Trade Order Management
This section provides notes to a function which is not yet released to general public. Content is subject to change.
Overview
During 2019, we carried major development work and extended the product definition beyond post-trade processes in order to service the pre-trade processes and, effectively, the entire trade-life cycle.
At the core of this extension is the new Trade Order Management System (TOMS).
In essence, our TOMS helps to standardize, initiate, monitor and warehouse all your trade order activities, which can easily be resolved (manual or automatic) into trades, thereby increasing transparency, productivity and efficiency of your daily operations.
With the TOMS as the building block, we developed additional pre-trade analytical process and reports, including but not limited to pre-trade compliance, portfolio simulation and further analytical reporting.
Developments regarding these features are out of the scope of this document, but you will still find references to these wherever applicable.
In short, DECAF is now effectively involved in the entire trade life-cycle, covering more business processes and activities of financial institutions which have more demanding trading and compliance functions and features.
In this short document, we will explain capabilities and fundamental concepts to this new function, namely the Trade-Order Management System.
Pre-Trade Activities
Post-Trade covers the time span after when a financial action over a single or a set of financial instruments or contracts has been executed. Such execution marks the materialisation of financial assets and/or liabilities, hence an exposure to certain financial risks. Note that such materialisation is usually prior to the settlement.
However, there are more processes and activities involved in financial portfolio management before the execution of such financial actions. These include:
- Decision making,
- Preparing/recording financial actions to be taken,
- Checking/verifying recorded financial actions,
- Communicating financial actions for execution,
- Acknowledging the execution of financial actions, and
- Booking and settlement of financial actions.
In our concept, activities 1-4 are classified as Pre-Trade Processes and Acitivities whereby activities 5-6 bridge these activities to Post-Trade Processes and Activities.
As an example, consider the following pre-trade scenario:
Investment manager is interested in executing a new equity trade. After performing the market research, she decides to BUY the equity XYZ for two clients Portfolio A and Portfolio B at market price.
She logs in to DECAF as a member of Trading Team ABC and keys in the Trade Order for the proposed trade at an indicative price USD 100 per share. After she creates the Trade Order, she performs a Trade Order Allocation for the two portfolios.
Both Portfolio A and Portfolio B have specific risk profile settings which impose certain compliance rules. Therefore, she checks whether execution of the trade order will result in a compliant portfolio or breach compliance rules.
After performing checks and verifying the financial action, she communicates the trade order to her counterparty via an email which is auto-generated by DECAF.
By this time, DECAF has all the necessary pre-trade records. Let's consider the successful execution of the trade order:
Backoffice is notified by the execution of the trade order at price USD 100.2/share. DECAF knows allocations. Therefore, it guides the user conveniently for marking the pending trade order as executed and booked. This results in the creation of ordinary trades in the system.
From this moment onwards, we know how DECAF works on trades and their transactions. Note that the custodian possibly is not yet informed, ie. the settlement is yet to happen but our exposure to the risk of the new position has started, hence the materialisation of positions in the portfolio.
Concepts
There are a few fundamental concepts to use Trade Order Management System effectively and efficitently.
Trading Team
Financial institutions may have dedicated trading desks. Each trading desk should be reflected as a Trading Team in the system. This allows DECAF to let users see only those trade orders which they are authorized to see.
Trade Order
A Trade Order is defined over a single trade idea such as Buy AAPL US Equity @ Market Price. Our trade order concept has necessary fields to capture further information such as validity time, order type, etc...
Trade Order Allocation
A Trade Order is usually agnostic to which client it is to be executed for OR which account it will be booked/settled into. Trade Order Allocation is directly related to the Trade Order to mark such information. There can be multiple allocations for a trade order. This gives further flexibility to place a single trade order for the entire amount, and then breaking it down to individual clients/accounts.
Trade Order Group
Users may wish to group multiple trade orders in to a bulk trade order to be communicated to the counterparty. Note that we are not referring to allocations. Such grouping is usually for multiple trade orders with varying instrument and/or trade types.
Trade Order Execution and Booking
Once the trade order is executed, trade order allocations are marked as executed. Since DECAF knows all relevant details, this is a very convenient process which requires only a few clicks for the end users to finish this booking process and enter the post-trade stage.
REMAP
REMAP can play an active role in execution and booking phases. If the business processes of our clients allow, execution and booking can be automated using REMAP.
Relationship to Other Functions and Features
We are in the process of polishing integration of Trade Order Management System to compliance and simulation engines.