How to Solve Issues With Index Calculation Agent And Index Maintenance.?

Who is a calculation agent?

A calculation agent is a person or institution in charge of calculating the value of a derivative. A derivative is a financial asset based on the underlying asset or benchmark. A calculator estimates the value and the sum owed by each party for a derivative. The calculator may also set the price and function as the guarantee and issuer for a structured product. If the counterparty is a broker dealer in a derivative transaction, they often function as a computing officer.

·         An index calculation agent is responsible for computing the value of a derivative, such as a swap or a structured product, and may also serve as the guarantor and issuer.

·         The ultimate price, the currency rate if two distinct currencies are exchanged, and any accrued interest are all determined by the calculation agent, who might be the seller or a third party.

·         The calculating agent makes it easier for the two parties to pay their cash flows and defines the exchange's settlement date.

What does an index calculation agent do?

·         Calculating the ultimate price using the agreed-upon valuation technique under index maintenance

·    Calculating the exchange rate when two different currencies are exchanged as a result of cash flow payments between the two parties.

·         Calculating earned or accreted sums, as well as interest that has accrued

·         calculating the current market price

·   Choosing a number of business days for cash flow settlement, such as two business days after the transaction trade date.

·         Any changes or reorganizations that are required or requested by the parties involved

·         In order to complete the transaction, you must behave in good faith and be reasonable, as well as provide proper, timely notification or confirmation of the financial facts.

How can an index calculation agent help you?

Because most index calculation available to retail investors are standardized and traded on liquid and usually transparent marketplaces, the average investor is unlikely to interface directly with a calculating agent. In these situations, determining the price primarily entails examining the publicly known market price.

The calculating agent becomes more important if the derivatives in question move into thinner markets or the structure of the transaction gets tailored away from market standards. When the calculation agent is also the seller, however, the extra emphasis attributed to the calculation agent's judgement can result in a conflict of interest.

The real valuation of more exotic derivatives that have been designed for the client may be determined by a dealer's internal models. Because some pricing information and approaches may be exclusive to that particular dealer, third-party dispute resolution becomes more complex. Third-party dealers can be polled in these circumstances to help construct an average based on the derivative's contractual design. A response by the stated timeframe from an agreed-upon minimum number of responders is required to make a determination of this nature.