Securities Operations: A Guide to Trade and Position Management

1

Essential Trading and Settlement Concepts

1.1 INTRODUCTION

For any company in any industry, remaining in control of its goods and cash is fundamental to successful and efficient operation of its business. This involves maintaining up-to-date internal records of trading activity, deliveries and receipts of goods, as well as payments and receipts of cash, thereby enabling the prediction of future stock and cash flows and the reconciliation of internal records with external entities, including goods held in warehouses and cash held at banks.

This chapter highlights similarities and differences between a deal undertaken by an everyday business (for example, a sports goods retailer) and a company within the securities industry. In addition, typical terminology used within the securities industry is highlighted and explained.

1.2 TERMINOLOGY

Figure 1.1 lists the components of two trades; the trade in the upper half is undertaken by a sports goods retailer and the trade in the lower half is executed by a Securities Trading Organisation (STO).

Many of the phrases and terms used within the securities industry can be related to those used in the outside world. It is important to understand the meaning of the components of a trade in order to appreciate their impact following the agreement to trade.

Component	Description
Trade date	The date the parties to the trade agreed to trade; the date of trade execution
Operation	The type and direction of the trade, e.g. buy or sell, lend ...