Trade Initiation and Settlement (Trade Life Cycle)

What is a trade?

Trade is a process of buying and selling any financial instrument.

Just like any other product even a trade has its life cycle involving several steps, as those with a career in investment banking know.

What are the Steps involved in a Trade Life Cycle?

Overview of the Process

1. Sale –

• This is a process of client acquisition in which HNIs or Institutional clients are introduced to various investment products or vehicles.
• These vehicles or products are available with an Investment Manager or Bank by whom the client’s investments are managed.
• The investments are collectively called a Mutual or a Hedge fund.

2. Trade Initiation and Execution –

• This is the process of placing an order in the market.
• Trade Initiation and Execution can be done both at Order and Quote driven markets.
• This depends on the choice of market place and on the external platform.
• Once order is placed and it gets matched, the trade is said to be executed.

3. Trade Capture –

• Trades are then booked internally in a FO system for it to flow down to the operation systems.
• It is booked in a Risk Management System (RMS)
  
• 4. Trade Validation and Enrichment – Reference data team sets up the static and dynamic details which helps middle office teams to validate the trade, before releasing instructions into the market.
  Repository for data management
  
  
  
  
  
  5. Trade Confirmation –
  • This is an extremely critical step for the trade settlement.
  • Trade details and SSIs are agreed with counterparty at least a day prior to settlement date.
  Confirmation via depositories like Euro clear/DTCC

6. Trade Settlement – This is the process of simultaneous exchange of cash versus securities for a security trade or cash versus cash for a Derivative trade.

7. Reconciliation – Reconciliation involves matching ledgers against statements to ensure correct accounting of all trade booked.