Part 15

Part-15: Brokerage
Operations
Micro Issues
Trade Life Cycle
&
Straight Through Processing
TLC
 What do we mean by `trade
lifecycle’?
 All the steps involved in a trade from
the point of order receipt to trade
execution through to settlement are
referred to as the lifecycle of the
trade.
 The management of all STOs
require that trades are processed
in the most efficient manner.
 This is reflected in their desire to
TLC (Cont…)
 STP is achievable if the lifecycle is
begun by recording the details of
each trade in a timely and
accurate fashion within the front
office, and is handled efficiently
and cost-effectively in the
operational areas of the STO.
 A problem created early on in the
cycle will cost more to correct the
further it is allowed to flow
STP
 What is Straight Through Processing?
 It is a term used to describe the objective of
managing trades throughout the lifecycle
automatically and without human
intervention.
 Historically there was little or no
connectivity between the various systems
within an STO.
 This resulted in manual rekeying of
individual trade details at various points.
 Even where connectivity existed between
internal systems a lack of consistent
reference data prevented automatic passing
STP (Cont…)
 The objective of STP is the
following.
 Following trade execution
 Input the details of individual trades only
once
 And from that point until the complete
settlement of the trade. Manage each of
the steps in a fully automated fashion.
Elements of TLC
 Trading Activities
 Trade Execution
 Trade Capture (Front Office)
Elements of TLC (Cont…)
 Operational Activities:
 Trade Capture (Back Office)
 Trade Enrichment
 Trade Validation
 Trade Agreement
 Transaction Reporting
 Settlement Instructions
 The Role of the Custodian
 Pre Value Date Settlement Instruction
Statuses
 Settlement Failure
 Trade Settlement
 Reflecting Trade Settlement Internally
Order Flow
 Typical steps in the placement of
an institutional order with an STO.
 The institution decides to buy or sell a
specific security and contacts an STO
with whom it normally trades. The
details of the order are normally
conveyed to the relevant salesperson
within the STO.
 The salesperson records the details of
the order either manually or
electronically within an order
Order Flow (Cont…)
 The order details are forwarded by
the salesman or are fed automatically
by the order management system to
the relevant trader or market maker.
 The trader will assess the order in
order to decide whether or not to
trade. A market maker must trade if
the order price is within the quote
given by him. If the trade is executed
the details are recorded in the
relevant trading book.
Order Flow (Cont…)
 The trader will respond to the
salesperson who placed the order
advising whether or not the trade has
been executed and if so on what
terms.
 The salesman records the details of
the execution thereby closing the
open order.
 The salesman will contact the client
usually by phone to advise whether
the order has been fulfilled. A formal
trade confirmation will be sent later
Trade Capture by the Front
Office
 All trades executed by an STO must be
recorded formally within the STO’s
books and records.
 The first step is to record the basic
details of each trade.
 This is necessary to:
 Update the trading position for the specific
security
 Update the average price of the current
trading position so that when the next trade
is executed the trader knows whether a
Trade Capture (Cont…)
 Traders normally use trading
systems designed specifically for
managing their positions and
applying updated prices to those
positions.
 The basic trade details must be
immediately conveyed to the
middle or back office to allow
operational processing to
Components of a Trade
 In the case of a principal trade, the
basic components that are typically
recorded by the trader are:
 Trading book
 Trade date
 Trade time
 Value date
 Operation
 Quantity
 Security
 Price
 Counterparty
Trading Book
 The trading book has only internal
implications.
 The purpose of assigning a trade to a
specific book is to assign internal
responsibility and ownership for the
trade.
 This results in
 An update to the trading position within the
specific security
 And an update to trading profits within the
trading book.
 Incorrect application of a trading book
Trade Date
 The trade date is the day that the two
parties agree to execute the trade.
 It has internal as well as external
implications.
 It has an impact on the following
aspects.
 The date that a trading position is
updated.
 If a trade is not recorded on the trade date
the trading position will remain incorrect
until it is recorded.
Trade Date (Cont…)
 Trading P&L Calculation
 The P&L impact of a trade cannot be
calculated if the trade is not recorded.
 Calculation of accrued interest
 The trade date is connected to the value
date of the trade and the value date is used
in most markets to calculate the accrued
interest.
 If the trade date is incorrect, it can affect
the value date which could affect the
accrued interest and consequently the Net
Settlement Value.
Trade Date (Cont…)
 Entitlement to income on equity
 Is most markets entitlement to dividends is
related to the trade date.
 If the trade date is incorrect the buyer or
the seller could lose his entitlement.
 Trading systems typically assume that
the trade date is the same as the trade
input date.
 Usually this poses no problems.
 However precautions must be taken if there
is a `late booking’, that is the trade is being
recorded a day late or there is an às-of’
Trade Time
 In many markets regulators
require the STO to record the exact
hour and minute that the trade
was executed.
 This enables:
 Monitoring the STO’s activities to
ensure that the trades have been
executed at the `best execution’
price. This has implications for the
protection of the investor.
Trade Time (Cont…)
 It enables the settling of disputes between
counterparties regarding the basic details of
the trade such as quantity differences.
 It enables market surveillance on the part of
the regulator to identify abnormal trading
activity.
 Regulators also insist that all telephone
conversations made by traders are
taped.
 When a dispute arises the trade time is
used to quickly identify and retrieve the
Trade Time (Cont…)
 In some cases, the trade time is used as
a measure for trade reporting.
 In the Eurobond market, the regulator
requires that all trades executed by UK
based members of the Eurobond
industry body – The International
Securities Market Association (ISMA) –
report details of their trade to ISMA via
their system TRAX within 30 minutes of
trade execution.
 Fines are imposed on members who fail to
meet the deadline.
Value Date
 The value date is the intended
date of securities for cash.
 This is known as the contractual
settlement date.
 Note that the actual settlement date
could be different because of
settlement failure.
 The period between the Trade
Date and the Value Date is known
as the Settlement Cycle.
Value Date (Cont…)
 The longer the settlement cycle
the greater is the possibility of one
of the parties defaulting.
 For instance if a buyer is not required
to pay for many days following the
trade he may be tempted to default
should the market price of the
security fall sharply before the value
date.
Operation
 The term operation refers to the
direction of the trade
 Is the STO a buyer or a seller
 Or in the case of a securities lending
or borrowing transaction, is the STO a
lender or a borrower.
Quantity
 The quantity refers to the number
of shares or bonds that have been
bought or sold.
 Standard tradable quantities may
apply to both shares and bonds.
 Shares are often traded in Round Lots
or Board Lots.
 Bond are traded in multiples of the
minimum denominational values.
Quantity (Cont…)
 The quantity will require inputting
by the trader.
 But the trading system should
verify its validity by reference to
static data.
Security
 When a trade is being executed we
must know precisely which
security is being traded.
 In the case of equities confusion
can arise in cases where an
original security and a second
security with superficial similarity
are validly in existence at the
same time.
Security (Cont…)
 An example would be where new shares
have been created in addition to the
original shares.
 The two may need to be identified
separately in a situation where the new
shares may not be equal in all respects
until a later point in time.
 For instance the next dividend may be
payable only on the original shares and not
on the new shares.
 Following the payment of the dividend the
Security (Cont…)
 In the case of bonds, some issuers
such as the World Bank may have
hundreds of bonds with details that
are extremely similar such as:
 Issues with identical coupon and
maturity but with different currencies
of issue
 Issues with identical coupon and
currency but with different maturity
dates
 Issues with identical maturity and
Security (Cont…)
 At the time of trade execution the
two parties must be precisely
aware of the security that they are
dealing in.
 To help avoid errors securities
identification code numbers such
as ISIN and CUSIP are assigned to
each security.
 The security being traded should
have its details held within the
Security (Cont…)
 Trading systems normally display
only those securities which pertain
to the particular trading book.
 The trader only needs to select the
correct security from the list.
 If the details have not been set up
within the static data trade capture
will be held up at the beginning of
the TLC causing delays and
avoidable costs.
Price
 Price is an essential component of
a trade
 It is therefore important that the input
should be exact
 Equity prices are typically
expressed as a cash amount per
share.
 Bonds are normally traded at a
percentage of the face value.
Counterparty
 Correct identification of the
counterparty is very important.
 Confusion can arise if an STO
trades with a group of companies
consisting of trading entities in
different locations.
 Being uncertain of the
counterparty and its location can
lead to
 Delays in settlement processing
Counterparty (Cont…)
 When an STO trades with a mutual
fund manager it is common to find
that at the point of placing an
order and at the time of execution
the fund manager is yet to decide
to which of its underlying funds the
trade should be allocated.
 It may take a number of hours for the
fund manager to respond with
allocation details.
 Under these conditions the STO
has executed a trade with a
counterparty knowing that the final
counterparty details will differ from
the counterparty known at trade
execution.
 Normally the trade is recorded as
executed with the parent
counterparty, and later on, when
the allocation details are known,
 The counterparty with whom the
trade was executed should be held
within the static data repository.
 The trader only needs to select the
correct counterparty inclusive of
location from the list.
 If the data is not present at the
outset, trade capture will be held
up at the beginning of the TLC.
Front Office Trade
Reference
 The trading system should perform
validation that all necessary
components of a trade are present
before assigning a trade reference
number to a trade.
 Storage of the reference number
allows identification and inspection
of the details at any time after
trade capture.
 This is vital if the trade is
Subsequent Action
 Once the trade is captured within a
trading system the details should
be sent to the back office
immediately for operational
processing.
 If the STO does not have a trading
system the details are recorded
manually on a `dealing slip’.
 This will be collected and delivered
to the middle office or the
Incorrect Capture
 Incorrectly recorded trades may lead to:
 Inaccurate trade confirmations being sent to
counterparties

This could lead to a loss of business
 Inaccurate settlement instructions being
sent to the custodian
 This could lead to unmatched instructions with
the counterparty and require a subsequent
amendment.

Or if the instructions nevertheless match and the
trade settles it could lead to a monetary loss.
 Sometimes the STO may never even come to know
that there was an error.
Trade Capture within the
Settlement System
 In an automated environment, where
the trade has been sent by the trading
system to the back office system
electronically, it is to be expected that
the trade will arrive successfully in the
receiving system.
 However it is possible that the trade fails to
arrive in the back office system.
 It is therefore recommended that a trade-
by-trade reconciliation is conducted to
ensure that the trades sent by the trading
system have in fact been received
successfully by the back office within an
Trade Capture…(Cont…)
 As soon as the back office system receives a
trade validation needs to be performed to
confirm that static data items like
 Trading book
 Security
 Counterparty
are known.
 If a check reveals a problem – eg.
Counterparty not known – the problem should

be highlighted and treated as an exception
requiring corrective action.
 This will have the impact of temporarily halting
operational processing.
Trade Capture …(Cont…)
 Once the trade details have been
checked for validity, a settlement
system trade reference number
will be assigned.
 This is in addition to the trading
system trade reference number.
 The trade has now been accepted
into the settlement system and is
now ready for Enrichment.
Trade Enrichment
 Following trade capture within the
settlement system the details of a
trade require enrichment.
 What is enrichment?
 It involves the selection, calculation,
and attachment to a trade of relevant
information necessary to complete
further essential actions.
Trade Enrichment (Cont…)
 In an automated environment,
trade enrichment is achieved
through defaulting relevant
information automatically from the
store of information held within
static data.
 This is known as Static Data
Defaulting.
Trade Enrichment (Cont…)
 Steps involved:
 The basic trade details are captured
within the settlement system
 The basic trade details are compared
with the information held within the
static data repository, and if the
necessary information is present in
the repository, the default information
is selected.
 The selected defaults are attached to
the basic trade detail to form the
Trade Enrichment
Components
 In general, the trade components
requiring enrichment are:
 Calculation of cash values
 Counterparty trade confirmation
requirements
 Selection of custodian details
 Method of transmission of settlement
instructions
 Determining the method of
transaction reporting (for regulatory
Trade Enrichment
Components (Cont…)
 The components pertaining to one
transaction type may be only
partially similar to the components
pertaining to another transaction
type.
 We will list the trade enrichment
components of each transaction
type.
Principal Transaction
 Required
 Cash value calculation
 Securities depot details
 Trade confirmation
 Transaction reporting
 Settlement instructions
 Securities accounting
 Cash accounting
Repo Transaction
 Required
 Cash accounting
Securities Lending and
Borrowing
 Required
 Cash accounting
Trading Book Transfer
 Required
 Cash accounting
 Not Required
Depot (Custodian)
Transfer
 Required
 Not required
 Cash accounting
Unsecured Borrowing and
Lending
 Required
 Cash accounting
 Not required
Nostro Transfer
 Required
 Cash accounting
 Not required
Foreign Exchange
 Required
 Cash accounting
 Not required
Determining Factors in Trade
Enrichment
 Before enrichment of individual
trades can occur, consideration
must be given to the choices that
an STO has for deriving the correct
information to attach to a trade.
 We will consider issues pertaining
to each component in detail.
Calculation of cash values
 In order to calculate all the cash
related components of a trade, it is
necessary to consider the
following.
 Operation
 That is
 Buying or selling/Borrowing or lending

This has implications for cash value
calculations

For instance client purchases of UK equity
attract stamp duty, but sales do not.

Only sellers of US securities are required
Calculation…(Cont…)
 Security group
 Stamp duty is payable on Irish equities
but not on Japanese equities
 Accrued interest is applicable to coupon
paying bonds but not to ZCBs.
 Counterparty Type
 Sales credits are normally calculated on
trades with institutional clients, but not
on trades with other STOs.
 Sales credits may be calculated
differently for different types of
institutional clients.
Selection of Custodian
Details
 The selection of the relevant custodian
details for both the trading company
and the counterparty will be affected by
the following issues.
 Trading company
 If an STO processes the business of more than
one trading company
 Different custodians may be used by each of the
companies, even for the same security group.
 The same custodian may be used by both trading
companies, distinguished by different account
numbers for each company at the custodian.
Selection…(Cont…)
 Transaction Type

Different transaction types will determine the
settlement location of a trade.

A principal trade will settle at a securities
custodian, whereas a foreign exchange trade is
likely to settle over a main bank account.
 The custodian and the bank may not be the same
entity.
 Security Group

US equities will settle at the NEW York Custodian

New Zealand government bonds will settle at the
Wellington custodian.
 Counterparty
 Where there is a choice of settlement locations, a
counterparty may choose. Some counterparties
may select the settlement location on a trade-by-
trade basis.
Counterparty Trade
Confirmation Requirements
 An STO will normally issue a trade
confirmation to its institutional
clients, as a part of its service.
 But it may not issue confirmations
to other STOs with which it trades.
Determining the method of
Transaction Reporting
 The types of security in which an
STO trades may require that the
STO carries out its transaction
reporting via different methods.
 For instance, a UK based STO may
be required to report UK equities
via one route, and its international
bond transactions via another
route.
Method of Transmission of
Settlement Instructions
 The methods used to transmit
settlement instructions will depend
on the following.
 Trading Company
 Where an STO processes the business of
more than one trading company each
company may have a preferred but
different method of transmission.

For instance company A may choose to
transmit via telex while company B may
choose to transmit via SWIFT.
Transmission (Cont…)
 Custodian

Custodians typically have a preference
for the method of communication
between themselves and the STO.
Failure to Apply Static Data
Defaults
 In an automated environment,
failure to fully enrich a trade may
be intentional or unintentional.
Intentional Failure
 In a situation where the default of a
particular trade component is best
applied manually, the STO may choose
to set no automatic default of static
data.
 For instance Italian Government bonds
can settle domestically in Milan or
internationally in Euroclear or
Clearstream.
 An STO may choose to settle an
individual trade in or other location
depending upon the circumstances.
 If no general rule can be applied then it is
Unintentional Failure
 In an automated environment it is
not possible to default static data
automatically if such data is
missing for a particular
component.
 For instance a specific
counterparty is set up within both
the trading system and the
settlement system, but no
custodian details are set up within
Enrichment of Counterparty
Custodian Details
 An STO needs to calculate its
counterparty’s custodian details in
addition to its own custodian details.
 When a trade is executed by an STO, it
is necessary to determine where it
wishes to settle the trade.
 This is particularly true if it trades in many
markets.
 It must also determine how the
counterparty wishes to settle the trade
 This information will be required on the
settlement instruction issued by the STO
Example
 WSIL an STO has bought 5,000,000
News Corporation shares from PTIF.
 WSIL first needs to assess how it wishes
to settle the trade from its own
perspective.
 It needs to determine its appropriate
custodian based on the individual security
or security group.
 In this case the equity is Australian.
 So the decision is taken to settle at
Custodian A in Sydney.
Example (Cont…)
 A similar decision needs to be
taken by WSIL regarding where it
believes PTIF will settle the trade
according to the information
received from PTIF and held within
WSIL’s static data.
 The custodian to be used by the
counterparty will appear on the
settlement instruction that will be
sent by WSIL to its custodian.
Example (Cont…)
 This is essential information.
 Otherwise WSIL’s custodian will not
know with whom the trade is to settle.
 Merely stating PTIF does not provide
the answer.
 The information required to match
and settle the instruction sent by
WSIL is

The account number at the relevant
depository of the Australian custodian
being used by PTIF
 Let us assume it is Custodian B in Melbourne.
Example (Cont…)
 Following trade execution between WSIL
and PTIF the trade would be
 captured within the trading system
 then captured within the settlement system
 followed by trade enrichment within the
settlement system.
 In the process WSIL would have
calculated
 The custodian that it wishes to use
 And PTIF’s custodian
 The sequence of steps taken would be
as follows.
Example (Cont…)
 WSIL issues a settlement
instruction to its custodian telling
 Custodian A in Sydney to receive
5,000,000 News Corporation ordinary
shares, against payment of the
relevant cash amount
 From Custodian B Melbourne whose
depository account number is
5532896.
Example (Cont…)
 PTIF issues a settlement instruction to
Custodian B asking it to deliver shares
against the relevant cash amount to
Custodian A
 Whose account number at the depository is
5023598.
 Custodian A should update its records
with the details of the instruction
received from WSIL
 Custodian B should update its records
with the details of the instructions
Example (Cont…)
 Each custodian should aim to
achieve a match of their client’s
settlement instructions with the
counterparty’s custodian.
 If the information does not match the
custodians have no authority to
change any aspect of the client’s
settlement instruction.
 They must however advise the client
about the status of the instruction.
Example (Cont…)
 If there is a mismatch WSIL would
need to investigate.
 If its static data is accurate in all
respects
 And if the trade is properly
enriched
 The number of unmatched
instructions will be minimized.
 However settlement instructions
may be unmatched for other
Trade Validation
 Having executed, captured and
enriched a trade it is now complete
and further taskes such as
 Issuing a trade confirmation
 Reporting the trade to the regulatory
authorities
 Issuing settlement instructions can
proceed.
Trade Validation (Cont…)
 However many STOs adopt a final
check of the data contained within
a fully enriched trade to reduce the
possibility of incorrect information
being sent to the outside world.
 This is known as Trade Validation.
Fundamental Risks
 The basic risks associated with trades
are that an STO may make a loss
 This could happen directly
 While buying

By paying more cash than the market value
 By paying the correct amount but without
simultaneous receipt of securities
 While selling
 By receiving less cash than the market value

By delivering securities without simultaneous
receipt of cash
 This could happen indirectly
 By losing clients due to provision of slow
and inaccurate service.
Reasons
 These risks can arise as a result of the
following issues
 Trading error: The trader makes a mistake
at the time of execution

He trades at a price that is significantly different
from the market price

Or he agrees to settle on an FoP basis
 Trade recording error
 The trade has been captured with one or more
components that differ from those that were in
fact executed
 Eg.: 10 MM shares were purchased but is has been
recorded as 1 MM.
Reasons (Cont…)
 Trade enrichment error

The calculation of trade cash values is
incorrect

For instance the number of days of
accrued interest on a bond is incorrect
 Trade validation is a task that is
designed to detect such situations
on a trade by trade basis.
Basic Trade Validation
 The trade components ought to be
viewed from the following
perspectives.
 Trading book
 May be restricted to specific
transaction types (eg. Principal only)
 May be restricted to specific
instrument groups (eg. Japanese
securities)

Validation (Cont…)
 Trade Date
 Should be `today’ for a new trade
 Cannot be in the future
 Should be today or in the recent past
for an amended trade
 Should be a business day
 Cannot be after the value date
 Trade Time
 Cannot be in the future
 Value Date
 Is normally the standard settlement cycle
for the security group eg. T+3 for US
securities
 May be shorter or longer than the standard
(if the trader has agreed at the time of
execution and has recorded that date)
 Should be a business day in the location of
settlement
 Cannot be earlier than the trade date
 Cannot be earlier than the primary value
date of a new issue
 Operation
 This typically cannot be validated

Settlement personnel have no means of knowing
whether the trader should be buying or selling;
borrowing or lending
 Quantity
 Cannot be less than the minimum
denomination of a bond
 Must be in multiples of the minimum
denomination of a bond
 Is normally in multiples of a round lot for
equities
 May be an odd lot for equities
 Security
 Cannot be a matured bond
 Cannot be an expired warrant
 Must be clearly distinguishable from other
securities
 Price
 Must be expressed according to the security
group

Share price must be an amount per share

Bond price must be either a percentage relevant
to face value or a yield
 Counterparty
 Must be clearly distinguishable from others
 Must include location
 Trade cash value
 Must be quantity x price plus or minus other
costs such as stamp duty
 Accrued days must be relevant to last
coupon payment date and value date
 Accrued interest must be relevant to
quantity, accrued days, and coupon rate
 Should be sent to institutional clients
 Should not be sent to STOs if for
instance an electronic trade matching
system is in place
 Company’s and Counterparty’s
Custodian
 Must be relevant to the security group
Additional Trade Validation
 In order to have the ultimate level of
control regarding the information that is
about to be sent to the outside world,
the following types of validation
measures are taken by some STOs in
addition to the basic trade validation
steps.
 Any trade falling within or more of the
following categories should be treated
as an exception and held pending
validation.
Additional Validation
(Cont…)
 Trades due to settle on an FoP basis
 Extreme caution needs to be taken when
settling on an FoP basis
 All such trades should be held for validation
 Trades with a cash value at or above a
certain figure
 To give specific focus to all trades that are
deemed to be large, all trades with a net
settlement values of a given figure or
greater, or the currency equivalent of that
figure or greater, should be held for
(Cont…)
 Trades in a Specific Transaction Type
 All trades in a specific transaction type may
be required to be held for validation to
ensure correctness before transmission to
the outside world.
 Trades with a specific counterparty
 This is likely to be required for trades with
institutional clients
 May be necessary because the client is new
 Or could be because an existing client has
complained about the accuracy of information or
speed of service provided on past trades.
(Cont…)
 Trades in a Specific Market or
Security Group
 Where an STO is trading in particular
market for the first time it may

Wish to recheck that trade cash values
are accurate

That custodian details are correct for all
trades on securities within a group
 This may prove necessary for a
limited period only until it is proved
that new trades are correct routinely.
(Cont…)
 Trades Due to Settle at a Specific
Custodian
 If an STO has recently changed
custodians at a financial centre it may
wish to verify all trades destined for
settlement at that custodian
(Cont…)
 Trade Price Outside of market Price
 As a precautionary measure an STO
may decide to validate all trades to
ensure that prices are reasonable.
 Because price is a major factor in
deriving the Net Settlement Values,
there is a danger of an STO making
overpayment on purchases or
receiving underpayment on sales.
(Cont…)
 If the current market price is accessible and
a tolerance is set against the current market
price (to allow for typical validity) then only
those trades falling outside the set
tolerance should be held for validation.
 When such trades are identified
management may need to be informed. The
management should decide as to how tight
the tolerance should be.

Too tight a tolerance may mean that many trades
are being held for validation thereby preventing
STP

Too loose a tolerance may mean that incorrect
(Cont…)
 Trades in a Specific Trading Book
 The management may wish to
monitor the trading activity of a
particular trading book
 Trades with trade dates in the past
 Any new trade that has a trade date
in the past may be held for validation
to ensure that it is valid.
(Cont…)
 Trades with value dates in the past
 Any new trade with a value date in the past
should be held for validation for this is an
indication that something is seriously
wrong.
 If settlement should have occurred in the
past this is highly likely to result in a cost to
the STO.
 All amended trades
 Some STOs may wish to monitor all
amended trades to ensure that trades
recorded with incorrect quantity or price
(Cont…)
 All Cancelled Trades
 The need for outright cancellation should be
minimum and an STO may wish to check
the detail before issuing information such as
canceling trade confirmations and canceling
settlement instructions to the outside world.
 Validation provides the STO with a high
degree of control resulting in reduced
inaccuracies.
 But there is a compromise between
sufficient control and STP.
Manual Trade Validation
 Due to the number of trade
components manual validation is
likely to result in
 A limited number of components
being validated so as not to adversely
affect meeting external deadlines
 Occasional human error resulting in
the failure to identify a risk or an error
Manual Validation (Cont…)
 In order to identify problematic trades
manual validation needs to be
undertaken by the more knowledgeable
members of the middle or back office
using their èxperienced eye’ to scan
the components of a trade and their
knowledge to sense whether or not a
trade is acceptable.
 But a significant amount of manpower
would be required to validate all trades
to the fullest extent due to the sheer
Manual Validation (Cont…)
 In order to meet the combined
demands of
 STP
 Servicing clients accurately and
speedily
 Issuing settlement instructions by the
necessary deadlines
 Transaction reporting within required
deadlines
extensive validation is possible only
Automated Trade
Validation
 The processing of trades can be highly
automated while achieving satisfactory
levels of STP and control over trades
requiring additional validation.
 An STO could decide that all trades
should be handled on an STP basis
unless identified to be held for
validation.
 Trades held for validation are referred
to as èxceptions’ and are therefore
subject to èxception handling’.
Automated Validation
(Cont…)
 The trigger that causes trades to
be treated as exceptions is the
setting of rules within the
settlement system.
 All or some of the rules studied
earlier could be set up within the
settlement system.
 After each trade has been enriched
the system would compare the
trade details with the relevant
(Cont…)
 If the trade passes the validation
check it would be allowed to
continue immediately and can be
regarded as having been
processed on an STP basis.
 If the trade fails the validation
check it will be treated as an
exception and will be held for
validation.
(Cont…)
 When a trade is held for validation
it is temporarily suspended and no
actions such as
 Issuance of a trade confirmation
 Or issuance of a settlement
instruction
should occur until the trade has
been released from its exception
state.
Flow
 We will summarize the flow of trades
where handled on an STP basis and
where an exception is found.
 The trade is captured, enriched and is
now subject to validation.
 The details of the trade are compared
with preset validation rules.
 If all rules are passed the trade will be
forwarded immediately for actioning of
other operational tasks such as
 Trade agreement and
Flow (Cont…)
 If the trade fails the validation check it will be
held for validation and routed for exception
handling
 The trade will be forwarded to the appropriate
authorizer depending on the reason for being
withheld
 Having been investigated and found to be
correct the trade is authorized.
 The trade within the exception handling
system is updated and released to the
settlement system
 The trade is now forwarded for actioning of
operational tasks.
 If the trade is found to require amendment or
cancellation further action may be required by
Flow (Cont…)
 Further automation may be
employed where resolution of an
exception has not occurred within
an acceptable timeframe.
 The management of an STO may
decide for instance that unresolved
exceptions that are for example 45
minutes old should be escalated to
a more senior staff member.
Trade Agreement
 Once a trade has passed validation a
number of tasks can commence.
 The action that is regarded as most
urgent is the act of gaining agreement
of the trade details with the
counterparty.
 Trade agreement can be achieved
through:
 Issuance of outgoing trade confirmation to
the counterparty
 Receipt of incoming trade confirmation from
the counterparty
 Trade matching
Trade Agreement (Cont…)
 In a generic sense trade
agreement is achieved by the STO
communicating the details of each
trade to its counterparty
whereupon the counterparty
should check the detail and revert
to the STO if:
 It recognizes the trade but the details
differ

 The communication needs to
contain all the basic trade details
as a minimum plus
 The cash value calculations and
optionally
 The settlement details including
 STOs and the counterparty’s custodian
details
 Their account numbers
 And whether the trade is to settle on a
 Matching of buyer’s and seller’s
details is in many cases effected
through two routes
 Trade Agreement: Agreement of trade
detail between the two parties
 And additionally
 Settlement Instruction Matching: The
custodians of the buyer and the seller
attempt to match settlement
instructions prior to delivery of
 These two exercises are similar in that
the trade details are matched prior to
the value date.
 But the timing is usually different.
 Trade agreement is necessary immediately
after trade execution to ensure that the
correct counterparty has been recorded by
the STO and that the details agree
 This is from a risk mitigation perspective
 Settlement instruction matching is typically
effected at any time between trade
Reducing the STO’s Risk
 For each executed trade the STO
remains at risk of its trading P&L
being incorrect if the trade and its
detail has not been agreed or
matched by the counterparty
within a reasonable timeframe.
 The P&L remains subject to change
until it is proven that all trades have
been agreed by the counterparties.
Reducing Risk (Cont…)
 Because of the risk the objective is to
gain agreement of the trade detail as
soon as possible after trade execution.
 To reiterate, the situation is as follows:
 The trader has just executed a trade with
the counterparty
 The trade has been recorded within the
trading system
 The trade has been captured within the
settlement system
 The trade has been validated internally
Reducing Risk (Cont…)
 But there is no guarantee that:
 The counterparty with whom the
trade has been captured is the same
as the counterparty with whom the
trade was executed
 The trade details

Quantity
 Price
 Net settlement value
 Will be agreed to by the counterparty
Risk Reduction (Cont…)
 From an STO’s perspective failing to
seek agreement of trades with its
counterparties soon after trade
execution will inevitably
 Result in the identification or errors during
the settlement instruction matching process
 Which in a T+3 cycle is unlikely to bring
errors to light until the day following the
trade date at the earliest.
 The longer a trade remains unmatched
after execution the greater is the risk of
 Time is an important factor.
 Assume that trader believes he sold 15
MM shares at a price of HKD 22.59 on
trade date 15 June for value date 18th
June.
 On 17 June it becomes apparent
through the settlement instruction
matching process that the counterparty
believes it bought at HKD 22.55 and
investigation proves that the other
party is correct.
 The trade will have to be amended to the
 Take a worse example
 On 17 June the counterparty does not
recognize the trade at all.
 If this results in the trade being
cancelled outright
 The STO will have a positive position of
15MM shares
 If the price were to have fallen in the
interim the trader would have failed to
realize a profitable opportunity.
Trade Agreement Methods
 The method of agreement of trade
details between the parties to a trade
varies according to
 Local regulations
 Market practice
 Type of counterparty
 Generally agreement of trades executed
with other STOs is likely to be handled
differently from trades with institutional
clients .
Method-I
 Issuance of outgoing trade
confirmations
 It is highly likely that an STO will be
required to issue a trade confirmation
to its institutional clients particularly
where a trade affirmation facility is
not being used
 It is likely that an STO will want to
issue a confirmation to other STOs
particularly where a trade matching
Method-II
 Receipt of incoming confirmations
from counterparties
 The STO may receive confirmations
from other STOs
 It is unlikely to receive confirmations
from institutional clients

As such clients are the recipients of
service from the STO.
Method-III
Trade Matching
 Trade matching is a term used for the
mandatory electronic matching of trade
details between STOs and other
members of stock exchanges/markets
such as agents for investors (excluding
institutional clients).
 Both parties are required to input the
trade details to a central matching
facility.
 The matching results are provided to
both parties.
 Where trades have been executed
electronically the trade detail is usually
Method-IV
Trade Affirmation
 This relates to the optional
electronic matching of trade
details between STOs and
institutional clients.
 The trade details are input by the
STO to a trade affirmation facility
and the institutional client agrees
or disagrees.
 Both parties must elect to
Outgoing Trade
Confirmations
 Trade confirmations to Institutional
Clients
 Where an STO has executed a trade with an
institutional client (for instance over the
telephone) the client is likely to require the
receipt of a confirmation within a mutually
agreed time frame such as 1-2 hours.

This timeframe is likely to shrink as settlement
cycles shrink.
 The confirmation represents formal
confirmation of trade details which must be
received by the client within an agreed time
Outgoing Confirmations
(Cont…)
 Under some circumstances it may not
be possible for an STO to issue a
confirmation within the required
timeframe.
 Institutional clients like fund managers
usually place an order to buy or sell a
specific quantity of a specific security
within a limited price.
 Once the trade is executed the STO’s
salesperson will report the details of the
execution to the fund manager informally,
usually via telephone.
(Cont…)
 Following trade execution the fund
manager will allocate the total
trade to one or many of its
underlying funds.
 In practice the fund manager will
usually not convey to the STO the
names of the underlying funds
until some time after trade
execution.
(Cont…)
 For example an STO has sold USD
50MM World Bank 6.50% bonds
maturing 1st February 2018 to QRS
Fund Managers at a price of
98.625%.
 QRS will require the total quantity
of bonds to be allocated to its
underlying funds as shown below.
Allocation
Fund Name Quantity Price
QRS Healthcare 12,000,000.00 98.625

Growth Fund
QRS Global 10,000,000.00 98.625
Bond Growth
Fund
QRS European 25,000,000.00 98.625
Income Fund
QRS Pacific 3,000,000.00 98.625
Income Fund
TOTAL 50,000,000.00
(Cont…)
 The fund manager usually requires the
receipt of trade confirmations for each
of the underlying funds.
 For ultimately it is the underlying funds that
have purchased or sold the securities and
not the parent.
 The STO needs to decide whether to
record the trade with the parent.
 It knows that this will have to be replaced
by one or many trades with the underlying
funds at some point later in the day.
(Cont…)
 If the trade is recorded in the
name of the parent immediately
after execution, the STO would
have reflected the factual
situation.
 If not the settlement system will
not reconcile with the trading
system – the trading positions will
differ.
(Cont…)
 Some STOs treat these situations as
follows.
 The original trade is captured in the trading
system and fed to the settlement system.
 Eg. Sold USD 50 MM of bonds to QRS Fund
Managers at a price of 98.625%
 The original trade is captured within the
settlement system but is treated as a trade
with the parent, awaiting allocation to the
underlying funds.

The trade is simply held in the knowledge that
allocations will be advised by the fund manager at
the earliest.
 No trade confirmation is usually issued to the
parent.
(Cont…)
 The fund manager advises the STO of the
allocations.
 The original trade is replaced by one or
more trades.

This may happen both in the trading as well as
the settlement system or only in the settlement
system.
 From the settlement system formal trade
confirmations can now be generated and
transmitted to the fund manager at the
underlying fund level.
(Cont…)
 In order to gain agreement of trade
details, the STO normally issues a trade
confirmation to other STOs with which it
has traded.
 There could be exceptions if an electronic
trade matching system is being used.
 Confirmations to institutional clients are
regarded as a part of the service.
 But confirmations to other STOs are
used to confirm that the trade details
are correct as soon as possible after
trade execution.
(Cont…)
 The issuing STO hopes that the
recipient STO will check the detail
upon receipt, and respond without
delay if its is found to be incorrect.
Content of a Confirmation
 From – the name of the issuing STO
 To – the name of the counterparty
 Attention – the relevant
person/department at the counterparty
 Subject – a heading that states the
purpose of the message, namely `Trade
Confirmation’.
 Our trade reference – the STO’s
settlement system trade reference
Content (Cont…)
 Trading capacity – the capacity in which
the STO has traded (principal or agent)
 Transaction type – principal, repo,
FOREX etc.
 Operation – Buying/selling;
Lending/borrowing
 Trade date – date of trade execution
 Trade time – time of trade execution
 Value date – contractual settlement
date
 Quantity – quantity of shares, or
quantity of bonds with currency
Content (Cont…)
 Security – the exact, unmistakable
description of the security
 Security reference – ISIN, CUSIP etc.
 Price – quoted according to type of
security (share or bond)
 Principal – quantity x price
 Accrued days – relevant number of days
of accrued interest
 Accrued interest – cash value of accrued
interest
Content (Cont…)
 NSV – the cash value to be
paid/received
 Our depot – the STO’s settlement
location of securities
 Our Nostro – The STO’s settlement
location of cash
 Your depot – the counterparty’s
settlement location of securities
 Your NOSTRO – the counterparty’s
settlement location of cash
Content (Cont…)
 Settlement basis – DVP or FOP
 Exchange/market – exchange or market
where a trade has been executed
 Rules – a statement that the trade is
subject to rules of the exchange/market
 Signoff by the STO – full name and
location of the STO
 Transmission time – a clear statement
of the date and time of transmission
No. of Copies
 Some counterparties – typically
institutional clients – may require
the receipt of one or more copies
of a confirmation for each trade.
 If multiple copies are required
 The counterparty may require all
copies to be sent to the same
destination
 Or to different destinations via
different transmission methods
No of Copies (Cont…)
 The different destinations may
include
 The counterparty’s head office
 Its bank
 Its accountant
 To enable automation of this
service this information needs to
be held within the STOs static data
Incoming Confirmations
 Some of the counterparties with whom
an STO trades may issue confirmations.
 Usually this is the case if the counterparty is
another STO.
 Institutional clients typically expect only to
receive confirmations.
 After receiving an incoming
confirmation an STO needs to check
whether to expend resources checking
the details contained in the
confirmation with its own records.
Incoming Confirmations
(Cont…)
 To gain trade agreement and to
avoid risk, it is better to check the
confirmation on receipt.
 This will highlight whether the STO
and the counterparty agree or
disagree.
Risks of failing to check
 Decisions are sometimes taken not
to check incoming confirmations.
 For trades where agreement will not
be achieved by another means this
could result in monetary loss for the
STO.
Example
 A telex confirmation has been received
by an STO from a counterparty on the
afternoon of the trade date.
 The trade is due to settle T+3
 The STO decides not to check the incoming
confirmation.
 However a discrepancy comes to light a
day prior to the value date.
 Investigation reveals that the counterparty’s
price or quantity was incorrect.
 The counterparty has to consequently amend its
detail.
Example (Cont…)
 It look as if the STO has incurred no
cost.
 It was the counterparty that recorded the
trade details erroneously.
 But if the counterparty subsequently
realizes that a trade confirmation was
sent and that the receiving STO failed to
highlight the discrepancy
 It may seek some form of compensation.
Trade Matching with STOs
 Trade matching is a generic term used
to describe an electronic method of
comparing the trade detail of both seller
and buyer.
 The process typically includes:
 The transmission of trade details by both
parties to central trade matching facility by
a specified deadline
 The application by the matching facility of
the current status – matched or unmatched.
TRAX
 ISMA based in Zurich is a self
regulatory organization and trade
association responsible for
regulating and enforcing rules
governing the orderly functioning
of the international securities
market.
 During the 1980’s ISMA was
primarily focused on the Eurobond
TRAX (Cont…)
 In the Eurobond market, prior to
1989, when an STO traded with
another STO, agreement was
attempted but not necessarily
achieved by the issuance of
confirmations, normally in the form
of telexes.
 The situation was inefficient and full
of risk.
TRAX (Cont…)
 In 1989, ISMA introduced TRAX.
 It is a real-time trade matching
mechanism covering all
internationally traded debt and
equity securities.
 All ISMA members are required to
send a message to TRAX so as to be
received by TRAX within 30 minutes
of trade execution.
TRAX (Cont…)
 If a message is not received by TRAX
within a 30 minute deadline, a fine is
imposed on the STO.
 The fine is on a sliding scale.
 The later the message is received, the
larger is the fine.
 ISMA also imposes fines for other non-
compliance reasons such as
 Failure to provide all necessary trade details
 Failure to act on a no-matching advice
within a reasonable timeframe.
TRAX (Cont…)
 A TRAX message conveys the
details of the trade to a central
matching facility that compares
both seller’s and buyer’s trade
details.
 After comparison a real-time report
is generated that details the
current status of each trade.
TRAX (Cont…)
 However a TRAX message is not a
settlement instruction.
 There is a need to issue a settlement
instruction to the relevant custodian
independently of the TRAX message.
The TRAX System
 An STO executes a trade with a
counterparty both of whom must be
ISMA members – or non-member users
of the system.
 Both parties send their trade details to
TRAX
 TRAX searches for a match and then
applies the status
 The trade status is then made available
to both the parties.
The TRAX System (Cont…)
 The receipt of a status other than
`matched’ requires immediate
investigation by the STO, resulting in
one of the following actions.
 The STO leaves its trade details intact and
the counterparty amends it details
 The STO amends its trade details
 The STO cancels the trade
 The counterparty cancels or denies the
trade
 TRAX will apply the following trade
statuses for messages sent by the STO
 Matched – the STO’s and the
counterparty’s details have been
compared and found to agree
 Unmatched – The STO has input its
trade details, but the counterparty has
not input matching trade details.
 Denied Advisory – The counterparty
does not recognize the trade and has
stated that is denies knowledge of the
trade
 The following trade statuses will be
applied to messages not sent by the
STO.
 Advisory – Trade detail has been input
by the counterparty. The receiving STO
must either input trade details or else
state `denied’.
 Denied – If the STO does not recognize
the advisory trade, it can state `denied’.
Other Trade Matching
Services
 In the US the National Securities
Clearing Corporation (NSCC) has a
trade comparison service.
Automation
 In modern settlement systems the
following aspects of trade matching
messages can usually be automated
 The decision to issue the message pre or
post trade validation
 The decision whether to issue a message or
not according to the type of security -
Eurobond versus US T-bond
 The decision whether to issue a message or
not depending upon the counterparty –
ISMA members as opposed to non-ISMA
members.
Automation (Cont…)
 The following can also be automated
 The transmission of the message to the
trade matching facility
 The receipt of the message status from the
facility
 The updating of the relevant trade record
(internally with the STO’s books and
records) with the trade matching status
 The highlighting of trades with a status
other than `matched’.
Trade Affirmation with
Institutional Investors
 Institutional investors are able to
have trades confirmed to them by
STOs and brokers electronically,
via Omgeo’s Oasys Global system.
 The advantage is that an
institution based in Tokyo can have
its trades confirmed electronically
by an STO based in Toronto.
Trade Affirmation (Cont…)
 Unlike trade matching for STOs
which is typically regulated by an
exchange or local regulator, the
decision to subscribe to the Oasys
Global system has to be taken by
each institutional investor.
 Strictly speaking there is a
difference between Trade Matching
and Trade Affirmation.
 In trade matching, both parties input
details at the same time to a central
facility.
 In trade affirmation, the STO inputs its
trade details to which the institutional
investor affirms or responds.
 Institutions that choose to
subscribe to Oasys Global usually
encourage STOs to use the system
in order to ensure that as many
trades as possible are affirmed via
this route and to realize the full
vale of the subscription.
Illustration
 Step-1: An STO executes a trade
with a fund manager.
 At this point he knows only the name
of the fund manager and not the
names of the underlying funds.
 Step-2: The basic trade detail for
the counterparty is input to Oasys
Global which forwards the detail to
the fund manager.
Illustration (Cont…)
 Step-3: The fund manager will check the
trade details with his own records and if
found correct the trade in Oasys Global
will be affirmed as correct and the
details of allocation to the underlying
funds will be input.
 Step-4: The STO will replace the original
trade by trades with the underlying
funds.
Illustration (Cont…)
 Step-5: The individual trades are
input to Oasys Global including the
net settlement value for each
trade.
 Step-6: The fund manager checks
the trade detail for each of the
funds, and if found correct each
trade in Oasys Global is affirmed
as àgreed’.
 The receipt of a trade status other than
agreed requires that the STO
investigate without delay.
 The salesperson within the STO will have to
be informed.
 If the record of the trade detail is found to
be incorrect the STO’s books and records
will require amendment.
 The revised input will have to be re-input to Oasys
Global.
 The use of a system like Oasys
Global requires that the history of
each individual trade be recorded
in case of the need to investigate
past events.
 Other trade affirmation services in
the U.S. include Omgeo’s
TradeMatch system.
Automation
 The following aspects of trade
affirmation messages can normally
be automated.
 The decision whether to issue the
message pre or post trade validation
 The decision whether to issue a
message or not.
 For example a message need be sent
only if the counterparty is an Oasys
Global subscriber.
Automation (Cont…)
 Furthermore, the following can also be
automated.
 The transmission of the message via Oasys
Global.
 The receipt of message statuses from Oasys
Global.
 The updating of the relevant internal trade
record.
 The highlighting of trades with a status
other than matched.
 Following the execution of a trade
the exchange/member is required
to report to the appropriate
regulator the details of each
transaction, within a pre-specified
timeframe after execution.
 This is referred to as Supervision or
Surveillance.
(Cont…)
 There are different methods for
reporting.
 The chosen method depends on the
local regulator.
 One way is for the computerized
exchange to forward the trade
details to the regulator on behalf of
the stock exchange member.
(Cont…)
 Or a part of the message sent by a
member may be used for reporting
purposes.
 For example if TRAX were to be used the
relevant information would be forwarded by
ISMA to the regulator.
 Or else a settlement instruction sent to a
depository may be forwarded to the
regulator
 Eg. CREST in the U.K.
Transaction Components
 The usual trade information requiring
submission to the regulator is:
 Capacity – Principal or Agent
 Trade date
 Trade time
 Vale date
 Operation – Buy or sell
 Quantity
 Security
 Price
 Counterparty
(Cont…)
 Upon receipt, the regulator will
analyze the details and attempt to
identify unusual patterns of trading
which may have been caused by
 Market manipulation
 Insider trading
 Errors on the part of the STO
(Cont…)
 One objective of surveillance is to
identify trading activity that falls
outside the norm.
 Another objective is to identify
breaches of trading rules.
 Yet another objective is the
identification of insider trading.
 In some markets automation is used to
search for abnormal trading patterns.
 On the NYSE a computer system named
StockWatch is used to identify abnormal
trading activity.
 At the Australian Stock Exchange a system
called SOMA is set up with limits
representing normal market activity
 This enables any reported transactions that fall
outside the limits to be identified automatically.
After Detection
 When a regulator detects dubious
activity he will begin an
investigation
 Typically all transactions executed by
the member in the specific security
will be examined.
 The member’s books and records will
be examined.
 Key personnel may be interviewed.
After Detection (Cont…)
 The issuing company may be
contacted to establish whether any
company notices are due for
publication.
 If so, it is possible that insider trading
may have occurred.
 If suspicious trading practices are
uncovered disciplinary action can
be taken – this is termed as
After Detection (Cont…)
 Punishment can be severe –
including prison sentences for
insider trading.
 Members may be expelled; their
license to trade may be
suspended.
 Investors who have suffered
financial losses may be eligible for
compensation.
 Settlement instruction is a generic term
used to describe the mechanism by
which trade settlement is initiated
between the seller and the buyer.
 The instructions are normally generated
and transmitted from the STO’s
settlement system to the appropriate
custodian from the list of the STO’s
custodians depending on the security
that has been traded.
(Cont…)
 Upon receipt of the instruction the
custodian will attempt to match
the detail with the custodian of the
counterparty and apply a status –
Matched or Unmatched.
 On the value date he will then
attempt to exchange securities
and cash with the counterparty’s
custodian.
Risks associated with
settlement instructions
 In a manual system the generation of
settlement instructions should be
restricted to a select group.
 In an automated environment trade
capture within the STO’s trading system
should be restricted to authorized
traders.
 If trade validation is through settlement
instructions should be allowed to flow
through in order to achieve STP unless
certain conditions are applicable.
Risks (Cont…)
 As far as possible the STO should
avoid settling on an FoP basis.
 That is, the trades as far as
possible, should settle on a DvP
basis.
 FoP settlement may be with or
without risk to the STO.
FoP with Risk
 The STO delivers securities prior to
the receipt of cash from the
counterparty.
 Or the STO pays the NSV prior to
the receipt of securities from the
counterparty.
FoP without Risk
 The STO delivers the securities
only after confirmation of receipt
of cash from the counterparty.
 Or the STO pays the NSV only after
confirmation of receipt of
securities from the counterparty.
Risks (Cont…)
 No back office should take
unilateral decisions that puts the
company at risk.
 These decisions are best left to those
with the appropriate level of
authority.
 When the back office is advised by
a trader or a salesperson to take
risk, the operations areas of some
STOs insist on written
authorization from the head of
Risks (Cont…)
 STOs must minimize the possibility of
the transmission channel between itself
and the custodians being accessed by
those who may seek to attempt fraud.
 An STO is likely to select a particular
custodian if it feels that the custodian’s
settlement instruction transmission
system is sufficiently secure – where
high levels of encryption are used to
prevent outsiders from deciphering the
coded message.
Risks (Cont…)
 An instruction that has been issued
but not received by the custodian
is no different from an instruction
that has not been transmitted.
 There is a risk of financial loss in such
cases because settlement typically
cannot occur until settlement
instructions are matched with the
Risks (Cont…)
 To minimize risk STOs typically
require the relevant custodian to
acknowledge receipt of the
instruction.
 In an automated system
instructions issued can be
compared against
acknowledgements received.
 If an acknowledgement is missing, it
Risks (Cont…)
 STOs trade and settle on a global
basis
 They will consequently have
custodians in many different time
zones.
 Each custodian will impose a
deadline, which will be relevant to the
value date of the trade.
 Thus the STO must remain aware of
the appropriate deadlines pertaining
to each custodian.
Settlement Instruction
Types
 Settlement of trades occurs in one
of two ways
 DvP
 Or FoP
DvP
 DvP is the simultaneous and
irreversible exchange of securities
and cash
 Where DvP is the mode of
settlement
 It is normal to issue a single
instruction to the relevant custodian
requesting
 Delivery of securities versus payment
 Or receipt of securities versus payment
FoP
 FoP refers to the non-simultaneous
exchange of securities and cash.
 For FoP settlement it is normal for
two settlement instructions to be
generated.
FoP – When the STO is
Buying
 A settlement instruction needs to be
issued to the STO’s custodian to receive
the securities against nil cash value
 A separate instruction needs to be
issued to the STO’s bank (Nostro) to
make payment.
 The second instruction would depend on
whether settlement is to occur with or
without risk.
FoP – Without Risk
 The instruction will be submitted to
the bank only after receiving
confirmation of receipt of
securities by the custodian.
 This is known as Ùpon Receipt’
FoP – With Risk
 In this case the instruction will
need to be transmitted in time for
cash to be paid to the counterparty
on the value date, irrespective of
the receipt of securities.
FoP – When the STO is
Selling without Risk
 In this case a settlement
instruction needs to be issued to
the custodian to deliver the
securities against nil cash value.
 If the STO is not to be at risk, this
instruction will be transmitted only
after having received confirmation
of receipt of cash by the Nostro.
FoP- When the STO is
Selling with Risk
 In this case the custodian has to be
instructed in time for the securities
to be delivered to the counterparty
on the value date, irrespective of
the receipt of cash.
Pre-Advice
 Irrespective of whether the STO is
selling with or without risk, a c ash
pre-advice may need to be issued
to the bank advising it to expect to
receive payment.
Content of Settlement
Instructions
 A settlement instruction tells the
custodian to carry out precise
commands such as:
 To whom securities have to be
delivered
 From whom payment is to be
received
 Or
 From whom securities have to be
received
 To whom payment has to be made
Content…(Cont…)
 The quantity of securities to be
received or delivered
 The net settlement value to be paid
or received
 The earliest date that the instructions
are to be carried out.
Typical Instruction
 From: name of the issuing STO
 To: name of the STO’s custodian
 Depot Account Number
 Nostro Account Number
 Trade Reference: the STO’s
number
 Deliver/Receive
Typical Instruction
(Cont…)
 Settlement Basis: DvP or FoP
 Value Date
 Quantity
 Security Reference: ISIN; CUSIP etc.
 Settlement Currency
 Net Settlement Value
 Counterparty Depot
 Counterparty Nostro
 Transmission Time: A clear statement of the date and
time of transmission
Other Components
 Trade components such as:
 Trade date
 Price
 Accrued days
Are also usually included in a settlement

instruction.
In the event of the instruction being
unmatched this allows the custodian to
communicate with the counterparty’s
custodian to identify the discrepancy.
Methods of Transmission
 Modern methods of transmitting
settlement instructions include the
following characteristics.
 The automatic generation of settlement
instructions by settlement systems
 The automatic transmission of instructions –
individually or in batches
 Electronic exchange of test keys
 Settlement instructions in standardized
formats
Methods…(Cont…)
 Secure transmission environment due
to high levels of message encryption
 High speed of transmission
 Predictable cost of transmission
 Enables STP
Methods…(Cont…)
 A widely used electronic
settlement instruction mechanism
is SWIFT.
 In order to utilize the SWIFT
network both the STO transmitting
the settlement instruction and the
destination custodian must
subscribe to SWIFT.
Methods…(Cont…)
 For transmission of settlement
instructions to International Central
Securities Depositories such as
Euroclear and Clearstream there is a
choice of:
 SWIFT
 EUCLID for Euroclear
 CEDCOM for Clearstream
 Tested Telex
 Mail
Format
 Cedcom, Euclid, and SWIFT
transmission systems all have
standardized messages
incorporating mandatory fields
that are required to be used
according to the action required of
the custodian by the STO.
Format (Cont…)
 SWIFT has numerous categories of
settlement instructions and
messages for different purposes
 Some relate to securities
 Others relate only to cash movements
Format (Cont…)
 Series 2: cash related
 MT200: transfer between two
accounts of the same account holder
 MT202: payment of cash to a financial
institution
 MT210: receipt of cash from a
financial institution
Format (Cont…)
 Series 5: Securities Related
 MT540: sent to a custodian to receive
FoP
 MT541: sent to a custodian to receive
versus payment
 MT542: sent to a custodian to deliver
FoP
 MT543: sent to a custodian to deliver
versus payment
Format (Cont…)
 EUCLID
 It uses a numbering convention that
distinguishes between settlement
with another Euroclear participant as
opposed to settlement with a
Clearstream participant.
Format (Cont…)
 Euclid settlement instructions
 E01: Receive free or versus payment
from a Euroclear participant
 E02: Deliver free or versus payment
to a Euroclear participant
 E03C: Receive free or versus payment
from a Clearstream participant
 E07C: Deliver free or versus payment
to a Clearstream participant
Format (Cont…)
 CEDCOM
 Clearstream’s proprietary system
CEDCOM has a settlement instruction
numbering method that does not
distinguish the system the
counterparty is using.
Format (Cont…)
 Example of CEDCOM instructions
 41: Receive versus payment from a
Clearstream oe Euroclear participant
 41F: Receive free of payment from a
Clearstream or Euroclear participant
 51: Deliver versus payment to a
 51F: Deliver free of payment to a
Format (Cont…)
 CREST
 Is the system over which UK and Irish
settlements are effected
 Codes used by CREST
 ADVN: Delivery Input
 ASDN: Stock deposit input
 ASWN: Stock withdrawal input
Deadlines
 All custodians will quote a deadline
by which settlement instructions
must be received by them relevant
to the value date.
 The method of transmission is also
likely to affect the deadline imposed
by the custodian.
Deadlines (Cont…)
 Assume that the settlement
processing occurs in Bangkok
during daylight hours of the value
date.
 A custodian in Bangkok may impose a
deadline of say 8 a.m. Bangkok time
on the value date
 Provided the instruction in transmitted in
an electronic form.
 This normally allows for matching of
instructions with the counterparty’s
custodian.
Deadlines (Cont…)
 If a NYC based dealer buys shares
in a Thai equity for settlement on a
T+3 basis
 He must issue the instructions by
close of business on T+2 (EST) in
order to meet the deadline imposed
by the Bangkok custodian
 This is to take into account the time
difference between the two cities.
Deadlines (Cont…)
 Euroclear and Clearstream begin
to operate their overnight
settlement processing during the
evening of the day prior to the
value date.
 The deadline for the receipt of
settlement instructions imposed by
Euroclear is 19:45 Central
European Time on the day prior to
Deadlines (Cont…)
 Deadlines exist so that the dealers
are aware of the time by which
instructions must be received in
order for the trade to settle on the
value date.
 If instructions are received after
the deadline, the custodian may
still accept the instruction
 However it cannot be processed on
the value date.
Deadlines (Cont…)
 From the standpoint of the ICSDs
deadlines for transmission via
SWIFT or via the proprietary
systems are identical because the
format is standardized and the
information can be automatically
captured into the custodian’s
system.
Deadlines (Cont…)
 However transmission via telex is
not in a standardized format and
requires the custodian to rekey the
information.
 Thus a considerably earlier deadline
is imposed for instructions
transmitted by telex.
Deadlines (Cont…)
 Dealers effecting cross border
trading and settlement must be
conscious of the deadlines of each
custodian.
 They would need to take extra care if
using a mixture of electronic and non-
electronic methods of transmission.
Deadlines (Cont…)
 It is recommended that settlement
instructions be generated and
transmitted as soon as possible
after trade validation on the trade
date.
 This gives maximum time to resolve
any discrepancies prior to the value
date.
Deadlines (Cont…)
 Another reason not to delay
instructions is the possibility that a
software or communication fault
can occur before the deadline,
thereby preventing automatic
transmission.
Validation
 As for trade validation, some
dealers wish to review and
authorize certain types of
settlement instructions prior to
transmission to the custodian.
 This requires the setting up of
validation rules within the settlement
system.
 At the point of transmission the
system would compare the trade
detail with the relevant rules:
 If the instruction passes the check it
is allowed to continue immediately,
and can be regarded as having been
processed on an STP basis.
 If it fails, it will be held as an
exception, pending authorization by
the relevant staff.
Manually Generated
Instructions
 Even in an automated
environment, it may be necessary
to generate settlement instructions
manually in certain cases.
 For instance assume that a trader
has executed a trade but has failed
to record it within the trading
system.
 Obviously there will be no record
within the settlement system either.
Manually (Cont…)
 On the value date the dealer finds that
the counterparty has input a settlement
instruction which is unmatched.
 If investigation reveals that the trade
was in fact executed, the trader would
need to record it within the trading
system, and feed it to the settlement
system.
 This would obviously need to the generation
and transmission of a settlement
instruction.
Manually…(Cont…)
 But at times there may be
insufficient time to follow such a
process.
 In such cases the only option is to
input the instruction manually
directly into the transmission
mechanism destined for the
custodian, so as not to incur the
settlement failure costs.
 In such a case if the trade has not
been recorded within the
settlement system, the trade
reference number will be unknown.
 So a dummy trade reference
number will have to be applied to
the manual settlement instruction.
Manually …(Cont…)
 In such a situation when the trade is
captured within the settlement system,
the automatically generated settlement
instruction would need to be suppressed
to avoid duplication.
 When a custodian receives the manually
sent instruction, it will be subject to all
the normal settlement instruction
events.
 But there will be no connection
between the instruction and the
trade within the settlement
system.
 Thus the trade record within the
settlement system will not be
updated automatically.
Safe Custody
 Following the execution of a trade
dealers typically expect to settle
externally with counterparties.
 This means issuing settlement
instructions to custodians.
 They will undertake the exchange of
securities and cash with the
Safe Custody (Cont…)
 But what if the counterparty does
not have a custodian relationship
for external settlement to occur.
 In such cases the dealer may offer
to hold the client’s securities, and
possibly cash in safe custody.
 This means that when the dealer sells
securities to the client, it retains control
but not ownership of the securities.
 He will therefore issue a settlement
instruction to remove the securities
from its own account (in which its
securities are held) to a segregated
account at the custodian, in which the
securities owned by its safe custody
clients are kept.
 The reverse flow must occur when the
dealer buys securities from a safe
custody client.
 Both the main account and the
safe custody account are under the
direct control of the dealer.
 By law in many countries a dealer’s
own securities and those held on
behalf of others must be segregated
and held in different accounts at the
custodian.
 But there is no need to hold the accounts
at separate custodians.
 In terms of settlement instructions
this can mean the need to
generate and transmit either a
single instruction or two
settlement instructions.
 Consider the case of a sale by a
dealer to a safe custody client.
 Whether one or two instructions
are required depends on the way
the custodian wishes to operate
movements between the two
accounts owned by the dealer.
The case of two
instructions
 One for the removal of securities
from the dealer’s main account
and delivery to the safe custody
account
 One for the receipt of securities
into the safe custody account from
the main account.
The case of a single
instruction
 For the removal of the securities
from the main account and
delivery to the safe custody
account
 This is known as Òwn Account
Transfer’.
Instructions under Power
of Attorney
 Where trades have been executed
either on a computerized stock
exchange
 Or via an electronic communications
network (ECN)
 The entity over which the trade has been
executed issues the settlement instruction
on behalf of the dealer.
 For this to occur, the dealer must give a
power of attorney to the entity.
Power of Attorney (Cont…)
 In such cases the dealer would
need to suppress the generation of
settlement instructions by its
settlement system, to avoid
duplication.
Power of Attorney (Cont…)
 When instructions are directly
issued to the custodian by another
entity, the dealer benefits
 This is because instructions are
issued very shortly after trade
execution
 And the expense of issuing an
instruction is avoided.
 Besides the risk of issuing an
incorrect instruction is avoided.
Link Between a Trade and
its Settlement Instruction
 Dealers typically wish to maintain a
history of settlement instruction events
for each individual trade such as:
 Transmission to the custodian
 Receipt by the custodian
 Achieving a status of unmatched
 Achieving a status of matched
 Settlement failure
 Settlement completion
Link…(Cont…)
 To update the trades within the
settlement system automatically
with the information received from
the custodian, there is a need for a
link
 Between the settlement instruction
reference and the trade residing
within the settlement system.
Link…(Cont…)
 When the dealer has issued the
settlement instruction, the
number is normally sent as a part
of the content of each settlement
instruction.
Link…(Cont…)
 But if another entity such as an
ECN has issued a settlement
instruction under a power of
attorney
 The settlement instruction reference
number may not be the same as the
number.
 However there is still a need to
update a trade with the current status
of the settlement instruction.
Link…(Cont…)
 Maintaining a link between the
trade and its settlement instruction
enables the dealer to have a
complete picture of trades that
require no action, such as those
with:
 Successful instruction receipt by the
custodian
 Matched instructions
 Instructions that have settled
Link…(Cont…)
 As well as trades requiring
investigation and action such as
those with:
 Unmatched instructions
 Instructions that have failed to settle
on the value date
The Role of the Custodian
 We have used the term custodian
as a generic term to describe those
organizations that effect
settlement on behalf of dealers.
 In reality, a number of organization
types fall within this group.
Custodians (Cont…)
 Custodians provide services not
only to dealers, but also to
 Individual investors
 Institutional investors
 And brokers
 These entities will be described
generically as the custodian’s
account holders.
Custodians (Cont…)
 Why is a custodian required?
 A custodian is appointed by an
account holder to take care of his
assets
 Normally securities and cash
 And to carry out his instructions to

Deliver or receive securities
 And to pay or receive cash
Holding Securities and
Cash in Safe Custody
 Following previous purchases of
securities by the account holder,
once settlement has occurred, the
custodian will hold the securities in
safe custody.
 He will provide some or all of the
following services relating to the
holding of securities in safe
custody.
Safe Custody…(Cont…)
 Keep the securities safe from the threat of
theft or loss
 Provide daily statements of securities and
cash holdings
 Provide current market valuations of
securities holdings
 Provide securities lending or borrowing
facilities
 Collect income or additional securities
relating to the account holder’s entitlement.
 Advise of optional corporate actions.
 Following purchases of securities
and upon settlement the custodian
will debit the cash account of the
account holder.
 The custodian may or may not
allow the account holder to hold
cash balances on an overnight
basis.
 In case he does, then he will
provide one or more of the
 Keep the cash safe
 Pay interest on cash balances
 Provide daily statements of cash
balances
Movement of Securities
and Cash
 When the account holder sells securities
held by the custodian or buys securities
that will be held by the custodian, he
will issue a settlement instruction to
effect the appropriate movement of
securities and cash.
 He may also issue settlement
instructions relating to other
transactions like
 Repos
 Depot transfers
Movement…(Cont…)
 When it comes to the movement of
securities and cash, the custodian will
provide some or all of the following
services.
 Acknowledge receipt of the settlement
instruction
 Apply the current pre-settlement status
 Unmatched
 Matched
 Failed to settle
 Transmit the current status of each
instruction to the account holder
 Effect the delivery or receipt of
securities and the receipt or payment
of cash
 Upon settlement of each instruction
 Apply the status of `settled’
 Update the account holder’s securities
holding
 Update the account holder’s cash balance
 In addition an account holder may wish
to have cash paid away from its account
at the custodian to another bank
 Or else have cash received by the
custodian from an external source
 In such cases he will issue an instruction
to pay away or a `pre-advice’ to receive
cash.
Types of Custodians
 Various terms are used to describe
those involved in the provision of
trade settlement and custodial
services on behalf of those who
execute trades.
Types of Custodians
(Cont…)
 These include:
 Custodian
 Global custodian
 Local custodian
 Sub-custodian
 Central Securities Depository (CSD)
 National Central Securities Depository
(NCSD)
 International Central Securities Depository
(ICSD)
 Settlement Agent
Custodian
 An organization that holds
securities and usually cash on its
client’s behalf
 May effect settlement of trades on
its client’s behalf
Global Custodian
 Performs the role of a custodian
 But has a network of local or sub-
custodians that hold securities and
cash and effect settlement on
behalf of it.
Local Custodian
 A custodian that operates within a
specific financial centre
Sub-custodian
 A custodian within a global
custodian’s network of custodians
CSD
 An organization that holds
securities
 Normally in book entry form
 Usually the ultimate place of
settlement effected through book-
entry transfer
NCSD
 A CSD that handles domestic
securities of the country in which it
is located
ICSD
 A CSD that handles domestic and
international securities
 Only two organizations are
recognized as ICSDs
 Clearstream in Luxembourg
 Euroclear in Brussels
Settlement Agent
 An organization that effects the
exchange of securities and cash on
behalf of its clients
 Resultant securities and cash
balances may or may not be held
Example
 A trade initiated by an institutional
investor resulted in the following
actions.
 Institution placed an order with a broker
 Broker forwarded the order to a dealer
 Dealer executed the order and recorded the
details of the sale to the broker
 Dealer sent an advice of execution to the
broker
 Broker recorded a purchase from the dealer
and a sale to the institution
 Broker sent an advice to the institution
 Institution recorded a purchase from the
broker
Example (Cont…)
 Following the trade a settlement
instruction must be issued to effect
settlement ultimately at the CSD.
 Each instruction will request the
recipient to either
 Deliver securities and receive cash
from a specific account at the CSD
 Or receive securities and pay cash to
a specific account at the CSD
Example (Cont…)
 The steps are as follows:
 The institution issues a settlement
instruction to its global custodian
 The global custodian will issue a
settlement instruction to its custodian
in the relevant financial centre.

Let us call it sub-custodian X
 X will issue a settlement instruction to
its own account at the CSD.
Example (Cont…)
 For its sale to the institution the broker will
issue an instruction to its custodian

Let us call it local custodian Y
 Local custodian Y will issue an instruction to
its own account at the CSD
 For its purchase from the dealer the broker
issues a settlement instruction to custodian
Y
 Local custodian Y will issue a settlement
instruction to its own account at the CSD
 For its sale to the broker the dealer issues a
settlement instruction to the CSD
Example (Cont…)
 On the value date
 The CSD removes the security from
the dealer’s account and adds them
to custodian Y’s account
 It will simultaneously debit cash from
custodian Y’s account and credit the
dealer’s account.
 This concludes settlement for the sale
by the dealer to the broker.
Example (Cont…)
 On the value date:
 The CSD removes securities from the
agent’s account and adds them to
custodian X’s account
 It will simultaneously debit cash from
custodian X’s account and credit the
agent’s account.
 This accounts for the sale by the
agent to the institutional investor.
Example (Cont…)
 Net result of these transactions
 Securities are held within custodian X’s
account at the CSD

Who is holding on behalf of the global custodian

Who is holding on behalf of the institutional
investor
 There are no securities held in custodian Y’s
account at the CSD on behalf of the agent
 There are no securities at the dealer’s
account at the CSD
Example (Cont…)
 The cash has been debited to
custodian X’s account at the CSD

On behalf of the global custodian
 The global custodian will debit the cash
cost to its account with the institution
 There will be no cash held in
custodian Y’s account at the CSD
 The sale proceeds would have been
credited to the dealer’s account at
the CSD
Perspective
 Who is a client and who is a
custodian?
 It depends on the specific entity’s
view
 The institution regards the global
custodian as its custodian
 The global custodian regards its client
as the institution and its custodian as
sub-custodian X
 Custodian X regards its client as the
global custodian and its custodian as
Perspective (Cont…)
 The broker regards its custodian as
custodian Y
 Custodian Y regards its client as the broker
and its custodian as the CSD
 The dealer regards its custodian as the CSD
 The CSD regards its account holders as
 Custodian X
 Custodian Y
 And the Dealer
Perspective (Cont…)
 An institutional investor, broker or
dealer may choose to set up
arrangements for
 Settlement of trades
 And holding of securities and cash
 With
 A local custodian in each financial centre
 CSDs in each financial centre
 A global custodian
 Or any combination of the three
Global Custodians
 A global custodian is appointed to
facilitate trade settlement and the
holding of securities and cash
 By use of its worldwide network of
sub-custodians
 Each of which is usually a member of its
local CSD
Global Custodians (Cont…)
 The client issues settlement
instructions to a single destination
– the global custodian
 It will then direct its instructions to
the appropriate sub-custodian
 Who will effect settlement on its behalf.
Global Custodians (Cont…)
 The exchange of securities and
cash occurs at the CSD
 Where accounts of the sub-custodians
representing buyer and seller will be
debited or credited with securities
and cash.
Illustration
Global Custodian
Sub-custodian V Sub-custodian W Sub-custodian X
Australian CSD Spanish CSD Mexican CSD

NCSDs
 An NCSD is typically set up and
operated on behalf of the
members of the national stock
exchange of a country
 It is the core repository of
securities issued, traded and
settled in that country.
NCSDs (Cont…)
 Dealers and custodians located in
the same country as the NCSD are
likely to be direct members of the
NCSD.
 Non-resident dealers may not be
allowed to have direct membership
 They may be required to use a local
custodian
NCSDs (Cont…)
 NCSDs typically provide DvP and
FoP capability for their members
 They keep securities in safe-
keeping for their members
 But some NCSDs do not allow cash
to be held overnight
ICSDs
 An ICSD holds both international and
domestic securities
 Dealers, brokers, institutions and
custodians from round the globe can
become members.
 Securities are held on behalf of the ICSD
by depository banks in numerous
financial centres
 Correspondent banks manage the external
movement of currencies.
ICSDs (Cont…)
 They provide DvP and FoP trade
settlement capability on a multi-
currency basis
 Securities are held in safe custody
 Cash balances are held overnight
 Only two ICSDs exist
 Clearstream in Luxembourg
 Euroclear in Brussels
ICSDs (Cont…)
 Settlement at the ICSDs falls into three
categories
 Internal

Between two participants of the same ICSD
 Bridge
 Between a participant of Euroclear and a
participant of Clearstream
 External
 Between participants of an ICSD and an NCSD
 This is known as Cross Border Settlement
Custodian Selection
 Dealers have a choice
 They may set up relationships with CSDs or
local custodians in all markets in which they
are active
 They may choose to have direct
relationships with CSDs or local custodians
only in the markets in which they are most
active
 For less active markets they may use a global
custodian
 They may use global custodians for all
markets
Custodian Selection
(Cont…)
 One major consideration is cost
 In certain cases it may be cheaper to
set up relationships with CSDs or local
custodians
 On the other hand a global custodian
may offer a premium service.
Custodian Selection
(Cont…)
 The following criteria are typically used
to select a custodian
 Its credit rating
 It signifies its status and financial stability
 Past performance

STP rates

Ability to process equities

Ability to process debt securities
 Proficiency of cash management
 Interest rates on cash balances
 Overdraft facilities

Methods of processing corporate actions
Custodian Selection
(Cont…)
 Cost of operating the service

Cost of securities holdings

Cost per settlement instruction
 Ability to process multiple currencies
 This is provided within the ICSDs
 This is likely to be provided by the global
custodian

It is less likely to be provided by a local
custodian or an NCSD
Settlement Instruction
Statuses
 An STO needs to know the various
statuses applied by the custodian
 The frequency of updating the
instruction with statuses
 Method of communication of the
status
 Electronic or
 Non-electronic
Statuses (Cont…)
 The minimum statuses that a dealer
would expect to receive are
 Unmatched

Including the reason
 Matched
 Settlement failure
 Including the reason
 Settlement completion

Including information regarding the quantity of
securities delivered/received and cash
paid/received
Services Related to
Securities and Cash
Holdings
 The following criteria relate to the
custodian’s holdings of securities and
cash on behalf of the dealer.
 Securities lending and borrowing
 Cash borrowing arrangements
 Rates of interest on cash balances
 Statements of securities holdings
 Statements of cash balances
 Corporate actions
Securities Lending and
Borrowing
 Some custodians provide a service
whereby an account holder’s
securities can be lent to a
borrower
 This service is likely to be offered
when a custodian has access to a
large pool of its account holders’
securities.
 Some account holders are willing to lend
securities for additional income.
Lending and Borrowing
(Cont…)
 When a dealer has sold securities that it
cannot deliver it may be willing to
borrow securities.
 This will enable settlement to go through
 But there will be an associated cost
 The custodian typically acts as an agent
between lenders and borrowers
 The fee collected from the borrower is
passed on to the lender after deduction of
the custodian’s fee
Cash Borrowing
Arrangements
 Typically dealers need to borrow to
pay for the purchases of their
securities.
 Some borrow in anticipation of
settlement occurring on the value
date
 They have the cash paid into their
account at the custodian
 Others borrow after settlement has
occurred at the custodian
Cash…(Cont…)
 Generally a custodian will not allow
a dealer to incur a cash overdraft
unless the dealer has sufficient
cash or collateral against which
money can be borrowed.
 The collateral acts as a safeguard
for the custodian.
Cash…(Cont…)
 The dealer will have a credit line or
O/D limit
 But the limit is usually usable only to
the extent that the dealer has
collateral
Interest on Cash Balances
 Following settlement of trades a dealer
typically expects to be overdrawn at the
custodian – unless it has already
borrowed from another source.
 Occasionally a dealer may have a credit
balance – if the value of sales is greater
than the value of purchases.
 In either case the dealer needs to know
the rate of interest to be charged by or
received from the custodian.

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Part-15: Brokerage

Counterparty not known – the problem should

QRS Healthcare 12,000,000.00 98.625

Are also usually included in a settlement

Sub-custodian V Sub-custodian W Sub-custodian X

Australian CSD Spanish CSD Mexican CSD

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