Securities Operations: A Guide to Trade and Position Management

8

Trade Cash Value Calculation

8.1 INTRODUCTION

For nearly all trades that an STO needs to manage and process, it is necessary to calculate the cash value in order to know the cash cost to pay upon receipt of securities from counterparties, and cash proceeds to receive when delivering securities to counterparties.

It is necessary to calculate trade cash values (a process also known as figuration) for all transaction types (refer to Chapter 5), with the exception of depot (custodian) transfers as this requires only a movement of securities. Due to the differing components within each transaction type, trade cash values for each transaction type will differ, even where the same security and the same quantity of securities are used.

The need for accuracy and speed in calculating trade cash values is paramount, enabling an STO to function efficiently and to realise the following benefits:

• avoid losses through the payment of too much cash (for example on purchases) and the receipt of too little cash (for example on sales);
• avoid mismatches of trade details with counterparties, requiring additional handling by the STO (and therefore administrative cost);
• provide high quality service to clients by communicating the correct trade cost or proceeds calculations within the required timeframe following trade execution.

The details recorded by front office personnel following trade execution are typically limited to a few essential pieces of information; in the case of a principal trade: ...