Operations, Transactions, and Record Keeping
The transaction lifecycle
Candidates must understand the flow: order capture, pre-trade checks, execution, confirmation, settlement, reconciliation, and record retention. Key concepts include settlement cycles, trade date versus settlement date, counterparty and settlement risk, custody and segregation of client assets, corporate actions, fees and charges, complaints handling, and audit trails.
Controls that questions test
- Segregation of client assets from firm assets, with reconciliation and independent oversight.
- Four-eyes checking and dual authorisation for payments and static data changes.
- Order handling: timely execution, fair allocation, and records of instructions.
- Reconciliation: cash and stock positions matched to custodian statements at defined intervals.
- Record keeping: completeness, legibility, retrievability, and retention for the regulatory period; records must be capable of reconstruction.
- Error handling: identify, escalate, remediate, and log client impact, including compensation where appropriate.
Traps that appear in questions
- Confusing trade date with settlement date when calculating exposure.
- Assuming a confirmation is the same as a contract note or a statement.
- Overlooking that client money must be identifiable and protected on firm insolvency.
- Forgetting that telephone and electronic instructions need verifiable records.
- Treating reconciliation breaks as administrative rather than reportable control failures.
- Missing the requirement to record complaints and resolution outcomes.
Rule of thumb
If it is not recorded, it did not happen. Every instruction, decision, and client communication should be reconstructable from the file by an independent reviewer.
Worked example
A trade executes on Monday with a two-day settlement cycle. Settlement falls on Wednesday. If the client funds arrive Thursday, the firm faces a failed settlement and possible buy-in costs. Correct action: flag the shortfall before settlement, escalate, and record the client communication and outcome.