Trade Capture in Trade Life Cycle
The Trade Life Cycle includes steps starting from order receipt to Trade Settlement. The Trade Capture can be defined as a process of booking a transaction into a front-office trading system. This is initiated at the front-office level. This includes inputting all trade details in the official record book, linking all reference data, and calculating profit and loss. The role of the middle office and back office is to verify the trade and assess the risk.
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Meaning and Overview of Trade Capture:
The Trade Capture can be defined as a process of booking a transaction into a front-office trading system. The trade capture process is said to successful when the trade details are sent to the back office immediately, via an interface, for operational processing. When a Security Trading Organisation does not have a trading system, the trade details are recorded manually by the trader or market maker. It will further require delivery to or collection by the middle office or settlement department for operational processing. After that, it will be sent to the back office for clearing and settlement.
Role of Front, Middle, and Back-office in Trade Settlement System:
Trade settlement is the last and most important step of the trade life cycle.
- Front Office: The front office is commonly known as the ‘Trading Floor’. The trade is initiated at the front office. Once it gets initiated, it proceeds towards the execution. It gets executed only if the counterparty agrees to the trade details and is willing to enter into the deal. After the execution of a trade, trade capture takes place in which trade gets captured using a system that gives necessary trade information and assigns trade confirmation numbers or trade reference numbers. This number is a unique number that indicates the booking confirmation and sent to both buyers and sellers as acknowledgment.
- Middle Office: The Middle Office plays an important part. At, the middle office three important steps are accomplished including Validation, Booking, and Confirmation. At the middle office, the allocation of trade happens and gets published in the Back office. Then, it is considered live and operational.
- Back Office: The Back Office is considered the “backbone” of the trade life cycle. It mainly performs three pivotal functions including Clearing, Settlement, and Accounting. At this stage, significant operational activities such as record keeping, order confirmation, trade settlement, and regulatory reporting are performed. The back-office tasks are located, most of the time, to lower-priced sources for its management activities to reduce the company costs.
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The entire trade life cycle is a mix-up of complex functions. There are a lot of manual involvements in all events and this tends to increase the time spent for processing and settlement of functions and trading. Trade capture is one of the important stages consisting trade life cycle. It is initiated at the front office level and then proceeds towards the back office level. The Trade life cycle can not be said as successfully completed until and unless all the steps are performed.
Author: Hetvi Shah
About the Author: Hetvi is a BBA(Finance) graduate. She is currently pursuing an MBA with Finance specialization. She has a keen interest in Financial Market, Financial Management, and Financial Analysis.