Chapter 2. Brokerage Office Procedures & Back Office Operations - C. Order Tickets and Key Dates
Prior to executing a customer’s order the representative must fill out the appropriate order ticket and present it to the trading department or wire room for execution. All order tickets will include:
- Buy or Sell
- Name of security
- Number of shares or bonds
- Account name and number
- Account type, i.e. cash or margin
- Price and time limits if any
- Solicited or unsolicited
- Discretionary authority exercised or discretionary authority not exercised, if applicable
- Time stamp when entered, executed, changed, or canceled
Executing an Order
An important part of executing a customer’s order lies in the operational procedures that route the order to the markets and handle trade input functions for the order once it has been executed. The brokerage firm assigns specific departments to handle all of the important functions of trade execution and input. The departments are:
- Sales Department
- Order Room / Wire Room
- Purchase and Sales Department
- Margin Department
- Cashiering Department
- Custody Department
- Corporate Action Department
The sales department is where registered representatives interact with the investing public. Representatives work with individual and institutional investors, manage portfolios, make recommendations and accept orders.
Order Room / Wire Room
Once a representative has received an order from a client, the representative must present the order for execution to the order room. The order room will promptly route the order to the appropriate market for execution. Once the order has been executed, the order room will forward a confirmation of the execution to the registered representative and to the purchase and sales department.
Purchase and Sales Department
Once the order has been executed the purchase and sales department inputs the transaction to the customer’s account. The purchase and sales department sometimes called “ P & S “ are also responsible for mailing confirmations to the customer and for all billing.
All transactions, regardless of the type of account, are sent through the margin department. The margin or credit department calculates the amount of money owed by the customer and the date when the money is due. The margin department will also calculate any amount due to a customer.
The cashiering department handles all receipts and distributions of cash and securities. All securities and payments delivered from clients to the firm are processed by the cashiering department. The cashiering department will also issue checks to customers and, at the request of the margin department, will forward certificates to the transfer agent.
The custody department maintains physical control of customer and firm assets. The custody department sometimes referred as the “cage” safeguards the physical securities in the firm’s possession. Employees in the custody department will create stock records for each security in the firm’s control and will record which securities belong to the firm and which securities belong to customers. The “box count” of physical securities will take place in the custody department and any long or short differences in securities positions will be investigated by members of the custody department.
Corporate Action Department
The corporate action department handles communications between the investors and the issuers of securities. The corporate action department will mail proxies and prospectuses to beneficial owners of securities and handles mergers, reorganizations and name changes relating to issuers. The corporate action department also manages the collection of interest and dividend payments.
Becoming a Stockholder
While some people purchase the shares directly from the corporation when the stock is offered to the public directly, most investors purchase the shares from other investors. These investor-to-investor transactions take place in the secondary market on the exchange or in the over-the-counter market. Although the transaction in many cases only takes seconds to execute, trades actually take several days to fully complete. We will now review the important dates regarding transactions, which are done for a “regular way” settlement.
The trade date is the day when the order is actually executed. Although an order has been placed with a broker, it may not be executed on the same day. There are certain types of orders that may take several days or even longer to execute. A market order, however, will be executed as soon as it is presented to the market, making the trade date the same day the order was entered.
The buyer of a security actually becomes the owner of record on the settlement date. When an investor buys a security from another investor, the selling investor’s name is removed from the security and the buyer’s name recorded as the new owner. Settlement date is three business days after the trade date. This is known as T + 3 for all regular way transactions in common stock, preferred stock, corporate bonds, and municipal bonds. Government bonds and options all settle the next business day following the trade date. Any trade done on a cash basis settles on the same day regardless of the security involved in the transaction. Settlement dates are set by the Uniform Practice Code.
The payment date is the day when the buyer of the security has to have the money to the brokerage firm to pay for the purchase. Payment date for securities under the industry rules is five business days after the trade date, or T + 5. Payment dates are regulated by the Federal Reserve Board under Regulation T of The Securities Exchange Act of 1934. While many brokerage firms require their customers to pay for their purchases sooner than the rules state, the customer has up to five business days to pay for the trade.D. Violations
Personal FinanceOrganizations such as the FPA and NAPFA are striving to provide higher standards for the financial planning profession and greater protection for consumers through a combination of community ...
ProfessionalsFollowing the status quo will kill your financial practice. Find out the tips you need to follow to keep you a step or two ahead of the competition.
ProfessionalsWe've interviewed three economists with very different job descriptions to give you an idea of the many possibilities this career choice offers.
ProfessionalsThe competition to become a financial planner is hot, and growing hotter. Find out the best way to preparing to land the CFP designation.
ProfessionalsThe Claritas Investment Certificate is likely to find growing acceptance as the new foundation-level education and ethics standard for the financial service sector internationally.
ProfessionalsCFP Exam Guide
InvestingWith so many talking heads to choose from, which is the right show for your business and money matter needs? We review the best shows on now.
ProfessionalsAdvisors dealing with older clients face a specific set of difficulties. Here's how to help protect them.
ProfessionalsThe start, stop, start Social Security strategy is complicated. Here's what retirees considering it need to consider.
BrokersIndependent broker-dealers are a great choice for experienced, self-starter planners who have established practices.
A securities license entitling the holder to register as a limited ...
The option offered by an investment firm to let its clients invest ...
A qualification earned by insurance professionals and conferred ...
A designation earned by professionals looking for training in ...
Fintech is a portmanteau of financial technology that describes ...
A designation earned by insurance professionals looking for reinsurance ...
Brokers have the sole discretion to determine which customers may open margin accounts with them, although there are regulations ... Read Full Answer >>
Financial sampling allows auditors to approximate the rate of error within financial statements. For accounting purposes, ... Read Full Answer >>
There are a number of agencies assigned to regulate and oversee financial institutions and financial markets, including the ... Read Full Answer >>
The differences between a Chartered Financial Analyst (CFA) and a Certified Financial Planner (CFP) are many, but comes down ... Read Full Answer >>
A Chartered Financial Analyst (CFA) has successfully passed rigorous coursework in the fields of economics, financial analysis, ... Read Full Answer >>
The Chartered Financial Analyst, or CFA, program is a professional certification awarded by the CFA Institute. CFA candidates ... Read Full Answer >>