Before any client trading can be done, a number of different activities must take place in the pre-trade environment. A critical element is the client onboarding process, as this allows institutions to establish whether they should trade with a potential client.

Client onboarding often involves specialist teams and impacts many others involved in trade processing, including legal and compliance personnel and credit staff.

Well-implemented client onboarding can help an institution to develop strong client relationships, minimize risk, and satisfy regulatory requirements.

By contrast, poorly-implemented client onboarding can lead to client attrition, expose an institution to risk, and result in significant regulatory and compliance issues.

Other important aspects of pre-trade planning include client motivations for trading, transaction cost analysis, and pre-trade risk controls.

Clients are motivated to trade for a number of possible reasons, including cash needs, hedging, diversification, and view monetization.

Pre-trade transaction cost analysis can help clients to estimate the transaction costs associated with trades that have yet to be made.

Meanwhile, pre-trade risk controls are required to ensure that trades are deemed acceptable from a risk management perspective.

For centuries, trade execution markets were very distinct and relatively straightforward.

Most trading took place at specific geographic locations where traders would stand in “pits” shouting out prices and waving trade tickets in the air in a seemingly chaotic fashion.

Advances in technology mean that this type of exchange trading has died out and most trading previously conducted manually on exchange floors now takes place electronically.

Buyers and sellers may be thousands of miles apart, but electronic communication means that it is straightforward to execute orders in fractions of a second.

What’s more, trading is no longer confined to physical exchanges such as those in London, New York, and other major financial centers.

While over-the-counter markets have existed for many years, other types of off-exchange trading have emerged in more recent times.

These “alternative” trading venues or systems have created competition for traditional exchanges and fundamentally altered trade execution markets.

After a trade is executed, there are a number of activities that must take place before the trade can be considered complete.

The purpose of these activities is to clear and settle the trade, and they must take place regardless of whether the trade was executed on:

• An exchange such as the New York Stock Exchange
• An OTC market such as the interest rate swap market
• Or an off-exchange market such as a dark pool

The first step in the process following trade execution is the booking and capture of the trade details by the front office, who then pass the details to the operations team for processing.

Operations enriches the trade with further details necessary for settlement, before performing trade validation checks to ensure that the gathered information is complete and accurate.

Once internal validation is complete, the trade details must be agreed with all participants in the trade.

Trade reporting is another vital step that must be completed, especially from a regulatory point of view.

When the trade has been captured, enriched, validated, agreed, and reported, the final step before settlement is the preparation of settlement instructions.

Once settlement instructions have been sent, the trade is in a position to be settled.

The successful settlement of a trade is not the end of the story.

There are numerous trade-related events and market changes that can impact a trade while it is live and result in changes to the trade position or underlying asset.

Because of this, for any entity involved in trading, there is a requirement for various ongoing position and risk management activities to be carried out.

Some examples of these activities include:

• Asset servicing, such as services related to corporate actions that impact securities
• Managing the counterparty credit risk associated with derivatives trades
• Trade reporting for both internal and external purposes
• Reconciliation to ensure that the impact of trading is correctly recorded in the different accounts
• Post-trade transaction cost analysis
• Profit and loss reporting
• Risk reporting, including value at risk and various sensitivity measures