Collateral - User Guide: Release R15.000

Collateral - User Guide
Release R15.000
June 2015
©2015 Temenos Headquarters SA - all rights reserved.
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Table of Contents
Introduction 3
Purpose of this Guide 3
Intended Audience 3
Collateral Overview 4
Collateral Configuration Overview 5
COLLATERAL.PARAMETER 6
COLLATERAL.TYPE 8
COLLATERAL.CODE 11
CUSTOMER.COLLATERAL.TYPE 13
Collateral Deal Processing Overview 14
COLLATERAL.RIGHT 15
Limit Level 15
Customer Level 16
COLLATERAL 18
Examples 19
Physical Collateral — A Painting 20
Automatically Valued Security Deposit Account 21
Online Update of Cash Collateral 24
Multiple Collateral in MM 26
A Maximum Level of Cover Allowed 27
Partial and Split Collateral Use 28
Split Collateral 29
Using Portfolios as Security 30
Collateral Allocation 32
Allocation of Collateral 34
Manual Collateral Allocation Priority 35
Collateral and Limits 36
Limits and Collateral 37
Fixed and Variable Limits 38
Secured Limit Example Setup 41
Partially Secured Limits 45
Specifying the Types of Collateral that Maybe Setup as Security 47
Collateral Required Processing 49
Collateral Required Amount 50
Collateral Required Percentage 51
Online Update 52
Clean Risk 53
Variable Third Party Pledges 54
CUSTOMER.PLEDGE 55
CUSTOMER.PLEDGE.GROUP 56
Enquiries and Reports Overview 59
Enquiries 60
Reports 62
Real Time Portfolio Collateral Valuation 63
Setup for Real Time Valuation 64
Workflow for Real Time Valuation 65
Collateral - User Guide - Release R15.000 - Page 2 of 67

Introduction
Purpose of this Guide

The Banking Framework User Guides provide a profound insight into the developments and changes to the Core Financial Products and Core
Financial Services of T24.
Intended Audience
This Banking Framework User Guides are intended for T24 Customers and Internal Stakeholders to stay informed of the latest developments
and changes on the Licensed Core Financial Products and Core Financial Services of T24, which are constantly revised and upgraded to leverage
new technologies and new technical architectures.

Collateral Overview
COLLATERAL is an optional module (it is not supplied as part of the core T24 system). It can link into the LIMITmodule, and allows the
definition and control of collateralised limits.
An item of collateral can vary from a ship to a house or from paintings and sculptures to a single stamp (or an entire collection). These items
will be valued against a market value on a set frequency or ad-hoc basis.
Items which are contained within T24 itself may be valued automatically, especially in cases such as a Deposit Account, fixed term Deposit, or
all (or part) of a Client portfolio of stocks and shares.
Once the underlying static files are in place the 'Right' or link to items of Collateral is made in COLLATERAL.RIGHT; Here it is decided what
the collateral can be used as security for ('linked to'):

Collateral Configuration Overview
The related pages listed below describe the sequence of how to configure the Collateral module, including the Parameter Settings.
l COLLATERAL.PARAMETER
l COLLATERAL.TYPE
l COLLATERAL.CODE
l CUSTOMER.COLLATERAL.TYPE

COLLATERAL.PARAMETER
The COLLATERAL.PARAMETER is used to define company level system parameters; therefore the ID is the COMPANY code of your T24 sys-
tem. The values entered on the record will affect the defaults used when creating collateral files and the length of time items are held on the sys-
tem. The help texts on the few fields required on this record provide all the necessary details required to complete the input.
Note that the DEFAULT.ADDRESS field relates to whether you want to record details from the CUSTOMER file for certain
COLLATERAL.TYPErecords. So you may need to amend this record again later.
There is a useful option set by the field called COLLATERAL.LINK. This takes the user to the appropriate COLLATERAL record straight after
they have successfully validated the COLLATERAL.RIGHT record it relates to. Whilst this is very useful for getting the key correct and aiding
input, it should be noted that the records still require authorisation in the correct order (COLLATERAL.RIGHT before related COLLATERAL
records).
This record can also be used to specify a Margin for the Currency conversion risk in respect of Collaterals when the Collateral Currency is dif-
ferent from the Limit Currency.
Trade Dated GL balance under TDGL Account system can be included for Collateral Valuation. This makes the system to consider future date
account balance on the Trade date itself instead of Value date for Collateral processing. The following setup need to be made in
COLLATERAL.PARAMETER to include the Trade Dated GL balance.

COLLATERAL.TYPE
This file is used to define classes (or types) of COLLATERAL such as cash, buildings, guarantees and stocks (or sub-divisions thereof). The
information on this file is used to determine, for each type, how the COLLATERAL value is established, re-valued and linked to other
applications.
For example the general classes could be:
ID Type Description
100 CASH All types of Cash, Accounts, MM & LD deposit contracts.
200 HOUSE All forms of property, from domestic to industrial properties.
300 ART Could cover paintings, sculpture, jewellery etc.
400 SHARES The value of a client's chares.
The key to this record is numeric and is entered in the COLLATERAL.CODErecords.
In this example screenshot, the APPLICATION field has been set to mandatory using the APPLICATION.INPUT field and is multi-valued to
allow the differing types to be accepted under this class of collateral.
It should be noted that the valuation method should be valid for the types entered. Here T24 will provide the value for the contracts and
accounts.
A short note on value types:
l NOMINAL.VALUE - Is the face value or current market value of collateral.

l EXECUTION.VALUE - Is expected value it would realise on sale. This can be expressed as a percentage of Nominal value if
required or value of underlying MM, LD contract etc.
l THIRD.PARTY.VALUE - Shows how much value of the collateral is used outside of T24 , the prior right of another lender. This
amount is deducted from execution value to determine the net execution value of collateral.
l GEN.LEDGER.VALUE - The amount we record for General Ledger purposes.
l CENTRAL.BANK.VALUE - Any specific limitation on values set by the Central Bank.

Input choices for the fields are:
l M - Mandatory
l O - Optional
l N - Non inputable
l n%N - Percentage of Nominal value
l n%E - Percentage of Execution value
l F - Fed The nominal value of the collateral is automatically fed from the application main record belonging to the collateral
l FM - Fed/Margin(available only when securities is entered in the APPLICATION field) The nominal value of the collateral is auto-
matically fed from the application main record belonging to the collateral, using the margin value calculated by the application.
For a detailed explanation on the excepted combination values for these fields refer the extensive help text.
Using a structured record set-up may assist in entering and understanding the links between the COLLATERAL.TYPE and
COLLATERAL.CODE records. The following is an example of a basic structured record set-up.
Collateral Type Description Collateral Code Description
100 Cash 101 MM Deposits
102 LD Deposits
103 Savings Accounts
200 Houses 201 Business Property
202 Domestic Property
The following is a detailed customer example, explaining the IDs used and how you can configure a logical key structure.
File Key Details

CUSTOMER 50003 Glaxo Welcome INC Customer record
COLLATERAL.TYPE 100 Cash Collateral - Class of cash or equivalents
COLLATERAL.CODE 101 MM Deposits - Specifically MM deposits, links too 100 COLLATERAL.TYPE record
102 LD Deposits - Specifically LD Deposits, links to 100 COLLATERAL.TYPE record
103 Savings Accounts - Specific to Accounts, links to 100 COLLATERAL.TYPE record
COLLATERAL.RIGHT 50003.1 The first linking of collateral for 50003
50003.2 The second link for 50003
COLLATERAL 50003.1.1 COLLATERAL item 1 linked to 50003.1 COLLATERAL.RIGHT
50003.1.2 COLLATERAL item 2 linked to 50003.1 COLLATERAL.RIGHT
50003.2.1 COLLATERAL item 1 linked to 50003.2 COLLATERAL.RIGHT

COLLATERAL.CODE
COLLATERAL.TYPE records must be input prior to COLLATERAL.CODE record.
Once the values in COLLATERAL.TYPE have been input, the COLLATERAL.CODE records may be entered. The COLLATERAL.CODE allows
further sub classification of the collateral objects like credit balances in account, land, buildings, bronze sculpture, stone cravings and so on.
Each of these sub classifications in T24 can be recorded in a COLLATERAL.CODE record.
The following screenshots show a hierarchy set up for Art. The high level COLLATERAL.TYPE record 800 has been set up for ART.
Using the COLLATERAL.CODE application this has been further sub classified with records 801 for Bronze Sculptures and 802 Stone Carvings
in the following records:

The collateral codes are linked to COLLATERAL.RIGHT records; these collateral rights can be recalculated and the rights themselves can also
be reviewed at periodic intervals. This is achieved by using the following fields:
l PERCENT.DATE.FQU is a combined date and frequency field, which determines if and when the system is to automatically recalculate
the value of the PERCENTAGE.COVER field of the COLLATERAL.RIGHT main file records belonging to this code.
l REVIEW.FQU is used to generate a default value for the REVIEW.DATE.FQU field in the COLLATERAL.RIGHT main file belonging to
this code.
The collateral code is also used in determining how collateral values are reallocated across central bank reporting lines.

CUSTOMER.COLLATERAL.TYPE
This file is used whenever the Collateral execution value(if defined as a % of Nominal Value in Collateral Type) should be different for specific
Customers. For a record to be entered in this file, the Execution value in the main COLLATERAL.TYPE record should have been defined in the
format %N. The ID of the records in this file would be a Customer ID followed by a Collateral Type ID separated by a hyphen.
ILLUSTRATION
COLLATERAL.TYPE ID: 100

NOMINAL.VALUE: F
EXECUTION.VALUE: 100%N.
For example when a LD deposit of USD 100,000 is attached to a Collateral belonging to this type, then the nominal value will default to USD
100,000 and the execution value will be also be USD 100,000, which is 100%N.
If for customer 50003, the execution value desired is 85%N, then a record with ID 50003- 100 could be created in
CUSTOMER.COLLATERAL.TYPE and EXECUTION.VALUE would be defined as 85%N. For the same Collateral defined above, the execution
value for the Customer 50003 will be calculated as USD 85,000 (85% of Nominal Value).

Collateral Deal Processing Overview
Collateral records for individual customers who are offering different types of collateral to the bank need to be established. This is done using
the following applications:
l COLLATERAL.RIGHT
l COLLATERAL
l Examples

COLLATERAL.RIGHT
The COLLATERAL.RIGHT file is used to record the status of a right of security and to indicate against which customer outstandings, the right
applies.The link between the COLLATERAL.RIGHT and the COLLATERALobject itself is implicit in the item-id structure between the two
files.
Field ALLOCATION.AMT is used to specify allocation amount. This is allowed only when the Contract Reference is directly provided. Field
ALLOCATION.CCY is defaulted by system based on the contract id.
The LIMIT.REFERENCE field on the COLLATERAL.RIGHT record is used to identify which contract(s) the collateral is valid against. This
link between the collateral and the outstanding debit balances belonging to the customer may be made at one of three levels as follows:
l Contract/account level - the collateral is valid only against a given contract or set of contracts
l Limit level - the collateral is valid against all contracts currently recorded under a particular limit reference and against any contracts
which subsequently come under the limit
l Customer level - the collateral is valid against any debit balance, which exists or arises on the customers accounts or contracts with
the bank.
This screen shot shows an example of a contract level COLLATERAL.RIGHT.
Limit Level

The COLLATERAL is valid against all contracts currently recorded under a particular limit reference and against any contracts, which sub-
sequently come under that LIMIT.
Collateral can be allocated to limits at any product level if PERCENT.ALLOC is populated; in this case, the percentage of the execution value of
the COLLATERAL defined is directly allocated to the limit defined in LIMIT.REFERENCE.
If PERCENT.ALLOC is not defined then the execution value of the defined collateral is allocated in order of entry, to the limit at the top of the
limit structure of the limit defined in LIMIT.REFERENCE. The amount allocated is for the value of the ONLINE.LIMIT until the execution
value of the collateral is exhausted.
Note: The item can be spilt across several LIMIT's or contracts by percentage as in the screen shot.
Customer Level
The COLLATERAL is valid against any debit balance, which exists or arises on the customer's accounts or contracts with the bank.

It is important to note that though the default name of the field is LIMIT.REFERENCE, the actual content may be either:
l An ACCOUNT
l A FOREX contract
l A MM.MONEY.MARKET contract
l A MG.MORTGAGE contract
l An MD.DEAL contract (Guarantee)
l A valid LETTER.OF.CREDIT
l An AA Loan Arrangement
l Or the entire CUSTOMERoutstanding's if this is left blank
The following screen shot shows that security from Glaxo Welcome Foundation is being used as cover for the loan to David brown Ltd.

COLLATERAL
The item of collateral itself is defined on the COLLATERALfile, which contains details of the values, review frequency, value date and expiry of
the collateral.
It is also possible to define a partial use of an item, a fixed amount of the available collateral and even on the contract itself a maximum usage of
that collateral. At present this is restricted to Money market deposits.
There is the option to enter an EXPIRY.DATE on both the COLLATERAL item itself and the controlling COLLATERAL.RIGHT. An item of
COLLATERAL is marked as liquidated on the earlier of these two dates. Once the COLLATERAL expiry is reached, the value is no longer
useable by the system, whereas when the COLLATERAL.RIGHT expiry is reached, the right to all collateral linked to it becomes invalid.
Note: The expiry of the item of collateral (such as the deposit contract maturity) is not defaulted automatically to the EXPIRY.DATE field.
This is because the underlying contract can of course be extended at anytime.

Examples
The following pages will provide examples of different types of collateral and how it is used:
l Physical Collateral — A painting

l Automatically valued security - Deposit account
l Online update of cash Collateral
l Multiple Collateral in MM
l Partial and Split Collateral use
l Using Portfolios as Security
l Fixed and Variable Limits
l Collateral Allocation
l Collateral and Limits
l Variable Third Party Pledges

Physical Collateral — A Painting
This is a very simple example and shows the COLLATERAL record defining the valuation and how it is linked to COLLATERAL.RIGHT where
it is used to provide partial security for a loan granted by the bank.
A COLLATERAL.TYPE of 800 defines a class of security of ART.
Physical Collateral – e.g. a painting.
Firstly, we enter the COLLATERAL.RIGHT, which details the item security that is required for.
A COLLATERAL.RIGHT.
At this stage, we do not have any amount of security we are just establishing what types of collateral are to be used for security. Next, we need
to enter the actual COLLATERAL record to link in the actual item (in our example it's a Painting held as security in the banks vault).
If settings in COLLATERAL.PARAMETER are defined, we are automatically taken to the input screen of COLLATERAL.
Note the values entered are shown for illustration purposes. The bank can of course decide that it will not accept the full current market valu-
ation, as the price, if the bank had to redeem the security, could vary a great deal. It has also been shown that a third party has a right to
$10,000 of any sale proceeds, and that the Central Bank recommends a figure of 33% of the market value for central bank reporting purposes.

Automatically Valued Security Deposit Account
Here the client is extended credit via the LIMIT system and the credit balance on his account is split between two Limits (a FX limit and a LD
limit). Enter the COLLATERAL.TYPE record that defines the valuation conditions for LD.
Enter the COLLATERAL.RIGHT to split between the two Limit types.

We have set it up so that 60% of the available cover is allocated to a LIMIT covering LD . The other 40% is used towards the clients FX
LIMIT.
Note: As we need to enter the id of each of the LIMIT records, these records need to be entered into the system before the
COLLATERAL.RIGHT can be input.
Attach the LD current account to the COLLATERAL.RIGHT record by defining the COLLATERAL record in the screen shot.

When the ACCOUNT number is entered, the system retrieves the available balance and populates the values fields as required. The current bal-
ance of the Account is USD 25,000.00 and according to what we have set, we require 60% of that to be allocated against the LIMIT
50003.00002000.01
l 60% of USD 25,000.00 equates to USD 15,000.00
Now we can check the LIMIT record to see if it has been updated.
We can tell that it has been successful as the amount of security is shown. There is more than enough cover to allow the full overdraft of USD
100,000.00 to be permitted.
There is a more detailed description on how COLLATERAL can assist the LIMIT module in providing variable Limits later in this guide.

Online Update of Cash Collateral
If cash collateral such as AC, AA, LD, MM, SC, FD, MD, LCE & LCI are attached to a limit record; any change in these collateral values are
updated during the Close of Business process.
However, if these collateral values can also be updated online, the collateral is recalculated when the limit reference is drawn. The field
ONLINE.UPDATE in COLLATERAL.PARAMETER, COLLATERAL.TYPE and LIMIT records control the online update of cash collateral and
must be set to 'Y' in all three records to allow this functionality as in the following three screen shots. If the field is marked "N" or left blank,
then no online update is done.
The field ONLINE.UPDATE can only be set to Y in the LIMIT record if the field FIXED/VARIABLE is also set to VARIABLE in limit.

Multiple Collateral in MM
If a MM deposit is to be used as collateral, it can be spread over a number of COLLATERAL records. However, it is not possible to allow the
combined amounts to exceed the money market balance, or if it has a value in the MAX.LEGAL.BAL field then it cannot exceed that. A per-
centage amount can be entered in the MAXIMUM.AMOUNT field on the COLLATERAL record, this will then set the field to be that percentage
of the money market balance (or MAX.LEGAL.BAL if set).

A Maximum Level of Cover Allowed
The bank sets a maximum level that it wishes to keep the collateral from exceeding. This is to ensure the bank is not using collateral, which it
has no right to be able to use. Here we use the field on MM.MONEY.MARKET called MAX.LEGAL.BAL.
As an example, if the legal paperwork allows the bank to claim USD 4.5million of a fixed term deposit, but after increase and capitalisation, the
contract is currently USD 5.2 million, it would not be correct to use the full amount as security.

Partial and Split Collateral Use
This can be used by a client who has a large MM deposit contract and wishes to use it as security for several different facilities up to a max-
imum value. Anything over that, they want to be able to draw against at any time.
To be able to achieve this we will enter multiple COLLATERAL items and the associated COLLATERAL.RIGHT records.
By partial, it is meant that not all of the MM deposit is used for security at once, even if it is available.
By splitting, the MM deposit can be used across different COLLATERAL.RIGHT records for various cover requirements.
With this in mind we will:
l Set the maximum use of the deposit to USD 5million.

l Use part of the collateral USD 3million – to cover a Loan.
l Use a further USD 1million of the collateral to cover an Overdraft facility.
l Leave some unallocated.

Split Collateral
We can enter the COLLATERAL.TYPE, COLLATERAL.CODE and COLLATERAL.RIGHT records as we have done before in the earlier
examples.
Here we shall concentrate on the different uses made within the COLLATERAL record(s):
If this was the sole usage of the MM deposit, then there remains a USD 2,000,000 unused security.
Let's now use another USD 1,000,000 and create a second COLLATERAL record using the same MM deal.
Note the id’s of these records are based on two COLLATERAL.RIGHT records; one covers the Loan contract, while the second covers an over-
draft facility.
T24 will not let you exceed the total of the contract either in one usage or across several records.

Using Portfolios as Security
In this example, the collateral we have defined is loosely described as Shares. We can arrange to take a complete Portfolio or to restrict it down
to an individual security holding, within a portfolio.
This is achieved by entering the key in APPLICATION.ID to select the entire Portfolio or part thereof. We also have the option to filter the col-
lateral to a specific ASSET.TYPE or SUB.ASSET.TYPE; this is set on the relevant COLLATERAL.TYPE record.
An override message is generated if an attempt is made to sell all or any part of the security holding being used as collateral. Collateral checking
of individual security holdings is performed in the following applications SEC.TRADE, SEC.OPEN.ORDER, SECURITY.TRANSFER,
POSITION.TRANSFER, REDEMPTION.CUS and ENTITLEMENT.
However, it is important to note that the value of the security holding is not taken into consideration when the override is generated, only that
it is being used as collateral.
We have issued a Guarantee on behalf of a client using an MD Contract and wish to link the shares of that client as security.
Here we have the COLLATERAL.RIGHT set-up in the following Screen shot.
Now the COLLATERAL itself:

Check that amount with an ENQUIRY SC.VAL.COST on the clients Portfolio:
So the client has:
TOTAL Financial Assets GBP 61,372.92

Total Domestic Shares GBP 67,780.48
Total GBP 129,153.40
This matches the amount shown earlier on the COLLATERAL record.

Collateral Allocation
When creating general ledger lines in RE.STAT.REP.LINE, it is possible to distinguish out standings by the CRF key and so on. However, to
report out standings, say for secured and unsecured loans, by collateral held you must use COLLATERAL.ALLOCATION to re-allocate the out
standings. Typically, you would allow all the Loans to be reported to the unsecured line and this utility will produce a report detailing the
adjustments required for each line to be reported. The adjustments do not amend the ledger or the source lines but produce a report of the
changes you need to make when producing external reports, for example to Central Banks.
RE.STAT.REP.LINE no. Description Out standings
GLSTD.100 Loans secured - Property
GLSTD.150 Loans secured - Shares
GLSTD.200 Loans unsecured USD 1,000,000.00
After running the utility the values would appear as shown below.
RE.STAT.REP.LINE no. Description Change Required
GLSTD.100 Loans secured - Property + USD 100,000.00
GLSTD.150 Loans secured - Shares + USD 150,000.00
GLSTD.200 Loans unsecured - USD 250,000.00
So, as shown below, the general ledger amount for Loans unsecured (GLSTD.200) would be:
Value from Ledger USD 1,000,000.00
Adjustment required USD -250,000.00
Manually reported USD 750,000.00
The following example screens show the COLLATERAL.ALLOCATION input screen and a sample report.

Collateral Allocation sample report.

Allocation of Collateral
A limit may have more than one source of collateral. That is, the limit number may occur on more than one COLLATERAL.RIGHT record. Each
of these collateral rights may refer to more than one limit and so on. T24 recognises this situation and if it fails to find enough collateral to
cover a limit it will try to reallocate the distribution of collateral across other permitted limits to free some collateral to eliminate the shortfall.
You may thus see collateral allocation to a particular limit change because of the collateral requirement of a limit, which shares access to the
collateral indirectly. This prevents some LIMIT’s blocking access to effectively usable collateral.
This facility is useful where complex connections of collateral and limits are in operation. Fairly simple arrangements will usually be sufficient.
Collateral Allocation Logic and examples

Manual Collateral Allocation Priority
The system will calculate the allocation sequence to try to reduce any shortfall as much as possible.
If you want to override the system’s sequence manually, then set the field ORDER.PRIORITY in LIMIT.CHANGE to “MANUAL”. This will then
set the ORDER.PRIORITY field in COLLATERAL.PARAMETER to “MANUAL” at the next close of business.
A record of how the system has allocated collateral to limits is kept in the file LIMIT.COL.ALLOC.WORK. If the COLLATERAL.PARAMETER
field ORDER.PRIORITY is “MANUAL”, then the priority of each collateral right within a limit can be set in the corresponding MAI.ALOC.PTY
field. The collateral re-allocation will take place when the record is authorised.
To find the limit or collateral right for which you want to set the priority, search LIMIT.COL.ALLOC.WORK field LIMIT.ID.
Unsecured Portion of a Variable LIMIT

You may consider the unsecured portion of a limit should only come into operation when there is not enough collateral available. On the other
hand you may want to allow the unsecured portion to be used without collateral, cover and only after that is exceeded then allocate collateral.
This does not affect the total of usable limit, only the amount of collateral allocated if less than the maximum is used.
This is controlled by the use of field COVER.UNSEC.1ST in COLLATERAL.PARAMETER.
Illustration
With COVER.UNSEC.1ST not set
Collateral available USD 90,000
Maximum unsecured USD 30,000
Maximum total USD 100,000
Secured Amt USD 90,000(+10,000 Unsecured)
With COVER.UNSEC.1ST set to “Y”
Collateral available USD 90,000
Maximum unsecured USD 30,000
Maximum total USD 100,000
Secured Amt USD 70,000 (+30,000 unsecured)

Collateral and Limits
A Limit can be:
l Secured
l Partly Secured
l Unsecured
When COLLATERAL is linked to a LIMIT, the LIMIT becomes Secured.
At times, the value of the collateral may not cover the limit amount; in this situation, the limit is partly secured.
If there is no collateral coverage, then the limit is unsecured.

Limits and Collateral
Items of COLLATERAL may be linked to LIMIT records. For example, a mortgage may be linked to a loan LIMIT. The link can either be used
for information only, a ‘fixed’ LIMIT, or the value of COLLATERAL can be used to determine the availability of the LIMIT, a ‘variable’ LIMIT.
The setting of fixed or variable is on the LIMIT record. The following diagram shows the Collateral and Limit structure.
The link is made by entering the LIMIT ID on the COLLATERAL.RIGHT record.

Fixed and Variable Limits
When a LIMIT is linked to COLLATERAL, the LIMIT must be defined as either fixed or variable in the FIXED.VARIABLE field on the LIMIT
record.
l Fixed means that the LIMIT is unaffected by the value of the COLLATERAL and the link is being made for information only.
l Variable means that the available amount of the LIMIT will correspond to the current value of the COLLATERAL.
Example:

A LIMIT is granted up to an overall maximum of GBP 100,000.00. If this facility is unsecured in terms of the T24 COLLATERAL Module, the
LIMIT record appears as follows:
If, instead, the facility requires security, it must be indicated by the user whether the online LIMIT is to be system-maintained (variable) or set
to the full maximum total allowed and fixed at that level. The current value of this security is, in either case, indicated by the system. In this
example, there is a mortgage, currently valued at 85,000.00. In the Fixed limit the AVAIL.AMT is 100,000 however in the Variable limit the
AVAIL.AMT is 85,000, which is linked to the underlying collateral. The screen shots below highlight the difference between using FIXED or
VARIABLE. Notice the ONLINE.LIMT and AVAIL.AMT are different.

An upper limit may be set in the MAXIMUM.TOTAL field. For variable LIMIT records, this means that if the value of the COLLATERAL
exceeds this maximum no, more than the MAXIMUM.TOTAL will be granted.

Secured Limit Example Setup
A limit is secured once a piece of collateral has been allocated to it. The following example shows how to set up a secured limit.
The customer Limit record must be in the system before a COLLATERAL.RIGHT record can be input with the LIMIT. In this example, the cus-
tomer has been granted a limit of 100,000.

Once the LIMIT has been entered in the system, a COLLATERAL.RIGHT record should be entered for the customer. The LIMIT ID should be
entered into the field LIMIT.REFERENCE in the COLLATERAL.RIGHT. This links the LIMIT to the collateral.

Enter the COLLATERAL record. In this case, a painting is being used as the collateral.

Once the collateral record has been authorised, the LIMIT record is updated with the collateral details.

Partially Secured Limits
If a LIMIT is partially secured then the MAXIMUM.UNSECURED field may be used to set the ceiling to the amount that may be unsecured.
Example:
A LIMIT is granted up to an overall maximum of GBP 100,000.00. The LIMIT is secured and variable. The current value of the underlying
COLLATERAL is exactly equal to the overall total limit. It is made up of a mortgage, currently valued at GBP 85,000.00, plus a piece of Art
worth GBP 20,000.00. However, the amount of any ART, which is acceptable as COLLATERAL has been limited to GBP 5,000.00
If there is no MAXIMUM.UNSECURED amount, the LIMIT record appears as follows:

If an unsecured portion of the LIMIT is to be allowed, it can be specified in this field. If, for example, there is GBP 5,000.00 available under
the limit without security, the limit record appears as follows.

Specifying the Types of Collateral that Maybe Setup as
Security
Normally the full value of all items of COLLATERAL linked to a LIMIT will be used as security against that LIMIT. However, there may be a
requirement to set a ceiling on the security provided by certain types of COLLATERAL. For example, if cash and shares are pledged as security
against a loan LIMIT of 100,000 GBP, the cash may be accepted up to its full current value but the shares may be limited to only 40,000
GBP. If the value of the shares is at any time greater than 40,000 GBP, the LIMIT application will not recognise the excess amount.
This specification is achieved through the COLLATERAL.CODE and MAXIMUM.SECURED fields on the LIMIT application.
Example:
A LIMIT is granted up to an overall maximum of GBP 100,000.00. The LIMIT is secured and variable. The current value of the underlying
COLLATERAL is more than the overall total limit. It is made up of land, currently valued at GBP 85,000.00, plus a piece of artwork worth
GBP 20,000.00.
If field COLLATERAL.CODE is left blank, the LIMIT record appears as follows: The LIMIT is secured against the 2 pieces of Collateral.
111653.1 for 85,000 and 111653.2 for 15,000. So the ONLINE.LIMIT and AVAIL.AMT fields are 100,000.

If however, the fields COLLATERAL.CODE and MAXIMUM.SECURED have been used to restrict the amount of any Art work, which are
acceptable as, COLLATERAL to GBP 7,500, the LIMIT record appears as follows.
In the example, the limit has been secured, however, there is not enough security to make the whole of the LIMIT available for use. It has been
restricted to GBP 92,500.

Collateral Required Processing

Collateral Required Amount
The field COLL.REQD.AMT in LIMIT is used to control minimum collateral required when fixed type limits are used. In case of fixed limits
type, the LIMIT is unaffected by the value of the COLLATERAL and the link is being made for information only. If minimum collateral is to be
brought for availing of the LIMIT then this field could control required collateral. If the required collateral is not provided, then during util-
isation of the limit an override is generated. If multiple collateral is entered with collateral required amount and not provided, then multiple
overrides are generated. These overrides can be overridden for utilising the LIMIT. This facilitates with additional information to the user.

Collateral Required Percentage
The collateral required can be controlled with either COLL.REQD.AMT as described above or COLL.REQD.PRCNT field in LIMIT. If the field
COLL.REQD.PRCNT is populated, then collateral required amount is automatically populated in fixed type limits. Percentage can be defined on
the basis of internal amount. Collateral required percentage in variable limits alters the secured amount of the respective collateral right. E.g. If
collateral value is 1,000,000 and collateral required percentage is defined as 200% then secured amount for the related collateral right pop-
ulates 500,000.
Collateral required can be defined for a future period with the field UP.TO.PERIOD. This field can be used as a schedule for changing the col-
lateral required amount. A valid future date can be input in this field. The date cannot exceed the limit expiry date. If a date is entered in up to
period field, then during the Close of Business processing the collateral required amount and percentage is replaced with period amount and
period percentage fields. Up to period, period amount and period percentage form a sub value set; numerous schedules can be defined for chan-
ging the collateral required amount and percentage.
The PERIOD.AMT field holds the collateral required amount for a future date. When UP.TO.PERIOD is processed, then the amount in this
field replaces the amount in the COLL.REQD.AMT.
The PERIOD.PERCENTAGE field holds the collateral required percentage for a future date. When UP.TO.PERIOD is processed, then the value
in this field replaces the value in the COLL.REQD.PRCNT”. Either period amount or period percentage can be entered; both cannot be entered
at the same time.
All the above fields are a part of the associated multi value set along with collateral code and maximum secured amount.

Online Update
The field ONLINE.UPDATE controls online update of fed (cash) type of collateral. If cash collateral such as AC, LD, MM, SC, FD, MD, LCE &
LCI are attached to a limit record; any change in these collateral values are updated during the Close of Business process. If any collateral value
is to be updated online, then this field is to be marked as "Y". (COLLATERAL.TYPE record of the collateral should also be marked "Y" in the
online update field) In such cases, the collateral is recalculated when the limit reference is drawn/utilised, if the field is marked "N" or left
blank, then no online update is performed. On line update of collateral can be used only in variable type limits.

Clean Risk
An additional LIMIT may be monitored for settlement of all contracts. The clean risk limit is specified on the LIMIT record and is the max-
imum total value of contracts that may mature on any one day.
To enable clean risk FX.OR.TIME.BAND on LIMIT.REFERENCE should be set to FX.
A LIMIT.REFERENCE with FX.OR.TIME.BAND field set to FX can only be used in LIMIT.PARAMETER for the FX and MM applications.
In the case of Money Market contracts only the maturity event of a maturing loan is included.

Variable Third Party Pledges
Functionality is available which enables the user to cover the liabilities of a group of customers, with the pledge offered by one or more cus-
tomers. Customers may generally pledge their assets (held in their portfolio) in favour of other customers. Each pledge has different priorities
and the amount allocated to each customer is calculated dynamically rather than based on fixed percentages.
The system will allocate the pledged assets of the main customers to the recipient customers, based on total liabilities of the recipients, in the
sequence of the priorities allocated, and produce a report during Close of Business Batch run.

CUSTOMER.PLEDGE
The ID of this record is a valid customer number, who is offering his assets as pledge for allocation.
This table contains the details of the recipient customers, the priority of allocation and the maximum pledge amount. There is also a provision
to specify whether internal pledges are allowed.
The priorities cannot be duplicated for different customers. For example: if customer 100113 gives priority 1 to customer 100114 then the cus-
tomer 100113 cannot give priority 1 to any other customer.
Similarly, customer 100114 cannot get the same priority from any other customer.

CUSTOMER.PLEDGE.GROUP
Based on the CUSTOMER.PLEDGE record the CUSTOMER.PLEDGE.GROUP record is generated by the system online. This record shows
the main customer who is offering pledge and the recipient customers and the priority allocated by the main customer to the recipient
customer. The updating is done as per implied pledge concept.
The various assets and liabilities of the individual customers involved in CUSTOMER.PLEDGE are processed during Close of Business batch
run and a report is generated showing the allocation of pledge between different customers.
At the time of allocation, suppose a main customer in CUSTOMER.PLEDGE is also having liability, his liability will be covered first with his
assets and only the balance amount, if available it is allocated to the different customers shown in the record CUSTOMER.PLEDGE.GROUP in
the order of priority. This procedure is followed for all the customers attached to the main customer in CUSTOMER.PLEDGE. This allocation
is shown in the file CUST.COLLATERAL.ALLOCATION, generated during Close of Business batch run.
The Assets and liabilities of various customers are processed during the Close of Business and the SC.POS.ASSET record is generated.
The individual SC.POS.ASSET records are shown below:

Details of SC.POS.ASSET
From the above examples the ID Customer 50043 has the following assets:
Credit balance in account 20087 10,000,000
LD Deposit LD0415500012 1,000,000
LD Deposit LD0415500013 2,000,000
LD Loan LD0415500014 25,000(-)
Net position 12,975,000
Based on the above information, the CUST.COLLATERAL.ALLOCATION is generated in the screen shot as follows:
l The total liabilities for the ID Customer 50043 are – 25000.

l The total Assets Market Value for the ID customer 50043 is 13,000,000
l The total Assets Market Value for this customer is (13,000,000 – 25,000) = 12,975,000
l Out of this an allocation of 100,000 was done for the customer 50029.
l The total of allocation of allocation is 100,000 (This is updated in MKT.VAL.ASSETS)
l The difference between the two, i.e. the free amount (12,975,000 – 100,000) = 12,875,000 is updated in the field
MKT.VAL.FREE.AMT
This process is repeated whenever there is a change in the assets and liabilities of the group, during the Close of Business.

Enquiries and Reports Overview

Enquiries
Although there are three ENQUIRY records, they are normally accessed through the first ENQUIRY CO.001. This requires the input of selec-
tion criteria based on a CUSTOMER code.
Drilling down for more information invokes the next ENQUIRY CO.010. In this example, we are drilling down on record 100391.008100.01
When drilling down for more information, the last ENQUIRY CO.100 is invoked.

Further drilling down for more information will take the user to the actual COLLATERAL record concerned.

Reports
The following reports are available for COLLATERAL
Report Id (REPGEN.CREATE) Description
CO.COVER Percentage of cover held by COLLATERAL.RIGHT
CO.EXPIRED Items past expiry date
CO.EXPIRY Items approaching expiry dates
CO.INVENTORY Inventory by COLLATERAL.TYPE
CO.REALLOC Adjustments for General Ledger
CO.REVIEW Review dates for COLLATERAL items
CO.RGT.EXPIRED Expired COLLATERAL.RIGHT
CO.RIGHT.EXPIRY COLLATERAL.RIGHT nearing expiry date
CO.RIGHT.REVIEW COLLATERAL.RIGHT nearing review date
The following are two sample pages from CO.INVENTORY report and CO.REVIEW report for customer 100391.

Real Time Portfolio Collateral Valuation
T24 reworks the Portfolio Collateral allocations automatically when there is a change in the value of the portfolio. Portfolio value change could
be due to:
l New buy or Sell in the Portfolio

l Change in the price of the portfolio
Any new transaction to the portfolio triggers the Portfolio valuation online when OV module is installed. The Portfolio valuation triggers the
collateral valuation, which happens through the service COLLATERAL.ONLINE.REVALUATION.
The Online revaluation of Collateral happens only when REALTIME.ALLOCATION is set in COLLATERAL.PARAMETER. The Online Col-
lateral revaluation happens even for the portfolio price change event. This real time valuation is applicable only for the assets that are attached
to the Portfolio.
Collateral revaluation/recalculation is also made to run online during call to enquires CUSTOMER.POSITION and LIAB and also can run at a
specific intervals that is specified in COLLATERAL.PARAMETER

Setup for Real Time Valuation
Valuation process gets triggered based on the setup REALTIME.ALLOC in COLLATERAL.PARAMETER.
REALTIME.ALLOC- can be set as:
l Yes- Performs Collateral revaluation when every customer portfolio is revaluated or Enquires are executed
l No – Does not perform the portfolio collateral revaluation online (will be done in COB by default)
l NN – Number in Minutes
This Collateral and Limit reallocation happens only when ONLINE.UPDATE is set in:
l LIMIT
l COLLATERAL.TYPE
l COLLTERAL.PARAMETER

Workflow for Real Time Valuation
When Real Time Valuation happens portfolio value changes due to Price change or any new Buy/sell. It takes the following workflow. If
REALTIME.ALLOC is set to ‘Yes’, Collateral Valuation is triggered when the portfolio value changes due to price change:
Real time allocation is triggered with any of the following events:
Workflow Example:
The example illustrates the workflow of collateral, which has a portfolio attached as the asset. There is a change in the price of the portfolio
and revaluation of Portfolio happens after the price change. The service COLLATERAL.ONLINE.REVALUATION gets triggered when
REALTIME.ALLOC is set to ‘Yes’. Value of the Collateral gets changed to the value of the Portfolio.
Collateral Before the Price Change:

Value after the Price change:
Same can be viewed in enquiry CUSTOMER.POSITION as well as where corresponding value of collateral has been updated:

Note: Collateral revaluation/recalculation is made to run online during call to enquires CUSTOMER.POSITION and LIAB and also can run
at a specific intervals that is specified in COLLATERAL.PARAMETER.

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©2015 Temenos Headquarters SA - all rights reserved.

Collateral - User Guide - Release R15.000 - Page 2 of 67

Purpose of this Guide

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For example the general classes could be:

100 CASH All types of Cash, Accounts, MM & LD deposit contracts.

200 HOUSE All forms of property, from domestic to industrial properties.

300 ART Could cover paintings, sculpture, jewellery etc.

400 SHARES The value of a client's chares.

The key to this record is numeric and is entered in the COLLATERAL.CODErecords.

A short note on value types:

l NOMINAL.VALUE - Is the face value or current market value of collateral.

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Collateral Type Description Collateral Code Description

100 Cash 101 MM Deposits

103 Savings Accounts

200 Houses 201 Business Property

202 Domestic Property

File Key Details

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COLLATERAL.TYPE 100 Cash Collateral - Class of cash or equivalents

COLLATERAL.CODE 101 MM Deposits - Specifically MM deposits, links too 100 COLLATERAL.TYPE record

102 LD Deposits - Specifically LD Deposits, links to 100 COLLATERAL.TYPE record

103 Savings Accounts - Specific to Accounts, links to 100 COLLATERAL.TYPE record

COLLATERAL.RIGHT 50003.1 The first linking of collateral for 50003

50003.2 The second link for 50003

COLLATERAL 50003.1.1 COLLATERAL item 1 linked to 50003.1 COLLATERAL.RIGHT

50003.1.2 COLLATERAL item 2 linked to 50003.1 COLLATERAL.RIGHT

50003.2.1 COLLATERAL item 1 linked to 50003.2 COLLATERAL.RIGHT

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COLLATERAL.TYPE records must be input prior to COLLATERAL.CODE record.

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COLLATERAL.TYPE ID: 100

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This screen shot shows an example of a contract level COLLATERAL.RIGHT.

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l Physical Collateral — A painting

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A COLLATERAL.TYPE of 800 defines a class of security of ART.

Physical Collateral – e.g. a painting.

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Enter the COLLATERAL.RIGHT to split between the two Limit types.

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l 60% of USD 25,000.00 equates to USD 15,000.00

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