how post trade processing works
post trade processing is important in that it verifies the details of a transaction markets and prices move fast transactions are executed quickly often instantaneously many securities trades are done over the phone the ability for mistakes is inherent despite traders skill increasingly trades are executed at high frequency by computers only the chance for small mistakes to compound remains high post trade processing allows the buyer and seller of securities to root out and rectify these errors in addition to matching the details of the buy and sell orders post trade processing includes shifting records of ownership and authorizing payment trade clearing and settlementafter a trade is executed the transaction enters what is known as the settlement period during settlement the buyer must make payment for the securities they purchased while the seller must deliver the security that was acquired depending on the type of security settlement dates will vary as an example of how settlement dates work let s say that an investor buys shares of amazon amzn on monday june 3 2024 the broker will debit the investor s account for the total cost of the order immediately after it s filled but the status as a shareholder of amazon will not be settled in the company s record books for the investor until tuesday june 4 at that time the investor would become a shareholder of record once the trade has settled and the funds in any sale of stock or another type of security have been credited to your account the investor may choose to withdraw the funds reinvest in new security or hold the amount in cash within the account for those looking to cash out some of the profits or what s left from a loss check to see if your broker offers transfers to your bank account using the automated clearing house ach or by using a wire transfer the settlement period for post trade processing of stocks and several other exchange traded assets effective may 28 2024 the sec shortened the settlement period from t 2 to t 1 days to reflect improvements in technology increased trading volumes and changes in investment products and the trading landscape 1clearing is the process of reconciling purchases and sales of various options futures or securities as well as the direct transfer of funds from one financial institution to another the process validates the availability of the appropriate funds records the transfer and in the case of securities ensures the delivery of the security to the buyer non cleared trades can result in settlement risk and if trades do not clear accounting errors will arise where real money can be lost an out trade is a trade that cannot be placed because it was received by an exchange with conflicting information the associated clearinghouse cannot settle the trade because the data submitted by parties on both sides of the transaction is inconsistent or contradictory examples of post trade processingon the nyse bonds platform following trade completions all depository trust clearing corporation dtcc national securities clearing corporation nscc regional interface organization rio eligible bond trades are sent to nscc in order to match trade details of both buyers and respective sellers details are transmitted through the rio 2post trade services have come to the forefront as a means for financial firms to diversify their revenue streams due to a combination of heightened regulations standardization of derivatives and increasingly complex processing measures to accommodate the growth of alternative assets post trade services are an area in which some firms have a chance to outstrip competitors 