Trading, settlement and asset administration
What this domain tests
How orders are executed and priced, how trades settle, how assets are held and how corporate actions and transfers are administered.
Order handling
- Execution-only platforms route orders to market makers, exchanges or fund managers. Best execution (COBS 11) applies to MiFID business; non-MiFID retail business still requires due skill and care.
- Order types: market, limit, stop. Funds are forward-priced at the next valuation point, typically 12:00 UK time, with a strict cut-off.
- Contract notes are issued promptly, generally the same or next business day.
Settlement and custody
- UK equities settle in CREST on T+2, with migration to T+1 planned. Funds settle on contractual terms, commonly T+3 or T+4.
- Assets sit with a nominee. Corporate actions - dividends, rights issues, scrip, share splits - are processed by the administrator; income is paid to cash or reinvested.
- Daily position reconciliation runs between the platform's records, the custodian and fund managers.
Asset administration
- Single swinging prices with dilution levy or swing adjustment protect continuing investors from dealing costs caused by large flows.
- In-specie transfers re-register holdings between platforms without a sale, preserving the wrapper and avoiding time out of market.
- Stock lending requires collateral and disclosure; CASS 6 applies to any collateral held.
Worked example
A client instructs a £50,000 fund purchase at 11:55 against a 12:00 cut-off. The order is priced at that day's valuation point. Had it arrived at 12:05, it would be priced at the next valuation point. Reason: forward pricing prevents clients dealing on stale prices, and cut-offs are applied strictly, not negotiated.
Traps that cost marks
- Thinking the platform can hold a price for a client.
- Confusing re-registration with sell-and-repurchase, which takes the client out of the market and may trigger a CGT event.
- Assuming all settlement is T+2, including funds.
- Forgetting that dilution adjustments exist to protect remaining investors.