Febuary 15, 2007

Global Lifecycle of a Trade

 

Course Overview and Objectives:

This one day program introduces operations and technology personnel to the trade lifecycle and its related infrastructure from the perspective of both the U.S. and international markets. Product focus includes both equity and fixed income instruments. Participants follow the sequence of activity that occurs “behind the scenes” on trade date once a customer’s order is executed through the final exchange of assets on settlement date. This class is also important in light of the asset management initiatives of SIFMA that rely on an understanding of trade flow. As a result of this class, attendees will be able to:

  • Identify the critical functional areas related to the lifecycle of a trade from the inception of the customer’s order through the settlement, as well as the follow-up required for the effective management of failed trades.
  • Distinguish types of operational risks that have a potential impact on the firm and their customers, in both the domestic and international arenas.
  • Analyze the source of costs per trade and its relationship to trading profitability.
  • Gain perspective on the relationship between the customer and the broker/dealer in the flow of post-execution activity.

 

Advance Preparation

Participants are assumed to have a basic understanding of equity and fixed income instruments and their characteristics.

Group Activities

To be determined based on the size of the group and the scheduling of the program. Assessment strategies include case studies, individual exercises, and small group activities.

Session I: Marketplaces

  • The marketplaces for equity and fixed income products
  • Exchanges (e.g., NYSE) and OTC markets
  • Growth of ECN’s in the U.S. equity markets
  • Placement of fixed income trading systems such as TradeWeb and MarketAxess in the bond markets
  • Proprietary and agency trading

Session II: Order Flow

  • Participants in the trade lifecycle: the roles of clients (retail and institutional), US-based broker/dealers, foreign broker/dealers, global and sub-custodian
  • Indications of interest, order capture and routing
  • Notices of Execution (NOE’s) and the communication back to the client
  • Order Systems provided by foreign stock exchanges and trading services for both equity and fixed income trades (e.g., SETS and SEAQ at the London Stock Exchange)
  • Edit and validation criteria for orders for international securities
  • Currency and time-zone considerations

Session III: Confirmation/Affirmation

  • Functional review of the post-execution dialogue between brokers and clients
  • Confirmation requirements for cross-border transactions
  • Transaction flow for confirmation/affirmation activity
  • Role of the global and local custodian
  • Confirmation/Affirmation services available: Global OASYS, Omgeo, TradeWeb, SWIFT messaging

Session IV: Trade Comparison and Reporting

  • Street-side trade reporting and comparison as performed by NSCC, FICC and their foreign counterparts
  • Pre-matching services for local agents and custodians

 Session V: Clearing and the role of Central Counterparties (CCP)

  • Calculation of settlement date obligations between counterparties
  • Role of NSCC and FICC as clearing corporations and CCP’s
  • CNS and multilateral netting; cash and securities impact
  • Structure of local clearing houses such as the London Clearing House (LCH.Clearnet), Eurex Clearing and the Japanese Securities Clearing Corporation (JSCC)
  • Funding requirements by clearing members
  • Cross-margin agreements among clearing houses

Session VI: Settlement

  • Exchange of assets to complete the trade lifecycle
  • How settlement occurs at DTCC and the Federal Reserve Bank
  • International settlement environments: fixed income and equities
  • Role of the global custodians and sub-custodial networks
  • Local Centralized Securities Depositories such as Crest, Sega, Indeval, JASDEC, etc.
  • International Depositories: Euroclear and Clearstream
  • Cash payment systems and the FX component of settlement
  • Fails as a source of risk and exposure, and their financial impact to the firm’s net capital
  • Workshop
  • List advantages and disadvantages with each of the following settlement venues that might be used by a foreign investor
    • International depository (e.g., Euroclear)
    • Local Agent Network
    • Global Custodian
    • Direct membership in a local central securities depository
    • Bilateral link between the home depository and those outside the home markets