Investment Operations

Comprehensive Securities and Derivatives Operations

Course Instructor

Course Level

Intermediate

Certification

Certificate

Delivery

Via Zoom

Hours (EST)

9:00 am - 1:00 pm​

Description

*This course can be offered upon request and can be customized to fit your team’s needs.

For Operations (and other non-front office) personnel, understanding the connectivity between different financial products, and the various transaction types which many firms execute in today’s financial marketplace, has never been more of a challenge. For a firm to maintain proper control of its assets (and/or assets owned by the firm’s clients), it is essential for the firm’s personnel to appreciate the nature of such financial products and the implications of executing trades via different transaction types.

For example, when a firm sells a security, of course the seller loses ownership whilst the buyer gains ownership, but who is the owner when (instead of selling) the firm gives that same security as collateral in (for example) a repo trade? In such a repo trade, both beneficial ownership and legal ownership is applicable – so which party (the giver or the taker of collateral) is entitled to any income falling due on such collateral? Furthermore, since the Global Financial Crisis in 2008, there has been a focus globally on counterparty risk management, resulting in a very significant increase in the importance of giving and taking collateral between parties to securities and derivative trades.

From an Operations perspective, initially it may well appear that there is little in the way of overlap between securities (equity and debt) operations and derivative operations. However, because Over the Counter (OTC) derivatives result in daily exposures, margin calls are issued by a firm to its counterparty, in-turn resulting in the giving and taking of cash collateral or securities collateral.  Where securities collateral is given in order to mitigate a counterparty’s OTC derivative trade exposures, this has an impact:

  1. on both the giver’s and the taker’s settled securities positions in their securities account at their central securities depository (CSD) or at their custodian
  2. on both the giver’s and the taker’s ability to reconcile their internal books & records compared with the statements of securities provided by their CSD or custodian
  3. on both the giver’s and the taker’s ability to accurately identify 1) entitlement to corporate action benefit events, and 2) which party the assets resulting from a corporate action are due from.

Consequently, there is clearly an overlap between normal securities operations activity (including the settlement of purchases and sales, repos and securities lending & borrowing), and normal derivative operations activity (specifically the giving and taking of securities collateral relating to OTC derivative exposures). From a firm’s perspective, in order to avoid serious errors which may result in financial damage and/or the loss of clients, it is paramount that Operations and other non-front office personnel possess clarity as to how and why securities collateral needs to be understood thoroughly.

Learning Objectives

The Comprehensive Securities and Derivative Operations virtual course is designed to provide a complete understanding of both securities operations and OTC derivative operations, including collateral processing), within a 4-day timeframe. The content of the course can be summarized as: Securities Operations (covering both equity and debt)

  1. The Securities Trade Lifecycle
  2. Securities Lending & Borrowing (and related collateral)
  3. Repo (and related collateral)
  4. Corporate Actions

Derivative Operations

  1. Fundamental concepts
  2. OTC Derivatives – first principles
  3. OTC Derivative products
  4. OTC Derivative exposures and collateral
  5. EMIR for OTC Derivatives – Central Clearing and Non-Centrally Cleared trades

Due to the number of important concepts covered within a relatively short timeframe of 4 days, the course is very fast-paced and is highly intensive. It provides a focus on factors enabling efficient operational processing by both buy-side and sell-side firms, the relationships between the various components, the risks at each step and the mitigating controls. The course takes a highly structured approach to explain the background of each topic, the principal purpose of the associated tasks, the lifecycle of steps for successful task completion, the related risks, and the mitigating controls.  Throughout the course, delegates have numerous opportunities to prove their understanding of concepts through multiple exercises and simulations.  The overriding aim is for each delegate to fully comprehend not only the overall picture but also the component parts that form the overall picture, under the new regulatory regime for OTC derivatives. The overriding objective of the Comprehensive Securities and Derivative Operations training course is for delegates to appreciate the connectivity between and the implications of the following aspects of financial products processing, including:

  1. The Securities Trade Lifecycle, covering both equity and debt
  2. Securities Lending & Borrowing and related collateral
  3. Repo transactions and related collateral
  4. Corporate Actions relating to each of the above
  5. OTC Derivative trade processing
  6. OTC Derivative exposures and related collateral
  7. OTC Derivative central clearing; impact on trade processing & collateral processing
  8. OTC Derivative non-centrally cleared trades; impact on trade processing & collateral processing

Who Should Attend

This course is suitable for those possessing a good level of understanding of either securities or derivatives processing and who are looking to gain an all-round understanding of how such products inter-relate. More specifically, this course is relevant to those currently working within a particular segment of derivative operations (e.g. trade processing, collateral management), but who would appreciate the “big-picture”, and how their role relates to that picture. Due to its broad content, besides operations personnel this course is also of value to those working within the following areas: Trading, Sales, Middle Office, Trade Confirmation/Affirmation, Securities Settlement, Reconciliation, Collateral Management, Risk Management, Compliance, Legal and IT. The course is equally applicable to people within institutional investment firms (e.g. pension funds, mutual funds, insurance companies) and investment banks, and to those working within central banks, derivative exchanges, central securities depositories, custodians and management consultants.

Prerequisite: The recommended minimum requirement is for delegates to possess either a solid understanding of: 1) securities trade processing, or 2) corporate actions processing, or 3) derivative trade processing, or 4) collateral processing.

Agenda

Day 1

The Securities Trade Lifecycle

  1. Overview
  2. Orders
  3. Trade Execution
  4. Trade Capture (Front Office)
  5. Trade Capture (Operations)
  6. Trade Enrichment
  7. Trade Agreement
  8. Settlement Instructions
  9. Settlement Instruction Statuses
  10. Failed Settlement
  11. Trade Settlement
  12. Updating Books & Records
  13. Reconciliation

Securities Bookkeeping

  1. Definition & Purpose
  2. Importance of Accurate Books & Records
  3. Double Entry Bookkeeping
  4. When Entries Must Be Passed: Trades
  5. When Entries Must Be Passed: Settlements
  6. Application in Different Transaction Types

Securities Lending & Borrowing

  1. Fundamental Concepts, including: a. Nature of the Trade b. Lender & Borrower Motivations c. Primary Trade Characteristics
  2. The SL&B Marketplace Participants: Lenders, Borrowers, Intermediaries
  3. Legal Documentation: Purpose and Use
  4. Characteristics of Lent/Borrowed Security
  5. SL&B and Associated Collateral: a. Collateral Concepts b. Margin c. Types of Collateral d. Asset Flows and Settlement Methods e. Margin Calls f. Collateral and SL&B Fees
  6. The SL&B Trade Lifecycle: Detail

Day 2

 Securities Lending & Borrowing    

  • Updating Books & Records    
  • Accessing the SL&B Marketplace
  1. Bilateral
  2. via ICSDs
  3. via Global Custodians
  4. via Third-Party Lending Agents
  5. via Central Counterparties
  • SL&B and Corporate Actions
  1. Corporate Actions: Overview
  2. Treatment of CA on Lent/Borrowed Securities
  3. Treatment of CA on Securities Collateral
  4. Voting Rights and Withholding Tax

Repo

  • Fundamental Concepts:
    1. Nature of the Trade
    2. Cash Lender & Borrower Motivations
    3. Repo vs Reverse Repo
    4. Primary Trade Characteristics
  • Legal Documentation
  • Cash-Based Repo:
    1. Introduction
    2. Marketplace Participants
    3. Cost of Repo
    4. Collateral in Repo
    5. Asset Flows and Settlement Methods
  • Classic Bilateral Repo:
    1. Trade Execution
    2. Rate Format
    3. Interest Calculation
    4. Term vs Open Repo
    5. Settlement Cycle
    6. Trade Tenure
    7. Eligible Collateral
    8. General Collateral (and Special Collateral)
    9. Haircut and Initial Margin
    10. Trade Confirmation
    11. Updating Books & Records
    12. Revaluation of Collateral and Exposure Calculation
    13. Making & Receiving Margin Calls
    14. Ownership, Reuse & Holding of Securities Collateral
    15. Return of ‘Equivalent’ Assets
    16. Collateral Substitution
    17. Income Events

Corporate Actions 

  • Definition, Purpose & Impacted Parties
  • Initiation and Ultimate Impact
  • Major Risks to Financial Institutions
  • Definition, Purpose & Impacted Parties
  • Initiation and Ultimate Impact
  • Corporate Action Lifecycles
    1. Overview
    2. Mandatory
    3. Optional
    4. Voluntary

Day 3

Corporate Actions (continued…)

  • Event Type Characteristics & Impacts
    1. Cash Dividends
    2. Currency Option Dividends
    3. Dividend Reinvestment Plans
    4. Coupon Payments (Fixed-Rate)
    5. Coupon Payments (Floating-Rate)
    6. Bonus Issues
    7. Stock Splits
    8. Reverse Splits
    9. Odd-Lot Offers
    10. Bond Conversion
    11. Final Maturities
    12. Partial Redemptions
    13. Early Redemptions
    14. Voluntary Redemptions
    15. Rights Issues
  • Ascertaining Entitlement
    1. Benefit Events (Ex-Dividend Date vs Record Date)
  • Tax on Income Events: Overview
    1. Withholding Tax
    2. Treaty, Non-Treaty and Exempt Rates
    3. Ensuring Correct Tax Rates are Applied
    4. Over-Taxation
  • Optional & Voluntary Event Lifecycles: Overview
  • Optional & Voluntary vs Mandatory Event Processing

Derivative Fundamentals

  • Definition & Purpose
  • The Derivatives Marketplace
  • Basic Derivative Types
  • Investment Appeal of Derivatives

OTC Derivatives

  • Structural Aspects of OTC Derivatives
    1. Parties, Tenure, Notional Principal, Rates
    2. Dates, Settlement, Exiting
  • Legal Documentation
    1. Overview of ISDA Master,
    2. Schedule, Credit Support Annex

OTC Derivative Products & Their Processing Characteristics

  • Introduction
  • Interest Rate Swaps
  • Credit Default Swaps

Day 4

Collateral Management for OTC Derivatives

  • Collateral Concepts for OTC Derivatives
  • Collateral Impact on Regulatory Capital
  • OTCD Collateral Lifecycle: Overview
  • Cash & Bond Collateral for OTC Derivatives
  • Credit Support Annex: Detail

The OTC Derivative Collateral Lifecycle

  • Introduction
  • Pre-Trading
    1. Legal Documentation
    2. Static Data
  • Trading
    1. Trade Execution
    2. Trade Capture
    3. Trade Confirmation
  • Throughout the Lifetime of Trade
    1. Trade/Portfolio Reconciliation
    2. Marking-to-Market
    3. Margin Call Calculation (incl. Simulation)
    4. Making & Receiving Margin Calls
    5. Collateral Substitution
    6. Income & Corporate Actions
  • Trade Termination

Regulatory Change for OTC Derivatives

  • Overview of Required Regulatory Changes
  • Background to Changes
  • Organizations Initiating Changes
  • EMIR and Dodd-Frank
  • Trading on Exchanges: Overview
  • Central Clearing: Overview
  • Trade Repositories: Overview

Central Clearing: Impact on Trade Processing and Collateral Management

  • Central Clearing Primary Concepts
  • Central Counterparty Membership Structure
  • Multiple Central Counterparty Implications
  • Risk Management within Central Counterparties
  • Operational Implications of Central Clearing
  • Legacy Trades
  • Legal Documentation
  • Central Counterparty Supervision

Non-Centrally Cleared (Uncleared) Trades: Overview

  • Definition
  • EMIR Margin Requirements
    1. Initial Margin Requirement
    2. Variation Margin Requirements
  • EMIR Further Risk Mitigation Measures
    1. Trade Confirmation
    2. Portfolio Compression
    3. Portfolio Reconciliation
    4. Dispute Resolution
    5. Trade Valuation

Summary and questions

$1,895.00

In-House Training

Custom Training can help you achieve your corporate training goals while staying on budget and focusing the content on the needs of your group. Email your questions regarding corporate training to training@investmentoperations.net.

2023 Training Calendar

Training Catalogue

Course Instructor

Course Level

Intermediate

Certification

Certificate

Delivery

Via Zoom

Hours (EST)

9:00 am - 1:00 pm​

$1,895.00

Description

*This course can be offered upon request and can be customized to fit your team’s needs.

For Operations (and other non-front office) personnel, understanding the connectivity between different financial products, and the various transaction types which many firms execute in today’s financial marketplace, has never been more of a challenge. For a firm to maintain proper control of its assets (and/or assets owned by the firm’s clients), it is essential for the firm’s personnel to appreciate the nature of such financial products and the implications of executing trades via different transaction types.

For example, when a firm sells a security, of course the seller loses ownership whilst the buyer gains ownership, but who is the owner when (instead of selling) the firm gives that same security as collateral in (for example) a repo trade? In such a repo trade, both beneficial ownership and legal ownership is applicable – so which party (the giver or the taker of collateral) is entitled to any income falling due on such collateral? Furthermore, since the Global Financial Crisis in 2008, there has been a focus globally on counterparty risk management, resulting in a very significant increase in the importance of giving and taking collateral between parties to securities and derivative trades.

From an Operations perspective, initially it may well appear that there is little in the way of overlap between securities (equity and debt) operations and derivative operations. However, because Over the Counter (OTC) derivatives result in daily exposures, margin calls are issued by a firm to its counterparty, in-turn resulting in the giving and taking of cash collateral or securities collateral.  Where securities collateral is given in order to mitigate a counterparty’s OTC derivative trade exposures, this has an impact:

  1. on both the giver’s and the taker’s settled securities positions in their securities account at their central securities depository (CSD) or at their custodian
  2. on both the giver’s and the taker’s ability to reconcile their internal books & records compared with the statements of securities provided by their CSD or custodian
  3. on both the giver’s and the taker’s ability to accurately identify 1) entitlement to corporate action benefit events, and 2) which party the assets resulting from a corporate action are due from.

Consequently, there is clearly an overlap between normal securities operations activity (including the settlement of purchases and sales, repos and securities lending & borrowing), and normal derivative operations activity (specifically the giving and taking of securities collateral relating to OTC derivative exposures). From a firm’s perspective, in order to avoid serious errors which may result in financial damage and/or the loss of clients, it is paramount that Operations and other non-front office personnel possess clarity as to how and why securities collateral needs to be understood thoroughly.

Learning Objectives

The Comprehensive Securities and Derivative Operations virtual course is designed to provide a complete understanding of both securities operations and OTC derivative operations, including collateral processing), within a 4-day timeframe. The content of the course can be summarized as: Securities Operations (covering both equity and debt)

  1. The Securities Trade Lifecycle
  2. Securities Lending & Borrowing (and related collateral)
  3. Repo (and related collateral)
  4. Corporate Actions

Derivative Operations

  1. Fundamental concepts
  2. OTC Derivatives – first principles
  3. OTC Derivative products
  4. OTC Derivative exposures and collateral
  5. EMIR for OTC Derivatives – Central Clearing and Non-Centrally Cleared trades

Due to the number of important concepts covered within a relatively short timeframe of 4 days, the course is very fast-paced and is highly intensive. It provides a focus on factors enabling efficient operational processing by both buy-side and sell-side firms, the relationships between the various components, the risks at each step and the mitigating controls. The course takes a highly structured approach to explain the background of each topic, the principal purpose of the associated tasks, the lifecycle of steps for successful task completion, the related risks, and the mitigating controls.  Throughout the course, delegates have numerous opportunities to prove their understanding of concepts through multiple exercises and simulations.  The overriding aim is for each delegate to fully comprehend not only the overall picture but also the component parts that form the overall picture, under the new regulatory regime for OTC derivatives. The overriding objective of the Comprehensive Securities and Derivative Operations training course is for delegates to appreciate the connectivity between and the implications of the following aspects of financial products processing, including:

  1. The Securities Trade Lifecycle, covering both equity and debt
  2. Securities Lending & Borrowing and related collateral
  3. Repo transactions and related collateral
  4. Corporate Actions relating to each of the above
  5. OTC Derivative trade processing
  6. OTC Derivative exposures and related collateral
  7. OTC Derivative central clearing; impact on trade processing & collateral processing
  8. OTC Derivative non-centrally cleared trades; impact on trade processing & collateral processing

Who Should Attend

This course is suitable for those possessing a good level of understanding of either securities or derivatives processing and who are looking to gain an all-round understanding of how such products inter-relate. More specifically, this course is relevant to those currently working within a particular segment of derivative operations (e.g. trade processing, collateral management), but who would appreciate the “big-picture”, and how their role relates to that picture. Due to its broad content, besides operations personnel this course is also of value to those working within the following areas: Trading, Sales, Middle Office, Trade Confirmation/Affirmation, Securities Settlement, Reconciliation, Collateral Management, Risk Management, Compliance, Legal and IT. The course is equally applicable to people within institutional investment firms (e.g. pension funds, mutual funds, insurance companies) and investment banks, and to those working within central banks, derivative exchanges, central securities depositories, custodians and management consultants.

Prerequisite: The recommended minimum requirement is for delegates to possess either a solid understanding of: 1) securities trade processing, or 2) corporate actions processing, or 3) derivative trade processing, or 4) collateral processing.

Agenda

Day 1

The Securities Trade Lifecycle

  1. Overview
  2. Orders
  3. Trade Execution
  4. Trade Capture (Front Office)
  5. Trade Capture (Operations)
  6. Trade Enrichment
  7. Trade Agreement
  8. Settlement Instructions
  9. Settlement Instruction Statuses
  10. Failed Settlement
  11. Trade Settlement
  12. Updating Books & Records
  13. Reconciliation

Securities Bookkeeping

  1. Definition & Purpose
  2. Importance of Accurate Books & Records
  3. Double Entry Bookkeeping
  4. When Entries Must Be Passed: Trades
  5. When Entries Must Be Passed: Settlements
  6. Application in Different Transaction Types

Securities Lending & Borrowing

  1. Fundamental Concepts, including: a. Nature of the Trade b. Lender & Borrower Motivations c. Primary Trade Characteristics
  2. The SL&B Marketplace Participants: Lenders, Borrowers, Intermediaries
  3. Legal Documentation: Purpose and Use
  4. Characteristics of Lent/Borrowed Security
  5. SL&B and Associated Collateral: a. Collateral Concepts b. Margin c. Types of Collateral d. Asset Flows and Settlement Methods e. Margin Calls f. Collateral and SL&B Fees
  6. The SL&B Trade Lifecycle: Detail

Day 2

 Securities Lending & Borrowing    

  • Updating Books & Records    
  • Accessing the SL&B Marketplace
  1. Bilateral
  2. via ICSDs
  3. via Global Custodians
  4. via Third-Party Lending Agents
  5. via Central Counterparties
  • SL&B and Corporate Actions
  1. Corporate Actions: Overview
  2. Treatment of CA on Lent/Borrowed Securities
  3. Treatment of CA on Securities Collateral
  4. Voting Rights and Withholding Tax

Repo

  • Fundamental Concepts:
    1. Nature of the Trade
    2. Cash Lender & Borrower Motivations
    3. Repo vs Reverse Repo
    4. Primary Trade Characteristics
  • Legal Documentation
  • Cash-Based Repo:
    1. Introduction
    2. Marketplace Participants
    3. Cost of Repo
    4. Collateral in Repo
    5. Asset Flows and Settlement Methods
  • Classic Bilateral Repo:
    1. Trade Execution
    2. Rate Format
    3. Interest Calculation
    4. Term vs Open Repo
    5. Settlement Cycle
    6. Trade Tenure
    7. Eligible Collateral
    8. General Collateral (and Special Collateral)
    9. Haircut and Initial Margin
    10. Trade Confirmation
    11. Updating Books & Records
    12. Revaluation of Collateral and Exposure Calculation
    13. Making & Receiving Margin Calls
    14. Ownership, Reuse & Holding of Securities Collateral
    15. Return of ‘Equivalent’ Assets
    16. Collateral Substitution
    17. Income Events

Corporate Actions 

  • Definition, Purpose & Impacted Parties
  • Initiation and Ultimate Impact
  • Major Risks to Financial Institutions
  • Definition, Purpose & Impacted Parties
  • Initiation and Ultimate Impact
  • Corporate Action Lifecycles
    1. Overview
    2. Mandatory
    3. Optional
    4. Voluntary

Day 3

Corporate Actions (continued…)

  • Event Type Characteristics & Impacts
    1. Cash Dividends
    2. Currency Option Dividends
    3. Dividend Reinvestment Plans
    4. Coupon Payments (Fixed-Rate)
    5. Coupon Payments (Floating-Rate)
    6. Bonus Issues
    7. Stock Splits
    8. Reverse Splits
    9. Odd-Lot Offers
    10. Bond Conversion
    11. Final Maturities
    12. Partial Redemptions
    13. Early Redemptions
    14. Voluntary Redemptions
    15. Rights Issues
  • Ascertaining Entitlement
    1. Benefit Events (Ex-Dividend Date vs Record Date)
  • Tax on Income Events: Overview
    1. Withholding Tax
    2. Treaty, Non-Treaty and Exempt Rates
    3. Ensuring Correct Tax Rates are Applied
    4. Over-Taxation
  • Optional & Voluntary Event Lifecycles: Overview
  • Optional & Voluntary vs Mandatory Event Processing

Derivative Fundamentals

  • Definition & Purpose
  • The Derivatives Marketplace
  • Basic Derivative Types
  • Investment Appeal of Derivatives

OTC Derivatives

  • Structural Aspects of OTC Derivatives
    1. Parties, Tenure, Notional Principal, Rates
    2. Dates, Settlement, Exiting
  • Legal Documentation
    1. Overview of ISDA Master,
    2. Schedule, Credit Support Annex

OTC Derivative Products & Their Processing Characteristics

  • Introduction
  • Interest Rate Swaps
  • Credit Default Swaps

Day 4

Collateral Management for OTC Derivatives

  • Collateral Concepts for OTC Derivatives
  • Collateral Impact on Regulatory Capital
  • OTCD Collateral Lifecycle: Overview
  • Cash & Bond Collateral for OTC Derivatives
  • Credit Support Annex: Detail

The OTC Derivative Collateral Lifecycle

  • Introduction
  • Pre-Trading
    1. Legal Documentation
    2. Static Data
  • Trading
    1. Trade Execution
    2. Trade Capture
    3. Trade Confirmation
  • Throughout the Lifetime of Trade
    1. Trade/Portfolio Reconciliation
    2. Marking-to-Market
    3. Margin Call Calculation (incl. Simulation)
    4. Making & Receiving Margin Calls
    5. Collateral Substitution
    6. Income & Corporate Actions
  • Trade Termination

Regulatory Change for OTC Derivatives

  • Overview of Required Regulatory Changes
  • Background to Changes
  • Organizations Initiating Changes
  • EMIR and Dodd-Frank
  • Trading on Exchanges: Overview
  • Central Clearing: Overview
  • Trade Repositories: Overview

Central Clearing: Impact on Trade Processing and Collateral Management

  • Central Clearing Primary Concepts
  • Central Counterparty Membership Structure
  • Multiple Central Counterparty Implications
  • Risk Management within Central Counterparties
  • Operational Implications of Central Clearing
  • Legacy Trades
  • Legal Documentation
  • Central Counterparty Supervision

Non-Centrally Cleared (Uncleared) Trades: Overview

  • Definition
  • EMIR Margin Requirements
    1. Initial Margin Requirement
    2. Variation Margin Requirements
  • EMIR Further Risk Mitigation Measures
    1. Trade Confirmation
    2. Portfolio Compression
    3. Portfolio Reconciliation
    4. Dispute Resolution
    5. Trade Valuation

Summary and questions

In-House Training

Custom Training can help you achieve your corporate training goals while staying on budget and focusing the content on the needs of your group. Email your questions regarding corporate training to training@investmentoperations.net.

2023 Training Calendar

Training Catalogue

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