Saumya Saxena
Front Office
➢ Trade capture
➢ Trade Execution
Middle Office
➢ Validations
➢ Booking
➢ Confirmations
Back office
➢ Clearing
➢ Settlement
➢ Accounting &Finance
Custodian Clearing firm Commercial
Front Office
➢ Trade Capture
Trades are then booked internally in an FO system for it to flow down to
the operating systems.
It is booked in a Risk Management System (RMS)
➢ Trade Execution
This is the process of placing an order in the market.
Trade Initiation and Execution can be done both in Order and Quote-driven
markets.
This depends on the choice of a marketplace and on the external platform.
Once the order is placed and it gets matched, the trade is said to
be executed.
Middle Office
Trade Validation
Reference data team set up the static and dynamic details which help middle
office teams to validate the trade, before releasing instructions into the
market.
Trade Confirmation
This is an extremely critical step for the trade settlement.
Trade details and SSIs are agreed with the counterparty at least a day
prior to the settlement date.
Back office
Trade Settlement
This is the process of simultaneous exchange of cash versus securities for a
security trade or cash versus cash for a Derivatives trade.
Reconciliation
Reconciliation involves matching ledgers against statements to ensure correct
accounting of all trade booked.
RISK
Risk is defined in financial terms as the chance that an outcome or
investment's actual gains will differ from an expected outcome or return. Risk
includes the possibility of losing some or all of an original investment.
Types of Financial Risk
Market RISK
Reputational Operational
risk RISK
Financial
Risk
Liquidity
Credit RISK
Risk
❑ Market risk
Market risk is associated with consistent fluctuations seen in the trading price of any
particular shares or securities. That is, it arises due to rise or fall in the trading price of
listed shares or securities in the stock market.
❑ Operational risk
Operational risks are the business process risks failing due to human errors. This risk
will change from industry to industry. It occurs due to breakdowns in the internal
procedures, people, policies and systems.
❑ liquidity risk
Business risk is also known as liquidity risk. It is so, since it emanates (originates) from
the sale and purchase of securities affected by business cycles, technological changes,
etc.
❑ Credit risk
Financial risk is also known as credit risk. It arises due to change in the capital structure
of the organization. The capital structure mainly comprises of three ways by which funds
are sourced for the projects.
❑ Reputational risk
Reputational risk can pose a threat to the survival of the biggest and best-run companies
and has the potential to wipe out millions or billions of dollars in market capitalization or
potential revenues.
