Linked cash
Table of Contents
1. Summary
Some cash explains a trade. A premium, a coupon, a rebate and a close-out fee all fall due because a trade says they do. Linked cash is the cash a trade explains. The rest — variation margin, CVA, sales credits — is orphan cash: it stands on its own.
The distinction governs reporting. Linked cash is carried with its parent trade, included in the trade's value until it settles, and reported against the trade even after the trade has ended. Orphan cash reports where it arises.
The link must also work in the other direction. A settled balance is audited through the trades behind it, so a user can drill from a cash balance down to trade level. A balance that cannot explain itself is an orphan by accident.
2. Detail
2.1. A flow arrives because something created it
Cash Flow defines the flow itself: a signed, dated, currency-denominated movement of money. The first question about any flow is whether a trade explains it. The answer splits cash into two families.
| Sub-type | Link to a trade |
|---|---|
| Coupon (payment) | Linked |
| Close-out fee, partial or complete | Linked |
| Rebate | Linked |
| Uncollateralised funding | Open |
| Variation margin | Orphan |
| CVA | Orphan |
| Wrong way risk | Orphan |
| Transfer pricing | Orphan |
| Sales credits | Orphan |
| Default claim | Orphan |
| Compensation (for example, novation payouts) | Orphan |
| Billing fee | Orphan |
| Agency commission | Orphan |
The list is a consequence of the rule, not the rule itself. Coupons, fees and rebates are linked because a trade explains them; margin, CVA and sales credits are orphan because no single trade does. A new sub-type goes on the correct side by answering the same question.
Uncollateralised funding stays open: it is neither explained by a trade's terms nor cleanly orphan, so the table records the question rather than forcing a side.
Compensation is the case worth spelling out: a novation payout arises from the transfer itself, not from the terms of either linked trade, so it stays orphan even though the novation creates a trade link.
2.2. Carrying an unsettled flow
Until a linked flow settles, it belongs to its parent trade. The trade's value carries the discounted amount of the flow, so a trade that owes a coupon is worth less than one that has paid it. For principal the same rule spans the trade's life: the initial principal stays with the trade until the final principal settles.
This is where linked cash meets Positions. Position management adds up cash, discounts it, and gives an accurate view of settled and future cash. The future half is the linked half: without the link, an unsettled flow has no home in the valuation.
2.3. After the parent trade ends
A flow can outlive its trade. The close-out fee settles after the close-out; the final coupon settles after maturity; the rebate settles after the trigger date. The cash keeps reporting against the parent trade, and settlement and P&L reports read it there. Tearing the link at expiry would strand the flow — this is why the link outlives the trade, not just the booking.
2.4. Drilling down
Positions states the audit principle for positions: a position cannot be audited directly, the deals beneath it are audited and the aggregation is trusted. The same principle reaches cash. A settled balance must connect to the trades that contributed to it, so that a user can move from a balance to a monthly, then daily, then trade-level breakdown of what produced it. Without the connective tissue the balance is unexplainable, and unexplainable balances are a control finding.
The concept of the cash itself — notes and coins, and currency-equivalent assets — is on Cash; an amount of cash in a currency is a Cash Position.
3. See also
- Trade — the structure note that orders this cluster, and where to read this page in it.
- Trade links — the link family this page belongs to.
- Trade link types — the catalogue, where linked cash is an annotation.
- Cash Flow — the flow itself: signed, dated, currency-denominated.
- Cash — cash as the most liquid form of a currency.
- Cash Position — an amount of cash in a currency.
- Positions — the aggregation of deals, and why drill-down carries the audit.
- P&L Attribution — where the settled flow lands.
- Knowledge — the hub of all knowledge notes.