Trade Reporting, Clearing, and Settlement
The post-trade chain
Understand the sequence: execution, confirmation or affirmation, clearing (novation to a central counterparty), and settlement (delivery versus payment). Know the standard settlement cycle, the role of central securities depositories, and the purpose of straight-through processing. Understand that a central counterparty reduces counterparty risk through novation and margin but does not eliminate market or liquidity risk.
Reporting
Know the difference between pre-trade transparency (quotes, order sizes) and post-trade transparency (price, volume, time, venue), and the difference between reporting to a regulator, to a trade repository for derivatives, and to the public tape. Understand that reporting deadlines are strict and that late or inaccurate reports are breaches even absent intent.
Traps
- Confusing clearing with settlement: clearing establishes obligations, settlement discharges them.
- Assuming central clearing removes all risk.
- Missing that trade repository reporting for OTC derivatives is separate from transaction reporting.
- Forgetting that failed settlements trigger buy-ins and that the failing party bears the cost.
- Overlooking that reporting accuracy is the reporting party's responsibility even when an intermediary transmits.
Rule of thumb
For any post-trade question, name the three parties (buyer, seller, CCP), the two flows (cash and securities), and the deadline. If the question hinges on who is exposed if a counterparty fails, the answer is usually the clearing member, not the end client.