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Dealing
Until recently, deal orders have been placed with the market manually. However,increasing use is now being made of the Financial Interface Exchange (FIX) protocol – depending on the trade and instrument being traded.
The FIX protocol was devised to introduce electronic communication between Institutions and Brokers. FIX provides an open message standard that can be structured to match the requirements of each firm.
The FIX protocol covers the communication of indications, orders and executions.through a series of application messages including:
- Quote Request – This message is sent from an Institution to Brokers to request quotes on specific securities prior to an order being placed.
- Quote – Generated by the Broker in response to a Quote Request. Securities quotes can be provided as either market quotes or for a specific quantity and size.
- New Order –The New Order message type is used by Institutions to submit securities orders to a Broker for execution.
Note: For a full list of messages visit the FIX web site: www.fixprotocol.org
SWIFT also provides message types to communicate orders such as:
- MT502 – Order to Buy or Sell
Note: For a full list of messages visit the SWIFT web site: www.swift.com
Confirmation and Matching
There are a number of flows between the Investment Manager and Broker throughout this process. The method of communication will depend on the different systems used by the Investment Manager and Broker.
The Financial Interface Exchange (FIX) protocol covers the communication of indications, orders and executions and provides a series of application messages including:-
- Execution Reports – The Broker will transmit a message to the Investment Manager providing details of the executed trade. The Execution Report message is used for confirming the receipt of an order, confirming changes to an existing order, rejecting orders and communicating the fill information on an order.
- Allocation – The allocation record instructs a Broker on how to allocate executed orders to sub-accounts. The message can also be used to communicate execution and settlement details.
- Allocation ACK – This message is communicated by the Broker to acknowledge the receipt and status of an allocation and to accept or reject the allocation.
- Settlement Instructions – This message is generated by either the Broker or the Investment Manager to communicate instructions for the settlement of the executed trade.
Note: For a full list of messages visit the FIX web site: www.fixprotocol.org
SWIFT also provide a series of messages for the initiation and confirmation of the trade known as TIC messages. Some of these messages are intended for use with an ETC service provider. The TIC messages cover the following flows:
- MT513 – Client Advice of Execution
- MT514 – Trade Allocation Instruction
- MT515 – Client Confirmation of Purchase/Sale
- MT517 – Trade Confirmation Affirmation
- MT518 – Market-Side Securities Trade Confirmation
- MT528 – ETC Client Side Settlement Instruction
Note: For a full list of messages visit the SWIFT web site: www.swift.com
Trade Instruction
In order for the trade to be settled in the market place it is necessary to communicate the trade to a Global Custodian. Basic trade details such as settlement amount and details of the stock need to be communicated. It is also necessary to add details of the Broker's settlement instructions.
The Industry Standardisation for Institutional Trade Communication (ISITC) group has defined a series of messages as a standard for trade communication between the Investment Manager and the Global Custodian. The ISITC group used the SWIFT message types as a base and added additional information to allow the Investment Manager to communicate all necessary trade data to the Global Custodian.
Message types include:
- MT521 – Receive Against Payment
- MT523 – Deliver Against Payment
Although based on the SWIFT standards these messages are network independent.
Note: For a full list of messages visit the ISITC web site: www.isitc.org
Building on the work completed by the ISITC group SWIFT have developed a new series of messages:
- MT541 – Receive Against Payment
- MT543 – Deliver Against Payment
Settlement
Settlement is the final transfer of cash from the purchaser to the seller in exchange for the delivery of securities.
The Industry Standardisation for Institutional Trade Communication (ISITC) group have defined a series of messages as a standard for communication of settlement information between the Investment Manager and the Global Custodian. The ISITC messages are based on SWIFT standards but can be used across any network.
Message types include:
- MT531 – Receive Against Payment Confirmation
- MT533 – Deliver Against Payment Confirmation
Building on the work completed by both SWIFT and ISITC new messages have been developed by SWIFT to incorporate all requirements in this process:
- MT545 - Receive Against Payment Confirmation
- MT547 - Deliver Against Payment Confirmation
Settlement Reconciliation
Settlement Reconciliation is the process of matching individual trade records with the Custodian prior to or on settlement date. This reconciliation will be performed on a daily basis to ensure that all of the transactions have been accounted for correctly and that failed trades are identified promptly.
The Industry Standardisation for Institutional Trade Communication (ISITC) group has defined a series of messages as a standard for communication of reconciliation information between the Investment Manager and the Global Custodian. The ISITC messages are based on SWIFT standards but can be used across any network.
Message types include:
- MT572 - Statement of Settled Transactions
- MT573 - Statement of Pending Transactions
Building on the work completed by both SWIFT and ISITC new messages have been developed by SWIFT to incorporate all requirements in this process:
- MT536 – Statement of Transactions
- MT537 – Statement of Pending Transactions
- MT548 – Settlement Status and Processing Advice
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