Trade Life Cycle Management and Straight-Through Processing
Trade Life Cycle Management and Straight-Through Processing
In order for a trade to be successfully executed and accurately recorded, a number of checks and balances must be made. Back office, middle office and front office employees on both the buy-side and the sell-side must validate every stage of the trade life cycle respectively if a trade is to be fully processed.
This, unsurpisingly, is a hugely time-consuming and inefficient process. Countless work-hours can be wasted by inputing the same information over and over again and manually checking whether or not a transaction has been properly executed. This is precisely why a comprehensive trade life cycle management and straight through processing solution is a must-have for modern firms.
Our trade life cycle management (TLM) and straight-through processing (STP) solution does exactly that. Our PATH platform simplifies and automates the entirety of the trade life cycle process, allowing for seamless sharing of data between all relevant parties.
This page provides an in-depth explanation of our trade life cycle and straight through processing solution.
the basics of the trade life cycle
The trade life cycle (sometimes stylized as ‘trade lifecycle’ or ‘trade life-cycle’) is a concept used by investment services and asset managers which is intended to increase transparency and provide investor protection. It has become increasingly popular as an idea since the financial crisis of 2007-2008, and is regarded by many as an essential form of risk management.
As we understand it, the lifecycle of a trade can be divided up into 10 steps which can be applied to any single trade. Our trade life cycle diagram in this section lists each of these ten stages. A more in-depth explanation of each stage of the trade life cycle is also provided at the bottom of this page.
In its simplest form, the trade life cycle breaks up a trade into its constituent parts. This is done in order to make every stage of the trade easier to manage and record.
However, with so many moving parts involved in every stage of the trade, miscommunication is easy, particularly when all data is being input manually. This is why a straight-through processing system is such an important requirement for modern firms working in financial services. Put simply, successful asset management requires successful trade life cycle management.
Straight-Through Processing and the PATH Platform
While the trade life cycle is intended to simplify record keeping, many firms struggle to manually process increasingly complex financial products across a variety of fragmented systems. Because of this, a good straight-through processing solution is a must-have for modern financial firms.
This is exactly what eflow’s trade life cycle management and straight-through processing solution is designed to do. Like all of our solutions, our straight-through processing functionality is powered by our patented PATH system. You can read more about PATH here.
PATH makes every single step of the trade life cycle process easier to manage, from order to settlement. It automates the transfer of relevant data between back and middle office environments of banks, brokers and asset managers.
What’s more, this can be done without any interruption to your firm’s established processes. PATH is extremely easy to integrate and is entirely scalable. No matter your firm’s requirements, PATH can provide a suitable straight-through processing solution.
Our trade life cycle and straight-through processing PATH model is a predefined solution, but it can be changed to give you greater flexibility with your trade life cycle management. PATH can be modified to reflect the specific business needs of any firm.
At present, models are available for:
- Foreign Exchange
- Money Market
- Derivatives
- Bonds
- Securities
- Nominee
- Custodian
- Client Valuations
- Static Data Aggregation
- Dissemination
The Trade Life Cycle and PATH
The PATH system is designed specifically to manage every stage of the trade life cycle. It provides a streamlined approach to trade life cycle management that will ensure your firm is as efficient as possible. Among other things, the PATH platform delivers:
1. Enhanced operational controls
PATH has the ability to consolidate a number of fragmented infrastructures into a single, comprehensive platform.
2. A modern and efficient replacement for legacy systems and paper-based processes
PATH’s straight-through processing platform can be seamlessly integrated into your firm’s pre-existing trade life cycle management procedures, making for simple and fast implementation, as well as improved return on investment (ROI).
3. A highly scalable solution
In the PATH system, increased trade volumes have minimal impact on operations. This means that it can be scaled with hugely reduced operational costs.
4. Total trade ownership
All user expectations will be met through the inbuilt exception handler
5. Reduced operational risk
Because PATH provides a totally automated workflow-based solution, the risk of human error at every stage of the trade life cycle is greatly reduced. PATH also provides a transparent and audited view across the full trade life cycle, making operational errors even less likely.
what are the stages of the trade life cycle?
The following ten steps make up the entire lifecycle of a trade.
1. The Order
The trade life cycle begins when the investor informs the firm that they wish to either buy or sell a particular instrument or product. The investor will include information on the product and the bid/ask price in this order.
2. The Front Office Action
The investor’s order is received by the front office traders at the firm. The order is then passed to risk management experts in the firm’s middle office.
3. Risk Management
The risk management team will check the order and estimate the level of risk. This process will determine whether or not it is safe to complete the proposed order.
4. The Execution Venue
Once the order has been accepted and validated by the risk management team, it will be sent to the relevant execution venue.
5. Matching the Orders
The execution venue then looks for a sell order which matches the buy order placed by the investor or, in the case of a sale, looks for a corresponding buy order.
6. Trade Completed
Once a matching order has been found, the trade is completed. Once this step has taken place, the post trade process begins. The firm’s front office team will now inform the investor that the trade has been completed.
7. Confirmation
The brokers on each side of the trade will then confirm that their respective clients agree to the conditions set forth. These conditions include the price at which the instrument has been traded, the settlement date, and any number of other variable factors.
8. Reconciliation
The reconciliation stage of the trade life cycle ensures that all accounts of the trade which has taken place are consistent and accurate. Reconciliation can be performed in a number of ways, but generally speaking it involves the act of comparing ledgers against statements from both sides of the trade. This sures up any records made and avoids the possibility of fraud or inaccurate record keeping.
9. Clearing
Once confirmation has taken place, the clearinghouse will make the necessary calculations to determine what is needed from the buy-side and sell-side respectively.
10. Settlement
Finally, the back-office staff will ensure that the relevant payments are made on time, that they are documented, and that they are reported correctly. Pending the completion of these three tasks, the trade life cycle is completed.
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