About FTP rate rules

Rate rules define how FTP rates are calculated. Each rule gathers the information needed for FTP engines to perform the defined calculations. The base rate FTP calculation is affected by contractual principle and repricing terms, but other adjustments may be required to reflect available term options. Common practice in the industry is to calculate adjustments to the base rate for the impact of these term options on the duration of the contract.

  • Adjustments may be calculated based on “swap curves” using the FTP Cash Flow method.
  • Adjustments may be calculated based on the FTP Term to Maturity.
  • The third method is to use an assigned key rate that is pre-calculated and saved to a table.

To manage the different FTP base rate adjustment options, the FTP administrator uses the FTP Rate Rules utility, which saves the structures of the separate FTP adjustment rules to a reference table that in turn may be used in multi-pass calculation processes.

  • You set rule conditions in the FTP Rate Rules utility. For each new rule, you can create multiple versions differentiated by various criteria set with filters. The FTP Method Assignment utility that maps rules to instruments uses these filters to determine which of the instances to map to each record.
  • The FTP method associated with each rule determines the engine used for calculation. For example, if a rule’s method is Cash Flow, the rule is processed by the Calc Cash Flow engine. The engine used for each method is set in the FTP method table.
  • Term is a rule property. You can create multiple instances of the rule, one for each term.
  • A product is not required to have an FTP adjustment assigned to it, but it must have an assigned FTP base rate rule.
  • Three standard rules are assigned to the FTP Base Rate field, one for each FTP engine:

    • Cashflow

    • TermToMaturity

    • AssignedRate

  • Rules assigned to either the Cash Flow or Term to Maturity calculation engines must also be assigned to a valid yield curve.

  • Rules will also be assigned to a detail FTP field in either the FTP Detail Data Table or the Instrument Source Data Tables.

Sub-rules and filters

Rate rules are mapped to groups of instrument records having the same ACCT, PROD, IType and Amortizing settings. This is done with the FTP Method Assignment utility. You can assign one base rate rule and an adjustment rule from each of the five categories to each group of these records.

Sub-rules enable you to create multiple rules that share the same rule name for FTP method assignment purposes. Sub-rules are differentiated by their filters, which limit the instrument records to which they will ultimately be mapped. All but one of a “master rule’s” sub-rules must have filters.

A filter is required when you add a sub-rule to an existing rule name. Otherwise, naming a sub-rule is optional but recommended. The filter limits the application of a rule to the subset of instruments that satisfy the rule filter. The client will be guided in the creation of the filter rule by clicking on the ellipsis to launch the Axiom filter wizard. The source table for the filter is the InstModelStg table.

Tips for creating filters

  • Build robust filters. The utilities map rules to instrument records in rule number order and will overwrite the mapping of one rule with another rule if there is an overlap. For this reason, it is important to build sub-rule filters so they include all records you want them to apply to and exclude all records you do not want them to apply to.
  • An unfiltered sub-rule is the default. A sub-rule with no filter will be mapped first and applied to all records mapped to the master rate rule. Rules with filters will then be mapped and will overwrite the mapping for instruments that pass their filters, leaving the rest with the unfiltered rule.

Sub-rule examples

The following are examples of sub-rules:

  • A main rule called Liquidity Premium has two sub-rules, one for old and one for new mortgages differentiated with filters based on origination date so the system can apply different Calculation methods.

  • The Management Spread main rule has a sub-rule (not named) that assigns an FTP Adjustment to Balances that are $200,000 or below, and a different rule to Balances > $200,000. This allows the system to use different Calculation methods to apply an adjustment rate.

    Examples of sub-rules associated with rate rules.

    Part of utility displaying Rules Filter columns. Top group is for Liquidity Premium sub-rules “LP Old Orig” and “LP New Orig.”
    The bottom group displays the filters for unnamed sub-rules for the Management Spread rate rule.