8.2 Trade Clearing, & Settlement

purchase & sales department

• sends trade confirmations

• handles billing info

• compares broker to broker confirmations

• post transactions to internal accounting systems

• records transactions into trade blotter

• perfumes internal control functions like reconciliations

cashiering department

• settles transactions

• transfers ownership of securities

• processes receipts and deliveries of cash and securities to and from the firm

• issues checks to customers

• rejected delivered securities that are not in good form

• borrows securities for short sales

• performs buy ins

margin department

• oversees extension of credit to customers

• monitors customers margin accounts

• ensures short sales and margin purchases are covered by enough funds

• ensures minimum maintenance is kept and makes margin calls

• calculates money owed and time money is due

custody department

• location of firms fault

• maintains custody of customers securities and assets

• creates stock record

• performs box count and investigates any discrepancies

corporate action department

• handles consequences of corporate actions

• manages dividend payments

• changes number of customer shares after stock split

• mails proxy info

• transfers customers shares to new company after merger

DTC

depository trust company is where alls securities positions are held by member forms

give up

in prime brokerage account executing broker-dealer provides the learning number of prime broker when reporting trade for comparison and clearance. executing broker gives up name of clearing prime broker when trade is reported

step out

in prime brokerage account the executing broker provides clearing number of prime broker after the trade is reported for comparison and clearance. executing broker then steps out of reported trade for comparison and clearance purposes. used to move a reported trade from the account of the executing member to clearing member. movement of position only

customer confirmations must include (not MSRB)

• customer name and address

• firm name, address, phone number

• type of account

• name of security purchased or sold

• size and price of trade

• accrued interest if bond trade

• if agency, commission disclosed

• principal, markup/down is not disclosed except for principal transactions in nasdaq stocks

• if payment for order flow was accepted

• trade date and settlement date

• CUSIP number

• for equity trades, time of trade and name of other party to trade must be made available on written request

• for corporate bonds time of trade to second

trade confirmation for MSRB

• name of issuer, interest rate, maturity rate, if bond is callable

• type of bond

• source of revenue for revenue bond

• yield and dollar price of transaction

• dated date for new issues

• if securities are fully registered, registered to principal only, or book entry

• if subject to federal taxation or AMT

• if called or pre refunded and price

• if original issue discount (zero coupon)

• if not in normal units

required items on order ticket

• Time of order receipt

• time of order entry

• time of order execution

• buy or sell

• security name

• security size

• duration of order

• if discretionary

• customer name and account number

• registered rep

error in trade confirmation

customer gets trade price

confirmation disclosure in agency transaction needs

• commission

• name of other party to trade

• time of trade

error that is not customers fault

customer can accept or cancel trade, any loss due to cancel is taken on by firm