Post-Trade Shouldn’t Just Be a Postscript

This Entry is Part 3 in the Series NYFIX: Past, Present and Future

Traders Magazine Online News, October 12, 2017

John D'Antona Jr.

 

So, what happens after a trade is executed?

The end process of a trade is often seen as the postscript to the execution. All the hype for a trade comes from the vast and lengthy pre-trade vetting process and then the thrill of execution. Once the trade is in the book, not many traders think of the post-trade process at all. As a matter of fact, for many traders, post-trade is handled in the back office and becomes the problem of clerks and other professionals.

As defined, a postscript is an additional remark at the end of a letter, after the signature and introduced by “P.S.”. It can also be thought of as an afterthought – not important to be included in the body of the letter but something of minor importance. However, when it comes to the entire trade process, the post-trade process should not be thought of as an afterthought or postscript. Rather, it should be viewed just as important as the actual trade execution or pre-trade process.

Post-trade processes can be viewed in three parts - allocation, confirmation and affirmation. If any of these isn’t completed satisfactorily then the trade becomes a problem – that can either be rectified or broken. Neither the front-office desk trader nor the back-office professional wants to see a trade broken.

Up to now, the post-trade process has focused on what happens after the trade and is also referred to as the clearing process. During this process, the trade counterparties are examined and made sure each can fulfill the trade, according to Richard Bentley, Chief Product Officer at ULLINK. This vetting is very common across asset classes as the sell-side broker allocates the trade to a particular buy-side account or accounts and confirms with them trade particulars such as cost, size, brokerage fees, exchange fees , taxes, etc. are disclosed and examined.

“The buy-side looks at this process as occurring at the end of the day,” Bentley explained. “The buy-side and sell-side systems must be coordinated to interact properly to either make changes to the trade or complete the balance process.”

But there is a catch to all this – the length of time it takes to complete the post-trade process. Up to now, it has been a very human-centric and lengthy process. Also, often it is not streamlined as counterparties can often have different communication systems, thus adding to the complexity of post-trade processes.

Another factor to consider, Bentley added, was the push to shorten settlement times (T). He recounted how the marketplace has recently moved to , increasing the pressure to complete the clearing process faster.

For more information on related topics, visit the following channels:

• Clearing
• Technology