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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.

Everything You Need to Know About Trade Validation and Enrichment in Trade Life Cycle

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Everything You Need to Know About Trade Validation and Enrichment in The Trade Life Cycle

The development of technology results in the rapid development of the trading landscape.

There are no messengers anymore. Instead, we have letters. In place of the stock ticker, there is a television. 

Innovative technology accelerated the trade lifecycle process.

The workflow of a trade order from the time it is created is known as the trade life cycle. Front office, middle office, and back office activities make up the Trade Life cycle.

As a result, every element, from data storage and communication to online banking, has affected how the current market works.

A specific trade is executed in a market from the other side of the world in the wink of an eye.

Introduction to Trade Life Cycle

The Trade life cycle can be seen from different angles. The Trade Life Cycle can be seen as the interaction between the buyer and the seller. However, it can be divided into trading and operational activity.

Front Office: Frequently referred to as the trading floor, the front office primarily conducts the tasks of trade capture and trade execution.

Middle Office: The Middle Office in the Trade Life Cycle is crucial to the management of exceptions.

Back Office: The “backbone” of the entire commerce life cycle is, in a sense, the back office.

Trade Enrichment in Trade Life Cycle

Trade Enrichment refers to an enhancement of something valuable to improve efficiency. It adds specific trade data to the basic trade detail to allow Downstream processing.

Trade figuration

Calculating trade cash values is known as trade figuration. It entails figuring out the net value of a securities transaction.

Selection of relevant custodian details

STOs engage local agents to exchange securities and cash on their behalf to decrease the risk of being without securities and cash and to interchange securities and cash.

Issuing Settlement instructions (For example, by SWIFT or fax)

When a trade is settled, both parties involved in the transaction receive their respective payments. It is, therefore, a two-way process.

Reporting of trade

It entails informing stock market regulators of trades. Reporting of trade is required. It is carried out to improve market transparency.

Trade Validation in Trade Life Cycle

Soon after the completion of execution and enhancing trade, the next step is establishing certain measures. This is known as Trade Validation. In this Trade validation and enrichment in Capital Market, the process inspects if the received trade information in the back-office systems coincides with the front-office records.

It takes a lot of preparation and follow-up for a trade to actually happen.

To gain a greater grasp of trading, it is necessary to comprehend the full transaction lifecycle or the series of events and procedures that take place when a trade is made.

Know More about Special Trades

Special trades – includes validation of certain trades such as

  • That is deemed to be large
  • Trades in a specific market
  • Trades with a specific counterparty
  • Trades with prior value dates
  • Trades with prices outside a specified range
  • Trade setting on a Free of Payment (FOP) basis

Exception handling

Few trades may require editions or have to be cancelled. In such instances, they are sent back to the front office. If any trade is not resolved within the stipulated period, it may be escalated to a more skilled member of the middle office.

Conclusion

Once you have a firm grasp on the life cycle of a trade, you may use it to learn more about investment banking’s global markets section. You will gain knowledge of the various facets of the trade life cycle and the jobs accessible to those seeking to make a career in this field.

 

Ways Trade Execution Can Improve Your Capital Market Business!

Posted on by Imarticus Learning

What exactly is Trade?
Trade is the exchange of items between two or more parties backed up by purchasing power. In a layman’s language, buying and selling of products and services are known as Trade.

What are Capital Markets?
Capital market is the kind of financial market where securities such as long-term debt, equities, etc. are traded frequently. This is a volatile market as the value of these securities and the interests and dividend rates involved with them keep fluctuating.

The capital market is further broken down into two categories: Primary Market & Secondary Market. The primary market is the capital market where new securities are bought and sold and the Secondary market is the one where the already issued securities are exchanged by various investors and companies.

Trade Execution and the Capital Market 
Whenever there is an exchange, trade comes into the picture, even in case of financial instruments. Financial instruments are heavily traded all around the globe every second. And with such exchange of securities, the trade aspect has to be clearly defined and should not be eclipsed by the volume of transactions. The capital market runs on the game of exchange. Such exchanges are facilitated by smooth trade execution, Asset Management Allocation, and a well-versed post-graduate diploma in Banking and Finance.The trade life cycle has to be optimized and every step has to deliver some value to make the process smooth and glitch-free. Mentioned below are the stages of the Trade Life cycle and how their execution leads to improvement in the capital market business.

  • Order Initiation

The order is initiated when the stocks of various companies are made to float in the market. Such a process can be called as “Security Existence Awareness”. Then an individual buyer or a company shows its intention to buy particular security with the help of their registered stock brokers. The brokers perform the buying and selling function for their respective clients in exchange for a small fee. After the order is placed, the brokers process the transaction, delivers the security or collect the money and transfer the benefit to his client.

  • Order Processing and Managing Potential Risks

A capital market is a place with fluctuating value. And with fluctuation, risks dawn in. To process the order, the broker must have a clear picture of the funds residing in his client’s account and also of the securities the client is interested in. If both the scenarios fall in line, the broker generates the receipt and processes the orders. If any default on the part of the client, the broker will have to keep a window up for such loopholes and manage the associated risks carefully. Also, the broker has to recover the additional charges from their clients efficiently.

  • Order Matching and Trade conversion

On the verification of what is required by the client, the particular securities are sent to exchange for verification of various details and allotment of the respective securities. The brokers charge a brokerage for executing the security trade function effectively and efficiently. The receipt of the order confirmation is then sent to the client and the details of the client are recorded by the broker for the allotment of a unique customer ID.

An agency that is commonly known as the custodian then intervenes in the settlement of any security deal. The custodian receives the details of the order from the exchange. This includes details like the type, price of the security, etc. This is done to make the custodian aware of an upcoming securities exchange. It is the job of a custodian to validate the details of the transaction and then show a green flag to the broker. This complicated process can be made much easier by proper capital market training.

  • Trade Settlement and Clearance

The trade is then settled after 2 days of a valid transaction. This is commonly known as a T+2 settlement. The clearance provider then informs the restrictions of the particular transactions which is followed by the settlement of balances. The securities are then allocated to the client in his DMAT account and the share value is credited to the companies raising capital. After completion of such a transaction, it is recorded by the Exchange offices.

A Beginner’s Guide to Asset Management Allocation in Trade Life Cycle!

Posted on by Imarticus Learning

What is trade?
Trade is an exchange of items within or outside the country. Trade has two elements: Buying and Selling. The catalyst which makes this buying-selling process hassle-free is money. In earlier times, people used to exchange the goods they have for the commodities which were owned by other people but today, you cannot separate money from trade.

Trade, as we know, is a process. And as every financial process involves a lot of assets, trade also makes use of the same. People who are trained with a proper PG Diploma in Banking and Finance can do this asset allocation with a lot of ease.

Stages in the Trade Life Cycle
In a globalized economy, trade is a continuous process. Exchanges take place now and then. Mentioned below are the prominent steps involved in the trade life cycle. With capital market training, you can understand each step involved with much more ease.

  • Sales

The process of Sales starts when there is a demand for a good or service. It starts with the seller and ends with the buyer. By this process, a client is acquired and then is provided by multiple buying options
E.G.: Various investment avenues that are available with an Investment banker. Such investment tools are curated according to the needs of the investor and then presented to him in the form of Hedge funds or mutual funds to the client.

  • Trade Initiation and Execution

Once the investor or the buyer selects the product or service he likes and places the order with the seller, the process of trade begins. Trade begins when there is a monetary exchange and even if the buyer asks the seller to give various quotes for his product (As in the case of huge deals). As soon as the order is placed by the buyer and it gets accepted by the seller, the trade is said to be executed.

  • Trade Capture

The real challenge starts once the order has been placed. It percolates down to several channels that use various assets to get the job down. Assets such as a bank, commodity, etc. have to be allocation right and quick to deliver the trade experience smoothly.

This process can be made efficient by proper Asset Management courses. Trades are then recorded in the whole operating system and are also brought into the Risk management system which will help in reducing risks associated with a particular deal and maximize value.

  • Trade Validation and Enrichment

The trade is then validated by several teams and various sets of parameters. Various stable and dynamic parameters are considered and are validated before the actual trade takes place. Assets such as currency have to be allocated and depreciation sand appreciation parameters have to be brought into the picture.

  • Trade Confirmation

This step is one of the most important steps of the Trade Life cycle. Various confirmations are made by both the parties in terms of delivery and payment of the products or services involved in a trade settlement. All of this is done at least a day before the settlement takes place. This provides a window to both the parties to make necessary changes to the trade deal.

  • Trade Settlement

This is the step where the commodity or the service gets delivered to the buyer. The buyer gets the required in exchange for cash. Also, buyers get security in exchange for cash. If the case is of derivatives, a particular currency is also delivered in return for some other currency.

  • Reconciliation

This step involves the bookkeeping and recording of transactions to meet the necessary accounting details of both the buyer and the seller. This also involves vouching, matching ledger accounts, etc. With effective training in the Certificate course in Banking and Finance and various asset management courses, this process can be made much easier and convenient to implement.