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by Lourdes Miranda.
 
The beauty of Investment Banking Operations, as taught in any school of investment banking, is the trade life cycle and its mechanisms.  It has always fascinated me to think how innovative and creative a financial institution can work to get a job done.
Whilst working through the life cycle, one must keep in mind the reason for its existence, the end result and the factors that surround it
Pointers to remember:

  • The reason the market and its participants trade securities and financial instruments, the current drivers and trends in modern securities markets.
  • The methods the trades are executed, that any financial analyst course can teach you.
  • It is very important for an organization to identify, describe and create a clear picture of the events scheduled for a trade.
  • The operations team needs to be familiar with the key terms used in the fields of trade processing and its administration
  • Understand the interaction and dependability of each department through which the trade flows.
  • Understand the role of IT, identify the gaps which IT can resolve especially Straight Through Processing techniques
  • Most importantly, what can go wrong where and what are the risks involved in every step of the trade life cycle, be it credit, market, liquidity or operational risk.

The main reasons of the failure of a trade life cycle could be due to controls not adhered to or failure by any department of any of the people involved in the trade life cycle.

Let’s look at people and the risk they bring to the TLC:
Traders: They are exposed to market volatility and hence bring market risk. Also, the VAR or the value at risk may be more than expected
Counterparty Risk: This risk could also be due to any of the counter party defaulting also known as credit risk. There could be multiple reasons counterparty defaults:

  • The counterparty ceases to be a trading entity,
  • Company ceases to exist,
  • The law or the court has freezed the company assets making settlement impossible.

Operational risk:  Risk arising due to the operations team due to errors deliberate and non-deliberate, errors or commission and omission.
Let us look at the dynamics and the roles of every department in the TLC:

  • The number of participants in the market
  • All the factors that drive the trading activities

The Front and Back Office have the below roles:
Trade Capture-

  • Transaction reporting, validation with Static Data and reference data
  • Exceptions handling and trade enrichment

Confirmation of Trades and Matching

  • Achieving and sending a trade confirmation along with trade instructions, its settlement agents
  • The Central Counterparty and the role it plays in a trade
  • Statutory regulatory reporting

Settlement of trades

  • Settlement terminology, Cash funding and its management – principles and options
  • Why trades fail and the consequences of failure
  • Fail management in trades

Position Management and Reporting

  • What is a ‘position’? The importance of position management and reconciliation
  • Control report and Corporate actions

 
Imarticus Learning offers investment banking courses in India such as CIBOP – Certified Investment Banking Operations Professional. This is a short term course that is industry endorsed and globally certified. Enquire now.

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