Clearing and Settlement Flashcards
(39 cards)
what are the 3 phases described as clearing and settlement?
- pre-settlement and clearing
- settlement
- post-settlement
how is matching trade data completed?
matching trading counterparties details, custodians acting on behalf of the counterparties will compare settlement instructions
what is the definition of clearing?
obligations held by the buyer and seller to a trade are defined and legally formalised
what does the clearing process include?
- recording key information
- formalising the legal obligations
- matching and confirming details
- agreeing procedures
- calculating settlement obligations
- managing margin and making margin calls
how can trades be settled?
cleared bilaterally between trading parties or via a CCP that interposes itself between buyer and seller
what are two further basic elements to the settlement of trades?
- timing of settlement
- structure of settlement system
what is DvP?
Delivery versus payment- only making delivery of securities when the payment is certain
what are the three (BIS) models for DvP?
Model 1- transfer of securities occurs at the same time as the final transfer of funds. Primarily used in Europe e.g., CREST in the UK
Model 2- settles securities transfer on a gross basis, with the final transfer of securities taking place throughout the processing cycle- final transfer of funds at the end of the cycle.- predominantly used in the US
Model 3- final transfer of both securities and funds occur at the end of the processing cycle
what is the primary responsibility of a custodian?
ensure that the clients assets are fully protected at all times, provide robust safekeeping facilities for all the client’s physical and digital assets
what are the services provided by custodians?
- safekeeping of assets
- maintaining inventory
- making arrangements for delivery and payment of cash
- ensuring securities are registered
- providing market information
- managing the clients cash flows
- monitoring and managing entitlements
- managing tax services
- ensuring reporting obligations
what are the different types of custody arrangements?
- local custodians in each market
- global custodian across the full range
what is the role of a sub-custodian?
employed by a global custodian as its local agent to provide settlement and custody services for assets that it holds on behalf of investor clients in a foreign market
what are bearer shares?
shares that aren’t registered, any person who physically has the share certificate is able to benefit from their monetary value
what is the role of a nominee in a registered title?
takes the registered title and all responsibilities around admin
what is the role of a nominee shareholder?
will hold the shares in a trust for the beneficial owners, they’re identified on the register of shareholders. appointed by a custodian
what are the different types of nominee companies?
pooled- individual clients are grouped together with a single nominee registration- no visibility within the company
designated- nominee name includes unique identifiers for each individual client
single- single nominee name used for specific client- underlying investor requires dividends to be mandated
what does cum-dividend mean?
‘with the dividend’ , buyers of the shares have the right to the next dividend paid by the company
what is the role of a corporate nominee?
when the issuing company itself provides a facility for its smaller shareholders to hold their shares within a single nominee
what is the sequence of events leading up to a dividend payment?
- dividend declared
- record or books close date
- ex-dividend date
- dividend paid
- ex-dividend period
what is the period where shares are traded cum-dividend?
at all times other than during the ex-dividend periods
what is CLS?
Continuous linked settlement- process by which most of the world’s largest banks manage FX settlement among themselves. managed by CLS Group Holdings LTD and regulated by The Fed. settlement members pay in the net funds that are due to settle in each currency to their central bank
what time period is CLS focused in?
5-hour window each business day from 7am to 12pm in the central European time
what is DLT?
Distributed ledger technology- replacement of one centralised ledger of transactions with a decentralised network of computers all holding exact copies of the same ledgers. any changes have to be done by consensus
what are the advantages of DLT?
- trustworthy and reliable
- prevents a single point of failure
- very difficult to hack
- removes costs and delays associated with single ledger