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.

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.

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.

Section 5.3, therefore, describes the basic principles and creates an understanding of the rela-tionships 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.

Section 5.5 describes two sample scenarios to illustrate the Customizing structure in detail.

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

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.

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

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.

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.

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 differ-ently. 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 corre-sponding 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.

Define update types

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.

Assign update types to flow types

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.

These characteristics for securities are the following: _Company code _Securities ID _Securities accountThe company code appears as a differentiating characteristic in all positions because it identifies the owner

Positions for listed options and futures are therefore identified in the Transaction Manager by at least the following four terms:

Company code _Securities ID _Futures account _Long-short indicator

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.

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.

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.

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

Assigning an Update Type to a Condition Type for Asset Positions

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 con-cerned, 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.

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.

Securities Account Cash Flow for a Bond with Interest Income Tax

Customizing for Taxes in Securities Account Management

How do you define the flows for incoming payments in Customizing?

1.Company Code-Dependent Settings for Product TypeIn the company code–based settings for the product type (Figure 5.8), you must enter the value "1" (Generate Incoming Payment inPlanned Status) or "2" (Generate Incoming Payment in ActualStatus) 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 managementYou 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 debitposition flow field). Leave the Can be processed automaticallywith debit position indicator blank for the update types for the incoming payment itself.3.Assign update types to the functions of securities account manage-mentFinally, 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 _ UpdateTypes _ Assign Update Types to the Functions of SecuritiesAccount Management.

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

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.

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).

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 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 UpdateTypes for Securities Account Transfer. For each product type there, you specify an update type for the outflow and inflow.

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 _ SecuritiesAccount 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.

Corporate Actions

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: _Stock splitBy 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. _Capital increase from retained earningsThis 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. _Capital reductionThis is the opposite of a capital increase from retained earnings. _Stock swapAfter a takeover or merger, one stock is replaced with another stock at a predetermined ratio. _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.

_Posting new sharesNewly 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. _Issue currency changeoverThis corporate action describes the activity whereby the issue currency of a security changes. This corporate action affects any securities, not just stocks. _Manual corporate action

In reality, these are probably already the most common corporate action categories. In addition, you can still define manually generatedcorporate actions, such as a corporate action for the spin-off of enterprises.

Implementing 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 _ SecuritiesAccount 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 _ DefineTypes 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

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.Manual corporate actionWe 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 5.16shows the input screen for a manual corporate action.

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

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.

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.

The Customizing for corporate actions is located under TransactionManager _ 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.

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 variationmargins. 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 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:

_Future styleListed options are settled and managed like futures. For example, margin flows are generated, and the options generate single positions.

_Normal styleListed 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,

You can receive similar information in the Futures Account Cash Flowtransaction (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

If you want to clear long positions and short positions instead of close transactions, the system provides two transactions for this purpose: _Match Long/Short Positions (Transaction TPM91) _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.

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

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.

Specifying Update Types for Futures Account Management

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.

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 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.

To distinguish these parallel records from ledger positions, the valuationarea 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.

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.

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 _ Setthe 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.

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.

Defining Valuation Areas

Because valuation areas represent accounting principles, they exist independently from their usage in a specific company code. In defining the valuation area in Customizing under Transaction Manager _ GeneralSettings _ Accounting _ Organization _ Define Valuation Areas, you are simply defining the name, not any functions.

In the following activity, Assign Accounting Codes and ValuationAreas, 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.)

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.

You can find the respective Customizing under Transaction Manager _ GeneralSettings _ Accounting _ Settings for Position Management _ Defineand Assign Valuation Classes. The special valuation classes depend on the valuation area, as they only make sense in relation to an accounting principle.

General Valuation Class

The Transaction Manager broadly tries to mask the complexity of paral lel 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.

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 valuationclass column) of the Local GAAP valuation area (Name of valuationarea 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.

Defining General Valuation ClassesSelect 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.

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 _ Settingsfor Position Management _ Assign General Valuation Classes toGroups.

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.

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 SequenceProcedure. 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.

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.

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.