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Trade life cycle part 2

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Trade Life Cycle and Reconciliation Concepts

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.

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