Source: https://www.scribd.com/doc/60693431/Trade-Life-Cycle
Timestamp: 2017-03-29 06:21:20
Document Index: 678965359

Matched Legal Cases: ['art 2', 'art 15', 'art 1', 'art 2', 'art 15', 'art 1']

 E.g.Markets & Stock Exchanges
A Market is an environment in which securities are bought and sold. Central to some market places is the Stock Exchange. French Government Bonds traded on the Paris Bourse settle in
.Market Participants .
Electronic Trade Confirmation. Telex.Counterparty Static Data
. Address & Contact Details  Authorized Credit Limits  Related Companies  Standard Settlement Instructions  Date of account set up  Type of Institution  Documentation signed  Tax Status  Registered Representative  Confirmation Details
 Fax.
Long Name. Issuer  Coupon Rate. Quick Code. Cusip etc
 Alternative/External References. RIC. Payment Characteristics .30/360. Common Code.  Exchange  Currency  Maturity Date  Factors
.Instrument Static Data
 Equity. Denomination. Bond. Size. Derivative. A/360 etc  ISIN. Commodity  Short Name. Warrant.
.Static Data Summary
A seller and a buyer.  The SELLER must deliver the commodity he has sold to the buyer.  The BUYER must pay the agreed purchase price on the agreed value date.
.What is a Trade?
 A legal contract between two ‘counterparties’.
.Why Trade?
 Benefit from dividend on shares and interest on bonds.  To reduce risk.
 To speculate and accumulate.
level at which they are prepared to buy and sell with the intention of attracting business. SEATS (Australia)  Xetra (Germany) SETS (UK)
 ECN’s operate on an electronic basis only.  NASDAQ (US) SEAQ (UK)
 Orders from sellers are matched with buyers’ orders electronically. Archipelago  Euro-MTS Brokertec
trade processing is usually done via Back Office processing systems.Trade Capture
Regardless of the trade execution/origin.
.  To update a trading position for a specific security within a trading book  To update average price of the current trading position to enable the trader to calculate trading profit or loss  To allow trade detail to be sent through to the Back Office for trade processing and settlement  As part of Market & Regulatory Reporting requirements  To facilitate risk management Traders use complex trading systems to facilitate trading & position management. all trades must be recorded formally by the market participant.
Front Office Trade Detail
 Trading Book  Trade Date  Deal Time  Value Date  Operation (e. In/Out)  Quantity  Instrument/Security  Price  Counterparty
.g. Lend/Borrow. Buy/Sell.
 Trade validation includes the checking of constituent static data information:  Examples include:
 Trade validation occurs to check if the trade information received in the Back office systems corresponds with the Front Office record.
 Trade enrichment exists to add specific trade data to the basic trade detail to allow downstream processing.  This data is not usually held in Front Office Trading systems.  Trade Confirmation requirements.
.  Selection of custodian details.  This data can be added manually however in the STP environment the aim is to derive this automatically.  Regulatory Reporting required.  Selection of Settlement Instructions and communication method.  Examples include:
 Calculation of cash values.
II.So far Covered
 Trade or Contract Matching.
. impacting the traders book.  Trade agreement can be achieved through:
 Sending trade confirmations to the counterparty.  Receiving trade confirmations from the counterparty.Trade Confirmation/Agreement
 Trade Confirmation/Affirmation is an important process required to reduce the risk of the traders P&L.  Until the counterparty acknowledges the trade detail the effect on the price or quantity of the trade is subject to change.  Trade Affirmation.
 Both parties are required to input details to a central matching facility.  Depository Trust & Clearing Corporation (DTCC)  National Securities Clearing Corporation’s Trade Matching Service.
. unmatched) are provided by the trade matching facility to both parties. matched.Trade Matching
Trade Matching generally applies to mandatory electronic matching of trade details.  Matching results (i.  Examples include:
 Omgeo Central Trade Manager (CTM).e.  TRAX (Internationally traded debt & securities).
 Examples include:
 Omgeo’s Oasys Global system.(US)  DTC ID (Institutional Delivery) – (US)
Trade Affirmation relates to the electronic matching of trade details typically between securities institutions and Institutional clients.  The Trade affirmation central hub sends on the message.  Trade details are input by the securities house and sent to a trade affirmation facility.  The institutional client agrees (affirms) or disagrees and the response is sent back to the securities house.  FIX – (Global)  Oasys Domestic .  Both parties must subscribe to the service.
 Prompt actioning of all confirmation discrepancies reduces trade risk.
.  Trade confirmation/matching messages should be issued as soon as possible after trade validation.  Timely and accurate confirmation generation is a major client service consideration. the greater the risk of price movement and P&L impact.Summary
Basic Principles  The longer a trade’s detail remains unchecked after trade date.
II. Trade Execution & Processing IV. Trade Confirmation
. Market Participants Static Data
III.So far Covered
(Settlement Details).
.Settlement Instructions
Settlement Instructions are used to communicate the movement of securities and cash to the custodian.  Settlement Instructions indicate the commercial details of the trade AND the location and account details for the cash and security movements.  Trade Agreement confirms the commercial details of the trade.
 The net settlement value to be paid or received.  To whom securities must be delivered.
.  From whom securities will be received.  On which date to carry out these instructions.  From whom payment will be received.Instruction Content
Settlement Instructions tell the custodian/Agent to carry out precise commands such as:  The quantity of securities to be received or delivered.  To whom payment must be made.
W.I.F.  CREST  DTC  Euroclear  Clearstream  Agent Banks  Custodians Proprietary Messaging  CREST  DTC  Euclid (for Euroclear)  Cedcom (for Clearstream)
.Instruction Communication Methods
 Updating the current status within the securities trading
organisation’s books and records.Matching at The Settlement Agent
. the next lifecycle steps include:  Instruction Matching
 Attachment of the current status of the instruction.
 Investigation and resolution of non-matching instructions.
Instructions sent in by Securities House and Counterparty. Instruction matching occurs. Status is recorded.
III. Trade Instruction VI. Trade Confirmation V. Instruction / Agent Matching
. II. Trade Execution & Processing IV.
.  Actual Settlement  Value Date and Settlement Date will be the same in the majority of trade settlement cases.  Value Date / Contractual Settlement Date.Settlement Terminology
(Secured credit line/Overdraft).  The purchaser may have a credit agreement with the custodian who will cover the cash shortfall.  The purchaser may have a collateral agreement whereby collateral is held in the account to offset any non return of funds.
the total amount must cover the amount required. (Margin)
. (Funding).
 Ensure the purchaser has sufficient cash to make the payment.Settlement Considerations
 Some securities can settle at more than one location.
Instruction / Agent Matching VII. Trade Settlement
. II. Trade Confirmation V.So far Covered
I. Trade Instruction VI. Trade Execution & Processing IV. Market Participants Static Data
 Borrow securities from another firm account same depot.  Autoborrow.Methods of Inventory Management
 Realignment.  Borrow the securities from the market.  Borrow the securities from the custodian/central depository.
Automated Lending & Borrowing
 Borrow required securities automatically.e.  Borrow certain types of security automatically i. Spanish Bonds.  Lend certain types of security automatically.  Lend upon request.  Sometimes used as a last resort due to the cost.  Borrow upon request.
 Lend all securities automatically.
How do Trades & Positions get updated?
 Instruction statuses are sent in by the custodian (fully settled.
.  It will also automatically update the relevant security positions and balances reflecting the delivery or receipts.
partially settled.  The Securities Trading House automatically loads this information into the settlements systems.  The system attempts to locate the relevant trade in its internal books and records.
settlements specialist may manually record the update against the trade record.  Once found it records the status update against the transaction. failed etc).
Trade Settlement VIII. Trade Instruction VI.So far Covered
I. Instruction / Agent Matching VII. Trade Execution & Processing IV. Market Participants Static Data
III. II. Position / Inventory Management
. Trade Confirmation V.
Failing Trades and their Impact
 A failed trade is any securities transaction that does not settle on value date.  Risk impact due to movement in the market causing a change in the value of securities. (mark to market)
.  Unable to use securities required for an onward delivery causing a
break in the chain.  Unable to lend on money markets and earn credit interest on cash.  The buyer and seller are impacted by settlement failure:
 Unable to use the cash to fund other security purchases.  Unable to pay off existing overdraft/debt.
credit line  Insufficient securities
 Instructions not received by custodian  Instructions remain unmatched on value date  Insufficient cash. collateral.
Fines are imposed by CREST from a member’s failure to achieve pre-defined settlement targets.  UK .
 Fails make the reconciliation of corporate actions difficult which can lead to material losses  Regulatory Impact .  Interest expense on fails to deliver.The Importance of Managing Fails
 Interest claims on fails to receive.In some markets fines are imposed for late trade settlement
.  Some marketplaces (e.  Back Office Settlements add immense value by actively monitoring instruction statuses and helping to accurately fund cash shortfalls or short positions.g.Interest Claims
 An interest claim is compensation from the failing party to for the loss of cash interest or use of securities.  In some Securities Trading Houses. if the Firm Trader is at fault then the cost of the fail can be directly attributed to their book. ISMA) have minimum claimable interest recommendations and deadlines by which claims must be issued. impacting their P&L.
enable the interest claim to be executed against the counterparty.
Instruction / Agent Matching VII.So far Covered
I. II. Fails & Fail Management
. Trade Execution & Processing IV. Market Participants Static Data III. Trade Confirmation V. Position / Inventory Management IX. Trade Instruction VI. Trade Settlement VIII.
.What are Reconciliations
Fails & Fail Management X. Trade Confirmation V. Market Participants Static Data III. Reconciliations
. Position / Inventory Management IX. Trade Settlement VIII. Trade Execution & Processing IV.So far Covered
I. Instruction / Agent Matching VII. II. Trade Instruction VI.
As per custodian.Types of Custodian 1
An organisation that holds securities and Deutsche Bank Domestic cash on its clients’ behalf and may effect Custody Services trade settlement on its clients’ behalf. State Street Citigroup BoNY Paribas
A custodian that operates within a specific Credit Lyonnais Paris financial centre. Banco Espirito Santo Lisboa A custodian within a Global Custodian’s network of custodians. Citibank Milan Citibank Madrid
. but has a network of local (or sub-custodians) that hold securities and cash and effect trade settlement on behalf of the global custodian.
Clearstream (ICSD) Only two organisations are recognised as (Luxembourg) ICDS’s. Description Examples An organisation that hold securities. resultant securities and cash
. DTC (USA) normally in book entry form.
International Central A CSD that handles domestic and Euroclear (Brussels) Securities Depository international securities.Types of Custodian 2
Term Central Securities Depository (CSD). Settlement Agent
An organisation that effects the exchange Citibank Milan of securities and cash on behalf of its Citibank Madrid clients. A CSD that handles domestic securities of CCASS (HK) the country in which it is located. usually the CREST (UK & Eire) place of settlement. effected through book JASDEC (JPY) transfer.
I. V. III. Position / Inventory Management IX. IV. Fails & Fail Management Reconciliations Clearing & Custody
. Market Participants Static Data Trade Execution & Processing Trade Confirmation Trade Instruction Instruction / Agent Matching
VII. XI. II. Trade Settlement VIII. X. VI.
X. V.So far Covered
I. Trade & Position Accounting
VII. Position / Inventory Management IX. IV. Market Participants Static Data Trade Execution & Processing Trade Confirmation Trade Instruction Instruction / Agent Matching
XII. Trade Settlement VIII. VI. III. Fails & Fail Management Reconciliations
 Enforcement of laws and possible prosecution of security law violators. investment advisors & fund managers.  Monitor the business undertaken by securities trading houses.Regulator Responsibilities
Fails & Fail Management Reconciliations
. Regulatory & Compliance
VII. IV. II. Market Participants Static Data Trade Execution & Processing Trade Confirmation Trade Instruction Instruction / Agent Matching
XI. V. Trade & Position Accounting XIII. Position / Inventory Management IX. X. III. VI. Trade Settlement VIII.
XII.So far Covered
uk Securities Institute  http://dspace.org/  http://www.world-exchanges.html  http://www.ipma.isda.html  http://www.dial.org/index.com/home.isma.html  http://www.org/  http://www.iosco.uk/  http://www.org.com/ International Organ Securities Commission International Primary Market Association International Swaps & Derivatives Association International Securities Lending Association International Securities Market Association London Investment Bank Association Loan Syndic Trading Association Securities Industry Association
 http://www.pipex.uk/  http://www.org/iosco.com/tri/ Federation of Exchanges OTC Derivatives termination service Financial Regulatory Authorities
 http://www.trioptima.org.com/jhalsey/ Compliance Exchange  http://www.securities-institute.html
.uk/  http://www.liba.sia.finanz-adressen.Industry Websites
 http://www.lsta.isla.de/WE-fin-regulatory.org.co.
org/ Glossary STP Forum STP Info Association for Financial Professionals
 http://www.stpinfo.exchange-handbook.com/  http://www.ca.co.jsp?bc=/investments/straightthrough.xml Virtual Matching Utilities (VMUs).com/  http://www.omgeo.com/  http://www.Industry Websites
 http://www.sungard.calpers.com/ OMGEO Sungard Systems
.gov/index.com/  http://www.investorwords.  http://www.afponline.stpforum.uk/Exchange Handbook  http://www.
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