Equity Trade Life Cycle
Order Placement - When investors want to buy or sell a security, he approaches broker or financial institution who in turn place an order on behalf of his client.
Trade Execution - When a broker places the order in the market (Stock Exchange) for his client and the order matches, a trade is said to be executed. It is a process of order matching based on Price and Time priority. At this stage a trade ticket is created.
Trade Capture / Booking - It is the process of booking the trade into the systems within a financial organization. Capturing the Trade in Front office, Risk Management system and add economic information of Trade – Side, Qty, Price, ISIN, Counter Party, Trade date, Effective date, Valuation date, Maturity date, Payment date
· This Trade information which we have captured in front office is also used by Middle office and Settlement team
· Checking of Position & P/L - The MO and/or financial control will check the trader’s position and profit and loss to ensure that it is completely and accurately recorded.
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Trade Enrichment - It is a process where additional details of the trade are captured. Trade is enriched with additional information (economic and non economic details). Non economic details like SSI, iBan, BIC, Instrument Identifier, address, day count conventions, exchange etc…
Trade Allocation: Allocation of Trades Trade allocation refers to the process of allocating / splitting the total quantity across client accounts or portfolios. A fund manages several portfolios. Often, one trade is executed and allocated to various portfolios.
Trade Verification - When details of the trade processed is verified. This process aimed at validating and ensuring that the basic details of a trade are consistent and no obvious errors have been made
Example - Assume IB placed order with broker to buy Mac Donald’s stocks @ 500 $ net to IB but broker overheard and placed 500 $ limit order and added 2 $ as commission. In this case order is placed at 502 $ and IB will be under impression to book transaction at 500 $ in their systems.
Clearing house will send details to Custodian(Clearing agents) to confirm if they will clear trade @ 502 whereas instruction from IB will be to clear trade at 500 $.This mismatch could create trade failure and thus Custodian will verify details received from Clearing house and IB to avoid such situation. This is trade verification.
Trade Validation/Amendment- In Trade validation stage captured or data which is stored is incorrect then it is corrected and validated. During the processing of trades it may also be necessary to cancel or amend trades. In case if economic details are incorrect then we must inform to front office so that front office team can correct or amend the details. If details are non-economic then middle office team can amend the transactions
Example - Validation would involve middle office checking the fact if clients’ trading is within permissible credit and trading limits. If not then trade will not be processed further.
Transaction Reporting - Reporting the trade to the regulators. Regulators required this information to know
· Fraudulent trade activities like Insider Trading, Circular Trading
· FII limit check
· After Trade Allocation the trade details are changed so Investment bank has to report the actual owner / investor of transaction to the regulators.
Trade Confirmation – In case of exchange product, Trade confirmation will be done with clearing corporation on three different levels – Trade Level, Position Level and Net Settlement Value.
Pre Settlement - At this stage the middle office department checks for collateral required or securities needed before the trade is settled.
Settlement - Trade is settled between counter parties at this stage. The exchange of securities takes place at this stage. Trade may fail at this stage.
Post Settlement - Reconciliation of data and NAV calculation is done at this stage.
· Nostro Reconciliation
· Depot Reconciliation
· Failed Trade Management
· Interest Claims
· Brokerage Control
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https://www.youtube.com/watch?v=V8wKtp4aeQQ&t=2195s
Private Equity-03 https://youtu.be/Wip9pwV7fZU
Derivatives https://youtu.be/iV2p9a-TUFU
Cash Recon https://youtu.be/F6H-wgwuDa8
Cash Dividend https://youtu.be/F6H-wgwuDa8
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