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Trade Lifecycle

The document outlines the stages of the trade lifecycle, including Pre-Trade, Trade Execution, Trade Clearing, Trade Settlement, and Ongoing Position & Risk Management. It also discusses market participants, trading venues, and key divisions within an investment bank, highlighting the importance of automation and settlement cycles. Key processes such as client onboarding, trade confirmation, and risk management are emphasized throughout the lifecycle.

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Pranav Kilbish
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1 views8 pages

Trade Lifecycle

The document outlines the stages of the trade lifecycle, including Pre-Trade, Trade Execution, Trade Clearing, Trade Settlement, and Ongoing Position & Risk Management. It also discusses market participants, trading venues, and key divisions within an investment bank, highlighting the importance of automation and settlement cycles. Key processes such as client onboarding, trade confirmation, and risk management are emphasized throughout the lifecycle.

Uploaded by

Pranav Kilbish
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Trade Lifecycle
Stages of trade lifecycle:

Pre-Trade

Onboarding to the bank to start the relationship.

Onboarding request Legal Agreements

Customer Due Diligence to KYC Setting up the Client in the


system
Credit Terms (Check the credit
health, collateral of the client)

Trade Execution
When the trade happens.

Client’s motivation for trading (to Key Dates in trade - Trade Date
hedge their position, diversify (agree to enter the trade), Value
their portfolio etc.) Date (the date of Contract
obligation to value the trade),
Client’s requirements for an order
and Settlement Date (exchange
(time, price, Q etc.)
date)

Trade Lifecycle 1
Between Value Date and Settlement
trade there’s a risk of a party to go
default (usually T+2, in the us now
T+1 to limit the risk)

Trade Clearing
Prepare for settlement.

Trade Capture (initial point when Trade Confirmation/Affirmation


it hits the books) (confirm between direct and
indirect participants of the trade)
Trade Enrichment (adding legal
details of a counterparty) Trade Reporting (get it logged
into any required reporting)
Trade Validation (confirming the
details Settlement Instructions

Trade Settlement

Key part. Exchange the value of what you are trading.

Actual Exchange of value

Delivery - versus - Payment (if you sold a stock, you deliver it only when it
is paid for)

Free-of-Payment (FOP), payment and delivery is separate, higher risk

Ongoing Position & Risk Management

Managing of reporting and risks, monitoring of the regulation etc.

Managing Corporate Actions

Managing Counterparty Credit Risk (protection against counterparty going


bankrupt)

Trade Reconciliation

Measuring P&L (VAR, DV01)

Measuring Risk and Security

Preparing Internal and External Reports

Trade Lifecycle 2
Trade Lifecycle 3
Market Participants
Trading Venues

Centralised Exchange (NYSE etc.)

Alternative trading venue (ATS in the US, NTF in EU)

OTC market (through the dealer) (Specific requirements of parameters of the


trade)

Clearing Entities

Clearinghouse

Central Counterparty (CCP)

Central Securities Depositories

Custodians

Trade Lifecycle 4
Key Devisions of an Investment Bank
Front Office

Middle Office

Trade Lifecycle 5
Back Office

Trade Lifecycle 6
Developments
Hight Touch (trading when it is going to impact the market) VS. Low Touch
Trading

Automation: High Frequency Trading

Trade Lifecycle 7
Automation: Straight Through Processing (STP) (automated checking)

Settlement Cycles (shift to T+1)

Trade Lifecycle 8

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