hi welcome to the session on life cycle of your trade we'll be seeing all the steps involved in your trade you know from where your trade begins and what are the steps it goes through and finally how it gets uh settled so I will be using this entire board and uh so since there are too many steps I need to be little conservative towards space uh I I'll begin from here so imagine an investor getting in touch uh you know with his research team research team it happens at the pre uh pre-trade stage this is the first step pre-trade also called as trade initiation stage trade initi iation stage where an investor will get in touch with his research team and then he will get an idea about you know today in which Market is supposed to trade what should be the quantity and for which stock he is supposed to trade and then he will decide whether to be a buyer or the seller on that day let's say for this uh you know at this time we will we will consider this investor as a buyer he has decided to buy some shares okay similarly on the other side there is another investor you know who also also got in touch with his research team and his research team advised him to be a seller let's say for Facebook stock so they both have decided to buy and sell Facebook at your particular price so once you know they both decide to be a buyer and seller uh this uh investor will will will approach or will will inform all the details to the broker which is called as trade initiation uh which is called as order placement stage sorry called as order placement stage wherein he is placing the order order placement stage he's placing the order to the broker okay broker similarly on the seller side also he is approaching his broker and placing the order so Second Step called as order placement stage order placement stage okay the broker will punch in all the details into the system and and his platform will check in the stock exchange if there is any uh any order that matches with his order once it gets matched okay so it will happen through Stock Exchange once it gets matched it goes to the next stage called as trade execution stage trade will get exec uted trade execution stage okay so first step happens on t+ 0 t+ 0 at the front office level why front office because front office as in uh this is where where client data will be pulled so that we can use it for the request given by the client okay this also happen on t+ 0 front office level okay this two t+ 0 front office level okay now once trade gets executed once the system finds the right match trade will get executed once it gets executed uh the broker okay broker will pass on the trade details to the custodian now what is this custodian custodian is coming out of the word custody which means taking care or safeguarding so over here safeguarding the uh investors Financial assets okay so who plays the role of this custodian um you can take the example of any big investment Banks you know uh that can take the license of your custodian and and can play this role typically in India uh these investment Banks like JP Morgan Goldman Sachs uh bny Milan they all play the role of a custodian whereas in India it is also called as depository participants that's Indian terminology now within this custodian so this custodian is supposed to take care of the financial assets so since uh since investor has bought shares or investor has sold shares okay for this investor over here he will approach his custodian so here this investor has sold shares this has to be recorded in the uh in the uh client's account okay so that's the reason they are informing to the custodian who is supposed to make the required changes now within the custodian there are many U teams So within the custodian there is a team called trade capture team so trade capture team will capture all the trade details okay so let me give you know stages number also so I have given one then two then three so now let me give here as four so trade capture team will capture all the trade details and key it into the system this happens on t+ 0 at the middle office level Mo stands for Middle office over here so why middle office because client phasing is over now we have already uh you know taken uh uh information from the client now we are going to uh we are going to key in all those details into the system and then you know further work on that uh on that data so now it it it goes into you know middle office level then once you know uh trade capture goes into middle office level uh work then it goes to the next stage called as trade enrichment okay so under Trade enrichment again it happens on t+ 0 office level uh all the data is segregated between trade data and static data trade data and static data so what do you mean by trade data so trade data refers to those datas which are which are particular for that particular you know which are particular only for that trade say for example uh name of the stock because next time the stocks you know you need not necessarily Place trade on the same stock name of the stock quantity the quantity will change uh uh then what else quantity price of the stock the price of the stock will change next time when you place the trade so all this all this uh information is only pertaining to this trade at the moment okay name of the stock quantity price um then date okay date will change direction so direction as in like Buy sell okay so Direction okay direction as in buy or sell so all these are related to trade data then what could be static data static data example uh which which will not change okay so so even if the client places the next trade his name will remain the same name of the client his contact details will remain the same contact details okay so when I say contact details is is you know phone number his address will remain the same then SSI SSI stands for standard settlement instructions it will have details about his bank bank name bank account number so Bank details uh yeah Bank details shift code iban number uh country of settlement country and currency of settlement country of settlement and currency currency of settlement okay okay so this way this way the data will be enriched enriched as in adding more value or making it more uh more sensible more organized so data will be segregated between trade data and static data so once it is done it goes to the next stage called as trade validation also called as trade verification stage where all this data will be further crosschecked to avoid any kind of mistakes so happens on t+ 0 again middle office level okay so once all these are done so all these team comes under the custodian so once all these are done a confirmation will be sent to the investor okay which in India we call this as contract note contract note by the end of the day it will be sent to the investor um otherwise it is also called as confirmation stage so let me give the number as seven confirmation stage so it will have details about the trade placed okay so this also happens on t+ 0 middle office level right then simultaneously you know end of the day Stock Exchange will pull all the trade details and pass it on to another entity called as Clearing House Clearing House okay now what do you mean by this Clearing House Clearing refers to finding net obligations for the counterparties involved in the trade so finding net obligation as in who owes how much okay say for example uh who owes how much as in so in this case know this buyer what is he supposed to get and what is he supposed to pay and this seller uh what is he supposed to get and what is he supposed to pay it is just like you can think as if like you are standing you know in your mall shopping mall and then you are buying some clothes and then you are going to the shopping counter and then you are telling to the counter guy like you know clear my account what does that mean so you are asking him to tell you how much you owe to him so that you can you know just pay off and move from there similarly over here this Clearing House will find out how much you know buyer and seller owe so this Clearing House house in India National Securities Clearing Corporation of India National Securities Clearing Corporation limited accs as the Clearing House nccl okay and so this Clearing House it it takes up the counterparty guarantee that means this buyer if you notice here this buyer and seller or this custodian and this custodian they are not directly talking to each other okay so it will you know the system behaves as if this custodian for this buyer custodian this Clearing House is the counterparty whereas and this sellers custodian again this Clearing House is the counterparty so Clearing House takes the counterparty uh you know uh counterparty guarantee over here so how this works let's see so uh so yeah so this step this is called as again this happens on t plus 0 middle office this is called as transaction reporting step transaction reporting wherein Stock Exchange will pull out all the data of the trade and pass it on to the Clearing House okay so these are the steps uh that happens on t+ 0 t+ 1 there is only one step uh so this trade life cycle you know this is as per US market okay as per as per US market where it takes t+ 3 working days so we are we are checking here why it takes t+ 3 what happens in those three working days that's what we are we are learning over here okay so t+ 0 so many steps happens t + 1 there is only one so this buyer who has got the confirmation he will check okay whether he is okay with all the trade details or not here assuming everything is fine he will inform this to the custodian which is called as affirmation stage affirmation so let me give the number over here so 7 this is 8 eight so this is nine affirmation okay so affirmation as in what investor is informing to the custodian that everything is fine with the contract note you know uh he's fine with the with with with the name of the stock quantity price Direction he's fine with all the details okay see together this confirmation and affirmation is called as Trade Agreement okay together it is called as Trade Agreement fine so Trade Agreement has happened now confirmation has happened and uh you know affirmation also has happened so this is this is happening on t+ 1 t + 1 middle office level t+1 middle office then what next so after this t+ 2 T plus2 is when you know clearing work begins so clearing is what finding out the net obligations for the contra par is involved in the trade so this Clearing House will get in touch now this Clearing House will not directly get in touch with the custodian there is another layer in between called as clearing member okay clearing member now this Clearing House will get in touch with the clearing member clearing member so this happens on t+ 2 and back office level okay now this is back office why back back office because initially at the front office level we pulled the data from the client at the middle office level we added more value we had made it uh you know a little more organized way we we enriched the data now it is going to the third stage that is back office level wherein we will use the data for which we have pulled so so why did we uh get all this information so that we do clearing and settlement so so the data is going towards that direction that's why it is moving to the next stage called as back office level okay so this work happens at the back office level uh wherein Clearing House will pass on you know uh all these details to the clearing member clearing member will further will connect with the custodian to confirm whether you know actually all these trade details that clearing house is giving to the clearing member uh uh is is acceptable to the custodian or not so this also happens on T plus2 back office level now because on t+1 client has already affirmed it on that basis custodian will go to the clearing member and say yes the trade has taken place and it was done by our client only uh for so and so uh you know quantity price for so and so stock all these details will be further confirmed by the uh custodian to the clearing member which inter will be passed on to the Clearing House similarly on the right hand side also these steps will take place so this is happening on T plus2 at the back office level so now clearing house knows that you know trade has taken place and it has been uh you know confirmed by both the custodian now Clearing House will have an idea about exactly who owes how much and then Clearing House will pass on you know these details to another entity called depository okay depository so let me use another color here just to differentiate so depository it will go to the depository now this is called happening on t+ 2 back office this is called settlement instructions this stage so if I have to give number um so here let me give so this is 8 9 so let me give the number as you know 10 step over here 10th is all about clearing okay 10th is all about clearing then I'll make this 11th one which is about settlement instruction settlement instructions settlement instructions so Clearing House will pass on the settlement instructions to the depository now what is depository now depository is an entity which which does the work of maintaining pooled account of the custodian so depository will have pulled account so let's say this is custodian 1 and this is custodian 2 they are maintaining the pulled account of the custodian okay yeah so these are the steps on t+ 2 so I'll just quickly repeat on T plus2 clearing work happens at the back office level where in clearing house will get in touch with the clearing member and the custodian and custodian in turn will get in touch with the clearing member which will we again passed on to the clearing house and then clearing house once you know getting all the details we'll pass on details to the depository so then on t+ 3 the last you know day uh settlement takes place on t+3 so on t+3 so what do you mean by settlement settlement refers to um transfer of ownership okay so on t+ 3 morning what happens is this is bias custodian so in his share assuming let's say 100 shares of Facebook you know uh have been bought has been bought by the client so 100 shares will be created over here and then here 100 shares will be debited this is for the sellers custodian okay so this is called settlement so this is settlement so this I'll give the number as 12th step settlement settlement happening at the back office level t+ 3 working days t+ 3 okay back office settlement similarly over here also uh the custodian will add 100 shares okay and here the custodian will debit 100 shares okay so this is again settlement stage settlement D+ 2 back office okay so again T +2 back office right and so this is how settlement takes place and then you know the shares will be uh uh uh reaching the investors uh account post this reconcillation work begins um I I I know it looks quite shabby but once you practice uh it should be all right uh since there are so many steps involved in it uh you know it it becomes little difficult to draw in a very clean fashion but I hope you understand thank you so much thanks for for your attention thank you