Securities Trading, Settlement and Operations
Trade lifecycle
Order capture, execution, confirmation, clearing, settlement, then custody and asset servicing. Most equities settle T+2, though conventions vary by market and instrument. A central counterparty interposes itself through novation, guaranteeing settlement and running default funds and margin arrangements.
Controls
Best execution (price, cost, speed, likelihood of execution), order priority and fair allocation, recording of orders and calls, segregation of client money and assets, reconciliation and corporate-action processing (dividends, proxies, rights elections). Failed trades are resolved by buy-in, compensation or cancellation under market rules.
Worked example
A trade executes on Thursday 6 March in a T+2 market with no intervening holiday: settlement falls on Monday 10 March. Reasoning: the settlement date follows market convention, not the client's funding schedule, so cash must be in place on the morning of settlement. If the custodian has not delivered the securities, the firm faces a fail, must notify, and may be bought in.
Traps
Assuming T+3; confusing clearing (establishing the obligation) with settlement (exchange of value); and forgetting that custody and settlement are distinct functions with separate controls.