Trade ConfirmationHetvi Shah
As mentioned in previous blogs, the trade lifecycle involves a number of steps from the trade initiation to trade settlement and further. Once the trade order is placed, captured, validated, and enriched, the next step is confirmation of the trade. It is an extremely critical step for the settlement of the trade. Confirmation of trade involves reporting of completion of financial transactions. This article aims to provide an overview of the order confirmation stage.
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Meaning of Trade Confirmation:
Trade confirmation refers to the acknowledgment of the completion of securities transactions. It could be printed or in electronic form. It is a financial document that reports the details of a trade completed through the client’s account. It is maintained separately from the account statement of the client. It must be sent to the client on or before the completion of a transaction.
Why is it important?
- Trade confirmation helps in identifying unethical behavior like mismatching information on confirmation from the account statements, fees higher than the appropriate level, undisclosed commissions, etc.
- It strengthens the trade by counterparties.
- It provides proof and thus makes the process more authenticated.
- It helps in tracking capital gain or loss at the time of filing taxes.
- It helps in verifying the transactions.
- It helps in spotting errors or inaccurate information.
Process of Trade Confirmation:
As mentioned, it is a document that reports the details of the trade completed. It works as follows:
When a client places a trade through a brokerage account, he/she will get a brokerage trade confirmation report. This report involves detailed information on the trade. The common information which can be found on trade confirmation is listed further. The brokerage trade confirmation will be made available to the client through mail or in electronic format on every trade execution by the broker.
List of Details provided in Trade Confirmation:
It contains the following details:
- Name of the investment and ticker symbol
- The number of shares of stock/number of bonds purchased or sold.
- Cost or selling price per share
- The amount owed or due
- Commission paid to brokerage firm
- Trade date
- Trade execution date
- Settlement date
- The total gross value of the transaction
- The total net value of the transaction (i.e. Total gross value of the transaction – brokerage commission)
- Account number
- Type of order i.e. Market order or limit order or other.
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Methods of Trade Confirmation:
- SWIFT is a messaging system used by financial institutions to securely transmit information and instructions through a standardized system of codes.
- For the purpose of trade confirmation, a hardcopy printout of the SWIFT message or receipt into the matching system should be accepted as firm evidence of the details of the deal.
- There exist various electronic dealing systems which usually have an in-built confirmation generation capacity.
- These systems are an acceptable form of confirmation for several organizations.
- When the counterparty is a financial institution
If the confirmation has not been received even after one hour of the transaction, either of the counterparties may initiate telephone confirmation. Both the back offices should have dealing tickets.
The following format is used.
- Organization’s name
- Broker’s name
- Confirmation details including Counterparty, settlement date, settlement method, face value, etc.
- Other relevant details
- When the counterparty is a corporate
If the confirmation has not been received even after one hour of the transaction, the operation staff should initiate a telephone confirmation.
It can be concluded that trade confirmation is an important financial document that reports the completion of the trade. It helps in identifying unethical behavior and provides proof of completion of the transaction and thus making the process more authenticated.
Author: Hetvi Shah
About the Author: Hetvi is a BBA(Finance) graduate. She is currently pursuing an MBA with Finance specialization. She has a keen interest in Financial Market, Financial Management, and Financial Analysis.