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Handout info prepared V2
By Guest on 12th March 2019 12:17:16 AM | Syntax: TEXT | Views: 5

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  1. Trade Capture
  2. Next step in the trade lifecycle is ensuring the bond trade is captured successfully and without any delays. The successful capture of a trade within a Morgan Stanley trading system should result in the trade details being sent to the back office immediately for operational processing.
  3. It is essential to ensure that the trader/sales team would input the trade correctly on all the required internal Morgan Stanley systems to reduce the risk of mismatching in the future. The possibility of that is reduced with an electronic trade execution system.
  4. There are a number of essential details that are captured for every bond trade within MS:
  5. •     Product Identifier:
  6. -       ISIN
  7. -       Cusip (Morgan Stanley internal identifier)
  8. -       Sedol
  9. •     Trade date and Settlement Date (TD and SD)
  10. •     Trade Price
  11. •     Quantity
  12. •     MS Trading a/c no. and Counterparty a/c no.
  13. Risks associated with Trade Capture:
  14. 1.      Operational Risk – the risk related to the human error within the process of trade capture. Manually entering the details is prone to inaccurate trade details being sent forward for processing. Trades therefore would not match and may be costly.
  15. 2.      Reputational Risk – in a case where mismatches occur, clients would be unhappy with the processes within Morgan Stanley. This poses the reputational risk for the company that may end up with a loss of clients and hence a loss of profit.
  17. Trade Settlement
  18. In order for the trade to settle, it goes through matching before both parties, the buyer and the seller are happy with the trade. In order to lease a BOND car, both parties have to make sure the deal settles before the settlement date. Some clients would pay additional money to guarantee themselves a smooth exchange of cash and security. It is in the best interest of Morgan Stanley to make this exchange as smooth as possible, as clients are able to pass the cost back would the Morgan Stanley be unable to deliver.
  19. Presettlement of the trade includes sending SSI (standard settlement instructions) to the custodian by both seller and buyer. These instruction reach custodian by the secure method of SWIFT from Morgan Stanley settlement system.
  20. The Standard Settlement Instructions have to match on both sides of the trade, otherwise the trade would be unmatched. Matching of the trade is inevitable for the trade to settle. Morgan Stanley’s internal system, such as SAFE would show such bond trade as unmatched.
  21. Matching process involves custodian coming back to both parties to seek for satisfactory resolution of issues and once the trade is matched (SAFE would show the trade as matched), the settlement of the trade is finally possible.
  22. Settlement
  23. After all the necessary operational and legal work is organised, the actual settlement takes place on or before the settlement date, where two parties exchange the bond and the cash. Buyer of the bond is providing cash to the issuer of the bond and issuer of the bond delivers pre-agreed amount of bonds. This trade-off is actioned in two possible ways:
  24. Delivery versus Payment (DvP) – a procedure which includes a buyer of a bond paying the bond issuer cash at the same time of the delivery of bonds. This ensures that the delivery of the security only occurs when the cash is transmitted and it happens instantaneously.
  25. Free of Payment (FoP) - in this case the risk of one party is large as the inability to deliver a promised good leaves that party exposed. Free of payment procedure means that cash and bond trade is not simultaneous, i.e. exchange of goods may not appear at the same time.
  26. Risks related to this stage of the trade:
  27. 1.      Risk of failure to match the two sides of the trade due to the operational mistakes, such as errors in either parties SSI.
  28. 2.      Risk of not settling the trade in a timely manner – Morgan Stanley may be exposed to the cost that is passed back by one of the parties upon the unsuccessful settlement. This would not only entail a financial cost, but also a reputational risk and a loss of clients.
  29. 3.      Market risk of holding bonds that reduced in value after the settlement failed.

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