Underlying and Inheritable Properties
What does ‘Underlying’ mean?
Underlying properties are the properties at the most granular level. They are the Equities and Bonds that constitute part of a wider index or structure. Most commonly these are related to products that are not single equities and are part of derivative instruments. For example, the FTSE 100 is an index based on the top 100 companies in the UK with the highest market capitalisation. Therefore, each of the individual companies listed in the index would be considered an underlying. If we also examine underlying with a product view via a basket, the underlying's would be each of the equity constituents included in the basket.
What are ‘Underlying’ Properties?
Underlying properties are the properties that identify that security in its singularity.
As an example each security will have their own ISIN, LEI or CUSIP that, much like a number plate/licence plate identifies a car singularly, an ISIN, LEI or CUSIP will identify a specific security. A grouping of underlying properties in one structure are commonly used to create an index or a basket.
Underlying properties should be considered in 2 scenarios. Firstly, an underlying property would be required in your position file to check the percentage ownership in a particular equity in its own right to confirm if you are required to disclose for that issuer. They also need to be considered in the context of derivative instruments. For example, if you held a basket of equities, although this represents one product, the rules engine would need to examine each of the constituents of the basket to determine if the basket as a whole requires disclosure.
The list of properties can be found in your environment by going to Rules then Properties.
As per the below table, you can see the list of properties that are required for the underlying products, be those equities or bonds. The list provided is a product agnostic version and can be filtered in your environment to a specific underlying.
As you can see from the table, the properties here are of the utmost importance to be included in your position file as the rule engine will use each of the applicable properties in its rule calculation, as well as other data, to determine the required shareholding disclosures.
What does ‘Inheritable’ mean?
Inheritable denotes that the specific property in question will be pulled through from the underlying asset into the structure to which the equity is a part. There is a certain list of properties that can be ‘pulled through’ from an underlying equity which you can find in your environment under Rules then Properties.
What are ‘Inheritable Properties’?
Inheritable Properties are issuer or instrument properties such as the ISIN, LEI, CUSIP of the underlying equity and will be pulled through to the product to which the equity is one of the constituents. That’s to say that if you hold an index or a basket, the properties of the underlying will be ‘inherited’ via a look through and populated onto the structure you are looking to disclose.
From the above list, you can see there are a large number of properties that derive their value from the underlying asset class and are required to run the rules. This list includes all asset types and highlights the importance of data quality at a granular level. By virtue of the fact that these properties are inherited, there are therefore no requirements to provide these properties on an asset level.