4 - Transactions & Ownership

Cards (132)

  • Using a platform service
    1. The investor (in conjunction with any agent they have retained) is responsible for making choices regarding the assets to be bought and sold within each of the wrappers held
    2. Trade orders are instructed to the platform, which will perform the trades with the relevant counterparties and update its investor-level records of cash and assets to reflect the executed trade
    3. Instructions are processed to ensure that legal ownership of the assets remains clear and demonstrable
  • Platforms enable a wide range of deals to be undertaken, including simple investment and disinvestment deals
  • Sometimes, the investor might choose to sell one or more holdings, using the proceeds to purchase one or more different assets (a process sometimes referred to as a ‘switch’)
  • Advisers may require more complex functionality to help service their clients, such as constructing a target asset allocation within the platform and automatically instigating trades to align each client’s account against that target asset allocation
  • Aggregation of investor-level orders is done to place larger, more cost-effective trades in the stock market
  • Aggregation of exchange-traded securities can reduce brokerage charges for individual investors, but may cause delays while orders are being aggregated
  • The platform's best execution policy needs to consider various factors when executing trades, such as price, costs, speed of execution, likelihood of execution, and settlement
  • As far as collective investment schemes (CISs) are concerned, the majority now use ‘forward pricing’, and platforms must ensure that all orders received are processed, aggregated, and delivered to the authorised fund manager (AFM) in time for the next valuation point
  • Platforms stipulate cut-off points for CIS orders to be included in the platform’s aggregated order with the AFM for the next valuation point
  • Types of Order
    The first stage of fulfilling a deal is for the investor, or the adviser acting on the investor’s behalf, to place an order, which is an instruction to the receiving party to buy or sell either a specific quantity, or a specific cash value, of a financial instrument
  • Complex forms of order
    • Orders that affect multiple clients
    • Regular purchases
    • Regular sales
    • Conversion instructions
    • Bed & ISA transactions
  • Orders that affect multiple clients
    Sell all holdings of X where client type = (enter a value that identifies the range of clients affected)
  • Regular purchases
    For client A, on the first working day of each month (until further notice OR until a defined date) buy sufficient units/shares of X that will result in transaction proceeds of £Y
  • Regular sales
    For client A, on the first working day of the month (until further notice OR until a defined date) sell sufficient units/shares of X that will result in transaction proceeds of £Y and pay proceeds to the client
  • Conversion instructions
    1. Specialist CIS transactions to convert accumulation units/shares to income units/shares and vice versa
    2. Convert legacy holdings of one share/unit class to another class with a more favourable charging structure
  • Bed & ISA transactions
    Existing shares are sold, cash transferred into the ISA, and then shares repurchased with the subscribed money at the same time to limit potential price movements
  • Price-related conditions for listed securities

    • At best or at market
    • Limit
    • Stop-loss
  • Time-related conditions for listed securities
    • Good ‘til cancelled or open order’
    • Expiry date
    • ‘Fill or kill’
  • Straight-through processing (STP) enables transactions to move seamlessly through the processing cycle without manual intervention or physical handling
  • Adoption of STP by platforms makes the model efficient
  • Some transactions may not require manual intervention or physical handling due to STP
  • Participants in the trading process
    • Market makers
    • Brokers
    • Retail service providers
  • Straight-through processing (STP)

    A set of working practices and systems that enable transactions to move seamlessly through the processing cycle without manual intervention or physical handling
  • STP adoption by platforms
    1. Makes the model efficient
    2. Some transactions are still instructed in paper form or by telephone
    3. Fax messaging is also relevant, either as a primary transmission channel for some firms, or a back-up mechanism in case their STP system experiences difficulties
  • Platform ensuring maximum efficiencies
    1. Each transaction is entered into the firm’s systems only once
    2. Automated processes are built to connect internal systems
    3. Manual intervention is minimised, with a 'repair queue' established for stalled automated processes
  • Need for platforms to ensure trade orders are processed by the next dealing point

    The repair queue is closely monitored, and any items remaining there for too long will be escalated to management
  • Message carriers and CIS dealing
    • Common message standards developed for use by platforms, AFMs, and settlement agents
    • Companies like EMX and Calastone provide services to carry messages between firms
  • STP message carriers process
    1. The platform creates the deal instruction
    2. Platform operator submits the completed deal instruction to the message carrier
    3. Message carrier sends the data to the relevant recipient
    4. Recipient actions the instruction received
  • Methods for sending and receiving messages
    • Direct data entry
    • File transfer
    • Application Programming Interface (APIs)
  • Most message carriers operate on the store and forward principle
  • If the final destination is unreachable
    The message carrier will retain the information and continue to retry delivery until the destination is back online
  • The message carrier verifies the integrity of each message it receives
  • Message delivery process
    The message carrier will retain the information and continue to retry delivery until the destination is back online
  • Message verification
    The message carrier verifies the integrity of each message it receives, ensuring full reception at the correct destination and authenticity
  • Message encryption
    The messages are encrypted by the message carrier from the sender until delivery, ensuring a high level of security
  • Range of messages that can be sent
    • Buy/sell orders
    • Reregistration
    • Settlement and trade matching confirmations
    • Price reporting
    • Holdings and/or valuation information
  • Order processing
    The order is sent by the platform to the AFM, confirmed by it, and then an electronic contract note is sent back
  • Settlement instructions
    The platform sends settlement instructions to the carrier, which passes them to the custodian for actual settlement
  • Trading in a CIS
    The platform aggregates requests and submits them to the fund manager, who can create necessary shares without needing a willing seller
  • Trading in shares and bonds
    Trading takes place on a secondary market, involving brokers and market makers to maintain liquidity and facilitate trades