Key Role in Trade Life cycle

Front office operations

· Front office is called as the revenue department for investment bank.

· Their actions will directly led the money being added to bottom line of the of the investment bank.

· Bottom line also refers to any actions that may increase/decrease net earnings or a company's overall profit. A company that is growing its net earnings or reducing its costs is said to be "improving its bottom line".

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Sales

· Sales people - receiving orders to buy and sell equities from clients. Focus is on the client relationship and proactively encouraging the client to trade.

· Sales traders - may receive orders directly from clients. After discussion with the trader may execute the trade.

· Dealers providing a price to sales people & traders to meet the client’s and trading on behalf of the bank (proprietary trading – prop desk).

Example for proprietary trading: Barclays bank has created a OTC product in the market and is trading very well in the market, if JPMC is interested in purchasing the product as its fetching good returns so JPMC puts its own money and trades on the product.

Proprietary Trading

· When a firm/IB trades for direct gain instead of commission by investing its own money and not the investors’ money.

· Under the Dodd-Frank legislation and Volcker Rule, prop trading is being made more and more difficult to do and is now only allowed by ‘important’ firms for hedging purposes.

Responsibilities of FO

· Booking trades

· Responsible for smooth processing of trades from front to back systems, including following up on unallocated trades.

· Resolution and escalation of issues in a timely manner.

· Ensuring various businesses reporting requirements are met.

Middle Office

· Team that is co-ordinates the post trading activities between front office and back office settlements team.

Responsibilities of Middle Office

· Legal (they make sure legal documents with external parties are optimally structured).

· Compliance (make sure you're on the right side of compliance law).

· Research (if it's provided to clients free of charge is a middle office function).

· Trade capture, confirmation, position and P&L control

Operations

· Back office includes any process-orientated roles.

· An efficient back office is vital because if clients don't get statements, portfolio report and valuation and trade confirmations on time then bank reputation is on stake.

Responsibilities of OP

· Confirmation teams (they confirm transactions with clients, send out regular statements e.g. regarding the current value of a booked deal)

· Reconciliation teams

· NAV Calculations

· Risk Management

· Managing fail trades

· PNL checks

· Collateral Management

· Securities Operations

What is a trade?

A legal contract between two parties – one is buyer of the securities / commodities / derivatives contract or any other structure product. Another is seller.

In case of equity / commodity, the SELLER must deliver the commodity or share that he has sold to the buyer and The BUYER must pay the agreed purchase price on the agreed value date

Why do we Trade?

Speculate - Profit from price move or increase in value of the asset

Accumulate - Benefit from dividend on shares and interest on bonds

Hedging - To speculate and accumulate, to reduce risk

What are the different Types of Trade?

Agency Trade and Principal Trade –

Agency Trade - If it is filling the order as agent, then it will forward the order to an investment exchange and charge the investor a commission.

Principal Trade - If it is filling it as principal, then it will not forward the order to an exchange, but it will (assuming the order is to buy) sell the investor the required quantity of the instrument from its own ‘book’ or position, i.e, it will sell the investor stock that is owned by the sell-side firm.

Additional Information

Trading Long - The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value

Trading Short - The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value

Nostro Account: Account held by a particular domestic bank in a foreign bank in a foreign bank is called Nostro account. The term is derived from the Latin word for “ours”.

Example - SBI (INDIA) Has account with Bank of America (USA) for USD currency

Vostro Account: Account held by a foreign bank in a domestic bank is called vostro account. The term is derived from the Latin word for “yours”.

Corporate actions. https://www.youtube.com/watch?v=V8wKtp4aeQQ&t=2195s

Private Equity-03 https://youtu.be/Wip9pwV7fZU

Derivatives https://youtu.be/iV2p9a-TUFU

Cash Recon https://youtu.be/F6H-wgwuDa8

Cash Dividend https://youtu.be/F6H-wgwuDa8

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