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Tag: Trade Capture

A Quick Way to Solve a Problem with Trade Capture in Trade Life Cycle

Posted on by Imarticus Learning

In the economic market, “Trade Capture” means booking / capturing the trade into the structure used within the financial organization. At times, this may arise multiple times based on the intricacy of the trades and the capacity of the systems to be able to capture the economic, non-economic, and static details depending on the deal.
The rewarding trade capture within a trading system occurs when the trade facts are sent to the back office instantly, through an interface for operational processing. Most of the time, the trade details are recorded manually by the traders, when an STO (Securities Trading Organisation) does not have a trading system. This requires either collection by or distribution to the middle office or settlement department for operational processing. In such conditions, the traders are required to manage their trading positions manually, keeping it trendy with any latest trades.
The entire steps from the stage of order receipt and trade execution to the trade settlement are known as the “Trade Cycle”. This can be categorized into various stages as listed below.
Front Office
The front office, commonly referred to as the Trading Floor, performs two main function –

  • Trade Capture

The trade gets initiated in the front office using the trading app, in accordance with the retail price of the instrument. Still, the buyer will have an opportunity to cite an offer to the selling party. The trade gets executed, only if the counterparty agrees to the trade details and is willing to enter the deal. Once the trade gets executed, it gets captured using a Trade Capture system, which gives the go-ahead to all the necessary trade information and assigns a trade confirmation number or a trade reference number. This number is unique and used for all the upcoming trade events such as amendments, cancellation and so on. This unique number indicates the booking confirmation and is sent to both sellers and buyers as an acknowledgment.
Middle Office
The Middle Office plays a very important part of the exception management. At this stage, three important steps are accomplished such as –

  • Validation
  • Booking
  • Confirmation

By using the Order Management System (OMS), the tradesman works on the deal and the trade gets enhanced by the static data such as the Standard Settlement Instructions (SSI), Custodian Details, City Holidays, Special Instructions and so on. These static data details are vital for the execution and settlement of the trade. The allocation of the trade happens in the Middle Office, gets published in the Back Office, and finally considered live and operational.

Back Office
The Back office is considered the “backbone” of the entire trade life cycle. It mainly performs three vital functions such as –

  • Clearing
  • Settlement
  • Accounting

This stage covers the significant operational activities such as record keeping, order confirmations, trade settlement, and regulatory reporting. Most of the time, the back office tasks are deployed to low-priced sources for its specific management activities, with a view to reducing the company costs, thus increasing their productivity by delivering better operational value.
The next activity soon after the trade execution is to capture the entire trade details, regardless of the base it is recorded without any hindrances. The trade which is executed initially is captured in the front office where the primary details of each Asset Management in trade are being recorded.

Conclusion
The complete Trade Life Cycle is a jumble of complex functions where the trade undergoes a stream of several events. There is a lot of manual involvement in all these events and this increments the time spent for processing and settlement of various functions.

 

What Are The Types of Trade Settlement in The Trade Life Cycle?

Posted on by Imarticus Learning

Understanding Trade Settlement

The evolution of finance and commerce as a whole has pushed the world economies to a new high. With the advent of trading of financial instruments and multiplier effect into action, the monetary growth has been multiple folds over the past few decades.

Let’s get deeper into what exactly is trade settlement and how does it function. Trade settlement is a transaction method wherein the securities in trade are transferred into the buyer’s account and the monetary value of the security is deposited into the seller’s account post a trade execution.

The securities traded are financial like bonds, stock futures, or other financial instruments of value. The date when an order is placed is known as trade day whereas the transferring of security and cash takes place on the settlement day.

The trade settlement in the trade life cycle process is a part of a bigger whole which we call the trade settlement period.

The trade settlement period incorporates the whole time taken to complete the trade, starting from execution to settlement of the trade.

Types of Trade Settlement 

During trading of financial securities, the time period for settlement of trades, trade capture is set as per the contract. The general time frame differs as per the types of securities. Equity securities are settled on T + 2 days, here ‘T’ is the trade date. Other securities such as commodities, currencies, or derivatives are traded at the mark to market, the settlement for a mark to market is at T + 2 days.

The classification of Trade settlement can be done into 3 types:

  • Normal/ Rolling Settlement
  • Trade-to-Trade Settlement
  • Auction

Rolling Settlement

In this type of trade settlement, securities are settled on successive dates based on the settlement period in the contract and the day when the trade was executed. So let’s take a trade contract period with T + 2 days settlement time, here if a trade is placed on Monday and another trade is placed on Tuesday, the trade on Monday will be settled on Wednesday and the trade executed on Tuesday will be settled on Thursday (successively).

This is different from the account settlement method wherein the trade executed within a given time period is all settled at once.

Trade-to-Trade Settlement

In the Asset allocation, Trade to Trade Settlement method, intraday trading in prohibited for securities falling in this segment.

 

In this type of settlement method, the trader is required to accept the delivery of the security when bought and provide the monetary value, while selling the trader has to deliver the securities and the monetary value of the same will be provided to the trader for the securities traded. In short, shares are traded only for delivery.

Auction

Any trade involves at least two parties to the transaction, in the trading of financial securities, on one side we have the buyer of the security on the other side we have the seller of the financial security. The auction takes place when the selling party of the transaction or trade fails to deliver within the given time period on the agreement of selling the security for the said or agreed upon the monetary value of the security. It’s a kind of penalty for the investor’s carelessness while trading.

In this case of failure the broker of the selling party will try to purchase the security in a buy-in-auction market, the sum of the auction price along with the penalty and brokerage charges has to be paid by the defaulter (the selling party). The settlement of the action is done on T+3 days given the broker tries and purchases the share in the auction market on T + 2 days.

 

What Is The Difference Between Trade Confirmation And Affirmation?

Posted on by Imarticus Learning

What is Trade Confirmation?

Trade confirmation (also known as swap confirmation) is a receipt from your broker confirming the price at which you have placed a trade. They precisely reflect the trades done on an account and contain crucial trade facts such as the trade’s time, place, and commercial conditions.
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They may be in paper or electronic form and include the settlement date. Next, the confirmation is sent to the custodian once both parties have agreed to the trade’s terms and conditions. Finally, a trade confirmation slip is issued by the broker when the shares can be bought or sold at a price specified by the investor. 

Why do you need a Trade Confirmation?

Trade confirmations verify a trade’s exact price. They assist with tax filings and settle any discrepancies. They can also use confirmations to check against monthly statements to ensure they correctly reflect the trades made on an account.

What is Trade Affirmation?

When one party claims the contents of an SB swap contract to its counterparty, and the counterparty confirms the information if they are correct, this is known as trade affirmation. The trade affirmation process involves completing a trade, after which the counterparties check and validate the specifics before submitting it for settlement.

If alleged derivatives transaction information is received, the parties may take advantage of trade affirmation and matching, individually or together, with the parties receiving the alleged derivatives transaction information, performing a local match to their satisfaction before affirming to their counterparty.

Trade affirmation and confirmation form an essential part of the trade life cycle. 

What is a trade life cycle?

The trade life cycle encompasses all the steps involved in a deal, from order placement to trade execution and settlement. It consists of a series of logically organised stages of the trade. 

Trade confirmation and affirmation play a crucial role in moving an agreement from a contested state to a ‘confirmed’ state in the trade life cycle and asset allocation, where continuous expansion and contraction of economic activity occur. They are bilateral processes, meaning both parties must approve the transaction. Although they may appear to mean the same thing, they are not.

Let’s consider some crucial differences between trade confirmation and trade affirmation.

Trade affirmation, also known as transaction capture, is the act of asserting a trade, in which the parties agree on the trade economics and exchange a general affirmation. In comparison to trade confirmation, it is a less stable stage.  As the phrase implies, affirmation refers to the act of validating or affirming something.

Trade affirmation is when two parties exchange securities, they must first agree to all of the conditions and agreements, which specify that time should now be spent officially confirming the trade by both counterparties. 

On the other hand, trade confirmation can be one or more documents or proofs that reveal all of the details involved in the transaction’s completion.

Let’s consider an example. Imagine the counterparties (let’s say two banks) electronically submitting their respective transaction information into a trade matching platform throughout the trade matching process. So, when the information matches and both parties are satisfied with each other, i.e. checking and reacting via affirmation, this procedure falls under affirmation. After that, part of the investment bank’s service to its clients is the prompt and accurate communication of trade confirmation. They may appear to be interchangeable, yet they are not.

Conclusion

Even though they may appear synonymous, there is a significant distinction between trade affirmation and confirmation. First, the clearinghouse performs all necessary computations after these processes. Next, the clearinghouse confirms what is needed from the purchase and sell sides of the trade. The final stage is the settlement process, which involves the transfer of funds and security.