Financial Markets Operations Management -- Contents -- Preface -- Acknowledgements -- PART ONE -- 1 Introduction to Operations -- 1.1 Introduction -- 1.2 Organisational Structure of an Investment Company -- 1.2.1 Front Office -- 1.2.2 Middle Office -- 1.2.3 Back Office/Operations -- 1.3 Operations Relationships -- 1.3.1 Clients - External -- 1.3.2 Clients - Internal -- 1.3.3 Counterparties -- 1.3.4 Suppliers -- 1.3.5 The Authorities -- 1.4 Other Business Functions -- 1.5 Summary -- 2 Financial Instruments -- 2.1 Introduction -- 2.2 Why Do We Issue Financial Instruments? -- 2.3 Money Market Instruments -- 2.3.1 Euro-Currency Deposits -- 2.3.2 Certificates of Deposit -- 2.3.3 Commercial Paper -- 2.3.4 Treasury Bills -- 2.4 Debt Instruments -- 2.4.1 A Bond Defined -- 2.4.2 Bond Issuance -- 2.4.3 Types and Features of Bonds -- 2.4.4 Other Key Characteristics of Bonds -- 2.4.5 Types of Bond -- 2.4.6 Form of Bonds and Interest Payment -- 2.4.7 Maturity and Redemption Provisions -- 2.4.8 Calculations -- 2.4.9 Accrued Interest -- 2.4.10 First Short Coupon -- 2.4.11 First Long Coupon -- 2.5 Equity Instruments -- 2.5.1 Equity Defined -- 2.5.2 Classes of Equity -- 2.5.3 Equity Issuance -- 2.5.4 Pricing and Calculations -- 2.5.5 Examples of Local Taxes -- 2.5.6 Disclosure -- 2.5.7 Summary of Cash Market Instruments -- 2.6 Derivative Instruments -- 2.6.1 Introduction -- 2.6.2 Definitions -- 2.6.3 Derivative Usage -- 2.7 Exchange-Traded Derivatives -- 2.7.1 Introduction -- 2.7.2 The Role of the Derivatives Exchanges -- 2.7.3 Major Derivatives Exchanges -- 2.7.4 Open Interest and Trading Volumes -- 2.7.5 Futures -- 2.7.6 Options -- 2.7.7 Summary of Exchange-Traded Derivatives -- 2.8 OTC Derivatives -- 2.8.1 Introduction -- 2.8.2 Forwards -- 2.8.3 Swaps -- 2.8.4 Summary of OTC Derivatives -- 2.9 Summary -- 2.9.1 Financial Products in General.

2.9.2 Cash Markets -- 2.9.3 Derivatives Markets -- 3 Data Management -- 3.1 Introduction -- 3.2 Importance of Reference Data and Standardisation -- 3.2.1 Introduction -- 3.2.2 Basic Securities Transactions -- 3.3 Types of Reference Data -- 3.3.1 Required Reference Data -- 3.3.2 Data Requirements - Securities -- 3.3.3 Data Requirements - Counterparties and Customers -- 3.3.4 Data Requirements - Settlement Information -- 3.3.5 Sources of Reference Data -- 3.4 Data Management -- 3.4.1 What is Data Management? -- 3.4.2 Approaches to Data Management -- 3.4.3 Data Processing -- 3.5 Legal Entity Identification -- 3.5.1 Background to Legal Entity Identification -- 3.5.2 The "Legal Entity" -- 3.5.3 The Global Legal Entity Identifier System (GLEIS) -- 3.5.4 LEI Structure -- 3.6 Summary -- 4 Market Participation -- 4.1 Introduction -- 4.2 Market Players -- 4.2.1 Retail Clients -- 4.2.2 Institutional Clients -- 4.2.3 Banks -- 4.2.4 Sell-Side Intermediaries -- 4.2.5 Market Regulators and Market Associations -- 4.3 Market Structure -- 4.3.1 Introduction -- 4.3.2 Regulated Markets -- 4.3.3 Alternative Trading Venues -- 4.3.4 Over-the-Counter Market -- 4.4 Summary -- PART TWO -- 5 Clearing Houses and CCPs -- 5.1 Introduction -- 5.2 Overview of Clearing and Settlement -- 5.3 The Clearing House Model -- 5.4 The Central Counterparty Model -- 5.4.1 Risk Management -- 5.5 Features of CCPs and Clearing Houses -- 5.5.1 The Committee for Payment and Settlement Systems Statistics -- 5.6 Summary -- 6 Securities Depositories (CSDs and ICSDs) -- 6.1 Introduction -- 6.2 Historical Context -- 6.3 Definitions -- 6.3.1 Domestic (Local/National) CSDs -- 6.3.2 International CSDs -- 6.4 Central Securities Depositories -- 6.4.1 Features of CSDs and ICSDs -- 6.4.2 Functions of CSDs -- 6.4.3 The Changing World of CSDs -- 6.4.4 CSD Links and Interoperability.

6.5 International Central Securities Depositories -- 6.5.1 Background -- 6.5.2 Features of the ICSDs -- 6.5.3 Clearstream Banking Luxembourg (CBL) -- 6.5.4 Euroclear Bank (EB) -- 6.6 Linkages - Exchanges, Clearing Systems and CSDs -- 6.6.1 United States of America -- 6.6.2 Europe -- 6.6.3 Rest of the World -- 6.7 CSD Associations -- 6.7.1 Introduction -- 6.7.2 Americas Central Securities Depositories Association (ACSDA) -- 6.7.3 Asia-Pacific CSD Group (ACG) -- 6.7.4 Association of Eurasian Central Securities Depositories (AECSD) -- 6.7.5 European Central Securities Depositories Association (ECSDA) -- 6.7.6 Africa and Middle East Depositories Association (AMEDA) -- 6.8 Summary -- 7 Securities Clearing -- 7.1 Introduction -- 7.2 Generic Clearing Cycle -- 7.2.1 Trade Capture -- 7.2.2 Trade Enrichment and Validation -- 7.2.3 Trade Reporting -- 7.2.4 Confirmation and Affirmation -- 7.2.5 Clearing Instructions -- 7.2.6 Forecasting - Cash -- 7.2.7 Forecasting - Securities -- 7.3 Trade Capture -- 7.3.1 Dealers Blotter -- 7.3.2 Trade Input -- 7.3.3 Trade Output -- 7.4 Trade Enrichment and Validation -- 7.5 Regulatory Reporting -- 7.5.1 Background -- 7.5.2 Transaction Reporting -- 7.5.3 Transaction-Reporting Mechanism -- 7.5.4 Trade Repositories -- 7.6 Confirmation and Affirmation -- 7.6.1 Confirmations -- 7.6.2 Affirmation -- 7.7 Clearing Instructions -- 7.7.1 Types of Instruction -- 7.7.2 Instruction Validation -- 7.7.3 Instruction Matching -- 7.8 Forecasting - Cash -- 7.8.1 Introduction -- 7.8.2 Timing Issues -- 7.8.3 Cash Forecasting Methodology -- 7.8.4 Funding Uncertainties -- 7.8.5 Benefits of Predictive Forecasting -- 7.9 Forecasting - Securities -- 7.9.1 Introduction -- 7.9.2 Securities that are Available for Delivery -- 7.9.3 Securities that are Not Available for Delivery -- 7.10 Summary -- 8 Settlement and Fails Management -- 8.1 Introduction.

8.2 The Different Types of Settlement -- 8.2.1 Gross Settlement -- 8.2.2 Net Settlement -- 8.3 Delivery versus Payment -- 8.3.1 Definition of DVP -- 8.3.2 DVP Models -- 8.3.3 Settlement Instructions for DVP -- 8.4 Free of Payment Settlement -- 8.4.1 Settlement Instructions for Free of Payment -- 8.4.2 Where Settlement Takes Place -- 8.4.3 Settlement Conventions -- 8.5 Settlement Fails -- 8.5.1 Overview of Settlement Failure -- 8.5.2 Why Transactions Fail to Settle -- 8.6 The Move to Shorter Settlement Cycles -- 8.6.1 Background -- 8.6.2 Project Status -- 8.7 Summary -- 9 Derivatives Clearing and Settlement -- 9.1 Introduction -- 9.2 Regulatory Changes -- 9.2.1 Background -- 9.2.2 Financial Stability Board (FSB) -- 9.2.3 Reform Requirements -- 9.3 Exchange-Traded Derivatives Contracts -- 9.3.1 Introduction -- 9.3.2 Derivatives Exchange and Clearing System -- 9.3.3 Give-Up Agreements -- 9.3.4 Clearing Process -- 9.3.5 Margin Calculations -- 9.3.6 Initial Margin - Eligible Assets -- 9.4 Cleared OTC Derivatives Contracts -- 9.4.1 Types of OTC Derivative that are Cleared Centrally -- 9.4.2 Trading Platforms -- 9.4.3 Trade Repositories -- 9.4.4 Central Counterparties -- 9.5 Non-Cleared OTC Derivatives Contracts -- 9.5.1 Documentation -- 9.5.2 Non-Cleared OTCD Processing -- 9.5.3 Trade Capture -- 9.5.4 Confirmation -- 9.5.5 Settlement -- 9.5.6 Collateral -- 9.5.7 Event Monitoring -- 9.5.8 Reconciliation -- 9.6 Summary -- PART THREE -- 10 Custody and the Custodians -- 10.1 Introduction -- 10.2 Custody -- 10.2.1 What is Custody? -- 10.2.2 Forms of Securities -- 10.2.3 Ownership Transfer - Bearer Securities -- 10.2.4 Ownership Transfer - Registered Securities -- 10.3 Holding Securities -- 10.3.1 Register in the Custodians Name -- 10.3.2 Nominee Account -- 10.3.3 CSD Nominee -- 10.3.4 Safekeeping Methods - Summary -- 10.4 The Custodians.

10.4.1 Custody in a Local Market -- 10.4.2 Custody in Global Markets -- 10.4.3 Custody in the EuroMarkets -- 10.5 Target2Securities (T2S) -- 10.5.1 Introduction -- 10.5.2 Eurosystem -- 10.5.3 How T2S Will Work -- 10.5.4 Migration Plan -- 10.5.5 Further Information -- 10.6 Summary -- 11 Corporate Actions -- 11.1 Introduction -- 11.2 Types of Corporate Action Event -- 11.2.1 Voluntary or Mandatory Events -- 11.2.2 Predictable or Announced Events -- 11.3 Participation in Corporate Actions -- 11.3.1 Fund Manager -- 11.3.2 Global Custodian -- 11.3.3 LocalSub-Custodian -- 11.3.4 Local Central Securities Depository -- 11.3.5 International Central Securities Depository -- 11.3.6 Data Vendors -- 11.3.7 Receiving/Paying Agent -- 11.4 Entitlements, Key Dates and Claims -- 11.4.1 Entitlement -- 11.4.2 Record Date -- 11.4.3 Ex-Dividend Date -- 11.4.4 Payment Date -- 11.4.5 Claims -- 11.4.6 Key Dates for Bonds -- 11.5 Corporate Action Event Processing -- 11.5.1 Introduction -- 11.5.2 Cash Dividend -- 11.5.3 Optional Stock Dividend -- 11.5.4 Fixed-Income Bond Coupon -- 11.5.5 Floating-Rate Note (FRN) Coupon and Rate Reset -- 11.5.6 Bond Redemption -- 11.5.7 Bond Conversion -- 11.5.8 Capitalisation (Bonus) Issue -- 11.5.9 Rights Issue -- 11.5.10 Other Examples of Event Types -- 11.6 Information Flows -- 11.6.1 Introduction -- 11.6.2 The Communication Problem -- 11.6.3 Global Communication Chain -- 11.6.4 Local Communication Chain -- 11.6.5 International Central Securities Depository Chain -- 11.6.6 Summary -- 11.7 Corporate Action Risks -- 11.7.1 Introduction -- 11.7.2 DataInformation Capture Risk -- 11.7.3 Replacement Risk -- 11.7.4 Decision-Making/Election Risk -- 11.7.5 Reputational Risk -- 11.7.6 Reconciliation Risk -- 11.8 Industry Initiatives -- 11.8.1 Introduction -- 11.8.2 The International Securities Services Association (ISSA) -- 11.8.3 Giovannini Group.

11.8.4 European Central Securities Depositories Association (ECSDA).