Trading, Settlement and Custody
What this domain tests
This section follows the trade lifecycle on NZDX: order handling, execution, settlement and holding of client assets. It tests practical timing and control issues.
Trading
Orders for quoted debt are handled under NZX Market Rules and the firm's best-execution and order-handling policies. Advisers must distinguish client orders from principal trades, avoid front-running and ensure instructions are accurately recorded. Trading halts and market announcements can affect execution.
Settlement and custody
NZX cash-market trades normally settle on a T+2 basis. Debt securities settle through the central securities depository arrangements linked to NZClear, with delivery versus payment. Settlement risk is reduced but not eliminated. Custody may be via a nominee; client assets must be segregated from the firm's own assets and reconciled. Corporate actions, record dates and accrued interest must be tracked.
Worked example
A bond trade is executed on Wednesday. Under T+2, settlement is Friday. If Friday is a public holiday, settlement moves to the next business day, Monday. Accrued interest is calculated up to the settlement date, not the trade date. The adviser should confirm the settlement date and accrued amount to the client so cash-flow expectations are correct.
Traps that cost marks
Confusing trade date with settlement date; forgetting business-day adjustments; assuming custody means ownership; commingling client and firm assets; and ignoring accrued interest in the final consideration.