Securities Trade Life Cycle Khader Shaik
Contents • • • • • • • •
Introduction Broke Brokera rage ge Fir Firm/ m/Se Secur curit itie ies s Trad Tradin ing g Org Organ aniza izati tion on Trade Life Cycle Orde Orderr Orig Origin inat atio ion n / Front ront Offic ffice e Orde Orderr Vali Valida dati tion on / Midd Middle le Offi Office ce Settle tlement / Back Office fice Custo ustodi dian ans s, Com Comme merc rcia iall Ban Banks ks References
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Brokerage Firm • Mad ade e up up wit with h man many y dep depar artm tmen entts • Usual Usually ly Broke Brokera rage ge firm firms s pla play y mu mult ltip iple le role roles s • One One of of th the e rol role e is is Sec Secur urit itie ies s Tra Tradi ding ng Organization (STO) • Play Play a vit vital al role role in Secu Securi riti tie es Mar Marke kett • In Inv volv olve and and exec execut ute e lar large ge secu securi riti ties es transactions • Secur Securit itie ies s Tra Tradi ding ng de depa partm rtmen entt usua usualllly y comes comes under und er ‘Capita ‘Capitall Markets’ Markets’ busine business ss of the firm firm
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STO • STO STO faci facilit litat ates es trad trading ing of secu securit ritie ies s ffor or their clients • Sell Sell Serv Servic ice es - Sell Sell vari variou ous s Secu Securritie ities s as customers demand • Sale Sales s Tea Team m (Sa (Sale les s Tra Trade ders rs)) dea deals ls wit with h customers • Traders ex execute Tr Trades • Usua Usualllly y ha have ve on one e or or mor more e bra branc nche hes s
STO - Dep epar arttments • • • • •
Sales Order rder Roo oom m / Trad Tradin ing g Floo Floorr Midd Middle le Off ffic ice e / Purc Purcha hase se & Sal Sales es Accou counting ing / Ba Back Of Office ice Cashiering
Trade Life Cycle • From From the Trad Trade e Orig Origin inat atio ion n to to the the Sett Settle leme ment nt • Trading – Trade Trade Origi Originat nation ion / Ord Order er Orig Origina ination tion – Trad Trade e Exec Execut utio ion n
• Operations – – – –
Trad Trade e Val Valid idat atio ion n Trad Trade e Confi Confirm rmat atio ion n Clearing Settl ttleme men nt
High Level Flow
Order Origination • Orde Orders rs are are rece receiv ived ed from from Cl Clie ient nts s • Clients – Instit Institut utio iona nall Clie Client nts s etc etc
• Recei ceived by Sales Tr Trader – By Phone or – Elec Electr tron onic ical ally ly
• New New Orde Orders rs are are en ente tere red d into into Orde Orderr Management System (Trading System) – This step step is is referre referred d as ‘Trad ‘Trade e Capture Capture’’
Sales Department • • • • • •
Sales Team Also Also know known n as Sale Sales s Tr Trad ader ers s Respo Re sponsi nsible ble fo forr all clien clientt com commu munic nicat ation ions s Market new secu securritie ities s Keep Keep know knowle ledg dge e of of mar marke kett dem deman and d Supp Supply ly marke arkett inf inform ormat atio ion n (demand/supply) to other departments in STO • Mo Move ve Cu Cust stom omer er orde orders rs to Orde Orderr Roo Room m
Order Room • • • •
Traders Collllec Co ectt Ord Order ers s ffro rom mS Sal ales es Trad Trader ers s Resp Re spon onsi sibl ble e for for exec execut utio ion n of of ord order ers s Use Use var vario ious us aven avenue ues s tto o exe execu cute te th the e orders – Excha change – OTC – Internal Internal inven inventory tory / Trader Trader Book etc etc
• Retu Return rn execu executi tion on repo report rts s bac back k to to Sales Sales Trader
Trade Traderr – Addit Additio iona nall Respons Responsibi ibililities ties • Reconciliation – Reconcile Reconcile orders orders with execution execution reports reports – Verify executions executions against against orders and their types
• Track Op Open or orders – Info Inform rm clien clients ts ifif any open open orde orderr – Organize Organize GTC (good-till-can (good-till-cancel) cel) orders orders
• Foll Follow ow indu indust stry ry regu regula lati tion ons s and and compliance rules
Purchase & Sales • • • • •
Recor cording ing / Tick icketing ing Figuration Order co comparison Confirmations Booking
Recording • Uniq Unique ue Id is ass assig igne ned d to to eac each h tra trade de an and d create Ticket with all the trade information • Ticke Tickett ID ID is used used fo forr all all fur furth ther er refe refere renc nces es during trade processing • This This proc proces ess s is also lso refe referr rred ed as TICKETING
Figuration • Calc Calcul ulat atio ion n of of ca cash valu value e of of tra trade de,, commissions etc • Re Recog cogniz nize e pa part rtie ies s invo involv lved ed an and d amo amoun unts ts to be paid or received
Order Comparison • Repo Report rt Trad Trade e inf infor orma mati tion on to Order rder Comparison System and/or other compliance systems as required • Trad Trades es are are com compa pare red d wit with h coun counte terr part party y – Counter Counter party party / street street side side / contra
• Trad Trade e can can’t ’t be proc proces esse sed d unt untilil it it is is matched with street side report • Re Repo port rts s are are subm submit itte ted d elec electr tron onic ical ally ly • For For eg: eg: NYSE NYSE Floo Floorr trad trades es are are sub submi mitt tted ed to OCS within 20/30 minutes
Order Comparison cont..
• Unma Unmatc tche hed d trad trades es are are rep repor orte ted d back back and and usually fixed manually • Erro Errors rs are are usu usual al and and som somet etim imes es ma may y cos costt to the firms • Re Regu gulat latory ory ag agenc encies ies ma may y fine fine for for repo report rting ing failures by firms
Clearing • Foll Follow ows s tthe he trad trade e comp compar aris ison on step step • Cl Clea earin ring g ag agen ency cy issue issues s Con Contr trac actt to bo both th parties • At th this is tim time e bot both h par parti ties es acc accep epte ted d the the trade terms • Na Natio tiona nall Secu Securi riti ties es Clear Clearing ing Co Corp rpor orat ation ion (NSCC)
Confirmations • At th the e end end of th the e tra tradi ding ng da day y pa pape perr confirmations are mailed to clients • Co Conf nfir irma mati tion on conta contains ins comp complet lete e det detail ails s of of the trade • Cl Clien ients ts use use th this is as tran transa sact ction ion reco record rd
Booking • All proce processe ssed d ord order ers s are are en ente tere red d iint nto o firm firm books • Up Upda date tes s Clie Client nt p pos osit itio ions ns,, fin finan anci cial al accounts and firms records and financials
Accounting Department • Maint aintai ains ns the the clie client nt acc accou ount nts s • Ma Mana nage ge th the e clie client nt fu fund nds s in in the their ir accou account nts s • Re Respo sponsi nsible ble fo forr calcu calculat lating ing ba balan lance ce an and d maintain required funds based on the account types
Cashiering • Respo Responsi nsible ble fo forr exch exchan angin ging g Secu Securit rities ies an Funds between trading parties • Othe herr res respo pons nsib ibililit itie ies s are are – Vaulting Vaulting (holding (holding certificate certificates, s, maintain maintaining ing book of ownership) – Arrange Arrange bank loans to firms to maintain maintain their positions – Borrow Borrow and Lend Lend stock stock as requ require ired d – Borrow Borrow and Lend Lend funds funds as as require required d – Track Track stoc stock k spli splits ts – Transfer Transfer securitie securities s (update (update company company stock
Cashiering Firms • Cashi Cashier ering ing fu func ncti tion onali ality ty pe perf rfor ormed med by either internally or outsourced other professional firms
Custodian • Hold Holds s fu fund nds s and and s sto tock cks s of th the e clie client nts, s, collects dividends • St Stock ock can can be reco record rded ed in actua actuall cli clien ent’s t’s name or custodian’s name • Prox Proxy y and and ot othe herr comm commun unic icat atio ions ns from from Issuer are directed to clients • De Depo posit sitor ory y Trus Trustt & Clear Clearing ing Co Corp rpor orat ation ion (DTCC)
– Largest clearing and settlement settlement corporation corporation in US used by financial firms
Commercial Bank • Lend Lend mo mone ney y (lo (loan an)) to to Bro Broke kerr fir firms ms • Un Unde derw rwri riti ting ng o off bond bonds s (usu (usual ally ly Mun Munis is)) • Facil Facilita itate te Inte Intern rnat ation ional al Trad Trade e (th (thro roug ugh h issuing Bankers Acceptance) • Act Act as as cust custod odia ians ns fo forr IIns nsti titu tuti tion ons s • Ca Cashi shier ering ing serv servic ices es to US Gov Gov Sec Secur uriti ities es
Straight Through Processing(STP)
• Elect Electro roni nical cally ly proce processi ssing ng the the trad trade e wit witho hout ut any manual intervention • Objective – Red Reduce uce the proces processing sing cost cost and and time time – Reduce the Operational Operational Risk (avo (avoid id errors) errors) – Im Impr prov ove e effici efficien ency cy – push for for same-d same-day ay (T+0) (T+0) settle settlemen mentt
• Any erro errors rs in trade trade proce processi ssing ng in STP STP will will be separated and handled manually
Settlement Timings • Tota Totall time time ta take ken n to to proce process ss the the tra trade de af afte terr the trade date • T+0 – Sam Same day day set settlem lement (t (trade day day)) • T+1 – One da day after the trade day • T+2 – Two da days af after th the tr trade da day • T+2 – Three days ays after the trade day • Sett Settle leme ment nt time times s var varie ies sb bas ased ed on th the e trade venue and other factors
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Ref efe erence nces - Books oks • “Aft “After er th the e Tra Trade de Is Is M Mad ade: e: Proc Proces ess sing ing Securit Securities ies Transa Transactio ctions” ns” by David David M. M. Weiss • “Sec Securitie ities s Op Operation ions” by Mich ichael Simmo Simmons ns – Publ Publis ishe hed d by Wiley Wiley
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Thank You Khader Shaik
[email protected] [email protected] My blog: http://www.ksvali.com blog: http://www.ksvali.com
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