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The Trade Life Cycle PDF

The trade life cycle outlines the complete process of a financial transaction, starting from order placement to final settlement. Key stages include order routing, trade execution, confirmation, clearing, and settlement, ensuring accurate and efficient transaction processing. Additionally, reconciliation and archiving are essential for maintaining operational efficiency and regulatory compliance.

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Kumar Mohan
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16 views2 pages

The Trade Life Cycle PDF

The trade life cycle outlines the complete process of a financial transaction, starting from order placement to final settlement. Key stages include order routing, trade execution, confirmation, clearing, and settlement, ensuring accurate and efficient transaction processing. Additionally, reconciliation and archiving are essential for maintaining operational efficiency and regulatory compliance.

Uploaded by

Kumar Mohan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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The trade life cycle encompasses the entire process of a financial transaction, from the

initial order placement to the final settlement. It involves a series of steps, including
order management, trade execution, clearing, and settlement, ensuring that the
transaction is processed accurately and efficiently. [1, 2]

Here's a breakdown of the key stages:

1. Order Placement:
Thisinitialstageinvolvestheclient(investororinstitution)placinganorderwitha
broker or directly with an exchange. [2, 2, 3, 3]
Theorderspecifiesthetypeofasset,quantity,price,andotherrelevantdetails.
[2, 3, 4, 5, 6]

Examplesincludebuyingorsellingstocks,bonds,orderivatives.[2,7,8,9,10,
11]

2. Order Routing:
Theorderisthenroutedtotheappropriateexchangeortradingvenuefor
execution.

Thismayinvolveroutingthroughabroker'sinternalsystemsordirectlytoan
electronic communication network (ECN). [3, 10, 12, 13, 14, 15]

3. Trade Execution:
Thisstageinvolvesmatchingtheorderwithacounterparty(anotherbuyeror
seller) on the exchange.

Thetradeisexecutedwhenamatchingorderisfound,andthetradedetailsare
confirmed. [2, 10]

4. Trade Capture:
Onceexecuted,thetradedetailsarecapturedandrecordedinthesystemsofthe
relevant parties (broker, exchange, clearing house). [16, 17, 18, 19, 20, 21, 22]

5. Trade Confirmation:
Thetradedetailsareconfirmedwithallpartiesinvolved(buyer,seller,and
potentially custodians).
Thismayinvolvesendingconfirmationsviaelectronicmessagingorother
communication channels. [10, 10, 16, 16, 23, 24]

6. Trade Clearing:
Thisstageinvolvestheclearinghouse(acentralcounterparty)managingtherisk
associated with the trade.

Theclearinghouseactsasanintermediary,ensuringthatbothpartiesfulfilltheir
obligations. [10, 10, 16, 16, 25]

7. Trade Settlement:
Thisisthefinalstagewheretheownershipoftheassetistransferredfromthe
seller to the buyer. [2, 10, 10, 26, 27]

Italsoinvolvestheexchangeoffundstocompletethetransaction.[2,2,10,10]
SettlementcanoccuronaT+1,T+2,orotherdesignatedsettlementcycle,
depending on the asset class and market. [28, 28]

8. Reconciliation:
Reconciliationinvolvescomparingrecordsfromdifferentsystems(e.g.,broker,
custodian, exchange) to ensure accuracy and identify any discrepancies.

Thisisacrucialstepinriskmanagementandoperationalefficiency.[10,16,16,
29, 30, 31, 32, 33, 34]

9. Archiving:
Aftersettlement,thetradedetailsarearchivedforrecord-keepingandregulatory
compliance. [2, 16, 35, 36]

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