Trade Life Cycle

Let’s understand the stages of Trade Life Cycle for the debt market instruments/ trades. Here let’s break down the stages of the TLC for a Bond trade using a Corporate Bond trade as an example. Let’s take and example of a Tesla Inc. (TSLA) corporate bond. Tesla is an well-known issuer in the bond market and it has a variety of bonds with different maturities and coupon rates. Here are the steps and description of the Trade Life Cycle.

1. Trade Planning:- The trade planning phase is about strategy and analysis. Here, traders analys

1. e market conditions, bond pricing, Tesla's credit profile, and investor objectives to decide the right bond to buy or sell.A portfolio manager or bond trader will assess Tesla’s bond issues, such as its 5.3% 2025 bond, and evaluate factors like yield, credit rating, and economic outlook.

2. Trade Agreement:- Parties (buyer and seller) reach a formal agreement on terms—price, quantity, and other conditions of the trade.The buyer and seller (could be an institutional investor and a bond dealer) agree on purchasing 1000 Tesla bonds with a 5.3% coupon at a price of 98.50 (98.5% of face value), with a settlement date of T+2.

3. Trade Execution:-The agreed terms are executed, and the bond trade is entered into a trading platform.A trader places the order on an electronic trading platform like Bloomberg and executing the bond trade at the agreed price of $985,000 for 1000 bonds.

4. Trade Capture:- Trade details are captured in internal systems to ensure both parties have a record of the transaction.The trade is recorded in the Trade Capture System, including key data such as the bond’s ISIN, trade price, quantity, coupon, and settlement date.

5. Trade Enrichment:- Additional information, such as accrued interest, settlement instructions, and counterparty details, is added to the trade record.The system calculates accrued interest based on the bond’s last coupon date and the trade date, and enriches the record with this data along with relevant settlement instructions (e.g., to Clearstream or DTCC).

6. Trade Validation:- Validating trade details ensures the accuracy of the transaction and that there are no discrepancies.The system cross-checks the trade details for consistency (e.g., price, quantity, and bond type) and flags any mismatches for review by the trade support team.

7. Trade Reporting Internal:- Reporting internally to relevant teams for risk monitoring, compliance checks, and capital charge assessments.The trading desk reports the executed bond trade to risk management and compliance teams, who assess the impact on the portfolio and ensure regulatory adherence.

8. Trade Confirmation:- Both parties confirm the terms of the trade to ensure alignment before proceeding to the next stage.A trade confirmation message is sent to both buyer and seller via systems like SWIFT or FpML, confirming the bond, price, and settlement date.

9. Trade Affirmation:- The counterparties confirm the trade’s details, often using a Trade Matching platform (e.g., DTCC).

Both parties affirm the bond trade details, ensuring everything is correct and in agreement before moving to settlement.

10. Trade Pre-Settlement:- Preparations are made to transfer the bond and funds, including final checks on position, collateral, and liquidity. Final confirmation on fund availability and securities availability is made. This stage also involves ensuring the required cash and securities are ready for delivery.

11. Trade Settlement:- The exchange of cash and securities takes place.The buyer transfers the agreed amount of $985,000 to the seller, while the seller delivers the 1000 Tesla bonds to the buyer’s custodial account. Settlement occurs via CSDs like Euroclear or Clearstream on the agreed settlement date (T+2).

12. Trade Post-Settlement:- Post-settlement activities such as updating ownership records, collecting accrued interest, and monitoring for corporate actions (e.g., coupons, calls).The buyer is now entitled to receive coupon payments for Tesla bonds. Ownership records are updated in the CSD or custodian system. If any corporate actions occur (e.g., bond call), the buyer is notified.

13. Trade Fund Accounting:- Proper accounting and reporting of the trade, particularly its impact on portfolio valuations.The buyer’s fund accounting system updates the portfolio’s NAV (Net Asset Value) to reflect the new bond holding and the bond’s coupon accruals.

14. Trade Reporting External:- Reporting the trade to external entities like regulatory authorities, trade repositories, or clearinghouses. The trade is reported to regulators (e.g., FINRA in the U.S.) and external trade repositories for transparency and compliance with regulations like MiFID II or Dodd-Frank.

15.Risk Management:- Ongoing monitoring of risk, including market risk, credit risk, and liquidity risk, associated with holding the bond.Risk management teams continuously assess the risk profile of the Tesla bond in the portfolio, monitoring market movements, interest rate changes, and credit rating updates for Tesla.