let us view the Trade life cycle, as a few, high level steps. As we go deeper into the topic, we examine these steps closely.
High level view of TLC
Let us take a quick look, at the steps involved
Clients may have stated requirements explicitly. The Client profile may provide a basis for estimating requirements.
Client Classification is an important requirement for assessing the suitability of a client and appropriateness of products offered on an ongoing basis.
All trades require Agreements. Exchange Trades are carried out by clients on exchanges through brokers. OTC Trades are carried out between market counterparties.
The standard checks carried out in this step are: The party with whom a trade is being contemplated should have appropriate risk rating and limits with MyBank
Point of Execution
‘Point of Execution” is a generic term to describe a place where an order can be executed and thus become a trade.
Trade and Trade-Validation
At the point of execution we see various Trade Platforms. The first option is to Place the Order on a Public Exchange. Then comes the option to Place the Order on a Private Exchange.
Front Office to Back Office Recons
We looked at the 3 sources of information. One is from an external source. Another is from the Front office. One more is the counterparty’s Back Office, which is an external source. Look at how reconciliation happens between the two sources of information.
Confirmation process is different for Exchange trade and OTC trade.
Affirmation of Confirmations
The affirmation of a confirmation involves the process by which each party must Match EACH Key Field of the Incoming Confirmation with the one sent out
This is a Middle Office process that ensures both parties agree amounts before initiating settlement processes
Standard Settlement Instructions
It contains Information related to settlement. This information Must be accurate & complete enough for the settlement to go through smoothly.
We look at the same topic in different perspectives to ensure a comprehensive understanding of this process. Let us take a look at the settlement on stock exchanges in a simple manner
CCPs and Margining
Both parties place margins with the CCP. Trade Obligations (Settlements) are debited to this margin account
We have looked at reconciliation during the trade lifecycle as well. We now look at this process specifically.
There are movements in the bank, and securities account , which are not accounted by us.
Reconciliation between Accounts
Here is how, the various causes for differences, are resolved. For ‘Amounts debited to our account, by the bank, or depository. Ask for the Debit Advice, and if valid, pass matching entries, in our book.
there are movements in the bank, and securities account , which are not accounted by us.
Accounting as a function, records the financial impact, of transactions. The four broad categories to be considered, from a typical financial accounting, and reporting perspective, are: Income, Expense, Assets and, Liabilities. The two sides of a Balance Sheet will always match.