The main post-trade processes in the financial sector include those services that are performed subsequent to the execution of a trade in the cash securities markets and the derivatives markets. These services, which support the primary and secondary markets, comprise, inter alia:
- Asset servicing
- Post-trade reporting
Post-trade services further include support to investment funds, securities financing, collateral management and support to issuers of securities.
Post-trade services are an integral part of the financial industry value chain. Thus, proceeds of the issurance of financial instruments will only be credited to the issuer’s account upon related post-trade services having come into play, as will trading counterparties’ agreement to buy or sell only be executed, resulting in a change of ownership, as a result of the delivery of post-trade services.
Considering the different post-trade services specifically, please find hereafter a brief description of the main post-trade services:
CCP Clearing is a post-trade service perform by central counterparties that guarantees reciprocal counterparty performance and is used for derivatives, equities and fixed income instruments. Central counterparties also clear repo and securities lending transactions.
The European Central Securities Depositories Regulation, CSDR, defines settlement as “the completion of a securities transaction where it is concluded with the aim of discharging the obligations of the parties to that transaction through the transfer of cash or securities or both”.
In relation to securities settlement, the buyer receives the purchased securities and the seller receives the corresponding cash in exchange for those securities. The exchange of cash and securities is usually carried out in a Securities Settlement System (SSS) operated by a Central Securities Depository (CSD), using a procedure known as Delivery versus Payment (DvP), a settlement mechanism which links the securities transfer and a funds transfer in such a way as to ensure that one transfer occurs, if and only if, the other transfer occurs.
Investment fund units may either be CSD-eligible and settle as described above, or settle with a Transfer Agent (TA)
Exchange Traded Derivatives (ETD) may be settled in cash or physically. ETDs are usually settlement in cash, whereby the settlement amount results from the different between the entry price and the settlement price. In the case of physically settled ETDs, settlement will take place through delivery or receipt of the underlying assets.
Over-the-counter (OTC) derivatives are mostly settled in cash.
The term “asset servicing” relates to the processing of events during the life of a security. From the point of view of an investor, the terms relate to the process whereby an investor is able to benefit from rights or exercise rights relating to the holding of a securities position. Asset services include custody services and related corporate action processing, tax processes, registration process, shareholder identification processes and general meeting process, as well as value added and ancillary services. Corporate actions may also have an impact on derivatives, repos and securities lending transactions.
In the aftermath of the 2008 crisis, enhanced, or in some cases new, mandatory post-trade reporting regulations and rules have been implemented in the majority of key global jurisdictions requiring the reporting of individual transactions and/or position of nominated participants. Complementary to reporting requirements at national level, within the EU, the regulations include, but are not limited to, MiFIR, EMIR, SFTR and REMIT.
The European Post Trade Forum Report of 15 May 2017 provides a comprehensive overview of the current state of the post-trade world in the European Union as well as a series of initiatives taken or to be taken in this area of financial services.