Skip to main content

Reconciliation concepts in capital markets

Image
By
Reconciliation in Finance

Comprehensive Guide to Reconciliation

1. What is Reconciliation and How is it Completed?

Reconciliation is the process of comparing two sets of records to ensure consistency and accuracy. It ensures that financial data in internal systems matches external sources such as bank statements, broker records, or custodian reports.

Completion Steps:

  • Data extraction from both sources
  • Matching key fields (dates, amounts, trade IDs)
  • Identification of mismatches (breaks)
  • Investigation and resolution
  • Reporting and sign-off

2. Different Types of Reconciliation

  • Account Reconciliation: Matching ledger balances with bank or custodian statements
  • IB Reconciliation: Inter-branch transaction matching
  • TLC Reconciliation: Ensures trade data consistency throughout life cycle
  • Transaction Reconciliation: Matching specific transactions across systems
  • Position Reconciliation: Matching security holdings
  • Internal Reconciliation: Between internal departments or systems
  • External Reconciliation: With banks, brokers, custodians, etc.

3. Process of Reconciliation

  • Data Collection
  • Data Matching
  • Break Identification
  • Investigation
  • Resolution & Adjustments
  • Escalation if needed
  • Final sign-off

4. Key Controls and Integrity in Reconciliation

  • Automation and system validations
  • Segregation of duties
  • Break aging analysis
  • Approval workflow
  • Audit trail and documentation

5. Dealing with Breaks or Mismatches

Investigate timing issues, system errors, or manual input mistakes. Communicate, adjust entries, and document resolution thoroughly.

6. TLC, Internal and External Reconciliation

  • TLC Reconciliation: Ensures trade is correctly processed across all stages
  • Internal: Within departments or internal systems
  • External: With brokers, custodians, clearing houses

7. Cash Reconciliation

Matches internal cash ledger with external bank records. Ensures all receipts and payments are accounted for accurately.

8. Nostro Account Reconciliation

Used in foreign currency transactions. Internal vs actual bank balances are reconciled to identify discrepancies in foreign transactions.

9. Position vs Depo Reconciliation

  • Position: Compares internal vs custodian-held securities
  • Depository: Reconciliation with NSDL/CDSL for Indian securities

10. Broker Reconciliation

Confirms internal trade records with broker trade confirmations. Key in equity, derivatives, and forex operations.

11. Custodian Reconciliation

Custodians maintain financial assets. Reconciliation ensures accuracy of:

  • Holdings
  • Settlement statuses
  • Corporate actions
  • Cash balances

12. Examples

  • Nostro: Bank expects $100,000 but sees $98,000. Investigates fees or short payment.
  • Broker: Bought 500 shares internally, broker confirms 400. Needs reconciliation and update.
  • Position: Internal record shows 10,000 units; custodian reports 9,950. Resolve pending trade or error.

Comments

Post a Comment

Popular posts from this blog

Practical point of view of reconciliation example cCITI

By
Reconciliation at Citi Bank Reconciliation in Financial Institutions like Citi – With Examples 1. What is Reconciliation? Reconciliation is the process of comparing internal financial records with external sources to identify and resolve discrepancies. It ensures data integrity, regulatory compliance, and accurate reporting. 2. Types of Reconciliation at Citi – With Real Examples a. Cash Reconciliation Matches Citi's internal ledger entries with external bank balances. Example: Citi ledger shows $1.5M; JPMorgan shows $1.49M. A $10K FX delay is corrected. b. Securities/Position Reconciliation Checks holdings vs. custodians. Example: Citi reports 10,000 Reliance shares; NSDL shows 9,800. A corporate action wasn’t processed. c. Trade Reconciliation Validates trade flow across systems. Example: Front office shows $1M trade; middle office shows $1.2M. FX rate mismatch fixed. d. TLC Reconciliat...
Post a Comment
Read more

Securitization & Tokenization: Concepts, Process, and Comparison

By
Securitization & Tokenization: Concepts, Process, and Comparison 1. What is Securitization? Securitization is the process of converting illiquid assets (like loans) into tradeable securities. It allows financial institutions to raise funds and transfer risks. Features: Pooling of assets Tranching (senior/junior) Structured repayments Uses: Liquidity enhancement Risk transfer Capital relief for banks Risks: Credit risk of underlying borrowers Model risk in structuring Systemic risk if improperly regulated 2. How is Securitization Executed? Originator (e.g. bank) pools loans/assets Assets are transferred to an SPV (Special Purpose Vehicle) SPV issues securities to investors backed by cash flows from the assets 3. Participants and Instruments Involved Originator: Entity that owns original assets SPV: Legal entity that issues securities Investors: Buyers of securities Credit Rating Ag...
Post a Comment
Read more

Mastering Derivatives: BEP, Profit/Loss & Option Strategies Simplified

By
Mastering Derivatives: BEP, Profit/Loss & Option Strategies Simplified Introduction In today’s financial world, derivatives are key instruments used for hedging risk, speculation , and smart investment strategies . Whether you're a CA student , a finance enthusiast , or preparing for Investment Banking interviews , this guide will help you master the fundamentals of derivatives—including Break-Even Point (BEP) , Profit/Loss logic , and essential option strategies . What Are Derivatives? A derivative is a financial contract whose value is derived from another asset, called the underlying asset . Common underlying assets include: Stocks (e.g., Infosys, TCS) Commodities (e.g., Gold, Crude Oil) Currency Pairs (e.g., USD/INR) Indices (e.g., Nifty, Sensex) Bonds or Interest Rates Types of Derivatives 1. Forwards Customized agreement between two parties Buy/sell at a fixed price on a future date Private contract (OTC), not traded on exchanges 2. Futures ...
Post a Comment
Read more