What is Post-Trade Processing
Post-trade processing occurs after a trade is complete. At this point, the buyer and the seller compare trade details, approve the transaction, change records of ownership, and arrange for the transfer of securities and cash. Post-trade processing is especially important in markets that are not standardized, such as the over-the-counter (OTC) markets.
BREAKING DOWN Post-Trade Processing
Post-trade processing is important in that it verifies the details of a transaction. Markets and prices move fast; transactions are executed quickly, often instantaneously. Many securities trades are done over the phone; the ability for mistakes is inherent, despite traders’ skill. Increasingly trades are executed at high frequency by computers only. The chance for small mistakes to compound remains high. Post-trade processing allows the buyer and seller of securities to root out and rectify these errors. In addition to matching the details of the buy and sell orders, post-trade processing includes shifting records of ownership and authorizing payment.
Examples of Post-Trade Processing
On the NYSE Bonds Platform, following trade completions, all Depository Trust & Clearing Corporation (DTCC) / National Securities Clearing Corporation (NSCC) Regional Interface Organization (RIO) eligible bond trades are sent to NSCC in order to match trade details of both buyers and respective sellers. Details are transmitted through the RIO.
Post-trade services have recently come to the forefront as a means for financial firms to diversify their revenue streams. Due to a combination of new regulations, the standardization of derivatives, and increased need for more complex processing measures, due to the growth of alternative assets, post-trade services is an area in which some firms have a chance to outstrip competitors.