Manage Corporate Actions

During the lifetime of a bond, there are a few events that occur from time to time. These are accruals, capitalizations, amortization and finally an expiration.

Accruals

Each night the system will automatically create transactions for accrued interest based on the entered coupon interest of the bond. These accruals are a virtual debt from the issuer of the bond to the holder of the bond. At a set interval, called the capitalization period, the accrued interest will material into real cash and on the capitalization date the money will be transferred into the account of the bondholder and the accumulated accrued interest up until that period will be zeroed out. 

For example, say that the bondholder has 100,000 worth of a bond with a coupon rate of 5% annually. Depending on the interest calculation type selected, called the day count basis, a daily accrued interest of roughly 14 will accumulate. Let's say that the capitalization occurs monthly and that the current month has 30 days the accumulated accrued interest will amount to 420 (14 x 30).

This is the accrued interest.

Capitalization

On the day of capitalization, the company or government that issued the bond will have to deposit these funds with the bank or broker that holds the position on behalf of a client. In Bricknode Broker the Issuer of the bond should be set up and an account created for the issuer. The way this works in the Bond Manager is that the issuer could potentially have sent the money to the broker (you) before you actually perform the capitalization in the Bond Manager and then you should have deposited these funds into the account of the issuer that you have in Bricknode Broker. If this is the case you will have the option in Bricknode Broker to select that the money has already been received and the Bond Manager will then use the money in the issuer account to distribute to the bondholders. 

If you select that the money has not been deposited to the issuer account prior to performing the capitalization the Bond Manager will take care of this deposit for you in order to keep the audit trail of transactions in line.

When the capitalization is conducted the accumulated accrued interest on the capitalization date is set to zero and all transactions conducted.

Amortization

Amortization of the bond can be conducted at various intervals that you configure in the Bond Manager. This, in turn, reduces the size of the position in the bond instrument that the holder has in their account and also then reduces the amount of accrued interest that will accumulate each night since the bond position is now smaller.

The logic for this event is the same as for capitalization where the money from the bond issuer can be sent to the broker (you) before you perform the event or at the same time that you do this and you can manage everything from within the Bond Manager.

Expiration

The expiration of the bond is the final event that will happen and here the Bond Manager will take care of the final capitalization and the amortization which involves closing the actual bond position for good.