Prime brokerage is a full fledge service provided by sell-side firms or brokers to buy-side financial institutions including investment banks, pension funds and hedge funds. Prime brokerage covers a wide range of services to address most of the needs of clients. In the financial market and OTC derivatives world, prime brokers provide the below important […]Continue Reading... No Comments.
As per Dodd-Frank regulation, some trades are required to be cleared by the Central Clearing Counterparties (CCPs) in order to mitigate credit risk. For clearing through CCP, it has to be routed through a registered broker at the clearing house or CCP, also known as Clearing Broker. Most of the investment banks are already registered […]Continue Reading... No Comments.
Execution brokers are the middlemen in the capital market who provides order execution services to their clients in different markets. Execution brokers are well connected to all execution venues and exchanges and they can execute orders by matching orders from other clients/parties. Execution brokers provide access to the major financial markets across the world and […]Continue Reading... No Comments.
Sell side firms are the particular firms which are involved in the creation, promotion and sale of financial instruments like stocks, bonds, foreign exchange etc which are used by the buy side firms. Typically the equity research companies, brokers and dealers are the sell firms which are responsible of creating research reports regarding different financial […]Continue Reading... No Comments.
Buy Side firms are the market participants which are involved in trading derivatives in the capital market space. These buy side firms include Investment banks, hedge funds, and portfolio managers etc who take buying or selling decisions. These firms trade derivative contracts or buy/sell/short sell stocks in financial market to generate extra profit or alpha. […]Continue Reading... No Comments.
Collateralization or margining is used to reduce credit exposure or credit risk after using netting and other methods. In a break clause, single payment of collateral happens at the beginning of the trade and at the time of cancellation or termination while for reset feature collateral is paid periodically to reduce credit risk exposure due […]Continue Reading... No Comments.
Below are the important Life Cycle Events for Trades (especially OTC Derivatives trades) Amendment: Trade attributes or Contact terms can be modified before maturity date of the trade through mutual agreement with the counterparty. Post amendment, the trade contract may have to undergo post-trade processing again with the new contract details. Amendment can be off […]Continue Reading... No Comments.
Phase 1: Pre-trade All steps before trading activities are categorized into the pre-trade phase. The below processes are part of Pre-Trade phase 1. On boarding – On boarding is the process of adding a new customer or a trading partner for trading purposes. On boarding exercise includes preparation of service agreements, relationship agreements and finalization […]Continue Reading... No Comments.
As per Dodd Frank act for USA and all the other acts in different G20 countries, all the OTC derivatives transactions have to be reported to the regulator. Regulators do not have the necessary architecture to collect and store all the transactions in OTC derivatives across different regions. For the purpose, GTR or Global Trade […]Continue Reading... No Comments.
MiFID stands for Markets in Financial Instruments Directive. European Commission first adopted MiFID I in April 2014 and proposed in November 2007, just before the 2008-09 financial crisis with the key objective of increasing competition in financial market and protect consumers. Post Financial crisis in 2008, European Commission submitted proposals to revise the Markets in […]Continue Reading... No Comments.
The European Securities and Markets Authority (ESMA) is a EU financial regulatory institution and European Supervisory Authority which was set up with the aim of enforcing regulation in financial market across EU. It works in the fields of securities regulation to improve the stability and functioning of the European Union Financial Market and increase competition […]Continue Reading... No Comments.
The Dodd-Frank “Wall Street Reform and Consumer Protection Act” (also known as Dodd-Frank act) was passed as a bill by President Barack Obama in 2010. The act was passed after the financial crisis in 2008-09 to plug all the loop holes in the financial industry and avoid any such crisis to happen in future. It […]Continue Reading... No Comments.
Closeout Netting is used when a counterparty is defaulted on its payment and termination/settlement of all the contracts associated with the counterparty need to be completed. It helps to terminate and settle all the net values of all the trades with the counterparty. It has two components, ⦁ Closeout- this enables the other party to […]Continue Reading... No Comments.
Payment Netting is used by the financial institutions on daily basis to combine different types of payments into one single net payment. For Example on a particular day, Company A is expected to pay USD 10 Million as floating rate swap payment and USD 5 million as fixed rate swap payment and expected to receive […]Continue Reading... No Comments.
World-wide Derivatives market is huge and fast moving with different players changing their positions or taking new positions frequently. For many cases, some derivative positions offset other positions and there should be an effective way to reduce overall liability or counterparty risk for these derivatives transactions. Hence Netting is used to offset what one party […]Continue Reading... No Comments.