Use of THM80 in Treasury Hedge Management

[former_member293658]

Hello Treasury Experts,

We are on SAP ECC6.0 with EA-Finserv 2.0.

Can you advise is it possible to use the Treasury FX module for valuing forward exchange transactions in SAP without having to run the THM80 transaction to perform effectiveness testing on the trades? Currently, we think the available THM80 functionality in SAP does not have the ability to perform effectiveness testing on the forward exchange transactions in the same manner as the existin Treasury system. Therefore, we are investigating the possibility of performing the effectivess testing separately outside of SAP. In the real world, these forward exchange transactions will be taken out with the bank to hedge a specific FX exposure. We would want to value the forward exchange transaction on SAP in line with FAS133 requirements.

Can we do this on SAP without including the THM80 effectiveness tests? For example, will TPM1 still be able to determine the effective & ineffective portions of an FX trade to post to OCI/P&L if we have not run THM80 beforehand. If it is possible to do this, is there a specific process or specific things we need to follow to ensure this is accounted correctly?

Thanks for your advice.

Michael.

[former_member293658]

Hi Ravi,

I wonder if you had any further input after last update please?

Alos, could you advise plese the steps (transactions, configuration, and fiel format) for transferring an effectiveness test (itself calculated manually in spreadsheets) into SAP?

Thanks and regards.

[Former Member]

Hi Michael,

Did you find a way in order to load external effectiveness test result and change the OCI & P&L split into SAP?

Can you share what you did.

Regards,

Subhrajit

[Former Member]

Hi,

Firstly, the full functionality for Hedge accounting is available from EhP3 release onwards.

As an alternative to THM80, you can use external function and save the valuation figures using TPM74 to SAP tables and run TPM1 to pass necessary automatic posting entiries.

Regards

Prasad AV

[former_member293658]

Hello Prasad,

Thanks for the reply. Do I understand correctly that we must use some effectiveness valuation (either using THM80 or TPM74) in order to have TPM1 post the correct valuation entries? There is no possibility not to include any valuaton test (although I Guess I don't see how this would be possible really, since then the system would not then know whether the hedge relationship effectiveness results were really effective or ineffective).

If we must use TPM74, could you briefly advise the steps that would need to be undertaken in order to load the results of the spreadsheet external valuation into TPM74? For example, does the file have to be in a certain format, is there much configuration steps that need to be completed? Also, is there still a link from the THMEX -> History to the TPM74 effectiveness results over the life of the hedge relationship in the same way as there is a link to the THM80 history results?

Thanks for your help.

Regards

Michael

[Former Member]

Hi,

TPM74 update will help you to perform a TPM1 valuation manually and post necessary accounting entires.

You can write a simple BDC upload program to update values from Excel to SAP system. Necessary configuration for TPM1 to be done in accordance with data you are updating in TPM74.

Regards

Prasad AV

[Former Member]

Hi,

Just to expand on the point made by Prasad.

Using TPM74, you cannot split the valuation amount into effective components and non effective part as mandated by IAS39. In TPM74 you can store the present value and valuate the book value by comparing it with the present value stored in TPM74. However, you will not be able to manage hedging relationships automatically if you do not use effectiveness through hedging.

Also while realizing the actual gain/loss, the system will not be able to differentiate the effective and ineffective component.

Hence could you please elaborate more on the exact requirements where SAP system does not match your requirement. Effectiveness tests can be carried out in a separate system and results transferred into SAP system.

Regards,

Ravi

[former_member293658]

Hi Ravi,

Thanks for your input here. Yes we would need to system to split out into effective and ineffective in accordance with IAS39. So it seems that TPM74 might not work for us here.

There is a detailed background as to why we currently cannot make TPM1 work for our requirements. I have included the detail below, if you had any ideas on how we could realize this it would be a huge help to us.

At a basic level, our current effectiveness testing on our legacy Treasury system involves assessing each hedge relationship against (a) daily FX rates and (b) 3 month daily swap rates (ie daily_rates_adjusted_with_3month_swap_rates). Only if the Hedge Relationship is effective against both measures will we then class the Hedge Relationship as effective. We need to replicate this effectiveness test in THM80. However, currently we canu2019t see a way of getting THM80 to do that, unless we try to achieve something in the BAdi JBA_SFGDT.

Per the current business process, we must regress each hedge relationship twice in THM80: first run we regress against the daily rates and second run we regress against the 'daily_rates_adjusted_with_3month_swap_rates'.

If the regression is ineffective after either run, we save the ineffective result in THM80 which will then drive the TPM1 to class to P&L as ineffective rather than OCI as effective.

We want to use THM80 to meet the requirement. Since THM80 is based on a particular calculation type (and each calculation type can only have one FX rate type specified on it), and the AT15 table does not accept an FX rate type with blank values against it, the only way we can see how this would work is to have 2 FX rate types to represent (1) the first FX rate type will have the daily FX rates loaded to OB08 (TCURR) and (2) the second daily FX rate type will represent the daily FX rates loaded to OB08 plus with swap rates loaded against that FX rate type in AT15.

However the problem with this approach is it would mean loading the daily FX rates twice to OB08/TCURR which is not practical from a business viewpoint and is also more overhead/maintenance and increases the size of TCURR etc.

Apart from loading the daily FX rates twice against 2 different FX rates types in OB08, one other possibility is to adjust the BAdi JBA_SFGDT (we are already using this BADI). To use the BAdi we would have to create 2 calculation types for use in THM80: calculation type A will have FX Rate Type1 (which has the daily FX rates from TCURR) and calculation type B will have FX rate Type2 (which we will have maintained swap rates against in AT15). We will then run two tests in THM80: the first test will have calculation type A (which will have the daily FX rate type) specified in the individual parameters of THM80 and the second test will have calculation type B (which will have the FX rate type against which the AT15 swap rates are maintained). We would then have to place some kind of coding in the BAdi so that when the system reads the calculation type A it will not enter the routine to read from AT15, and when it reads the calculation type B it will enter the routine to read AT15 and perform the interpolation of the AT15 swap rates. The problem with this approach is that the BAdi JBA_SFGDT does not have access to the calculation type from THM80, so at the moment it does not seem possible to distinguish here based on the calculation type.

Is there another way to use the functionality to meet the requirement

in THM80? Or any suggestion on how we could use the BAdi to help meet the requirement for 2 regression tests?

Thanks for any input that anyone can offer here.

Regards