Bond coupon processing is the set of operational steps by which interest on a bond reaches the investors entitled to it. It starts from the terms of the issue: the coupon rate, the payment dates and the day count convention. For floating-rate bonds, the calculation agent first fixes the rate for the period. Shortly before each date, the issuer funds its paying agent, which pays the central securities depository; the depository credits its participants according to their holdings on the record date, and custodians credit their clients.
Custodians treat the coupon payment as a mandatory income event. They project the amount due on each position, apply any interest withholding tax, credit the cash on the payment date and reconcile it against what the depository actually paid. Common exceptions are late payments, wrong rates on floating-rate issues and trades settling around the record date that give rise to claims.