Trade life cycle part 2

Trade Life Cycle and Reconciliation Concepts

Participants in the Trade Life Cycle

• Buy-side Institutions – e.g., HDFC Mutual Fund placing a buy order for Infosys shares.
• Sell-side Institutions – e.g., Citi executes the buy order via BSE.
• Custodians – e.g., ICICI Bank holds securities in demat form.
• Clearing Houses – e.g., NSCCL ensures T+1 settlement.
• Exchanges – e.g., NSE/BSE where orders are matched.
• Depositories – e.g., NSDL updates demat records.
• Regulators – e.g., SEBI ensures market integrity.

Order Types Based on Price and Time

Price Based

• Market Order: Buy/sell immediately at best price.
• Limit Order: Execute only at specified price or better.
• Stop Loss: Trigger sell if price drops below set level.

Time Based

• Day Order: Valid for the trading day only.
• GTC: Stays active until canceled.
• IOC: Executes immediately or cancels remaining.

SWIFT Codes 540–548 (Securities Settlement)

• MT 540: Receive free of payment
• MT 541: Receive against payment
• MT 542: Deliver free of payment
• MT 543: Deliver against payment
• MT 544–548: Confirmations and status messages

Cash Settlement SWIFT Codes

Outgoing

• MT 103: Customer payment
• MT 202: Bank-to-bank transfer
• MT 199: Free-format message

Incoming

• MT 910: Credit advice
• MT 940: Balance report
• MT 950: Transaction report

Reconciliation in TLC

Types of Reconciliation

• Trade Reconciliation – Example: FX error causing mismatch in trade amount.
• Position Reconciliation – Example: NSDL shows fewer shares due to missing corporate action.
• Cash Reconciliation – Example: Ledger vs. Nostro balance shows ₹20 lakh gap.
• Nostro Reconciliation – Example: SWIFT MT103 mismatch by $5K due to fee.
• Broker Reconciliation – Example: One missing trade out of 12 due to downtime.

Common Breaks in Reconciliation

• Wrong booking currency
• Delayed settlement
• Unbooked bonus/dividend shares
• Duplicate trades

Back Office Reporting & Regulatory Requirements (India)

• SEBI: Daily client confirmation required.
• RBI: Cross-border transactions reported via EDPMS/EDIFAR.
• CCIL: Government security netting and reporting.
• Audit Trails: For each trade step and user activity.
• MIS Reports: Unmatched trades aging reports.
• Trade Blotters: Maintained for every front office user.