How To Fix TPM_THX1360 - Hedging instr. &1 is not effective on &2 in hedging relationship &3

SAP Error Message - Details

• Message type: E = Error

• Message class: TPM_THX1 - Treasury: Message Class for P-HA

• Message number: 360

• Message text: Hedging instr. &1 is not effective on &2 in hedging relationship &3

What causes this issue?

The Hedging Instrument is not effective within the Hedging Relationship
for the specified keydate.

System Response

The process ignores prospectively or retrospectively not effective Hedge
Instruments for valuation.

How to fix this error?

The Hedging Instrument must be made prospectively and retrospectively
effective within the Hedging Relationship for the keydate before
re-executing this process. This could be done in the following ways.
- The effectiveness test results though valid may not be current and
hence execute the effectiveness test for a more recent date which is as
close as possible to the key date on which the valuation is to be
executed.
- Dedesignate the Hedge Instrument within the Hedging Relationship and
try designating it again with a more appropriate Hedge Item so as to
achieve the specified effectivity.

Procedure for System Administrators

The system issues an error message and will not allow you to continue with this transaction until the error is resolved.

Error message extract from SAP system. Copyright SAP SE.

Smart SAP Assistant

• What is the cause and solution for SAP error message TPM_THX1360 - Hedging instr. &1 is not effective on &2 in hedging relationship &3 ?

  The SAP error message TPM_THX1360 indicates that a hedging instrument is not effective for a specific hedging relationship. This error typically arises in the context of hedge accounting within SAP Treasury and Risk Management (TRM) when the effectiveness of a hedging relationship is being assessed.
  Cause:
  
  
  Ineffective Hedging Relationship: The hedging instrument does not meet the effectiveness criteria set by accounting standards (e.g., IFRS 9 or ASC 815). This could be due to:
  
  The changes in the fair value of the hedging instrument do not offset the changes in the fair value of the hedged item.
  The correlation between the hedging instrument and the hedged item is not strong enough.
  
  
  
  Incorrect Configuration: There may be issues with the configuration of the hedging relationship in SAP, such as:
  
  Incorrect parameters set for the hedging relationship.
  Mismatched currencies or notional amounts.
  
  
  
  Data Entry Errors: Errors in data entry for the hedging instrument or the hedged item can lead to this message.
  
  
  Market Conditions: Changes in market conditions that affect the effectiveness of the hedge.
  
  
  Solution:
  
  
  Review Effectiveness: Check the effectiveness of the hedging relationship. You may need to perform a quantitative effectiveness test to determine if the hedge is effective.
  
  
  Adjust Parameters: If the hedging relationship is not effective, consider adjusting the parameters of the hedging relationship, such as:
  
  Changing the notional amount.
  Modifying the hedging instrument or the hedged item.
  
  
  
  Reassess Hedging Strategy: If the hedging relationship consistently shows ineffectiveness, it may be necessary to reassess the overall hedging strategy and consider alternative instruments or strategies.
  
  
  Correct Data Entry: Ensure that all data related to the hedging instrument and the hedged item is entered correctly in the system.
  
  
  Consult Documentation: Refer to SAP documentation or consult with your SAP support team for specific guidance on the configuration and effectiveness testing.
  
  
  Related Information:
  
  Hedge Accounting Standards: Familiarize yourself with the relevant accounting standards (IFRS 9, ASC 815) that govern hedge accounting and effectiveness testing.
  SAP Notes: Check for any SAP Notes related to this error message for potential bug fixes or updates.
  Training and Resources: Consider training for users involved in hedge accounting to ensure they understand the requirements for effective hedging relationships.
  
  By addressing the underlying causes and following the suggested solutions, you should be able to resolve the TPM_THX1360 error and ensure that your hedging relationships are effective.