Federal Reserve Board of Governors

Course Description for Securities

Broker Dealer

Last Revised: January 16, 2019
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Course Overview

This 3 day course provides an intensive analysis of the middle and back-office operation 

functions of U.S. brokers/dealers and Registered Investment Advisers (RIA) and the requisite 

controls. A detailed overview of these functional building-blocks includes the trade lifecycle 

process from order and trade execution through clearance and settlement, including, custody 

and description of stock record, margin, and stock loan and asset services.

Participants will gain an understanding of the organizational infrastructures of a broker/dealer. 

Processes that support these functional areas are a major focus of SBD, with attention given to 

potential gaps and exposures that create Operational Risk. SBD focuses on interdependencies 

of operation functions among entities such as investment managers, brokers/dealers, 

custodians, clearing houses and depositories. Case studies with an operational risk perspective 

will be used (e.g., MF Global, Peregrine Financial, Madoff, Societe Generale).

The content also promotes discussion of real-life "war stories” involving operational Key Risk 

Indicators (KRIs), such as concentrations, exceptions, limits trade breaks, failed trades, stock 

record breaks, suspense entries, DKs, and cancels/corrects. Participants will learn how these 

events, if not properly managed and reported, can have a negative impact on the firms, their 

customers and counterparties.

Course Objectives

By the end of this course, participants should be able to:

• Identify mission-critical functions within the lifecycle of a trade, from the inception of an 

order through settlement, as well as the follow-up required for the effective management 

of failed trades.

• Explain the critical functions of New Account and Product reference or (static) data setup for both brokers/dealers and RIAs.

• Gain perspective on the interactions between the internal operation of a broker/dealer 

and the industry infrastructure, including confirmation/affirmation service providers, 

clearing houses, depositories and settlement systems.

• Evaluate Key Risk Indicators (KRIs) of operational risk and the source of the information 

in the firm

• Analyze metrics related to the control of trade activity, including fails, breaks, 

cancels/corrects, STP levels, and the cost per trade.

• Compare the roles of brokers/dealers, RIAs, clearing firms, prime brokers and 

custodians.

• Describe impact of operational risk on Corporate Action processing.

• Evaluate the importance of books and records, including how a stock record is used to 

demonstrate possession and control of firm and client assets.

• Distinguish the areas of operational support for margin and stock loan businesses within 

brokers/dealers.
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• Examine the use of firm policies and procedures, internal controls and audit coverage, as 

well as governance.

• Describe the internal operational processes of a fund manager.

Type of Participant Targeted

The course is designed as a supplementary course for Community Banking Organization (CBO) 

examiners.

Prerequisites

None

Class Size

The optimal class size is 25 participants; minimum class size is 15 participants and the maximum is 

35.