and unconfirmed

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Bilateral and syndicated

Facilities can also be divided into bilateral and syndicated facilities. Bilateral facilities have a borrower and a lender, while syndicated facilities have a borrower and several lenders, each with their own lines of credit. There are main lines of credit, which exist in parallel, as well as sub-lines of credit, which are subordinate to main lines of credit. You must specify which tasks the business partners can take on in connection with the facility. You do this in Customizing under Treasury and Risk Management  Transaction Manager  Money Market  Transaction Management  Syndicated Facility  Define Partner Rank.

Main lines of credit and sublines of credit

In order to work with other lines of credit in addition to the main line of credit, you must define these additional lines of credit in the Define Lines of Credit transaction (TCL1), which you can find in the menu under Treasury and Risk Management  Transaction Manager  Debt Management  Master Data  Facility. In order to create a new line of credit in the facility, choose Other lines on the Structure tab. If you want to add another main line of credit, enter it in the Credit Line column. If you want to add a new sub-line of credit, enter it in the Subline of Credit column within the row that contains the main line of credit. You can use the Charges tab to specify charges. Depending on utilization, for example, you can apply a different interest rate. In order to do this, you must have defined condition types (for example, Facility fee free, Facility fee due, Facility fee overdrawn, and Facility fee available). On the Rules tab page, you can configure which financial instruments are permitted as drawings. The Profiles tab page provides you with an overview of financial transactions that have already been assigned to the facility.

3.5.8

Fiduciary Deposit

A fiduciary deposit is a cash flow–based financial transaction. Only the purchase of a fiduciary deposit is mapped; there is no mapping of the sale of a fiduciary deposit. The depositor pays a premium and obtains a fixed cash flow every month, which comprises the repayment and interest rate flow. The flows can be imported from Excel and contain any number of inflows.

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Collateral must be defined for the fiduciary deposit. You can enter bonds, bonds with installment repayment, warrant bonds, or convertible bonds on the Collateral tab page. You can then use the Correction trading function to correct existing flows. Furthermore, you can use the Adjustment trading function to remove or add flows.

3.5.9

3.5

Collateral

Foreign Exchange Transaction

A foreign exchange transaction is the purchase or sale of one currency against another currency on the current date (known as a spot transaction) or at a certain time in the future (known as a forward transaction). Usually, different transaction types are used to differentiate between spot and forward transactions.

Spot/forward transaction

A financial transaction can be physically delivered or written off by means of a cash settlement. In the event of a rollover or premature settlement, a financial transaction is created with contradictory conditions in order to write off the original transaction, and a second financial transaction is created for the new values. In the case of a non-deliverable forward (NDF), it is known from the outset that a cash settlement will take place because, often, a currency cannot be listed. Here, you must perform a fixing whereby the settlement amount or settlement exchange rate is entered and the cash settlement is calculated.

Exercising and NDF

A foreign exchange swap comprises two individual transactions: a spot transaction and a forward transaction, both of which are linked to each other via a reference of the type SWP.

Foreign exchange swap

3.5.10 Cap/Floor A cap or floor is a series of interest rate options that are exercised when a reference interest rate exceeds or falls short of a certain level. In addition to entering an upper or lower limit, an interest condition can be used to specify a series of interest rate options. Changes can be made using subsequent conditions. Since conditions can also be used to specify premiums, a single premium is as possible as a premium for each individual interest rate option.

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3.5.11

Interest Rate Swap

Nominal

An interest rate swap is a swap transaction based on different interest rates. Since all entries are made for each side, you can control both sides independently. You can also enter different currencies for both sides (currency swap). During the term, the nominal amount can be changed any number of times for both sides. These changes can be transferred to the other side.

Interest

Conditions support both the use of nominal interest and interest capitalization. Fixed interest, a fixed amount, or variable interest can be entered for both sides, while changes to interest can be made using subsequent conditions. As with a discount swap, interest can be paid at the start of a period. A discounted interest is therefore applied with the same rate as the interest condition.

Capitalized interest payment

In the case of interest capitalization and a non-posting-relevant nominal amount, the capitalized interest is paid during the term of the payment of capitalized interest. The EONIA swap is a special form of such a compound swap.

Repayment

At the end of the term, the outstanding nominal amount is repaid in a final repayment.

3.5.12 Forward Rate Agreement (FRA) You can use a Forward Rate Agreement (FRA) to specify a fixed interest rate that is to apply to a future period. The difference between this amount and the market interest rate is paid at the start of the hedge period. There are no condition details. Rather, the lead time, hedge period, and date on which the interest will be fixed are specified, as well as the base amount, interest rate, and reference interest rate. Calculation

Two types of calculations are available here and can produce slightly different results. Either the FRA interest rate or the reference interest rate is determined, and the difference of the resulting amounts is then determined and discounted accordingly. Or, both the FRA interest rate and the reference interest rate are determined. The two associated amounts are then discounted separately, and the difference amount is determined.

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3.5

3.5.13 Total Return Swap A total return swap swaps the return leg, which comprises the cash flow for a securities position (change in market price, dividends, interest payments, etc.), for the funding leg, which comprises the cash flow for the fixed or variable interest applied to a nominal amount. At present, only stocks are supported as securities. On the return leg, you specify the securities quantity and price. You also specify the place of trading here. You use price compensation conditions to specify the times at which the market price is determined and at which the difference between the current and previous market price is to be paid. You can define an anticipated dividend payment schedule on the Dividends tab page and adjust the dividends during the term.

Return leg

The funding leg contains the nominal amount and an interest condition for nominal interest or interest capitalization. Fixed interest, a fixed amount, or variable interest are possible interest conditions and can be changed using subsequent conditions.

Funding leg

When exercising takes place at the end of the term, the price adjustment can be made directly. If, in the event of advance maturity, a price adjustment is not available by chance, this can also be created and executed directly.

Maturity

You can use the Post Corporate Action transaction (FWKB) to perform corporate actions for a total return swap.

Corporate actions

3.5.14 Future A future is a financial transaction that has a standardized structure and is binding for both parties. Only the purchase or sale of the future is represented in transaction management. Its position and resulting margin payments are managed in position management. The structure features are defined in the futures master data. Depending on the underlying, various future categories are defined here: 왘

Securities future

왘

Index future

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왘

Interest future

왘

Commodity future

In the financial transaction, the securities ID number is used to make reference to the master data. In the Futures Account field, you specify the futures account used by position management to manage this position. You therefore specify only the units, exchange rate, and market value. Position date

You use the Position Value date field to control when the financial transaction will have an effect on the position and, therefore, whether you produce financial statements on the trade date (trade date accounting) or on the settlement date (settlement date accounting).

3.5.15 Repo Repo and reverse repo

You can use a repo (also known as a repurchase agreement) to sell a bond, drawable bond, warrant bond, or convertible bond on the current date at a spot exchange rate and repurchase it again on a future date at a specified forward rate. In the case of a reverse repo, you purchase on the current date and sell on a future date. For this purpose, you must use the securities ID number, securities account, and nominal amount to specify the corresponding position.

Delivery

In the case of repos with delivery, the securities are actually taken from the securities account. Interest earned during the repo term is then due to the lender. In the case of repos without delivery, the repos remain in the securities account, and the interest earned is due to the borrower.

Accrued interest

If interest is to be accrued, this can be determined from the forward rate.

3.5.16 Forward Securities Transaction You can use a forward securities transaction to purchase or sell a certain number of stocks, investment certificates, bonds, or shareholdings for a particular amount on a future date. The forward rate is calculated from the spot rate and other considerations such as interest, costs, and dividends.

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In the event of a sale, you can specify whether the associated position is to be locked, or whether a check is to be performed and a warning or error message issued, if necessary.

3.5

Position lock

The forward securities transaction is adjusted when corporate actions are posted. A dividend schedule is defined on the Dividends tab page. You can also manually adjust dividends here. At the end of the term, the dividend can be delivered as a cash settlement and also as a physical exercise. The entire forward securities transaction or parts of the financial transaction can be rolled over, or the due date can be brought forward.

3.5.17 Listed Option A listed option is a financial transaction that has a standardized structure and is binding for one party. The structure features are defined in the securities master data. Depending on the underlying, various categories of listed options are defined here: 왘

Stock option

왘

Stock index option

왘

Bond option

왘

Futures option

왘

Commodity future option

Categories

In the financial transaction, the securities ID number is used to make reference to the master data. In the Futures Account field, you specify the futures account used by position management to manage this position. You therefore specify only the units, exchange rate, and market value. You use the Position Value date field to control when the financial transaction has an effect on the position and, therefore, whether you produce financial statements on the trade date (trade date accounting) or on the settlement date (settlement date accounting).

Futures account and position date

You can treat listed options as futures and generate corresponding initial, variation, and close margins in position management.

Margin

You can use the Exercise Option Right transaction (FWER) to exercise a listed option at the end of the term (European) or at any time (American),

Expiration and exercise

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or to allow a listed option to expire. In the event of a physical delivery, the units are posted to the securities account. In the case of a cash settlement, a payment is created.

3.5.18 OTC Option Underlying

Option category

An OTC option is a non-standardized financial transaction that is binding for one party. An option premium is paid for this right. The following underlyings are available for the OTC option: 왘

Securities

왘

Foreign exchange

왘

Interest rate swap

왘

FRA

왘

Future

왘

OTC option

왘

Commodity forward

Depending on the OTC option category, one or more barriers may exist. The following object categories are available: 왘

Standard

왘

Average Rate Option

왘

Down&In

왘

Down&Out

왘

Up&In

왘

Up&Out

왘

OneTouchCall

왘

OneTouchPut

왘

HitAtEndCall

왘

HitAtEndPut

왘

Double Knock Out

왘

Double Knock In

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왘

Double Barrier Up&In Up&Out

왘

Double Barrier Down&In Down&Out

왘

Basket Option

왘

Basket Option AVG Rates

왘

Correlation Option

왘

Correlation Option Avg Rates

The OTC option can also be exercised at the end of the term (European) or at any time (American). In the event of a physical delivery, a financial transaction is created. In the event of a cash settlement, a corresponding payment is created.

Expiration and exercise

3.5.19 Securities Lending In the system, you can enter only the lending, not the borrowing. Here, securities are lent from the securities position and transferred to a lending securities account. A distinction is made between fixed-term and open-ended lending. In the case of fixed-term lending, you enter both the start and end of the term. This lending can be rolled over. In the case of open-ended lending, you enter only the start of the term. The cash flow is then generated in advance for a time that can be specified in Customizing. The end of the term is determined by a termination. In both cases, the lending revenue is specified as a percentage or an amount with a frequency.

3.5.20 Forward A forward volatility agreement is the agreement to purchase or sell a straddle. A straddle is a combination of a currency call option and a currency put option with an identical underlying. The forward date is the date on which the term for the options commences. The straddle's strike is specified on the forward date. When performing the fixing, both straddle options are created as financial transactions. A termination prevents fixing.

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3.5.21 Forward Loan Purchase Loan types

If a loan is not disbursed until a later time, it is entered in the SAP Loans Management component. The forward loan purchase, however, is entered in transaction management, and the loan number is used to make reference to the loan. In other words, you have to enter the loan before you can enter the forward loan purchase. The forward loan purchase is available for only the following loan types: mortgage loans, borrower's note loans, policy loans, and general loans. Only the loan contract and the start of the term for the forward loan purchase must be specified. The loan is created once these conditions are met.

3.5.22 Commodity Forward A commodity forward is an unconditional, non-standardized forward transaction for the purchase or sale of a commodity at a specified price. The commodity ID is used to make reference to the commodity master data. The structure features here include specification of a quantity and its unit, as well as a price and its unit. (Not only currencies, but also currency units are supported.) Delivery

Physical delivery is not possible. The cash settlement is calculated using the spot price entered. Alternatively, the cash settlement can be entered directly.

3.5.23 Commodity Swap A commodity swap is a swap transaction based on different commodities. Since all entries are made for each side, you can control both sides independently. However, the number of flows must be the same for both sides. The commodity ID, quantity, payment currency, and (in the case of a fixed price) the price, or (in the case of a floating price) a possible spread is entered for all flows associated with a side. In the case of a floating price, it is possible to determine a price by using the average price for individual price fixings. Netting

Often, the flows of both parties do not have to be paid, but rather their difference does. This is possible via netting and a separate flow.

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3.6

Architecture

A well-founded understanding of the transaction management architecture is necessary if you want to understand the structure and functions of transaction management. Knowledge of the architecture also helps you to understand the interfaces between transaction management and other applications. These interfaces are described in Chapter 13. This section starts by describing persistence. All financial instruments have the same structure and are based on flows, conditions, underlyings, and/or master data. It is the financial instrument itself that determines upon which data a financial instrument is based and how the data is set out. This means we can save all data on financial instruments in the same database tables. We will then take a look at the application framework, which was implemented in order to take on tasks shared by financial instruments. Many of the tab pages on the data screen for transaction management are identical. The application framework takes on the role of managing these tab pages. The final part of this section will explain and demonstrate the architecture using a sample implementation of customer-specific tab pages. You can use these data screen tab pages to display and save your own data.

3.6.1

Database

The description of financial instruments in Section 3.1 provided an abstracted description of a standardized structure for all financial instruments based on flows, conditions, underlyings, and/or master data. This standardized structure is also reflected in data storage because the data for financial instruments is saved to the same database.

Financial instruments use the same databases

For each financial transaction, exactly one entry is created in the database table VTBFHA. This entry contains general information on the transaction. This is also where you find information on the current activity for the financial transaction in the RFHAZUL field, as well as the number status for the activities in the RFHAZUNR field.

Financial transaction

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Activities

A financial transaction usually has many activities (see Section 3.1.9). Each of these activities is represented by an entry in the database table VTBFHAZU. An important field in this database table is SAKTIV, which describes the active status of an activity. All activities, and therefore the entries for a financial transaction, are connected via the activity chain. The number of the previous activity is noted in the ROFHAZU field. This means that, starting with the current activity for a transaction, you can track back the entire history of the financial transaction.

Conditions

An activity can have several conditions (see Section 3.1.5). A condition is saved as an entry in the database table VTBFINKO. The key contained in the table is then used to assign the condition to an activity. The individual components of a formula are each saved as alternative conditions with their own entries in the database table VTBAFINKO. At runtime, the entries relating to the conditions and alternative conditions are grouped together in an internal table.

Flows

An activity can also have several flows (see Section 3.1.4), which are saved in the database table VTBFHAPO. One exception to this is variable interest and price flows for which the interest or price is still not fixed. These are stored in the database table VTBFHAPO_UNFIXED. At runtime, the entries from both database tables are usually brought together in an internal table. Important fields include the posting status (field SBEWEBE) and the blocking reason (field SSPRGRD).

3.6.2

Application Framework

Although the applications and functions of transaction management are implemented in separate function groups for each financial instrument, they provide a standard external appearance. This common display for the financial instruments has also been implemented in the application framework. The application is designed in such a way that it has control over the entire process. At certain times, it calls the application framework for certain functions. Figure 3.34 shows the transaction management architecture.

166

Architecture

Application

Application Framework Application Control

Databin Message Control Field Modification GUI Framework Open TRTM Connector …

Connector

Figure 3.34 Transaction Management Architecture

The individual components of the application framework are described in more detail below: 왘

Application The application has control over the entire process. At certain points and for specific functions, it calls methods of the application control. This means that subscreens from the application framework can be added to the application layout.

왘

Application control Application control is the main instance of the application framework and the interface to the application. Within application control, events are triggered and communicated to the other components of the application framework.

왘

Databin The databin is the container in which all the data for the financial transactions are managed.

왘

Message control Message control includes all messages, formats them, and can issue them.

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BAdIs for Open TRTM

왘

Field modification Field modification defines whether fields on the screens can or must have values, and whether they are hidden or shown. The user can use field selection to specify dynamic characteristics for fields. These characteristics are also influenced by the application via direct specifications. Field modification compares these specifications with the statistical characteristics of the fields and decides how the fields should be displayed.

왘

GUI framework The GUI framework can be used to include central subscreens in the application layout. These subscreens are defined in the function group FTR_SUBSCR, and local classes are created for the purpose of processing subscreens. There is also a global class for every subscreen, which encapsulates the business logic.

왘

Connector Transaction management is connected to position management via connectors (also called distributors). The securities, listed options, and futures financial instruments call their connectors directly. For the other financial instruments, the connectors are called via the application framework. The application does not recognize the connector; it is connected to the application as a BAdI via Open TRTM.

왘

Open TRTM Open TRTM is an interface in which additional SAP components or customer-specific applications can be included using BAdI technology. BAdI methods are called based on events within application control. Special interfaces are used in order to create the context for the BAdI.

SAP-specific BAdIs are used to connect SAP components to Open TRTM. These BAdIs, which are listed in Table 3.8, cannot be modified. BAdI

Meaning

FTR_BAV

Regulatory reporting

FTR_FINANCIAL_OBJECT

Financial object

Table 3.8 BAdIs for Connecting SAP Components to Open TRTM

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BAdI

Meaning

FTR_HEDGE_MGMT

Hedge management

FTR_MIRROR_DEALS

Mirror transactions

FTR_PARTNER_ASSIGN

Partner assignment

FTR_TR_DISTRIBUTOR

Distributor to position management

FTR_TR_FACILITY

Facility

Table 3.8 BAdIs for Connecting SAP Components to Open TRTM (Cont.)

Two BAdIs exist for connecting customer-specific applications to Open TRTM, both of which you can set up according to your requirements (see Table 3.9). BAdI

Meaning

FTR_TR_GENERIC

Generic, multiple use possible

FTR_CUSTOMER_EXTENT

Customer-specific tab pages

Table 3.9 BAdIs for Connecting Customer-Specific Applications to Open TRTM

The following methods are available in the BAdIs for event handling: 왘

EVT_APPLICATION_START method When creating an application control, the other components of the application framework are instantiated once.

왘

EVT_TRANSACTION_CHECK method The existing data is checked via the Check button in the application.

왘

EVT_TRANSACTION_SAVE_CHECK method The save process is triggered via the Save button in the application. The system checks the data first.

왘

EVT_TRANSACTION_SAVE_CANCEL method If messages are issued for the checks in EVT_TRANSACTION_SAVE_CHECK, they are displayed to the user in a dialog box. If the user terminates the save process, the termination is handled in this method.

왘

EVT_TRANSACTION_SAVE_REQUIRED method This method is obsolete but still called. If no messages are issued for

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the EVT_TRANSACTION_SAVE_CHECK method or the user skips the messages, the system queries all connected components to determine whether data has been entered and whether a save process is necessary. Because, however, the result of this query is then always set to Save necessary, there is no need to react to this method.

Interface

왘

EVT_TRANSACTION_SAVE_READY method The data is checked using the EVT_TRANSACTION_SAVE_CHECK method, and the save process was not terminated by the user. The data is now forwarded for updating.

왘

EVT_TRANSACTION_FCODE method This method is used to forward function codes that the application does not know to the components of the application framework.

왘

EVT_TRANSACTION_SET_DATA method Where a BAPI is used, the data is not available on the customer-specific screen but transferred to the BAdI implementation using this method.

왘

EVT_APPLICATION_FREE method In order to terminate the application framework, the allocated resources must be released first. This is particularly important for transactions that process several financial transactions in a row (e.g., automatic interest rate and price adjustments). If this method is not implemented correctly, the system may experience memory and performance problems.

Open TRTM provides the BAdI with the interfaces listed below, which are communicated to it during instantiation. The BAdI recognizes the context from the attributes and methods in the interfaces and can perform its tasks. 왘

IF_OPEN_TRTM_PROXY_DEAL_DATA interface The attributes of this interface are used to read the application data. For every executed attribute, there is also an attribute with an identical name and the suffix _ORI. This attribute specifies what the data looked like in the database before the transaction call. Table 3.10 lists the attributes and their relationships to the database tables.

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Attribute

Description

Database Table

A_TRANSACTION

Financial transaction

VTBFHA

A_ACTIVITY

Activities

VTBFHAZU

A_TAB_CASHFLOW

Flows

VTBFHAPO VTBFHAPO_UNFIXED

A_TAB_CONDITIONS

Conditions

VTBFINKO VTBAFINKO

A_EDITMODE

Edit mode

3.6

Table 3.10 Assignment of Attributes to Database Tables 왘

IF_OPEN_TRTM_PROXY_MESSAGE interface The methods in this interface are used to send messages to the application framework.

왘

IF_OPEN_TRTM_PROXY_FCODE interface Attribute A_FCODE contains the current function code for the application.

왘

IF_OPEN_TRTM_CUSTOMER_FMODE interface The methods and attributes of this interface are used to perform dynamic field modifications for the screens of the customer's own tab pages.

왘

IF_OPEN_TRTM_CUSTOMER_DATA interface If data has been appended to the database table VTBFHA, the methods in this interface are needed to read and write this data.

3.6.3

Customer-Specific Tab Page

The data screen for transaction management provides two customerspecific tab pages for customer-specific enhancements. This section will demonstrate the enhancement options available to you and how you can implement these enhancements. You implement the enhancements in the BAdI FTR_CUSTOMER_EXTENT. This BAdI is connected to the application framework via Open TRTM. A full description of a sample implementation would be too comprehensive for the purposes of this book. We therefore use the sample screens

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and function modules provided with the function group FTR_CUSTOM_ BADI_SAMPLE. We explain their structure and demonstrate a sample implementation of the BAdI when one of these function modules is called. First and second tab page

The first customer-specific tab page displays screen 0100 from the function group FTR_CUSTOM_BADI_SAMPLE. On this screen, you can view the company code and transaction number, as well as gain an overview of the conditions associated with using an ALV. You can use the Demo_ Button to trigger your own function code. It is forwarded via the application framework and the BAdI reacts to it by issuing a message. The second customer-specific tab page displays screen 0200 from the same function group. Here, you can use an ALV to gain an overview of the flows for a financial transaction. You can also use a button to trigger your own function code and issue a message.

PBO event

Before displaying the screens, the data is taken from the IF_OPEN_TRTM_ PROXY_DEAL_DATA interface during the PBO event and placed in the display structures or in the ALV. The IF_OPEN_TRTM_CUSTOMER_FMODE interface is also used to set the field values dynamically by calling the APPLY_ FMOD method.

PAI event

After displaying the screens, the process flow ensures that the SET_CUST_ DATA method is used to place the data in the IF_OPEN_TRTM_CUSTOMER_ DATA interface during the PAI event. This implemented logic is valuable only for the purposes of an example because it displays data only for the financial transaction. It does not display any customer-specific data. If you were managing your own data, you would either have to append it to the VTBFHA database table for transactions or store it in its own database table. In the latter case, you must take care of locks and updates yourself. Under no circumstances can you change the data of the application.

Preparation

The FTR_CUSTOM_BADI_SAMPLE_START function module is called to prepare the FTR_CUSTOM_BADI_SAMPLE function group. The references to the interfaces are saved in global variables so that they are available throughout the function group. Screens 0100 and 0200 are registered for the function codes for the customer-specific tab pages OPEN_TRTM_ CUST_01 and OPEN_TRTM_CUST_02, as the export parameters are

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filled with an assignment of the function codes to the screens. For both screens, the Company code and Transaction number fields in the IF_ OPEN_TRTM_CUSTOMER_FMODE interface are set to Display via dynamic field modification. Within the FTR_CUSTOM_BADI_SAMPLE_FCODE function module, the current function code is queried via the A_FCODE attribute of the IF_OPEN_ TRTM_PROXY_FCODE interface. If it is a function code created by clicking on a button on screen 0100 or 0200, a message would be issued in our example. The message is issued in the IF_OPEN_TRTM_PROXY_MESSAGE interface.

Function code handling

Because this example does not manage customer-specific data, but simply displays data, no checks need to be performed. However, the FTR_ CUSTOM_BADI_SAMPLE_CHECK function module is implemented to enable you to see how input data is checked. A message is created in the IF_ OPEN_TRTM_PROXY_MESSAGE interface in order to show that it has been called.

Checks

For the same reason, there is no need to save. However, the FTR_CUSTOM_

Save

BADI_SAMPLE_SAVE function module has been created in order to show

that

the

BAdI

methods

EVT_TRANSACTION_SAVE_CHECK

and

EVT_

TRANSACTION_SAVE_READY have been processed. An information message

is created in the IF_OPEN_TRTM_PROXY_MESSAGE interface. The FTR_ CUSTOM_BADI_SAMPLE_CANCEL function module is empty because we do

not need to reset any locks, for example. No function modules are provided for the EVT_TRANSACTION_SAVE_REQUIRED method because this event is obsolete. We have not considered BAdI methods for BAPI cases. You should definitely implement the BAdI methods for releasing resources and delete the global variables for the function group.

Resource release

To implement the BAdI itself, you must use the BAdI Builder—Implementations transaction (SE19), which you can find in the menu under Tools  ABAP Workbench  Utilities  Business Add-Ins. Proceed as follows:

BAdI implementation

1. In the Create Implementation area, select the Classic BAdI radio button, enter FTR_CUSTOMER_EXTENT, and choose Create Impl.

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2. In the dialog box, enter, for example, Z_FTR_CUSTOM_BADI_SAMPLE as the name of the implementation. Assign a short text and save your entries. 3. Switch to the Interface tab page and double-click to navigate to a method. Implement the call for the function modules described previously. One possible example of an implementation is illustrated in Listing 3.1. method IF_EX_FTR_CUSTOMER_EXTENT~EVT_APPLICATION_START. CALL FUNCTION ‘FTR_CUSTOM_BADI_SAMPLE_START' EXPORTING PI_PROXY_TRANSACTION = pi_proxy_transaction PI_PROXY_MESSAGES = pi_proxy_messages PI_PROXY_FCODE = pi_proxy_fcode PI_PROXY_FMOD = pi_proxy_fmod PI_CUST_TRANSACTION = pi_cust_transaction CHANGING PC_TAB_BADI_TABS = pc_tab_badi_tabs. endmethod. Listing 3.1 Sample Implementation

Update Ban When implementing, note that you cannot place the ABAP command COMMIT WORK within a BAdI. This is done within the application, as this controls the entire process.

3.7

Specific Topics

This chapter concludes by dealing with a few topics that are of interest in special cases. First, we deal with the roles available in transaction management. We describe what the roles are, their usefulness, and the roles that exist within SAP Treasury and Risk Management. Section 3.7.2 deals with mirror transactions. After a general introduction to mirror transactions, a detailed example will be provided to describe the necessary Customizing settings. This will be followed by a section on internal foreign exchange trading. After the introduction, we provide an example in

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which we perform the required Customizing settings and create a financial transaction.

3.7.1

Roles

Roles are used to define the menu and the authorizations for transactions. They are assigned to users to help them perform their role. You use role management to manage roles and authorization data. Within a role, you can create and edit authorization data automatically, based on selected menu functions. Role management assigns the roles to the individual users.

Role management

You can use the Role Maintenance transaction (PFCG) to maintain and manage roles, authorizations, and profiles. You can find this transaction in the menu under Tools  ABAP Workbench  Development  SAP Business Workflow  Environment  Organizational Management  Tools  Authorizations. When you create a new role, you must create a user menu first. This combines the transactions, menu paths, and area menus that cover the field of activity for a user or group of users and that are displayed to the user in the menu. The authorization objects belonging to the user menu are proposed automatically, and some of them have pre-assigned values. You can edit and expand these values manually. You use the authorizations to generate the authorization profile, and then assign users to the role. Standard roles are provided for some functions. If you wish to use these, you should copy the standard role and modify the copy according to your requirements. Table 3.11 provides an overview of the standard roles in SAP Treasury and Risk Management. Role

Function

SAP_TRM_ADMINISTRATOR

Administrator

SAP_TRM_DEALER

Trader

SAP_TRM_LIMIT_MANAGER

Limit manager

SAP_TRM_RISK_CONTROLLER

Risk controller

SAP_TRM_TM_BACKOFFICE_PROCES

Back office processor

Table 3.11 Roles in SAP Treasury and Risk Management

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Role

Function

SAP_TRM_TM_FUND_MANAGER

Fund manager

SAP_TRM_TM_STAFF_ACCOUNTANT

Accountant

SAP_TRM_TM_TRADE_CONTROLLER

Trade controller

SAP_TRM_TREASURY_MANAGER

Treasury manager

Table 3.11 Roles in SAP Treasury and Risk Management (Cont.)

See your system documentation for a description of the individual roles. Authorizations You can access creating and processing a financial transaction via the standardized FTR_CREATE and FTR_EDIT transactions. The authorization checks for the authorization object F_T_TRANSB continue to be performed in the old transactions that are run in the background. To find the relevant transaction code, use the settings for the authorizations of the standard roles provided.

3.7.2

Mirror Transactions

You can use mirror transactions to create financial transactions in one company code and automatically mirror it in another company code. This is useful if several companies within a corporation or subsidiaries of a company have their own company codes and conduct financial transactions with each other. Mirror transactions require that both companies be represented in the same client with separate company codes, and that both companies be entered as business partners in the company code of the other company. Mirroring direction

You can mirror financial transactions only in a defined direction—that is, always starting from the same company code. When creating a financial transaction in this company code, another financial transaction is automatically created with opposite payment flows in the company code of the counterparty. There is no need to enter the financial transaction twice. Both transactions are linked via a reference of the type MIR. When displaying a financial transaction, you receive a message informing you that a mirror transaction exists for the transaction displayed.

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Mirror transactions are available for the following financial instruments: fixed-term deposit, deposit at notice, cash flow transaction, interest rate instrument, foreign exchange, and foreign exchange swap. A foreign exchange swap consists of a spot transaction and a forward transaction, which are connected via a reference of the type SWP. In this way, mirroring creates a total of four financial transactions, which are also connected via a reference of the type MIR.

Financial instruments for mirror transactions

In a system, the parent company is represented by company code 0001, and the subsidiary is represented by company code 1000. The parent company is managed as business partner HEADOFFICE, while the subsidiary is managed as business partner SUBSIDIARY. You want to perform a spot transaction with product type 60A and transaction type 101.

Example: mirror transaction

To enable this, make a few settings in Customizing. Under Treasury and Risk Management  Transaction Manager  General Settings  Transaction Management  Distribution of Mirror Transactions  Maintain Relevant Product Types and Transaction Types, enter the product type and transaction type relevant for mirroring in the company code of the parent company (see Figure 3.35).

Figure 3.35 Customizing Screen for Maintaining the Relevant Product Types and Transaction Types for Mirror Transactions

Under Treasury and Risk Management  Transaction Manager  General Settings  Transaction Management  Distribution of Mirror Transactions  Map Product Types and Transaction Types, define which product type and transaction type are to be mirrored from the company code of the parent company (see Figure 3.36). Enter the settings for processing incoming data in the company code of the subsidiary under Treasury and Risk Management  Transaction Manager  General Settings  Transaction Management  Distribution of Mirror Transactions  Process Incoming Data (see Figure 3.37).

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Figure 3.36 Customizing Screen for Mapping Product Types and Transaction Types for Mirror Transactions

Figure 3.37 Customizing Screen for Processing Incoming Data for Mirror Transactions

Finally, assign the company code to the business partner under Treasury and Risk Management  Transaction Manager  General Settings  Transaction Management  Distribution of Mirror Transactions  Assign Company Code to Partner (see Figure 3.38).

Figure 3.38 Customizing Screen for Assigning the Company Code to the Partner for Mirror Transactions

Both companies agree on a foreign exchange transaction with each other. The parent company sells 1,000,000 USD and receives EUR at a rate of 1.3 from the subsidiary. The parent company creates the foreign exchange transaction in company code 0001 and specifies SUBSIDIARY as the business partner. Upon saving, an automatically mirrored transaction is created in company code 1000 (the subsidiary) with business partner HEADOFFICE.

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3.7.3

3.7

Internal Foreign Exchange Trading

If a company subsidiary or branch does not perform independent foreign exchange transactions with external banks, but does so centrally, the rates are provided automatically by the parent company or the head office within internal foreign exchange trading. On the basis of financial transactions performed in this way, the parent company can then perform its own foreign exchange transactions rather than on the market. Internal foreign exchange trading is provided for the following financial instruments: spot transaction, forward transaction, and foreign exchange swap. The parent company automatically provides a rate based on real-time foreign exchange rates or foreign exchange swap records, as well as rate markups and markdowns that have been configured in Customizing under Treasury and Risk Management  Transaction Manager  Foreign Exchange  Transaction Management  Internal Forex Trading  Define Rate Markup/Markdown for Internal Foreign Exchange Trading.

Automatic rate creation

If the market data buffer does not contain a corresponding rate for cross transactions, this rate is calculated using the corresponding rates and swap records for the purchase currency or sales currency of the local currency. The spot rate and swap record are also displayed. If the requested rate is accepted by the subsidiary within 60 seconds, a financial transaction is created automatically in the company code of the parent company. If required, this transaction can be mirrored in the company code of the subsidiary (see Section 3.7.2). A prerequisite for automatic rate creation is a data feed for delivering real-time foreign exchange rates/foreign exchange swap records. This data feed provides the data in the market data buffer. You can use the BAdI FTR_FX_INT_EXIT to influence this process in many different ways. You can change the time period for the rate acceptance, define your own default values, and perform complex rate adjustments.

Customer-specific changes

The Internal FX Transactions: Rate Overview transaction (TX30) provides you with an overview of current rates per currency. On the selection screen, the Currency and Base currency fields define the currency pairs for which the rates are calculated. The Reference currency field

Overview of current rates

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defines whether calculations are performed using a third currency. You can also use this overview to check the Customizing and market data for completeness. Example

A subsidiary needs 100,000 EUR in USD on 04/26/2012. The financial transaction is created from the perspective of the subsidiary but saved from the perspective of the parent company. This is why the mapping performed for mirror transactions is also necessary here. The financial transaction is then to be mirrored in the company code of the subsidiary. To do this, we use the settings from the example provided in Section 3.7.2. In Customizing for internal foreign exchange trading, under Treasury and Risk Management  Transaction Manager  Foreign Exchange  Transaction Management  Internal Forex Trading  Map Product Types and Transaction Types, you must first enter the product type and transaction type to be used for the outgoing company code (see Figure 3.39).

Figure 3.39 Customizing Screen for Mapping the Outgoing Product Types and Transaction Types for Internal Foreign Exchange Trading

In the same place in Customizing, you then specify which product type and transaction type is used for the incoming company code (see Figure 3.40). The mapping is performed between these product types and transaction types.

Figure 3.40 Customizing Screen for Mapping the Product Types and Transaction Types for Internal Foreign Exchange Trading

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Specific Topics

Assignment of the company code and partner has already been performed in the mirror transaction and does not need to be performed again. To enter internal foreign exchange trading, call the Create Internal Forex Transaction transaction (TX31). The employee in the subsidiary enters the financial transaction from the subsidiary's perspective and chooses Request Rate (see Figure 3.41).

Figure 3.41 Input Screen for Internal Foreign Exchange Trading

The subsidiary then receives a rate proposal, and the subsidiary employee can agree on the transaction by choosing Accept Rate. The transaction is then created in the company code of the parent company, 0001, and mirrored in the company code of the subsidiary, 1000, based on the settings for mirror transactions.

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3.7

You use correspondence to create messages for internal and external communication. Correspondence is integrated into the other business processes of Transaction Management.

4

Correspondence

Correspondence is part of Transaction Management and can be used to create or receive specific correspondence relating to financial transactions or securities accounts. Correspondence is suitable for both internal documentation, such as the dealing slip, and external communication, such as the confirmation of financial transactions with business partners. Up to and including SAP ERP 6.0 EHP3, only the old correspondence feature is available. This older functionality allows you to create forms (SAPscript or PDF) for outgoing correspondence and print them or send them by email or fax. The SWIFT formats MT300 and MT320 are provided for the fixed-term deposit and foreign exchange financial instruments. The old correspondence functions provide only the most basic support for incoming correspondence, as described in Section 4.1. With SAP ERP 6.0 EHP4, a new correspondence feature is provided in parallel with the older functions. For this new feature, an open, flexible framework was developed to support automatable processes with straight-through processing. PDF forms, SAPscript forms, or files in any format are created and can then be sent as an email, fax, or printout. Straight-through processing is also available for incoming messages. Messages that are sent and received are stored and can be displayed unchanged at any time. As of Section 4.3, we focus exclusively on the new correspondence functions. For the sake of simplicity, these new functions are often referred to simply as correspondence in this chapter. A migration is required in order to make the transition from the old correspondence to the new

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correspondence. This process is described in Section 4.2. The next section describes the essential features of the new correspondence functions and explains the key concepts. We then turn our attention to the settings required in Customizing and in the master data for the outbound process (see Section 4.5) and the inbound process (see Section 4.6). This is followed by sections that discuss the more extensive functions of the new correspondence. Mapping involves the transfer of data between the internal data structure and the message, while matching enables the detection of messages that belong together, and an alert function highlights errors in the process chain. You can navigate directly to correspondence from a financial transaction or securities account transfer. However, the central tool for correspondence is the Correspondence Monitor. From here, you can start virtually any correspondence-relevant function and monitor correspondence. We describe the Correspondence Monitor in Section 4.11. To enable an open and flexible framework, many BAdIs have been defined, and some have also been implemented. This chapter closes with a description of all relevant BAdIs in Section 4.12. Notes Regarding Path Details For the sake of simplicity, many of the paths specified in this chapter have been shortened. A shortened path in the Customizing settings starts with Correspondence. The full path in this case is Financial Supply Chain Management  Treasury and Risk Management  Transaction Manager  General Settings  Correspondence. If a menu path is not specified for a transaction, you find the transaction in the main menu under Accounting  Financial Supply Chain Management  Treasury and Risk Management  Transaction Manager  Money Market/Foreign Exchange/Derivatives/Commodities/Securities/Debt Management  Back Office  Correspondence.

We use the same two examples throughout this chapter to illustrate and explain the relevant functions and settings.

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The Old Correspondence Functions

4.1

Recurring example 1: MT320 A PDF form is to be created for a fixed-term deposit and sent by fax to Internal Controlling. In addition, a confirmation is to be sent to the business partner in the form of a SWIFT-MT320 message. This message must be approved on the basis of the dual-control principle. The correspondence is to be sent automatically, and when it is received, a technical confirmation of receipt is to be returned. The business partner sends a counter-confirmation, and the external reference is to be copied from this counter-confirmation into the financial transaction. The confirmation and counter-confirmation are to be assigned to each other automatically. In addition, the financial transaction is to be settled automatically upon receipt of the counter-confirmation.

Recurring example 2: MT535 An external securities account statement is to be imported for a securities account in the form of a SWIFT-MT535 message and prepared for reconciliation with the existing position in the system (class position in securities account). This reconciliation is performed manually using the Reconcile External Securities Account Statement system transaction (Transaction RECON5).

4.1

The Old Correspondence Functions

With the old correspondence functions, you can create SAPscript forms, PDF forms, or, to a limited extent, files for financial transactions in accordance with the SWIFT definition (SWIFT files), and send them using pre-defined channels. The receipt of messages is not supported. It is only possible to manually set the status of a sent message to confirmed on the basis of a message received. When saving a correspondence-relevant activity of a financial transaction, a planned record is created for the message. Depending on your settings, this planned record either is executed directly and automatically or must be executed manually. After it is executed, the planned record becomes an actual record.

Planned record

Communication with business partners uses fax or email as the correspondence medium. Messages can also be sent to a printer. For the fixedterm deposit and foreign exchange financial instruments, there is also an

Correspondence medium

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option to create SWIFT files in MT300 and MT320 formats and to send IDocs. For communication via fax or email, the communication interface must be set up as required (see SAP Note 152474). If the message is printed out, then the configured printer can be overridden in Customizing, e.g., if the printer isn't working. You must delete that entry when you no longer need to override the printer settings. Forms

The old correspondence functions are based on forms. These same forms are also used in the new correspondence functions. They’re described in Section 4.4.7 and Section 4.4.8.

Message control

Message control, which you can access under Treasury and Risk Management  Transaction Manager  Global Settings  Transaction Management  Change message control, allows you to influence the processing flow of a financial transaction. At every activity transition, the system checks whether the outgoing confirmation for the preceding activity has already been made and, if so, whether the counter-confirmation (if required) has been received. In the event of an activity change, the system checks whether a counter-confirmation has been received for the transaction that is to be changed. In each case, a message is output, and you can use message control to determine which message type is used.

Correspondence Monitor

The central tool for the old correspondence functions is the Correspondence Monitor transaction (Transaction TBZ11). Based on the selections made, a list is displayed using the SAP List Viewer (ALV, formerly known as the ABAP List Viewer). An optical indicator is used for the individual planned records and actual records to show the status relevance and the counter-confirmation status. You can also access many processing and monitoring functions here. Customizing the Correspondence Monitor You can customize this overview and the optical indicator with user exit RFTBCOMO. For example, you can make a setting to have an actual record displayed with a red traffic light icon if the counter-confirmation has been pending for one hour or longer.

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The Old Correspondence Functions

The current status of the correspondence for a financial transaction is displayed on the Status tab of the financial transaction processing data screen. Under Goto  Correspondence, you can access the correspondence overview, where you can display individual correspondence activities. This is where you can also view archived correspondence.

4.1

Correspondence status

Reset Counter-Confirmations The Overview of Reset Counterconfirmations transaction (Transaction TBZ12), which is not included in the main menu, displays an overview of counter-confirmations that have been reset.

The Old Correspondence Functions You have a fixed-term deposit with product type 51A and transaction type 100, and you want the system to create a dealing slip automatically upon creation of the contract (activity category 10). When settling the contract (activity category 20), you want the system to create a confirmation that is sent manually and needs to be counter-confirmed. You also want to prevent the user MUELLER from changing a financial transaction that has already been counter-confirmed.

Under Treasury and Risk Management  Transaction Manager  Money Market  Transaction Management  Correspondence  Define Correspondence Types in Customizing, use the confirmation (001) and dealing slip (002) correspondence types delivered with the sample Customizing.

Correspondence type

Make the settings shown in Figure 4.1 under Treasury and Risk Management  Transaction Manager  Money Market  Transaction Management  Correspondence  Correspondence Activity. When doing this, use the two forms provided (i.e., F_TR_DEALER_ALL and F_ TR_CONFIRM_ALL), because these meet all the requirements in the example.

Form

To ensure that counter-confirmation occurs, you must also set the Counterconfirmation required indicator for the financial instrument in the business partner's standing instructions (Transaction BP, Correspondence (SI) tab). If the indicator is not set in either Customizing or in the standing instructions, no counter-confirmation is performed. In

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Correspondence

Customizing, under Treasury and Risk Management  Transaction Manager  Global Settings  Transaction Management  Change message control, you define the message as an error message with message type E for user MUELLER.

Figure 4.1 Customizing for the Correspondence Activity

After a fixed-term deposit is created in the Contract activity, the dealing slip exists as an actual record in the Correspondence Monitor. After settling the financial transaction, you can see another planned record in the Correspondence Monitor (see Figure 4.2). You can use the Output correspondence transaction (Transaction TB) to send outgoing correspondence. It lists only the planned records for which you have selected a medium (e.g., printer, fax, email, or IDoc). SWIFT files are created in the Generate Swift Files transaction (Transaction TSW2).

Figure 4.2 Result Screen for the Correspondence Monitor

Old Correspondence Functions when using BAPIs If you are using the BAPI technology of Transaction Management, you often need to call several BAPIs for creating or processing a financial transaction. A correspondence is then created after every BAPI call. If you use planned records rather than sending the correspondence automatically, you can delete unwanted planned records manually in the Correspondence Monitor and create correspondence for the relevant planned records only.

188

Migration

4.2

Matching of the confirmation with the counter-confirmation is performed automatically, and the counter-confirmation status is set. If this does not work, you can use the workflow to inform a processor, who will compare the counter-confirmation manually. It is also possible to set the counter-confirmation status manually in the Correspondence Monitor.

4.2

Migration

To enable the advanced functions offered by the new correspondence feature, a complete revision of the architecture was required. As a result, new database tables are used for both the correspondence data and Customizing. In order to use the new correspondence functions, either migrate the data and the Customizing or set up the Customizing again. In either case, the old messages can no longer be displayed. With a migration, new Customizing entries must be created for all possible combinations of Customizing entries for the old correspondence functions, depending on which entries in the old correspondence Customizing are actually used. This normally results in a very large number of Customizing settings. In addition, the names of the Customizing settings are generated automatically and are therefore technical, which also makes them more difficult to use. The new correspondence feature is activated with the FIN_TRM_CORR_FW business function. If you want to migrate the data and the Customizing, this migration must be performed manually before you activate the business function.

Business function

The migration is integrated into the general conversion program under Financial Supply Chain Management  Treasury and Risk Management  Transaction Manager  General Settings  Tools  Conversion programs (Transaction TPM_MIGRATION) in Customizing. You need to execute the three following steps in this transaction:

Performing a migration

1. Convert the Customizing for correspondence. 2. Convert the BP's standing instructions for correspondence. 3. Convert correspondence data.

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The first two steps concern the Customizing. You can perform these steps in your test system and then transport the changes into your production system. It is essential that the third step also be executed in your production system. No Migration of Customizing and Data While the migration of the data creates technically correct Customizing, it’s difficult for any human user to follow. Therefore, you should set up the Customizing yourself and refer to the old correspondence activities in the old system as required during the transition period.

4.3

Basic Principles

To provide you with an initial overview of correspondence, we’ll begin by examining how the new correspondence feature came about. While we have already used some of the key terms, we will now provide a precise explanation of them here. It is also useful, at this point, to provide an initial overview of the new solution and describe the lifecycle of a correspondence object.

4.3.1

History

The new correspondence feature is intended to eliminate problems with the old correspondence feature. It allows you to display outgoing and incoming messages unchanged at any point. It’s designed to provide an end-to-end process for incoming messages in the form of SWIFT files. In addition, all functions of the old correspondence feature are still available, and the data can be migrated. Business function

Over the course of development, testing, and use by the first customers, many new ideas for enhancing the correspondence feature came to light (for example, support for acknowledgment messages), with the result that migration in particular became increasingly complex. Plans were ultimately made to introduce a new correspondence feature with its own business function, FIN_TRM_CORR_FW (see SAP Note 1335689). Users could choose for themselves whether to use the new correspondence

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Basic Principles

feature by activating this business function. In addition, there would no longer be any automatic migration. In this way, the functional scope of the new correspondence feature grew increasingly complex, and, even now, functions are still being added in the latest release but also provided via SAP Notes for lower releases, as of Release SAP ERP 6.0 EHP4. As a result, many SAP Notes are available, and it is recommended that you use a current Support Package. You should specifically use Support Package 7 or higher for SAP ERP 6.0 EHP4.

4.3.2

Terms

The key terms defined here are used throughout this chapter. 왘

Correspondence Correspondence is an umbrella term for the overall topic and covers both the business processes for internal and external communication via messages, and the technical implementation in the system.

왘

Correspondence framework The correspondence framework refers to the technical implementation of correspondence. The correspondence framework is described in more detail in Section 4.3.3.

왘

Correspondence object A correspondence object is an abstract entity that contains all the data required to create and send a message. Functions are executed with the correspondence object, and it has its own status. Correspondence objects are described in more detail in Section 4.3.4.

왘

Message A message is exchanged between a sender and a recipient and contains the business-relevant data. The message may be exchanged via any communication channel (e.g., fax, email, file, printing, etc.).

왘

Correspondence Monitor The Correspondence Monitor is the central tool in the correspondence framework and is used to display correspondence objects or execute status functions for correspondence objects (e.g., Send). Section 4.11 describes the Correspondence Monitor.

191

Explanation of terms

4.3

4

Correspondence

4.3.3

Correspondence Framework

This section provides a broad overview of the processes used in the correspondence framework. Each of these processes will be discussed in more detail in subsequent sections. Creation

Depending on the Customizing settings, a correspondence object can be created in the following cases: 왘

When you create or change a financial transaction

왘

When you create a securities account transfer

왘

Manually from the Correspondence Monitor

In these cases, the administrative and business-relevant data is replicated to the correspondence object and stored in separate database tables. You have the option of appending your own fields to these database tables and filling these fields with your data. Correspondence Monitor

You can display correspondence objects in the Correspondence Monitor. The Correspondence Monitor offers many functions for working with correspondence objects, such as a message preview, message sending, attaching files to the correspondence object, and memo creation.

Release

You can define the release workflow that a message must pass through before it can be sent. You can, for example, implement a dual-control procedure for correspondence. In this case, the framework for the dualcontrol principle, which is also used in other areas, such as Exposure Management or Hedge Accounting for Positions, is applied.

Sending

There are a number of different ways to trigger the sending of a message:

Mapping

왘

Manually, in the Correspondence Monitor

왘

Automatically, when a correspondence object is created or released, provided that the correct setting has been made in Customizing

왘

Via a report that is also batch capable

A message consists of an SAPscript form, a PDF form, or a file. In each case, the data from the internal structure of the correspondence object must be mapped to the external structure of the message. For forms, the

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Basic Principles

external structure is known, and the mapping already exists. For files, you need to define the mapping yourself (see Section 4.7). When a file is created, it is stored in the application server folder that is configured in Customizing. Sending this file is not within the scope of responsibility of the correspondence framework. You can send the file using the normal file transfer procedure or, for example, use SAP SWIFT Integration Package 4. Regardless of the format of an outgoing message, it is always stored in the document management system when it is sent and can then be displayed at any time, unchanged.

Document management system

When you receive a message that can be processed electronically (e.g., a file in SWIFT format), you can use a batch-capable report to import the message from the application server folder defined in Customizing. Incoming messages are also stored in the document management system. Mapping is then used to transfer the external structure of the message to the internal structure of the correspondence object, and a correspondence object is created. For other messages (e.g., messages received by fax), you can create a correspondence object manually, enter the data manually, and attach it to the fax as an attachment.

Receipt

A correspondence object belongs to a financial transaction or securities account. Depending on what triggers them, outgoing correspondence objects are automatically assigned to a transaction or securities account when they are created. Meanwhile, incoming correspondence objects are assigned either during the receipt process or manually.

Assignment

Matching serves to identify correspondence objects (incoming and outgoing) that belong together. Matching is discussed in more detail in Section 4.8. With matching, the fields of the correspondence objects are compared with one another or, alternatively, you can use a BAdI to implement your own match criteria.

Matching

Both outgoing and incoming correspondence objects for a transaction can set the correspondence status of the financial transaction. In the case of incoming correspondence, it is also possible to copy additional data into the transaction.

Transaction updates

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4.3

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Correspondence

Events

When the correspondence objects are stored, events are trigged, and the relevant BAdI methods are called. For example, when an incoming securities account statement is saved, the data may be made available for manual reconciliation (Transaction RECON5).

Alerts

You can use the Alter Monitor to monitor correspondence. The Alert Monitor offers three default alert types, which you can supplement with any other alerts you require. You can send the alerts from the Alert Monitor or use a batch-capable program (e.g., by email or SMS). Alerts are described in more detail in Section 4.9 and are also integrated into the Correspondence Monitor.

4.3.4

Correspondence Object

A correspondence object is the internal representation of the administrative and business-relevant correspondence data. It consists of a hierarchy of database tables that reference one another, and it abstracts from the underlying (i.e., the underlying financial transaction or securities account transfer). All the data required, both from the underling and from Customizing, is replicated in the correspondence object. In this way, the correspondence object is protected from changes to the underlying, and the messages created can always be reproduced from the correspondence-object data. You can use appends to extend all database tables and fill these fields using a BAdI. Status

To support the processes and functions of the correspondence framework, many statuses and status functions (for the transition from one status to the next) are defined for a correspondence object. The statuses and possible status functions for the main processes are described next.

Initiation and release

When a new correspondence object is created, it is initially assigned the status Initiated. If a user is authorized to do so, he/she may manually change the correspondence object data. A release process can be defined for a correspondence object. This is described in Section 4.5.4. Figure 4.3 shows the various statuses and possible status functions associated with the release process.

Acknowledgment message

When defining a communication channel, you can make a setting to determine that the communication channel is to send a technical

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Basic Principles

acknowledgment message. This is described in Section 4.6.7. Figure 4.4 shows how the status of a correspondence object changes during this process, as well as the status functions.

Overview of Status Functions

Rejected

Send for Approval Initiated

Return

Being Approved

Released

Returned

Reversed

Change

Sent

Reject Release

Pending Confirmation

Create and Send Message Reverse

Name of Status Function

Status Function

Status

Figure 4.3 Statuses during the Release Process

Initiated Overview of Status Functions Pending Confirmation

Released

Channel Answer Received

Error During Sending

Sent

Create and Send Message Confirmation of Receipt Negative Confirmation of Receipt

Reversed

Status

Status Function

Name of Status Function

Figure 4.4 Statuses when Using an Acknowledgment Message

Sending is described in Section 4.5.5, while the inbound process is described in Section 4.6. The relevant statuses and status functions are shown in Figure 4.5. Note that a separate status is not used for assignment, while the status Matched is used for matching. If the financial

195

Sending and receipt

4.3

4

Correspondence

transaction field (technical name DEALNUMBER) or securities account field (technical name SEC_ACC) is filled in the correspondence object, a financial transaction is assigned.

Sent

Completed

Overview Status Function Assign Reconcile

Reconciled

Undo Reconciliation Complete Reverse Completed Correspondence Object

Received

Status

Status Function

Name of Status Function

Figure 4.5 Status of Sent and Received Messages

4.4

Customizing and Master Data

This section explains the Customizing and master data settings for the basic functions in correspondence. The list of Customizing settings is not complete because other major functions (release, matching, and alerts) are explained together with their Customizing settings in later sections.

4.4.1

Technical Communication Profile

A number of definitions are required in order to enable new correspondence. In many cases, the first step consists of introducing key terms (e.g., the EMAIL communication channel) and assigning names (e.g., the name "Email" for the EMAIL communication channel). Only later are attributes assigned to the terms, and the terms linked with one another (see the headings "Defining a Communication Profile" and "Format" in Section 4.4.1). However, because the terms are frequently used without their names, it is very useful to give them names that are as meaningful as possible from the outset.

196

Customizing and Master Data

4.4

Communication Channel The communication channel answers the question of how something is sent. Under Correspondence  Correspondence Messaging Interface  Define Communication Channels in Customizing, you can define which communication channels are available. Figure 4.6 shows the communication channels that are delivered as standard. Of these communication channels, FAX and FILE are used in examples 1 and 2.

How is something sent?

Figure 4.6 Default Communication Channels

Using Your Own Communication Channels To ensure an open, flexible correspondence framework, the communication channel is a Customizing entity. However, specific program logic is required for the communication channel. BAdIs, which use the CHANNEL filter to call various implementations depending on the communication channel, are available for this purpose. The BAdI implementations for the communication channels included in the standard delivery are also delivered as standard (see Section 4.12). If you use your own communication channels, it is essential that you also implement the following BAdIs: 왘

BADI_TCORF_CHANNEL_MULTI

왘

BADI_TCORF_CHANNEL_SINGLE_OPT

In addition, communication channel–dependent attributes are used in the communication profile. If you use your own communication channels, you also need to create your own database table, in which the dependent attributes are stored (see Section 4.4.5).

Format Metatype The format metatype answers the question of which type of message is sent. Under Correspondence  Correspondence Messaging Interface 

197

Type of message sent

4

Correspondence

Define Format Metatypes in Customizing, you define the abstract format of a message. Figure 4.7 shows the FORM (for using PDF forms or SAPscript forms), SWIFT (for files that correspond to the SWIFT definition) and SWIFT SAP (for files with SWIFT messages that are sent via the SAP Integration Package 4) metadata types included in the standard delivery. We use the FORM and SWIFT metadata types in both examples in this chapter.

Figure 4.7 Default Format Metatypes

Using Your Own Format Metatypes To ensure an open, flexible correspondence framework, the format metatype is a Customizing entity. However, specific program logic is required for the format metatype. BAdIs, which use the METATYPE filter to call various implementations depending on the format metatype, are available for this purpose. The BAdI implementations for the format metatypes included in the standard delivery are also delivered as standard (see Section 4.12). If you use your own format metatypes, it is essential that you also implement the following BAdIs: 왘

BADI_TCORF_META

왘

BADI_TCORF_META_OPTION

In addition, format-dependent attributes are used in the communication profile. If you use your own format metatypes, you also need to create your own database table, in which the attributes for the formats that use these format metatypes are stored (see Section 4.4.5).

Correspondence Class Why is a message sent?

The correspondence class answers the question of why a message is sent. Under Correspondence  Correspondence Messaging Interface  Define Correspondence Classes in Customizing, you define which correspondence classes exist. The correspondence class reflects the reason for or purpose of a message, regardless of the format metatype used.

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Customizing and Master Data

Figure 4.8 shows the default correspondence classes MM_CONF and SEC_STMNT_HOLD, which are relevant for the examples in this chapter.

Figure 4.8 Correspondence Classes Used in the Examples

Format The format answers the question of what is sent. It represents the syntactical and semantic structure of a message. Under Correspondence  Correspondence Messaging Interface  Define Formats in Customizing, you define which formats exist. Using Your Own Formats The formats included with the standard delivery use the mapping that is delivered as standard. Corrections can be made to this mapping in terms of both the mapping rules and the mapping methods. For this reason, you should always define your own formats rather than using any of the default formats.

For examples 1 and 2, we copy the MT320 and MT535 formats provided in the standard delivery and define formats ZMT320 and ZMT535 as shown in Figure 4.9.

Figure 4.9 Formats Classes Used in the Examples

199

What is sent?

4.4

4

Correspondence

Using Your Own Formats To ensure an open, flexible correspondence framework, the format is a Customizing entity. Specific program logic is required for the format. BAdIs, which use the FORMAT filter to call various implementations depending on the format, are available for this purpose. The BAdI implementations for the formats included in the standard delivery are also delivered as standard (see Section 4.12). If you use your own formats, it is essential that you also implement the following BAdIs (see SAP Note 1681249): 왘

BADI_TCORF_FORMAT_MULTI_OPTION

왘

BADI_TCORF_FORMAT_SINGLE

왘

BADI_TCORF_FORMAT_SINGLE_OPT

Correspondence Recipient Type From whom/to whom is the message sent?

The correspondence recipient type answers the question of to whom or from whom the message is sent. Under Correspondence  Correspondence Messaging Interface  Define Correspondence Recipient Types in Customizing, you define which correspondence recipient types exist for messages. This is the recipient in the case of outgoing messages, and the sender in the case of incoming messages. You must assign a business-partner role to the correspondence recipient type. In a specific financial transaction or securities account, a business partner must then exist in this role. Figure 4.10 shows the correspondence recipient types that are delivered as standard. We use the COUNTERPARTY and DEPOSITORYBANK correspondence recipient types in the examples in this chapter.

Figure 4.10 Default Correspondence Recipient Types

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Customizing and Master Data

4.4

Defining a Communication Profile The definitions specified above are technical attributes, which are merged together in a technical profile known as the communication profile. This communication profile controls the creation, sending and receipt of messages. You find this profile in Customizing, under Correspondence  Correspondence Messaging Interface  Define Communication Profiles. The following steps are required in order to create a communication profile. 1. Assign names When you press the New Entries button ( ), a new entry appears on the right of the screen. You must assign a name to the communication profile here. For the examples in this chapter, we use ZPR_DEUBA as the name of the technical profile (see Figure 4.11).

Figure 4.11 Communication Profile Used in the Examples

2. Communication channel assignment Next, assign a communication channel (how something is to be sent) to the correspondence class (why it is to be sent) and the correspondence recipient type (to whom it is to be sent). To do this, select the required communication profile and click the Channel Assignment entry. You can change existing entries or choose the New Entries ( ) button to add more entries (see Figure 4.12). For example 1, communication with the business partner takes the form of an exchange of files in accordance with SWIFT format, and the message to Internal Controlling is to be sent by fax. In example 2, the securities account statement from the depository bank is made available via SWIFT file. The settings required for communication channel assignments are shown in Figure 4.12.

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Definition steps

4

Correspondence

Figure 4.12 Communication Channel Assignments Used in the Examples

3. Format metatype assignment The next step is to define which format metatype (which type is to be sent) is to be used for a communication channel (how it is to be sent). To do this, select a channel assignment and choose the Assigned Format Metatypes entry, shown in Figure 4.13. In both examples in this chapter, the SWIFT format metatype is to be used for files, and the FORM format metatype is to be used for forms. Figure 4.13 shows only the assigned format metatype for the FAX communication channel. The setting for the FILE communication channel is SWIFT.

Figure 4.13 Assigned Format Metatypes Used in the Examples

4. Channel-dependent attributes You also need to specify the channel-dependent attributes for a communication channel (how something is to be sent). To do this, select a channel assignment and choose the Channel-dependent Attributes entry, shown in Figure 4.14. The attributes that belong to a communication channel are defined by dynamic assignment to a database table (see Section 4.4.5, in the subheading “Dynamic Assignment”). In both examples in this section, the SWIFT files are to be exchanged

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using the formats ZMT320 and ZMT535. A file with a corresponding prefix is to be used in the outgoing or incoming folder on the application server (see Figure 4.14).

Figure 4.14 Channel-Dependent Attributes of the FILE Communication Channel Used in the Examples

In example 1, the PDF_CONF_MM format is to be used to send the fax to Internal Controlling (see Figure 4.15). For this purpose, select the relevant channel assignment and choose the Channel-dependent Attributes entry.

Figure 4.15 Channel-Dependent Attributes of the FAX Communication Channel Used in the Examples

5. Format-dependent attributes Finally, you also need to define format-dependent attributes. These include, in particular, the external format for messages exchanged in file format. To do this, you must assign the formats (see the next section). However, because the communication profile is used for this assignment, you need to define the communication profiles before assigning formats. Finally, the format-dependent attributes are defined in the communication profile definition.

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In example 1, the external format identification 320 is to be used for the ZMT320 format. For this purpose, select a channel assignment and choose the Format-dependent Attributes entry shown in Figure 4.16. The corresponding setting 535 for example 2 and the format ZMT535 are not shown here.

Figure 4.16 Format-Dependent Attributes Used in the Examples

In example 1, you must specify that format PDF_CONF_MM is a PDF form and specify the precise form it refers to. To do this, select the relevant channel assignment and choose the Format-dependent Attributes entry, shown in Figure 4.17.

Figure 4.17 Format-Dependent Attributes Used in the Examples

Assigning a Format Under Correspondence  Correspondence Messaging Interface  Assign Formats in Customizing, you assign a format (what is to be sent) to the combination of the communication profile, the correspondence

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class (why it is to be sent), the correspondence recipient type (to whom it is to be sent) and the communication channel (how it is to be sent). In example 1, assignments are required for the confirmation sent to the business partner and the counter-confirmation sent by the business partner (the same entry), as well as for the information sent to internal Controlling. In example 2, an assignment is required for the incoming securities account statement (see Figure 4.18).

Figure 4.18 Assigned Formats Classes Used in the Examples

4.4.2

Correspondence Partner

The correspondence partner is the recipient in the case of outgoing messages, or the sender in the case of incoming messages. This may be a business partner or an internal partner within the company. The Customizing settings required for the correspondence partner are discussed in this section.

Defining an Internal Recipient Under Correspondence  General Settings  Define Internal Recipients in Customizing, you define which internal recipients exist. These are recipients within your company and may be, for example, individual users, groups of users (a department), or even a printer within a department. In example 1, confirmation of the financial transaction has to be sent to internal Controlling. For this purpose, we define the internal recipient ZINT_CONT (see Figure 4.19).

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Figure 4.19 Internal Recipient Used in Example 1

Business Partner Group Under Correspondence  General Settings  Define Business Partner Groups in Customizing, you define which business partner groups exist. A business partner belongs to the master data and therefore cannot be used in Customizing. For this reason, you define a business partner group in Customizing, to which the business partners can subsequently be assigned (see Section 4.4.3). The advantage of doing so is that this allows business partners with the same properties to be grouped together. In practice, however, this is useful only if these are subsidiaries of the same company. If a property of one business partner changes at a later stage, it is difficult to break up the business partner group that has been created. You should therefore use separate business partner groups for different companies. The BPG_DEFAULT business partner group is delivered as standard. In examples 1 and 2, we use the same business partner group (DEUBA) for external correspondence. For this purpose, we create a business partner group called ZBPG_DEUBA (see Figure 4.20).

Figure 4.20 Business Partner Group Used in the Examples

Assigning Attributes to Business Partner Groups Under Correspondence  General Settings  Assign Attributes for Business Partner Groups in Customizing, you assign the attributes that

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control the business processes to a business partner group, to the correspondence recipient type (to whom something is to be sent), and to the correspondence class (why it is to be sent). The attributes are therefore independent of the format (what is to be sent) and the communication channel (how it is to be sent). These attributes are shown in Figure 4.21 and explained individually in the following sections. When a correspondence object has acquired a status that allows it to be sent, the Create message and send status function becomes active in the Correspondence Monitor, and the correspondence can be sent manually. However, if the Automatic Correspondence attribute is set in Customizing, the correspondence is sent automatically by the system as soon as the relevant status is acquired.

Automatic correspondence

The Release Required attribute indicates whether a workflow-controlled release process is required before the correspondence can be sent. We already touched on the release process in our overview of the correspondence framework (see Section 4.3.3) and will discuss it in more detail in Section 4.5.

Approval required

If the Counter Confirmation Required attribute is sent, an incoming correspondence confirming the business details is required before an outgoing correspondence can be sent. In this case, an outgoing correspondence object is not set to the status Completed unless it is matched with at least one incoming correspondence object in which the attribute Status relevant is set. You can use alerts to monitor pending counterconfirmations (see Section 4.9).

Counterconfirmation required

The sequence of confirmation and counter-confirmation is not fixed. In the case of the inbound process of a counter-confirmation, matching is always started in order to find the corresponding confirmation. If you also want matching to start in the case of the outbound process, the Automatic matching on delivery attribute must be set. However, since matching may be runtime intensive, this attribute should be set only when it is actually required.

Automatic matching on delivery

You can define your own release process for financial transactions (see Section 3.3.7). You can use the Do Not Send Before Deal Release attribute to prevent the message from being sent before the transaction is released. Once this is set, the message is not sent automatically or

Do Not Send Before Deal Release

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manually. Automatic sending is triggered as soon as the transaction is released if the Automatic Correspondence attribute is set. Otherwise, sending has to be triggered manually. Reconcile

The Reconcile attribute does not refer to the matching of correspondence objects. Instead, it refers to the reconciliation of the external data that has been written into an incoming correspondence object with the internal data in the system. Reconciling External Data with Internal Data If the correspondence object is created for a securities account statement, for example, you can use the value X—Reconcile Securities Account Statement to create an external securities account statement from the correspondence object (e.g., for SWIFT format MT535). The BADI_TCOR_EVENT_ FILTER_SECACC BAdI is called for this purpose. This creation of an external securities account statement uses the same process as manual creation in the Process External Securities Account Statement transaction (Transaction RECON4). These values are then available for the actual process of reconciliation in the Reconcile External Securities Account Statement transaction (Transaction RECON5). If, on the other hand, the correspondence object is created for a dividend payment, you can use the value A—Reconcile Dividend Payment to call the BADI_TCOR_EVENT_FILTER_DIVPAYM BAdI (e.g., for SWIFT format MT566). The incoming dividend is then reconciled with the information about the dividend that is contained in the securities master data.

Get values from counterconfirmation

When you set the Get values from counterconfirmation attribute, the business partner (CONTACT_PERSON field) and the external reference (EXTERNAL_REFNCE field) from the counter-confirmation are copied into the confirmation and the financial transaction.

Physical Deliv. flag

Under Accounting  Financial Supply Chain Management  Treasury and Risk Management  Transaction Manager  Securities  Transaction Management  Transaction Types  Define Transaction Types in Customizing, you can make a setting to determine that the physical delivery of the securities is to be taken into account. Once the physical delivery occurs, an incoming message, for which the Physical Deliv. Flag attribute is set, must follow. Delivery is noted in the financial transaction. In addition, the Display Securities Account Cash Flow trans-

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action (Transaction TPM40) indicates that the delivery has occurred in the Not delivered column (SNOTDELIVERED field). If you want a correspondence object to influence the financial transaction status, the Status Relevant attribute must be set (under Outgoing & Incoming Correspondences, in Figure 4.21). 왘

A transaction is set to Confirmed status if an outgoing correspondence object is status relevant and the correspondence has been sent.

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A transaction is set to Counterconfirmed status if an outgoing correspondence object is counter-confirmation relevant and has been matched to a correspondence object that is status relevant.

In our overview of the correspondence framework (see Section 4.3.3), we already mentioned that the final status of correspondence objects is Completed. If you want correspondence objects to be completed automatically, you must set the Auto complete attribute or manually set the object to Completed in the Correspondence Monitor. If this attribute is set, outgoing correspondence that is not counter-confirmation relevant is immediately set to Completed status after it is sent. If the outgoing correspondence is counter-confirmation relevant, it is immediately set to Completed status after it has been matched with an incoming status-relevant correspondence object.

Status Relevant

Auto complete

In the same way, incoming correspondence objects that are not status relevant are immediately set to Completed status after they are received. Meanwhile, incoming correspondence objects that are status relevant are not set to Completed status until they have been matched to a counter-confirmation relevant outgoing correspondence object. You can use the Alert Monitor to monitor correspondence and send an alert if outgoing messages have not been sent, incoming messages have not been matched, or counter-confirmations are pending. If you want this function to be available in the Correspondence Monitor also, you must specify the same alert waiting periods that you specify on the Alert Monitor selection screen (under Alert waiting period, in Figure 4.21). Once you have done this, an alert icon ( ) is displayed in the Alert Correspondence Object column (ICON_ALERT field) in the Correspondence Monitor when an alert occurs.

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Examples 1 and 2

The attributes for the confirmation and counter-confirmation from example 1 are shown in Figure 4.21. Only the Automatic Correspondence and Auto complete attributes are set for the correspondence that is sent to internal Controlling (correspondence recipient type INTERNAL).

Figure 4.21 Assigned Attributes of the Business Partner Group in Example 1

The attributes shown in Figure 4.22 are used for the securities account statement from example 2. In contrast to the business partner group attributes discussed above, you make the setting to determine that a financial transaction is to be settled upon receipt of the counter-confirmation as part of your definition of the transaction type. In this case, the financial transaction is to be settled (transferred from the Contract activity to the Contract Settlement activity) as soon as the counter-confirmation is reconciled with the confirmation. The relevant setting in the transaction type is shown in Figure 4.23.

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Figure 4.22 Assigned Attributes of the Business Partner Group in Example 2

Figure 4.23 Transaction Type Defined for a Fixed-Term Deposit in Example 1

4.4.3

Assignments for the Inbound Process

You need to attach a meaning to the terms defined in Section 4.4.1 for the inbound process by assigning them to one another or assigning additional information to them.

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Assigning Correspondence Classes for the Inbound Process Under Correspondence  Correspondence Messaging Interface  Assign Correspondence Class for Inbound Process in Customizing, you assign a correspondence class (why something is to be sent) to a format (what is to be sent) and a correspondence recipient type (to whom it is to be sent—or, in this case, who is to send it). Figure 4.24 shows the assignments required for examples 1 and 2.

Figure 4.24 Assigned Correspondence Classes for the Inbound Process in the Examples

Correspondence Class for the Inbound Process Transaction FTR_INB_FUNC

As an alternative to the option of assigning the correspondence class in Customizing, you can assign it in the Assign Inbound Function to Partner transaction (Transaction FTR_INB_FUNC), provided that the format, correspondence recipient type, and business partner are known. Figure 4.25 shows the assignments required for examples 1 and 2.

Figure 4.25 Assigned Correspondence Classes for the Inbound Process in the Examples

Business Partner Group for the Inbound Process Transaction FTR_INB_ASSIGN

A business partner group must be specified for the inbound process because the attributes of the business partner group define the business processes. You can make this assignment in the Maintain BP Group for Inbound Format transaction (Transaction FTR_INB_ASSIGN). The same fields used to define the correspondence activities are available here (see

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“Defining a Correspondence Activity” in Section 4.4.5), and you can similarly leave a field blank here to use a placeholder. Here, too, the most precise entry is used in cases where several entries are possible. In example 1, this is the business partner's counter-confirmation, and in example 2, the securities account statement. The assignments are shown in Figure 4.26.

Figure 4.26 Assigned Business Partner Groups for the Inbound Process in the Examples

4.4.4

Assignments for the Outbound Process

You also need to attach a meaning the terms defined in Section 4.4.1 for the outbound process by assigning them to one another or assigning additional information to them.

Assigning External Recipients In the outbound process, the technical communication profile that is to be used and a business partner group must be assigned to the business partner, both in the company code and in the business partner's correspondence recipient type. You make this assignment in the Assignment of Profiles and BP Grps to External Recipients transaction (Transaction FTR_EXT_ASSIGN). This assignment may be made at various levels. For example, it may apply to all securities in general or to one specific product type only. Because placeholders are used here and a correspondence object may have several assignments, the most precise entry is always applied in the case of multiple possible entries. If you do not want the business partner's standard address to be used, you can specify an alternative address from the business-partner master data in the Alt. Addr. field.

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Example 1

In example 1, we send confirmation of the creation of a fixed-term deposit (product type 51A, transaction type 100) to business partner DEUBA. To do so, we use the technical communication profile ZPR_ DEUBA defined above and the ZBPG_DEUBA business partner group. The relevant assignments are shown in Figure 4.27.

Figure 4.27 Assignment to External Recipients Used in the Examples

Assigning Internal Recipients Transaction FTR_INT_ASSIGN

As with external recipients, an assignment must be made to the internal recipient if outgoing correspondence is to be sent to this internal recipient. You make this assignment in the Assignment of Profiles and BP Grps to Internal Recipients transaction (Transaction FTR_INT_ASSIGN). Here, again, you can assign the communication profile and the business partner group. In addition, you can specify a user whose address data is to be used. If you want a country, fax number, or email address to be used that differs from this user's details, you can specify these in the fields provided.

Example 1

In example 1, we send a fax to internal Controlling. The settings are the same as those for external recipient assignment. In addition, we specify that the user settings of user JARRE are to be used. The message is then created with the data from business partner group ZBPG_DEUBA, but the message is sent to the fax number specified in the master data of user JARRE (see Figure 4.28).

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Figure 4.28 Assignment to Internal Recipients Used in the Examples

4.4.5

Additional Settings

Various general settings must also be made in addition to those described above.

Defining a Correspondence Activity A correspondence activity answers the question of when the outgoing correspondence is created. Under Correspondence  Correspondence Activities  Define Correspondence Activities  Money Market/Foreign Exchange/Derivatives/Securities in Customizing, you define when (i.e., during which activity in a financial transaction) correspondence objects are to be created for financial transactions. If you leave a field blank, this counts as a placeholder. If several entries are possible for the same correspondence recipient type, the entry with the most precise definition is always used. For more information, see Section 4.5.

Financial transaction

In example 1, confirmation is to be sent to the counterparty when a fixed-term deposit (product type 51A) is created (transaction type 100). Figure 4.29 shows the definition of a correspondence activity.

Example 1

A fax is also to be sent to internal Controlling in example 1. In contrast to the confirmation sent to the external partner, this correspondence is sent to an internal recipient. Figure 4.30 shows the corresponding definition of the correspondence activity in this case.

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Figure 4.29 Correspondence Activity Used for the Confirmation in Example 1

Figure 4.30 Correspondence Activity for Internal Controlling Used in Example 1 Securities account transfer

Securities accounts are master data and are defined under Accounting  Financial Supply Chain Management  Treasury and Risk Management  Transaction Manager  Securities  Master Data  Securities Account  Edit (Transaction TRS_SEC_ACC) in the main menu. Accordingly, the correspondence activities for securities account transfers can be defined only in the main menu. The Define Correspondence Activities for Securities Account Transfer transaction (Transaction FTR_SAT_ ACTVT) is provided for this purpose.

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Defining Start and End Fields for Sequences in SWIFT Messages Under Correspondence  Correspondence Messaging Interface  Define Start and End Fields for Sequences in SWIFT Messages in Customizing, you define the sequences of a SWIFT format. This basic information is essential for mapping the external data structure to the internal data structure, in both the inbound and outbound processes. The new formats ZMT320 and ZMT535 are defined for examples 1 and 2 by copying existing formats. The entries for the start and end fields of the sequences must similarly be created by copying the settings for formats MT320 and MT535 (see Figure 4.31).

Figure 4.31 Start and End Fields for the Newly Defined Formats ZMT320 and ZMT535 Used in the Examples

Defining Format-Dependent Mapping Rules You define mapping rules in Customizing under Correspondence  Correspondence Messaging Interface  Define Format-Dependent Mapping Rules. For outgoing correspondence, this refers to the mapping of an internal data structure (the correspondence object) to the external data structure. For incoming correspondence, it refers, conversely, to

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the mapping of an external data structure to the internal data structure. The mapping tool is described in more detail in Section 4.7.3.

Dynamic Assignment Attributes are required for a communication channel and for the formats of a format metatype, also known as a format group. Because these values are defined in Customizing, a table for storing these attributes must be dynamically defined. You make this dynamic assignment in Customizing under Correspondence  CORRESPONDENCE MESSAGING INTERFACE  Dynamic Table Assignment for Configuration. Examples 1 and 2

Both examples in this chapter use the FILE and PRINT communication channels included in the standard delivery. The dynamic assignment delivered for these is shown in Figure 4.32.

Figure 4.32 Dynamic Table Assignment Used in the Examples

Business Partner and BIC In the business partner master data, you can also specify the business partner's BIC code or SWIFT code. If the code is not maintained there or if you want to use additional or alternative BIC codes, you can make the relevant assignments in the Assign BIC and External Securities Account ID to Business Partner transaction (Transaction FTR_BP_BIC) (see Figure 4.33). You can use placeholders by leaving a field blank. If multiple entries are possible, the most precise entry is always applied.

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Figure 4.33 BIC Assignment Used in Example 2

Number Ranges Sequential numbering is required both for correspondence objects and for matching. You define the relevant number ranges in Customizing under Correspondence  General Settings  Define Number Ranges for Co ID or under Correspondence  General Settings  Define Number Ranges for Match ID.

4.4.6

Document Management

Both the documents generated when correspondence is sent and the documents received when correspondence is received are stored in the SAP document management system and can be displayed at any time. Some Customizing settings in the document management system are required in order for correspondence to use the document management system (see SAP Note 1320374). For a description of the document management system and an explanation of how it works, refer to Effective Document Management with SAP DMS (2nd Edition) by Eric Stadja (SAP PRESS 2013).

4.4.7

SAPscript Forms

An outgoing message may use an SAPscript form to display the content. SAPscript forms essentially consist of text modules that are called. Text modules are client-dependent standard texts, in this case with text ID TBCO, and are provided in German and English. Standard texts are

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maintained in the SAPscript Standard Texts system transaction (Transaction SO10). You can use this transaction to copy standard texts between the clients. You find this transaction in the menu under Tools  Form Printout  SAPscript. Standard forms

SAP provides the two standard forms F_TR_CONFIRM_ALL (confirmation) and F_TR_DEALER_ALL (dealing slip) in the sample Customizing. Depending on the contract type and product type, text modules are combined within the form logic and filled with data from the financial transaction. The forms are maintained in the SAPscript Form system transaction (Transaction SE71), which you find in the menu, under Tools  Form Printout  SAPscript. Here, you should first copy the standard forms and then adapt the copies to meet your own requirements. Adapting the Correspondence Forms You can use BAdI SMOD_RFTBCOEX to fill additional fields in the correspondence forms. In the interface methods, the correspondence output structures (TBCO structures) are presented for changes. This is where you can make changes or fill your own fields, which are preferably added to the output structure using append structures.

4.4.8 Standard forms

PDF Forms

PDF forms based on the two SAPscript forms (see Section 4.4.7) were created for SAP ERP 6.0 EHP3 and can now be used for outgoing messages. These forms have been divided into smaller units: 왘

TR_F_AFM_CONF_DE: confirmation for derivatives

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TR_F_AFM_CONF_FX: confirmation for foreign exchange transactions

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TR_F_AFM_CONF_MM: confirmation for money market transactions

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TR_F_AFM_CONF_SE: confirmation for securities

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TR_F_AFM_CORR_DE: dealing slip for derivatives

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TR_F_AFM_CORR_FX: dealing slip for foreign exchange transactions

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TR_F_AFM_CORR_MM: dealing slip for money market transactions

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TR_F_AFM_CORR_SE: dealing slip for securities

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As in the SAPscript forms, fields are hidden within the form logic depending on the contract type and product type. The TR_I_AFM_CORR interface is used to transfer the data to the PDF forms. The forms are maintained in the Interactive Form system transaction (Transaction SFP), which you find in the menu, under Tools  Form Printout. With PDF forms, you should first copy the standard forms and then adapt the copies to meet your own requirements.

4.5

Outbound Process

To help you understand the Customizing settings and the capabilities and diversity of the functionality, this section discusses the process flow from the creation of a correspondence object to the creation and sending of this message.

4.5.1

Correspondence Object for a Financial Transaction

A correspondence object can be created from within a financial transaction. An activity transition within the financial transaction is required for this purpose. The creation of a new transaction also counts as an activity transition. Using a BAPI to Create a Financial Transaction If you use a BAPI to create a financial transaction, automatic sending does not start. The new TriggerCorrespondence method in the FinancialTransaction business object (or the BAPI_FTR_TRIGGER_CORRES function module) is available for this purpose. After the financial transaction is created via BAPI and a COMMIT WORK AND WAIT ABAP command is generated, you can use this method to trigger automatic sending and execute it using a COMMIT WORK AND WAIT ABAP repeat command.

Creating a New Activity When you create a new activity, the correspondence objects are created in accordance with the correspondence activities defined in Customizing (see Section 4.4.5). The fields form a sequence and, if a field is left blank, it counts as a placeholder. The last field indicates how precise the entry

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is. When a new activity is created in the financial transaction, the Customizing table is read to determine the relevant entries. If several entries are relevant, all entries with the same degree of precision are read. This means you can create several correspondence objects for an activity. Recipient determination

If an internal recipient is not defined for the correspondence activity and if a business partner assignment is not configured, the FILL_ RECIPIENT_AUTO_CREATION method of the BADI_TCOR_FILL BAdI is used to determine all recipients that have the role defined in the correspondence recipient type (see Section 4.4.1) in the financial transaction. If an internal recipient is not defined for the correspondence activity but a business partner assignment is configured, the recipients that have the same role on the Partner Assignment tab that was defined in the correspondence recipient type are determined. However, if an internal recipient is defined, this recipient is added to the list of recipients.

Communication profile and business partner group

In the next step, the assignment communication profile and assigned business partner group is found for each recipient (see Section 4.4.4). Here, once again, the assignment may be made at various degrees of precision. If several assignments are relevant, all assignments with the same degree of precision are read. However, if no assignment exists, the recipient is removed from the list.

Correspondence object

A correspondence object is then created for each recipient and for each of the recipient's assignments. The Customizing data is replicated into each correspondence object, and the recipient's address data is filled using the FILL_ADDRESS_DATA method of the BADI_TCOR_FILL BAdI.

Recipient determination

For internal recipients, the addresses of the actual recipients are to be used in the message. The addresses of the external recipients that have the same role as the internal recipient are determined for this purpose. If there are several external recipients, the correspondence object is reproduced accordingly, and an external business partner is used in each correspondence object.

Additions to the transaction data

The transaction data is not supplemented until the data update that occurs when the financial transaction is saved. The reason for this is that the data is read using the FTI_TR_DEALS logical database and, as a result, is only available at that stage. This is also the reason the display of

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the correspondence objects does not include the latest data while the financial transaction is being processed. You can use an append to supplement all database tables of the correspondence object with customer-specific fields. The FILL method of the BADI_TCOR_FILL BAdI is then called to fill these fields. Changes to other database fields are not included. Finally, the correspondence status is also updated in the financial transaction.

Customer-specific fields and transaction status

In example 1, you create a fixed-term deposit. Two correspondence activities with the same degree of precision are defined (see Section 4.4.5). The first transaction activity is to be sent to the COUNTERPARTY correspondence recipient type. The business partner with the relevant role of TR0151 is determined from the financial transaction (in this case, DEUBA) and is noted as the recipient. The ZPR_DEUBA communication profile and the ZBPG_DEUBA business partner group must be assigned to this recipient. A correspondence object is then created, and the relevant Customizing data is added. The financial transaction data is added when it is saved.

Example 1

There is also a transaction activity for the INTERN correspondence recipient type in this case, where ZINT_CONT is defined as the recipient. The role TR0151 is specified in the INTERN correspondence recipient type. Accordingly, business partner DEUBA is determined in the corresponding role. A correspondence object is then created with recipient ZINT_ CONT, and the message is sent to recipient ZINT_CONT, but the address details of business partner DEUBA are used in the message.

Changing an Activity If the activity of a financial transaction for which correspondence objects exist is changed, these objects are invalidated. However, this does not include cancellation messages and manually created correspondence objects.

Invalidation

Correspondence objects are then created again in accordance with the Customizing settings. The reason for invalidating and re-creating objects is that it is not clear when and how the correspondence object has been manually changed. This approach also makes it easier to set up the release process.

Re-creation

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Cancellation message

If an invalidated correspondence object has already been sent and the corresponding Customizing settings have been made for the communication channel, a cancellation message is created (see Section 4.4.1). Correspondence-Relevant Fields With SAP Note 1689414, you can define the fields that are relevant or irrelevant for correspondence in Customizing, under Correspondence  General Settings  Correspondence-Relevant Fields. If only correspondence-relevant fields are changed, no new correspondence is created. If these settings are not sufficient, you can also use a BAdI to suppress the creation of new correspondence.

Reversing an Activity Invalidation and cancellation message

If the activity of a financial transaction for which correspondence objects exist is reversed, these objects are invalidated. However, this does not include cancellation messages. If an invalidated correspondence object has already been sent and the corresponding Customizing settings have been made for the communication channel, a cancellation message is created (see Section 4.4.1).

Detailed Log Correspondence object

You can branch to correspondence from processing a financial transaction. If no correspondence object exists for an activity, a detailed log, which reflects the process described during activity creation, is displayed. You can detect any missing Customizing settings based on this log. However, if correspondence objects exist and you choose the Detailed Log button, the log displayed shows you which Customizing settings were used to create the correspondence object.

4.5.2

Correspondence Object for a Securities Account Transfer

Correspondence objects can also be created for a securities account transfer.

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You define correspondence activities in the Define Correspondence Activities for Securities Accounts transaction (Transaction FTR_SAT_ ACTVT, see Section 4.4.5). The fields form a sequence and, if a field is left blank, this sequence counts as a placeholder. The last field indicates how precise the entry is. When a new securities account transfer is created, the relevant correspondence activities are read. If several entries are relevant, all entries with the same degree of precision are read. For each correspondence activity, one correspondence object is created for the source securities account, and another is created for the target securities account.

4.5

Creating a securities account transfer

As in the case of correspondence for a financial transaction, the securities account data is not supplemented until the data update that occurs when the securities account transfer is saved. You can use an append to supplement all database tables of the correspondence object with customer-specific fields. The FILL method of the BADI_TCOR_FILL BAdI is then called to fill these fields. Changes to other database fields are not included. If a securities account transfer for which correspondence objects exist is reversed, the correspondence objects (with the exception of cancellation messages) are invalidated. If an invalidated correspondence object has already been sent and the corresponding Customizing settings have been made for the communication channel, a cancellation message is created (see Section 4.4.1).

4.5.3

Reversing a securities account transfer

Manual Creation of Correspondence Objects

Another way to create correspondence objects is manually. You can use the Create Correspondence Object transaction (Transaction FTR_ COCREATE) or the Create function in the Correspondence Monitor (Transaction FTR_COMONI) for this purpose. You can enter all data manually in the correspondence object. Alternatively, you can use other correspondence objects or financial transactions as templates and copy the data. Figure 4.34 shows how to create an incoming corresponding object using a financial transaction as a template.

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Figure 4.34 Manual Creation of a Correspondence Object Data

After you press the Continue button ( ) to confirm, you access the detailed screen of the correspondence object. Here, you need to add some administrative data, which is derived from Customizing in the case of automatic creation, i.e., business partner group, communication profile, correspondence recipient type, and correspondence class. You can also change all other data of the correspondence object.

4.5.4

Release Process for a Correspondence Object

Workflow

You can control outgoing correspondence objects using a release process. You must set the Release Required attribute for the business partner group in Customizing before you can do so. SAP Business Workflow is used for the release process.

Release steps

Under Correspondence  Release  Assign Release Procedure to Release Object, you specify the number of release steps required for the TRM_COR correspondence object and when the workflow is to be run. In example 1, the confirmation must always be released using a singlestep workflow. Enter the data shown in Figure 4.35 for this purpose.

Release conditions

If you activate the Conditional radio button under Run Release Workflow on this screen, you can use the fields of the TCOR_STR_TRM_COR_ RELEASE structure as release conditions. You can add your own fields to this structure and fill these fields with values for each correspondence

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object in the BADI_TCOR_FILL_APPROVAL_ATTR BAdI. (You find this BAdI in Customizing, under Correspondence  Release  BAdI: Enter Customized Attributes to Determine Release Procedure).

Figure 4.35 Assigning a Release Procedure to a Release Object

Assign a workflow rule to each release step under Correspondence  Release  Assign Rules to Release Steps. The release object is assigned to the user that is linked to the rule as a work item for processing. You then need to assign the release workflow used for technical processing to the release procedure under Correspondence  Release  Assign Workflow and Sub-Workflow to Release Procedure. The release process starts as soon as the correspondence object is to be sent. If the Automatic Correspondence attribute is set for the business partner group, the release process starts as soon as the correspondence object is created. Otherwise, you can use the Send for approval status function in the Correspondence Monitor or use the Send for Approval in Batch Mode transaction (Transaction FTR_SEND_APPRVL) to start the release process.

Starting release

In the Correspondence Monitor, you can use the function Log  Approver List to display all persons who are authorized to grant approval. The workflow supports the release of only individual work items. As many financial transactions may require approval at the same time, the Mass Approval transaction (Transaction FTR_MASSAPPROVAL) was developed to enable mass approval.

Approver list and mass approval

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4.5.5

Sending

Ready for sending

A correspondence object is ready for sending when it is released if the Release Required attribute is set in the business partner group or when the object is created if this attribute is not set. In either case, the financial transaction must also be released in order for the correspondence to be sent if the Do Not Send Before Deal Release attribute is set.

Triggering sending

If the Automatic Correspondence attribute is set in the business partner group, a correspondence object that is ready for sending is created as soon as the correspondence object is created or released. Alternatively, you can use the Send Correspondence transaction (Transaction FTR_COSEND) to send all correspondence objects that are ready for sending. Or, you can execute the Create message and send status function for individual correspondence objects in the Correspondence Monitor.

Creating a message

The correspondence object contains the Customizing settings and therefore allows you to call relevant BAdI implementations to create the message. Depending on the format, the correspondence object may initially be converted into an unformatted message. This is the instance of a class that implements the IF_TCORF_MAP_OBJECT_TARGET interface. This unformatted message is then converted into a formatted message based on the format metatype. The individual steps involved are as follows: 1. Check correspondence object The CHECK_PAYLOAD method is called from the BADI_TCORF_FORMAT_ MULTI_OPTION BAdI. This method is an optional step, in which the data of the correspondence object is checked to ensure that it is correct and complete. 2. Perform mapping The MAP_OUTBOUND method is called from the BADI_TCORF_FORMAT_SINGLE BAdI. Here, the correspondence object must be converted into the unformatted message. For SAPscript forms and PDF forms, an implementation that calls the existing functions for forms is delivered. An implementation for file creation is also delivered. A separate mapping was set up for this purpose (see Section 4.7).

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3. Change and check the unformatted message Next, there are two optional steps in the BADI_TCORF_FORMAT_MULTI_ OPTION BAdI. The unformatted message can be changed with the CHANGE_CONTENT method. The CHECK_CONTENT method can then check that the message is correct and complete. 4. Format the message The BADI_TCORF_META BAdI and the FORMAT_MESSAGE method are used to convert the unformatted message into a formatted message. The SWIFT and SWIFT SAP format metatypes are delivered as standard for the FILE communication channel. Accordingly, there are two different ways to format the message. Having an interim step with an unformatted message simplifies this formatting. 5. Store the message The formatted message is stored in the document management system. The most important Customizing settings are stored with it in this step.

Sending a Message Before the message is sent, the formatted message must be retrieved from the document management system. The most important Customizing settings are also read in this step.

Get message

Next, the formatted message is sent using the SEND method of the BADI_ TCORF_CHANNEL_MULTI BAdI. This BAdI is also implemented for each of the communication channels included in the standard delivery. For the FILE communication channel, the file is stored in the application server folder defined in the communication profile. For the PRINT communication channel, the form is printed on the printer specified in the communication profile. And, for the MAIL and FAX communication channels, the form is set to the address specified in the communication profile.

Send message

Finally, the status is updated in the document management system. The message itself is still available there and can be displayed at any time in the Correspondence Monitor.

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Sending Mails With SAP Note 1637430, sending messages via email is only executed immediately in the production system. This means that it is possible to perform tests with data from the production system in the test system. SAP Note 1490699 describes how you can influence the creation of emails (e.g., subject or text).

Updating the Correspondence Object Correspondence object status

The status of the correspondence object must be updated after the message is sent. If a communication channel that expects a response is used, the status is set to Acknowledgment awaited (see Section 4.6.7). In all other cases, the status is set to Sent. If the Auto complete attribute is set in the business partner group, in this case, and if the Counter Confirmation Required attribute is not set, the status is immediately set to Completed. However, if the Counter Confirmation Required and Automatic matching on delivery attributes are both set, matching is started (see Section 4.8). If the correspondence object belongs to a financial transaction, the correspondence status of the transaction is also adjusted.

4.6

Inbound Process

Just as messages can be sent in different ways, they can also be received via various communication channels. Most of these communication channels do not allow for further processing via electronic means, e.g., receipt of a fax or email. In these cases, a correspondence object must be created manually, and the message received must be attached to the object as an attachment. FILE messages can be processed immediately

In the standard Customizing that is delivered, direct, electronic processing of messages is only possible via the FILE communication channel. With this channel, you have a physical file, which may contain several logical messages. In addition, fragments of a message may be divided among several logical messages. You save the physical file on the application

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server. In order for the inbound process to work, you must give the file an appropriate prefix and store it in the folder you defined in the Customizing settings for the communication profile. You can now start the import. The physical file is split into logical messages, and these logical messages are stored in the document management system. Fragments are stored, merged (if the entire message has arrived), and then treated as a logical message. The logical message is then mapped to the structure of the correspondence object. A number of BAdI methods must be implemented for this purpose. A distinction is made between various types of message for the remainder of the process, i.e., standard messages, cancellation messages (CANC messages) and amendment messages (AMND messages), acknowledgment messages (ACK messages), and negative acknowledgment messages (NACK messages).

Splitting and merging messages

We discuss the inbound process in detail in the following sections.

4.6.1

Starting the Inbound Process

The inbound process is usually started using the Import Incoming Message system transaction (Transaction FTR_IMPORT). In this transaction, you enter the communication profile, correspondence class, and correspondence recipient type/sender type (see Figure 4.36), and all files are loaded from the application server in accordance with the settings for file prefix and folder that were made for the communication profile. Each file is processed only once, and, if the transaction is started again, a processed file is no longer selected. As this system transaction is batch capable, you can set up the import to run regularly in the background.

Figure 4.36 Inbound Process in Transaction FTR_IMPORT

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Communication Channel in the Inbound Process You can define your own communication channels in Customizing. Each communication channel has different requirements. For example, the FTR_ IMPORT transaction is suitable only for the FILE communication channel, for which it was written. If you use your own communication channels that permit inbound processing, you must implement a separate transaction for this purpose. Additional import

The standard import is very complicated when creating the Customizing and performing tests. For this reason, the Import SWIFT Messages transaction (Transaction FTR_SWIFT_IMPORT), which you can use to load one or more files from the application server or local PC, is also provided (see Figure 4.37). If an archive folder is specified, the file is moved there following a successful import. If an error folder is specified, the file is subsequently moved there if the import fails. If necessary, the log can be displayed directly and accessed at any time in the Application Log: Log Display transaction (Transaction SLG1) with the CFM object and the TCOR sub-object.

Figure 4.37 Transaction FTR_SWIFT_IMPORT

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Just as in the outbound process, you can also create an incoming correspondence object manually (see Section 4.5.3). However, as the data immediately has the format of the correspondence object, large parts of the usual inbound process can be omitted.

4.6.2

BAdIs Used

The following BAdI methods are called in the sequence specified below during the inbound process: 왘

BAdI BADI_TCORF_CHANNEL_MULTI—method LOAD This method reads the files in accordance with the communication profile settings.

왘

BAdI BADI_TCORF_META_OPTION—method SPLIT_CONTENT All logical messages are created from a physical file (see Section 4.6.3).

왘

BAdI BADI_TCORF_META_OPTION—method DETERMINE_FORMAT If the format is unknown, it is read from the message using this method.

왘

BAdI BADI_TCORF_META—method PARSE_CONTENT With this method, the formatted message is converted into an unformatted message (instance of a class, which implements the IF_TCORF_ MAP_OBJECT_SOURCE interface).

왘

BAdI BADI_TCORF_FORMAT_SINGLE_OPT—method MERGE_MESSAGE If a message is fragmented, all the fragments are merged when the final fragment is received (see Section 4.6.3).

왘

BAdI BADI_TCORF_FORMAT_SINGLE—method MAP_INCOMING In this method, the unformatted message is mapped to the correspondence object (see Section 4.6.4).

왘

BAdI BADI_TCORF_FORMAT_MULTI_OPTION—method CHANGE_ PAYLOAD You can use this method to make changes to the correspondence object again after mapping.

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왘

BAdI BADI_TCOR_FILL—method FILL With this method, you can fill customer-specific fields that have been appended to database tables.

왘

BAdI BADI_TCOR_EVENT_FILTER—method RECONCILE If the Reconcile attribute is set in the business partner group, this method is called in order to create a securities account statement. Only in SAP ERP 6.0 EHP4 is the BADI_TCOR_EVENT with method RECONCILE called instead.

4.6.3

Split and Merge

Logical messages

If several messages are transmitted simultaneously, they are often packed into one file before transmission. At the receiving end, this physical file is split into the individual logical messages. This occurs in the BADI_TCORF_META_OPTION BAdI with the SPLIT_CONTENT method mentioned above. SAP Note 1677764 contains a sample implementation of this method.

Fragments

If, on the other hand, a single message is very long, it may be split into several fragments. Each fragment is then transmitted as a logical message. At the receiving end, nothing can be done with the individual fragments until the final fragment is received, and all fragments can then be merged and processed.

Fragmentation for format MT535

This type of fragmentation is supported in the standard delivery for format MT535 (securities account statement), and a corresponding implementation exists for the MERGE_MESSAGE method of the BADI_TCORF_ FORMAT_SINGLE_OPT BAdI mentioned previously. In this implementation, the number of fragments received and the number of fragments in total are stored in the TCORIT_SWIFT_ST database table for the securities account statement. The link to the document in the document management system is stored in database table TCORIT_SWIFT_PG for fragments received. Fragments received in duplicate are taken into account only once. Individual fragments are excluded from further processing. The fragments are not merged until the last fragment has been received, and they are then created as a correspondence object. However, each fragment continues to be a separate document in the document management system.

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SAP Note 1711440 Both database tables mentioned above are company code-independent, while the securities accounts are, in contrast, company code-dependent. This may cause problems if you use the same securities account numbers in different company codes. For this reason, these two database tables were replaced with database tables TCORIT_SWIFT_STN and TCORIT_SWIFT_PGN with SAP Note 1711440.

4.6.4

Mapping

When transferring the data from the message to the correspondence object, it is useful to transfer as much data as possible, even if it all this data is not required at the outset. It is also useful to make Customizing settings such as format and recipient type/sender type and—if possible—the company code and financial transaction number or securities account in the correspondence object. If these fields are not filled, the system will try to derive the information generically during further inbound processing. This is both performance-intensive and likely to result in errors. The mapping itself is done in the BADI_TCORF_FORMAT_SINGLE BAdI in the MAP_INCOMING method and is described in more detail in Section 4.7.

4.6.5

Standard Messages

In the case of a standard message, the correspondence object has the value NEWT in the OPERATION field. After a correspondence object has been created in the inbound process with the data from the message, the rest of the process is pretty standard in the case of a standard message: 1. The correspondence object is written to the database. 2. Matching is then started (see Section 4.8). 3. If the Reconcile attribute is set in the business partner group, the Reconcile event, in which, for example, securities account statements can be created, is triggered. The BADI_TCOR_EVENT_FILTER BAdI with the RECONCILE method is called for this purpose.

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4.6.6

Cancellation Messages and Amendment Messages (CANC/AMND)

In the case of a cancellation message, the correspondence object has the value CANC in the OPERATION field, while this value is AMND in the case of an amendment message. Corresponding message

A cancellation message or amendment message must always refer to another message that was previously received. The corresponding correspondence object that has already been received is first identified and set to the status Invalidated. If this correspondence object was matched, has triggered a counter-confirmation, or has set the correspondence status of the financial transaction, this must be undone. The incoming cancellation message can then be set as Completed. With an amendment message, the standard inbound process is run.

4.6.7

Acknowledgment Messages (ACK/NACK)

When you define the communication channel, you also specify whether the communication channel is to return a confirmation that the message has been sent. If it is sent successfully, an acknowledgment message (ACK message) is returned, while a negative acknowledgment message (NACK message) is returned if sending fails. In the case of fax machines, for example, this is the send log that is output. The SWIFT network also offers this service. Customizing

For acknowledgment messages, you make the same settings as for standard messages. The formats ACK and NACK are defined in the standard delivery.

Import

When a (negative) acknowledgment message is received, it is attached to the correspondence object of the corresponding outgoing message, and the status of the correspondence object is changed accordingly.

Exception

If no corresponding outgoing message is found when a (negative) acknowledgement message is received, a separate correspondence object is created. In this exceptional case, further processing can then be done manually in the Correspondence Monitor. For example, the outgoing

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correspondence object can be manually matched to the incoming correspondence object. The Receive Acknowledgment and Receive Negative Acknowledgment status functions can then be executed for the outgoing correspondence object.

4.6.8

Inbound Process in the Examples

In example 1, the confirmation was already sent in the outbound process. Because a setting is made for the FILE communication channel that confirmation of sending is to be received in the form of an acknowledgment message, you receive a corresponding file. You must ensure that this file is stored on the application server in the folder specified in the communication profile and with the correct prefix. Once this is done, you must set up Transaction FTR_IMPORT to run on a regular basis in batch mode with a variant that imports the acknowledgment messages. The status of the correspondence object of the outgoing confirmation changes to Sent.

Example 1

You also receive the counter-confirmation as a file and must store it on the application server, in the folder specified in the communication profile, with the correct prefix. Once again, you must have Transaction FTR_IMPORT run on a regular basis in batch mode. A correspondence object is created for the counter-confirmation. The data is transferred into the correspondence object via the mapping and supplemented with data from Customizing. Matching is used to find the outgoing confirmation, the two correspondence objects are matched, and their status is set to Matched. As the Auto complete attribute is set for the business-partner group, both correspondence objects are then set to Completed status. As the Status relevant attribute is also set and counter-confirmation has occurred, the correspondence status is updated in the financial transaction.

Example 1: counterconfirmation

In example 2, you receive a securities account statement. Here, again, the file must first be stored on the application server and the inbound process started using Transaction FTR_IMPORT. As the securities account statement is not fragmented, a correspondence object is created immediately. The securities account is found via the mapping.

Example 2

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External Securities Account Numbers The securities account manager normally uses numbers to identify securities accounts that differ from the number in the system. It is possible to enter an external securities account number when defining a securities account in the Securities account master data transaction (Transaction TRS_SEC_ACC), provided that this field is set to Optional in the field selection in Customizing. An external securities account number can be assigned to several internal securities accounts.

Matching with other correspondence objects is not required. Finally, the Reconcile event is called. A securities account statement is then created in the BAdI (in the same way as in Transaction RECON4). Reconciliation of the securities account statement with the securities account position still has to be performed manually in Transaction RECON5.

4.7

Mapping

The standard delivery supports the creation of messages in accordance with the SWIFT definition. The SWIFT format metatype, formats such as MT300, and the FILE communication channel are already defined for this purpose. In addition, a mapping tool is implemented with the CL_ TCORF_MAPPING class. This maps the correspondence object to the message or the message to the correspondence object. The mapping tool is called in the MAP_OUTBOUND method of the BADI_TCORF_FORMAT_SINGLE BAdI in the outbound process, and in the MAP_INCOMING method of the BADI_TCORF_FORMAT_SINGLE BAdI, in the inbound process. You may also be able to use the mapping tool for messages with standards other than SWIFT. You can define and maintain the mapping rules using a graphical user interface in Customizing. Alternatively, you can also enter the mapping rules directly in a view cluster. Using Your Own Formats As the mapping rules of the standard formats delivered are subject to change, you should always use your own formats and therefore also define your own

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mapping rules. You can copy the mapping rules included in the standard delivery for this purpose.

4.7.1

Principles of Mapping Rules

Mapping serves to transfer data from a source type to a target type. Both types may be a DDIC type (in particular, the TCORY_CODATA type for a correspondence object) or a generic mapping object. Any combination of these types is possible. Mapping is defined on the basis of direction (incoming or outgoing) and format. A mapping comprises many mapping rules. A mapping rule specifies how a field of the target type is to be filled. Mapping rules are executed in accordance with their position.

Operations There are five basic operations for filling the target field with a mapping rule: 왘

MOVE The source field, part of the source field, or a constant (if the source field is specified with CONST) is moved into the target field.

왘

CALL A service method of the service class is called to fill a target field. In this case, a parameter group, which contains data of the source type or constant as parameters, can be used. Because you can implement the service class yourself, any source code can be used to execute mapping. Only the interface of the service methods is predetermined.

왘

LOOP The LOOP operation is used to fill tables in the target type. The same number of entries is then created in the table as the number of entries in the specified table in the source type. All the following rules are executed to create an entry.

왘

SELECT The source type may contain tables. To use the data of a specific entry, this entry must first be selected. This is done using the SELECT operation, which selects the entry in accordance with the specified

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condition. If the source type table is accessed in the subsequent rules, the selected entry is used. 왘

DEFINE If a generic mapping object is used and a field is not used in any mapping rule, this field is defined using the DEFINE operation.

Prefix

In addition to these operations, there are other ways to control the value in the target field. With the MOVE operation, you can use a prefix to add any character at the start. This is useful if you want to specify a fixed qualifier, for example.

Offset and length

The MOVE and CALL operations return the result of an operation. Based on this result, an offset can be used to define the start point, and the length can be used to define the number of characters to be used in order to determine the value for the target field.

Not initial

If Only if the source is not initial is used, the mapping rule is to be executed only if the source field and the operation result are not initial. This prevents a situation wherein only the prefix is output for the target field in cases when a prefix is used, for example.

Conditions and Names You can specify a condition for each mapping rule so that the mapping rule is executed only if this condition is fulfilled. A condition may consist of several sub-conditions, which are linked using a logical operator (and/or). A partial condition compares a field in the source type with a field in the target type or a constant. Each condition is assigned a unique name and can be used in various mapping rules for different mappings. In the standard delivery, the name of a condition ends with /.

Service Methods and Service Class When a mapping is created, the service class is defined. It contains all service methods that can be used in the mapping. All methods have a pre-defined interface. A table of parameters is transferred as parameters (see the next paragraph), and the resulting value is exported. In the stan-

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dard delivery, the CL_TCORI_SWIFT_SERVICE class is used as the service class in the mappings. If you create your own mappings, you can create your own classes. A service method may require a parameter group. A parameter group contains individual parameters, which are filled with a field from the source type or with a constant. A different parameter group can be specified as a parameter. In this case, all parameters defined in the table are then used.

Partner groups

The parameter group is transferred as a whole to the service method in order to specify the target value. In the standard delivery, the name of a parameter group starts with < and ends with >.

Name

4.7.2

View Cluster

You can use the TCORFVC_MAPPING view cluster to maintain the mapping (see Figure 4.38). You use the View Cluster Maintenance transaction (Transaction SM34) for this purpose.

Figure 4.38 View Cluster TCORFVC_MAPPING

As soon as you select one or more rows, you can double-click in the Dialog Structure area to move on to the next step and maintain all dependent entries of the selected row. The Used fields step is not used.

Navigation

In order to maintain the data using the view cluster, you must know exactly how the data is to be entered there. The entries are not checked when they are input. If you do not enter the data correctly, the error does not occur until the mapping is called.

No input check

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4.7.3

Graphical Mapping Tool

The graphical Mapping Tool was developed to simplify the process of mapping maintenance. You find this tool in Customizing under Correspondence  Correspondence Messaging Interface  Define FormatDependent Mapping Rules (see Figure 4.39). Screen areas

The tool has the following areas: 왘

The available functions are displayed in the application toolbar.

왘

The target type and source type are displayed as tree structures on each side of the screen.

왘

The mapping direction and format shown at the top of the central screen area indicate which mapping is displayed.

왘

The mapping rules for a field of the target type are displayed below the mapping direction and format.

왘

The conditions, service methods, or parameter groups are shown at the very bottom of this area, depending on which tab is selected.

Figure 4.39 Graphical Mapping Tool

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The source and target types are displayed as tree structures. A tree consists of components, with a component being a node (a table or structure) or a field. The TCORY_CODATA DDIC type is used for the correspondence object. However, you can also use other DDIC or generic types. You must create a generic type yourself using the buttons provided. The target type is shown on the left of the screen as standard. However, you can swap the sides around using the Change source/target side function ( ).

Source type and target type

When you double-click a field in the target type, all mapping rules that belong to this field are displayed in the Overview area. When you double-click a rule in the overview, the details are displayed in the detailed view. Alternatively, you can click the All Mapping Rules ( ) button to view all mapping rules for the open mapping. You can then double-click to select one of these and display all the mapping rules that belong to this field in the target type. You can use the drag-and-drop function to fill the Source node, Source field, Condition, Method and Parameter group fields.

Displaying mapping rules

All available values are displayed on the tabs. You can use * as a placeholder when searching for existing entries. You can also delete entries and add new ones. Particular care is required when deleting entries, as the entry may be used in other mappings also.

Conditions, service methods, and parameters

4.8

Matching

First, a correspondence object must be assigned to a financial transaction or securities account. Several correspondence objects may exist for one financial transaction or securities account. During matching, one or more outgoing correspondence objects are identified as belonging with one or more incoming corresponding objects of the same financial transaction or securities account with the same status. The status of all correspondence objects is then set to Matched. Please note that there is another status function called Reconciliation, which has nothing to do with the matching of correspondence objects. This second status function concerns follow-on business processes and reconciliation with other data in the system. For example, if an incoming

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correspondence object is a securities account statement, it can be reconciled with the securities position from position management. Matching and Setting the Status The easiest way to explain the matching function is to use an example. An outgoing sales order is sent in accordance with SWIFT format MT502, and an incoming status message is received in accordance with SWIFT format MT509. These two correspondence objects belong together, so they are matched. However, because the outgoing correspondence requires a counter-confirmation (Counter Confirmation Required attribute set in the business partner group) but the incoming correspondence object is not status relevant (Status relevant attribute not set in the business partner group), both correspondence objects remain in Matched status. An incoming sales confirmation is then received in accordance with SWIFT format MT515. This is included in the matching (so that all three correspondence objects are matched with one another). Because the sales confirmation is status relevant, the status of the financial transaction is set to Counterconfirmed, and the correspondence objects have the status Completed.

4.8.1

Customizing

As explained earlier in Section 4.4.5, you must define your own number ranges in Customizing under Correspondence  General Settings  Define Number Ranges for Match ID. Field comparison

Individual fields in the correspondence objects are compared with one another for the purpose of matching. You can specify whether these fields are to be the same or different. The settings are made in Customizing under Correspondence  Match Correspondence Objects  Define Rules for Matching Correspondence Objects. In example 1, the outgoing confirmation (correspondence class MM_CONF) is to be matched with the incoming counter-confirmation (correspondence class MM_CONF). The nominal amount, currency, start of term, end of term, and nominal interest rate must be identical in this case (see Figure 4.40).

More complex matching

If this simple matching based on field comparison is not sufficient to meet your requirements, you can use the MATCH method in the BADI_ TCOR_MATCH BAdI. All incoming and outgoing correspondence objects that are to be matched and those that have not yet been matched are the inbound parameters in this method. The change parameters are proposals

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for matching based on the Customizing settings. To meet your specific requirements, you can program a matching and supplement or correct the results of this matching.

Figure 4.40 Example 1: Customizing for Matching

Matching Non-Deliverable Forwards (NDFs) Matching of non-deliverable forwards is performed for financial transactions in the fixing or fixing settlement activity using the BAdI fallback class. If you use your own BAdI implementation, you must copy the source code or implement your own logic for NDFs.

4.8.2

Automatic Matching

With automatic matching, matching is performed in accordance with the Customizing settings or with the BAdI call. If user interaction is permitted, the proposed match is displayed and can be confirmed or changed by the user. If user interaction is not permitted, the match is made immediately. Automatic matching may start at a number of different stages in the process, e.g.: 왘

An outgoing correspondence object is sent, and the Automatic Matching attribute is set in the business partner group.

왘

An incoming correspondence is received.

왘

Automatic matching can be started manually for an individual correspondence object in the Correspondence Monitor.

왘

In the Match Correspondence transaction (Transaction FTR_ COMATCH), automatic matching is started for several correspondence objects in accordance with the selection conditions.

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Starting matching

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Example 1

In example 1, matching did not work when the incoming message was imported due to incorrect Customizing settings. The Customizing settings were corrected. Automatic matching is then started using the Automatic Matching status function in the Correspondence Monitor. The matching proposals screen shown in Figure 4.41 is then displayed.

Figure 4.41 Example 1: Automatic Matching

Automatic Matching in the Background If automatic matching is performed in the background and there are several matching correspondence objects, the oldest correspondence object is used for the match. If the financial transaction is to be settled automatically at the same time, this may result in authorization problems. SAP Note 1534215 introduced the TCORV_MATCH_BU view to address these problems. If a user is defined in this view, this user is used to perform matching.

4.8.3

Forced Matches

Correspondence objects can also be matched manually. With forced matching, it doesn't matter whether the correspondence objects do not belong to one another based on the Customizing settings. In this case, the human user's decision takes precedence over the system configuration. Starting matching

Manual matching is only performed in the Correspondence Monitor. In the Assign view, all outgoing correspondence objects in the selection for which matching is to be performed are displayed at the top of the screen. The incoming correspondence objects in the selection that can be matched are shown in the lower screen area (see Figure 4.42). You then select all correspondence objects that are to be matched and choose the Forced Match button ( ).

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Figure 4.42 Example 1: Forced Matching

4.9

Alerts

The correspondence framework supports integrated, automated processes. As such, a correspondence object should be in a certain status for only a defined period of time. Alerts can be used to detect cases where this time is exceeded. It is also possible to send these alerts as automatic notifications via email, fax, or SMS. Alert Management is used for these alerts.

4.9.1

Customizing

You must begin by defining alert categories. In doing so, you specify which recipient is to receive which text as notification. Then, you must assign these alert categories and specify which alert category you want to use when. You can define alert categories in Customizing under Correspondence  Alert  Define Alert Categories. You must use Treasury alerts as the classification and define the container element with the VTS_ALERT_MSG_ DISP data type. You can then enter a text of your choice as a short text (for messages sent as SMS or pager notifications) or long text (for messages sent via email or fax), accessing system fields or data of the container element to do so (see Figure 4.43). Finally, you must define the recipients of the message. You can choose the Fixed Recipients button

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to enter system users directly or the Recipients via User Roles button to send the message to all users to which the role is assigned. You can also make general settings for Alert Management using the subitems provided in the Settings menu. In example 1, an alert is to be triggered if the counter-confirmation is not received within two days. The Z_ALERT alert category is defined for this purpose (see Figure 4.43).

Figure 4.43 Defining an Alert Category Assigning an alert category

In the Customizing settings, under Correspondence  Alert, there are four menu sub-items that allow you to assign alert categories for money market transactions, foreign exchange transactions, derivatives, and securities. You can do this for securities accounts in the Maintain Alert Categories for Securities Accounts transaction (Transaction FTR_SAT_ ALRT).

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The assignment of alert category Z_ALERT to the relevant product type (PTyp column), financial transaction type (TTyp column), and activity category (ACat column) that is required for example 1 is shown in Figure 4.44.

Figure 4.44 Assigning an Alert Category

When assigning attributes to the business partner group, you can specify the period of time that a correspondence object is permitted to remain in a certain status (see Figure 4.21). This waiting period is also known as the maximum wait time. It is used if you are using the Correspondence Monitor, while the time period specified on the selection screen is used in the Alert Monitor.

4.9.2

Alert Types

Depending on how correspondence is used, there are various situations in which an alert is useful. In the standard delivery, three types of alert are used: 왘

Open outgoing confirmation Open outgoing confirmations are outgoing messages that have not yet been sent and do not have the status Invalidated, Rejected, Returned, or Completed.

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Open incoming confirmation Open incoming confirmations are incoming messages with Received status.

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Open counter-confirmation Open counter-confirmations are counter-confirmation–relevant outgoing messages that do not have the status Invalidated, Rejected, Returned, or Completed.

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Defining a maximum wait time

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4

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There are also options for defining your own alerts. The EXIT_TR_ST_ ALERT_MESSAGE method is provided in the FTR_TR_ALERT_ATTR BAdI for this purpose and can be used to change or enhance alerts created in the system.

4.9.3

Monitoring and Triggering Alerts

There are alerts for various areas within transaction management (see Section 3.2.1). You can use the Alert Monitor as a central tool for these alerts. It also monitors alerts for correspondence and can be used for sending alerts. These functions are also contained in the Correspondence Monitor, which is the central correspondence tool. Alert Monitor

The selection screen in the Alert Monitor transaction (Transaction FTR_ ALERT) includes a tab for correspondence. Here, you can specify for which of the three default alert types the selection is to be made. If an alert already exists, you can choose the Send Notification button on the next screen to send the alert.

Alert Monitor in the background

You can call up the Alert Monitor for correspondence in batch (background) mode only in the Send Correspondence Alerts transaction (Transaction FTR_ALRT_BTCH). Each detected alert is then sent. For example 1, you can define a variant for Transaction FTR_ALRT_BTCH to ensure that counter-confirmations pending for more than two days are promptly detected. This variant is executed regularly in a job that runs every 30 minutes.

Correspondence Monitor

The Correspondence Monitor (Transaction FTR_COMONI) has an ICON_ALERT column. As the maximum waiting period cannot be entered on the selection screen, this is taken from Customizing instead. As soon as this waiting period is exceeded, a corresponding icon ( ) is displayed in this column. The alert can also be sent from the Correspondence Monitor. In addition, the alert can be sent for several correspondence objects at the same time.

4.10

Display

When you create or process a financial transaction or securities account transfer, you can display the correspondence objects directly.

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4.10.1 Display in the Financial Transaction When you create or process a financial transaction, you can choose the Correspondence button or select Goto  Correspondence in the menu to display all correspondence objects of the transaction. Note that the latest data is not written to the correspondence object until the financial transaction is saved. This means that you cannot yet tell how your entries will influence the correspondence. Note also that, when you change the financial transaction, a new correspondence object is created first, and possibly also a correspondence object for a cancellation message. When you save the transaction, the fields that are relevant for correspondence are compared, and the creation of the new object(s) may then be undone. This is also not shown in the display of the correspondence from the financial transaction.

Display not up-to-date

It is not so easy to tell from the Customizing settings why correspondence is created or not created for the activity of a financial transaction. For this reason, a detailed log was introduced to keep track of the Customizing settings used, step by step. To view this detailed log for the current activity, choose the Detailed Log button ( ) in the display of the correspondence objects. If no correspondence object exists for the financial transaction, the detailed log is output directly when you display correspondence.

Detailed log

4.10.2 Display for a Securities Account Transfer As with a financial transaction, you can also choose the Correspondence button ( ) to display correspondence objects in the Securities Account Transfer transaction (Transaction FWDU). Here, too, the data for the securities account transfer is not written to the correspondence object until it is saved. Therefore, it is not possible to view in the message in advance.

4.11

Correspondence Monitor

The Correspondence Monitor is the central tool used for correspondence. In the main menu, the Correspondence Monitor transaction (Transaction FTR_COMONI) is the only transaction at the highest level.

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You can, in principle, use the Correspondence Monitor to execute all the functions described so far, with the exception of starting the inbound process. Authorization

As is normally the case in transaction management, an authorization check is performed for each transaction using the F_T_TRANSB authorization object. An authorization check is assigned to each and every function, even if these are called from outside the Correspondence Monitor. The following are queried for the authorization objects for each product type/financial transaction type (authorization object T_DEAL_PD), each securities account (authorization object T_DEAL_DP), each portfolio (authorization object T_DEAL_DP), or each authorization group (authorization object T_DEAL_AG): 왘

Authorization function TRFCT with the value 04 (correspondence)

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Activity ACTVT with the value PR (process correspondence) or the value PS (process correspondence special)

The special authorization PS is required for forced matching, sending an alert, and importing a (negative) acknowledgment message.

4.11.1

Selection Screen

Top area

The selection screen of the Correspondence Monitor is divided into three parts. Selection criteria for the administrative part of the correspondence object are entered in the topmost area of the screen (see Figure 4.45). As correspondence objects that have not yet been assigned do not yet have any administrative data, a checkbox labeled All unassigned Correspondences is also provided here. If this box is checked, all correspondence objects that have not yet been assigned to a financial transaction or securities account are also selected.

Middle area

The middle area of the screen comprises three tabs (see Figure 4.46). A correspondence object belongs to a financial transaction or securities account. It may also contain settlement instructions. The three tabs are linked by a logical OR. This means that all correspondence objects that correspond to the first tab (Deal), second tab (Securities Account), or third tab (Settlement Instruction) and the administrative selection criteria are selected.

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Figure 4.45 Correspondence Monitor Selection Screen, Top Area

Figure 4.46 Correspondence Monitor Selection Screen, Middle and Bottom Areas

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Bottom area

The display options (i.e., which view is displayed first on the data screen, which layout is used first on the data screen, and the maximum number of hits that can be displayed), are displayed in the area at the bottom of the screen.

Revising the selection

After the selection is made, the SELECTION method of the BADI_TCOR_ SELECTION BAdI, in which you can remove correspondence objects from the selection if you do not want these to be displayed on the data screen, is called.

4.11.2

Data Screen

There are three different views for displaying the data screen. Matching view

The Matching view is used when correspondence objects are to be matched with one another. This process is described in Section 4.8, and this view is shown in Figure 4.42.

Assignment view

The Assignment view is used if correspondence objects are to be assigned, directly or indirectly, to a financial transaction or securities account. With indirect assignment, the entry is the same as another correspondence object that has already been assigned. Compared with the Matching view, different types of correspondence objects are displayed, and slightly different functions are then available.

Standard view

The Standard view is used in all other cases, as it does not compare different types of correspondence objects. Instead, it simply displays the list of correspondence objects (see Figure 4.47).

Figure 4.47 Correspondence Monitor, Standard View

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General Functions The functions that are not directly related to the selected correspondence object are as follows: 왘

Create ( ) The Create function starts the manual creation of a correspondence object, as described in Section 4.5.3.

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Refresh ( ) When you choose the Refresh function, the data for the correspondence objects is selected again. If a function is executed for a correspondence object, the data of this object is updated automatically, so there is no need to refresh the entire list.

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View Selection With the Standard view, Assignment view, and Matching view functions, you can navigate among different views of the results list.

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Forced Match ( ) With the Forced Match function, you can manually match incoming and outgoing correspondence objects with one another. This is described in Section 4.8.3.

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New Display Variant ( ) A correspondence object consists of a hierarchy of database tables. When you display a correspondence object, you can define a separate layout for the display of data in each individual database table. You can define a display variant so that the required layout is selected automatically for each database table. The New Display Variant function allows you to create this display variant.

왘

Choose Display Variant ( ) You can use the Choose Display Variant function to switch between the display variants that have been defined.

Functions for Selected Correspondence Objects The functions for a selected correspondence object are provided in the menu bar of the list display. Some functions also allow you to branch to sub-functions.

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Details ( ) A correspondence object is a hierarchically structured object. The Details function allows you to view all levels of the object in detail.

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Show Underlying ( ) A correspondence object belongs to and is assigned to a financial transaction or a securities account. You can use the Show Underlying function to branch to the corresponding transaction or securities account.

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View Message ( ) If the message has not yet been sent, you can use the View Message  Preview Message function to display the message as it will appear when it is sent. You can view messages that have already been sent by selecting View Message  Display Message.

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Attachments ( ) You can use the Attachments  Attach Documents function to attach any number of attachments to a correspondence object. If a correspondence object has an attachment, this is indicated by a corresponding icon in the ICON_ATTACH column on the data screen. You can display or delete existing attachments by selecting Attachments  Maintain Attachments.

왘

Maintain Notes ( ) The Maintain Notes function allows you to enter any new memos of your choice or to change the most recent memo. If a memo exists for a correspondence object, this is indicated by a corresponding icon in the ICON_NOTES column.

왘

Show All Related Correspondence ( ) With the Show All Related Correspondence function, you can display all correspondence objects belonging to a correspondence object. This includes the correspondence objects of the same financial transaction or same securities account, as well as the correspondence objects that are referenced within a correspondence object.

왘

Show Matches ( ) Matching is described in Section 4.8. If a correspondence object is part of a match, you can use the Show Matches function to display all other correspondence objects in that match.

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왘

Assign ( ) If a correspondence object has not yet been assigned to a financial transaction or securities account, you can perform this assignment manually using the Assign function.

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Unassign ( ) If, on the other hand, a correspondence object is already assigned to a financial transaction or securities account, you can undo this assignment with the Unassign Assignment function if the correspondence object was not created from within the financial transaction or securities account transfer.

왘

Status Functions ( ) You can use the status functions to advance a correspondence object to the next status. Only the status functions for the current status of the correspondence object are available. Status functions are described and illustrated in diagrams in Section 4.3.4.

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Log ( ) A range of logs are available for a correspondence object.

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You can choose Log  Action Log to display the actions that have been executed and their messages.

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Selecting Log  Status Log brings you to status management.

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Selecting Log  Release Log allows you to track the release process.

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If you choose Log  CO Change Documents, changes to the database tables at the field level are displayed.

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If a correspondence object is in the release process, you can select Log  Approver’s List to display all persons who are authorized to grant approval.

Send Alert ( ) If an alert exists for a correspondence object, this is indicated by a corresponding icon in the ICON_ALERT column ( ). You can use the Send Alert function to send this alert manually. Alerts are described in Section 4.9.

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4.12

Enhancements (BAdIs)

The correspondence framework is an open, flexible framework. To enable this openness and flexibility, the values used to control correspondence (e.g., which formats exist) are not set by default and can be configured in Customizing. As the program logic depends on these Customizing values, the program logic is implemented in BAdIs. As a result, the corresponding BAdI implementations are called for new Customizing values. Values are defined in Customizing in the standard delivery. The corresponding BAdI implementations are also delivered. If necessary, you can define your own values in Customizing, but, if you do so, you may need to create your own BAdI implementations. Enhancement spots

Enhancement spot definitions group together the BAdI definitions by topic, and enhancement spot implementations similarly group together the BAdI implementations by topic.

4.12.1 Business processes of correspondence objects

ES_TCOR_MONITOR Enhancement Spot

The ES_TCOR_MONITOR enhancement spot groups all BAdIs for the business processes of the correspondence objects. The EI_TCOR_MONITOR enhancement spot implementation groups the BAdI implementations of this enhancement spot. 왘

BAdI BADI_TCOR_FILL: Fill correspondence objects A correspondence object consists of a hierarchy of database tables. When a new correspondence object is created, as much data as possible should be copied. As an append can be used to extend each database table with customer-specific fields, this BAdI contains methods for filling the fields. The recipient/sender and the address data can also be filled. If no implementation exists, the CL_TCOR_BADI_FILL fallback class, which is also used in the BADI_TCOR_FILL BAdI implementation delivered as standard, is called.

왘

BAdI BADI_TCOR_FILL_APPROVAL_ATTR: Release process The release process for correspondence objects can be controlled on the basis of certain data. The TCOR_STR_TRM_COR_RELEASE structure is available for this purpose. This structure can also be enhanced with

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customer-specific fields using an append structure. The task of this BAdI is to fill these fields. The CL_TCOR_BADI_FILL_APPROVALATTR fallback class supplies additional data from BAV statutory reporting. 왘

BAdI BADI_TCOR_MATCH: Matching Matching is described in Section 4.8. If matching based on field comparison is not sufficient, this BAdI allows you to create matches that are as complex as you require. For this purpose, the correspondence objects that are to be matched, all open correspondence objects, and the proposed values for matching are made available by the system. Matching for NDFs is implemented in the CL_TCOR_BADI_MATCH fallback class.

왘

BAdI BADI_TCOR_EVENT: Events Events may be triggered after you save a correspondence object. These include the setting and resetting of confirmations, counter-confirmations, and deliveries. If you are not using your own implementation, the CL_TCOR_BADI_EVENT fallback class is called.

왘

BAdI BADI_TCOR_EVENT_FILTER: Reconcile event A dedicated BAdI is provided for the Reconcile event with SAP ERP 6.0 EHP5. This BAdI is called if the Reconcile attribute is set for the business partner group. A filter is defined for this BAdI. The BADI_ TCOR_EVENT_FILTER_SECACC implementation is called if the Reconcile attribute has the value "X" (reconcile securities account). The BADI_ TCOR_EVENT_FILTER_DIVPAYM implementation is called if the Reconcile attribute has the value "A" (reconcile dividend payment).

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BAdI BADI_TCOR_SELECTION: Correspondence Monitor selection Correspondence objects are selected in the Correspondence Monitor in accordance with the selection criteria (see Section 4.11.1). This BAdI then allows you to add or remove correspondence objects to/ from the selection.

왘

BAdI BADI_TCOR_CREATE: Influence correspondence creation SAP Note 1689414 provides an option that allows you to influence the creation of correspondence objects. This SAP Note also contains this BAdI, which allows you to remove or add entire correspondence objects to or from processing.

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4.12.2 ES_TCORF_CONFIG Enhancement Spot Communication profile

The ES_TCORF_CONFIG enhancement spot groups the BAdIs for configuring the communication profile. The EI_TCORF_CONFIG enhancement spot implementation groups the BAdI implementations of this enhancement spot.

Format-dependent attributes

When you define the communication profile in Customizing, the format-dependent attributes are determined using dynamic table selection. You can use the BADI_TCORF_CONFIG BAdI to exert an influence on these filter values. The BADII_TCORF_FORMAT implementation is provided for this purpose.

4.12.3 ES_TCORF_MSG_INT Enhancement Spot Sending and receiving messages

The ES_TCORF_MSG_INT enhancement spot groups the BAdIs for sending and receiving messages. The EI_TCORI_SWIFT_FILE enhancement spot implementation groups together the implementations for the sending and receiving of files in accordance with SWIFT formats. This implementation is also referred to as the file adapter. The EI_TCORI_FORM_PDF_ SAPSCRIPT enhancement spot implementation groups the implementations for sending and receiving PDF forms or SAPscript forms. This implementation is also referred to as the fax adapter, email adapter, or print adapter, depending on the communication channel used.

Outbound and inbound process flows

In the outbound process, the correspondence object is initially converted to an unformatted message, based on the format. This unformatted message is then transferred into the format message based on the format metatype. The formatted message is then sent using the communication channel selected (see Section 4.5.5). In the inbound process, these steps occur in the reverse sequence. This is described in Section 4.6. Your Own Customizing All BAdIs in this enhancement spot are filter-dependent. If you define your own formats, communication channels, or format metatypes in Customizing, you must either extend the filter values or create your own BAdI implementations.

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BAdI BADI_TCORF_FORMAT_SINGLE: Format-independent required steps This BAdI uses format as a filter and contains methods for the steps required in mapping a correspondence object to an unformatted message. This mapping is described in Section 4.6.4. The BADII_TCORI_ SWIFT_FORMAT_S implementation is provided for the file adapter, while the BADII_TCORI_FORM_PDF_SAPSCRIPT implementation is available for the other adapters. In both examples in this chapter, the new formats ZMT320 and ZMT535 are created. To enable use of the existing BAdI implementations, their filter values were extended accordingly.

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BAdI BADI_TCORF_FORMAT_MULTI_OPTION: Format-dependent optional steps This BAdI uses format as a filter, and it contains the optional steps for which multiple BAdI implementations may be called. These are the methods for checking the correspondence object data and for checking the data of the unformatted message, as well as for performing checks curing mapping. The BADII_TCORI_SWIFT_FORMAT_MULTI implementation is provided for this purpose.

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BAdI BADI_TCORF_FORMAT_SINGLE_OPT: Format-dependent optional steps This BAdI uses format as a filter and contains the optional steps for which only one BAdI implementation may be called. These are methods for temporarily changing the configuration from Customizing or for merging fragmented messages (see Section 4.6.3). The BADII_ TCORI_SWIFT_MT535_OPTION implementation is provided for the file adapter.

왘

BAdI BADI_TCORF_META: Format metatype-dependent required steps This BAdI uses format metatype as a filter and contains methods for the steps required for mapping unformatted messages to formatted messages. For the file adapter, the BADII_TCORI_SWIFT_MT method exists for the creation of a standard SWIFT message, while the BADII_ TCORI_SWIFT_SAP implementation exists for the creation of a SWIFT message in accordance with SAP Integration Package 4. The BADII_ TCORI_FAX_FORM implementation is provided for the other adapters.

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BAdI BADI_TCORF_META_OPTION: Format metatype-dependent optional steps This BAdI uses format metatype as a filter and contains the optional steps for mapping unformatted and formatted messages. These are methods for splitting an incoming file into individual messages and for determining the format. The BADII_TCORI_SWIFT_MT_OPTION implementation exists for the file adapter.

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BAdI BADI_TCORF_CHANNEL_MULTI: Channel-dependent required steps This BAdI uses communication channel as a filter and contains the steps required in order to send and receive a formatted message via the communication channel. The following implementations exist:

왘

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The BADII_TCORI_FILE_M implementation exists for the file adapter.

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The BADII_TCORI_FAX implementation exists for the fax adapter.

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The BADII_TCORI_EMAIL implementation exists for the email adapter.

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The BADII_TCORI_PRINT implementation exists for the print adapter.

BAdI BADI_TCORF_CHANNEL_SINGLE_OPT: Channel-dependent optional steps This BAdI uses communication channel as a filter and contains the optional steps that may be executed when a formatted message is sent or received. These are methods for temporarily changing the configuration that is read from Customizing.

4.12.4 FTR_TR_ALERT Enhancement Spot The FTR_TR_ALERT enhancement spot groups the BAdIs for alerts. There are no BAdI implementations and therefore no enhancement spot implementations. Alerts

The FTR_TR_ALERT_ATTR BAdI contains two methods. One of these allows you to change the alerts determined by the system or to create your own alerts. The other allows you to change the alert attributes that are determined from the Customizing settings.

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There are two terms for financial instruments associated with the word position that are frequently used interchangeably: quantity and value. Only by clearly separating both terms can we achieve a high degree of flexibility and the support of several accounting principles.

5

Position Management

While traders often concentrate on the individual financial transaction, it is normal for the back office to focus on positions due to their natural proximity to financial accounting. From the perspective of financial accounting, the main interest is in the net values on positions. However, positions are also important in external communication, whereby the main focus in this case is on the balanced quantity. There are completely different requirements for the distinction of different positions. Position management is responsible for connecting (or relating) the different views on positions and supporting the processes based on these, particularly in the back office. In this case, the system is intended to reduce or alleviate as much of your regular work as possible. Naturally, this is possible only if you have already implemented the necessary settings and parameters in Customizing. Customizing therefore takes up a large part of this chapter. In Section 5.1, we first want to explain some basic position management terms within Transaction Manager. Section 5.2 then deals with external position management—handling processes with external business partners. This refers exclusively to standardized financial instruments, i.e., securities, futures, and listed options. We have dedicated three sections to the internal position management of the Transaction Manager. This allows you to structure your financial accounting relatively flexibly and, in particular, to also support several accounting principles in parallel with relatively little effort. This

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involves a corresponding level of complexity. Section 5.3, therefore, describes the basic principles and creates an understanding of the relationships between external and internal positions. Section 5.4 describes the processes that are based on the internal positions, using the valuation for accounting purposes as the most important example. Finally, Section 5.5 describes two sample scenarios to illustrate the Customizing structure in detail.

5.1

Basic Terms

To explain the position management of the Transaction Manager, we first need to describe some terms. At the same time, you will also get a first impression of the design of position management. We first explain the difference between external and internal positions in position management. The common factor with the positions is that they are increased and decreased by flows. The update type is the most important attribute of the flow in position management. Flows, in turn, are part of business transactions.

5.1.1

External and Internal Positions

In the area of financial instruments, it is natural to talk about positions. As indicated in the introduction, different types of positions may exist alongside each other because they are suitable for a specific purpose. Securities

It quickly becomes apparent with the securities example why, in addition to the financial transactions for financial instruments, we must still consider an additional value. For example, if you repeatedly buy a bond, you obviously conclude several financial transactions for this bond. However, you do not receive interest or repayments from your depository bank for every single purchase, but rather for the total quantity of the bond in your possession. You therefore use a position to balance certain things. In order to satisfy this objective, we must define two aspects for a position:

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왘

What unites flows of this position, and what differentiates it from other positions?

왘

Which values do we want to balance on the position? What are the inflows and outflows?

5.1

There are standards in the communication with external business partners for both of these criteria. External positions are differentiated from each other by characteristics that are specified externally. At least in external communication, only quantities, not values, are balanced on them.

External position

You can measure a quantity in units for financial products, such as stocks, for example, or also in currencies for bonds or instruments for money market trading. In the latter case, we refer to nominal amounts. It is important to make a formal distinction between a nominal amount and an amount in terms of a value. If you buy a bond over or under par, the nominal amount of the purchase clearly differs from its value, the payment amount.

Quantities

However, even if the amounts are the same, we should distinguish the significances. We consider value specifically an internal process task, of financial accounting in particular. Flows to external positions can certainly have values, but they are not balanced on an external position; only quantities are balanced on the external position because they are not based on an accounting principle and are therefore suitable for external communication.

Values

The characteristics that distinguish the different positions are naturally also standardized for standardized financial instruments. The external position management of the Transaction Manager is responsible for managing these positions for securities, futures, and listed options. We discuss this in detail in Section 5.2. For OTC instruments, you use the financial transaction number as an identifying characteristic in the external communication. One financial transaction corresponds to one external position. Consequently, the

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Transaction Manager contains external position management for the OTC instruments only to enable changing the holding category. Section 5.4.5 describes this aspect in detail. Internal positions

We will now discuss the external position's counterpart. You mainly use internal positions for accounting purposes. They can therefore also be differentiated from each other according to internal company criteria. Their task, in addition to balancing quantities, is also to balance values. They are the starting point of the valuation for accounting purposes. We also refer to them as ledger positions. The internal position management of the Transaction Manager is very flexible in the area of securities, as we discuss in detail in Section 5.3. The relationship between external and internal positions must not be lost in this case. They are related through the quantity changes that, together with the external ledger positions, also relate to the associated ledger positions. If necessary, the system distributes flows of an external position to several ledger positions.

Quantity ledger

The quantity ledger creates the relationship between internal and external positions by managing its own positions to the smallest granularity. You will not normally need this information. If you are interested, you can display these positions using the position list for quantity ledger positions transaction (Transaction TPM26). You can find them in the menu under Transaction Manager  Securities/Derivatives  Information System  Position. It can, of course, make sense to manage internal positions according to the external positions. This is also the normal approach for OTC transactions. In this case, internal and external positions must correspond to a financial transaction. The distinction between the two types of positions is important here insofar as only the internal positions have values. The OTC transactions refer to a point that we have so far not factored in. Several quantities are often important for these financial instruments, for example, for interest rate swaps or basket options. The position management of the Transaction Manager can handle only one quantity per position. For many OTC transactions, this situation is therefore managed by referring to an incoming one unit at the conclusion of the contract and to one unit again at the end of term.

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5.1.2

5.1

Update Type

The update type identifies the flow in position management. Both the external and internal position management link attributes with an update type and enable properties to be assigned to a flow of the cash flow in this way.

Defining the update type

As the name suggests, the update type is a value that you can define yourself. You now rightly expect there to be an assigned category that reflects the most important properties of the update change and, therefore, of the flow. This is the position change category in internal position management. We discuss this in Section 5.3.1. However, there are still many other properties that are assigned to the update type at different places. The flows effectively represent the fragments that make up the cash flows of all positions. The different parts of position management consequently assign the relevant properties to them in each case using the update types.

Position change category

The update type, therefore, has the same role in position management as the flow type has in transaction management. However, an update type does not always correspond exactly to a flow type. One of the reasons for this is that the (payment) directions are taken into account differently. While a flow type can basically be used in both directions, outgoing and incoming, an update type is always implicitly assigned to exactly one direction. So, several flow types can be mapped on the same update type. However, a large number of update types do not have a corresponding flow type. These flows belong to business transactions that have their origin in position management. Typical examples from external position management are interest and dividends, whereas from internal position management, typical examples are valuations.

Update type and flow type

If you have to use update types in Customizing, you can almost always immediately define them, as well. The corresponding activity is always called Define Update Types and Assign to Usages. As you can see in Figure 5.1, the definition is actually nothing other than the specification of a key and a name.

Customizing

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Figure 5.1 Define Update Types Usages

You are also able to assign the update type to one or more usages. The main task of this assignment is to provide you with a good input help when you are maintaining the properties in other Customizing activities. You will quickly have several hundred update types in the system. However, only a subset is ever used for a particular purpose. These subsets are described by the usages.

Naming conventions

Due to the large number of update types, it makes sense to adhere to naming conventions to maintain a clear overview. In the sample Customizing, the following rules apply for the first digits of the update types: 왘

MM: Money market area

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FX: Foreign exchange trading area

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DE: OTC derivatives, futures, and listed options area

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SE: Securities transactions area

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CML: Loans area

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SAM: Securities account management

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SAT: Securities account transfer

왘

RHT: Security right

왘

CA: Corporate action

왘

V: Valuation

왘

VR: Reset valuation

왘

AD: Accrual/deferral

왘

DBT: Flow of a derived business transaction

왘

AAR: Account assignment reference transfer

왘

VT: Valuation class transfer

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왘

DT: Legacy data transfer

왘

INI: Initialization

You can display practically all transaction management flows in position management. In Customizing, you must therefore store which update types are linked with the flow types. You can find the Customizing under Transaction Manager  Money Market/Foreign Exchange/ Securities/OTC Derivatives  Transaction Management  Update Types  Assign Flow Types to Update Types. As you can see in Figure 5.2, the link also depends on the direction.

Figure 5.2 Assigning Flow Types to Update Types

5.1.3

Business Transaction

A business transaction is the elementary event in position management. It consists of some central data, such as the company code or position date, and its flows. Each business transaction has one or more flows. The business transaction corresponds to the elementary event in financial accounting, the posting document. We discuss this in more detail in Section 6.2.

Defining the business transaction

A business transaction is characterized by its business transaction category. You have no influence on the allocation of this category. Examples of business transaction categories include interest, securities purchase, or valuation.

Business transaction category

The majority of business transactions relate to only one position, and many have only one flow. However, they can also relate to several positions, such as the physical exercising of an option or a securities account transfer.

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Status of a business transaction

Business transactions and, implicitly, their flows, can adopt different statuses that partially correspond to those of transaction management flows: 왘

Scheduled Many business transactions are initially scheduled, whether because they are still in the future or because approval processes still have to be performed on them. You can still change scheduled business transactions. This status corresponds to the Not relevant for posting and Flagged for posting statuses of transaction management.

왘

Fixed This status is, to a large extent, a synonym for the statement that the business transaction in the general ledger was updated—that is, posted. Consequently, you can no longer change the business transaction. Fixed and Posted Statuses Position management wants to disregard whether business transactions are updated in the general ledger and generally avoids the term posted for describing this status. In reality, there are also business transactions that you must fix but not post. In the following section, we mostly use the term posted because it corresponds more closely to the standard terminology.

왘

Fixed operatively This status implies that the business transaction is already fixed in external position management but is still planned in internal position management. The status is used when payments are processed.

왘

Paid This status shows that a payment request has been generated for the corresponding business transaction. It is linked to the operatively Fixed status. Chapter 6 describes the payment process in detail.

왘

Payment reversed If a payment request was generated, you can no longer change it, but you can reverse it.

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Basic Terms

왘

Reversed If you fixed a business transaction, you can no longer change it. You can only declare it invalid—in other words, reversed. A reversed business transaction involves two documents of the general ledger: the original document that was created when the status changed to Fixed, and the reversal document that was created when the status changed to Reversed.

왘

To be Fixed This status is a special feature in internal position management. It can occur only for business transactions that originate from transaction management. Basically, you can no longer change the business transaction. However, it has not yet been updated in the general ledger. Chapter 6 describes this aspect in more detail.

왘

To be Reversed The business transaction was already fixed; however, you have declared it as no longer valid. Nevertheless, a reversal has not yet occurred in the general ledger. In the lifecycle of a business transaction, this status is between Fixed and Reversed. The status corresponds to the Flagged for reversal status of transaction management.

왘

Payment to be Reversed The business transaction was already paid; however, you have flagged it for reversal in transaction management. Consequently, the corresponding payment also must be reversed. This status is between Paid and Reversed.

5.1.4

5.1

Parallel Accounting Principle

Internal position management can support several accounting principles in parallel. Internal position management also allows for different views of the same positions. This option makes many approaches of the position management clear. Even if you do not intend, or are not obliged, to create financial statements based on several accounting principles, it is helpful to always be aware of this scenario, at least for the duration of reading this book. Only then can you realize the capabilities and complexity of position management.

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Different views of the same positions

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5.2

External Position Management

External position management focuses on the processes that you perform with external business partners for securities, futures, and listed options. The external view for OTC transactions is already described in detail by transaction management because, as non-standardized financial instruments, the cash flows of each financial transaction are negotiated individually. Identifying securities

In Section 5.1.1 we discussed that, for each position, you must specify which characteristics you want to use distinguish it from other positions. For external positions, these characteristics are predefined externally by standards. These characteristics for securities are the following: 왘

Company code

왘

Securities ID

왘

Securities account

The company code appears as a differentiating characteristic in all positions because it identifies the owner. Identifying futures and listed options

Unlike securities, listed options and futures are managed in futures accounts rather than in securities accounts. Similarly, the futures account labels such a position. An indicator is added here to signify whether the position is long or short. Positions for listed options and futures are therefore identified in the Transaction Manager by at least the following four terms: 왘

Company code

왘

Securities ID

왘

Futures account

왘

Long-short indicator

In addition, where futures are concerned, future exchanges keep records of every single financial transaction. Each financial transaction for a position inflow leads to a separate position. This is referred to as a single position or as a lot position. We discuss this in more detail later. Although securities transactions—that is, purchases and sales—are also included in external position management, it is responsible only for

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those processes based on its positions. In particular, these are business transactions that result from the conditions connected to the financial instruments. External position management also contains the corporate actions and rights in the area of securities. It ultimately creates the daily margin business transactions for futures and listed options.

5.2.1

Securities Account Management

Practically all securities involve conditions that describe the payments for which possession of the security is authorized or liable. This includes interest or repayments in the area of bonds, dividends in the area of stocks, and the distribution of profits from investment funds. In Chapter 2, you have already seen how to set up these conditions. The main task of securities account management now is to create cash flows for external positions on the basis of the conditions and other information and to process the resulting business transactions. We also regard the securities account transfer as a function of the securities account management. We will first take a look at a typical cash flow in securities account management in Figure 5.3. This is the cash flow of a bond position that results from a single purchase. You can display the securities account cash flows in the Securities Account Cash Flow transaction (Transaction TPM40), which you will find in the menu under Transaction Manager  Securities  Back Office  Securities account management  Position Information  Securities Account Cash Flow.

Figure 5.3 Securities Account Cash Flow of a Bond

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Example

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Position Management

You see a purchase, the accrued interest flow and brokerage in the transaction cash flow, the annual interest payments, and, finally, the final repayment. Cash flow

As soon as you have entered the purchase, the system automatically creates this type of cash flow. In the following sections, we explain the settings you must implement in Customizing to create these or more complex cash flows. The cash flows for securities do not usually change, which means you only have to update them gradually in financial accounting. We describe the corresponding function of the debit position here. Other additional, smaller functions, such as manual posting and the securities account transfer already mentioned follow.

Condition-Based Business Transactions Condition and update types

When setting up the master data for securities, you have seen that the conditions are defined using condition types. Business transactions with flows must now be created from these conditions. Because the flows are characterized by update types, you need to create a relationship between the condition types and update types. You can define them in Customizing under Transaction Manager  Securities  Position Management  Securities Account Management.

Attributes of the update type

First, define the update types and assign them to a usage as described. In the next activity—Specify Update Types for Securities Account Management—assign properties to the update types. You do this not only for the update types that result from the conditions, but for all update types you require in the securities account management. Figure 5.4 shows the settings you have to implement. You must first assign a calculation category. This is the category you have already learned about with the condition types. Although this is redundant information for update types that are assigned to condition types, the update types for securities transactions also require these calculation categories—that is, AA for purchases or SS for sales. Otherwise, the system will not detect whether these are inflows or outflows. In the Effective interest calculation area, specify whether flows with this update date are included in the effective interest calculation. If yes, specify the sign you want to be used to take them into account. This sign

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mostly corresponds to the sign used for the entry in the Direction field in the Payments area. You need the payment direction for updating SAP Cash and Liquidity Management and for active payments.

Figure 5.4 Specifying Update Types for Securities Account Management

In addition to the flows that are created from conditions, the securities account management can create other flows. These include taxes and flows for the debit position. We explain both in the “Taxes in Securities Account Management” section. The flow classification (Flow classification area) is not relevant. Finally, you still have to define two settings for the Debit position area. The posting of flows in the environment of securities account management is referred to as a debit position. The first checkbox determines whether a flow can be posted with the mass transaction for the debit position (Can be processed automatically with debit position checkbox). The second checkbox (Generate debit position flow) specifies whether a second debit position flow is to be generated for the flow. We describe for the exact purpose of these in the “Debit Position” section. If you activate the Use calculation date as position date checkbox, the calculation date is used as the position date. By default, the position date corresponds to the payment date.

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Debit position

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Update type and condition type

We have now qualified the update type to such an extent that it can be used in the securities account management. Our initial aim was to create a relationship between the update type and condition type. You will find the Assign Update Types to Condition Types activity shown in Figure 5.5 in Customizing under Transaction Manager  Securities  Position Management  Securities Account Management. This enables the system to generate business transactions of position management from the class data conditions.

Figure 5.5 Assigning an Update Type to a Condition Type for Asset Positions

The Customizing transaction requires explanation because everything apparently centers on payment directions we have already specified in Figure 5.4. The situation is complicated because the same condition type can occur for asset and liability positions, as well as for long and short positions, but must be assigned to other update types in each case. Asset and liability positions

Let’s now clarify the differences between the four types of positions. In Section 2.5.1, we explained that the system manages issued bonds in its own securities accounts, the liability securities accounts, whereas normal positions are contained in asset securities accounts. Asset and liability positions differ based on their securities account. Both positions have a positive quantity, but positions on liability securities accounts have negative values, which, admittedly, you can only tell from the associated ledger position of the internal position management. If you allow it, the system can also manage short positions for securities. Short positions are characterized by a negative quantity. They also have negative values. Negative quantities do not make sense for emissions.

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5.2

The difference between asset and liability positions is made when you assign the update types using separate maintenance interfaces. Figure 5.5 shows the maintenance for asset positions. There is another completely similar maintenance for liability positions.

Maintaining asset positions versus liability positions

You differentiate between long and short positions implicitly. Use the setting in the Payment Direction column, as shown in Figure 5.5, to specify whether the condition type for long positions (therefore with Active Position) is an incoming or outgoing payment. The system correspondingly uses the update type in the Incoming or Outgoing column for asset positions. For short positions, the system assumes that the condition type involves the reverse payment direction and uses the update type in the other column in each case. As long as you have only asset positions, only one of the last two columns is ever filled.

Maintaining long positions versus short positions

Consistency Conditions for Customizing The update types you enter in the Incoming or Outgoing columns must satisfy two consistency conditions. The calculation category you have entered, as in Figure 5.4, must match that of the condition type (FiM column in Figure 5.5): otherwise, an error message is issued. If you enter an update type in the Incoming column, it must also have Incoming payment in the Direction field (see Figure 5.4).

These settings mean that the system can already generate the simple cash flow for a bond, as shown previously in Figure 5.3.

Variable Interest and Interest Rate Adjustment The cash flow for variable-rate bonds is somewhat more challenging. In principle, the procedure is similar to the variable-rate OTC transactions. First of all, it is clear that you are referring to a reference interest rate in this case already in the interest conditions of the class (see Chapter 2), instead of immediately entering an interest rate. You can, of course, specify simple markups and markdowns on this reference interest rate.

Basis for reference interest rate

The period for fixing interest rates is again represented by a condition. The system uses this condition when calculating 3the cash flow to determine the interest rate on which every interest flow is based. You usually implement a setting to ensure that the interest rate is fixed at the beginning of

Condition for fixing interest

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the period or some days before it. For interest flows whose interest rate fixing is still in the future and for which there is, therefore, no reference interest rate value available, the last available value is used. Unlike transaction management, there are no planned record update strategies here. The system naturally prevents you from accidentally posting these types of temporary flows. Implementing the interest rate fixing

The interest rate fixing itself is not a special transaction for this purpose alone. The transaction is called Update Planned Records (Transaction FWUP) and is located in the menu under Transaction Manager  Securities  Back Office  Securities Account Management  Update Planned Records. You can always use this transaction if you have to calculate new cash flows for securities. Variable interest is certainly the most important example. Naturally, you do not need to run the transaction on the day of fixing the interest. Where variable interest is concerned, the system updates the interest rate for every planned interest flow and the date on which it was determined. If this date matches the date when the interest rate is scheduled to be fixed, you can post the corresponding interest flow.

Taxes in Securities Account Management In addition to condition-based flows, a cash flow of a securities position contains taxes in many countries. One example of this is interest income tax. Securities account management enables you to map simple tax scenarios. Let’s look at this in this section. Like the condition-based flows, the system generates tax flows automatically. For example, let’s assume that we must pay an interest income tax of 30% for the bond in Figure 5.3. The cash flow should subsequently look like the one in Figure 5.6. We see another flow with Update Type SE3006 on the same day for each interest payment. Defining tax rates

How do we now achieve this behavior? It’s clear that you must first define the corresponding update type. We don’t need to discuss this any further. The important thing to do is set the tax. To do so, in Customizing, use the Transaction Manager  Securities  Position Management  Securities Account Management  Define Tax Rates activity. The settings in this activity are relatively plausible (see Figure 5.7).

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Figure 5.6 Securities Account Cash Flow for a Bond with Interest Income Tax

Figure 5.7 Customizing for Taxes in Securities Account Management

Because taxes are the responsibility of governments, you must specify the country for which the tax rate is to apply. The country is then determined from the registered offices of the securities issuer. Only taxes that are calculated as a percentage on a base amount can be processed. In the Incoming Update Type column, specify the flow that provides the base amount. The tax update type appears in the Outgoing Update Type column. In addition to the tax rate, you can also define a rounding rule. You can define them in Customizing under Transaction Manager  Securities  Transaction Management  Transaction Types  Define Rounding Rules. You can calculate a tax for a tax. You can therefore use the update type of a tax as the incoming update type again. The system allows only a single iteration, though. You must then activate the tax calculation under Transaction Manager  Securities  Master Data  Product Types  Define Company CodeDependent Settings for the Product Type. Figure 5.8 shows the

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Capitalizing the tax calculation

5.2

5

Position Management

settings for Product Type 04I. You will find the Generate taxes indicator there as the bottom option. You will receive the cash flow shown previously in Figure 5.6 only after you have activated this indicator.

Figure 5.8 Company Code–Dependent Settings for Product Type

Updating the Cash Flow If you have to change the settings once in the live system because, for example, a country's tax rate has changed, you can also recalculate this tax rate again from the Securities Account Cash Flow transaction (Transaction TPM40). To do this, select Cash Flow  Recalculate and Save from the menu. However, you generally use the Update Planned Records transaction (Transaction FWUP, see the “Variable Interest and Interest Rate Adjustment” section).

Now, let's take a look at Settings for cash management in Figure 5.8: you can ignore the Planning type parameter. The forecast period (CM period) specifies for how many half-yearly terms the cash flow is to be generated in the future. This setting also improves the performance, because the cash flow is generated only for the specified period in case of planned record updates. This is useful especially for longtime securities with a lot of condition-based flows. Processes requiring the entire cash flow, such as valuation or net present value calculation, are not affected by this setting.

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Company Code-Dependent Settings for Product Type Do not enter anything under Settings for accounting or, at best, enter the value "2" with the description “Actual records in subledger, no FI posting (not loans!)”. If you do not want to update certain product types in the SAP General Ledger but do want to manage them in SAP Treasury and Risk Management, it would be better here to use the TRACC_POSTREL view instead of the value “2.” You can edit the view using the View Maintenance transaction (Transaction SM30). The number 1 is the only reasonable value for the settings for the automatic posting. If you set 0 as the value, you cannot use the automatic debit position.

We discuss the settings for generating incoming payment flows in the following section. To understand this, you must first be aware of how incoming payments or, more generally, business transactions due to conditions for securities, are posted in the Transaction Manager.

Debit Position Posting business transactions in securities account management is known as a debit position. You will understand the term if you are aware of the posting process of the receipt of interest or repayments. Although you do not need to be active to receive these payments, you must perform two process steps actively in the system. On the due date, post the interest in the Profit and Loss Statement (P&L) and generate a bank receivable. Some days later, you receive the account statement and clear the receivable against the bank account. In any case, you initiate the posting of the interest from position management: therefore, this posting is referred to as a debit position. The process for incoming payments is always in two stages. The general ledger is normally responsible for importing the account statement, and only the receivable is posted in the Transaction Manager. The electronic account statement can, of course, also process receipts from the Transaction Manager.

Debit position

You may occasionally want to perform both stages in the securities account management. To do this, you need two postable flows in the cash flow—one that represents the debit position and a second one that corresponds to the confirmation of the account statement—that is, the incoming payment. The debit position is subsequently often made

Two-stage incoming payments

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Position Management

through a mass posting, whereas the accountant or treasurer posts the incoming payment manually if he or she has the account statement in writing. Generating flows for incoming payments

How do you define the flows for incoming payments in Customizing? 1. Company Code-Dependent Settings for Product Type In the company code–based settings for the product type (Figure 5.8), you must enter the value "1" (Generate Incoming Payment in Planned Status) or "2" (Generate Incoming Payment in Actual Status) in the Incoming Payments field. If you leave this field blank, the system does not generate any flows for the incoming payment. 2. Specify update types for securities account management You must define the update types for the incoming payment, as usual. You must set the indicator for the debit position flows shown in Figure 5.4 for the update types for the original flows (Generate debit position flow field). Leave the Can be processed automatically with debit position indicator blank for the update types for the incoming payment itself. 3. Assign update types to the functions of securities account management Finally, create a relationship between the incoming payment and its source flow. This is displayed in Figure 5.9 and is part of an activity located in Customizing under Transaction Manager  Securities  Position Management  Securities Account Management  Update Types  Assign Update Types to the Functions of Securities Account Management.

Figure 5.9 Update Types for Different Functions of Securities Account Management

After you have implemented these steps, the bond's cash flow looks quite comprehensive, as displayed in Figure 5.10. The incoming payment flows each have the entry (incoming payment) in their descriptions.

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External Position Management

5.2

In this example, we have not generated any incoming payment flows for the taxes. In fact, we have assumed that they are only posted with the incoming payment. Consequently, the incoming payment flow is entered as the base flow in the tax calculation Customizing.

Figure 5.10 Securities Account Cash Flow of a Bond with Incoming Payment Flows

You can choose between a mass transaction and a transaction for posting individual business transactions as the actual posting transactions of the securities account management. You will mostly post the business transactions of the securities account management using the Automatic Debit Position transaction (Transaction FWSO), as displayed in Figure 5.11. You can find it in the menu under Transaction Manager  Securities  Back Office  Securities Account Management  Payments  Automatic Debit Position.

Automatic debit position

You can narrow down the required positions on the selection screen (see Figure 5.11). You receive a list of the posted flows and a posting log with the results. You also start out at the position with the Manual Debit Position transaction (Transaction FWZE). You can find this transaction in the menu under Transaction Manager  Securities  Back Office  Securities Account Management  Payments  Manual Debit Position. The system displays all flows that have not yet been posted for the position. Select one of these by double-clicking it, and you’ll then go to a detail screen, as shown in Figure 5.12. You can change certain values there, such as the terms of payment.

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Manual debit position

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Position Management

Figure 5.11 Selection Screen of Automatic Debit Position

Figure 5.12 Manual Debit Position with Dialog Box for Terms of Payment

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External Position Management

5.2

Essentially, the same options as those in transaction management are available for the terms of payment of the securities account management. The default value here is generated from the data you specified in the securities account master data.

Terms of payment

Condition-based business transactions, such as interest, dividends, and repayments, are paid in the issue currency. If you want to use a different payment currency, you must specify this in the initial screen for the manual debit position. The system then calculates the payment amount using the current exchange rate. You can adjust the exchange rate or the amount in the flow details. Incidentally, you can always do this for the local currency amount, provided that the local currency differs from the issue currency.

Differing payment currency

You can reverse both the automatic and manual debit position. You can find the Reverse Automatic Debit Position Run (Transaction TPM_POSTAUTREV) and Reverse Debit Position (Transaction FWOEZ) transactions in the menu under the postings transactions. You cannot reverse the business transactions, which you posted with the manual debit position, with the Reverse Automatic Debit Position Run transaction (Transaction TPM_POSTAUTREV). However, you can reverse the automatic debit positions using the Reverse Debit Position transaction (Transaction FWOEZ).

Reversal

Capitalized Dividends You represent dividends on stocks or revenues of funds as conditions of the relevant class in the Transaction Manager but not as corporate actions, to which at least dividends legally belong. This is obvious because they are normally updated in financial accounting, similarly to interests. However, rather than distributing their revenue in cash, both of these financial instruments issue new shares occasionally. This is referred to as capitalized dividends in the system. You are credited with shares of the security for the amount of the dividend, or part of it. The system processes this activity within the manual debit position. Figure 5.13 shows the detail screen. (Compare this to Figure 5.12.) In addition to the usual buttons that are available, such as Recalculate Taxes and Payment Details, you will also find the Capitalize button for

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stocks (product category 010), investment certificates (020), and shareholdings (160). If you click the button, you can specify which amount is distributed in the form of shares and how many there are of these shares. The business transaction consequently receives two additional flows. One represents the inflow of the shares; the other, the revenue. In Figure 5.13, the inflow has the "Capitalized Dividend Position" update type and the revenue the "Capitalized Dividend: Revenue" update type (Update Type Text column in the Flows area). To ensure that the system provides the additional Capitalize button, you must specify update types for the two additional flows. You do this in the Customizing in the Assign Update Types to the Functions of Security Account Management activity already mentioned (see Figure 5.9). You can specify the two update types there for each product type under Update Types for Capitalization of Div./Prof.Dist.

Figure 5.13 Entering a Manual Debit Position for Capitalized Dividends

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Manual Posting We will now deal with the remaining functions, whose Customizing is displayed in Figure 5.9. The Manual Posting transaction (Transaction FWBS) enables you to enter postings relatively freely for a securities account position. If charges are calculated for a particular position, for example, the manual posting is the appropriate function. Therefore, the system cannot automatically generate these business transactions; they can be entered and posted only in this way. You can find the transaction in the menu under Transaction Manager  Securities  Back Office  Securities Account Management  Payments. This is displayed in Figure 5.14.

Figure 5.14 Entering the Flow of a Manual

Posting Manual Valuations Avoid making valuations for securities account positions with the manual posting. In any case, the external position does not contain valuations, but rather the ledger position. The valuation functions of internal position management are very comprehensive. In addition, the business transactions of the manual posting affect all valuation areas, and these business transactions may have a negative effect on the actual valuation.

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Entering Securities Account Charges Unfortunately, the manual posting is not very suitable to use for entering securities account charges. Securities account charges are normally levied for a securities account and not for a particular securities position. There is no suitable transaction in the Transaction Manager for this activity. The only option is to enter a simple document in the general ledger.

You handle the manual posting in exactly the same way as the manual debit position. Initially, of course, there are no flows displayed on the detail screen. You enter these by clicking the Add flow button. You can select all update types here that you entered in Customizing for the manual posting.

Nominal Adjustment The Nominal Adjustment is a technically related business transaction that may be required in the event of issue currency changeovers. Changing the issue currency of securities is inherently a corporate action. Rounding differences may cause the system to convert nominal amounts differently than your depository bank. After an issue currency changeover, the securities account statement enables you to identify that the depository bank shows a different nominal amount than your system. You post or write off nominal amounts with the nominal adjustment to ensure that the system matches the statement from your depository bank again. You will find the Nominal Adjustment transaction (Transaction TPM22) in the menu under Transaction Manager  Securities  Back Office  EMU Additional Functions  Display Nominal Adjustment.

Securities Account Transfer You use the securities account transfer to move positions or partial positions between securities accounts. As a rule, you should only create securities accounts that correspond to securities accounts for your banks in the Transaction Manager. As you probably do not change your securities accounts or depository banks very often, you should only rarely have to perform the securities account transfer. In older releases, you were frequently forced to use the securities account to enable

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External Position Management

5.2

requirements coming from the valuation of positions. The separation of internal and external position management means that this necessity no longer exists in most cases. You can implement the main settings for securities account transfers in Customizing under Transaction Manager  Securities  Position Management  Securities Account Transfer  Update Types Assign Update Types for Securities Account Transfer. For each product type there, you specify an update type for the outflow and inflow.

Customizing

When you have done this, you can make a transfer posting of your positions. You can only make a transfer posting of positions on an individual basis. You will find the Execute Securities Account Transfer transaction (Transaction FWDU) in the menu under Transaction Manager  Securities  Back Office  Securities Account Management  Securities Account Transfer  Execute Securities Account Transfer. Specify the required source position on the initial screen. The next screen, as shown in Figure 5.15, enables you to specify the target securities account (Target Securities Account area) and the quantity (Values area) for which the transfer posting is to be made. You can also enter other details here. This can also include the General Valuation Class field that is predefined with the value from the initial screen.

Implementation

We discuss the role of the valuation class in more detail in Section 5.3.3. It is worth noting here that you can keep ledger positions for different valuation classes in a securities account. If you now want to transfer a particular ledger position with a partial transfer, you can select this by specifying the valuation class. If you do not specify a valuation class for a partial transfer, the relevant ledger positions will be transferred proportionately.

Valuation class

In the pushbutton bar, the screen also provides buttons you can use to look at the resulting cash flows in the source and target securities accounts and the quantity positions before the transfer. This navigation to the elementary positions (see Section 5.1.1) can be instrumental in selecting the right valuation class because you get an impression of the ledger positions. If you use the new correspondence framework, you can also generate correspondence for securities account transfers (see the Correspondence button [ ]).

Utilities

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Figure 5.15 Entering Details of a Securities Account Transfer Interaction with internal position

You receive a success message as the result of the transfer. You have only entered a quantity—that is, nominal amounts or units—for the transfer. The business transaction for the transfer contains hardly any additional information. In particular, it does not contain any information about the transferred book value. Consequently, there is nothing to post for this business transaction itself. Only a subsequent process in internal position management, the derived business transaction, determines the book values to be transferred. It is clear with the securities account transfer that quantities and values need to be separated if the system simultaneously supports several accounting principles. Because the book value depends on the accounting principle but the transfer posting

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5.2

as such does not, the transfer posting contains only quantity information.

5.2.2

Corporate Actions

Corporate actions affect mostly equity capital instruments but also, occasionally, other securities. Because corporate actions affect a security as such and do not refer to specific purchases or other inflows, they are consequently dealt with by the external position management of the Transaction Manager.

Corporate Actions and Their Effect The Transaction Manager knows the following corporate actions, which are referred to as corporate action categories in the sense of the usual difference between categories and types: 왘

Stock split By retaining the nominal value of all issued shares, the nominal value of every single share is reduced, and new shares are issued to the shareholders. The value of the shareholders' share position remains unchanged, and the number of shares increases in the same ratio as the reduction in the value of the individual share.

왘

Capital increase from retained earnings This corporate action corresponds to a share split in its effect for the shareholder. However, unlike the share split, the company represented by the stock must re-designate a part of the equity capital for the nominal value of the shares.

왘

Capital reduction This is the opposite of a capital increase from retained earnings.

왘

Stock swap After a takeover or merger, one stock is replaced with another stock at a predetermined ratio.

왘

Posting subscription rights If a company issues new shares, the original shareholders often receive subscription rights to enable them to purchase new shares at a preferential price.

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왘

Posting new shares Newly issued shares can be traded with their own ID numbers for a certain period of time because they are not yet voting shares. This action describes the transition from new shares to regular shares.

왘

Issue currency changeover This corporate action describes the activity whereby the issue currency of a security changes. This corporate action affects any securities, not just stocks.

왘

Manual corporate action In reality, these are probably already the most common corporate action categories. In addition, you can still define manually generated corporate actions, such as a corporate action for the spin-off of enterprises.

Effect of corporate action

We will first take a look at the effects of corporate actions. Share split, capital increase, and capital reduction affect only the security itself. They do not result in any changes to the book value but simply change the number of share units in the position. Accordingly, the business transactions for these corporate actions contain only one flow that describes the inflow or outflow of the units. In contrast, stock swap, as well as the posting of subscription rights and new stocks, always involves two securities, and those two securities also change the book values of the affected positions. Business transactions for these corporate actions always contain two flows that describe only the incoming and outgoing units. As already mentioned in relation to the securities account transfer, values are transferred to the relevant target position by independent, derived business transactions. However, the initiating business transactions specify which fractions of the book values are transferred to the target positions. It is clear that the book value transfers completely to the new ID number when stock is swapped or new stocks are posted. In terms of subscription rights, we want to describe how the system determines the share to be transferred.

Transferred values for inflows of subscription rights

The influence of original shareholders is reduced by issuing subscription rights and the associated issuing of new stocks. The subscription price of the new shares is normally lower than the market price of the old

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shares. The subscription right, therefore, has a theoretical value. This value P is calculated from the formula: P = (M – B) / (1 + r)

The M here refers to the market price of the old share before the subscription rights were issued, B represents the subscription price of the new share over the subscription right, and r is the quotient from the subscription right ratio and subscription ratio. The subscription right ratio specifies how many subscription rights result from how many old shares, whereas the subscription ratio describes how many subscription rights must be used for one new share. When you create the corporate action for posting the subscription rights, the system uses this formula to determine the theoretical value of the subscription right. The market price is required for this purpose, and it is proposed from the market data available in the system; however, you can overwrite this price. You can also overwrite the theoretical subscription right price. This theoretical subscription right price is the basis for transferring values from the old shares to the subscription right. If the book price of the old shares is lower than the market price on the key date, the theoretical subscription price is still multiplied by the ratio from the book and market price of the old shares, and this amount is transferred from the acquisition value. Other parts of the book value—that is, results of previous valuations— are transferred at the same rate as the acquisition value. If the book price is higher than the market price, the theoretical subscription right price is transferred because it represents a reasonable upper limit. Note that the flows of the corporate actions themselves only describe the changes in stocks or nominal values and merely specify the ratio in which values may have to be transferred. The issue currency changeover is a specific corporate action. It changes the issue currency. If the security is managed in nominal amounts, not in units, there is a change in the unit of measure. The position currency, the natural currency for ledger positions, also changes. Internal position management assumes that a ledger position has exactly one (unchanged over time) position currency. However, this is not the case with an issue currency changeover. The activity is mapped completely differently in position management than the corporate actions previously considered.

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The system translates all position and nominal amounts, if available, into the new currency and replaces them in all business transactions, including in those before the issue currency changeover. After the changeover, the position appears in internal position management as if it has always been managed in the new currency. The architecture of internal position management requires that the position currency remains constant over time. The actual business transaction of the issue currency changeover, therefore, covers only one individual flow that does not even contain information about the quantity—that is, a nominal or a unit. So far, of course, only the changeover in the subledger is accomplished. To also map the changeover in the general ledger, the system generates a derived business transaction that enables you to write off the amounts in the old currency in the general ledger and post them in the new currency. While derived business transactions usually change values of a ledger position, this is not the case in this special situation; all values are already available in the new currency. Corporate actions for issue positions

The issue currency changeover is also distinctive in another respect. It is the only corporate action that you can also implement for issue positions. In any case, as only bond issues are supported, this is not a particular restriction.

Implementing Corporate Actions Creating corporate actions

To implement a corporate action, you must first ensure that the system knows that the corporate action exists. You do this in the Corporate Action transaction (Transaction FWK0), which you can find in the menu under Transaction Manager  Securities  Back Office  Securities Account Management  Corporate Action. When creating the corporate action, you must first specify a corporate action type. As usual, you have defined this by assigning a corporate action category. You can find the corresponding activity in the Customizing under Transaction Manager  Securities  Position Management  Corporate Actions  Define Types of Corporate Action. When you create a corporate action, each one gets a number that you assign yourself, depending on the setting for the corporate action type, or that is generated automatically from a number range. You then enter

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the usual details for the relevant corporate actions. You specify the split ratio for the share split, for example, and the ID number of the subscription right and the subscription ratio when posting subscription rights. In each case, you must specify the key date of the corporate action and the ID number in question. Because the entries are self explanatory in the majority of cases, we discuss only the manual corporate action here. We have already explained that the corporate actions themselves only specify which ID numbers are affected and for which nominal values or units transfer postings are made. You do not transfer the values themselves because they depend on the valuation area. However, you do specify the ratio in which book values are transferred. Figure 5.16 shows the input screen for a manual corporate action.

Figure 5.16 Creating a Manual Corporate Action for a Stock Swap at a Ratio of 2:1

You essentially define the flows for the inflows and outflows here. In the ID number (reference) column, always enter the ID number for which you are implementing the corporate action. In the ID Number (Transfer) column next to that, specify the ID number to be transferred. Under

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the (+) column, specify whether this is an inflow or outflow. In the Position Change column, enter the ratio in which the quantities are transferred, while the Value change column specifies the ratio of the values. In Figure 5.16, the manual corporate action is used to specify a stock swap from Stock A to Stock B proportionate to two new Stock Bs for one old Stock A. With the two remaining columns, you can implement settings whereby only whole-number multiples of a reference unit can be transferred. Capitalizing a corporate action

Only when the corporate action is activated, which you do by clicking the corresponding button in Transaction FWK0, can you also post it. However, you can no longer change or even delete a capitalized corporate action.

Posting a corporate action

After you have created and activated a corporate action in Transaction FWK0, you can post it in the Post Corporate Action transaction (Transaction FWKB). You will find the transaction in the menu under Transaction Manager  Securities  Accounting  Corporate Action  Post. Because corporate actions refer to ID numbers, potentially all positions in all company codes that you manage in your system are affected by this type of action. The posting transaction enables you to perform the posting separately for each company code or simultaneously for several company codes. However, you cannot make any further restrictions within a company code. Naturally, there is also a corresponding reversal transaction for this posting. This is the Reverse Corporate Action transaction (Transaction FWKS), which you will find in the same place in the menu.

Customizing for corporate actions

The Customizing for corporate actions is located under Transaction Manager  Securities  Position Management  Corporate Actions. We have already explained that you must define corporate action types. In the definition, you must specify how you want lots to be created for a corporate action type (see Lot creation field in Figure 5.17). We will discuss this when we deal with lots in internal position management (see Section 5.3.4, subsection “Differentiation for Securities”). In addition, you must define update types and assign them to corporate action types.

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One point still deserves particular attention: you can influence the sort sequence of business transactions for corporate actions. If several business transactions for a position fall on the same day, the system sorts a sequence. For example, interest will be sorted before purchases and sales, but valuations will be sorted after them. Corporate actions are usually sorted after the majority of business transactions, but before valuations. If you want to achieve the most current book values for a corporate action, you should valuate the relevant positions beforehand and select the Move corporate action to end of day setting for the sort sequence in the Sort Sequence for Corporate Actions Customizing activity located directly behind the definition of the corporate action types.

5.2.3

Sort sequence

Rights

Rights can also be connected to securities. The external position, again, is the natural starting point here for exercising these types of rights. The Transaction Manager supports the following rights, which are also referred to as rights categories: 왘

Equity warrants

왘

Bond warrants

왘

Index warrants

왘

Currency warrants

왘

Subscription rights

왘

Convertible bonds

왘

Warrant bonds

왘

Putable bonds

왘

Callable bonds

왘

Drawable bonds

왘

Stock swap

왘

Share option

왘

Bond option

왘

Index option

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You can exercise rights only for listed options with the settlement category normal style. Rights

Strictly speaking, the term right does not apply to some of these rights categories. These are mostly financial instruments, which have a right, and not the right itself. At the same time, some financial instruments contain several rights: for example, callable and putable bonds can have several notice periods; the exercising and expiration of a warrant are also regarded as two rights of the same securities in the system. Because the rights were also already vested when the securities were issued, they are part of the structures of the securities bond issue. You enter them, accordingly, in the maintenance of the class data. In many cases, you must enter specific information to describe the right. As a result, product categories are already provided in the system for this purpose. Examples of this include the different warrants or convertible bonds. In contrast to this, rights of notice of callable or putable bonds are simply characterized by the fact that you enter the rights of notice on the part of the issuer or buyer in the class data of a bond.

Stock swap as right and corporate action

You also find another term in the list that you already encountered with the corporate actions: the stock swap. If a stock swap is performed as a corporate action, you do not have any freedom of choice as the buyer. However, if this freedom of choice does exist, you have a right to a stock swap. This is listed among the rights, once again.

Quantities and values in the business transaction of rights

Similar to handling corporate actions in the system, the business transactions for rights must also not directly change any values, but simply provide the calculation base for changing values. However, unlike corporate actions, exercising a right is usually connected with payments. This implies a value change that can, nevertheless, depend on the accounting principle. The system generates an entire range of flows to separate the changes to quantities from those of the values.

Customizing

You can get an overview of the possible flows by looking at the Customizing of the update types for rights, as shown in Figure 5.17. You will find this in the Customizing under Transaction Manager  Securities  Position Management  Rights  Assign Update Types to the Rights Category.

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The first screen area contains update types for the inflow and outflow of units or nominal values. If you exercise a subscription right, for example, based on the settings in Figure 5.17, the update type RHT0002 will be used for the outflow of the subscription rights and update type RHT0001 for the inflow of the new stocks (Position Inflow units/nominal field). Flows with these update types do not contain any information about values.

5.2

Update types for quantity changes

Figure 5.17 Update Types for Exercising Rights

When you maintain update types, you do not need to differentiate between whether the update type refers to the subscription right or the underlying—provided the right actually applies to two ID numbers. This is decided by the system and is uniquely determined for each right. Note that exercising a right usually results in an outflow for the right itself, but it can also lead to an outflow of the underlying when, for example, you exercise a long put option. In this case, the update type RTH0002 is used both for the option and the underlying.

Assigning the update type to the ID number

The significance of update types for the payment is simple. It contains the amount for the acquisition of the base value. When you exercise a subscription right, the system generates a flow with update type

Update types for payments

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RHT0006, which reflects the payment of the purchase price for the new stock. It represents the payment. This means that it does not affect the position of new stocks and, consequently, does not post to the balance sheet account, either, but simply to the bank account or bank clearing account. The offsetting posting is made on a technical clearing account. The clearing account is cleared by posting a position flow. Update types for position changes

The system generates flows for the position changes in the same amount as the payment flows. In Figure 5.17, these are update types RHT0003 and RHT0004 (Position Update Types area), as well as RHT0007 and RHT0008 (Update Types: Liabilities area). In the example of the subscription right, there is a position inflow for the new stock with the update type RHT0004. In most accounting principles, this amount would probably be apportioned to the acquisition value and, therefore, to the book value of the new stock. However, the business transaction for exercising rights does not determine this itself. As with the way you can set whether charges are capitalized for purchases or sales of securities depending on the accounting principle, in Customizing you must define the effect you want this flow to have. We discuss this in Section 5.3.1. To post the amount of position inflows and outflows, you must have different update types for asset and liability positions—that is, issue positions for bonds. While the inflow for an asset position involves an increase in the book value, the inflow for a liability position must entail a reduction in the book value because liability positions have negative book values. In Figure 5.17, there are position inflows and outflows in both Position update types area and Liability Position Update Types area.

Transaction FWER

Now that, based on the Customizing, we already have an understanding of the business transactions for rights, at this point we will discuss the actual transaction for exercising rights, the Exercise Security Rights transaction (Transaction FWER). Find this transaction in the menu under Transaction Manager  Securities  Trading  Security Right  Exercise. Figure 5.18 shows the initial screen. On the left, find the menu that enables you to easily select the relevant security. When you double-click, the ID numbers are displayed on the

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right of the screen. Here, the system also checks whether you have positions in the specified company code for the selected ID number. To exercise a right, first specify the relevant company code and ID number of the security and a key date. The screen then divides into the three areas Header data, Rights, and Position. You can hide or display each of these areas by clicking the corresponding button.

Figure 5.18 Transaction FWER for Exercising Rights

In the Header Data area, the system displays details about the particular security. The relevant information differs greatly depending on the type of financial instrument.

Header data

The Rights area lists all the rights linked to the security. You always exercise exactly one right of a security with Transaction FWER. Therefore, if there are actually several rights linked to the security, you must select the required one here. The system, in this case, ensures that the key date meets the exercise periods.

Rights

The Position area lists all the external positions you have in the specified company code on the key date. Here, specify how many units or nominal values of the right you want to exercise for each position. You can therefore exercise a right for several positions with the same company code when you call the transaction.

Position

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Postprocessing flows

In the overview screen, you have now entered all the key details for exercising rights. You may still have to edit individual flows or enter charges that accrue in connection with exercising rights. To do this, select a position and click the Postprocess flows button. This takes you to the detail screen, as shown in Figure 5.19.

Figure 5.19 Detail Screen for Postprocessing Flows Main flows of exercising rights

Some important information about the position is repeated first in the detail screen for postprocessing flows. The Posting control area displays the Posting Date and Document Date fields for the posting in the general ledger. The details usually match the key date—that is, the

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position date of the subledger. If you want to enter different information, select GoTo  Posting Control from the menu in the overview screen, displayed in Figure 5.18. In the Generated flows area, you see the flows that post or clear the units or nominal values. As expected, you find the update types RHT0002 and RHT0004 from the Customizing here again (see Figure 5.17). The flows that change the positions are also listed here. You can only change the update type for these flows, which is usually not necessary. In the Payment flows area, you have more influence to make corrections. For example, you can change the payment amount and its currency by clicking the corresponding line and then on the Change icon ( ) or the terms of payment for this flow. Finally, you can enter other flows for each position using the Create other flows icon ( ) in the Other flows area. The flow must always refer to an external position. In situations when the right affects two ID numbers, you must specify, by selecting a main flow, to which ID number the other flow is to belong. The system provides the update types here that you specified for the manual posting (see Section 5.2.1, subsection “Manual Posting”). Entering the Terms of Payment Not only can you specify the terms of payment for individual flows, you can also do this globally on the overview screen for exercising rights, as shown in Figure 5.18, by clicking the Payment Details button ( ). However, if you want to pay charges or other flows through a payment program, you must not specify this in this global location. Otherwise, all flows, particularly the position-changing flows that shouldn’t be paid, will subsequently receive this additional information. Although you usually get an error when you try to post the exercise in the Exercise Security Rights transaction, you cannot edit the corresponding flow. You must therefore explicitly specify the terms of payment for each flow to be paid. Of course, the smartest solution is to already specify the terms of payment on the relevant securities accounts. Then, you will not need to enter any more payment details when posting the exercise.

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You can post the exercise by saving it. You receive a posting log as the result. You can, of course, also initially check the result with a test run.

5.2.4

Futures Account Management

Futures and listed options have the shared characteristic that they are traded on futures exchanges, not on stock exchanges. Consequently, they are managed on futures accounts, not on securities accounts. Even if the details of managing these futures accounts differ somewhat between the exchanges, the one common factor for all of them is that all positions are settled daily by variation margins and overnight variation margins. This means that the change in the market value compared to the previous day is debited or credited. When a futures account is opened or when new positions are set up, initial margin payments must be made, which the exchange uses to settle the daily variation margins. If the balance falls below certain threshold values, the investor must make an additional payment. The Transaction Manager maps the daily variation margins, overnight margin, and close margin when a position is being closed. However, it does not manage the initial margin. Listed derivatives

For brevity's sake, we also use the term listed derivatives for futures and listed options in the sections that follow. Listed Options with Future Style and Normal Style Listed options can be settled in the same way as futures or securities. Therefore, the system differentiates two categories of listed options. This differentiation has effects on the processes in external and internal position management: 왘

Future style Listed options are settled and managed like futures. For example, margin flows are generated, and the options generate single positions.

왘

Normal style Listed options are settled and managed like securities. For example, margin flows are not generated, and single position management can be freely selected.

The differences between the individual processes are further discussed later on. You can find the corresponding Settlement method parameter in the Customizing for product types under Transaction Manager  Listed Derivatives  Master Data  Product Types  Define Product Types and in the Margin area, as shown in Figure 5.20.

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Figure 5.20 Define Product Types: Listed Derivatives

External Positions Before we discuss the sole process that is based on the external positions of the listed derivatives, the margin run, we briefly want to turn our attention to the positions themselves. The positions are identified by the characteristics Company code, ID number, Futures account, and Long-short indicator. It is important to understand the relationship between financial transactions and positions, particularly with regard to long or short positions. The increase and decrease of the position is expressed by the Open or Close indicators of the financial transaction. For example, you increase a long position with an Open Purchase transaction. To sell this position again, you must act as a seller on the exchange. Accordingly, you enter a Close Sale transaction in the financial transaction. The system thus distinguishes whether, through a sale, you are opening a new position (short position) or closing an existing one. The relationships displayed in Table 5.1 apply.

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Relationship between financial transaction and position

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Position

Increasing Financial Transaction

Decreasing Financial Transaction

Long futures

Open purchase

Close sale

Short futures

Open sale

Close purchase

Long call option

Open purchase call

Close sale call

Short call option

Open sale call

Close purchase call

Long put option

Open purchase put

Close sale put

Short put option

Open sale put

Close purchase put

Table 5.1 Position-Increasing and Position-Decreasing Financial Transactions for Listed Derivatives

As an alternative to using close transactions, you can match long positions and short positions. During the matching process, long positions and short positions are compared and cleared. The corresponding close margins are generated here. You can assign the positions automatically, according to the FIFO/LIFO concepts, or manually. The matching process is further described in the section “Matching Long Positions and ShortPositions.” Using Close Transactions and Matching In general, there are two alternative procedures for decreasing positions: you either use open transactions and close transactions, or create open transactions only and close the position via matching. In the latter case, when creating the transaction, you don't have to decide whether it is a close transaction or an open transaction. The matching then is part of the daily processes in the back office and is implemented before the variation margin. You can also combine the two processes. Unfortunately, the overview is rather poor because the positions are closed either using close transactions or via matching.

With listed options, the long positions are the active business partner's positions, while the short positions are the option writer's positions. Correspondingly, you always receive the option premium for short positions.

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The external positions in the Transaction Manager strongly influence how listed derivatives are handled. When you act as a futures seller on an exchange and do not use the matching function, you must, when creating the financial transaction, specify whether you already have positions. In particular, you cannot decrease an existing position and simultaneously increase another corresponding position using a single financial transaction. The characteristic of futures is that they are managed in single positions by the exchange. This means that the exchange manages a separate position for each open, even if you already have the same future in your futures account. Clearly, the reason is that the variation margins are determined only by comparing the price with the price of the open financial transaction. The Transaction Manager manages both the external positions and the ledger positions as single positions with a lot as an additional characteristic of the position. The same applies for those listed options that are managed like futures.

Single positions

You can see an overview of your positions for listed derivatives using the Class Position List in Futures Account transaction (Transaction TPM9), which you can find in the menu under Transaction Manager  Derivatives  Back Office  Listed Derivatives  Position Information  Position in Futures Account. You get a position list per ID number and a futures account here for a key date; the system totals the single positions for futures (see Figure 5.21).

Position list

Figure 5.21 Position List for Listed Derivatives (Transaction TPM9)

When you click the Single Positions button, you get a list of all single positions for the selected row. From there, you can navigate further to the cash flow of the single position using the button with the same

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name. If you set the Display positions parameter in the selection screen, the output list directly shows the single positions. Figure 5.22 shows the cash flow of a single position. This cash flow is no longer restricted to the key date that you originally used to access the position list. If you are interested in the cash flow of the total position, or if this is a normal listed option, click the Cash Flow button.

Figure 5.22 Cash Flow of a Futures Position Futures account cash flow

You can receive similar information in the Futures Account Cash Flow transaction (Transaction TPM8), which you find in the menu directly under Transaction TPM9. You specify the ID number and futures account at the beginning here, which is equivalent to a row of the position list (Transaction TPM9). You can either display the aggregated cash flow or initially display the single positions, if this is relevant.

Matching Long Positions and Short Positions Matching long positions and short positions

If you want to clear long positions and short positions instead of close transactions, the system provides two transactions for this purpose: 왘

Match Long/Short Positions (Transaction TPM91)

왘

Matching Overview with Cancel Function (Transaction TPM92)

You can find the two transactions in the menu under Transaction Manager  Derivatives  Back Office  Listed Derivatives  Matching. Implementing a matching process

Let's take a closer look at the two transactions. In Transaction TPM91, first enter the input parameters for the position selection and the key

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date. The system then provides a list of long and short positions (see Figure 5.23). You can assign individual positions manually by setting the indicator in the L: Select column for the long position and the indicator in the S: Select column for the short position and selecting the Match button in the menu bar. Or, you can assign the positions according to the FIFO or LIFO concept using the respective buttons, Default Value (FIFO) or Default Value (LIFO). You can change the matching by clicking Undo and implementing the matching again.

Figure 5.23 Match Long Short Positions (Transaction TPM91)

After having assigned the positions, you can post the generated matching flows in the test run and production run. The matching process works like a transfer: units of one position are transferred to another position. This closes the source position and reduces the target position. The respective close margin is also generated. The target position is reduced, because you post units with an inverted plus/minus sign. For example, you transfer negative units of a short position to a long position. This is displayed in Figure 5.24. You can view open business transactions for long positions and short positions as well as a matching flow per single position. At the bottom, you can see the close margins. The Matching Overview with Reversal Function transaction (Transaction TPM92) enables you to obtain an overview of implemented matching processes and to directly cancel posted matchings (see Figure 5.25). To do so, select the matching and click the Cancel button. Afterwards, enter a reversal reason (required) and reverse the cancel date (optional).

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Viewing and reversing matching processes

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Figure 5.24 Cash Flow of a Futures Position with Matching

Figure 5.25 Matching Overview with Reversal Function

Variation Margin and Overnight Variation Margin Variation margin

The variation margin is the settlement of profits and losses done by the exchange by revaluing the positions at the market price daily. It prevents greater receivables or payables from occurring between the counterparties over longer time periods. However, it does not formally represent an accounting valuation of the positions. Gains or losses from variation

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margins do not affect profits and losses. We return to the accounting valuation in Section 5.4.3. You post the variation margin in a mass run in the Post Variation Margin transaction (Transaction PMVM) located in the menu under Transaction Manager  Derivatives  Accounting  Posting  Margin Management. The system ensures that all inflows and outflows are posted before the key date. Figure 5.26 shows the selection screen. You can use the Post close margin indicator in the selection screen to specify that you also want close margins to be posted with this transaction. If you want to post the close margins separately, do this before the variation margins. As confirmation, you receive a posting log and a list of the generated margin flows.

Posting a variation margin

Figure 5.26 Variation Margin Run

To reverse these postings, in both cases, use the Reverse Margin Flows transaction (Transaction PMSV), which is located in the same menu path. In addition to normal variation margins, Transaction Manager enables you to post overnight variation margins. An overnight variation margin is

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Overnight variation margin

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sorted as the first business transactions of the day and serves to take into account the difference between the closing price and the opening price on the next day. This difference is common for interest-based derivatives for which the interest rate is adjusted overnight due to the underlying market interest rate. The interest rate adjustment leads to an adjustment of the opening price, which must be considered separately for the close margin and the variation margin. Processing overnight variation margins

Like for variation margins, you use the Post Variation Margin (Transaction PMVM) and Reverse Margin Flows (Transaction PMSV) transactions to process overnight variation margins. You differentiate between variation and overnight variation margins using a selection button in Transaction PMVM or the indicator in Transaction PMSV.

Close Margin The close margin is the profit or loss offsetting from a position being closed. Here, the last value of the position at the exchange, including all variation and overnight variation margins, is compared with the sale value. The close margin can therefore be interpreted as the variation margin caused by the outflow. Again, in this case, it does not represent an accounting gain or loss. Calculating and Posting the Close Margin The system already calculates the close margin when you save the corresponding financial transaction. However, the close margin is not posted together with the close transaction. Posting a close margin

To post a close margin separately, use the Post Close Margin transaction (Transaction TPM25), which you find in the same place as the corresponding transaction for the variation margin. Alternatively, you can post the close margin together with variation margins using Transaction PMVM.

Reversal

To reverse these postings, also for close margins, use the Reverse Margin Flows transaction (Transaction PMSV), which is also located in the same menu path.

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Manual Posting Just as in the area of securities (see Section 5.2.1, subsection “Manual Posting”), managing external positions of listed derivatives also enables you to enter manual business transactions for a position, such as specific charges for a position. You can find the Manual Posting transaction (Transaction TPM35) in the menu under Transaction Manager  Derivatives  Back Office  Listed Derivatives. As with the securities, you first specify the company code, ID number, and futures account. If this listed derivative is managed as a single position, you subsequently receive a list of single positions, from which you must select a position. The transaction then behaves in exactly the same way as the transaction for securities.

Customizing of Futures Account Management Compared to securities account management, there are far fewer functional requirements for futures account management. You mainly maintain update types in the Customizing under Transaction Manager  Listed Derivatives  Position Management  Futures Account Management  Update Types. With the Specify Update Types for Futures Account Management activity, you must first specify the update types that correspond to the flow types of the financial transactions for these financial instruments; in other words, identify the open and close flows. When you select this activity, a view, as shown in Figure 5.27, opens. Assign the Inflow Position Value Options/Futures value to the open update types (for instance, open purchase or open sale) and Outflow Position Value Options/Futures value to the close update types. The update types for the matching of long and short positions contain the Outflow Position Value Options/Futures value.

Update types for open and close

To avoid confusion, you can assign No Position Changes to all other update types, which is assumed in any case if there is no assignment. You specify the update types for the margin flows in the Assign Update Types for Margin Management per Product Type transaction. As the name indicates, you can choose different update types per product type.

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Update types for margin flows

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Figure 5.27 Specifying Update Types for Futures Account Management

You must enter details for variation margin, overnight variation margin, and close margin, as well as for long and short positions in each case for inflowing and outflowing margins. You must also assign the update types for the matching process. You enter up to 14 update types in total. Update types for manual posting

You specify the update types, which you can use for the manual posting, in Customizing under Update Types for Manual Posting. In addition to the update types, you can also specify the exchange rate types for the conversion of margin flows under Transaction Manager  Listed Derivatives  Position Management  Futures Account Management  Assign Rate Types to Convert Margin Flows. You can assign exchange rate types for variation margins, overnight variation margins, close margins, and matching. This sets up the external position management for futures and listed derivatives.

5.3

Balancing quantities and values

Basic Principles of Internal Position Management

The primary task of internal position management is to valuate financial instruments for accounting purposes. In addition to quantities, we also balance values on the positions of internal position management, the ledger positions. Accounting rules that are often country-specific control how these values must be calculated. The accounting principle sometimes requires the ledger positions to differ from each other according to criteria other than external positions. A company's internal requirements can also result in a difference in the definition of the positions.

314

Basic Principles of Internal Position Management

While the external position management of the Transaction Manager is restricted to securities, futures, and listed options, you must essentially be able to valuate all financial instruments for accounting purposes. Internal position management consequently encompasses all financial instruments that are mapped in the Transaction Manager and even some beyond that. This is because even loans from the SAP module for loans management (SAP Loans Management) can be valuated here.

5.3

Financial instruments

In this section, we want to introduce the basic principles of internal position management. First, you are provided with an overview of the architectural principles of internal position management. The subsequent sections then explain the key terms in more detail and describe the Customizing associated with them.

5.3.1

Architecture of Internal Position Management

A good example of the difference between external positions and internal ledger positions is holding categories that are stipulated in accordance with IFRS or US GAAP. This means that both accounting principles will require financial instruments to be classified according to the purpose of the acquisition and, consequently, result in different valuation approaches. This affects securities in particular. So, the internal ledger positions should be distinguished by holding categories.

Holding categories

Naturally, holding categories have no relevance whatsoever for your depository bank; the depository bank will not force you to keep several securities accounts, depending on the intended holding duration. Compared to internal ledger positions, the holding category is not relevant for external positions. For this reason, it makes sense to separate internal ledger positions and external positions.

Basic Principles The accounting code is the term for the company code within internal position management. A unique relationship must exist between the two in both directions. You are probably wondering why the term accounting code is necessary. It was, no doubt, primarily introduced to emphasize the autonomy of

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internal position management. In principle, it would have provided the option to operate the internal position management separately from the Transaction Manager and the SAP General Ledger. However, neither scenario has been seriously considered. The term therefore does not appear as often on the interface. However, without the relationship between the company and accounting code, nothing will work in internal position management. In Customizing, under Transaction Manager  General Settings  Accounting  Organization  Define Accounting Code, we define, for each company code, an accounting code with preferably the same name and assign both to each other. Clear Relationship Between Company Code and Accounting Code You should maintain a one-to-one relationship between company code and accounting code. In addition, company code and accounting code should have the same name. The system does not verify this, but other variants may lead to confusion or involve incorrect specifications in internal position management. Parallel accounting principle

The keyword IFRS directly refers to another challenge that an increasing number of companies must face: you must simultaneously create financial statements according to different accounting principles, such as according to IFRS and its national accounting principle. The valuation approaches are often very different, which means that it is not done simply by regrouping the results of one accounting principle. The internal position management of SAP Treasury and Risk Management provides a user friendly solution here to keep the work involved when creating parallel financial statements as low as possible. It manages a separate, complete record of ledger positions for each accounting principle.

Valuation area

To distinguish these parallel records from ledger positions, the valuation area determines an accounting principle within internal position management. Typical examples of an accounting principle are the German Commercial Code, the US GAAP in the United States, or the IFRS. Each business transaction you enter in the system is duplicated for this purpose in each valuation area. However, the effects on the relevant

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ledger positions can vary in the different valuations areas. The valuation areas are independent, parallel views of the values of your financial instruments. So you can find all your financial instruments in every valuation area, this procedure is occasionally also referred to as a full approach. In contrast to this, there is also a delta approach, for which there is a distinctive view of the financial instruments, and all other accounting rules are regarded as the difference for this distinctive view. The advantage of the full approach is undoubtedly the clear overview you get because you find all data relating to the balance sheet and P&L in one view. A disadvantage at first glance appears to be the multiple data retention. However, the IFRS regulations for many countries entail a significantly different accounting view of financial instruments, so that the number of business transactions independent of the accounting principle is not so large.

Full approach vs. delta approach

You have, with the independent, parallel valuation areas, learned about an important architectural principle of internal position management and, at the same time, a criterion according to which internal, but not external, positions differ. We introduce other settings options for the distinction of ledger positions in Section 5.3.4. The valuation class is the transaction management term for a holding category. All ledger positions have the valuation class as a distinctive feature. Because the valuation class conveys an intention that was already known when the financial instrument was acquired, you specify it when you create the financial transaction or let the system determine it. We deal with valuation classes in detail in Section 5.3.3.

Components We have already established that we also want to balance values on the ledger positions. The Transaction Manager identifies a whole range of key figures, also called components. We differentiate here between original and derived components. Business transactions change original components directly. Derived components are always represented as the total of original components.

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Original components

Below, you can find a list of the major original components of internal position management. Many original components are the result of the accounting valuation. For details, we will always refer to the section where this valuation is described. 왘

Purchase value With this value, a financial instrument is included in the financial statement when it is acquired. Business transactions of the transaction management typically build up the purchase value.

왘

Security valuation Balance of all market-price or fair-value valuations (see Section 5.4.3, subsection “Security Valuation”).

왘

Foreign exchange valuation Balance of all foreign currency valuations, if these are necessary for the ledger position (see Section 5.4.3, subsection “Foreign Exchange Valuation”).

왘

Foreign exchange valuation of amortized acquisition value Balance of all foreign currency valuations of the amortized acquisition value.

왘

Index valuation Balance of all index valuations for bonds whose price is linked to an index (see Section 5.4.3, subsection “Index Valuation”).

왘

Capitalized costs You can show capitalized costs separately from the purchase value here. This component is set up by transaction management flows.

왘

Security valuation for capitalized costs Result of market-price valuation of capitalized costs. This effect is often not wanted. Therefore, avoid managing capitalized costs on a separate component.

왘

Foreign exchange valuation for capitalized costs Result of foreign exchange valuation of capitalized costs.

왘

Amortization Balance of amortizations, either linear distribution of premiums/discounts or valuation according to effective interest rate valuation (see Section 5.4.3, subsection “Amortization”).

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왘

Premium/discount Remaining premium/discount for amortization according to the gross procedure.

왘

Negotiation spread amortization Amortization of a particular part of the premium or discount (see Section 5.4.3, subsection “Amortization”).

왘

Deferral item for purchase value Remaining part of the negotiation spread (see Section 5.4.3, subsection “Amortization”).

왘

Variation margin Balance of all variation margins of futures or listed options.

왘

Impairment Balance of all permanent depreciations (see Section 5.4.2).

왘

Foreign exchange impairment Foreign currency valuation within the context of an impairment.

왘

Accrued interest Accrued interests relating to securities purchases that are to be posted to the P&L when interest is paid.

왘

Repayments Total of all repayments. Can only be used for securities or loans.

왘

Spot valuation of purchase currency Result of the valuation of forward exchange transactions (see Section 5.4.3, subsection “Rate/Price Valuation for Forward Exchange Transactions”).

왘

Spot valuation of sale currency Like the previous component, only this can be used if the purchase and sale currencies differ from the local currency.

왘

Swap and margin accrual/deferral Balance of swap accrual/deferral of forward exchange transactions or of margin accrual/deferral of repos (see Section 5.4.3, subsection “Swap and Margin Accrual/Deferral”).

왘

Swap valuation Balance of swap valuation of forward exchange transactions (see Section 5.4.3, subsection “Swap Valuation”).

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왘

Security valuation, not affecting P/L Other comprehensive income/shareholder's equity from security valuation.

왘

Foreign exchange valuation, not affecting P/L Other comprehensive income/shareholder's equity from foreign exchange valuation.

왘

Index valuation, not affecting P/L Other comprehensive income/shareholder's equity from index valuation.

왘

Derived components

These are the original components. They consist of the following derived components. 왘

Book value This is the total of all components except for the deferral item for purchase value, variation margin, accrued interest, and valuations not affecting P/L.

왘

Book value excluding capitalized costs This component corresponds to the book value, but without the three components for capitalized costs.

왘

Acquisition value The acquisition value is the total from purchase value, capitalized costs, and repayments.

왘

Amortized acquisition value The amortized acquisition value is the total from acquisition value, amortization, negotiation spread amortization, foreign exchange valuation of amortized acquisition value, and impairment.

Position Change Category and Derived Business Transactions Position change category

Of course, when you enter each business transaction, you should not have to be concerned about which of these key figures must be changed. This is where position management can help you. For this purpose, position change categories are assigned to the flows using their update types.

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The position change categories specify which component increases or decreases a flow. A flow can simultaneously affect two components. You must specifically assign update types of flows, which originate from external positions or transaction management, to position change categories. You do this in Customizing under Transaction Manager  General Settings  Accounting  Settings for Position Management  Set the Effects of the Update Types on the Position Components. You specify a position change category here for each update type, accounting code, and valuation area. Only a very few components and position change categories come into question. Consequently, the (F4) help is very clear, and the names are mostly self-explanatory. Specific Position Change Categories You must assign purchase and sale flows of forward exchange transactions and repos the position change category Indirect Position Change (1006). You normally enter the Incoming Payment—Position Outflow (1002) position change category or the Outgoing Payment—Position Outflow (1020) position change category for outflows, such as sales or final repayments. This implies that the system determines rate gains caused by this outflow. You can avoid this for installment repayments if you instead use the Post Repayment (1023) position change category for asset positions or the Clear Repayment (1024) position change category for liability positions. These position change categories are considered only for the Securities/Loans with Installment Repayments position management category. Otherwise, the Post Repayment (1023) position change category is internally managed like the Incoming Payment—Position Outflow (1002) position change category. Similarly, the Clear Repayment (1024) position change category is managed like the Outgoing Payment— Position Outflow (1020) position change category. The Position management category is an attribute of the position management procedure, which is described in Section 5.3.6. This way, you can define the Post Repayment (1023) or Clear Repayment (1024) position change categories for installment repayments, and the management depends on the position management procedure. If you want to ensure that a flow does not appear in internal position management, you can enter Excluded from Position Management (9999) position change category.

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The system internally assigns the position change category to update types of flows that are generated by internal position management itself. You do not need to maintain anything for this in Customizing. Example of position change category

An example can help you understand the effect of position change categories. In Figure 5.6, you saw the cash flow of a bond in securities account management. A corresponding internal position is displayed in Figure 5.28 with the List of Position Flows transaction (Transaction TPM13). The Position Flow List transaction (Transaction TPM13) is located in the Transaction Manager menu for each product group under Information System  Position Trend. The position change category is given in the last column.

Figure 5.28 Cash Flow of Ledger Position for Bond from Figure 5.10

First, we notice that all flows of the external position also exist in the internal position. The position change categories for the purchase originate from the Customizing described previously. You see that the brokerage and accrued interest were capitalized here because they also increase the purchase value. The described Customizing enables you, not to capitalize the same flows in another valuation area, but to post them directly into the P&L instead. Generally, interest is not relevant for

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positions. The final repayment contributes to determining the rate gain with its position change category. The ledger position cash flow also contains flows and business transactions that the external position does not contain. These depend on the valuation area. After the purchase, you see an amortization as part of a key date valuation, the most prominent example of a business transaction that depends on a valuation area. You do not have to specify your position change category specifically. However, you must define which update types are to be used for the valuation (see Section 5.4.3).

Valuation areadependent business transactions

You also find a complete record of additional flows for the repayment date. These form a derived business transaction that also depends on the valuation area. It specifically ensures that an amortization due to the final repayment is still performed and, consequently, the revenues for this position are shown correctly. Derived business transactions generally ensure that the values of a ledger position due to an original business transaction are adjusted according to the relevant accounting principle.

Derived business transactions

In the bond example from Figure 5.28, the beginning and end of the position are clearly identified by flows of the cash flow—that is, the purchase and final repayment. Internal position management always expects the beginning and end of a position to be represented by flows. This is difficult for OTC transactions, so position management manages with two artificial flows and assigned business transactions:

Open and close business transactions

왘

Open indicates the beginning of a position. It increases the quantity by one unit and has the contract conclusion date as the position date.

왘

Close represents the end of the financial transaction and reduces the quantity again by one unit.

You specify the update types for this in Customizing under Transaction Manager  OTC Derivatives  Transaction Management  Update Types  Assign Update Types for Position Update.

5.3.2

Defining Valuation Areas

Because valuation areas represent accounting principles, they exist independently from their usage in a specific company code. In defining the

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valuation area in Customizing under Transaction Manager  General Settings  Accounting  Organization  Define Valuation Areas, you are simply defining the name, not any functions. Accounting codes and valuation areas

In the following activity, Assign Accounting Codes and Valuation Areas, you assign the valuation areas to the accounting codes (see Figure 5.29). By doing this, you define which company code uses which accounting principle. (An accounting code actually corresponds to a company code.)

Figure 5.29 Assigning the Valuation Area to the Accounting Code

In Figure 5.29, however, you have not yet defined how the positions of a valuation area are valuated. All settings associated with the valuation are based on this combination of accounting code and valuation area. At the end of Section 5.3.1, we showed that the assignment of position change categories for external position flows depends on this combination. The key value for a position valuation, the position management procedure, is also determined based on this combination (see Section 5.3.6). Many Company Codes with Different Accounting Principles If you have many company codes with different accounting principles that all manage an additional common accounting principle, you need to create only two valuation areas: 왘

Valuation area 1: local accounting principle

왘

Valuation area 2: common accounting principle

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5.3

Only the assignment of a position management procedure makes the specific difference in accounting principles. You can therefore assign different position management procedures to each company code for valuation area 1. You do not need to map every local accounting principle as an individual valuation area.

We now return to the settings shown in Figure 5.29. The figure shows only the settings that are associated with internal position management. Other settings apply to updating the general ledger and are described in Chapter 6. In the Valuation Currency field, enter the currency in which the financial statements of the valuation area are reported. This is almost always the local currency. If you set a different currency, there are significant limitations when you update the general ledger.

Valuation currency

The system uses the Exchange Rate Type field to translate from the position currency into the valuation currency. If the local currency corresponds to the valuation currency, however, the system does not translate the currency but adopts the amount in the local currency. Most business transactions already involve amounts in the local currency. The system does not need this exchange rate type for them. Exceptions here include margin postings for futures and listed options. Although business transactions that depend on a valuation area do not have amounts in either the local or payment currency, they always have amounts in the valuation currency. The exchange rate type is not relevant for them.

Exchange rate type

The system very rarely uses the exchange rate type because almost all business transactions of external positions involve a local currency, and a translation into the valuation currency is not necessary. The Translation field enables you to force a currency translation from the position currency into the valuation currency. You use the Always Translate option instead of For Different Valuation Currency for this purpose. This can be useful if you work with two accounting principles that stipulate different exchange rates for translating operational business transactions from a position currency into a valuation currency.

Currency translation category

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Translating a Currency into a Valuation Currency Note that the system then also translates those amounts, whose local currency amount you have manually fixed in transaction management, from position currency into valuation currency.

5.3.3 Special and general holding category

Valuation Classes

Various accounting principles provide for holding categories. The special valuation class maps the holding categories of the individual accounting principles, and the general valuation class describes the holding categories in general, irrespective of accounting principles.

Special Valuation Class Holding category according to IFRS or US GAAP

The special valuation class (also known simply as valuation class) basically indicates the holding category as it is stipulated in IFRS or US GAAP. You can see examples of these holding categories in Figure 5.30, which shows the maintenance of valuation classes. Occasionally, there are similar distinctions in other accounting rules, such as short-term and midterm investments in the German Commercial Code. In each case, you must define at least one valuation class per valuation area because the valuation class is a mandatory part of each ledger position. You can find the respective Customizing under Transaction Manager  General Settings  Accounting  Settings for Position Management  Define and Assign Valuation Classes. The special valuation classes depend on the valuation area, as they only make sense in relation to an accounting principle.

Figure 5.30 Defining the Special Valuation Classes

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Basic Principles of Internal Position Management

General Valuation Class The Transaction Manager broadly tries to mask the complexity of parallel accounting principles when you create financial transactions and other operational processes. Terms that depend on an accounting principle—that is, the holding category—do not appear on the user interface. However, the holding category conveys an intention that the trader is also aware of when a transaction is created. The general valuation class is the term in the Transaction Manager that reflects this intention. The general valuation class is independent of the valuation area. It refers to a special valuation class in each valuation area. To ensure that it satisfies its purpose, the general valuation class must have the finest granularity of all special valuation classes. Figure 5.31 shows how you create the relationship between general and special valuation classes in Customizing. You see that the general valuation classes, Short-term investments and Mid-term investments, (Name of general valuation class column) are assigned to the special valuation class, Short-term investments, (Name of the valuation class column) of the Local GAAP valuation area (Name of valuation area column). In the two other valuation areas, the two general valuation classes result in different special valuation classes. This means that you can assign one or more evaluation classes to a special valuation class. This maintenance is part of the same Customizing as defining special valuation classes, as in Figure 5.30.

Figure 5.31 Relationships Between General and Special Valuation Classes

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Defining General Valuation Classes Select the required number of general valuation classes carefully and give them clear names. A few general valuation classes should normally be sufficient for the area of transaction management, even if you have many company codes with different accounting rules. Grouping valuation classes

You will often require a whole range of other general valuation classes for other purposes (see Section 5.4.5). These are not supposed to appear in an (F4) help of the transaction management. Therefore, you can combine the relevant general valuation classes in groups and assign the groups to product types and company codes in the Customizing under Transaction Manager  General Settings  Accounting  Settings for Position Management  Assign General Valuation Classes to Groups.

Default value for valuation class

For many financial instruments, only one holding category comes into question. You can assign a general valuation class to a transaction type and product type for each company code in Customizing in the settings of the relevant product group under Transaction Management  Assign General Valuation Class. This general valuation class is then automatically proposed when you create a financial transaction.

5.3.4

Differentiation

We have already pointed out that position management carefully separates external positions and ledger positions and that these have varying characteristics that identify them and differentiate them from each other. This section contains the group of rules that constitute a ledger position. The rules are referred to as a differentiation in position management.

Differentiation for Securities In the area of securities, you are flexible when grouping your external positions to ledger positions. This is because there are also optional settings here, in addition to some differentiation terms predefined by the system. The system predefines the following terms for securities:

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왘

Company code

왘

Valuation area

왘

Special valuation class

왘

Security ID

5.3

In addition, you can choose from any of the following criteria: 왘

Security account

왘

Securities account group

왘

Portfolio

왘

Lot

If we compare the list of predefined differentiation criteria with those of the external positions in Section 5.2, we see that the special valuation class appears in addition to the valuation area. This means that although two purchases of the same security in the same securities account with different valuation classes produce the same securities account position, they result in different ledger positions. External and internal positions differ in this case. To understand the influence of optional differentiation criteria, we will take a look at the row of purchases for a stock displayed in Table 5.2. You do not explicitly specify the securities account group in the financial transaction; it is derived automatically from the securities account. Security Account

Securities Account Group

Portfolio

Units

Payment Amount

D1

A

P1

10

120

D1

A

P2

15

150

D2

A

P1

20

220

Differentiation criteria

Table 5.2 Sample Purchases of a Security in Different Securities Accounts and Portfolios

Let's initially assume that you are trying to make the ledger positions resemble the external positions as closely as possible. You then select Securities account as the only additional differentiation term. You get the two positions in Table 5.3 as the results of the purchases.

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Security account

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Security Account

Units

Book Value

Book Price

D1

25

270

10.8

D2

20

220

11

Table 5.3 Resulting Positions for Differentiation According to Securities Account for Purchases from Table 5.2 Securities account group

If you select Securities account group as the only optional differentiation criterion, you accumulate bigger positions. In our example, we only receive a single one (see Table 5.4). Securities Account Group

Units

Book Value

Book Price

A

45

490

10.89

Table 5.4 Resulting Positions for Differentiation According to Securities Account Group for Purchases from Table 5.2 Portfolio

However, the positions according to securities account groups still have a relationship to the securities accounts because the securities account groups are derived from the securities accounts. Positions are entirely independent of securities accounts if you select Portfolio as the only differentiation criterion (see Table 5.5). Portfolio

Units

Book Value

Book Price

P1

30

340

11.33

P2

15

150

10

Table 5.5 Resulting Positions for Differentiation According to Portfolio for Purchases from Table 5.2

You can, of course, also choose combinations of optional differentiation criteria or no criteria at all. The examples will also show you that the choice of differentiation terms is not just purely a question of granularity or grouping in reports, but that it also affects accounting processes. Valuations and price gains for sales differentiate due to the various book prices of the positions.

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Differentiation According to Portfolio The portfolio must be used with caution as a differentiation criterion. Although you can specify which portfolio is involved for each purchase or sale, you cannot do this for other business transactions such as rights, for example. The business transactions are then distributed across all relevant portfolios.

You set the differentiations in Customizing under Transaction Manager  General Settings  Accounting  Settings for Position Management  Define and Assign Differentiation. In the first item of the activity, Define Differentiation, displayed in Figure 5.32, you simply define a name—that is, Portfolio—in the Differentiation field in this screen. You then assign it the required combination of differentiation terms (Assign terms), as shown in the right half of Figure 5.32. In this case, the portfolio differentiation has the Portfolio differentiation term.

Customizing

Figure 5.32 Defining and Assigning Differentiation for Securities Positions

Figure 5.33 shows the third activity from Figure 5.32, Assign Differentiation, where you subsequently assign the differentiation to a valuation area and an accounting code in each case. You can also see an entry without specifications for the accounting code and valuation area. The system selects this entry if it cannot find an appropriate entry. So far, we have not yet mentioned anything about the lot. It also plays a specific role, as you can see in Figure 5.32 for the Single Position Management activity. Managing positions at the lot level is known as single position management. Accordingly, the positions are called single positions. This means that position inflows, and therefore all purchases, result in separate ledger positions. Even if all the differentiation criteria described so far match for two purchases, two positions will nevertheless be kept in the subledger.

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Single position management

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5

Position Management

Figure 5.33 Assigning Differentiation to a Valuation Area and an Accounting Code

You can use single position management not only for each accounting code and valuation area in the respective activity from Figure 5.32, but also for each product type and portfolio. Collective positions

The previously described positions on the basis of the remaining differentiation criteria are known as collective positions. The name is obvious, as several purchases usually result in these positions. Collective positions are not the opposite of single positions. The system also manages collective positions for single positions. The quantity ledger displays them in the Position List for Quantity Ledger Positions transaction (Transaction TPM26). Only quantities, not values, are managed on the collective positions. Accounting for Bonds According to IFRS The IFRS regulations suggest that practically all bond-type securities are supposed to be managed in single position management. This is because they require the effective interest rate to remain constant if a valuation occurs through amortization. This only makes sense, however, if each purchase results in a separate position; that is, with single position management. Check this aspect with your accountant.

Performance Aspects of Single Position Management Single position management facilitates specific control. In particular, you can control the price gains or losses in detail for outflows. Nevertheless, also bear in mind that this involves additional effort for the system and can cause considerable performance problems if there are many single positions.

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You can also maintain the consumption sequence procedure for single positions. This procedure specifies how single positions for outflows, typically sales, are reduced again. You can find settings in Customizing under Transaction Manager  General Settings  Accounting  Settings for Position Management  Assign Consumption Sequence Procedure. Figure 5.34 displays the options provided by the Transaction Manager. You first see, on the left-hand side, that you can set the consumption sequence procedure per company code, product type, and general valuation class.

Figure 5.34 Defining the Consumption Sequence Procedure

You can choose between the following five consumption sequence procedures: 왘

FIFO stands for First-in, First-out and means that the oldest single positions are cleared in each case for the outflow.

왘

LIFO stands for Last-in, First-out and signifies that the most recent single positions are cleared in each case for outflows.

왘

With Manual Assignment, the system provides you with all existing single positions for outflows, and you manually define which positions are reduced at which portion.

왘

HIFO stands for Highest-in, First-out. The single positions with the highest prices are sold. This ensures the lowest possible price gain.

왘

LOFO stands for Lowest-in, First-out. The single positions with the lowest prices are sold. This maximizes the price gain when selling.

You implement these settings in the Consumption sequence column. If you choose the manual assignment, the subsequent Default for Manual Consumption Sequence column is important for you. When you click on the list box, the system displays the default values. Because HIFO and LOFO refer to values, you must specify the valuation area from which you want the values for the positions to be determined

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Consumption sequence procedure

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in the Valuation Area column. You can easily change the setting for the default value in the live system. In addition, you can specify in the HIFO/LOFO field which key figures are supposed to be used for the HIFO/LOFO methods. See also SAP Note 1725180. If you transfer your sales into the system using BAPIs, you cannot use the manual option to assign single positions. You must then choose LIFO, FIFO, HIFO, or LOFO from the Consumption BAPI column. Single positions for transfer postings

Differentiation in additional valuation areas

Not only can single positions originate from purchases, but they can also come from corporate actions, rights, or transfer postings. With corporate actions and rights, you can implement in Customizing how you want this to occur (see the Lot creation category field in Figure 5.17). The following options are available: 왘

If you choose Inflow creates 1 lot, the system generates a new joint position for all outflowing single positions. The date of the corporate action or rights exercise applies as the inflow date for this consumption sequence procedure.

왘

If you set Inflow creates lots as for outflow, date kept, each outflowing single position is transferred into a new one, whose inflow date is the date of the outflowing position.

왘

It does not make sense to use the third setting, Inflow creates lots as for outflow, date not kept. When transfer postings are made, the system always receives the single positions with their inflow data.

You define the differentiation when you first set up the system. However, it subsequently comes into play again if you support an additional accounting principle and have to introduce another valuation area. You can no longer choose from among all the differentiation terms for the new valuation area. Portfolio or single-position management can no longer be retrospectively introduced as a differentiation. Allowing for Single Position Management If you define single position management in one or more valuation areas, the system manages the single positions in the quantity ledger. Vice versa, if the quantity ledger does not include single positions, you cannot define single positions in any new valuation area later on. If you are thinking about setting

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up single position management for certain product types at a later stage, you should enter some details in the TRQCV_LOT_ACC view in the Call View Maintenance transaction (Transaction SM34) at the time of the implementation.

Only securities provide optional differentiation terms. The system provides the values for the other product groups.

Differentiation for Futures and Listed Options Ledger positions for futures and listed options are identified by the following terms: 왘

Company code

왘

Valuation area

왘

Special valuation class

왘

Security ID

왘

Futures account

왘

Lot

It needs to be said that the lot is only relevant for those listed options that are managed like futures. Otherwise, listed options are managed in collective positions.

Differentiation for OTC Transactions Financial transactions from the areas of money market trading, foreign exchange trading, and OTC derivatives are characterized with the following list of terms: 왘

Company code

왘

Valuation area

왘

Special valuation class

왘

Transaction number

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Differentiation for Loans Loans are handled like OTC transactions. This leads to the following differentiation terms: 왘

Company code

왘

Valuation area

왘

Special valuation class

왘

Loan number

You can change the valuation class of loans and OTC transactions using a valuation class transfer (see Section 5.4.5). For a loan or an OTC transaction, there can be two ledger positions in one valuation area, of which, however, only one ledger position has quantities and values at any one time.

5.3.5

Position Indicator

Attributes are also associated with each position, both internal and external. The view for position attributes is the position indicator. The position indicator display provides an overview of the positions in all valuation areas. A common view of external and internal positions is only possible for securities and listed derivatives. You can navigate to the position indicator from different areas in the Transaction Manager. The subledger cash flow shown in Figure 5.28 provides a corresponding button for this, Position Indicator. In transaction management, you will find the jump in each case in the Environment  Position Indicator menu. You can also call Transaction TPM57A, which you find in the menu under Transaction Manager  Securities  Master Data  Position Indicator. Figure 5.35 displays the position indicator for the bond from Figure 5.28. Securities account position indicator

The upper section of Figure 5.35 shows the securities account position indicator. These are the properties assigned to the securities account position, or in other words, the external position. The position categories asset position, liability position, and security lending position are derived from the securities account properties. There is a similar section for futures and listed options. This section does not apply for OTC transactions and loans because the external position and its attributes are

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managed by the financial transaction itself. Rather than discussing the fields in detail, we refer you to the relevant (F1) help.

Figure 5.35 Position Indicator of a Security Position

The lower section of Figure 5.35 shows the ledger positions. You find one row here for each valuation area. In the example, we have set different differentiations in each valuation area. We want to look at some attributes of each ledger position in more detail.

Subledger position indicator

Balance Sheet Indicator The balance sheet indicator (BSI) is used to group positions for reporting purposes. It is available for all financial instruments and can be very useful. It also exists in the logical databases.

The account assignment reference links the Transaction Manager to the SAP General Ledger (AcctAssRef column). It is the major influencing factor in determining accounts and, therefore, represents the granularity with which the positions for financial instruments appear in the general ledger. We discuss this in detail in Chapter 6.

Account assignment reference

Each ledger position has exactly one position currency (Pos. C column) in the Transaction Manager. It is the currency in which the relevant financial instrument is normally considered and which does not change. The

Position currency

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issue currency has this role for securities positions, listed options, and futures. Similarly, there is also a dedicated currency in the area of money market and loans because the contract currency is typically the same for the entire cash flow. It is difficult to single out a currency for foreign exchange transactions or OTC derivatives. Typically, the risk currency should be selected as the position currency. For foreign exchange transactions and cross-currency swaps that have the local currency on one side, the other currency is the position currency. If both currencies differ from the local currency, the currency of the incoming side is the position currency. For OTC options, the premium currency when you create the financial transaction is the position currency. The soft modifications from SAP Notes 1290891 and 911316 provide an additional option for determining the position currency for OTC interest rate swaps and forward exchange transactions.

Customer-Specific Position Attributes The attributes included in the position indicator serve to identify the position (company code, ID number) or manage the position (position management procedure, account assignment reference). In addition to the default attributes, Transaction Manager also contains customer-specific attributes. Customer-specific attributes provide the following options: 1. Describing the position Customer-specific position attributes may contain additional information for describing and identifying the position. 2. Processing positions together Customer-specific attributes are included in the selection screens. 3. Grouping or evaluating positions together Customer-specific attributes are included in the output lists, which enables you to define subtotals in position lists on the basis of these attributes, for example. Customer-specific attributes are provided in the most important transactions of external and internal position management, as well as in the reporting tools.

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Differentiation and Customer-Specific Attributes You cannot use customer-specific attributes as differentiation attributes. This means that a position may have only one unique value of a certain attribute. Vice versa, however, various positions may have the same attribute value.

Let's take a closer look at the following sample scenario, which describes the usage, definition, and maintenance of customer-specific position attributes: you manage several investment funds that contain various instruments, such as securities, listed derivatives, and OTC transactions. These instruments are divided into different ledger positions. However, you want to evaluate these instruments together—that is, present the total value of an investment fund. Your customer-specific attribute is assigned the name Mutual Fund. Furthermore, your enterprise has various departments in the treasury area and you want to assign the positions to the individual departments. For this purpose, you define an additional customer attribute, Department.

Example of position attributes

As already mentioned, you can use the position attributes for the position selection and evaluation. This is illustrated in the example of the Position List transaction (Transaction TPM12). Figure 5.36 shows the selection screen of the Position List transaction, including the defined attributes. If you enter a value for the Department attribute, the output list contains the position of this department only.

Using attributes

You may also want to view the position values of the investment funds, for example. In this case, start Transaction TPM12 for all instruments in a valuation area, and in the output list, calculate the sums over the book value and the subtotals for the Mutual Fund attribute. The result is, as shown in Figure 5.37, the total book value of the individual investment funds. Now, let's take a look at the definition of customer-specific attributes. You can define the following: 왘

Three short attributes with a length of four characters

왘

Three medium attributes with a length of ten characters

왘

Three long attributes with a length of 30 characters

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Figure 5.36 Selection Screen with Customer-Specific Position Attributes

Figure 5.37 Position List, Totals Calculated on the Basis of Customer-Specific Position Attributes

The short and medium attributes may be linked to a value table ((F4) help), which is also a check table. The long attributes are user-defined text elements. You define the attributes in the TRLCX_POSATT_DEF view cluster. Start Transaction SM34, enter the name of the view clusters, and select Maintain. Figure 5.38 shows the maintenance view. You create the Mutual Fund attribute as a medium attribute and the Department attribute as a short attribute. For medium and short attributes, you can also assign permitted values in the respective activity of the dialog structure.

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Figure 5.38 Maintaining Position Attributes

The next step is to maintain the attributes. In general, the attributes are maintained when the position indicators are created. You have two options here: maintain the attributes manually or derive and populate them automatically.

Maintaining attributes

You can directly enter an attribute when creating the position indicator. To do so, either use one of the position indicator transactions (Transactions TPM55A through TPM55D) or enter the attribute directly when creating transactions using the Create Financial Transaction transaction (Transaction FTR_CREATE). In this case, you simply select the option Environment  Position Indicator option from the menu. Often, you want to have the system populate the attributes. This procedure is also required if you use BAPIs or other external interfaces, or if you want to have the system derive the attribute value. For automatic maintenance, use the TPM_POS_IND_TRL BAdI and the CHANGE method. You can also change the attribute values when creating the position indicator. Bear in mind that this change first does not lead to a transfer from the accounting perspective. One of the reasons for this is that the position attributes are used for the description and grouping of positions but not for differentiation. The position itself does not change when an attribute is modified. It is instead the other way around—the attribute value is determined anew when a transfer is implemented (for example, securities account transfer, valuation class transfer, portfolio transfer). Transfers, however, are further explained in Section 5.4.5. You can also link the change of attribute values to account assignment reference transfer postings. For this purpose, use the TPM_POS_IND_TRAC BAdI with the three methods, DERIVE_AA_REF_SE, DERIVE_AA_REF_OTC, DERIVE_AA_ REF_LOAN, and CHANGE. Section 5.4.5 describes account assignment reference transfer postings in more detail.

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5.3.6 Position management procedure

Position Management Procedure

The position management procedure (Conf. proc) field is the most important attribute of the ledger position. It controls how the ledger position is handled in internal position management and indicates how a position is valuated. It is also used to calculate price gains or losses for outflows and specifies the components that the system manages for a position. To understand how this works, let's take a look at how you create a position management procedure, as shown in Figure 5.39 and Figure 5.40. You can find the corresponding activity in Customizing under Transaction Manager  General Settings  Accounting  Settings for Position Management  Define Position Management Procedure.

Figure 5.39 Defining the Position Management Procedure, Upper Section

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You can define the position management procedure as you wish. As usual, in addition to a description, you assign such values a category that controls the important properties (Position Management Category field). The position management category mainly determines which key figures you can query for the position. Most components, which we listed in Section 5.3.1, make sense only for certain financial instruments, so the position management categories are characterized according to financial instruments. The following categories are available: 왘

Securities/Loans/Money Market (without index-linked bonds) This position management category is suitable for financial instruments of the areas mentioned and for normally managed listed options. However, do not use it if the financial instrument also contains installment repayments.

왘

Securities/Loans with Installment Repayments This category mainly corresponds to its predecessor. It provides the Repayments component specifically for financial instruments with installment repayments. The requirements for an amortization in accordance with US GAAP and IFRS can be met using only this position management category. Naturally, you can also use it for financial instruments that simply have a final repayment. This category is available for loans from the SAP Loans Management module (FS-CML) and for bonds of the Installment with Repayment product category.

왘

Index-linked bonds This position management category is specifically intended for indexlinked bonds. This means that the Index Valuation key figure is available in addition to the key figures for the position management category mentioned first. You can also choose whether you want to use the book value or the nominal values as the basis for the valuation. This is controlled via the Valuation Base parameter, which is also described in this section.

왘

Futures This position management category is suitable for futures and listed options that are managed like futures.

왘

Foreign exchange transactions This position management category is intended precisely for these financial transactions.

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왘

Forwards/Repos This position management category is suitable for forward and repo transactions.

왘

OTC derivatives (profit/loss posting) This position management category is suitable for all OTC derivatives. The Profit/Loss Posting addition indicates that the book value of the option is posted into the P&L when an option is physically exercised.

왘

OTC options (transfer posting to underlying) This position management category corresponds to the preceding category. When you physically exercise an OTC option, the book value is transferred to the underlying and not cleared into the P&L.

Valuation steps

In the position management procedure, you also define how an assigned ledger position is valuated. The valuation in this case is determined by up to five valuation steps. In Section 5.4.1, we describe which steps are available in detail. After you have specified the category of the step, as in Figure 5.39, the (F4) help provides only valuation procedures that are still allowed for the actual valuation step. However, these steps not only play a role for the valuation, but also have an influence on determining the price gains and losses for outflows.

Sample valuation steps

An example of how the valuation steps also affect rate gains and rate losses will help here, even though we explain the details later. Let's assume that you want to manage a bond position at amortized costs. In this case, you enter an amortization as one of the valuation steps. Consequently, the amortized acquisition value of the original position on the day of the outflow will initially be determined and posted when a partial sale is made. Gains or losses resulting from the sale will be calculated based on this. Knowledge about the accounting valuation plays a role for outflows, also. Carry Out for Key Date Valuation Indicator If you do not set the Carry Out for Key Date Valuation indicator, the system uses only the step for determining rate gains or losses, but not for the valuation. This practically never makes sense.

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In addition, the existing valuation steps influence the number of components used. For example, the Amortization component is active only if you have also entered an amortization as the valuation step. The position management category and valuation steps are the most important settings of the position management procedure. We discuss the transfer category, which you can see in Figure 5.39, together with the transfer in Section 5.4.5. Different settings are combined under Liability/Asset Position in Figure 5.40. You must set the Liability Position value here for liability positions (for instance, payables) for the areas of securities, loans, and money market trading. You leave this indicator blank for asset positions.

Figure 5.40 Defining the Position Management Procedure, Lower Section

Check for Asset and Liability Positions Make sure that this indicator matches the actual positions. Otherwise, you get an error message as soon as the system generates the first flow for this position.

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Asset/liability position for securities, loans, and money markets

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Asset/liability position for derivatives and foreign exchange transactions

The second settings option of the Liability/Asset indicator, Managing asset and liability balance sheet account, applies to futures, foreign exchange transactions, swaps, FRAs, forwards, OTC options, and repos. A feature of all of these financial instruments is that the sign of their book value can change, which means that sometimes they represent assets and, at other times, liabilities. You can use this setting to make the system generate two flows when such a change occurs: one to clear the old book value, and the other to post the new book value. Foreign Exchange Transaction Let’s use a foreign exchange forward transaction as an example. The book value is zero at the time of closing. The first flow results in a write-up of US$100. This corresponds to a debit posting of US$100 on the asset balance sheet account and an equivalent credit posting on a P&L account. For the second valuation, we assume that the exchange rate has deteriorated, and these result in a write-down of US$130. Based on the mentioned setting in the position management procedure, the system generates two flows. One is over US$100 and clears the asset balance sheet account again with a debit posting on an expense account and a credit posting on the asset balance sheet account. The second flow, over US$30, uses the new book value on the liability balance sheet account, whereby it posts a debit on the expense account and a credit on the balance sheet account.

Derived business transactions for interest with FRAs

The Derived Business Transactions for Interest option, shown in Figure 5.40, also combines settings options for different product categories. Interest does not normally have a bearing on the book value and is therefore not a reason to generate a derived business transaction. You can use the FRA: Calculation of Rate Gains/Losses for Payment Settlement setting to ensure that the valuation gains and losses for FRAs are not merely realized at the end of the contract, but already when the payment is being settled.

Derived business transactions for netting accrued interest

The second settings option, Netting Accrued Interest, affects bonds and is originally traced back to a requirement of the Spanish market. Interest that accrues when a bond is purchased must be managed there on a separate balance sheet account. It is therefore regarded as an accrual or

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deferral item. This item must be cleared with the next subsequent interest payment. You do this using a derived business transaction. If you use difference procedures to accrue profit/loss, you can choose whether a transfer also includes a transfer of the corresponding portion of the already existing accrual/deferral from the source position to the target position. This is ensured by the Difference Procedure with Accrual/Deferral Transfer setting. If you use this setting, however, the Accrued Interest component is required. With this setting, an accrual/deferral for the transfer is implemented excluding transfer posting—that is, without including the actual transfer, as for amortizations. You can find a more detailed description of this in SAP Note 1389359.

Derived business transactions for transfer accrual/ deferral

When describing the position management categories, we mentioned that you can transfer the book value to the underlying when you physically exercise an OTC option. You can use the Transfer Option Value option, shown in Figure 5.40, to specify whether the whole book value or only the premium is transferred. In the latter case, the results of valuations of the option are cleared in the P/L when you exercise the option. You can set this indicator in the position management procedure of the OTC option.

Transfer to underlying

In the Handle Valuations (not affecting P/L) for Position Outflow area in Figure 5.40, you determine to which position component the valuation not affecting profit/loss for position outflow is transferred. The account determination must be defined accordingly. By default, the valuations not affecting profit/loss are directly transferred to the P&L accounts. Consequently, write-downs may be converted to realized gains, and the sales price may lead to a loss.

Handle Valuations (not affecting P/L) for Position Outflow

If you set the Clear Valuations (not affecting P/L) to Position option, you can avoid these effects. In this case, the valuation not affecting profit/loss is reset before the price gain is determined, so that only the total profit or loss is posted. Handle Valuations (not Affecting P/L) for Position Outflow The following example explains the difference between the two variants: the transfer posting of valuations not affecting profit/loss and the clearing of these valuations to positions.

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You manage a position with a purchase value of US$100 and a write-down of US$5. So, the book value is US$95. Now, you sell the position for US$110. In addition to the sales process, two flows are generated and posted in both cases: 왘

Without the Clear Valuations (not affecting P/L) to Position option: clearing of the write-down not affecting profit/loss as expenses of US$5 (expenses in retained profit) Price gain of US$15 (position in balance)

왘

With the Clear Valuations (not affecting P/L) to Position option: reset of the write-down not affecting profit/loss as expenses of US$5 (position in retained profit) Price gain of US$10 (position in balance)

Valuation base

The Valuation Base parameter in Figure 5.40 is used if you manage instruments with a price index. In general, it defines the interaction of the individual valuation steps. According to the original standard logic, the index valuation uses the book value as the valuation base. This also affects the other valuation steps because the valuation results are adjusted on the basis of the book index. If you select the nominal amount as the valuation base, the logic changes. The index valuation is then based on the nominal value. The other valuation steps, such as amortization, use either the purchase index (purchase value divided by index-clean purchase value) or the current index value. You can find a more detailed description of this in Section 5.4.3, subsection “Index Valuation.”

Finding the account assignment reference

Figure 5.35 illustrates that every ledger position has a position management procedure. The system automatically finds the position management procedure when a position is created. You can implement this automatic assignment in Customizing under Transaction Manager  General Settings  Accounting  Settings for Position Management  Assign Position Management Procedure based on many terms. Terms frequently used are accounting code, valuation area, valuation class, product type, and transaction type. You can also manually change the position management procedure when maintaining the position indicator, provided that no flow for the position has been posted yet.

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5.3.7

5.3

Derived Business Transactions

Derived business transactions change the values of a ledger position because of a preceding business transaction. The initiating business transaction is also called an original business transaction and depends on the valuation area. Examples of original business transactions include sales, repayments, nominal position increases, option exercises, and corporate actions. Because derived business transactions change values, they must always depend on the valuation area. If you use several valuation areas, an original business transaction generates a separate derived business transaction, usually with different values, in each evaluation area. The relationship between a derived and original business transaction is not obvious in the system. It can only be specifically identified by two technical fields that you do not normally display: in the flow list (Transaction TPM13), the Reference Business Transaction ID field (technically, REF_BUSTRANSID) of the derived business transaction contains the value of the Business Transaction ID field (technically, BUSTRANSID) of the original business transaction. The fields are also available in the logical databases (see Chapter 11).

Derived and original business transactions

The calculation of derived business transactions can be regarded as a multilevel process that is divided into the following steps:

Calculation process

1. Valuate the old position The valuation of the old position is usually not a complete valuation in terms of a key date valuation. In fact, the system performs an amortization or margin accrual/deferral if this is provided in the position management procedure. Even if the valuation does not correspond completely to a key date valuation, it is important to know that the calculation of the derived business transaction practically represents a forced valuation caused by the original business transaction. Derived business transactions and key date valuations depend on the position management procedure in equal measure. 2. Proportionally clear the position (translation) Translations are then generated, which proportionately clear the different components of the position in question. Proportionately generally means in the same ratio as the quantity change. We have already mentioned in Section 5.2.2 that other ratios can also be found in the

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context of corporate actions. A translation flow is generated for every original component of the position. You also see these flows again in Figure 5.28. 3. Report price gains or losses or post to new positions It is clear that, with outflows, the translations must relate to the calculation of the price gains or losses. From a technical perspective, the values for outflows are transferred to a clearing component. The position change categories for outflows (incoming/outgoing payment for outflow, see Section 5.3.1, subsection “Position Change Category and Derived Business Transactions”) also affect this component. The difference between the amount of the outflow and the proportional book value is the price gain or loss. Translations and General Ledger

Translations are important in order to adjust the different key figures and calculate the price gains. However, they are irrelevant for general ledger accounting and are therefore not normally posted. The system also generates translations for the Other Comprehensive Income (OCI), or shareholder's equity—that is, the component for valuations not affecting P/L (see Figure 5.41). They are not part of the price gain determination. You must post these translations because they represent the clearing of the other comprehensive income in the profit and loss statement.

Translations with transfer postings

Reductions in a position's nominal values or units occur not only for sales or repayments, but also for transfer postings. Naturally, no price gains or losses should arise in these cases. Although the system correspondingly generates translations for the outgoing positions, it does not generate price gains or losses. Instead, the system creates mirror-image translations for the new positions to transfer the values to the new positions in this way. You must also post this type of translation.

Translating a currency into a valuation currency

The system first calculates translations in the position currency, as it also does with most of the other flows. For the business transactions of internal position management, the amount frequently is then translated into the valuation currency using the book price. This is also the case for most translations, unless they specifically refer to amounts in the valuation currency, like the translations of cumulative foreign exchange valuations.

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As you have now seen, there is a whole range of business transactions, because of which derived business transactions must be calculated. The type of flows generated also differs. Consequently, the Customizing for these business transactions is quite comprehensive. You can find it under Transaction Manager  General Settings  Accounting  Derived Business Transaction  Update Types  Assign Update Types for Derived Business Transactions. You store a large number of update types for each position management procedure. To help you keep a clear overview, the Customizing is divided into several tabs that indicate the initiating business transactions. As an example, the Position Outflow tab is displayed in Figure 5.41. We refer to the interaction of derived business transactions with the key date valuation in each case.

Figure 5.41 Assigning Update Types for Derived Business Transactions using Position Outflows as an Example

Let's take a closer look at the individual tabs: 왘

Inflows Derived business transactions must also occasionally be calculated for inflows. These are mostly premiums or discounts of positions that are

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amortized. The type of valuation makes a derived business transaction because of an inflow necessary here. We discuss this in more detail in Section 5.4.3, subsection “Amortization.” 왘

Rate Gains/Losses The rate gains/losses are shown separately based on different effects: The security gain/loss is the price gain in the position currency, while the foreign exchange gain/loss is the rate gain in the valuation currency. We see with the key date valuation that the calculation of foreign exchange gains is based on the sequence of valuation steps for a position management procedure (see Section 5.4.3, subsection “Security Valuation”). The two effects are also calculated in the same sequence for a derived business transaction.

왘

Amortizations As you will see in Section 5.4.3, subsection “Amortization,” the system updates amortized costs for inflows and outflows. You store the necessary update types on the tab of the same name. You also enter update types for the swap accrual/deferral of forward exchange transactions and the margin accrual/deferral of repos here (see subsection “Swap and Margin Accrual/Deferral” in Section 5.4.3).

왘

Transfers As already mentioned, with transfers, a translation must be generated for each component. The tab is correspondingly comprehensive. You will also find adjustment flows for valuations not affecting P/L here, or in other words, other comprehensive income or shareholder's equity. The other comprehensive income for foreign currency positions almost always have ratios between the position currency and valuation currency that differ from the book rate. The amounts may even have different signs. In these cases, the adjustment flows ensure that no account extensions occur. Exercising a right can cause another special feature. When you exercise a put option, although a book value is transferred to the position in question, it is immediately included in the calculation of price gains or losses there.

왘

Position Outflows Figure 5.41 displays this section of Customizing. The translations for outflows can have different update types compared to those for transfers. You will, incidentally, find all original components on this tab

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again. The adjustment flows for the other comprehensive income ensure that other comprehensive income with different signs in the position and valuation currencies are cleared correctly. 왘

Reconciliation Flows An issue currency changeover or contract currency changeover can result in the position and valuation currencies being identical. The system in this case translates the position currency amounts of all flows with the key date rate. After the translation, the amount in the position and valuation currencies may be different. The system generates reconciliation flows to prevent this from happening. These flows are not relevant to posting for the General Ledger.

왘

Currency Swap This tab is important only for the issue currency changeover. You enter update types for flows here that clear the balance in the old currency and post it in the new currency in the General Ledger.

왘

Interest If you have capitalized accrued interest on a separate component and set up the position management procedure accordingly, the flows for clearing this deferral item due to an interest payment receive the update types specified here.

왘

Intragroup If you link intragroup transactions—that is, two transactions in a group—the system generates derived business transactions for the transfer of the position values between the two positions. Section 5.4.6 provides more information on the Intragroup tab.

왘

Value Adjustment The update types for the value adjustment are used if you adhere to the Purchase GAAP regulations. Here, derived business transactions are generated for the Purchase GAAP component for various processes in position management.

The attraction of the Transaction Manager's internal position management is also the fact that the system can keep all value changes through derived business transactions current, particularly into the future. The disadvantage of such a procedure, of course, is that each change to a

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ledger position's cash flow involves updating the derived business transactions, which consequently costs computing time. Depending on your requirements and, primarily, on the number of positions and business transactions in your system, you can set the calculation of derived business transactions (see Figure 5.42). You can find the corresponding activity in Customizing under Transaction Manager  General Settings  Accounting  Derived Business Transaction  Control of Processing of Derived Business Transactions.

Figure 5.42 Setting the Control of Processing of Derived Business Transactions Status of the original and derived business transaction

There are three useful possibilities for the two On/Offline and Status control options: 왘

"Online" settings with "Same Status" The system updates the derived business transactions with each new or changed business transaction and the statuses of both jointly change. For example, when you post a sale, the price gain or loss is recalculated and immediately posted. A reversal is also automatically performed in exactly the same way if you reverse an original business transaction or retrospectively enter a security deal before a sale that has already been posted. To ensure that the system can perform this type of reversal, you must specify a reversal reason (TR reversal reason column), as shown in Figure 5.42.

왘

"Online" settings with "Status of plan" Although the system immediately updates the derived business transactions, it leaves them in the Planned status. You must then post the derived business transactions using the Post Derived Business Transactions transaction (Transaction TPM18). You find the transaction in the Transaction Manager menu under the relevant product group in the directory Accounting  Derived Business Transactions.

왘

"Offline" settings with "Same Status" For performance reasons, the system must not update the derived business transactions each time the original business transactions are

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changed. You use the Refresh Derived Business Transactions transaction (Transaction TPM27) to initiate the system to calculate, and if necessary, post the business transactions.

5.4

Processes of Internal Position Management

By its nature, internal position management is very close to financial accounting. Consequently, the processes of internal position management are mainly dominated by the closing operations for financial reporting. The key activity here is the accounting valuation. The accrual/ deferral, primarily of interest received or paid, usually represents a second part of the closing operations. Financial instruments occasionally need to be regrouped to prepare the closing operations. These include transfer postings and the transfer of the account assignment reference. As the last process of internal position management, the functions of intragroup transactions are introduced.

5.4.1

Executing a Key Date Valuation

The accounting valuation of financial instruments is quite complex and requires a lot of space in the accounting rules. However, if you perform these as part of the end-of-quarter or year-end closing in the Transaction Manager, there is hardly any effort involved. The reason for this apparent contradiction is that you make the complexity of the valuation known to the system once in the form of the position management procedure when you set up the Customizing. Because each position knows its position management procedure, the system can automatically make all the decisions in the live system. Figure 5.43 shows the Execute Valuation transaction (Transaction TPM1), which you can find in the menu under Transaction Manager  Money Market/Foreign Exchange/Derivatives/Securities  Accounting  Valuation  Execute Valuation. As is the case with many transactions of internal position management, the information in the General Selections area enables you to select the positions to be processed. However, you can execute the valuation for a whole company code or even an entire system across all valuation areas.

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Figure 5.43 Selection Screen of Key Date Valuation in Transaction TPM1 Valuation category

Key Date for Valuation and Valuation Category in the selection screen are required entry fields. You use the Valuation Category field to specify whether it is an end-of-quarter or year-end valuation, or even a valuation based on a specific occurrence. The Year-End Valuation

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and Mid-Year Valuation Without Reset options are completely identical. The system valuates each position according to its position management procedure. If you set Mid-Year Valuation With Reset option, in addition to the business transaction for the valuation, the system generates a second business transaction for the following day, which resets the valuation again. We describe the two other valuation categories in the next section. The Revaluate without Posting field enables you to revaluate already valuated positions without having to update the valuation results. The results may differ from the currently available market data. In addition, the Hedge Accounting Log and Amortization Log options enable you to generate detailed logs for hedge accounting and amortization. The other optional settings need no explanation. First, the system displays all the selected positions. Then, you execute the valuation, and corresponding postings are made in the General Ledger. As the result, you receive a detailed valuation log, as displayed in Figure 5.44.

Figure 5.44 Valuation Log of Transaction TPM1

The system lists the valuation steps and their results for each position. In the example here, amortization was executed for the position, followed by a foreign currency valuation and, finally, a security valuation. If the key figures displayed by default are insufficient or too unclear, you can create your own display variants. You also have access to the posting log,

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the amortization log, and the log about the distribution of profits and losses, including a detailed log through the Logs + Messages button. Calculating net present values

The valuation of OTC transactions is often based on net present values. You must explicitly trigger their calculation before you call the Execute Valuation transaction (Transaction TPM1). To do this, use the Determine Net Present Values transaction (Transaction TPM60), which you find directly under Transaction TPM1 in the menu. Chapter 7 describes Transaction TPM60 in detail.

5.4.2

Impairments and Unscheduled Valuations

You may occasionally have to diverge from the normal valuation because you will not arrive at the result originally expected. In most cases, you need to perform considerable write-downs because it is unlikely, for example, that a stock will reach its acquisition price once more. The system provides two options to map such matters: manual valuation and impairment. Different accounting requirements are also associated with this.

Manual Valuation Basic principles of accounting

The Manual Valuation represents the simplest way to deal with a permanent reduction in value of a position or (more generally) a permanent difference between the reported book value and required book value. It affects only the valuation for market prices or net present values, not the amortization. It is therefore not suitable for financial instruments that you valuate for amortized costs.

Implementation in system

To carry out this type of manual valuation in the Transaction Manager, you must first determine an appropriate book value. You make the required book value known in the system using the Enter Values for Manual Valuation transaction (Transaction TPM74). You find the transaction in the menu under Transaction Manager  Securities  Accounting  Valuation  Special Valuation. You must specify the book value both in the valuation currency and position currency and also an Index Clean book value for index bonds. You then execute a key date valuation for the relevant position in Transaction TPM1 and enter either Manual Valuation Without Reset or Manual Valuation With

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5.4

Reset as the Valuation Category. The specified values are then used in the following valuation steps: Security Valuation, Foreign Currency Valuation, One-Step Price Valuation, and Index Valuation (see Section 5.4.3). The special valuation is not distinguished in any way in the position components because it changes the normal components for Security Valuation and Foreign Exchange Valuation. As a prerequisite for manual valuations, you must have set the Enable Special WriteUps/Write-Downs for Securities indicator for this purpose in the valuation step for the Security Valuation (see Figure 5.47).

Impairment With manual valuation, the requirements of IFRS and US GAAP are not met. IFRS stipulates that checks must be performed regularly for financial instruments in the Available for Sale, Loans, and Receivables and Held to Maturity holding categories to see whether the valuation approaches are still justifiable. If this is not the case, an impairment must be created. This means that any existing provisions in the shareholder's equity must be reversed with an effect on net income and—provided this does not also correspond to the fair value—be depreciated further. On the basis of the new book value achieved by this, you can execute the following valuations completely normally again. If the reason for creating an impairment is abandoned again, you can also reverse the impairment again. You must determine a realistic value for the relevant financial instrument itself, both for the impairment and the manual valuation. However, accounting-relevant handling is different. An essential difference is that other comprehensive income or equity capital provisions, as are usual for the Available for Sale holding category, must be reversed for the impairment. In addition, it is also considered part of the amortized cost. Subsequent amortizations take the impairment into account. There is therefore no option to automatically reset the valuation on the subsequent day. The Transaction Manager supports impairments for securities and loans but not for OTC transactions.

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Implementation in system

To create an impairment, proceed as follows: first, specify the required value or rate in the Special Security Valuation transaction (Transaction TPM73), which you find in the same location in the menu as the corresponding transaction for the manual valuation. You specify only amounts in the position currency and valuation currency here. In addition, the system provides the Report for Depreciation transaction (Transaction TPM75). This transaction enables you to identify objects for the impairment and define a rate for the impairment. You then call the Record or Clear Impairment transaction (Transaction TPM70). Foreign exchange impairment is also available: Foreign exchange impairment is a foreign currency valuation and affects profits/losses. Principally, security impairment and foreign exchange impairment have a similar relationship, like security valuation and foreign exchange valuation. Like the valuation, you can execute the impairment as a two-level procedure with two separate steps, or as a one-level procedure. The sequence of the impairment steps corresponds to the sequence of the valuation steps in the position management procedure.

Internal logic

When implementing the impairment, the system then initially performs an amortization if this is specified in the position management procedure. It subsequently dissolves other comprehensive income/equity capital provisions from previous security valuations into the profit and loss statement. Finally, a type of security valuation and foreign exchange valuation are executed on the required amount. The amount in the valuation currency for this is calculated on the basis of the setting in the impairment procedure. The system shows the result of this special valuation in the Impairment and FX Impairment components.

Other activities in an impairment environment

You must perform other activities in addition to this special valuation. Especially with bonds and loans, the impairment indicates that you are no longer expecting to receive interest and repayments in full; you have to adjust the conditions accordingly. However, bear in mind here that these changes will affect all valuation areas and all external and internal positions. Subsequent amortizations will therefore be processed differently than previously planned; this is also required for the positions with impairment.

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5.4.3

Customizing the Valuation

You have already begun to define the Customizing for the valuation based on the definition of the position management procedure in Figure 5.39 and Figure 5.40. This is because you define the sequence in which the valuation steps are supposed to be performed here. This is the main setting for the valuation at a business level. We now want to describe the individual valuation steps and discuss their settings in detail. The following step categories are available for selection: 왘

Foreign currency valuation

왘

Security valuation

왘

One-step valuation

왘

Index valuation

왘

Amortization

왘

Rate valuation for forward exchange transactions

왘

Swap and margin accrual/deferral

왘

Swap valuation

왘

Impairment

You can find the Customizing of the valuations steps under Transaction Manager  General Settings  Accounting  Settings for Position Management  Key Date Valuation. You must also maintain update types for the valuation business transactions. You can find the corresponding Customizing under Transaction Manager  General Settings  Accounting  Key Date Valuation  Update Types. Like the update types for derived business transactions, you store a set of update types for each position management procedure. The update types are grouped on a tab for each valuation step. Note on Further Presentation We will introduce the settings of each valuation step together with the update types. The tabs each contain fields for update types for valuating and resetting the valuation. Because the update types for the resetting are completely the same as those for the valuation, they are not mentioned further in the text.

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There is an abbreviation in parentheses after each input field for the update types (for the valuation and for the resetting). This abbreviation corresponds exactly to the key of the update type for the sample Customizing that you can enter here. We will use this abbreviation when referring to an input field in the text.

Foreign Currency Valuation The foreign currency valuation is arguably the easiest ledger position valuation to understand. It is always relevant if the position currency differs from the valuation currency. The foreign currency valuation adjusts the value of the position in the valuation currency to the current exchange rate between the position and valuation currency in accordance with the accounting principle. Figure 5.45 shows the possible settings in the valuation step, while Figure 5.46 displays the corresponding update types.

Figure 5.45 Defining the "Foreign Currency Valuation" Valuation Step Exchange rate type

You use the Exchange Rate Type field, shown in Figure 5.45, to define which exchange rate is relevant for the valuation: for example, the middle rate, bid rate, or similar rates.

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For the component for valuation, you almost always select the Book Value option. You can select the Amortized Acquisition Value option if you perform an amortization for the position. You can also choose whether this valuation is supposed to be carried out for the key date valuation or for the calculation of derived business transactions or only for the key date valuation (Amortized Acquisition Value; Only at Valuation option). The Hedge Adjustment component is further discussed in Chapter 10. For futures and listed options only, you can set variation margin here (see Section 5.4.3, subsection “One-Step Price Valuation”).

Component to be valuated

You separately define how write-ups and write-downs are to occur: here, the Write Up/Down to Market Value, Write Up/Down to Purchase Value, and No Write Up/Down options are available. Based on these parameters, we can already understand what the system calculates with a foreign currency valuation. The basis, which is the book value in most cases, is translated from the position currency into the valuation currency using the key date rate. This value is compared to the present book value in the valuation currency. In accordance with the rules for the write-up or write-down, the system generates a flow of the difference and posts this with the update types of the (V202) and (V203) fields from Figure 5.46.

Write-up and write-down rules

In terms of the possible Gain/Loss Handling settings in Figure 5.45, we want to explain only the Do Not Realize Gains/Losses setting at this point. The other settings are relevant for hedge accounting for exposures; we return to them in Chapter 9. According to IFRS, although financial instruments in the Available for Sale holding category are shown with their market price in the balance sheet, changes to the market price must not be entered in the P/L. They are, in fact, posted in the shareholder's equity/other comprehensive income. The provisions in the equity capital are dissolved into P/L only when the financial instrument expires or is sold. You achieve this behavior using the Do Not Realize Gains/Losses setting mentioned. In addition to the Foreign Exchange Valuation component, the system manages a second component, Foreign Exchange Valuation Not Affecting P/L. The system also uses update types of fields (V202) and (V203) from Figure 5.46. Naturally, you must assign another account determination.

Gain/loss handling

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Figure 5.46 Update Types for Foreign Currency Valuation Clearing gains or losses

Due to fluctuating exchange rates, the foreign currency valuation for a ledger position can lead to write-ups, and later to write-downs that exceed the previous write-ups. If you set the Clear Exchange Rate Gains/Losses indicator in Figure 5.45, the system generates two flows for this changeover, one for clearing the previous write-up and one for the exceeding amount of the write-down. This is particularly important if you manage the valuation results for Available-for-Sale positions on separate equity accounts for gains and losses. You enter the corresponding update types in the (V252) and (V253) fields in Figure 5.46.

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Security Valuation The Security Valuation handles the effects of fluctuating market prices, net present values, or, generally, the fair value. Therefore, the security valuation is important for not only financial instruments with an actual market, but perhaps also every financial instrument, depending on the accounting principle. Figure 5.47 shows the settings options for this valuation step, while Figure 5.48 displays the corresponding update types.

Figure 5.47 Defining the "Security Valuation" Valuation Step

In the same way that you had to specify an exchange rate type for the valuation for the foreign currency valuation, you must specify a price type (Price Type field) for market prices for the security valuation. This means that you determine whether it is a closing price, opening price, or a different price of the security. We discuss market data in detail in Chapter 7. If you select the Use Dirty Price (Market Rate + Accrual Amount) field, the accrued interest is added to the clean market rate, and the resulting dirty price is used as the basis for valuation. For OTC

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transactions, the Net Present Value type corresponds to the price type of the securities. In addition to the NVP type, you must also specify the net present value category (Dirty or Clean options) for OTC transactions. The net present value of a financial instrument should preferably be specified in the position currency of the corresponding internal position. If it was specified in another currency, the system translates it into the position currency. To do this, the system uses the exchange rate type shown in Figure 5.47. If this type is not maintained, the system uses the exchange rate type shown in Figure 5.29. Position and valuation currencies

You have already learned about the settings options for the Write-Up and Write-Down Rules fields for the foreign currency valuation. In addition, the settings for Gain/Loss Handling and Clear Gains/Losses correspond to the settings of the foreign currency valuation (compare Figure 5.45 with Figure 5.47). The system uses the update type of fields (V200) and (V201) from Figure 5.48 here for the write-up or writedown. The update types of the same name for the sample Customizing are not entered this time, to signify that the results of this security valuation are posted in the other comprehensive income/shareholder's equity. To clear gains and losses, in addition to the clearing flows (V250) and (V251) that you are already familiar with from the foreign currency valuation, correction flows (V260) and (V261) are necessary. The security valuation has amounts in the position and valuation currencies. The calculation base for the security valuation is always the book value in the position currency. To translate from the position currency into the valuation currency, the system uses the book rate—that is, the ratio from the book value in the valuation and position currencies. The system also uses the book rate to translate the clearing flows into the valuation currency. The correction flows clear the remaining amounts left in the valuation currency and post them to the other equity capital account.

Writing off costs

The Write Off Costs Fully indicator shown in Figure 5.47 is relevant when you capitalize costs and manage them in the Costs component. If you do not set this indicator, the costs will be written off in the same ratio as the book value when a write-off is performed. If you set the indicator, the costs will be written off completely as a loss when the first write-off is performed.

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Figure 5.48 Update Types for Security Valuation

The Create Reset Flows during Year End Security Valuation field enables you to define that reset flows are supposed to be generated during the year-end valuation. This is required for some accounting principles.

Reset flows during year-end valuation

If you want to execute a manual valuation for a position, you must set the Enable Special Write-Ups/Write-Downs for Securities indicator (see Figure 5.49).

Manual valuation

You will often execute a security valuation in combination with a foreign exchange valuation; in other words, you will use the two previously described valuation steps in a position management procedure (see Figure

Sequence of valuation steps

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5.39 and Figure 5.40). Depending on the sequence in which you perform the steps, you get a different breakdown of the overall effect of the valuation. The change in the book value in the valuation currency is caused by a change in both the market value and the exchange rate. The mixed effect from both changes is shown in the security valuation or foreign exchange valuation, depending on the sequence. Sequence of Valuation Steps Let's assume that we have a stock position of ten stocks amounting to 1,000 Swiss francs (CHF). Up to now, these have a value of US$800 in the valuation currency. We now execute a valuation. The market price of the stock is now CHF 90, and the exchange rate is CHF/US$0.85. A write-up or write-down is always performed on the market price. We first look at the case where the system initially executes the security valuation, and then, the foreign exchange valuation. The security valuation leads to a write-down of CHF 100, which is translated into US$80 according to the book rate, which is 0.8. The resulting book value of US$720 obtained in the valuation currency is written up to the required value of US$765 through a write-up of US$45. The valuation contains the following flows: 왘

A1. Write-down of security valuation

– CHF 100 – US$80

왘

A2. Write-up of foreign exchange valuation

+ CHF 0

+ US$45

If the two steps are performed in the reverse order, we get the following result: 왘

B1. Write-up of foreign exchange valuation

+ CHF 0

왘

B2. Write-down of security valuation

– CHF 100 – US$85

+ US$50

When calculating the book rate for the second valuation step, the system takes into account the previously executed foreign currency valuation.

The sequence of valuation steps does not affect the overall result of the book value, only the distribution of the book value into the foreign exchange valuation and security valuation changes. This is normally displayed in the profit and loss statement if you have an account for price fluctuations and one for exchange rate fluctuations. The price fluctuations are shown in one case with the historical book rate and in the other case with the key date rate. You must define the correct sequence in accordance with your auditor.

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One-Step Valuation The one-step price valuation is a combination of the security valuation and foreign exchange valuation steps in this sequence in one valuation step. However, there is an important difference between this valuation procedure and the combination of both individual steps. The decision for a write-up or write-down for the one-step price valuation is made by comparing the book value in the valuation currency. This becomes noticeable if you do not always write-up or write-down to the market value. Difference in the Combination of Security Valuation and Foreign Exchange Valuation Let's assume that an accounting principle basically does not allow write-ups, and look at Case A again from the last example. In this case, the foreign exchange valuation provided a write-up. As this would not be allowed, the result of the valuation would be a write-down by CHF 100 in the position currency and US$80 in the valuation currency. The book rate would therefore remain unchanged. 왘

C1. Write-down of security valuation

왘

C2. Foreign exchange valuation

– CHF 100 – US$80 CHF 0

EUR 0

If we use the one-step price valuation instead, the system detects that there is an overall write-down in the valuation currency. Consequently, the writedown is performed in the security valuation and the write-up is performed in the foreign exchange valuation. The system generates the two flows A1 and A2 from the last example. Write-ups for both the security valuation and foreign exchange valuation are therefore possible with this valuation procedure, provided an overall write-down occurs.

As you can see in Figure 5.49, the settings options for the one-step price valuation are a combination of the options from the foreign currency valuation and security valuation (see Figure 5.45 and Figure 5.47). You cannot clear gains or losses for one-step valuations. The update types for the one-step price valuation are distributed across three tabs. You maintain the update types for the one-step price valuation on two tabs: One-Step: Overall write-down and One-Step: Overall write-up. Figure 5.50 displays an example of the One-Step: Overall write-down

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tab. On this tab, you maintain the update types that are used if the valuation results in an overall write-down. As you would expect, you find the two update types, Security Write-Down (V101) and Foreign exchange Write-Down (V103). The (V100) and (V102) adjustment write-downs are intended for the described case wherein one of the two parts of the valuation does result in a write-up.

Figure 5.49 Defining the "One-Step Price Valuation" Valuation Step Valuating futures

The one-step price valuation and security valuation also play a specific role in the accounting valuation of futures. Strictly speaking, the margins created by the exchange and the corresponding postings do not represent an accounting valuation, even if the accounting principle requires the positions to be shown at the market value. To be able to reflect this concept in your financial accounting, the offsetting postings for the variation margin account occur on a clearing account, not in the P/L.

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Figure 5.50 Update Types for One-Step Price Valuation

Two financial statement positions must then be valuated for a key date valuation of futures: the variation margins and the balance of the clearing account. You may have to execute a foreign currency valuation for both. In each case, the valuation of the clearing account results in the unrealized gains or losses that have accumulated on its being shown. To valuate the two financial statement positions, you need two valuation steps. 1. You valuate the variation margin account with a foreign currency valuation, for which you have set variation-margin as the component for valuation (see Figure 5.45). 2. The one-step price valuation or security valuation is the procedure for the clearing account. You create an asset (positive) book value for the future position for positive variation margins and, correspondingly, a liability book value for negative variation margins. When you valuate the future for the market value, the book value and balance of the clearing account cancel out and you get the same result as if you had immediately posted the variation margin into the P/L. If

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you use a lowest-value principle, the book value can differ from the balance of the variation margins. The result of the foreign exchange valuation for the book value can always differ from that of the variation margin. Because the variation margin is calculated daily, the book rate here will be a mixed rate, while the book rate of the book value is the key date rate of the last valuation because only the onestep price valuation/security valuation creates a book value for the future position.

Index Valuation Index bonds

The index valuation is a special valuation step that is only relevant for index bonds. However, it must also be performed there to fully reflect the change to the book value for a key date. When an index bond is purchased, the amount in position currency is calculated by multiplying the nominal N with the price P and an index factor I: B = N · P · I = C · I with C = N · P

Amount C, without considering the index factor, is managed in the system as an index clean amount and shown on each flow. The Transaction Manager provides two variants of index valuation, whose valuation bases are different: either the book value or the nominal amount is used as the index valuation base. Both variants also affect the other valuations steps. Therefore, you can find the corresponding Customizing setting, Valuation Base, directly in the definition of the position management procedure (see Section 5.3.6 and Figure 5.39 or Figure 5.40). Book value as the valuation base

If the book value is used as the valuation base, the index valuation describes the influence of the changing index on the book value. When you assess the effect, the index clean amount for the historical position and the current position are the same. Vice versa, security valuation, amortization, and impairment use a calculated index factor, the book index: book index = book value / index clean book value

The book index is determined by inflows, outflows, and the index valuation. If the sequence of the valuation steps differs, the results also vary.

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It is important when the index valuation is carried out. Whether the valuation result of the index valuation is supposed to be posted as a realized value or as an unrealized value depends on other valuation steps. If you select the nominal amount as the valuation basis, the nominal amount is used as the valuation base. This means that the index valuation describes the influence of the changing index on the repayment amount, which usually corresponds to the nominal amount. In this case, the valuation result always affects profits/losses. For the amortization, the purchase index is used:

Nominal amount as the valuation base

Purchase index = purchase value / purchase value index clean

So this procedure should be used only for positions with single position management. For the security valuation, the current index value is used. The result of the index valuation is always written up or down. There is no flexibility here. As a result, you do not need to maintain the valuation step in Customizing. In the position management procedure, you merely have to specify the category of the valuation step to define the sequence of the valuation steps. The system needs two update types for the index valuation, one each for the write-up and write-down. Clearing the gains or losses is not supported.

Update types for index valuation

Amortization In the area of financial instruments, amortization historically means the distribution of a premium or discount over the term of the financial instrument. The spreading of an NPV view of financial instruments was also associated with the attitude that an exponential development of the amortized costs based on the effective interest rate would be more reasonable. When the effective interest rate is calculated, the question arises whether or not the entire cash flow should be used in particular interests. This brings us to the area traditionally referred to as accrued interest. The boundaries between amortization and accrual/deferral therefore begin to blur. In the Transaction Manager, you can describe the amortization as the time-based distribution of gains/losses from future cash flows. The amortization is simply based on the concept that

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the incoming gain or loss from a future cash flow in relation to the capital used or received in the past can be usefully distributed over the term. The procedure mostly used today is the calculation of the amortized cost by discounting the future cash flow with an effective interest rate. A constant cash flow means that the book value then runs on a deterministic curve, an example of which is displayed for a coupon bond in Figure 5.51.

Amortized Cost

100

Time

Figure 5.51 Amortization of a Bond Position with a Discount

As you can see in Figure 5.51, the acquisition value for interest payments shows peaks in the amount of the interest payment, as the interest is no longer part of the future cash flow. The same applies for installment repayments. However, interest is generally associated with revenue or expenses, while installment repayments are not. The peaks are regarded as unwanted for interest but normal for installment repayments. Incremental method

In the example in Figure 5.51, we have also assumed that we determine an effective interest rate from an individual inflow and the resulting cash flow, and then receive the amortized costs at any time by discounting the future cash flow with this effective interest rate. For securities, the question arises as to what is to happen with a purchase for an existing position. In order not to always force a single position management,

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the Transaction Manager uses an incremental method to calculate the amortization. This means that the previously available position on the day of the change is amortized for each inflow or outflow on a position. The system updates the amortized cost. With inflows, the system then adds the purchase value of the inflow and thus implicitly generates a new effective interest rate. With outflows, the system calculates the price gains and losses. The effective interest rate remains unchanged. In contrast to the amortizations of key date valuations, you cannot reset these amortizations. It is always sufficient, for subsequent amortizations, to return to the last business transaction that has caused an amortization. Internal position management supports amortization for securities, loans, and the money market. After this long introduction into the area of amortization, we can now turn our attention to the settings in Customizing, which are displayed in Figure 5.52. The following sections discuss the most important Customizing settings. Figure 5.53 shows the update types.

Figure 5.52 Defining the "Amortization" Valuation Step

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Calculation category

Including interest

Clearing premiums/ discounts and including interest

You can use the Calculation Category field shown in Figure 5.52 to choose whether to opt for a linear or exponential amortization. 왘

Linear Amortized Cost (LAC) refers to the linear amortization. The system distributes the difference between the purchase value and the total of all repayments linearly over the term. You must accrue/defer the interest in this case.

왘

According to the Scientifically Amortized Cost (SAC) procedure, the cash flow is discounted with an effective interest rate.

You use the Include Interest option to decide whether, and how, interest is included here. Three options are available: 왘

Do Not Include Interest The calculated effective interest rate is usually quite small and, naturally, negative for a premium. The time-based distribution of interest then occurs through an interest accrual.

왘

Effective Interest Method in Accordance with IAS 39 If you include interest in the calculation of the effective interest rate, it must, of course, also be part of the cash flow to be discounted with it. A distinction between interest and repayments is not relevant for the amortization. The amortization curve from Figure 5.51 corresponds to this assumption.

왘

Include Interest, Accrued Interest Adjustment (Securities Only) In many cases, you want to explicitly show the interest received through an interest accrual. The system then eventually calculates the same values as previously described and subsequently subtracts the amount that the accrual/deferral would deliver for the same key date. One effect of this procedure is that the amortization curve does not show any peaks on the days of the interest payment, but instead remains constant. This option is supported for securities only.

As already mentioned, amortization was often historically defined as the clearing of a premium or discount over the term. Today, some accounting principles still demand the clearing of premiums or discounts with the effective interest rate, which involves mathematical and business challenges. Let's take a look at a simple example: a premium must be

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paid that equals the total of the expected interest. So the effective interest rate of this position is zero. However, based on an effective interest rate of zero, the premium cannot be distributed over the term. A lot of the procedures described in books function correctly only if certain secondary conditions are met (for example, annual interest payments and position valuations at the end of the year) or lead to imprecision (the position valuation can result in an increase of the premium, for example). The Include Interest  Acrrued Interest Adjustment setting in the Include Interest field is an approximate procedure. Because the accrued interest adjustment depends on the effective interest rate, using the accrued interest adjustment may also result in an increase of the premium/discount (due to a key date valuation). The aim of the accrued interest adjustment is to specify an interest accrual amount in addition to the amortization amount. Consequently, this method enables you to reduce the amortization amount by the accrual amount. Two different approaches can meet the challenges of the premium/discount clearing and usage of the effective interest rate. The definition of the amortization must be adjusted accordingly: 왘

Value "Do Not Include Interest" in the "Include Interest" field The interest does not play a role for the determination of the amortization. The amortization calculation is based only on payments that directly affect the premium/discount (for instance, purchases, sales, and repayments). In the example above, for example, the effective interest rate would be negative, and the premium could be cleared. However, calculating the effective interest rate without including the interest is questionable from the business perspective.

왘

Value "Effective Interest Method in Accordance with IAS 39" in the "Include Interest" field The amortization is not defined on the basis of the premium/discount clearing but as the valuation of the future cash flow on the basis of the effective interest rate (according to IAS 39). The amortization is the basis for the entire cash flow. A distinction between the various income types (such as premium/discount and interest) is not made. To determine the key date value, all future payments are discounted with an effective interest rate and added. So, the book value considers

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future interest payments. This also explains why the amortization value decreases when interest is paid. Upon the interest payment, the position's book value decreases. Because the balance of the bank account increases at the same time, the total balance of the position accounts remains the same. Interest Accrual and Amortization An interest accrual is not necessary for an amortization with the effective interest method in accordance with IAS. It is actually wrong. However, this is not checked by the interest accrual. You must explicitly exclude the positions in question when you call the interest accrual. Behavior of effective interest rate for changes in cash flow

In the motivation of the incremental method, we have already mentioned that the effective interest rate of a position can change over time. The reasons for this can be unexpected inflows or outflows or changes in the conditions. Conditions also change for securities: for example, interest with variable rate bonds or installment repayments with Asset Backed Securities (ABS). You use the Treatment of Effective Interest Rate (SAC) option to determine the behavior of the system in these cases. 왘

Adjust Effective Interest Rate Immediately This is the standard behavior and means that the system determines the effective interest rate from the current existing cash flow for each valuation date. If the cash flow has changed compared to the last valuation, this consequently results in another amortization curve, along which the amortized cost now runs.

왘

Constant Effective Interest Rate IFRS stipulates that the effective interest rate be determined at the time of the purchase or contract conclusion and must then be kept constant, even if the cash flow changes over time. If the cash flow changes, the amortization curve also changes as of this point even though the effective interest rate is kept constant. The difference can be shown as a separate effect in the profit and loss statement. The system generates flows with the update types of the (V382) and (V383) fields in Figure 5.53 for the differences that result from the changes in the cash flow. It seems unreasonable to want to keep the effective interest rate constant for bond purchases. Consequently, you must

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manage all bonds in single positions. You may have to check this matter with your auditor. The amortization horizon is clearly specified by the end of term for simple loans and standard bonds. You use the Amortization To option to also define the period for more complex cases, specifying whether it is the first date of notice for callable or putable bonds, for example, or the end of the fixed interest period for loans. This option applies to the SAC and LAC procedures. There is a good description of the different settings in the (F1) help.

Amortization horizon

You use the Gross/Net parameter in Figure 5.52 to specify whether you manage a premium or discount on a separate account in the general ledger or on the same account as the rest of the book value. Net means that you have one account containing the amortized cost. The premium or discount is then part of the purchase value. Gross means that the premium or discount is managed on a separate account, whose balance is gradually cleared by the amortization (update types of the (V302) and (V303) fields in Figure 5.53). When there is an inflow, the system generates a derived business transaction that you can use to transfer the amount to the special account. The system shows the amount in the Premium component.

Gross and net procedure

In addition to the requirement to show the premium and discount separately in the general ledger, you can set some other country-specific requirements in the area of amortization using the Other Components option shown in Figure 5.52. They apply only to bonds, specifically only zero bonds.

Other components in the area of amortization

The Negotiation Spread is the difference between the value of the bond at the time of purchase corresponding to the issue yield curve and its actual purchase value. The issue yield curve is the amortization curve that results from the issue rate and cash flow. For zero bonds, this is the amortization curve from the final repayment.

Negotiation spread

Depending on the setting for the Other Components option, the negotiation spread itself is amortized linearly (value: Linear Negotiation Spread), exponentially (value: Exponential Negotiation Spread), or not at all (value: Negotiation Spread without Amortization). The system uses the update types of the (V306) and (V307) fields in Figure 5.53 for this

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purpose. The remaining negotiation spread is managed in the Deferral Item for Purchase Value component, while the amortized negotiation spread is managed in Amortization Negotiation Spread. The latter is part of the book value (see Section 5.3.1, subsection “Components”). The remaining book value is amortized along a curve parallel to the issue yield curve. Deferral item for purchase value

If you set the Deferral Item, Purchase Value value for Other Components, the following occurs: as in the case of the negotiation spread, a business transaction is created due to a purchase. This business transaction corresponds to the difference of the theoretical value according to the issue yield curve and the actual purchase value. This amount is part of the acquisition value. You must post the business transaction accordingly, whereby the offsetting posting occurs on an accruals and deferrals account. The Deferral Item for Purchase Value, specifically the balance of the accruals and deferrals account, is always amortized linearly (V304) and (V305) fields in Figure 5.53).

Figure 5.53 Update Types for the Amortization

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As mentioned in the section about the incremental method, amortizations are always performed as a result of outflows, as price gains or losses generally occur with sales. Although installment repayments represent outflows because they reduce the nominal value for the interest calculation, no price gains or losses are incurred with installment repayments; this is ensured by amortization. You can therefore use the Amortization for Installment Repayment indicator to specify whether amortizations, and thus derived business transactions, are to be calculated for these business transactions.

5.4

Installment repayments and amortization

Performance in Case of Many Installment Repayments If you have a position with many installment repayments, you can save a lot of computing time by performing an amortization for valuation dates only rather than for each repayment.

Position Management Category for Financial Instruments with Installment Repayments If you want to map bonds or loans with installment repayments in the Transaction Manager, you should always assign the positions a position management procedure of the Securities/Loans with Installment Repayments category. The Securities/Loans/Money Market (without index-linked bonds) position management category handles repayments like partial sales.

You can ignore the Cut SAC Amortization option because it leads to unreasonable results. It ensures that the amortized cost does not exceed the nominal amount when an amortization is performed according to the SAC procedure where interest is taken into account. However, this is quite possible, as Figure 5.51 shows. We would like to make a few more comments about amortization in relation to the security valuation. Many accounting principles demand the amortized costs as the book value for financial instruments with a deterministic cash flow, primarily if they are to be kept up to the end of term. In these cases, the amortization replaces a security valuation.

Amortization and security valuation

This is different for financial instruments in the Available for Sale holding category in accordance with IFRS. The book value must be the market value for these positions. However, only the results of a valuation for

Amortization and security valuation in IFRS

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amortized costs must be shown in the P&L. The difference must be posted directly into the equity capital and cleared again in the P&L when there is a sale or final repayment. You achieve this behavior by entering an amortization as the first step in the position management procedure, followed by a security valuation. You must enter the settings for the security valuation procedure in such a way that you do not realize gains or losses (set the Gain/Loss Handling option in Figure 5.47 to Do Not Realize Gains/Losses). In this case, interaction with a foreign exchange currency valuation that may be required is difficult. In addition to the matter of the sequence, you must check with your accountant whether you realize the result of the foreign currency valuation or not. In any case, the foreign currency valuation is always based on the book value, which corresponds to the market value here.

Rate Valuation for Forward Exchange Transactions We now turn our attention to the valuation of forward exchange transactions. The Customizing provides some settings options, as you can see in Figure 5.54. Figure 5.55 shows the corresponding update types. Rate valuation for forward exchange transactions is the main valuation step for these types of financial instruments. As mentioned in the description of the security valuation, you can, of course, also calculate a net present value for the financial transaction and use this as the valuation basis. You get the same result with the rate valuation procedure if you set the Category forward parameter shown in Figure 5.54 to Valuation with Net Present Value from Risk Module and define a value in the Net Present Value Type field. Spot rates or forward rates

However, forward exchange transactions are often valuated by comparing foreign exchange market rates with the rates of the specific financial transaction. Spot rates and forward rates are used for the valuation. In the valuation, the Transaction Manager always determines forward rates from spot rates and associated swap records, not on the basis of yield curves.

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Figure 5.54 Defining the Rate Valuation Procedure for Forward Exchange Transactions

The Category Forward parameter provides four options, from which you can choose the rates or net present values you want to use for the valuation: 왘

Market spot rate for forward rate in transaction

왘

Market forward rate for forward rate in transaction

왘

Market spot rate for spot rate in transaction

왘

Valuation with net present value from risk module

The spot rate and swap rate for the pair of currencies from the purchase and sale currency are stored in the financial transaction. The system also saves the spot rate and swap rate for the purchase currency and local currency pair. Because the valuation currency is always the local currency in practice, these rates can be used to calculate all the necessary amounts. In the valuation procedure, you specify the exchange rate types that are relevant for determining the market rates (see Figure 5.54).

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Financial transactions without the involvement of the local currency

The valuation result is always shown in the valuation currency only. As long as one of the two sides of the financial transaction is the valuation currency, usually the local currency, it is clear that there can be a contribution to only the valuation from the other side of the transaction. The valuation normally only shows the overall effect for financial transactions with two foreign currencies. By setting the Cross Valuation indicator, you can ensure that the results of both sides are shown separately (see Section 5.3.1, subsection “Components”). Accordingly, the system then requires all the update types for the purchase currency and the sales currency from Figure 5.55.

Netting transactions

The Netting indicator in Figure 5.54 results from mapping rollovers or premature settlements of forward exchange transactions in the system. The system then creates a new financial transaction with the required due date and a netting transaction that clears the original payment flows. The valuation normally considers all three financial transactions independently of each other. However, because the valuation is based on the spot and forward rates on the day that the contract is concluded, the valuations of the original financial transaction and netting transaction do not offset each other. By setting the indicator, you make sure that the rates of the original financial transaction are used for the netting transaction.

Behavior with offsetting valuations

By now, you are already familiar with the rest of the settings options from the previous valuation procedures. With this valuation procedure, it is assumed that you show the position on separate accounts, depending on whether the book value is positive or negative. Therefore, the system first clears a write-down using clearing (V503) and (V507) fields in Figure 5.55) before it creates a flow for a write-up (V500) and (V504) fields).

Linking valuations to spot and forward rates

Forward exchange transactions are often valuated for spot rates. One decision for comparing forward rates is based on the concept that the forward rates reflect the predicted development due to the difference in the interest rates of the currencies involved. This fits to the nature of the financial transaction, whose payment flows are in the future.

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Figure 5.55 Update Types for Forward Exchange Transaction Rate Valuation

Two effects overlap in forward exchange transactions: the obvious influence of exchange rates (spot effect) and the influence of interest because of the payment in the future (interest rate effect). If you want to separate these aspects for accounting purposes, you can proceed approximately as follows. First, execute a rate valuation by comparing the spot rates. To take into account the change due to the interest rate difference of both currencies, make use of the fact that this effect is approximately linear in time for small interest rate differences. A linear accrual of the swap value, described by the financial transaction, between the purchase and sale currency describes the effect of the interest rate development quite well. This is the responsibility of the swap accrual, which is described in the following section. The swap value itself is again subject to fluctuating exchange rates, which is why you must execute a swap valuation for it for the spot rates. The book value of the foreign exchange forward transaction is exactly the same as the book value a valuation for forward rates would have provided.

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Connection with swap accrual and swap valuation

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Price Valuation and Security Valuation To separate spot and interest rate effects, you can also combine the rate valuation and security valuation steps. First, the spot effect in the rate valuation (with spot rates as the basis) is determined and posted. Then, the difference between spot effect and net present value in the security valuation is determined and posted. This difference corresponds to the interest rate effect. So, the result after the security valuation corresponds to the full net present value. However, because the spot effect was already posted in the rate valuation, the actual security valuation maps only the interest-rate effect. It is possible that the two effects have different directions, which means that one of the valuation steps carries out a write-down and the other carries out a writeup.

Swap and Margin Accrual/Deferral Swap accrual/ deferral for forward exchange transactions

The swap accrual is the linear accrual of the swap value for a foreign exchange forward transaction and roughly reflects the different yield curves of the currencies involved. There are no settings options for this valuation step. The result of the swap accrual is always calculated with the spot rate of the valuation date for the M exchange rate type.

Margin accrual/ deferral for repos

A similar accrual/deferral is important for valuating repos. The difference between the amounts of the spot and forward leg of these financial transactions plus the difference in accrued interest is referred to as a margin. Because repos are generally more short-term bond loans and interest is calculated linearly in short periods of time, a linear accrual/ deferral of the margin makes sense. Here, also, this involves the linear, time-based distribution of an amount again. The result of the swap and margin accrual/deferral is shown in the Swap and Margin Accrual/Deferral component. It is part of the book value and, in the case of repos, the only key figure that contributes to the book value in the position currency.

Margin accrual/ deferral and foreign exchange valuation for repos

The margin accrual/deferral of repos is first calculated in the position currency, meaning in the issue currency of the bond in question. If this currency differs from the valuation currency, the result is calculated with the key date rate. The system uses the exchange rate type from Figure 5.29 for this purpose. If this is not filled, the system uses the

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standard M exchange rate. Unlike amortization or security valuation, the book price is not used. When you execute the additionally required foreign exchange valuation of the already accumulated accrual/deferrals with the same exchange rate type, the sequence of the two valuation steps is irrelevant. Otherwise, the only useful approach is to execute the margin accrual/deferral first, followed by the foreign exchange valuation, because this is the only way to get the book value to the key date rate of the foreign exchange valuation.

Swap Valuation The swap valuation takes into account the exchange rate fluctuations of the swap value of forward exchange transactions. It is the difference between the swap value (calculated with the spot rate) on the market in the following currency and the book swap value. The book swap value is the swap value that results from the foreign exchange forward transaction after deducting the swap accruals and swap valuations already executed. The results of the swap valuation are listed on the component with the same name. Sequence of Valuation Steps for Foreign Exchange Transactions A swap valuation makes sense only if you want to valuate forward exchange transactions according to the considerations in the Rate Valuation for Forward Exchange Transactions valuation step. The sequence of valuation steps must then be as follows: 1. Market spot rate for spot rate in transaction rate valuation 2. Swap accrual/deferral 3. Swap valuation In particular, the swap valuation is based on the swap accrual; therefore, the sequence must not be reversed or the swap valuation executed alone.

Impairment The Customizing for impairment is completely the same as the Customizing for a normal valuation. You create an impairment procedure and enter it in the position management procedure, as shown previously in Figure 5.39 and Figure 5.40. In the impairment procedure (see Figure 5.56), you must specify which exchange rate type you want to use to

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calculate the exchange rate between the position currency and valuation currency. As in the security valuation procedure, you also specify the rate/price type (field: Rate/price type) for security prices, or the NPV type (field: Price/NPV type) for loans.

Figure 5.56 Defining the Impairment Valuation Step Translating a currency into a valuation currency

In the Exchange Rate field, select the exchange rate for the translation into a valuation currency. In case of a security impairment, you can decide whether the book price or the market price forms the basis for the translation into the valuation currency. In special cases, using the market price for the translation may change the plus/minus sign of the book value after the impairment. If this happens, the book price, instead of the market price, is used for the translation, and the valuation log contains the corresponding information. If the book price is used for the translation, the plus/minus sign of the acquisition value may change. In this case, the acquisition price is used, and—as in the first case—the valuation log contains the corresponding information.

Relation to key date valuation

The impairment and normal valuation affect each other. Therefore, it is critical to define the relation between the two valuation types. There are some options that enable you to specify the steps of the normal valuation before and after the impairment. The Reset Forex Valuation option enables you to reset foreign exchange valuations not affecting

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P/L and caused by an impairment. Security valuations not affecting P/L are always reset in case of impairments. You should also use the Reset Realized Security Valuation and Reset Realized Foreign Currency Valuation options to reset realized valuations. After an impairment, the ledger position is no longer amortized. If you still want to use amortization after the impairment, you can select the Amortization After Impairment option.

Impairment and realized valuation

If you select the Record FX Impairment option, the system implements a foreign exchange impairment that corresponds to a realized valuation of the book value. If you select this option, you can also use the OneStep Impairment option. The procedure for a one-step impairment is the same as for a one-step valuation—that is, the security and foreign exchange effects are combined. The one-step impairment has a special feature: due to the different fluctuations of the price and the exchange rate, the total impairment may have a negative result. The security impairment is positive if the price increases but the exchange rate decreases to such an extent that the negative foreign exchange effect for the valuation currency is higher than the positive price effect for the valuation currency. Consequently, a positive impairment for securities is allowed for the one-step impairment.

Foreign exchange impairment and one-step impairment

5.4.4

Accruals/Deferrals

Accruals/deferrals handle the correct, time-based distribution of revenue or expenses from interest in the Transaction Manager. You can, of course, also accrue/defer other cash flows, if they refer to periods of time. However, the time-based distribution of a premium or discount is excluded here, as that is the task of amortization. You can also accrue/ defer dividends for the period between an allocation and a payment, although, admittedly, this must be done completely or not at all. When the payment occurs at the end of the accrual/deferral period, this is referred to as an accrual; when the payment is made at the beginning of the period, this is a deferral.

Accruals and deferrals

As is the case with a key date valuation, you can reset an accrual/deferral on the following day. This procedure, in relation to accruals/deferrals, is known as a reset procedure. The other procedure is the difference procedure.

Reset procedure and difference procedure

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In this case, only the difference in the total of all previous accruals/deferrals is posted for each key date. Consequently, greater amounts always accumulate on the asset or liability accruals and deferrals account. These amounts are ultimately cleared by the payment of interest. Therefore, the interest payment in the difference procedure has no effects on the P&L and must also be posted accordingly. Financial accounting for difference procedure

There is a methodical advantage to using the reset procedure for foreign currency positions. The system first calculates accruals/deferrals in the position currency, then translates accruals into the valuation currency using the foreign exchange market rate. The reset procedure immediately ensures that the accruals and deferrals account shows the correct balance in the local currency. In the case of deferrals, the rate of the flow that has already been posted is used, rather than the market exchange rate. You must also take another difference between deferrals and accruals into account for the reset procedure: the period to be accrued for the accrual is the time from the beginning of the period up to the key date. The accrual ensures that it is displayed in the P&L because the interest itself is not yet posted. This interest was already posted in the P&L for the deferral. The accrual/deferral must then adjust the revenue or expense that is too high and consider the period from the key date up to the end of the interest period.

Financial accounting for difference procedure

This type of differentiation is not necessary in the difference procedure. Only the time from the beginning of the period up to the key date is ever relevant here. Nevertheless, there are more factors to take into account with foreign currency positions. Because the amounts in the local currency are calculated with the key date rate for an accrual in each case, the balance of the accumulated accruals shows a mixed foreign exchange rate. In addition to the accrual, a foreign currency valuation of this balance is still required. The exchange rate of the flow to be deferred is normally used for a deferral in the Transaction Manager, which reduces the currency translation problem here.

Implementing accruals/deferrals

To implement accruals/deferrals, use the Accrual/Deferral of Income transaction (Transaction TPM44), which you find in the menu under Transaction Manager  Money Market/Foreign Exchange/Derivatives/Commodities/Securities  Accounting  Accrual/Deferral. The initial screen in Figure 5.57 provides the selection criteria that you are

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already familiar with. The accrual/deferral is based on the ledger positions and can also be controlled differently for different valuation areas in particular. Like the valuation, you must specify a key date (area: Selection Parameters). You can also identify this as an including key date and key date is month-end. Just like in Transaction TPM1, you can define the FI Posting date and FI Posting period fields for the accrual/deferral and, if necessary, their reset options.

Figure 5.57 Selection Screen for Accrual/Deferral (Transaction TPM44)

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Additional parameters for OTC transactions

When you perform an accrual/deferral for OTC transactions, in addition to the default parameters, the system provides additional selection parameters for these instruments, such as Last Changed by, Change Date, Transaction Currency, External Reference, and Check Release. By setting the Check Release option, you can perform an accrual/deferral for the released transactions only (Chapter 6 provides more information on the release process). Accrual/Deferral of OTC Transactions for Older Releases If Business Function FIN_TRM_LR_FI_AN (available as of Enhancement Package 3) is not activated, you have to perform accruals/deferrals for OTC transactions using the Accrual/Deferral of Expenses and Revenues transaction (Transaction TBB4). You can find the Customizing for this transaction under Transaction Manager  General Settings  Accounting Transaction Manager  General Settings  Accounting  Accrual/Deferral  Money Market/ Foreign Exchange/OTC Derivatives: Define Accrual/Deferral.

Unlike the valuation, Transaction TPM44 does not list the selected positions first, but instead immediately displays a log as the result. You can refer to this log to see which flows were to be accrued/deferred and which amounts were accrued/deferred over which periods (see Figure 5.58). The log in the difference procedure also shows the amounts that have already been accrued/deferred. You can also navigate to the posting log from this log using the Logs + Messages button. Naturally, a reversal is also available for the accrual/deferral. You will find the Reverse Accrual/Deferral of Income transaction (Transaction TPM45) in the same location in the menu as Transaction TPM44. Interaction with Valuation Although the accrual/deferral is based on the ledger positions, it does not take into consideration the position management procedure, but instead has its own Customizing. This can cause problems in the interaction with the valuation. If you amortize a position, you can already include the interest in this case (see Section 5.4.3, subsection “Amortization”). An interest accrual is no longer necessary, or indeed wrong, for such a position. If you keep the same bond in another position that is valuated at the market price, you must perform an interest accrual for this position. When you call Transaction TPM44, you must therefore ensure that the amortized position is excluded. The two

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described positions normally have different valuation classes, which means they can be distinguished. Because valuation classes depend on the valuation area, you may need to perform the accrual/deferral for each valuation area. You can also define the accrual/deferral depending on the position management procedure.

Figure 5.58 Log for Accrual/Deferral

You can find the accrual/deferral Customizing under Transaction Manager  General Settings  Accounting  Accrual/Deferral  Update Types  Assign Update Types for Accrual/Deferral. All settings depend on the product group, accounting code, valuation area, product category, product type, and position management procedure parameters. At this level in the Area activity (see Figure 5.59), you first define whether and which types of locks the system is supposed to generate for the accrual/deferral. This enables you to avoid changes of basic accrual/ deferral principles due to various actions. An example is an additional purchase of securities before the key date. Then, you define the exchange rate type used for translating the position currency into the valuation currency.

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Figure 5.59 General Accrual/Deferral Settings

You can see the other settings below this level in Figure 5.60. A flow of a cash flow is always the starting point for the accrual/deferral. You implement your settings for each update type accordingly. All update types you have entered as a profit-related flow are implicitly relevant for the accrual/deferral.

Figure 5.60 Settings for Profit-Related Flows Translating into a valuation currency

The Exchange Rate Category and Translation Date Category fields allow you to specify the translation of the accrual/deferral results into

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the valuation currency. The first field controls which exchange rate is supposed to be used, and the second field defines the date of the exchange rate. With the Accrual/Deferral Procedure field, you decide whether to use the reset or difference procedure. You normally use the Pro Rata option in the Accrual/Deferral Method field. Interest is generally calculated linearly in time within its period. However, you can also calculate it exponentially. You implement this setting in the conditions of the class or in an OTC transaction. The Pro Rata entry means that the accrual/deferral occurs depending on the setting in the condition. Select the Linear accrual/deferral method if it is important to you that the accrual/deferral always occurs linearly. You can set the Completely method to ensure that the total amount is accrued/deferred for each key date. This is intended only for accruing/deferring dividends. The Pro Rata Temporis With Linear Discounting method is used only for commercial papers.

Accrual/deferral procedure and method

The grouping concept enables you to accrue/defer various flows together. This is important for instruments with a combination of normal and capitalized interest or in case of daily interest rate adjustment. As you can see in Figure 5.60, you then specify the update types for the accrual/deferral flows to be generated. You have to fill only the fields that are relevant for each procedure. The Accrual/Deferral Offsetting Flow option is intended for certain cases of the difference procedure. If a position's cash flow changes due to condition changes or transfers after accruals/deferrals were already performed, you must reset the accumulated accruals/deferrals that are too high.

Update types for accruals/deferrals

The system uses the two update types, FX correction positive and FX correction negative, for flows to bring the exchange rate of the accumulated accruals/deferrals up to the key date rate in the difference procedure.

Exchange rate differences with difference procedure

Although there is no separate component for accrued/deferred amounts of a position, with the difference procedure, the system recognizes the accruals/deferrals that already exist because update types of the accrual/ deferral flows are entered as such in the Customizing. If you need to make other flows known to the system as accruals/deferrals, enter them

Making flows known for the accrual/deferral

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in Customizing under Transaction Manager  General Settings  Accounting  Accrual/Deferral  Update Types  Assign Additional Update Types for Difference Procedure. This can be useful for a legacy data transfer. Including paid interest

In Section 5.3.1, subsection “Components,” we mentioned that in the settings for the position management procedure, paid accrued interest when bonds are purchased can be regarded as accrual/deferral items— that is, as amounts that have already been accrued/deferred. If you want to achieve this and use the reset procedure, you must set the With Netting Account shown in Figure 5.60 for the interest flow to be accrued/ deferred. This means that the amount still to be accrued/deferred correspondingly turns out to be lower. The next time interest is paid, the system generates a derived business transaction that clears the accrued interest from the accruals and deferrals account. This cannot be mapped as easily in the difference procedure. The respective procedure is described in SAP Note 912679. SAP Note 1389359 provides more details on the procedure for the difference procedure with accrual/ deferral transfer variant.

5.4.5

Transfer

It is possible that positions must be transferred. This means that one of the position characteristics (valuation class, portfolio, or account assignment reference) changes. From the business perspective, a transfer is a reclassification of the involved internal positions. The process of the valuation class transfer and the portfolio transfer is similar to the process of the securities account transfer in securities account management. Unlike a securities account transfer, however, it is an internal transfer. For account assignment transfers, the ledger position does not change; only the account assignment reference is adapted, and the respective general ledger account balances are transferred. Transfer category

The objective of the valuation class transfer or portfolio transfer is always to create a new ledger position. The derived business transaction of the transfer must transfer the values to this new position. The transfer category that we have already seen in Figure 5.39 controls how the derived business transaction does this, specifically. The transfer category

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also plays a role for securities with securities account transfers, corporate actions, and rights, because new positions are also created here. Transfer Category of Target Position Note that the transfer category from the position management procedure of the target position is always the deciding factor. The transfer category of the source position is not relevant for transfers.

You can choose between the following transfer categories: 왘

Post to Same Components Here, the components of the source position are simply transferred to the target position, even if the target position does not normally use these components. This is also the system behavior if you have not specified a transfer category.

왘

Only Post to Used Components If the source position has values on components that the target position does not manage, the corresponding components of the source position are transferred to existing components of the target position. The rule for transfers between the various components of the source and target position is described after the list of the transfer categories.

왘

Reverse Security and Foreign Exchange Valuations The security and foreign exchange valuations are not transferred to the target position, but reset.

왘

Reverse Security Valuation, Transfer Foreign Exchange Valuations The foreign currency valuation is transferred to the target position, and the security valuation is reset.

왘

Transfer Security Valuation, Reverse Foreign Exchange Valuations The security valuation is transferred, and the foreign currency valuation is reset.

왘

Transfer Unrealized Valuations (Otherwise Identical to 02) This transfer category corresponds to the Only Post to Used Components transfer category; however, there is one exception: the security and foreign exchange valuation not affecting P/L is always transferred and cleared over the remaining term.

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왘

Rules for transferring to used components

Post Book Value to Purchase Value Component Here, the individual components are not transferred, but the whole book value of the source position is posted in the target position as the purchase value.

The system uses certain rules to decide which components may be transferred to other components. The most important of those transfer rules are the following: 왘

The security valuation is transferred to the amortization, and vice versa, if the relevant outgoing component does not exist in the target position but the target component is managed.

왘

If possible, foreign currency valuations are transferred to the security valuation. If this does not exist in the target position, either, the transfer is made to the amortization.

왘

Valuations not affecting P/L, in other words, provisions in equity capital or other comprehensive income, as designated for certain holding categories in accordance with IFRS or US GAAP—are cleared in the P/L calculation if the target position does not allow for these types of components.

If the system cannot find a suitable rule, the component is retained, even if the target position does not normally allow for this component. However, this will probably not matter much in practice.

Valuation Class Transfer In case of valuation class transfers, you want to change the valuation class—that is, the holding category according to IFRS or US GAAP. This will also require valuating differently for accounting purposes in the future; in other words, you will use a new position management procedure for this position. For this purpose, you use the valuation class transfer (Transaction TPM15M). You can find this transaction in the menu under Transaction Manager  Money Market/Foreign Exchange/Derivatives/Commodities/Securities  Accounting  Valuation Class Transfer  Execute Valuation Class Transfer. You also find the corresponding Reversal transaction TPM16M in the same directory.

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The transfer enables you to change valuation classes for securities and OTC transactions. Loans can be transferred using Transaction TPM15. You cannot transfer listed derivatives.

Relevant product groups

You will probably want to change only the special valuation class in a single valuation area; however, you actually transfer the general valuation classes. This must occur because the special valuation classes for each valuation area are firmly linked to the general valuation classes, and the relationship from the general valuation class to the special valuation class must remain unique (see Section 5.3.3, subsection “General Valuation Class”). To now perform a transfer in one valuation area only, you must define general valuation classes, to which special valuation classes are assigned in such a way that they differ in only one valuation area. An example will make this clear.

Transferring the general valuation class

Let's assume you have two valuation areas, where three general valuation classes are assigned to special valuation classes in accordance with Table 5.6.

Example

General Valuation Class

Valuation Area 001 Valuation Class

Valuation Area 002 Valuation Class

Short-term

Trading

Trading

Medium-term

Available for Sale

Investment

Long-term

Held to Maturity

Investment

Table 5.6 Assigning General Valuation Classes to Special Valuation Classes in Two Valuation Areas

The objective now is to transfer from Trading to Available for Sale in valuation area 001 but leave the position at Trading in valuation area 002. You then require the following new general valuation class in Table 5.7. General Valuation Class

Valuation Area 001 Valuation Class

Valuation Area 002 Valuation Class

Medium-term from transfer

Available for Sale

Trading

Table 5.7 General Valuation Class for Transfer

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Performing a valuation class transfer

In the transfer itself, the system also supports you in finding the correct general valuation class. Figure 5.61 shows the selection screen of Transaction TPM15M. You must first select the ledger position to be transferred in one valuation area and indicate the specific or the general valuation class to which you want the transfer to be made.

Figure 5.61 Selection Screen of the Valuation Class Transfer (Transaction TPM15M)

If your selection criteria have not indicated one position exactly, the next thing the system does is provide you with a list, from which you must select exactly one position. You then go to a screen where you

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must specify the new general valuation class. If there is only one possible valuation class, the system proposes it. For securities, you can also specify the quantity to be transferred in this screen. The system always proposes that you perform complete transfers. Like the securities-account transfer, the business transaction of the transfer itself contains only quantities, not amounts. The values are naturally transferred by a derived business transaction. Provided you post this immediately, you also receive a posting log as confirmation of the transfer; otherwise, the system issues a message at least.

Business transaction for transfer

Change of Holding Categories In accordance with the requirements of IFRS, you have classified a bond position as Available for Sale and have also valuated it already. The valuation resulted in an adjustment to the market price, which was reflected in a value of the Security Valuation component. You have now decided to keep the bond until the final due date. You therefore have to regroup the bond in the Held to Maturity holding category for whose positions a valuation in market prices is not provided. In fact, amortization is used to valuate them in amortized costs. You use the Transfer To Same Components transfer category to retain the already available Security Valuation component for the transfer. Subsequent valuations naturally no longer change this component. Nevertheless, you may not want this to be the case. The Only Post to Used Components transfer category results in the value of the security valuation being transferred to the value of the amortization. The target position does not contain a security valuation anymore, but instead has an amortized cost that corresponds to the previous book value.

You can find the valuation class transfer Customizing under Transaction Manager  General Settings  Accounting  Valuation Class Transfer  Update Types. There, you simply store an update type for the outflows and inflows. Classifying the Long-Term and Short-Term Portion The valuation class transfer also enables you to classify the long-term and short-term (regular) portion for OTC transactions. Let's take a look at an example of a money market transaction with a term of two years and monthly

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annuity repayments. You want to classify the repayments, which are due within one year, as short-term repayments. The Execute Valuation Class Transfer transaction (Transaction TPM15M) provides the corresponding option to transfer these short-term repayments to a different valuation class. To do so, you have to enter the general valuation class of the transaction and the target valuation class. Then, you can specify the horizon for the regular portion. This is then the decision date between the long-term and short-term period—that is, all repayments due before the horizon date are transferred. Two procedures are available for interest: 왘

Date-based assignment Interest due before the horizon date is assigned to the regular portion.

왘

Nominal-based assignment Interest is distributed on the basis of the regular and long-term nominal.

You define the settings for how the regular and long-term portion is handled in the Customizing under Transaction Manager  General Settings  Accounting  Settings for Position Management  Define and Assign Valuation Classes. The Current Portion Handling field enables you to select the general valuation class for the regular portion and the approach for the handling of interest. SAP Note 1515125 and the notes mentioned there contain further information.

Portfolio Transfer Similar to valuation class transfers, portfolio transfers are also available. Portfolio transfers allow you to transfer positions to different portfolios. You can use a portfolio transfer, for example, if you use portfolios as differentiation criteria (see the Differentiation Term field in Figure 5.32). Therefore, this transfer type is available only for securities. So, the effects of a portfolio transfer on the various valuation areas depend on the differentiation. The transfer business transactions are generated in all valuation areas; the actual transfer of quantities and values, however, is implemented only in the valuation areas in which portfolios are used as differentiation criteria. Implementing portfolio transfers

You implement portfolio transfers using the Execute Portfolio Transfer transaction (Transaction TPM82). You find it in the menu under Transaction Manager  Securities  Accounting  Portfolio Transfer. The selection screen contains general selection parameters for the selection

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of the positions to be transferred, as well as the transfer information, such as target portfolio, key date, and posting data. Next, another screen opens that displays the positions to be transferred. You can adapt the target portfolio and the quantity information (nominal amount or number of units) manually. After the transfer has been carried out, the system displays the log. You can also cancel portfolio transfers. To do so, use the Reverse Portfolio Transfer transaction (Transaction TPM83), which you can find in the same area of the menu. Here, you specify the general selection parameters, as well as the original target and source portfolios, including key date of the transfer. In addition, you can maintain posting data here.

Cancelling portfolio transfers

The Customizing is similar to that of the other transfer types. You assign the update types for the quantity transfer under Transaction Manager  General Settings  Accounting  Portfolio Transfer  Update Types. In addition, you must also maintain the update types for the derived business transaction in the position management procedures (see Section 5.3.7).

Customizing

Account Assignment Reference Transfer There is another transfer in internal position management in addition to the valuation class and portfolio transfer: the account assignment reference transfer. It changes the account assignment reference of a ledger position. The account assignment reference is the main influencing factor in determining accounts, and therefore represents the granularity of the general ledger positions. It is an attribute of the ledger position. From the perspective of the subledger, only one attribute changes with the transfer; however, no new position is created, unlike with the valuation class or portfolio transfer. Technically speaking, the account assignment reference transfer is therefore a transfer within the general ledger that was triggered from the subledger. It is useful to know that the account assignment reference transfer is based on different data than the valuation class transfer. Even though the aim of the transfer is to transfer the book value of a position from one general ledger account to another, technically, the calculation base

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is different from the one for the book value, according to the Position List transaction (Transaction TPM12). The account assignment reference transfer is based on other database tables—namely, those on which the Posting Journal transaction (Transaction TPM20) is based. Posting Journal and Position List Due to errors in the account determination setting, inconsistencies can occur between internal position management (Transactions TPM12 and TPM13) and the posting journal (Transaction TPM20). These errors probably first occur with an account assignment reference transfer because there is no consistency check. Carrying out an account assignment reference transfer

You can find the Execute Account Assignment Reference Transfer transaction (Transaction TPM28) in the menu under Transaction Manager  Money Market/Foreign Exchange/Derivatives/Commodities/Securities  Accounting  Account Assignment Reference  Execute. The transfer process is similar to the key date valuation. The selection screen also largely corresponds to the selection screen in the Execute Key Date Valuation transaction (Transaction TPM1) shown in Figure 5.43. You first select the required positions and a key date—that is, the posting date, on the selection screen. The position date and posting date cannot be different for this transfer. In the next screen, which is shown in Figure 5.62, the system lists all the positions you selected and displays the source and target account assignment reference and book value to be transferred.

Figure 5.62 Display of Positions to be Transferred in the Account Assignment Reference Transfer

You can still exclude some individual positions from the transfer here. You then carry out the transfer (Carry Out Transfer Posting button).

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You receive a posting log as confirmation. You always receive this posting log because the business transaction of the transfer already contains the values but does not contain any details about quantities. Account Assignment Reference Transfer with Automatic Account Assignment Reference Determination You can already enter the required new account assignment reference on the initial screen. In this case, all selected positions get this account assignment reference. If you do not make an entry on the initial screen, the system runs the automatic account assignment reference determination again for each selected position. If this results in a different value as the present account assignment reference, the system carries out a corresponding transfer. If the account assignment reference does not change, nothing happens. This behavior can be useful if the account assignment reference depends on values that can change over the course of time. General ledger positions often depend on the counterparty's or issuer's properties. By carrying out a transfer posting without specifying the account assignment reference, you can enable the system to check whether relevant changes have been entered and, if necessary, immediately transfer these changes.

Because an account assignment reference transfer changes the account assignment reference of the ledger position and therefore the posting logic, the system performs a number of consistency checks. There must be no more planned business transactions before the key date for this type of transfer and no already-posted business transactions after the key date. The system also prohibits you from retroactively entering business transactions before the transfer.

Sequence of postings

You can find the Customizing for account assignment reference transfers under Transaction Manager  General Settings  Accounting  Account Assignment Reference Transfer  Assign Update Types for Account Assignment Reference Transfer. As you can see in Figure 5.63, you assign update types to account symbols. Account symbol is a term from account determination, which we discuss in detail in Chapter 6. You can imagine that it represents an abstract general ledger account. In most cases, it is a Position (book value) account symbol, which reflects the book value. In Customizing, you define an update type for each account symbol for clearing and posting the value, depending on

Customizing

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whether this value has a positive (columns: Clear (D) and Post (D)) or negative (columns: Clear (C) and Post (C)) sign.

Figure 5.63 Customizing of Account Assignment Reference Transfer Dependencies on plus/minus sign

The book value always has a positive sign for asset positions; therefore, you do not need to enter any details for the update types for transferring a credit balance. The reverse naturally applies for liability positions. However, there are also account symbols that can have both signs simultaneously. Equity capital provisions or other comprehensive income, as they occur for positions of certain holding categories in accordance with IFRS, can basically have both signs and even different signs in the position currency and local currency. You must therefore specify all four update types for the corresponding account symbols.

Generated flows

The system generates an outflow and inflow for each account symbol. If the amounts in the position currency and valuation currency have different signs, you receive two flows in each case. However, you can only transfer amounts from balance sheet accounts. You cannot perform transfers within the P/L. Account Symbol and Component Only one account symbol, representing the whole book value, is set up in the sample Customizing. Consequently, the system also transfers the whole book value with one flow. Follow this procedure when setting up your system. If you try to generate transfer posting flows for other components by setting up account symbols for each component, this will lead to massive changes in other areas of the Customizing, particularly with the account determination of derived business transactions.

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5.4.6

Intragroup Transactions

Various accounting principles stipulate that gains from transactions within a group are to be considered differently than normal gains. Usually, enterprises conclude transactions with external business partners. However, it is possible that securities transactions are agreed between enterprises within a group, for example. These transactions are referred to as intragroup transactions. In these cases, various accounting principles define that gains and losses are to be handled differently than for transactions with external business partners. Let's take US GAAP and IFRS as examples: according to these accounting principles, the purchaser is supposed to post the purchase of securities as if the securities would have never left the group. That means that gains and losses of the seller are posted to a consolidation P/L account in the purchasing company code and distributed across not realized gain and position account accordingly. From the group perspective, no gains or losses are made. In the system, you first define the intragroup transactions as normal sales and purchases of securities with the corresponding business partners. The business partner setting is described in detail later on. Then, settlement and posting must be implemented. You link the purchase and sale with the Process Intragroup Transactions transaction (Transaction TRIG_IGT), which you can find in the menu under Transaction Manager  Securities  Accounting  Intragroup Trading. In the selection screen, you enter the selection parameters for the sale and purchase side. Figure 5.64 shows the worklist in which you can link the respective transactions.

Figure 5.64 Intragroup Transaction Worklist

If you click the Process button, the system navigates you to the next screen, in which you can adapt the intragroup business transactions manually (see Figure 5.65).

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Figure 5.65 Edit Book Values of Intragroup Transactions Setting the business partner

When defining intragroup transactions, you must first maintain the master data of the respective business partners. For this purpose, enter the business partner in the Maintain Business Partner transaction (Transaction BP) and select the counterparty role. First, you have to select the business partner as relevant for intragroup transactions. Select the company code, and enter the Affiliated Company value in the Organization Relationship field in the Financial Data of Company Code tab. Then, assign the trading partner to the business partner. This

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setting belongs to the general data category. In the Control tab, specify the respective trading partner ID in the Trading Partner field. In the Customizing, you activate intragroup transactions using the Transaction Manager  General Settings  Accounting  Intragroup Transaction Settings  Select Valuation Areas as Relevant to Intragroup Trading activity. You can then activate intragroup transactions for each accounting code, valuation area, product category, or product type. For the relevant position management procedures, you have to maintain the update types for derived business transactions in the Customizing under Transaction Manager  General Settings  Accounting  Derived Business Transactions  Update Types  Assign Update Types for Derived Business Transactions. In the Intragroup tab shown in Figure 5.66 and Figure 5.67, the first area is Reset Purchase Book Value Before Classification in IGT. It contains technical flows, which are not relevant for posting. They serve to reset the original purchase value and purchase costs.

Figure 5.66 Maintaining Derived Business Transactions of Intragroup Transactions, Top

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In the Transfer Purchase Book Value After Classification in IGT area, you first maintain the flows in general. They serve to transfer the position values of the sales position to the purchase position. These flows are not relevant for posting. In addition, this area contains the General Flows Relevant for Posting section. These update types are relevant for posting and—depending on the direction—the posting specification is non-consolidated P/L to position account or vice versa. Under Flows Relevant for Posting When Posting to Consolidated Gains, you maintain the update types to post the valuations that do not affect P/L and were posted in the sale to consolidated P/L (see Figure 5.67). The posting specification is consolidated gains to valuation not affecting P/L, or vice versa.

Figure 5.67 Maintaining Derived Business Transactions of Intragroup Transactions, Bottom

It is also possible that the valuation not affecting P/L and the realized gain have differing directions: for example, realized gain and writedown not affecting P/L. In this case, the adjustment flows for consolidated gains are used, which transfer the smaller balance from a

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consolidation P/L account to other accounts. These update types are relevant only if the seller does not clear the valuation not affecting P/L upon sale—see the Handling of Valuations (not Affecting P/L) for Position Outflows in the Position Management Procedure parameter (see Section 5.3.6). If this parameter is set, the update types for Flows Relevant for Posting When Posting to Position are used.

5.5

Sample Scenarios

The previous sections described the basic principles and processes, including the corresponding position management Customizing. This section uses two sample scenarios to discuss the settings of internal position management in further detail so that the relation between the individual Customizing activities become clear. 1. We describe the Customizing of internal position management for a bond in the Available for Sale holding category. 2. We describe the necessary settings for parallel accounting principles of loans with annuity repayments or installment repayments from the SAP Loans Management module.

5.5.1

Bonds in the "Available for Sale" Holding Category

In this scenario, you want to define the position management for a bond with annuity repayments. For this position, the value changes are shown in the P&L and in the equity capital. You perform an amortization for the ledger position according to the effective interest method. The effects from market price fluctuations are supposed to be posted to the equity capital. The position currency may differ from the valuation currency; you can create an impairment for the position.

Description

Let's start with the Customizing of the amortization procedure. You want to define an amortization procedure for the effective interest method (see Figure 5.68). For this purpose, select the SAC value in the Calculation Category field, define Amortization To End Of Tem for the Amortization field, and include interest by selecting the Effective Interest Method in Accordance with IAS 39 value in the Include

Amortization

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Interest field. Because you select this method, you should also define an interest accrual (see Section 5.4.3, subsection “Amortization”).

Figure 5.68 SAC Net Amortization Procedure According to IAS 39 Security valuation

Unlike amortizations, the price effects for security valuations are posted to the equity capital (see Figure 5.69). You enter a price type and define the Write Up or Write Down to Market Value value for the Write-Up Rule and Write-Down Rule. The Do Not Realize Gains/Losses value in the Gain/Loss Handling field enables you to post the valuation results to the equity capital. In addition, you can select the Clear Gains/ Losses option.

Foreign currency valuation

You also have to set the foreign currency valuation because the position currency may differ from the valuation currency. You need two foreign currency valuation procedures: in the first procedure, you enter the Amortized Acquisition Value value in the Component for Valuation field (see Figure 5.45); in the second valuation procedure, you enter the Book Value value. In the second procedure, gains may not be realized, so define the Do Not Realize Gains/Losses value for the Gain/Loss Handling field.

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Figure 5.69 Security Valuation for Valuation not Affecting P/L

As the last valuation procedure, you maintain the impairment procedure. Here, you select the Reset Unrealized Foreign Currency Valuation and Record FX Impairment parameters (see Figure 5.56).

Impairment procedure

Figure 5.70 displays a section of the position management procedure. The position management category is Securities/Loans/Money Market/Listed Options Normal Style (without index-linked bonds). You can see four valuation steps here. First, you perform the amortization and then the foreign currency valuation of the amortized acquisition value. The results of these first two steps are posted with effects on P/L. In the third step, you post the short-term price effects to the equity capital, and in the last step you additionally post the foreign currency effects to the equity capital.

Position management procedure

For sales, the previous valuations not affecting P&L may have a different direction than the realized gains or losses. Usually, you would have to carry out two profit-related postings, but you can avoid this using the Clear Valuations (not affecting P/L) to Position option (see Figure 5.40) and only post the overall effect on a profit or loss account. You

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should also maintain the Assign Position Management Procedure Customizing activity so that the position management procedure is assigned to the relevant positions when the positions are created.

Figure 5.70 Position Management Procedure for the "Available for Sale" Holding Category (Excerpt) Maintaining update types

In the last step, you maintain the update types. First, you maintain the position change category for the operational update types in the Set the Effects of the Update Types on the Position Components Customizing activity. In addition to the operational update types, you must also assign the update types for the valuation and the derived business transactions. You assign the valuations under Accounting  Key Date Valuation  Update Types  Assign Update Types for Valuation. Here, you maintain the corresponding update types in the Security Valuation, Foreign Currency Valuation, Amortization, and Impairment tabs. In

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addition to the valuation, you must also maintain the update types for the derived business transactions under Accounting  Derived Business Transactions  Update Types  Assign Update Types for Derived Business Transactions. Here, five tabs are relevant: Inflows, Realized Gains, Amortizations, Transfers, and Position Outflows. The Inflows tab is relevant only if you have set the gross procedure as the amortization procedure. The assignment of the update types is the last Customizing step of internal position management for a bond in the Available for Sale holding category.

5.5.2

Loans with Annuity or Installment Repayments

The second example describes the scenario of an implementation of a loan from loans management (SAP Loans Management). It discusses the settings of parallel accounting principles: first the introduction of loans in the Transaction Manager in general and then the settings for internal position management.

Description

Internal position management enables you to manage loan contracts for parallel accounting principles. In the standard scenario, the operational accounting principles are directly managed in the Loans Management, and the parallel accounting principles are then maintained in the Transaction Manager. There are also other scenarios; however, loans management must always manage at least the open items of financial accounting. You can find further information on this in Chapter 6. You integrate loans management with internal position management in two steps. In the first step, you must maintain the necessary Customizing settings. In the second step, you initialize the ledger positions of the individual valuation areas. Chapter 15 contains more details on the initialization.

Loans Management and the Transaction Manager

Customizing in Loans Management Let's start with the Customizing. First, you maintain the general loans management settings with regard to parallel valuation areas under SAP Banking  Loans Management  Basic Settings  Parallel Valuation Areas. Among other things, you can check your settings, implement test

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initializations, or have the system display the initialization date per company code (see Figure 5.71).

Figure 5.71 Loans Management Customizing for Parallel Valuation Areas General valuation class

A critical characteristic for parallel accounting principles is the general valuation class. Every loan contract must be assigned a general valuation class. You can assign the general valuation class per product type using the SAP Banking  Loans Management  Transaction Management  Product Types  Company Code-Dependent Settings for Product Type Customizing activity. This value is then used as the default value for the creation of a new contract. The SAP Customizing  SAP Banking  Loans Management  Basic Settings  Parallel Valuation Areas  Assignment to General Valuation Class Customizing activity enables you to enter the general valuation class in the existing contracts. Finally, you have to define the update types and assign them to the flow types, which you can do in the Customizing under SAP Banking  Loans Management  Transaction Management  Update Types.

Customizing in Internal Position Management General settings

After having defined the loans management Customizing, you can start with configuring the position management Customizing. First, specify in which (parallel) valuation areas loan contracts are supposed to be managed. Loan positions can be managed in all valuation areas except for paying valuation areas. For this purpose, exclude the loans product group from the paying valuation area using the Accounting  Organization  Product Groups/Categories/Types to be Excluded Customizing activity. In addition, you must assign the position change categories to the update types in the Customizing under Accounting  Settings for

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Position Management  Set the Effects of the Update Types on the Position Components. As already mentioned, the installment repayments should be assigned to the Post Repayment (Negative) 1023 position change category (see Section 5.3.1, subsection “Position Change Category and Derived Business Transactions”). Figure 5.72 shows the position management procedure for your scenario. The position management category is Securities/Loans with Installment Repayment (without index-linked bonds) so that the installment repayments can be processed accordingly. There are also two valuation steps: amortization and foreign currency valuation.

Position management procedure

Figure 5.72 Position Management Procedure for Loans with Installment Repayments

Next, assign the position management procedure to the relevant ledger positions. This can be done in the Customizing under Accounting  Settings for Position Management  Assign Position Management Procedure. Here, you can assign the position management procedure on the basis of the valuation area, the product category, or the product type, for example. The position management procedure contains the two valuation steps, amortization and foreign currency valuation. For the amortization of loan positions, two settings are critical (see Figure 5.73). On one hand,

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this is the Amortization to End of Fixed Period setting in the Amortization To field. On the other hand, you cannot select accrued interest adjustment for loans, so you have to either not include interest or select the Effective Interest Method in Accordance with IAS 39 option in the Include Interest field.

Figure 5.73 Amortization Procedure for Loan Positions

The foreign currency valuation is based on the amortized acquisition value, so enter the Amortized Acquisition Value value in the Component for Valuation field (see Figure 5.45). You post the valuation results in P/L. In the last step, you again define the impairment procedure. Enter the Exchange Rate Type and Price/Net Present Value Type parameters and define the Book Rate value as the exchange rate. In addition, activate the foreign exchange impairment. Assigning update types

Finally, maintain the relevant update types for the valuation in the Customizing under Key Date Valuation  Update Types  Assign Update Types for Valuation and the derived business transactions in the Customizing under Derived Business Transactions  Update Types  Assign Update Types for Derived Business Transactions. With the Customizing in SAP Loans Management and in the Transaction Manager, you have successfully set the parallel accounting principles for loan contracts.

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Integration is a very important aspect of SAP software. This applies to SAP Treasury and Risk Management, as well. If you have to decide between using special software from a third-party provider or from SAP, you always have to consider what is more important for you: the availability of specific functions or having a stable integration with other applications that requires less maintenance work.

6

Integration with Other Modules

One of the strengths of SAP Treasury and Risk Management compared to other, similar software applications is that it integrates with other SAP modules. In this context, the integration with the SAP General Ledger (which we’ll also refer to as the G/L) is particularly important. In an SAP system, Financial Accounting is not only responsible for maintaining the General Ledger in the narrower sense, but also for the processing of payments originating from other modules. The close connection between the posting and paying tasks also affects the Transaction Manager. A valuation area must be identified as a paying valuation area. Section 6.1 describes this valuation area. After that, Section 6.2 describes the integration with the General Ledger and provides details related to the task of account determination in different scenarios. Payment processing is then discussed in Section 6.3. In this context, we also describe the option to process payments using the SAP In-House Cash module. Before payments can be processed, however, any Treasury department must first have an overview of the company's current liquidity. The SAP Cash and Liquidity Management module, which, among others, draws upon information provided by the Transaction Manager, provides this kind of information. This module is described in Section 6.4. Institutions of the public sector have special requirements on the management of their short-term and long-term assets. To meet these

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requirements, the business function FIN_TRM_PSM_INTEGRATION offers an integration of the Transaction Manager with the Funds Management (PSM-FM) and Grants Management (PSM-GM) of Public Sector Management (PSM). With this integration, Funds Management and Grants Management are linked with the Transaction Manager via the account assignment objects, fund, and grant. Additionally, the Transaction Manager supports the management of investment pools and investment pool participants. We describe the integration with Public Sector Management in Section 6.5. After all, integration is important for many legally required reports. In the environment of financial instruments, insurances in particular must provide detailed information about their positions.

6.1

Paying Valuation Area

As with SAP systems in general, in the Transaction Manager, the tasks of posting and paying are related. However, the Transaction Manager also allows you to separate posting and paying from each other. The triggering of the payment process fixes the business transaction operationally. During posting, the business transaction changes its status to Posted in the Transaction Manager, and all its flows are unchangeable. This also means that the amounts in local currency are fixed at that moment. We described the procedure for the two processes in Section 6.2.1. Parallel valuation areas

From the G/L perspective, the connection between postings and payments affects the point in time when the amount is converted from the position currency to the local currency, and it is important to consider the consequences of this relation on parallel accounting. In Chapter 5, we outlined that the position management of the Transaction Manager supports parallel accounting principles by means of valuation areas. To do that, position management uses a full approach; that is, a separate document is created for each business transaction in each valuation area.

The paying valuation area

The system, in turn, must ensure that a business transaction leads to only one payment, even if it consists of multiple documents in each accounting principle. For this reason, the Transaction Manager distinguishes one

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valuation area as the paying valuation area. You can trigger payments only from this valuation area. You must specify the paying valuation area once when implementing the Transaction Manager. First, define the valuation areas in Customizing under Transaction Manager  General Settings  Accounting  Organization  Define Valuation Areas. Then, run the RTPM_TRG_SET_ PAY_VAL_AREA report to define the paying valuation area. Otherwise, all valuation areas of the Transaction Manager are completely identical in functional scope. Changing the Paying Valuation Area The paying valuation area is defined once. You can no longer change it subsequently.

The paying valuation area plays a special role in the integration of the SAP Loans Management module. As described in Chapter 5, you can use the position management of the Transaction Manager to map parallel accounting principles. SAP Loans Management creates separate accounting documents in any case. Therefore, you should exclude loans from the paying valuation area in the Transaction Manager in order to ensure that only parallel views are updated here. However, the functional scope of the Loans Management module does not meet all accounting rules, in particular International Financial Reporting Standards (IFRS). This means that, in the case of IFRS as the leading accounting principle, special settings must be made in Loans Management and the Transaction Manager. In this case, Loans Management manages open items only; the Transaction Manager assumes the valuation task, also in the operative valuation area. Consequently, apart from the management of open positions, Customizing for loan contracts in the paying valuation area is similar to other financial instruments.

6.2

Financial Accounting

On one hand, the integration of a treasury system with the General Ledger should enable the synchronization of the data of both applications without much effort. On the other hand, it must ensure the separation

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6

Integration with Other Modules

of the front office and back office. Consequently, the data entries of a dealer must not immediately entail postings in the General Ledger. SAP Treasury and Risk Management ensures both. We describe the posting processes, Customizing of account determination, and the interaction and Customizing between the Transaction Manager and Financial Accounting with regard to parallel accounting principles.

6.2.1

Posting Processes

The separation of the front and back offices requires explicit transactions that can trigger a posting process. In the following subsection, we present these transactions systematically.

Posting Release Let’s start with transaction management. The functions and status transitions of a financial transaction described in Chapter 3, never lead to a posting of data in the General Ledger, although they may change the ledger positions. Certain statuses don't allow any posting action at all in the General Ledger. For example, you cannot post a financial transaction in the "contract" process if a contract settlement is planned, as well. Additionally, you can make an explicit posting release necessary. This means that a second processor must check the flows of a financial transaction before they can be updated in Financial Accounting. This way, you can further stress the separation between front office and back office and introduce additional controls in your Treasury department. Customizing for posting release

If you want to introduce the posting release function as an additional financial transaction processing step, you must specify this in the Customizing section for the transaction type. You can access the Customizing section as follows: Transaction Manager  Money Market/Foreign Exchange/Securities/Listed Derivatives/OTC Derivatives  Transaction Management  Transaction Types.

Performing the release

The actual release can be carried out using the Manual Posting Release transaction (Transaction TI90). You can find it in the menu under Transaction Manager  Money Market/Foreign Exchange/Derivatives/ Commodities/Securities  Accounting  Posting. Figure 6.1 shows this

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transaction after you have entered the company code and financial transaction number. If you are the person who releases the posting, you can select either each flow individually or all relevant flows at once in order to release them for posting. Of course, you can also lock flows that you have already released. The corresponding transaction, Manual Posting Lock (Transaction TI93), is located immediately below the release in the menu.

Figure 6.1 Manual Posting Release Based on the Principle of Dual Control

Posting Transaction Management Flows You can post the flows from the transaction management using the Post Flows transaction (Transaction TBB1). This transaction is located in the menu next to the posting release transaction described in the previous section. As shown in Figure 6.2, the selection criteria allow you to select individual financial transactions as well as—to a certain extent—individual flows of a financial transaction. Let’s take a closer look at two of those selection criteria. You must always enter the due date (Up to and Including Due Date field in Figure 6.2) up to which the flows will be posted. Thus, the payment due date, not the position date, which may differ from the due date, is used as the basis for the posting. The reason for this is that the posting triggers the payment, which may be necessary, and from an operational point of view, that's the more important task of Transaction TBB1.

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6.2

6

Integration with Other Modules

Figure 6.2 Selection Screen of the Post Flows Transaction (Transaction TBB1)

Figure 6.2 also shows the selection of the radio buttons: Pay Only, Post Operative Only, and Post all Valuation Areas, in the Posting control area. This selection depends on the entire process for paying and posting, which is why we discuss the various process options in the following information. "Pay Only" option

If you select Pay Only, you start the payment process; however, there is no posting of the corresponding flows. The benefit of the Pay Only

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6.2

option is that you can start the payment process well ahead of the actual due date. At the same time, however, there are limitations for managing open positions in financial accounting. We discuss the payment process in detail in Section 6.3. The Pay Only option also affects SAP Cash and Liquidity Management. This is outlined in Section 6.4. If you select Post Operative Only, the system creates posting documents only for the paying valuation area and triggers the payment process, if necessary. In all other valuation areas, the respective business transactions change their status to To be fixed. The name of this status indicates that the General Ledger must still be updated. Business transactions with the To be fixed status can no longer be changed; you can only change their status. We describe the transaction for this status— Fix, Post, or Reverse Transactions (Transaction TPM10)—in detail in the section “Posting and Reversing Business Transactions of Parallel Valuation Areas,” in this chapter.

"Post Operative Only" option

If you select the Post All Valuation Areas option, the flows in all valuation areas are fixed. As a result, the posting in all valuation areas is completed.

"Post All Valuation Areas" option

If you want to pay and post at the same time, execute the Post Flows transaction (Transaction TBB1) with the selected options, Post Operative Only or Post All Valuation Areas. Then, the flows are fixed and paid simultaneously. Set the Up To And Including Due Date parameter to the current date.

Paying and posting together

If you want to separate paying and posting, the entire process involves the following steps:

Paying and posting separately

1. Execute the Post Flows transaction (Transaction TBB1) with the Pay Only option. Set the Up To And Including Due Date parameter to the current date plus, for instance, two business days in the future. The system then selects and pays the payment-relevant flows. 2. Execute the Post Flows transaction (Transaction TBB1) with the Post Operative Only or Post All Valuation Areas parameter and with the current date in the Up and Including Due Date parameter. This selects and fixes the flows that are not relevant for payment.

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At the point in time when you want to fix the paid flows, execute the Fix, Post, or Reverse Transactions transaction (Transaction TPM10). Ultimately, only the previously paid flows are fixed. Posting log

Like all posting transactions, the Post Flows transaction (Transaction TBB1) displays a posting log as a result, which is shown in Figure 6.3. The posting log displays the most important information about the documents that were created, and you can adjust its layout. The different pieces of information related to a document are distributed across two different levels. The upper level presents details about the business transaction, such as Posting Date or Reference Number. The lower level includes the line items with additional information on flows. Accounts, document numbers, update types, and information on the position, such as transaction number or ID number, are specified here. In Figure 6.3, a fixed-term deposit and the purchase of securities were posted. As you can see, in OTC transactions, a flow always corresponds to a business transaction, and business transactions often consist of multiple flows if they refer to securities.

Posting journal

The posting log is temporary, which means that the system does not save it. However, you can view all the information provided by the posting log and any other related information at any time using the posting journal (Transaction TPM20). You can find this transaction in the menu under Transaction Manager  Money Market/Foreign Exchange/Derivatives/Commodities/Securities  Information System  Accounting. The posting journal also enables you to store your own display variants. As shown in Figure 6.4, the posting journal consists of line items. The figure shows documents pertaining to a fixed-term deposit in two valuation areas (BB column). The document number (DocumentNo column) enables you to navigate to the General Ledger document. The reference number (Object Key column) allows you to navigate to the G/L document, as well as to other documents in the General Ledger environment, such as cost accounting or special ledgers. If you click the Original Business Transaction button, you can access the respective display transactions for the business transactions. In the example shown in Figure 6.4, that's the transaction management display.

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Figure 6.3 Posting Log

Figure 6.4 Posting Journal (Transaction TPM20)

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Posting and Reversing Business Transactions of Parallel Valuation Areas Reversals

As is the case with postings, the transaction management is also strictly separated from financial accounting in the case of reversals. You can reverse the activities of a financial transaction or individual flows. 왘

Reversing an activity To reverse an activity, you must use the Process Financial Transaction transaction (Transaction FTR_EDIT). To do that, click the Reverse button. When you reverse the activity, the system also reverses all flows connected to it.

왘

Reversing flows You can reverse individual flows by selecting a flow in the Cash Flow tab of a financial transaction and clicking the Edit Mode button (see Figure 6.5). This is possible only for flows from the money market transactions and OTC interest derivatives.

When you reverse an activity or flow, the status of the business transactions of the associated flows changes to To be reversed. The General Ledger is not updated at that point.

Figure 6.5 Reversal of an Individual Flow in Transaction Management Reversing business transactions

You can carry out the reverse posting using the Fix, Post, or Reverse Transactions transaction (Transaction TPM10). You can find this transaction in the Transaction Manager menu under the respective product group in Accounting  Posting. In other words, the transaction is located in the same place as Transaction TBB1. As the name of Transaction TPM10 suggests, it can be used for several purposes. Before we

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go into detail about this, we should complete our description of the reversal process by taking a look at the result provided by Transaction TPM10. To confirm a reversal process, the system displays a reversal log whose structure is similar to that of the posting log shown in Figure 6.3. This log does not contain the reversal document as it is used in financial accounting and which displays amounts with inversed plus or minus signs as compared to the original document. The reversal log instead displays the original line items once again because the Transaction Manager considers the reversal as a new status of the original business transaction.

Reversal log

Figure 6.6 shows the posting journal for a reversed business transaction. It contains the document number of the reversal document (RevDocNo. column) and a reference key for the reversal document (Reversal Key column). The reversal key is displayed only if all downstream components after the General Ledger reverse their documents on the basis of the original reference key. For example, if you use special ledgers without line items, the reversal document does not contain any reference key.

Figure 6.6 Posting Journal for Reversed Business Transactions

Besides reversal, Transaction TPM10 can also be used to post business transactions in the To be fixed status. This includes business transactions that you transferred to the parallel valuation areas in the To be fixed status using Transaction TBB1 if you posted the paying valuation area only. This also includes the flows from the paying valuation area, which you paid but did not post using Transaction TBB1.

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Selection screen of TPM10

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The transaction's initial screen, shown in Figure 6.7, may seem a little confusing. Therefore, we should briefly describe the elements it contains. It is important that you understand the difference between the flags Limit by Transaction Number and Limiting by Subledger Positions. The selection by transaction number enables you to also post or reverse individual securities transactions. If you select the Limiting by Subledger Positions flag, the number of the individual securities transaction is not important. Regarding OTC transactions, it is not relevant where you specify the financial transaction.

Figure 6.7 Selection Screen of Transaction TPM10

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If you check the Including Derived Business Transactions flag, the system posts or reverses the derived business transactions directly linked to the flows from the transaction management that are supposed to be posted or reversed, provided their status is To be fixed. Consequently, this applies to price gains resulting from the sale of securities or repayments in money market transactions. If you don't check this flag, you must call Transaction TPM10 once again in order to post the derived business transactions. If you select the business transactions based on the subledger positions, the Including Derived Business Transactions flag is irrelevant and the system posts the derived business transactions. Posting Derived Business Transactions Using Transaction TPM10 If you do not post the derived business transactions when calling Transaction TPM10 for the first time, you must always select the transactions by the subledger positions when you call Transaction TPM10 afterward. The selection by transaction number would not provide any results in that case.

The Business Transactions to Be Fixed/Posted and Bus. Transactions to Be Reversed flags allow you to turn the call of Transaction TPM10 into a pure posting or reversal run. In Section 5.3.7, we described three different options for calculating derived business transactions. These options result from useful combinations of values of the parameters, On/Offline and Status control, in Customizing under Transaction Manager  General Settings  Accounting  Derived Business Transactions  Control of Processing of Derived Business Transactions. Each of these options is connected with a different posting transaction: 왘

"Online" and "Same Status" Like the original business transactions, the derived business transactions pass through the To be fixed status and must be posted using Transaction TPM10.

왘

"Online" and "Status of Plan" Derived business transactions remain in the Planned status. For posting purposes, you must use the Fix and Post Derived Business Transactions transaction (Transaction TPM18). You can find this transaction by selecting the following path from the menu: Transaction Manager 

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Posting derived business transactions

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Securities/Money Market/Foreign Exchange/Derivatives/Commodities  Accounting  Derived Business Transactions  Post and Fix. 왘

"Offline" and "Same Status" The Refresh Derived Business Transactions transaction (Transaction TPM27) enables you to generate or update these business transactions. Transaction TPM27 can also post or reverse business transactions in accordance with the status of the original business transaction. You can find this transaction in the menu in the same place as Transaction TPM18. Derived Business Transactions in the Context of OTC Transactions You must always use Transaction TPM18 in order to post derived business transactions for foreign exchange transactions and OTC derivatives, even if you use the Online and Same Status function.

Postings from Position Management The derived business transactions now lead us away from transaction management toward position management. These business transactions are the result of internal position management, which is a back-office component. Note that many functions related to external position management are also part of the back-office area. In Chapter 5, Section 5.2, we described the respective transactions, such as: 왘

Manual debit position and automatic debit position (Transactions FWZE and FWSO) of condition-based flows for class positions in securities accounts

왘

Margin postings (Transaction PMVM) for listed derivatives

왘

Manual postings for securities (Transaction FWBS) and listed derivatives (Transaction TPM35)

All of these transactions have one thing in common: they also carry out postings; that is, they perform updates in financial accounting. Because the respective tasks are back-office tasks, they don't need to be separated from the financial accounting area. Note that manual postings represent an exception to that; as for securities, this transaction can be executed without posting to the General Ledger. In that case, the business

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transaction is created with only the Planned status and must be posted with the debit position. In the context of corporate actions and rights, the execution of a right or corporate action always involves a posting. With regard to rights, this procedure represents a restriction because the execution is not the sole responsibility of the back office.

Rights and corporate actions

Finally, internal position management also contains the important functions, key date valuation, and transfer postings. All transactions linked to these two functions directly update financial accounting; that is, they create business transactions with posted or fixed statuses. From a business point of view, the process of updating the financial accounting data represents the core task of these two functions.

Key date valuation and transfer posting

6.2.2

Account Determination

All posting transactions of the Transaction Manager merely require you to specify the business transaction to be posted. You do not need to specify in detail how the financial accounting data is supposed to be updated, that is, which accounts are affected by the transaction. That can be done in the Customizing section of account determination. The integration with the General Ledger is the sole responsibility of the position management of the Transaction Manager.

Account determination

Although it is technically possible to operate the SAP Treasury and Risk Management module as a pure subledger without any integration with the G/L, that shouldn't really be an option for you. However, you may want to have a specific view of your internal positions that does not correspond to the financial accounting standards that are relevant to you but does meet your reporting and controlling requirements. In that case, it is useful to create a valuation area that is not integrated with the General Ledger. You can make this decision at the following location in Customizing: Transaction Manager  General Settings  Accounting  Organization  Assign Accounting Codes and Valuation Areas (see Figure 6.8). The Posting field in the Data Transfer to Accounting area enables you to define for each accounting code and valuation area whether the business transactions are supposed to be updated to financial accounting. The settings in the upper part of this screen area were

Statistical subledger

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described in detail in Chapter 5, Section 5.3.2. All other settings are discussed in Section 6.2.4 to Section 6.2.6.

Figure 6.8 Assigning the Valuation Area to the Accounting Code Account assignment reference

The most important influencing factor in account determination is the account assignment reference. Basically, it is a placeholder for the influencing factors according to which you want to distinguish your accounts, in particular your position accounts. Thus, it represents the level of detail by which you want to present the financial instruments in the General Ledger. You should configure the account assignment references in such a way that they meet your specific requirements regarding different position accounts in the General Ledger. Typically, you must use a higher number of position accounts than what is required in the profit and loss statement (P&L). It is not advisable to encrypt additional information in the account assignment references. If you do, your account determination can quickly become confusing. In contrast to previous releases, you no longer need to do that anyway, because you can at least use the TPM_ACCIF_TRAC BAdI for almost all account assignments you want to include in your postings (see Chapter 13). You can define account assignment references in Customizing by selecting Transaction Manager  General Settings  Accounting  Link to Other Accounting Components  Define Account Assignment References.

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The account assignment reference is the placeholder for the factors that really influence account determination. Consequently, it is essential that you find the required account assignment reference. To do that, the Transaction Manager Customizing uses the derivation tool. You can find this tool in Customizing via the following path: General Settings  Accounting  Link to Other Accounting Components  Define Account Assignment Reference Determination. This function is available for securities and listed derivatives, OTC transactions, and loans. The distinction of these three areas is based on the different influencing options that are available to you. Regarding securities, you can choose from a wide range of influencing factors. Chapter 15 includes details about using the derivation tool.

Finding the account assignment reference

Maintaining the Account Assignment Reference Manually You can maintain the account assignment reference manually in the position indicator. Additionally, you can use the Assign Account Assignment Reference transaction (Transaction TPM3). With this transaction, you can assign the account assignment reference for various positions in collective processing.

Once you have defined the account assignment references and their determination, you can begin with the actual account determination process in Customizing. You can find the relevant settings by selecting Transaction Manager  General Settings  Accounting  Link to Other Accounting Components  Define Account Determination. As you can see in the left-hand section of Figure 6.9, you must maintain several settings that are based on one another.

Figure 6.9 View Cluster of Account Determination with Selected Definitions of Account Symbols

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Account symbol

Posting category

First, abstract from the actual accounts and define account symbols (Definition of Account Symbols). An account symbol describes a class of accounts. Figure 6.9 contains several examples to clarify this: 왘

Account symbol 1: Position (book value)

왘

Account symbol 3: Bank clearing

왘

Account symbol 4.1.1: Interest received

The account symbols are assigned posting categories. You can also see some of the posting categories in Figure 6.9. The predefined posting categories in the system allow you to make basic statements about the account that is yet to be assigned. Therefore, you should set the posting category for each account with special care, as the system reacts to each posting category. The following posting categories are available for selection: 왘

Position posting (book value) in position currency Use this posting category for all postings that affect the book value of a position. The system ensures that the entire book value is included in the case of account assignment reference transfer postings. Note that the system always uses the position currency as the transaction currency.

왘

Subledger posting This posting category enables you to specify that you want to carry out a posting to a customer account, that is, that you want to process your payments via the customer subledger. This type of posting is always carried out in the payment currency.

왘

Bank posting in payment currency This posting category should be used for all payment-relevant parts of your postings. This can involve the creation of a payment request or the use of the bank clearing account of your house bank account.

왘

Profit-related posting You should use this posting category for postings that affect the profit and loss statement. This is the only posting category for which the system provides a cost center by default. Regarding profit-related postings, the following two posting category additions are available: in position currency and in payment currency.

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왘

Other G/L posting This posting category should be used for all postings to the balance sheet that do not affect the book value. In addition to posting category position posting, you can also transfer these balances to a new G/L account by using the account assignment reference function. Again, there are two additions to the posting categories available: in position currency and in payment currency.

왘

Currency swap To be able to find a currency swap account for postings with different positions and payment currencies, you need exactly one account symbol of this posting category.

You can use the account symbols to define an abstract posting logic, which represents the second step in Figure 6.9—the definition of posting specifications. The posting specification describes the debit and credit components of a posting. In addition, it contains information that's required by the General Ledger in order to generate a document. Figure 6.10 shows an example of a posting specification. For the account symbols of the debit and credit sides, the system displays the relevant texts and posting categories.

Posting specification

Figure 6.10 Definition of a Posting Specification

In the context of the posting categories, we mentioned the additions, in position currency, and in payment currency, with regard to profitrelated posting. The posting specification shown in Figure 6.10 contains

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account symbols with these two additions. Let’s take a look at an example to see what happens if two different currencies are used. Example of currency swap

Let's suppose you buy a bond issued in Swiss Francs (CHF). Consequently, the position currency is CHF. However, you agreed with your house bank, which processes the purchase, that the payment will occur in US dollars. Therefore, the payment currency is USD. The posting related to this purchase should affect the account for bond positions and the bank clearing account. However, the two sides of this posting would have to be based on different currencies, which would not be permitted by SAP General Ledger. The solution to this problem consists of a socalled currency swap. For this purpose, an intermediate clearing account is used, and the posting is split up into two documents. One document debits the position account and credits the clearing account in position currency, while the second document debits the clearing account and credits the bank clearing in payment currency. Thus, the clearing account is posted to in different currencies, and the balance of the clearing account is always zero in the local currency. This example shows that it is necessary to disintegrate the posting records of individual flows, as well as the need for the currency swap posting category. You don't need to enter the account symbol with this posting category into any posting specification. The system detects by itself whether a posting record needs to be split up. You must carry out currency swaps whenever you use different position and payment currencies and both currencies are included in the posting specification of a flow. Payment and Position Currencies with Posting Categories When assigning posting categories to account symbols, pay particular attention to the additions you use. Especially with regard to postings to profit and loss or other G/L accounts, you should carefully determine which currency you want to use. In particular, you must take into account the definition of the position currency in the context of OTC derivatives and foreign exchange transactions (see Chapter 5, Section 5.3.5).

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Let’s now return to the other pieces of information you must specify in Figure 6.10. At the posting specification level, you must specify a document type. The document type represents a concept used in SAP General Ledger in order to classify documents. The document type is closely linked to the document number assignment process. Furthermore, a document type can either permit or prohibit postings to the customer subledger. In the sample customizing, you can find a standard document type for documents from the Transaction Manager. You may want to create a separate document type for treasury documents that enables you to quickly identify the origin of documents in the General Ledger.

6.2

Document type

Document Types and Business Transactions Each business transaction in the Transaction Manager should correspond to a document in the General Ledger. In the context of a currency swap, separate documents for each currency cannot be avoided. However, if two flows of a business transaction have posting specifications with differing document types, the system creates a separate document for each document type for this business transaction, which is unwanted. Therefore, do not use too many document types for account determination in the Transaction Manager, and make sure that update types that may occur in the same business transaction have posting specifications with identical document types.

Ultimately, you must specify a posting key for both debit and credit entries, as shown in Figure 6.10. Like the document type, the posting key represents a concept used in SAP General Ledger. A posting key classifies a line item. You must specify whether the posting is a debit or a credit and whether you want to post to a General Ledger account or to a subledger account. The posting key enables the General Ledger to carry out consistency checks for the information that's contained in the line item. Note that the system does not perform a consistency check between the posting key and the posting category of the account symbol.

Posting key

Then, you must assign the posting specifications to update types. As shown in Figure 6.9, you can do that at two different levels: regardless of the valuation area (Assignment of Update Types to Posting Specs) or depending on the valuation area (Valuation Area  Assignment of

Posting specifications and update types

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Update Types to Posting Specs). When you make a posting, the system always checks whether an assignment exists for a specific valuation area. Only if no posting specification is available at that level will the system use the posting specification that is independent of the valuation area. Figure 6.11 shows this type of assignment. As you can see in the figure, both the update type (Update Type column) and the payment transaction (P column) are key fields. Enter this information in the payment details in order to trigger a payment via the customer subledger (see Section 6.3.1). Because you can process payments with this update type via the customer subledger in one instance but not in another instance, it must be possible to address the account determination correspondingly.

Figure 6.11 Assigning the Posting Specifications to Update Types

Assigning Update Types to Posting Specifications In general, we cannot give you any universal recommendation on whether or not the assignment of posting specifications to update types should depend on the respective valuation area. However, we will go into further detail about both options when we discuss the different options of mapping parallel accounting principles in the General Ledger (Section 6.2.4 through Section 6.2.6). Account symbols and accounts

Up to this point, we have defined an abstract posting logic and assigned that logic to the update types and, hence, to the flows. What is still missing now is the specification of actual G/L accounts. To do that, you must assign G/L accounts to the account symbols in the final step of Figure 6.9, Assignment of G/L Accounts to Account symbols. This is shown in Figure 6.12.

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Figure 6.12 Assigning Accounts to Account Symbols

In order to render the abstraction useful, the assignment depends on several parameters. These include: 왘

Chart of accounts Of course, an account is defined only within a chart of accounts.

왘

Valuation area If you map the parallel accounting principles in the General Ledger by using different account number ranges or special ledgers, you must use this dependency. Otherwise, leave this column blank.

왘

Currency Depending on the currency that's relevant to the account symbol— the position or payment currency—you can post to other G/L accounts as well.

왘

Account assignment reference Here, the account assignment reference is actually relevant as the level of detail of the positions in the General Ledger. Especially with regard to position postings, you must always assign the account symbols to a G/L account on the basis of the account assignment reference.

You don't need to enter any data in the Valuation area, Account assignment reference, or Currency columns. The system tries to determine the respective entries in such a way that it first ignores the currency, then the account assignment reference, and finally, the valuation area of the flow to be posted. At this point, you must maintain the replacement by G/L accounts for the majority of account symbols. However, account symbols for bank postings are an exception because you already specify the related G/L account when you create a house bank account. If you want to post to

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Masking bank clearing accounts

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that account, you do not need to make any entries for the corresponding account symbols. However, most of the time, it is not the house bank account that's supposed to be posted to, but a bank clearing account that has been assigned to it. Not until the bank statement is available or the payment has arrived (for securities) will the house bank account be posted to. The numbers of bank clearing accounts are usually assigned to the bank account numbers on the basis of a specific schema. Typically, these numbers differ in only one place. In that case, you can use a masking for the bank clearing account in account determination, as you can see in Figure 6.12. For all places of the bank account number that you want to copy, you can enter a "+" sign so that you only need to specify the deviating places. The masking shown in Figure 6.12 means that the last place is supposed to be replaced with the number 5. Masking for Bank Clearing Accounts You should ensure that you enter all 10 possible places of the account number. If necessary, you can use the + sign. Otherwise, masking doesn't work. Postings to customer accounts

For account symbols of the subledger posting category, you don't need to enter a G/L account, either, because accounts receivable accounting is closely integrated with the General Ledger. The master data of a customer contains the G/L account to which the receivables are supposed to be posted. This account is also referred to as a reconciliation account. In Financial Accounting, you merely need to enter the customer number for postings and related payments. The system then derives the reconciliation account by itself. Consequently, the account determination function of the Transaction Manager requires you to specify an account for a subledger posting account symbol only if you want to post to a different reconciliation account.

Overview of account determination

In summary, we have now reproduced the account determination for update types to G/L accounts using posting specifications and account symbols. Customizing contains the RTPM_TRAC_DFTACCREP report that displays the two accounts that have been posted to for each update type. You can find this report via the following path: Transaction Manager  General Settings  Accounting  Link to Other Accounting Components  Overview List of Update Types and Assigned G/L Accounts. The fact that each update type is assigned two accounts shows that doc-

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uments in the Transaction Manager always contain an even number of line items. The Transaction Manager does not allow you to compress documents, for example, by aggregating line items that post data to the same accounts. For transaction management, there is one exception: you can compress the flows of transaction management in one derived flow and update this derived flow only in Financial Accounting. The original flows are fixed, but not updated in Financial Accounting. SAP Note 1703542 describes this situation. Having a posting specification assigned to an update type is not yet sufficient to generate a document. In addition, you must specify the update type as being relevant for posting. To do that, select the following path: Transaction Manager  General Settings  Accounting  Link to Other Accounting Components  Indicate Update Types as Relevant to Posting. You can do that for each valuation area. As usual, entries without a specific valuation area apply to all valuation areas that didn't specify an explicit entry. If you forget to assign a posting specification to a flow that is marked as posting-relevant, the system displays an error message when you attempt to carry out a posting.

Posting-relevant update types

In addition to individual update types, you can also exclude entire product types from being updated to financial accounting. This can be done in the TRACV_POST_REL view that you can only maintain using the View Maintenance transaction (Transaction SM30).

Product types relevant to posting

You can add some account assignments of the General Ledger to the Transaction Manager postings using Customizing. To do that, you must store a business area and cost center for each company code and account assignment reference in Customizing by selecting Transaction Manager  General Settings  Accounting  Link to Other Accounting Components  Allocate Additional Account Assignments to Account Assignment References. The system writes the cost center only to line items with posting category profit-relevant posting.

Setting additional account assignments

Furthermore, you can derive further additional account assignments with the derivation tool. For this purpose, you define your derivation rule in Customizing under Link to Other Accounting Components  Additional Account Assignments  Define Derivation of Additional Account Assignments. If the functions of the derivation tool are not

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sufficient, you can also use Business Add-Ins (BAdIs) for derivation. You can find them under Link to Other Accounting Components  Additional Accounting Assignments  Business Add-Ins (BAdIs)  Derivation of Additional Accounting Assignments. Consider the notes on implementation which you can find under this Customizing path, as well.

6.2.3

Parallel Accounting Principles in Financial Accounting

Now that we have described the account determination process in the Transaction Manager, we want to draw your attention to the specifics of the interaction between the Transaction Manager and SAP Financial Accounting. New General Ledger

In addition to what is now referred to as the classic General Ledger, SAP provides a New General Ledger. To obtain a detailed overview of New G/L, please refer to the book, New General Ledger in SAP ERP Financials by Eric Bauer and Jörg Siebert (SAP PRESS 2010). At this point, we want to point out three particular characteristics: 왘

Extensibility New G/L allows you to include custom fields in the regular General Ledger reports, particularly in the balance sheet. This degree of flexibility was previously available only in the special ledgers. The necessity to use custom fields has probably been lessened with the introduction of the New General Ledger because SAP ERP 6.0 has included some parameters in the standard version, such as the segment or profit center, which previously hadn't been available at the balance level.

왘

Document splitting In New G/L, you can also create balance sheets below the company code level. If you want to do that, all documents are split during posting in such a way that their balance equals zero within the relevant parameter, for example, within a segment.

왘

Parallel accounting principles New General Ledger supports the use of parallel accounting principles in that it provides parallel views of the same accounts, the socalled parallel ledgers.

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The first two of the above aspects do not play a major role concerning the interaction with the Transaction Manager. However, the third new feature, namely, the support of parallel accounting principles by different ledgers, is extremely important for the integration with the Transaction Manager if you need to support several accounting principles. Because the entire internal position management architecture was designed for using parallel accounting principles, this can be seen in particular if you take a look at the interface to the General Ledger. As long as you need to base your reporting on only one accounting principle, the following sections up to Section 6.3 can be regarded as additional information that you don't need to apply in your daily work. In principle, SAP Financial Accounting provides three different options to implement parallel accounting principles: 왘

Accounts approach The accounts approach enables you to extend your chart of accounts with accounts that can be used only in one specific accounting principle.

왘

Ledger approach The ledger approach provides different views of the same accounts, depending on the accounting principles you use.

왘

Company code approach The company code approach maps different accounting principles by means of different company codes. Although this solution offers the highest degree of flexibility with regard to meeting different requirements in the different accounting principles, it involves very complex customizing work and requires you to carry out many manual data duplication processes in your daily work. Because the Transaction Manager does not support this type of scenario, we won't go into further detail on it in this book.

Let’s now take a closer look at the two remaining options. The accounts approach is based on the assumption that the differences between different accounting principles affect only a small number of accounts. Perhaps options provided in the different accounting principles can be chosen in such a way that the number of differences between the accounting principles remains relatively small. In that case, it is enough

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Parallel accounting in the General Ledger

Accounts approach

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to create accounts for those aspects in the chart of accounts that are relevant for only one accounting principle. The left-hand part of Figure 6.13 illustrates this. You can implement the accounts approach in both the classic General Ledger and New G/L.

GCC Special Accounts GCC

Special Accounts IFRS

Shared Accounts

Account 1 100 14

IFRS Account 1 105 12

Account Solution Ledger Solution

Account 2 280 195

Figure 6.13 Accounts Approach vs. Ledger Approach

This approach is useful if the differences occur only in the context of closing operations in order to prepare financial statements, but not in the daily operations of a company. In closing operations, you can easily include different accounts because those operations are usually carried out separately in accordance with each accounting principle. This distinction holds true for all processes in SAP Treasury and Risk Management. The internal position management automates the implementation of different accounting principles or valuation areas. Note, however, that the situation can be entirely different with regard to postings from other areas of your enterprise. If the prerequisites described here do not apply, the accounts approach is not an option for you. Ledger approach

The ledger approach represents an analogy to the valuation areas of the Transaction Manager; that is, it completely duplicates the postings of all processes. Each ledger represents a complete view of the accounting system in your company. This situation is illustrated in the right-hand part of Figure 6.13. This type of procedure makes sense when the accounting principles you apply differ substantially and the number of accounts

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whose balance does not depend on the underlying accounting principle is relatively small. It has been possible to implement the ledger approach for quite some time using the so-called special ledgers. Typically, you have one "leading" accounting principle. In this context, the word leading means that there's one accounting principle that represents the preferred view of the company. From a technical point of view, it describes the accounting principle that must be integrated with Controlling. The "leading" accounting principle is mapped in the classic General Ledger. All other accounting principles are mapped in special ledgers.

Using special ledgers

Mapping parallel accounting principles using special ledgers has several disadvantages. For special ledgers, you must use different transactions for reporting than in the General Ledger. If you need to carry out manual postings, you must also use different transactions, which you are probably not so familiar with compared to those used in the General Ledger. In addition, auditors might have some reservations against the special ledgers because in Customizing you can allow posting of documents in these ledgers for which the balance does not equal zero. In general, the system performs fewer consistency checks for postings. On the other hand, the special ledgers also have some advantages. They are very flexible. For example, you can include custom fields in the line item and balance tables without a problem. If necessary, you can also use different charts of accounts in the different ledgers.

Pros and cons of special ledgers

The New General Ledger allows you to implement the ledger approach in the General Ledger as well. The most important advantages of the special ledgers are also available in the General Ledger. The posting and reporting transactions to be used are the ones you already know from the General Ledger. Of course, small changes had to be implemented, for example, to enable you specify the ledger for a document.

Using New G/L

It still happens that documents have the same structure in all accounting principles, that is, in all ledgers. You can also enter documents that may be used in all ledgers. What’s more, documents that create open items, such as all payment documents, must be valid for all ledgers. The requirement to be able to enter cross-ledger documents also involved a

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certain limitation for the New G/L: all ledgers must use the same chart of accounts. Essential Customizing aspects

Defining accounting principles

Regardless of the approach you opt for, you will not notice anything related to the chosen approach when working with SAP Treasury and Risk Management because you always manage a valuation area for each accounting principle. The only settings you must change affect three Customizing activities: 왘

To a certain extent, you must define accounting principles in the General Ledger and assign ledgers or ledger groups to them.

왘

When linking a valuation area to an accounting code (see Figure 6.8), you must enter additional information.

왘

The account determination process itself is slightly different, particularly with regard to the last two steps in Figure 6.9.

You can define accounting principles in the Customizing section of the General Ledger under Financial Accounting  Financial Accounting Global Settings  Company Code  Parallel Accounting  Accounting Principles and Additional Ledgers  Define Accounting Principles for the General Ledger, or Financial Accounting (New)  Financial Accounting Global Settings (New)  Ledgers  Parallel Accounting  Define Accounting Principles for the new General Ledger. Immediately under that, you can find the assignment of ledgers or ledger groups to accounting principles. Figure 6.14 shows the definition of accounting principles.

Figure 6.14 Definition of Accounting Principles

In addition to these settings that are directly related to the integration between the Transaction Manager and Financial Accounting, there are, of course, other differences within the General Ledger. However, these differences are not the topic of this book. We want to just briefly mention the different scenarios for the Transaction Manager.

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Customizing Check In Customizing, you can find the RTPM_TRL_CUSTOMIZING_CHECK report that checks the account determination and several other position management settings. To access this report, select the following path: Transaction Manager  General Settings  Accounting  Check Customizing Settings. This report also helps you to avoid serious errors in the different scenarios of integration with the General Ledger.

6.2.4

Customizing the Accounts Approach

If you use the classic General Ledger, you don't need to define accounting principles. However, if you want to assign them anyway, you must not assign any ledgers to the principles. In this case, postings from the Transaction Manager will then be carried out in the General Ledger. If you use the accounts approach in New G/L, you must define accounting principles, as shown in Figure 6.14, that must be assigned to the only ledger group you have.

Defining the accounting principle

Once you have defined accounting principles, you must assign them to the valuation area, which is shown in Figure 6.15, in Customizing. Use menu path Transaction Manager  General Settings  Accounting  Organization  Assign Accounting Codes and Valuation Areas. You can either leave the currency category blank or enter the company code currency.

Setting for the valuation area

Figure 6.15 Valuation Area – Additional Data under Accounts Approach

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Account determination

In the account determination, you must then maintain the differences between the accounting principles. This affects almost exclusively the assignment of accounts to account symbols. You must assign different accounts for each account symbol, depending on the valuation area, which, of course, corresponds to the respective accounting principle. This applies primarily to the balance sheet accounts and some accounts of the profit and loss statement, which generally differ in the different valuation areas.

Payment without customer account

Note that you must also enter different settings for the account symbols of bank postings. Although those accounts belong to the group of accounts that apply to all accounting principles, a separate document is created in the Transaction Manager for each accounting principle. Ultimately, for your financial statement, you only need those documents from the parallel valuation areas that do not affect the bank or bank clearing accounts. Consequently, you must post the bank postings for all valuation areas except the operative valuation area to accounts that are not included in the balance sheet.

Assigning the posting specification to the update type

In general, you don't need to use the option to assign different posting specifications to the update types depending on the respective valuation areas. You should do that only if you need to assign different posting specifications to an update type because it must be posted in a completely different way. An example of this is fees that must be capitalized in one valuation area and posted as an expense in another.

Customer payment

Even if you process your payments through the customer subledger, you must enter different settings for the affected update types with regard to each valuation area. As is the case with bank postings, you may want to post only once to the customer subledger. In order to avoid having additional valuation areas create additional open items, you must assign posting specifications to them that post to a G/L account instead of the customer account. The G/L account, in turn, must not be included in the financial statement. Consequently, you shouldn't use an account symbol for subledger postings for the payment side of the document. Not Posting Business Transactions Some business transactions, such as interest payments, are frequently posted in a similar way in different accounting principles. Consequently, one might

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think that it makes sense to post this type of business transactions in only one valuation area and to mark the associated update types in other valuation areas as not relevant to posting. You should not do that. Position management is designed in such a way that each valuation area contains the full amount of information, including posting information. A deviation from that may lead to problems in reporting. It will certainly make your work more difficult regarding the obligation to provide the financial authorities with digital information (see Chapter 14).

6.2.5

Customizing Options for the Ledger Approach in New G/L

In order to implement a ledger approach using the Transaction Manager, you must define the relevant accounting principles (see Figure 6.14). Then, assign ledger groups to the accounting principles. Enter the accounting principles in Customizing under Transaction Manager  General Settings  Accounting  Organization  Assign Accounting Codes and Valuation Areas (see Figure 6.16).

Figure 6.16 Valuation Area – Additional Data under Ledger Approach

Paying Valuation Area and Leading Ledger Note that you must assign the paying valuation area to the accounting principle that contains the leading ledger. Only then can you process the payments from the SAP system. Payments are always related to open items, which—in New G/L—can be created only by documents that are valid in all ledgers. Because the Transaction Manager always creates documents for each ledger,

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the exception applies that the open item may be created together with the document for the leading ledger. In the Transaction Manager, in turn, payments are linked to the paying valuation area (see Section 6.1). Currency category

In most cases, the company code currency is the currency category. In some scenarios, however, the valuation currency differs from the company code currency. This usually involves a group currency or hard currency. In these cases, limitations that concern the update in Financial Accounting apply. That's why the system prevents this setting with the error message “Currency Category is not supported” (TPM_TRG 219). Currency Category Differs from Company Code Currency You can transform the error message “Currency Category is not supported” (TPM_TRG 219) into a warning. In doing so, consider the limitations for the update in Financial Accounting. Particularly, the Transaction Manager can update only one currency. So, even if the corresponding ledger manages several currencies and Financial Accounting converts the amounts to the other currencies, the documents from the Transaction Manager are relevant in one currency only. This has business reasons; for example, the foreign currency effects cannot be converted directly. For more information on this scenario, refer to the long text of the error message, TPM_TRG 219.

Account determination

The great advantage of the ledger approach is that it allows you to have different balances in the same account, depending on the accounting principle, that is, valuation area. Consequently, the account determination process does not differ greatly between the valuation areas. It is virtually never necessary to assign different accounts to account symbols in different valuation areas. The only thing you may need to do is assign different posting specifications for individual valuation areas to some update types.

Payment without customer account

In contrast to the accounts approach, you don't need to enter any settings that depend on the different valuation areas for postings to bank or bank clearing accounts. These postings must be performed in every ledger so that the General Ledger shows a balance in each of the ledgers. Because this type of posting does not depend on the valuation area, they always have the same balance.

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Again, the payment process through the customer subledger deserves particular attention. Here, the document from the operative valuation area creates an open item in the subledger and changes the balance of the reconciliation account in the General Ledger, but only for the leading ledger. In the parallel ledgers you then need documents that change the balance of the reconciliation account but do not create any additional open items in the subledger. You can achieve this by assigning posting specifications with the following characteristics to the relevant update types in the parallel valuation areas: 왘

The document type must be suitable for G/L account postings, not for postings to customer accounts.

왘

The account symbol for the side of payment must be one of the subledger postings; that is, you must use the same account symbol as the one you use in the posting specification of the operative valuation area.

Customer payment

Apart from the cases in which update types are posted in entirely different manners in different valuation areas, such as the capitalized or noncapitalized fees mentioned earlier, the account determination in New G/L is not very complex because, to a certain extent, it does not depend on the valuation area.

6.2.6

Customizing the Ledger Approach with Special Ledgers

In many aspects, the customizing process of the ledger approach with special ledgers is similar to the ledger approach in New G/L. First, you must define accounting principles as well. Then you must assign a special ledger to each of the accounting principles.

Defining the accounting principle

The accounting principles, in turn, must be assigned to the valuation areas of the Transaction Manager (see Figure 6.8). The paying valuation area represents an exception in this context. This valuation area must be linked to the classic General Ledger in order to enable you to trigger payments. To do that, you can leave the Accounting Principle field blank (as shown in Figure 6.15) or enter an accounting principle that is not assigned a special ledger.

Setting for the valuation area

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Currency category

The special ledgers provide additional flexibility regarding the updated currencies. Whereas, in the General Ledger, the company code or local currency is almost always updated, you can omit this in the special ledgers and use only the transaction and group currency, for example. This type of scenario also allows you to select a valuation currency for the specific valuation area, which is not the local currency. In the example, that's the group currency. If you want to do that, you must specify the currency category, as shown in Figure 6.8, and select the group currency or a hard currency, for example.

Account determination

Regarding account determination, the situation is very similar to what we described in the context of the ledger approach in New G/L. However, in the parallel valuation areas—that is, in those valuation areas which post to special ledgers—you must treat payment-relevant parts in a different way. Among other things, the procedure depends on whether and how you transfer the follow-up processes after the payment, for example, the account statement, to the special ledgers. Besides this approach, it often happens that the special ledgers are supposed to reflect only the most essential aspects and that the various postings involved in the payment process are neglected. In that case, you must configure the account determination in such a way that bank accounts instead of bank clearing accounts or customer reconciliation accounts are posted to on the side of payment. You can also use custom charts of accounts for the special ledgers. Of course, in that case, the account determination processes would significantly differ depending on the valuation areas. However, you should then try to limit the differences to the assignment of accounts to account symbols. Also, note that the chart of accounts, which you must specify in the initial screen of account determination, only refers to this assignment of accounts to account symbols, not to the definition of posting specifications or account symbols.

6.3

Processing Payments

During the course of this chapter, we have mentioned the word payment again and again. The reason for this is that payments are closely related

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to the process of posting. Therefore, we now want to take a closer look at payment processing and pay particular attention to aspects that are not so closely linked to update processes in financial accounting. In some countries, the treasury departments of companies don't need to carry out active payment processes when performing financial transactions with a house bank. The house bank can credit or debit defined bank accounts and the treasury department merely needs to check the bank statements for accuracy. This holds particularly true for incoming payments, which may even be related to financial transactions with other business partners than the house bank.

Incoming and outgoing payments

Nevertheless, it can make sense to process incoming payments, as well, through one of the payment programs provided by SAP. It is one of the primary tasks of those payment programs to net payments, that is, to group payments between similar bank accounts, regardless of whether these payments are incoming or outgoing. This way, you may be able to save some bank fees and reduce the work and time involved in checking the bank statements.

Payment programs

From the point of view of the treasury department, the process of an active payment is relatively uniform, no matter which of the three methods that are described in the following sections you choose.

Payment process

1. Post the respective flows from within the Transaction Manager or start the payment process using the Pay Only parameter in the Post Flows transaction (Transaction TBB1). 2. Call a payment program. The payment program combines payments in the best possible way and starts the communication with external parties. This may involve the direct dispatch of messages to banks or the printing of payment media that must be sent to a bank or other business partner. Typically, this step is linked to a posting that credits the account that was previously debited and, in turn, debits a bank clearing account. 3. The bank statement represents the confirmation of the payment and is therefore the means of communication from external parties into the company. However, the bank statement is not automatically fed back into the Transaction Manager. If a payment differs from what

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you expected at the time of posting, you must correct the business transaction manually. When the bank statement is posted, the bank clearing account is credited, while the bank account is debited. In the next sections, we describe three options to process payments from SAP Treasury and Risk Management.

6.3.1 Payments via the customer subledger

Customer Subledger

Most of the other components of the SAP system use the customer or vendor subledger for triggering payments. As already mentioned, these subledgers are closely related to the General Ledger. Instead of G/L accounts, you merely need to specify the subledger account—that is, the customer or vendor number—for the side of payment of the posting. This method is very convenient when you have to enter documents manually. Moreover, one of the big advantages of these two subledgers is that they enable you to create dunning notices when payments are delayed. For a typical treasury department, this feature plays only a very minor role, if at all, because the treasury department almost exclusively deals with banks. Because a treasury department deals with money, as it were, a financial transaction almost always involves cash flows in both directions. Consequently, the same business partner acts as vendor and customer. Therefore, it is not very useful for the processes in treasury to separate the two subledgers. Incoming and Outgoing Payments via the Customer Subledger The Transaction Manager supports payments through only the customer subledger, not the vendor subledger. The business partner must be linked to a customer account for both incoming and outgoing payments. The system benefits from both subledgers’ ability to handle credit memos.

Controlling a payment

The Transaction Manager supports your decision whether you process a payment via the subledger or wait for the bank statement. In the Control area of the Payment details tab, select the Posting to customer radio button, as shown in Figure 6.17. After that, the system offers the Repetitive Code and Payment sections with their input fields. These fields allow you to specify a payer/payee that differs from the counterparty or

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issuer. In addition, you must specify the bank details of that partner (Partner bank field) and the payment method. If you set the Posting to customer flag, the system selects the posting specification in the account determination, which is stored for the associated update type in combination with the Payment transaction flag (see Figure 6.11).

Figure 6.17 Payment Details for a Customer Payment

Thus, in order to make a payment via the customer subledger, you must enter an account symbol of the subledger posting category (see Figure 6.9) in the posting specification. However, the system does not check whether this is actually the case. You can also store a posting specification for a G/L account posting, which is requested, for example, for the non-leading accounting principles under accounts approach (see Section 6.2.4). Usually, you store standing instructions along with the payment details for each business partner, as described in Section 2.4. When you create a financial transaction, the system copies the standing instructions into the payment details and you don't need to make any manual entries.

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One of the main reasons for using a payment program is that multiple payments can be grouped. In this particular context, the options provided by the payment program for open items (Transaction F110), which is part of the customer and vendor subledgers, are often insufficient and don't meet the needs of a treasury department. For this reason, you will often decide to use the alternative method of payment requests, which is described in the following section.

6.3.2

Payment Requests

In addition to the payment program (Transaction F110) for the customer and vendor subledgers, SAP offers another payment program that meets most of the requirements of a treasury department. On one hand, the program enables you to trigger payments without having to create the business partner as a customer. On the other hand, the program allows you to group payments in a more accurate way. The program is called Payment Program for Payment Requests (Transaction F111), which can be found via the following menu path: Transaction Manager  Money Market/ Foreign Exchange/Derivatives/Commodities/Securities  Accounting  Payment  Payment Request.

Creating Payment Requests Payment request

The name of the payment program is based on the information media that is responsible for creating the payment medium—the payment request. If you use the subledgers, the open items represent the starting points for automatic payment processes. However, if you don't want to use that method, you need a different tool, namely, the payment requests.

Setting the payment details

To create a payment request from within the Transaction Manager, you must select the with Payment request radio button in the Control area of the Payment details tab (see Figure 6.18). As with the customer subledger, the system then provides additional fields in which you can enter the details for the payer or payee. Compared to Figure 6.17, Figure 6.18 contains some enhancements.

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Figure 6.18 Payment Details for Payments via Payment Requests

Instead of only one payment method, you can now specify a number of payment methods (Payment methods field). The payment program then selects the most suitable one. In this context, it is also important to know which other payment requests the payment request in question can be combined with. Three additional fields are directly related to Netting. If you check the Individual payment checkbox, you can force the system not to combine the relevant flows with other flows. The Same direction option allows only the netting with other incoming or outgoing flows. The Group determination field represents another way to control the grouping of payments: 왘

All can be grouped You leave it up to the payment program to group a large number of payments, even from other modules.

왘

All within Treasury can be grouped Payment requests from within the Transaction Manager cannot be grouped with payment requests from other components. However, they can be grouped in any way within the Transaction Manager.

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왘

All of a TR application can be grouped The TR application refers to the following four areas: money market, foreign exchange, derivatives, and securities.

왘

All of a product category can be grouped Similar to the previous setting, this setting allows only for grouping payments that are related to a specific product category.

왘

Only flows from an ID number This setting is useful only for securities, but then for both financial transactions and flows of the securities account positions.

왘

Only flows of a transaction This setting is useful for all types of financial transactions, but not for payments related to securities positions.

All these settings can be combined with the Same direction flag.

Netting Netting represents the most detailed piece of information with regard to which flows are supposed to be grouped by the payment program so that they are not mixed up with payment requests that are irrelevant in this context. Netting enables you to specifically select flows of different financial transactions in order to pay them together. This option is available only if you use payment requests. It's not available for the open items of a subledger. You can find the transactions for creating and editing nettings by selecting the following path from the menu: Transaction Manager  Money Market/Foreign Exchange/Derivatives/Commodities/Securities  Back Office  Netting. The easiest way to create a netting is to use the Proposal list (Transaction TBR5). This transaction requires you to make only a few entries in order to obtain a list of flows, which is already sorted by due dates and grouped. In this list, you can then select the flows you want to group. If you already know the financial transaction numbers and due dates, you can also use the Create Netting (Transaction TBR1) transaction.

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A prerequisite for the grouping of flows in a netting is that the respective financial transactions already be settled. Apart from having the same due dates, the flows must also have identical payment details. If you want to group incoming and outgoing payments in a netting, you must specify payment methods for both directions in the payment details. Then, the F111 payment program ensures that the appropriate payment method of the net amount is chosen.

Prerequisites for netting

The purpose of netting is to pay the selected flows in one payment process and avoid offsetting them against other payments. The system fulfills this purpose even if you post only individual flows that belong to a netting. Along with the posting, the system creates the payment requests. However, these payment requests are locked for the payment program until the last flow of the netting is posted and the last payment request is created. In addition, the system ensures that no flow of a financial transaction can be reversed as long as there is still a flow involved in a netting. In that case, you must first resolve the netting (Transaction TBR4) or at least remove the financial transaction from the netting in order to be able to reverse the activity.

Effects of netting

You can enter payments with different currencies in a netting. Of course, the payment program does not group these payments; the option can instead be used to ensure the simultaneous processing by the payment program.

Netting with different currencies

Customizing for Payment Requests To ensure that the settings for the payment details you made in Figure 6.18 actually affect the flows, it must be possible to create payment requests for the respective flows. When defining the flow types in the Customizing section of the Transaction Manager under the respective product group in Transaction Management  Flow Types  Define Flow Types (see Figure 6.19), you can either generally forbid payment requests or allow them for incoming or outgoing payments, or for both directions. The same options are available for individual payments, as well.

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Figure 6.19 Defining the Flow Categories in Transaction Management Payment clearing account

You can find other Customizing settings related to payment requests— provided the Transaction Manager is immediately affected—in Customizing under Transaction Manager  General Settings  Payment Management  Payment Requests. The posting that creates the payment request is not supposed to debit the bank clearing account yet. The bank clearing account is debited by the payment program for payment requests (Transaction F1), as described at the beginning of Section 6.3. Before that step takes place, another clearing account comes into play. For that purpose, you must specify a G/L account for each company code under Define Clearing Account for Payment Requests (see Figure 6.20). The account determination function of the Transaction Manager must be configured as if you would post directly to the bank clearing account. This way, you can make sure that the Transaction Manager posts to the clearing account and that the correct bank clearing account is indicated in the payment request in order to enable subsequent postings.

Figure 6.20 Setting Up the Payment Clearing Account

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You can also use the F111 payment program for payments via the customer subledger. In that case, you must select both Posting to customer and with Payment request, as shown in Figure 6.18. This can be useful if you need specific functions of the customer subledger and at the same time don't want to miss the benefits of the payment program from Transaction F111. Consequently, you must ensure that the standard payment program from Transaction F110, which reads the open items from the subledger, does not create any payment media for those items. You must specify a blocking reason for the open items in Customizing activity Define Payment Blocking Indicators for Accounting Documents. The blocking reason is globally valid for a client.

Payment request for customer payments

Each payment request is identified via a number. The number is determined on the basis of a number range that you must configure in the settings for the payment request. The number is also shown in the posting journal (Transaction TPM20) and enables you to navigate to the payment request display via the posting journal (see the Payment Key column in Figure 6.21).

Number range for payment requests

6.3.3

SAP In-House Cash

To a certain extent, the two payment programs described so far enable corporations to process payments from one subsidiary via another subsidiary or the headquarters. For more complex requirements in this respect, SAP offers the In-House Cash (IHC) module. You can use SAP IHC to process internal and external payments in a corporate group. This tool helps you reduce the number of your external bank accounts as well as the volume of your external payments, particularly those that go to foreign countries. The module supports the following processes: 왘

Internal payments Payments can be carried between different subsidiaries.

왘

Central payments Payments to external partners can be carried out centrally by SAP IHC on behalf of all subsidiaries.

왘

Local payments Payments to external partners can be carried out by a subsidiary within the respective country on behalf of the entire corporate group.

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왘

Centralized incoming payments SAP IHC can receive payments from external partners on behalf of the entire corporate group.

You can find more detailed information on SAP IHC in the book Financial Supply Chain Management by Jürgen Weiss (SAP PRESS 2009, German only). IHC as internal house bank

From the point of view of the individual companies within the corporate group, the SAP IHC module has the same function as a normal house bank. The subsidiaries have an account in SAP IHC and receive the corresponding account statements. The overview of the various subsidiaries enables SAP IHC to optimize the cash flows with external partners. Because the company group assumes a central task in the area of payments, it makes sense to process the payments of a central treasury department through the central SAP IHC module, as well.

Integration with the Transaction Manager

The Transaction Manager supports this type of scenario by means of a BAdI. The TPM_EXT_PAYMENT_TRPR BAdI allows you to integrate any system for the purpose of payment processing. You can find this BAdI in Customizing under Transaction Manager  General Settings  Payment Request  Customer Payment Programs. SAP provides a sample implementation that is used for the entire processing of payments via SAP IHC. Using the BAdI for SAP IHC Even if you process all payments from within the Transaction Manager via SAP In-House Cash, you should not simply activate the sample implementation. Instead, create your own implementation in which you can then call the sample implementation. Otherwise, the installation of a note or support package may deactivate the sample implementation again so that your payments won't be processed via SAP IHC.

Payment order

When entering terms of payment, proceed as if you created payment requests (see Figure 6.18). However, in this case, when you post the business transactions, the system does not create any payment request, but something called a payment order in SAP IHC. A payment order in SAP IHC is the counterpart to a payment request; that is, it's the basis for

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creating payment media for external partners or clearings between the subsidiaries of a corporate group. As with a payment request, the payment process is not fed back into the Transaction Manager. In the case of external payments, the processing of the payment order in SAP IHC entails the creation of a payment request in the company code that is supposed to carry out the actual payment. SAP IHC returns an account statement to the company code that has ordered the payment. Thus, within the Transaction Manager, the flow of a payment via SAP IHC does not differ from a payment via payment requests. The account determination process is also identical.

From payment order to payment request

Instead of the payment request number, the system assigns a payment reference to payment orders. You can find the payment reference in the posting journal (Transaction TPM20) in the last column shown in Figure 6.21. The cash flow of the financial transaction contains this information, as well. This payment reference also enables you to navigate to the payment order display in SAP IHC. Thus, the level of integration is the same as for payment requests.

Payment reference in the Transaction Manager

Figure 6.21 Posting Journal with Payments via Payment Requests and Payment Orders of SAP IHC

Note, however, that the sample implementation contains some limitations regarding the netting of payments. As described in Section 6.3.2, the payment requests provide many options to have the payments grouped by the payment program (Transaction F111). The sample implementation does not consider this because SAP IHC would probably group additional payments. However, even the sample implementation ensures that payment orders of a netting are not released until all payment orders have been created.

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SAP IHC and normal payment processing

Even if you want to use SAP IHC together with SAP Treasury and Risk Management, you don't need to process all your payments via SAP IHC. The TPM_EXT_PAYMENT_TRPR BAdI provides a method that allows you to control whether you create payment orders or requests. For this purpose, all data related to payments are made available to you. Simple criteria based on which you can control the type of payment process include the house bank and specific payment methods. Because SAP IHC acts like a house bank, these criteria are also useful for the dealer during the entry of a financial transaction in order to control the processing of payments.

6.4

SAP Cash and Liquidity Management

SAP Cash and Liquidity Management is responsible for providing an overview of the short- to medium-term liquidity of a company. Realistically, the data provided by SAP Cash and Liquidity Management often serves as the starting point for concluding financial transactions in the Transaction Manager. Vice versa, virtually all actions in the Transaction Manager affect the liquidity of the company. This section focuses on the flow of information from the Transaction Manager to SAP Cash and Liquidity Management. We describe terms and concepts of SAP Cash and Liquidity Management only if they are essential to understanding the overall context. Cash position and liquidity forecast

Central reports in SAP Cash and Liquidity Management include Cash Position (Transaction FF7A) and Liquidity Forecast (Transaction FF7B). The cash position provides information about the current situation of the bank and bank clearing accounts, while the liquidity forecast provides similar information related to customers and vendors. You can call the cash position and liquidity forecast together using Transaction FF70. The corresponding individual transactions can be selected from the menu as follows: Financial Accounting  Financial Supply Chain Management  Cash and Liquidity Management  Cash Management  Information System  Reports for Cash Management  Liquidity Analyses.

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The system displays the data at different levels of aggregation, which you can define in Customizing. One of these levels of aggregation is the house bank, and another one is the planning level. The planning level provides information about the origin of an account change or of a planned incoming or outgoing payment. This information also reflects the reliability of the data. For example, the date on which the payment of a customer invoice comes in cannot be predicted as reliably as the interest and repayments for fixed-term deposits.

Planning level

The integration of the Transaction Manager with SAP Cash and Liquidity Management can be done in Customizing in such a way that you must assign the planning levels to elements used in the Transaction Manager. This enables the system to update SAP Cash and Liquidity Management whenever you create transactions or positions in the Transaction Manager. You can find the activity in Customizing under Transaction Manager  General Settings  Link to Cash Management  Assign Planning Levels. As shown in Figure 6.22, you can configure the planning level (Level (bank known) column) for each product type (PTyp column) and activity category (ACat column). The second column—Status—is not relevant in the Transaction Manager. What Figure 6.22 doesn't show is that you must make these settings for each company code.

Defining planning levels

6.4

Figure 6.22 Assigning the Planning Levels in the Transaction Manager

Planning Levels for Securities Please note that you must make entries without activity categories for product types related to securities in order to update the condition-based business transactions, such as interest, dividends, or repayments, into SAP Cash and Liquidity Management.

In SAP Cash and Liquidity Management, planned cash flows of the Transaction Manager are displayed in the cash position because the system knows relatively early in the process which house bank and account

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Planning data in the cash position

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Integration with Other Modules

these cash flows are processed through. If you don't specify the house bank account in the payment details related to the financial transaction or position, the cash flows will continue to be shown in the cash position, but they are usually assigned to a different planning level (Level (bank unknown) column in Figure 6.22). Relevant flows

Once you have defined the planning level, you must define in Customizing which flows you want to update into SAP Cash and Liquidity Management. For example, flows related to valuations are not supposed to appear in SAP Cash and Liquidity Management. In this context, you must distinguish whether the flow originates from transaction management or position management. For flows that originate from transaction management, you must define during the definition of the flow type whether they are relevant to cash management (see Figure 6.19, Relevant to CM checkbox). For flows that originate from position management, you can use the Specify update types for Cash Management activity in Customizing, which enables you to mark update types as relevant to cash management (CM relevant column in Figure 6.23). You can find this activity next to the definition of the planning levels.

Figure 6.23 Marking Update Types as Relevant to SAP Cash and Liquidity Management Differences in payments

The flows that are relevant to SAP Cash and Liquidity Management are always linked to payments. Once the payment has been triggered by a posting, SAP Cash and Liquidity Management is updated from the General Ledger because the subsequent processes do not involve the interaction of the Transaction Manager. In SAP Cash and Liquidity Management, you can then see differences depending on whether you process a payment via the customer subledger or via payment requests. If you use the customer subledger, the payment appears under the corresponding business partner, but no longer in the house bank account. In the case of payment requests, the situation is different. Here, the payment continues to be displayed in the house bank account until the account statement is received.

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In Section 6.2.1, we described the Pay Only option in the Post Flows transaction (Transaction TBB1). If you use this option, you must maintain additional Customizing settings; that is, you must set the Update via Position Management flag in the Activate Cash Management Update via Position Management activity. If you already use SAP Cash and Liquidity Management and have updated the data from the Transaction Manager in SAP Cash and Liquidity Management, you must additionally run the RTPM_CM_CLEAR_FDT1_ENTRIES report and then the RTPM_ CM_UPDATE report.

6.5

Public Sector Management

Organizations from the public sector are often subject to special accounting/requirements/rules. With the integration of Funds Management (PSM-FM) and Grants Management (PSM-GM) of Public Sector Management (PSM), you can use various functions to meet these requirements. We present the functions in this section. First, we describe how to enter the additional account assignment objects, fund and grant, in transaction management and how to implement funds transfer. Then, we discuss the management of investment pools. The last section deals with the activation of integration and Customizing.

6.5.1

Entering Account Assignment Objects

The most important part of the integration with PSM is the maintenance of the account assignment objects, fund and grant, in transaction management. Additionally, the corresponding position management and update in Financial Accounting must be considered. Chapter 5 presented the concept of differentiation. Two additional differentiation characteristics are available to you for PSM: fund and grant. This enables you to assign your investments to different funds or a combination of funds and grants. Furthermore, you can allocate money market and securities transactions to various funds or combinations of funds and grants. The individual flows of transactions are then automatically assigned to ledger positions, and this assignment continues in all

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Pay Only Option— SAP Cash and Liquidity Management

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Integration with Other Modules

processes of internal position management. During posting, the information about the fund or the combination of fund and grant is updated accordingly in Financial Accounting. When creating transactions, you can assign a transaction to a fund or a combination of fund and grant. As you can see in Figure 6.24, you maintain the assignment in the Administration tab. This assignment is then transferred to the position indicator. The position is thus uniquely identified by fund and grant.

Figure 6.24 Maintaining the Fund and Grant in the Administration Tab When Creating a Transaction

Additionally, you can assign money market and securities transactions to various funds or combinations of funds and grants. Select the Cash flow tab for this purpose. Figure 6.25 shows the assignment for a money market transaction. You always assign a corresponding share of the nominal to a fund or to a fund and a grant. Thus, you split the transaction into individual ledger positions in position management. You can view this in Figure 6.26, which shows the position flows in the List of the Position Flow transaction (Transaction TPM13). You can see that the transaction is split into two ledger positions with different grants. This means that all flows from the transaction management (see Figure 6.25) are split into these two ledger positions.

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Figure 6.25 Assigning a Money Market Transaction to Various Funds and Grants

Figure 6.26 Position Flows of the Split Transaction

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Integration with Other Modules

6.5.2

Funds Transfer

The Transaction Manager offers an option to implement a transfer between funds. For the transfer, use the Execute Funds Transfer transaction (Transaction TPM80), which you can find in the SAP menu under Transaction Manager  Special Functions from Public Sector  Fund Transfer. Here, you can also find the corresponding Reverse Fund Transfer reversal transaction (Transaction TPM81). Specifics of fund transfer

On one hand, fund transfer is similar to other transfers, such as valuation class or portfolio transfer. It is an internal transfer to the effect that external data, such as transaction and business partner data, remain unchanged. On the other hand, fund transfer has one major difference. In other transfers, the book values are transferred between source and target positions without generating realized profits and losses. Fund transfer, by contrast, works like a purchase and sale. In other words, for the source position, the transfer looks like a sale, and realized profits and losses are generated, among other things. In the target position, the transfer acts like a purchase, and only the purchase value is posted. To implement the fund transfer, maintain the general settings in position management and the update types in Customizing under Transaction Manager  General Settings  Accounting  Fund Transfer  Assign Update Types for Fund Transfer.

6.5.3 Investment pool master data

Investment Pools

Public organizations often set up investment pools that group and manage the assets of various investment pool participants. This grouping allows for reduced management costs and higher yields. An investment pool participant purchases pool certificates offered by the investment pool. In the Transaction Manager, you can map and manage pool certificates as securities. Additionally, you can manage the master data and transactions for investment pool participants. All associated transactions are available in the SAP menu under Transaction Manager  Special functions from Public Sector  Investment Pool, as shown in Figure 6.27.

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Figure 6.27 Transactions for Managing Investment Pools

The Transaction Manager defines an investment pool through the company code and the security identification number of the pool certificate. You maintain the investment pool master data with the Edit Investment Pool Master Data transaction (Transaction TPM89), which you can find in the SAP menu in the Master data section (see Figure 6.28). When you set the Create Issues flag in the Control area, you can maintain the information for account assignments and transactions. This information serves as the basis for purchases and sales of pool certificates through investment pool participants.

Figure 6.28 Maintaining the Investment Pool Master Data

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Integration with Other Modules

Investment pool participant: additional fund data

In the second master data transaction, Investment Pool Participant: Edit Additional Fund Data (Transaction TPM85), you maintain the additional data for individual investment pool participants. An investment pool participant is uniquely identified by the company code, the fund, and the grant, if applicable. In the Additional Fund Data for Investment Pool Participants section, you maintain the securities account for the investment pool participants' transactions. In the second section, Pools Permitted for Investment Pool Participants, you maintain the investment pools in which investment pool participants may invest.

Processing transactions

In the next section of the SAP menu, Back Office, you can find transactions for processing purchases and sales of pool certificates by investment pool participants. First, using the Edit Investment transaction (Transaction TPM90), you define how the investment of an investment pool participant in the investment pool has changed. Here, enter a payment amount for each investment pool participant and pool and define whether it is a purchase or sale. In doing so, you specify how the investment pool participant's investment in an investment pool changes. You can create the transactions using the Generate Transactions for Investment Pool Participants transaction (Transaction TPM86). You can reverse transactions by means of the Reverse Transactions of Investment Pool Participants transaction (Transaction TPM87). In the SAP menu in the Information System section, you can find the Overview of Transactions of Investment Pool Participants transaction (Transaction TPM88), which provides an overview of the investment pool participants' transactions.

6.5.4

Activating and Setting the Integration with Public Sector Management

The integration of SAP Treasury and Risk Management with Public Sector Management is enabled by activating the FIN_TRM_PSM_INTEGRATION business function. If you already use the Transaction Manager, you should also perform the mandatory and optional migration steps in Customizing under Transaction Manager  General Settings  Tools  Conversion Programs (Transaction TPM_MIGRATION). For this

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Regulatory Reporting

purpose, set the migration type Conversion for PSM. Chapter 15 provides further migration information. The most critical characteristic of the integration with PSM is the utilization of the account assignment elements, fund and grant, as differentiation characteristics. For this reason, you must define and assign these two elements as differentiation characteristics in Customizing under Transaction Manager  General Settings  Accounting  Organization  Settings for Position Management  Define and Assign Differentiation.

6.6

Regulatory Reporting

We want to conclude this chapter by briefly describing the integration of the Transaction Manager with a very special module: the Regulatory Reporting module for the Insurance Supervisory Authority. In many countries, insurance companies are supervised by a dedicated authority. They must regularly provide information about their assets and liabilities. Financial instruments represent a large portion of an insurance company’s assets, which means that data from SAP Treasury and Risk Management is essential. In addition to financial instruments, loans and real estate are of equal importance. SAP offers a solution that meets the German, Austrian, and Swiss legal requirements to a large extent for financial products related to securities, money market trading, loans, or real estate. In other countries, this solution serves as a platform for partner and customer solutions. The Regulatory Reporting module for insurance companies comprises the following functions: 왘

Separate data history

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Mapping of several valuation areas

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Possible integration of external systems

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Flexible updating of data by means of separate position management in a special ledger

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Setting the differentiation

6.6

6

Integration with Other Modules

왘

Transfer posting of hedged assets

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Extensive list output functions (in particular, the creation of lists and reports in PDF format that meet legal requirements, as well as the option to store these lists and reports in the database)

In order to enter data from the various modules, the Regulatory Reporting module is connected to the G/L and is based on a special ledger provided by SAP. This enables the direct update of relevant data within an SAP system. Comprehensive Customizing functions primarily map elements of the sending applications—in particular, the different flow categories and product types—to the concepts of the Regulatory Reporting module. Entering master data in the regulatory reporting module

In addition to flows, you must also enter further details to the master data in the Regulatory Reporting module. For this purpose, the system provides separate transactions. Apart from that, you can also enter these details directly in the Transaction Manager, in which the master data is continuously connected with the operative positions. For securities, the Regulatory Reporting master data is linked to the securities account position; consequently, you can enter the data with the position indicator, for instance, using the CHANGE POSITION INDICATOR button (Transaction TPM56A). In this transaction, navigate to the Regulatory Reporting module by selecting GOTO  REGULATORY REPORTING from the menu. Certain details refer to the securities account position itself, which is why the master data maintenance section of the securities account contains an additional tab. For OTC transactions, you can access the corresponding maintenance section in the transaction entry menu via ENVIRONMENT  REGULATORY REPORTING. Based on these master data details and on the Customizing settings, the system can immediately update the transaction data of the Regulatory Reporting module. As a result, you can create the declarations for the supervisory authority and generate additional reports—including historical comparisons—with relative ease. This rough overview of the functions and the integration with the Transaction Manager must suffice in order to provide a first impression of Regulatory Reporting for the Insurance Supervisory Authority in the context of this book. This chapter discussed the integration with the

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Regulatory Reporting

G/L, and in particular, the different scenarios for mapping parallel accounting principles, in much more detail. Similarly, you should have obtained profound insight into SAP Cash and Liquidity Management and integration with Funds Management (PSM-FM) and Grants Management (PSM-GM) of Public Sector Management (PSM).

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6.6

Market data is the basis for determining market-driven values and evaluating risk analyses. This chapter introduces Customizing and the transfer of market data to your system.

7

Market Data

Market data is part of the basic data of SAP Treasury and Risk Management. In transaction management, it provides comparison values for the transaction price; in position management, it serves to determine market-driven values for ledger positions; in risk analyses, it is required to evaluate market risk figures. Market data consists of primary market data, such as foreign exchange rates, security prices, and reference interest rates, and secondary market data, such as volatilities, correlations, and net present values. Secondary market data can be derived from primary market data. This chapter explains the setup, maintenance, and transfer of market data. It starts with primary market data and focuses on reference interest rates and yield curves. Then, it describes secondary market data, deals with scenarios and market data shifts, and closes with the introduction of market data interfaces.

7.1

Foreign Exchange Rates and Foreign Exchange Swap Rates

Foreign exchange rates and foreign exchange swap rates are not only used for SAP Treasury and Risk Management, but are also relevant for all other SAP ERP applications that are responsible for currency conversion. Therefore, they are maintained in the general Customizing menu via SAP NetWeaver  General Settings  Currencies. When customizing SAP Treasury and Risk Management via Basic Functions  Market Data Management  Master Data  Currencies and Basic Functions 

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7

Market Data

Market Data Management  Manual Market Data Entry  Currencies, you can also set foreign exchange rates and enter exchange rates and swap rates. Please consider that you access the same settings and tables as in general Customizing, and thus entries and changes apply to all ERP components. To customize foreign exchanges and foreign exchange swap rates, you must first define the currency codes and set the decimal places for each currency. You can then determine indirect or direct quotation as the standard quotation for each currency pair and define conversion factors for currency conversion. By setting different exchange rate types, you can store several rates or swap rates for one currency pair on the same date. You can use these exchange rates or swap types depending on the exchange rate type. Foreign exchange rates

You can maintain the foreign exchange rates manually in Customizing, under Treasury and Risk Management  Basic Functions  Market Data Management  Manual Market Data Entry  Currencies  Enter Exchange Rates, or transfer them automatically via the market data interface (see Section 0). When maintaining foreign exchange rates manually, you can store the rate for each currency pair on the basis of either indirect or direct quotation, depending on the rate type and effective date (see Figure 7.1). If the quotation differs from the currency pair's standard quotation, the rate is highlighted.

Figure 7.1 Manual Market Data Entry for Currency Rates Foreign exchange swap rates

Foreign exchange swap rates provide default values for creating financial transactions of exchange rate transactions and are required for the key-date valuation via Valuate (Transaction TPM1) if the position management includes a rate valuation that uses the forward rate of one or both sides of the financial transaction.

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Security Prices

Along with foreign exchange rates, you can maintain the swap rates in Customizing, under Treasury and Risk Management  Basic Functions  Market Data Management  Manual Market Data Entry  Currencies  Enter Swap Rates, or transfer them via the market data interface. Further information on settings and maintenance of foreign exchange rates are included in the detailed documentations of the individual IMG activities for Customizing.

7.2

Security Prices

For securities, futures, and listed options, security prices are required to determine a market-driven value. Price type, quotation type, quotation currency, and exchange are important for differentiating these prices. We first discuss these differentiating attributes, and then explain the option to determine security prices for bonds. Finally, we describe the procedure used to read security prices for an application.

7.2.1

Maintaining Security Prices

Security prices are distinguished by their price type, quotation type, quotation currency, and exchange. You can characterize a security price with the price type. Spot rate, opening price, and closing price are typical price types. In Customizing, you can define your standard price types and create additional price types for special purposes, such as a price for financial statements, via Treasury and Risk Management  Basic Functions  Market Data Management  Master Data  Securities  Define Security Price Types.

Price type

The quotation type indicates whether a price is specified based on unit quotation or percentage quotation. For security prices based on unit quotation, the price is specified per unit, and for security prices based on percentage quotation, the price is defined as percentage of a nominal trading unit.

Quotation type

The quotation type for futures and listed options is determined by the definition of the product types in Customizing, under Treasury and

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Market Data

Risk Management  Transaction Manager  Listed Derivatives  Master Data  Product Types  Define Product Types. The prices are specified based on percentage quotation, inverse percentage quotation, direct quotation, point quotation, or fractional quotation. Quotation currency

The quotation currency determines the currency in which the price is defined for securities that are specified based on unit quotation and options that are specified based on direct quotation. You can choose the quotation currency independently of the issue currency in order to enter prices that are offered differently from the issue currency.

Exchange

The exchange indicates on which stock exchange the securities, futures, or listed options are traded, and thus where the price originates from. You can maintain your exchanges in Customizing, via Treasury and Risk Management  Basic Functions  Market Data Management  Master Data  Securities  Define Exchange.

Maintenance

You can import security prices via the market data interface (see Section 11) or enter them manually via the security price maintenance with the Enter Security Prices transaction (Transaction FW18, see Figure 7.2) that can be found under Treasury and Risk Management  Basic Functions  Market Data Management  Manual Market Data Entry  Securities and Indexes. The prices are indicated with six decimal places. Future and listed option prices are always displayed as percentages, even if they are specified based on inverse percentage quotation, direct quotation, point quotation, or fractional quotation.

Figure 7.2 Manual Market Data Entry for Security Prices with Transaction FW18

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Security Prices

It is a prerequisite for the maintenance of security prices that you specify the quotation type and exchanges, including their quotation currencies that you want to use for determining the price in the class data of the respective financial instrument. You can go to the class data with Transaction FWZZ, or in the menu, under Treasury and Risk Management  Transaction Manager  Securities  Master Data  Class. Navigation to the Maintenance of Security Prices from FWZZ You can navigate from the Class transaction (Transaction FWZZ) to the security price maintenance of the respective class. For this purpose, go to the Exchanges tab, select the desired exchange, and click on the Market Prices button. Then, you immediately navigate to the Security Price Maintenance transaction (Transaction FW18).

7.2.2

Security Price Calculation for Bonds

In addition to transferring security prices via the market data interface and manually entering prices, you can calculate the prices for bonds using the Market Risk Analyzer. This price calculation is particularly useful if security prices are seldom specified on exchanges of the bond or if the bond is not listed at all—for example, a secured loan listed as bond. The prices are determined via the Calculate Prices for Securities transaction (Transaction JBRBPC), under Treasury and Risk Management  Market Risk Analyzer  Tools  Storage. The transaction determines the respective net present values for bonds with the defined yield curve, then the prices. To select the respective bonds, enter the product type and ID number on the selection screen of the transaction (see Figure 7.3). Additionally, define the evaluation parameters, evaluation type, and key date for the evaluation. The evaluation type controls the reference interest rate and yield curve selections to determine the net present values (see Chapter 12). By specifying the rate/price type and exchange, you define the key to store the determined prices in addition to the evaluation key date. In the Enter Security Prices transaction (Transaction FW18), you find the prices determined via the Calculate Prices for Securities transaction (Transaction JBRBPC) because the value JBRBPC is entered in the Source field.

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Transaction JBRBPC

7.2

7

Market Data

Figure 7.3 Selection Screen of Transaction JBRBPC for Determining Bond Prices Exchange

A price is determined for a bond only if the defined exchange is maintained in the class data of the bond. If the specified exchange is not maintained in the class data, no exchange rate is determined and no corresponding message is output. This happens also if the bond is included in the set of positions defined in the general selection criteria. Having highlighted a result line in the results list in the Calculate Prices for Securities transaction (Transaction JBRBPC; see Figure 7.4), you can use the Detail Log button to go to a log that demonstrates how the net present value and price were determined. The Calculation Bases button navigates you to an overview of the market data that was used as the calculation basis.

7.2.3

Reading Security Prices

The securities valuation method of the key date valuation and the logical databases of transaction management and position management use the following procedure to read security prices.

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Security Prices

Figure 7.4 Results List of Transaction JBRBPC

If one exchange is maintained for a company code and an ID number via the Stock Exchange per Company Code and Class transaction (Transaction TPM59), the most up-to-date price only for this exchange is determined on the key date of the price determination. If no entry is maintained or the exchange is empty, the prices that are most up to date on the key date are read. If these are provided by different exchanges, preference is given to the price of the home exchange if included in the list. The home exchange can be set in the class transaction (Transaction FWZZ). If the home exchange does not provide a price, the price of the exchange that appears first in the alphabet is selected. In this way, consistency is guaranteed, even when calls are repeated. For ID numbers, the maintenance of the exchange via Transaction TPM59 can also be performed independently of the company code.

Reading prices

If the quotation currency of the price read does not correspond with the position or valuation currency for the securities valuation or one-step price valuation, the price is converted into the position currency or valuation currency with respect to the valuation key date. The exchange rate type for the currency conversion is maintained in the valuation area Additional data in Customizing, under Treasury and Risk Management  Transaction Manager  General Settings  Accounting  Organization  Assign Accounting Codes and Valuation Areas. For a one-step price valuation, this rate type can be overridden by specifying an exchange rate type in the valuation procedure of the one-step price

Currency conversion

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Market Data

valuation. If a rate type for securities valuation or one-step price valuation is maintained in neither the valuation area-additional data nor the valuation procedure, the M rate type is used for conversion. The currency conversion of the quotation currency into the position or valuation currency is not considered a valuation step for any valuation procedure. Therefore, no profits or losses are determined, and no valuation flows are generated with respect to the conversion.

7.3

Reference Interest Rates and Yield Curves

Besides the foreign exchange rates and security prices, the reference interest rates and yield curves derived from the reference interest rates are one of the most important market data of SAP Treasury and Risk Management. The yield curves are defined by specifying reference interest rates with their terms in ascending order. These reference interest rates are the data points of the yield curve. Values of the curve that are between the data points are interpolated; values before the first or beyond the last data point are extrapolated. Zero Bond Discounting Factors (ZBDF) are determined by means of the yield curve. They can be used to discount cash flows in the context of net present value determination or to determine future interest payments with forward interest rates. The following sections first describe the reference interest rates and then discuss the definition and structure of yield curves. Negative Interest Rates If you want to manage financial instruments and positions with negative interest rates in SAP Treasury and Risk Management, we would like to draw your attention to the special development of negative interest rates. This special development allows for the usage of negative interest rates also as reference interest rates. You can find details on the implementation in SAP Note 1657221.

7.3.1

Reference Interest Rates

Reference interest rates are the basic modules for yield curves. You can find their definition and maintenance in Customizing, under Treasury and

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Reference Interest Rates and Yield Curves

7.3

Risk Management  Basic Functions  Market Data Management  Master Data  Settings for Ref. Interest Rates and Yield Curves for Analyzers  Define Reference Interest Rate. As shown in Figure 7.5, the reference interest rate is defined and structured by the parameters Yield Category, Currency, Interest Calculation Method, Quotation type, Term, Unit of Time, Forward YC Type, Calendar, Fixing Period, and Working Day Rule. The Date from and Financial Center fields are used for information only. Intraday Flag If you use the Intraday flag, the reference interest rate is time-dependent, allowing you to manage reference interest rates during the day. You should not use the Intraday flag because your reference interest rates in SAP Treasury and Risk Management should depend exclusively on the date and not on the time.

Figure 7.5 Setting Reference Interest Rates

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Setting reference interest rates

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Market Data

Yield category

The Yield Category field can be selected as a par rate or zero bond yields. Par rates are based on a bond with an annual interest payment; zero bond yields are based on a bond with an interest payment at the end of term. The zero bond discounting factors are always calculated on the basis of zero bond yields. Therefore, par rates are first converted to zero bond yields via bootstrapping before the respective zero bond discounting factors are determined by means of the yields. The quotation can be defined as a bid, ask, or middle rate. The Term field, in combination with the Unit of Time field (in days, months, or years), defines the term of the reference interest rate.

Forward yield curve type

For OTC transactions and ledger positions with variable interest payments, such as caps, floors, FRAs, interest rate swaps, or floaters, the variable interest calculation is determined by specifying a reference interest rate. If you determine forward interest rates for the calculation of future interest payments of the financial instruments, the entry in the Forward Yield Curve Type field of the reference interest rate used in the transaction defines which yield curve type, and therefore which yield curve, is used to determine the respective forward interest rate. The forward yield curve type does not tie reference interest rates to a specific yield curve type; that is, to define the yield curve type, you can use reference interest rates of a forward yield curve type that is different from the yield curve type. Net Present Value for a Position with Variable Interest Payment If the net present value is determined for OTC transactions or ledger positions with variable interest payments, the future interest payments must first be calculated with the forward interest rates before the cash flow can be discounted to the net present value. During this procedure, the yield curve type for calculating the forward interest rates is defined using the forward yield curve type of the reference interest rate that is used in the OTC transaction or in the class of the ledger position. If the forward curve type is not maintained for this reference interest rate, the curve type of the evaluation type is utilized to determine the net present value. The evaluation type, however, defines the yield curve type for discounting. In this way, different yield curve types can be used for determining the forward interest rates and for discounting.

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Reference Interest Rates and Yield Curves

7.3

Net Present Value for a Position with Variable Interest Payment For example, if Forward Yield Curve Type 991 is used in the reference interest rate of a floater, but Yield Curve Type 333 is used in the evaluation type to determine the net present value, the forward interest rates of non-fixed interest payments are determined using Yield Curve Type 991 before they are discounted by means of ZBDFs that were determined using Yield Curve Type 333. The planned record update for variable interest rates that is set in Customizing, under Treasury and Risk Management  Transaction Manager  General Settings  Organization  Define Company Code Additional Data is not relevant for this process.

If you specify the reference interest rate when creating an OTC transaction with variable interest payment, the currency, interest rate calculation method, calendar, and fixing period of the reference interest rate are automatically verified against the respective financial transaction parameters. If the parameters do not correspond with each other, the system proposes the parameter values of the reference interest rate that you can either accept or reject for this financial transaction.

7.3.2

Verification in financial transactions

Yield Curves

The yield curve illustrates the dependency of the interest rate on the fixing period for investing or raising money. Yield curves are also referred to as the interest rate structure or interest rate structure curves. In SAP Treasury and Risk Management, the yield curves are not stored directly, but shown under yield curve types, which may contain specific yield curves for different currencies. With this architecture, the yield curves that have the same structure can be combined independently of their currency, and thus the valuation rules of financial objects can be defined independently of the currency, too (see Chapter 12). You can maintain the yield curve types in Customizing, under Treasury and Risk Management  Basic Functions  Market Data Management  Master Data  Settings for Ref. Interest Rates and Yield Curves for Analyzers  Define Yield Curve Type.

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Yield curve type

7

Market Data

As shown in Figure 7.6, the yield category and quotation type must be set for every yield curve type (Properties of Market Data area). You should not use the Intraday flag because your reference interest rates in SAP Treasury and Risk Management should depend exclusively on the date and not on the time.

Figure 7.6 Setting the Yield Curve Type Yield curve

In the Currency list, you can enter the currencies for which you want to define yield curves via the New Currency button. By double-clicking a currency, you go to the detail screen where you can define the actual yield curve for the currency selected (see Figure 7.7). First, you must specify the interest rate calculation method (Int. Calc. Method field) and the calendar (Calendar field) for the yield curve. These two parameters define the time axis of the yield curve. The structure of the yield curve is defined by specifying the reference interest rates (YC Structure list) that serve as data points for the curve. For terms of more than one year, you can use only reference interest rates that have the yield category of the yield curve type. This restriction does

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not apply to terms of one year or less because zero bond discounting factors for these terms are calculated linearly, and hence, par rate and zero bond yield are identical.

Figure 7.7 Setting the Yield Curve

The terms of the reference interest rates are sorted strictly, monotonically increasing. Their respective currency, interest rate calculation method, and calendar should have the same values than the parameters of the yield curve. If the parameters of a reference interest rate deviate from the settings of the yield curve, the value of the interest rate is converted in relation to the settings of the yield curve when the interest rates are saved. You can enter a markup or markdown for reference interest rates in the Markup/down field. This value is added only after conversion, which may be required due to deviating parameters. If the reference interest rates that you used for defining the yield curves are not adjusted daily, you can specify via the Read Procedure field when setting the yield curve type how missing values of reference interest rates are supposed to be calculated (see Figure 7.6). For this purpose, you can use one of the following procedures:

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Read procedure

7.3

7

Market Data

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Read back For each missing value, the last maintained interest rate for the respective reference interest rate is used.

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Direct read Only the interest rates that exist on the key date are used. Missing values are then interpolated.

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Direct read back Values are "read back" to the past until at least one reference interest rate has a value at a key date. For this key date, the Direct Read procedure is executed. Read Procedure The following example illustrates the individual read procedures (see Figure 7.8). We search for the yield curve on March 20, this year:

Interpolation

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The read back procedure provides the interest rates 3.35% (