Kinds of cut

The kinds of cut classify the occasion a cut is taken for, and not the size of the body. The purpose is single, a valuation that can be reproduced, so the body is the entire fixed world of one valuation in every kind. Five occasions are in use: the official valuation, the verification of prices, the intraday view, the start of the day, and the live view whose instant its consumer supplies. A process may also name an instant of its own. Each kind is stated by what it is for, what it fixes, the attributes its occasion gives it, and its relation to the two reviewed halves of the body.

A cut fixes a body of data at one timepoint, and its purpose is single: to make a valuation reproducible. The Cuts structure note argues that purpose and the size of the body that follows from it. Since the purpose is the same for every cut, the body is the same for every cut. A verification and an official report that read the same valuation must each hold every input to it, or neither of them can be reproduced.

What varies is the occasion. A cut is taken at an instant, by a process, for a use, and from a base. Those facts are what a kind records: the recurrence of the instant, the centre that owns it, the use the result serves, and the base the cut builds on. The classification is therefore a classification of occasions, and the body is held constant across it.

Two consequences follow. An attribute that follows from the occasion is entailed by the kind and needs no separate justification. And a cut missing a part of the body is incomplete rather than smaller, whatever its kind: it holds less than the definition requires, and the defect is the same defect in every occasion. Completeness belongs to every kind, and the kinds differ in the occasion they serve rather than in the standard they meet.

What it is for. The day's official revaluation of a book, the movement from the previous cut to this one, and the reports built on both.

What it fixes. The complete body, at the centre's close, with the approved rates applied. The Cuts structure note argues the extent of that body, and the Market data cut and Trade cut pages state the two data halves of it.

What the occasion gives it. Recurrence is daily, because a business day is the period the reports cover. The instant is the centre's close, because a business day ends at a close and the close belongs to a centre. Ownership is the centre's, because the approved rates are the rates that centre signed off. The close is a stated instant published by the settlement system for the currency, as one settlement system's published hours show (Fedwire Funds Service).

How it relates to the components. Both components, complete. The deals supply the population, the market data the values, and neither is taken at a different instant from the other.

The label independent cut is also applied to this kind, on the ground that approved rates replace the rates the front office used during the day. The ground is sound as far as it goes, and the label is better kept for the verification kind below. The difference is one of provenance. The end of day cut's values are approved by finance, which is to say that the firm signs off data the firm produced. The verification cut's values originate with parties other than the firm. Independence admits degrees, and the stronger degree belongs to the second kind.

What it is for. Testing the firm's own marks against data the firm did not produce. A firm that marks its book with its own prices cannot test those prices from the same source. Replacing selected values with externally sourced ones produces a second valuation, and the difference between the two measures how much of the day's value rests on the firm's own marks.

What it fixes. The complete body of the end of day cut, with selected market data items replaced.

What the occasion gives it. Recurrence, centre and instant are inherited from the cut it is built on, since a second valuation of the same day must read the same body at the same instant or the difference it measures includes the day. What the kind adds is a condition on provenance, which is the whole of its contribution to the definition.

A prudential standard fixes what may count as an independent source. It accepts exchange prices in a liquid market, trades in the same or a very similar instrument, tradable quotes from brokers and other market participants, consensus service data, indicative broker quotes, and counterparty collateral valuations (EBA RTS (EU) 2016/101 on prudent valuation, Article 3). The same article names the independent price verification process as the process whose market data range those sources serve. The standard fixes the admissible sources and leaves the choice of items to the firm's own policy.

How it relates to the components. The market data component is altered, since the substitution applies to values. The trade component is carried over unchanged, since the test is of prices and the population is the object the prices are tested on.

What it is for. An indicative view of value while the day is still moving, delivered before the day's data settles so that a decision can act on it.

What it fixes. The complete body the run reads, at an instant before the official authorisation, with the values current at that instant. The cut records the taking identity and needs no authorisation of its own: a flash cut is not signed, because its occasion is a decision taken while the day moves and a signature would arrive after the decision it serves. The body is the four inputs at the flash instant, and the official cut of the day is the one that carries an authorisation. The deadline shortens the interval and not the body, since a run that left out an input could not be reproduced from what it kept.

What the occasion gives it. The instant precedes the official authorisation, which is entailed by the occasion, since a view that arrived after the official statement would serve no decision. Recurrence is intraday, since the view answers a question that recurs while the market moves.

How it relates to the components. Both reviewed halves, at the flash instant. The run values deals and reads prices, so it holds the deal population and the market data of that instant, and the rest of the body is recorded with it.

The output is indicative by construction, because the occasion is before the day's data settles. One declaration does not follow the other: the start of day kind below needs no authorisation either, and its values are official because they were approved when the previous day's cut was fixed. The kind therefore states both facts, and the cut model takes them as its declaration.

What it is for. Opening a day from a known reference, so that the day's movement has a recorded starting point and can be reproduced later.

What it fixes. The complete body of the previous end of day cut, carried forward.

What the occasion gives it. Recurrence is daily, since the day it opens is the unit the reports cover. The instant is the centre's opening, which is a stated instant for the same reason the close is. Ownership is the centre's, for the same reason as at the close.

How it relates to the components. Both components, inherited rather than approved at the opening. What the kind adds is a direction of inheritance.

What they are for. The same body as the end of day cut, fixed on the day a month or a year closes, and kept longer because a monthly or a yearly report states it and an auditor asks for it years later.

What they fix. The complete body of the end of day cut: the four inputs, at the centre's close of the last business day of the month or of the year.

What the occasion gives it. The instant is the centre's close of that day, so the instant and the centre are the end of day cut's; the occasion adds the period the result covers and the retention the archive applies. Nothing about the body changes, which is why the three are one family and why a report that selects the ordinary close still prices from the body fixed on a month end.

How it relates to the components. Both components, complete, exactly as at an ordinary close. What differs is the occasion, the resolution of a report that selects it, and how long the cut is kept.

What it is for. A report that values its scope at whatever instant it is run: a monitor, an intraday risk view, a check before a decision. The person who wants the view does not know in advance when they will want it, so no instant can be stated before the run.

What it fixes. The complete body the run reads, at the instant the run starts, with the values the store holds then and the reference data and settings in force then. It is the same four inputs as every other kind, taken at the run's own clock rather than at a published one.

What the occasion gives it. Nothing outside the run fixes the instant: no centre publishes it, no person chooses it, and no process names it. The occasion is a property of the consumer, so the kind contributes one attribute that no other kind has: the timepoint comes from the run. Recurrence follows the run and not a schedule, so a report that runs twice in a morning fixes two bodies.

How it relates to the components. Both reviewed halves, at the run's instant. The body is assembled as any other is, and a part that cannot be assembled refuses the run rather than yielding a smaller body.

The output is indicative, and no authorisation precedes the body. Both follow from the same fact: the run both mints the cut and consumes it, so the instant it fixes is the instant it prices at, and the values it fixes are the values the day's official data will replace. Whether an indicative view is signed is not a question about this occasion: a view that waited for a signature would arrive after the decision it serves.

A kind qualifies the cut as a whole, and the process that takes the cut chooses it. A component names one half of the body, and the component pages take each half. The kind does not select the components, since the body is the whole fixed world in every kind. A complete description of a cut states its kind, which fixes the occasion, and its body, which the purpose fixes.

A kind also declares two further facts, and neither follows from the other. It states whether a cut of its occasion is authorised before it is used, whether the values a cut of it fixes are indicative, the rule by which a report resolves a selection of it, and how long a cut of it is kept. The five occasions above fall two on one side of the first and three on the other: the end of day cut and the independent verification are signed, and the flash, start of day and live cuts are not. The second separates the flash and live cuts, whose values are indicative, from the start of day cut, whose values are official because they were approved when the previous day's cut was fixed.

A process may fix a body of data at an instant that answers to no schedule and no centre: a rerun at a stated instant, a stress valuation, a verification run before a report. Purpose is singular in such a case and therefore supplies no recurring kind. The cut satisfies the definition on the same ground as the four kinds above, since the body is fixed and one instant fixes it.

Two claims on this page have a public source. The admissible sources of an independent price verification rest on the prudential standard cited above. The stated open and close of one centre's business day rests on the settlement system's published hours, cited above.

The rest is our working convention. The existence of the flash runs and of the start of day cut, the order in which the components are fixed, and the arbitrary instant a process may name have no public source we could verify. The definitions of the four occasions are ours. Practice at a particular firm is a matter for that firm's own record.

• Cuts — the structure note that orders this cluster, and where to read this page in it.
• Market data cut — the component a kind alters when its occasion concerns values.
• Trade cut — the component a kind inherits when its occasion concerns the population.
• The option-expiry cut code — the expiry sense of the word, classified here as an instant rather than an occasion.
• Pricing Configuration — the settings whose reproducibility an official cut serves.