2.3.3 Calculating Brokerage using a Tenor-Based Tier/Slab Structure
Calculation of brokerage using a Tenor-Based Tier Slab Structure is explained with an example.
| Amount Basis | Tenor | ||
|---|---|---|---|
| (Slab) | (0-100 days) | (101-200 days) | (201-250 days) |
| 0 - 100,000 | 0.1% | 0.15% | 0.17% |
| 100,001 - 1,000,000 | 0.2% | 0.25% | 0.3% |
| 1,000,001 - 99,000,000 | 0.5% | 0.75% | 1% |
Let us see how the brokerage is calculated for the following contract:
Contract Amount = USD 800,000
Tenor = 250 days (assuming that the difference between the maturity date and value date is 250 days)
The contract amount is USD 800,000, which falls under the second amount slab. The contract duration is 250 days, which falls under the third tenor defined for this amount slab.
Therefore, brokerage = 800,000 * 0.3% = 2400.
For this combination, the contract amount will be distributed amongst the various slabs and depending on the tenor, the rate corresponding to the tenor will be used to calculate the brokerage.
Brokerage for the first 100,000 (1st amount slab) is calculated as follows:
The contract tenor is 250 days, which falls in the 3rd tenor.
Therefore, brokerage = 100,000 * 0.17% = USD 170
Brokerage on the remaining 700,000 = 700,000 * 0.3% = USD 2100
The total brokerage = (170+2100) = 2270
Specifying a Duration Based Brokerage
At the time of defining a brokerage rule, you can also specify whether the brokerage amount should be calculated based on the duration of the contract. In effect, you indicate whether the duration of the contract is a component in the formula for calculating the brokerage amount.
The formula used will be (Rate %* Contract Amount*Duration of the contract)
The duration of the contract will be calculated based on the Interest basis that you specify. You can either choose to apply the interest basis associated with the contract currency or opt for a different Interest basis from the drop-down list. Interest basis is defaulted from the Currency Definition table if you select the ‘As per contract ccy’ option.
Parent topic: Brokerage Rule Definition