Effective maturity and compliance
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Effective maturity and compliance

Q:  I am having a problem with a trade with the error message 'Unapproved issuer maturity (0-397dy).'  There is in fact a compliance rule on the fund which would explain this error, since the security matures on 5/15/2005, and this would exceed the 397dys limit. However, this cusip has a call date on 5/15/2000, which is valued on the trade ticket and also on the cusip profile. I also 'forced' the effective maturity in the CALC tab, but it still reads the final maturity, 2005, as the effective maturity.  Am I missing another field which would drive it to read the call date as the effective maturity?  It there another way to accommodate security with call features?

A:  The effective maturity is NOT based on the current call conditions, because the active feature can vary from day to day based on prevailing market prices. Effective maturity is based on var_rate_reset, put_date (because the current holder controls the disposition), any override on a TICKET, and the final maturity. The call date is only returned if the security is marked as pre-funded, because then the call is forced.

Typically, effective maturity has to be based on an event that is either predictable or under the owner's control. The fact that, at today's price, a security happens to be trading to its call date, is NOT a stable or predictable situation. A drop of just .25 could make the bond go back to being priced to maturity. Besides, the conditions that lead to a security being priced to call are NOT necessarily the same as the conditions which lead an issuer to announce a call (in which case, it becomes pre-refunded, and the call date is favored).

Last updated: 04/28/05

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