The Trade Lifecycle : Behind the Scenes of the Trading Process.
Robert P. Baker
Bok Engelsk 2015 · Electronic books.
Omfang | 1 online resource (418 pages)
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Utgave | 2nd ed.
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Opplysninger | Intro -- The Trade Lifecycle -- Contents -- Foreword from the First Edition -- Why this book? -- Foreword to the Second Edition -- Preface -- Acknowledgements -- About the Author -- Part One Products and the Background to Trading -- 1 Trading -- 1.1 How and why do people trade? -- 1.2 Factors affecting trade -- Product appetite -- Risk appetite -- Exposure -- 1.3 Market participants -- Producer -- Consumer -- Speculator -- Market maker -- 1.4 Means by which trades are transacted -- Brokers -- Exchanges -- Over-the-counter -- 1.5 When is a trade live? -- 1.6 Consequences of trading -- 1.7 Trading in the financial services industry -- Two types of trading policy -- Why does a financial entity trade? -- 1.8 What do we mean by a trade? -- 1.9 Who works on the trade and when? -- 1.10 Summary -- 2 Risk -- 2.1 The concept of risk -- 2.2 Risk is inevitable -- 2.3 Quantifying risk -- 2.4 Methods of dealing with risk -- 2.5 Managing risk -- 2.6 Problems of unforeseen risk -- 2.7 Summary -- 3 Understanding Traded Products - Follow the Money -- 3.1 Spot trades -- 3.2 Future (forward) -- 3.3 Loan -- 3.4 Deposit -- 3.5 Swap -- 3.6 Foreign exchange swap -- 3.7 Equity spot -- 3.8 Bond spot -- 3.9 Option -- 3.10 Credit default swap -- 3.11 Summary -- 4 Asset Classes -- 4.1 Interest rates -- Interest and the time value of money -- Interest rate participants -- The asset class of interest rate products -- The discount curve -- Removing credit effects -- Tradeflow issues -- 4.2 Foreign exchange (Forex or FX) -- Spot -- Futures and forwards -- Currency swaps -- FX swap -- Baskets -- Reporting currency -- FX Drift -- Tradeflow issues -- 4.3 Equity -- Synthetic equities (index) -- Lifecycle issues pertinent to equity trades -- 4.4 Bonds and credit -- Bonds -- Other credit risk bearing instruments -- 4.5 Commodities -- Origin of financial trading.. - 11.3 Allocation of risk -- 11.4 Monitoring of market risk -- Illiquid products -- New products -- 11.5 Controlling the risk -- Take steps to repair breach -- Exception to limit -- Changing the limits -- Posting reserve -- Do nothing -- 11.6 Responsibilities of the market risk control department -- Requirements -- Relationship with front office -- 11.7 Limitations of market risk departments -- Everything correlated -- The tails -- The human factor -- Balanced approach -- 11.8 Regulatory requirements -- Basel II -- Capital Adequacy Ratio (CAR) -- 11.9 Summary -- 12 Counterparty Risk Control -- 12.1 Reasons for non-fulfilment of obligations -- Delayed settlement -- Mistakes in settlement process -- 12.2 Consequences of counterparty default -- 12.3 Counterparty risk over time -- 12.4 How to measure the risk -- Expected loss -- Credit exposure -- Potential Future Exposure (PFE) -- Netting -- Back-to-back -- 12.5 Imposing limits -- 12.6 Who is the counterparty? -- 12.7 Collateral -- Example of a collateral agreement -- Advantages of collateral -- 12.8 Activities of the counterparty risk control department -- Set policies for estimating exposure -- Assign limits based on credit worthiness -- Measure exposure -- Deal with breaches -- Policies for new trade types -- Maintain legal data -- Manage margin payments and receipts -- Interface with management -- 12.9 What are the risks involved in analysing credit risk? -- Added complication of credit risk -- Insufficient consideration of counterparty risk -- Sudden counterparty changes -- 12.10 Payment systems -- Benefits of payment systems -- Risks associated with payment systems -- Example -- 12.11 Summary -- 13 Accounting -- 13.1 Balance sheet -- Fixed assets -- Investments -- Cash -- Debtors -- Creditors -- Capital -- Profit and loss -- Events that affect balance sheet items -- 13.2 Profit and loss account.. - 17.3 The equality of money.. - Individual trade and aggregation with other trades -- Date and time -- Amalgamation between systems -- 8.7 Changes during lifetime -- Dividends -- Coupons -- Other corporate actions -- Changes as a result of market data -- Counterparty changes -- Collateral -- Changes to the trade -- Management of changes -- Risks -- 8.8 Reporting during lifetime -- 8.9 Exercise -- Exercise date -- When to exercise -- Cash or physical -- Exercise as a process -- Fugit -- Risks associated with exercise -- 8.10 Maturity -- Final settlement date -- 8.11 Example trade -- The trade lifecycle -- 8.12 Summary -- 9 Cashflows and Asset Holdings -- 9.1 Holdings -- 9.2 Value of holding -- 9.3 Reconciliation -- 9.4 Consolidated reporting -- 9.5 Realised and unrealised P& -- L -- 9.6 Diversification -- 9.7 Bank within a bank -- 9.8 Custody of securities -- Registered securities -- Bearer securities -- Use of custodians -- 9.9 Risks -- 9.10 Summary -- 10 Risk Management -- 10.1 Traders -- Desirable exposure -- Undesirable exposure -- 10.2 Risk control -- 10.3 Trading management -- 10.4 Senior management -- 10.5 How do risks arise? -- Spot trades -- Futures and forwards -- Options -- Exposures to fixed or float income streams -- Exposure to debt -- Exposure to group of products -- 10.6 Different reasons for trades -- 10.7 Hedging -- 10.8 What happens when the trader is not around? -- Availability of other traders -- Stop and limit orders -- 10.9 Types of risk -- Risk measures -- Additional risks for credit products -- Risks in general -- Dreaming ahead -- 10.10 Trading strategies -- Front book -- Back book -- 10.11 Hedging strategies -- Delta hedging -- Stop-loss hedging -- 10.12 Summary -- 11 Market Risk Control -- 11.1 Various methodologies -- Scenario analysis -- Value at Risk (VaR) -- Instantaneous measures of risk (sensitivity analysis) -- 11.2 Need for risk.. - Realised -- Unrealised -- Accrued -- Incidental -- Worked example -- Individual trades -- Who is responsible for producing P& -- L? -- Risks associated with reporting P& -- L -- 13.3 Financial reports for hedge funds and asset managers -- Overview -- Fees -- Reports -- 13.4 Summary -- 14 P& -- L Attribution -- 14.1 Benefits -- Catching mistakes -- Reconciliation -- Better understanding of the trades and the market -- 14.2 The process -- Market movements -- Theta -- Unexplained -- 14.3 Example -- 14.4 Summary -- 15 People -- 15.1 Revenue generation -- Traders -- Trading assistants -- Structurers -- Sales -- 15.2 Activities that support revenue generation -- Researchers -- Middle office (product control) -- Back office (operations) -- Quantitative analyst -- Information technology -- 15.3 Control -- Legal -- Model validation -- Market risk control department -- Counterparty risk control department -- Finance -- Internal audit -- Compliance -- Trading manager -- Management -- Human risks -- 15.4 Summary -- 16 Regulation -- 16.1 Purpose of regulation -- Major regulatory authorities -- 16.2 What regulators require -- Liquidity -- Systemic risk and market infrastructure -- Remuneration, culture and conduct -- Structural reform -- Recovery and resolution -- Supervision and governance -- 16.3 The problems -- 16.4 Risk-weighted assets -- Effect of regulation in practice -- Example: rule for LCH Canadian trades -- 16.5 Credit valuation adjustment (CVA) -- What is CVA? -- How is it measured? -- How is credit risk measured? -- DVA -- FVA -- CVA mitigation -- CCP -- Multilateral netting -- Netting rules and jurisdiction -- Rehypothication -- Portfolio-based CVA -- 16.6 Summary -- Part Three What Really Happens -- 17 Insights into the Real World of Capital Markets - Here be Dragons! -- 17.1 How it used to be -- 17.2 Clash of cultures.. - What are commodities? -- OTC commodities -- Localised nature of production -- Time lag -- Utility of commodities -- Precious metals as a currency -- Physical settlement -- Other tradeflow issues -- 4.6 Trading across asset classes -- 4.7 Summary -- 5 Derivatives, Structures and Hybrids -- 5.1 Linear -- Differences between futures and forwards -- 5.2 Nonlinear -- Trade process issues relating to options -- 5.3 Some option terminology -- 5.4 Option valuation -- 5.5 Exotic options -- Examples of exotic options -- Issues with exotics -- 5.6 Structures and hybrids -- 5.7 Importance of simpler products -- 5.8 Trade matrix -- 5.9 Summary -- 6 Liquidity, Price and Leverage -- 6.1 Liquidity -- Two types of trading -- What is liquidity? -- Asset liquidity -- Measuring liquidity -- Risks associated with liquidity -- 6.2 Price -- Over-the-counter price -- Exchange price -- Broker price -- What can we infer from price? -- Cost of unwind -- Volumes -- 6.3 Leverage -- Advantages of leverage -- Disadvantages of leverage -- Measurement of leverage -- Current market position -- 6.4 Summary -- Part Two The Trade Lifecycle -- 7 Anatomy of a Trade -- 7.1 The underlying -- 7.2 General -- 7.3 Economic -- 7.4 Sales -- 7.5 Legal -- 7.6 Booking -- 7.7 Counterparty -- 7.8 Timeline -- Dates relating to a trade -- Example -- 7.9 Summary -- 8 Trade Lifecycle -- 8.1 Pre execution -- Provisional trades -- Orders -- 8.2 Execution and booking -- Execution -- Booking -- 8.3 Confirmation -- Matching -- Confirmation -- 8.4 Post booking -- Trade scrutiny -- Enrichment -- Cashflows -- Fees and duties -- Error reporting -- 8.5 Settlement -- The importance of settlement -- Settlement instructions -- Custodian -- Cash or physical -- Cash settlement of commodities -- Nostro accounts -- Risks -- Advantage of quick settlement -- Multiple settlement dates -- Breaks -- 8.6 What happens overnight.. - Drive profit and manage risk with expert guidance on trade processing The Trade Lifecycle catalogues and details the various types of trades, including the inherent cashflows and risk exposures of each. Now in its second edition, this comprehensive guide includes major new coverage of traded products, credit valuation adjustment, regulation, and the role of information technology. By reading this, you'll dissect a trade into its component parts, track it from preconception to maturity, and learn how it affects each business function of a financial institution. You will become familiar with the full extent of legal, operational, liquidity, credit, and market risks to which it is exposed. Case studies of real projects cover topics like FX exotics, commodity counterparty risk, equity settlement, bond management, and global derivatives initiatives, while the companion website features additional video training on specific topics to help you build a strong background in this fundamental aspect of finance. Trade processing and settlement combined with control of risk has been thrust into the limelight with the recent near collapse of the global financial market. This book provides thorough, practical guidance toward processing the trade, and the risks and rewards it entails. Gain deep insight into emerging subject areas Understand each step of the trade process Examine the individual components of a trade Learn how each trade affects everything it touches Every person working in a bank is highly connected to the lifecycle of a trade. It is the glue by which all departments are bound, and the aggregated success or failure of each trade determines the entire organization's survival. The Trade Lifecycle explains the fundamentals of trade processing and gives you the knowledge you need to further your success in the market.
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ISBN | 9781119003571
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