With the advent of technology in the financial domain, the nature and frequency of financial transactions have reached the zenith. Trade deals are commonplace given the money earning potential it holds. Trade affirmation and confirmation are an important part of the trade cycle. They are often heard in Over-The-Counter transactions, deals. These types of trades are happening around us as the trading nature is evolving with the day.
These trades or transactions are bilateral in nature, so they need approval from both the parties. It’s a legal process. However, the words ‘confirmation’ and ‘affirmation’ may sound synonymous to each other but there’s a difference when these terms are used while doing trading. Let us go deeper to know better.
Trade Affirmation and Trade Confirmation in the trade cycle
In the trade life cycle, asset allocation where continuous expansion and contraction of economic activities occur, trade confirmation and affirmation play an important role in putting the deal from ‘disputed’ state to ‘confirmed’ state.
Trade affirmation, Trade capture basically refers to alleging the trade i.e. the trade economics is agreed by both the Counterparties and a general affirmation is exchanged between them. It’s a little less stable state as compared to trade confirmation.
So as the words itself suggests affirmation means to validate or state positively. But confirmation means to furthermore strengthen the trade by both the Counterparties. Once the trade is affirmed, Trade confirmation is exchanged between the parties through many types such as paper confirm exchanged over E-mail/Fax or it could be electronic confirm exchanged over third-party platforms like Mark it.
Basically, these confirmations act as a piece of trade evidence or in a more profound way we can say that it is a ‘legal contract’ which has been embedded with all the terms of the trade. Trade confirmation in the trade life cycle is succedent to trade affirmation in an ideal trade.
When there are two parties and securities are being exchanged, they first agree to all the conditions/agreements and that of agreeing is called trade affirmation, it states that now time should be invested in officially confirming the trade by both the Counterparties.
These terms can be generally found in Over-the-counter (OTC). These are those trades which are not listed on a formal exchange such as the New York Stock Exchange (NYSE), rather they follow broker-dealer network and generally involves a broker/agent whose job is to represent both the parties on their behalf in case of absence and can talk through the deal. Agents help in finalizing the deal so that further settlement can be done and the securities are exchanged. The deal is confirmed then or else it is in a disputed state.
So basically, they both provide authentication and strength to the deal but the major difference comes in the degree of surety. One can draw out positivity from affirmation but that positivity is realized by confirmation as it provides proof.
One must refer both of them before going deeper in the trade life cycle and if by any chance we miss a few points in trade affirmation we should always refer to all the agreements and attributes of the deal before confirming because it is generally, not that much flexible to backtrack after confirmation, although not impossible because still, there are even more processes left.
Let us take an example, in the process of trade matching the counterparties (say there are two banks) electronically input their respective trade details into a trade matching platform. So when the details are matched and both the parties are satisfied with each other, i.e. first check, then respond via affirmation, this much process would fall under affirmation and after that part of the service provided by the investment bank to its clients is the speedy and accurate communication of trade confirmation. As synonymous they may seem, they are quite different.
To know more about:-
- Trade Life Cycle – The Process of Buying & Selling,
- Trade Execution – How it Improves The Capital Market Business,
- Trade Validation & Enrichment in Trade Life Cycle,
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