Finance

Trade Enrichment

Trade Enrichment

Enrichment refers to the action of improving or enhancing the quality or value of something by adding something else. It makes something more meaningful and rewarding. Thus, it can be said that trade enrichment means the action of enhancing the quality of trade, by applying relevant data, with the purpose of improving its efficiency. Trade enrichment makes the trade more worthy and rewarding.

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Meaning and Overview of Trade Enrichment:

The Trade Enrichment referred to the process of putting in relevant information of the trade which is required to settle the trade correctly. Trade enrichment includes adding specific trade data to the basic trade detail to allow downstream processing. It involves selection, calculation, and attachment of appropriate information to trade. This information is necessary to complete various required actions following trade capture. It is performed after trade execution. Information and instructions can be enriched in a trade before or after matches.

How Trade Enrichment is achieved?

The figure mentioned below shows how trade enrichment is achieved automatically.

 

As shown in the above figure,

  1. The very first step is ‘Trade Capture’ which refers to the process of booking a transaction into a front-office trading system. The basic trade details are captured within the settlement system such as Quantity, Security, Price, and so on.
  2. The next step is ‘Static Data Defaulting’. it refers to defaulting relevant information automatically from the store of information within static data. It includes cash value defaults, custodian defaults settlement instructions default, etc.
  3. Finally, the trade details are enriched from the static data. To achieve the enriched trade, the selected defaults are attached to the basic trade information. These details include Cash values, Settlement instructions, etc.

Components of Trade Enrichment:

The components of Trade enrichment are listed below:

  1. Trade figuration
  2. Trade comparison requirements & validation
  3. Custodian
  4. Settlement instructions
  5. Reporting of trade

Let us take a look at the detailed explanation of all the components:

  1. Trade Figuration: Trade figuration means calculating trade cash values. It involves the determination of the net amount of a securities transaction. It is necessary as it helps in knowing the cash cost to pay upon receipt of securities from counterparties, and cash proceeds to receive when delivering securities to counterparties.
  1. Trade comparison requirements & validation:  Another component is traded comparison requirements and validation for counterparties. Trade confirmation to clients bears all the details of trade including fees, commission, and net money. Though, information about the counterparty is not included in the client’s confirmation.
  1. Custodian: The third component is the selection of the relevant custodian details. STOs utilize local agents to exchange securities and cash on their behalf with a view to reducing the risk of being without securities and cash and to exchange securities and cash in the most efficient manner. These local agents are known as custodians. Financial securities are kept within custodian securities account and cash is kept within custodian cash account.
  1. Settlement Instructions: Trade settlement occurs when the buyer receives the securities and the seller gets the payment for the same transaction. Thus, it is a two-way process. Settlement instructions include the transmission of settlement instructions which can be through SWIFT or fax. Settlement instructions are generated by and transmitted from the STO’s settlement system by a secure method.
  1. Reporting of trade: It includes reporting trades to stock market regulators. Trade reporting is mandatory. It is performed to increase transparency in the market. It also helps in keeping the regulator in line with what is happening, which may help to find the wrongdoing.

The static data repository, also known as static data defaulting, can be used to enrich trade data in an automated environment. Trade enrichment can be effectively achieved from the static data repository, in an automated environment. However, the trade will be viewed as an exception if any data items are missing, and all processing will be stopped before the missing data is restored to the static data repository.

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Final Thoughts:

Trade Enrichment is one of the important operating activities of the Trade Lifecycle. The entire trade life cycle is a mix-up of complex functions. There is a lot of manual involvements in all events. This tends to increase the time spent for processing and settlement of functions of trading. The Trade life cycle can’t 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.

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