CISI Global Securities Operations cheat sheet

Primary market: issuer raises capital via new issues (IPO, rights issue, bond issue); proceeds go to the issuer. Secondary market: investors trade existing securities among themselves; proceeds go to the seller, not the issuer.

Equity holders rank last in the creditor hierarchy (after secured debt, senior unsecured debt and subordinated debt) but typically carry voting rights and unlimited upside; bondholders receive contractual coupons and rank ahead of shareholders.

Market participants: buy-side (asset managers, pension funds, insurers, hedge funds), sell-side (brokers/dealers, market makers, underwriters), venues (exchanges, MTFs, OTC), and infrastructure (CCPs, CSDs, custodians, payment systems).

Order-driven venues display bids and offers in a central limit order book; quote-driven venues rely on market makers posting two-way prices. Best execution obligations apply regardless of venue type.

Long settlement and short settlement conventions differ by market; standard settlement cycles are being harmonised toward T+1 in major markets (US, Canada, Mexico moved in 2024), while many European and Asian markets remain T+2.

Indices and benchmarks (e.g. equity indices, bond indices, interest rate benchmarks) drive passive flows, performance measurement and derivatives settlement; benchmark administrators are regulated entities.

Buy-side firms issue instructions to sell-side brokers; brokers execute and pass fills to clearing. Straight-through processing depends on standard identifiers: ISIN for securities, LEI for legal entities, BIC for institutions, MIC for venues.

Execution is the matching of a buy and sell instruction at an agreed price; confirmation is the process by which the counterparties agree the economic terms (instrument, quantity, price, settlement date, fees, counterparty).

Affirmation is a post-trade process where the buy-side institution agrees the trade details with its executing broker; it is distinct from confirmation between the broker and the client's custodian or between brokers.

Same-day affirmation (SDA) / T+0 affirmation targets: the industry benchmark is to affirm institutional trades by 23:59:59 local time on trade date (T+0), reducing failed trades and operational risk.

Key identifiers on a confirmation: trade date, settlement date, ISIN, quantity, price, currency, commission, executing broker, clearing broker, custodian, and settlement instructions (BIC/account).

Allocation and confirmation workflow: block trade executed, then allocated to underlying funds; each allocation is affirmed and sent to the relevant custodian for settlement.

Electronic confirmation platforms (e.g. CTM, MarkitWire, Traiana) reduce manual processing and mismatch rates; unmatched trades escalate to exceptions queues and must be resolved before the settlement cut-off.

Trade enrichment adds standing settlement instructions (SSIs) and regulatory fields (e.g. LEI, MiFID II transaction reporting data) before the trade passes to clearing and settlement.

Clearing is the process of establishing obligations: trade capture, netting, margining and novation to a central counterparty (CCP). Settlement is the actual exchange of securities for cash (delivery versus payment, DVP).

CCP novation: the CCP interposes itself between buyer and seller, becoming buyer to every seller and seller to every buyer, thereby reducing counterparty credit risk. CCPs collect initial margin and variation margin.

Settlement cycle: the period between trade date (T) and settlement date (S). T+2 means settlement occurs two business days after trade date; T+1 means one business day. Business days exclude weekends and market holidays.

DVP models: model 1 (gross, simultaneous), model 2 (gross, sequential), model 3 (net, simultaneous). Most CSDs operate model 1 or a hybrid DVP model.

Settlement fails occur when securities or cash are not delivered on settlement date; they trigger buy-ins, penalties and regulatory reporting (e.g. CSDR settlement discipline in the EU).

Securities lending and repo support settlement and liquidity; recall and return dates must align with the underlying settlement cycle to avoid fails.

Settlement date conventions: equities and corporate bonds commonly T+2 (moving to T+1 in some markets); government bonds and money market instruments often settle T+1 or same day; FX spot is T+2.

Global custodian holds assets, provides settlement, safekeeping, income collection, corporate action processing, tax reclaims and reporting; sub-custodians provide local market access and local regulatory compliance.

Segregation: client assets must be segregated from the custodian's own assets and from other clients' assets; omnibus versus segregated accounts affect insolvency protection and asset tracing.

Corporate action types: mandatory (e.g. cash dividend, stock split, merger), voluntary (e.g. tender offer, rights subscription, proxy vote) and mandatory-with-choice (e.g. dividend reinvestment, scrip dividend).

Corporate action lifecycle: announcement capture, entitlement calculation (record date and ex-date), notification to clients, instruction collection for voluntary events, processing with the CSD/issuer agent, and reconciliation of proceeds.

Key corporate action dates: declaration date, ex-date, record date, payment date. The ex-date is when the security trades without the entitlement; entitlement is based on holdings at the record date.

Income processing: gross dividend, withholding tax at source, net income to client; tax reclaims depend on double tax treaties and local documentation (e.g. treaty relief forms).

Proxy voting and class actions require instruction capture and evidence of beneficial ownership; asset servicing teams reconcile entitlements versus CSD and issuer agent records.

DVP cash legs settle through central bank money or commercial bank money; CLS settles FX payment-versus-payment (PVP) obligations, eliminating principal risk between counterparties.

Payment message standards: SWIFT MT (MT103, MT202, MT202 COV) and ISO 20022 (pacs.008, pacs.009, camt.053, pain.001). ISO 20022 migration is underway across major payment systems.

Value date versus booking date: value date is when funds are available for use; booking date is when the entry is recorded. Cash forecasting must use value dates.

FX spot, forward, swap and NDF: spot settles T+2; forwards settle on an agreed future date; swaps combine a spot and a forward leg; NDFs settle a cash difference in a single currency.

Cash management: intraday liquidity monitoring, nostro/vostro reconciliation, overdraft and collateral arrangements, and cash pooling to reduce funding costs.

FX exposure arises from multi-currency settlement, income and corporate action proceeds; operational teams hedge or net exposures within approved limits and report to treasury.

Reconciliation types: position reconciliation (holdings versus custodian/CSD), cash reconciliation (bank statements versus ledger), trade reconciliation (front office versus back office), and inter-system reconciliation.

Break management: identify breaks, classify by cause (timing, pricing, fees, FX, missing instruction), assign owner, resolve within SLA, and escalate aged breaks. Root-cause analysis should feed process improvement.

Three lines of defence: first line (business operations owns and manages risk), second line (risk and compliance oversight), third line (internal audit provides independent assurance).

Operational risk categories: process errors, people, systems, external events. Tools include risk and control self-assessment (RCSA), key risk indicators (KRIs), incident and loss event capture, and scenario analysis.

Segregation of duties: trade initiation, authorisation, settlement and reconciliation should be performed by different individuals; maker-checker controls on payments and security master changes.

Business continuity: recovery time objective (RTO) and recovery point objective (RPO) define acceptable downtime and data loss; regular testing and out-of-region failover are expected for critical operations.

Key EU/UK regimes: MiFID II/MiFIR (transaction reporting, best execution, investor protection), CSDR (settlement discipline, authorisation of CSDs), EMIR (derivatives clearing, margining, reporting), UCITS/AIFMD (fund operations), and the Senior Managers and Certification Regime (SMCR) in the UK.

US regimes: SEC rules (Regulation SCI for technology, Rule 17f-7 for foreign custody, Rule 15c3-3 customer protection), FINRA rules, and the Investment Company Act for funds. Dodd-Frank covers derivatives clearing and reporting.

AML/CFT obligations: customer due diligence, sanctions screening, suspicious activity reporting, record keeping and periodic review; FATF recommendations form the international baseline.

Data protection and market abuse: GDPR/UK GDPR govern personal data; MAR/UK MAR prohibit insider dealing and market manipulation; surveillance and reporting obligations apply to operations and trading.

Regulatory reporting: transaction reporting to a regulator (e.g. MiFIR), EMIR trade reporting to a trade repository, and CSDR settlement fail reporting; accuracy and timeliness are operational responsibilities.

KYC/CDD: identify the customer, verify identity using reliable independent sources, identify beneficial owners (typically 25% or more ownership or control threshold), and understand the purpose and intended nature of the relationship.

Risk-based approach: assign a customer risk rating (low, medium, high) based on jurisdiction, product, channel and ownership structure; enhanced due diligence (EDD) applies to higher-risk customers and politically exposed persons (PEPs).

Sanctions screening: screen customers, beneficial owners, counterparties and payments against sanctions lists (e.g. OFAC, EU, UN, UK OFSI); false positives require documented investigation and disposition.

Periodic review and trigger events: risk-based refresh cycles, plus event-driven reviews on ownership changes, adverse media, large transactions or sanctions list changes.

Onboarding operations: collect documentation, run screening, obtain approvals, set up accounts and SSIs, and record the audit trail. Poor SSI controls can cause settlement fails and misdirected payments.

Core operations systems: order management (OMS), execution management (EMS), portfolio management, trade capture/confirmation, settlement and custody platforms, corporate action and reconciliation engines.

Data quality dimensions: completeness, accuracy, timeliness, consistency and validity. Security master data (ISIN, CFI, currency, market, settlement convention) drives downstream processing; errors propagate to settlement and reporting.

Operational resilience: identify important business services, set impact tolerances, map dependencies (people, technology, third parties), test severe-but-plausible scenarios, and remediate gaps. UK regulators apply the critical third-party regime; EU applies DORA for digital operational resilience.

Cyber controls: access management, encryption, privileged access review, vulnerability management, incident response and penetration testing; phishing and social engineering are leading causes of operational loss.

Change management: testing, segregation of environments, approval and rollback plans; unauthorised or poorly tested changes are a recurring source of operational incidents.

Third-party risk: due diligence, contractual SLAs, exit plans and ongoing monitoring of outsourced and cloud providers.