In particular, a processing called post-trade is done after the completion of a trade to ensure that the trade has been executed successfully. Most of the time, it involves two crucial components: the actual post-trade management and post-trade transparency. In this article, we would like to give you an overview of what post-trade management and transparency are, with the hope that this knowledge could help you in setting and optimize your own post-trade arrangements.
What is post-trade management?
As alluded to above, post-trade is done to ensure safety and mitigate the risks in the financial marketplaces worldwide. It generally focuses on the efficient and safe transfer of securities in trade obligations for the financial services industry.
In particular, post-trade management involves the processing wherein both the buyer and seller compare and approve their details of the trade, change the records and legal titles of ownership, and finally arrange the transfer of the payment and securities.
Post-trade management involves two important steps: clearance and settlement. On one hand, clearance refers to the process of finalizing the transfer of the ownership and confirming all transaction details and making sure that the trade shall settle even if one party fails to pay.
On the other hand, settlement refers to the finalization of the payment and exchanges of the traded securities. If by any chance these securities become immobilize or dematerialized, the change of ownership will be electronically recorded on the system of the authorized brokerage firms. Basically, all financial settlements are performed by electronic transfers between accounts of the parties involved.
Post-trade is very important in not-so-standardized markets like over-the-counter ones. Trading and prices move very quickly; thus the execution of every transaction should be done very fast yet very carefully.
Furthermore, trades executed over the phone from different parties have high chances for technical inaccuracies and human errors. Through post-trade management, both parties of the buyer and seller verify information and fix any mistakes.
Basically, post-trade management is just like pre-trade management as it involves the process of governing the risks, managing decisions, and hedge accounting of entries for ownership even before the execution of the trade.
What is post-trade transparency?
By definition, post-trade transparency is the obligation of the trading venue to publish important information about the finished transaction. Most of the time, it is done immediately after a transaction or at the end of a specified period of time.
As a general rule, transactions that are done beyond normal business hours need to be published before the start of a new trading day. Delay of publication during a trade is only granted when: the trades are very large in size, possible exposure of unexceptional risks, the nature of the counterparties should be determined, the trade itself is being done in non-liquid securities.