Post-Trade Processing

10-K Wrap

What is post-negotiation processing?

Post-transaction processing takes place after the transaction is completed. At this point, the buyer and the seller compare the details of the transaction, approve the transaction, modify the ownership records and organize the transfer of securities and cash. Post-trade processing is particularly important in markets that are not standardized, such as over-the-counter (OTC) markets.

Operation of post-negotiation processing

Post-trade processing is important because it checks the details of a transaction. Markets and prices are changing rapidly; transactions are executed quickly, often instantly. Many securities transactions are carried out by telephone; the ability to make mistakes is inherent, despite the skills of traders. More and more transactions are executed at high frequency by computers only. The chances of small errors getting worse remain high.

Post-trading processing allows the buyer and seller of securities to root out and correct these errors. In addition to matching details of buy and sell orders, post-transaction processing includes transferring ownership records and authorizing payment.

Clearing and settlement of transactions

After the execution of a transaction, the transaction enters the so-called settlement period. When paying, the buyer must make payment for the securities he has purchased while the seller must deliver the acquired title. Depending on the type of warranty, settlement dates will vary. To illustrate how settlement dates work, let’s say an investor buys shares from Amazon (AMZN) on Monday, January 28, 2019. The broker will debit the investor’s account for the full cost of the order immediately after it is executed, however, Amazon’s shareholder status will not be settled in the company records for the investor until Wednesday, January 30. At this time, the investor will become an official shareholder.

Once the transaction is settled and the funds from any sale of stocks or another type of security credited to your account, the investor can choose to withdraw the funds, reinvest in new securities or keep the amount in cash in the account. For those looking to cash out some of the profits (or what’s left of a loss), check to see if your broker offers transfers to your bank account using the Automated Clearing House (ACH) or using a bank transfer.

T + 2

The settlement period for post-trading processing of stocks and several other exchange traded assets. In March 2020, the SEC shortened the settlement period from T + 3 to T + 2 days to reflect technological improvements, increased trading volumes and changes in investment products and the trading landscape.

Clearing is the process of reconciling the purchases and sales of various options, futures or securities, as well as the direct transfer of funds from one financial institution to another. The process validates the availability of appropriate funds, records the transfer and, in the case of securities, ensures delivery of the collateral to the purchaser. Uncompensated transactions can result in settlement risk, and if the transactions are not cleared, accounting errors will occur where real money may be lost.

An outgoing exchange is an exchange which cannot be placed because it was received by an exchange with contradictory information. The associated clearing house cannot settle the transaction because the data submitted by the parties on both sides of the transaction is inconsistent or contradictory.

Key points to remember

  • Post-transaction processing takes place after the transaction is completed.
  • At this point, the buyer and the seller compare the details of the transaction, approve the transaction, modify the ownership records and organize the transfer of securities and cash.
  • Post-trade processing generally includes a settlement period and involves a clearing process.
  • OTC transactions that do not depend on central clearing houses will have to settle their own transactions, which exposes counterparty risk and settlement risk.

Examples of post-negotiation processing

On the NYSE bond platform, once transactions are completed, all bond transactions eligible for the Regional Interface Organization (RIO) of Depository Trust & Clearing Corporation (DTCC) / National Securities Clearing Corporation (NSCC ) are sent to NSCC to match the transaction details of buyers and buyers. respective sellers. Details are provided by the RIO.

Post-trade services have recently emerged as a key way for financial companies to diversify their sources of income. Due to a combination of new regulations, the standardization of derivatives and the increased need for more complex processing measures, due to the growth of alternative assets, post-trading services is an area in which some companies have a chance to surpass their competitors.

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