The Investment Industry for IT Practitioners: An Introductory Guide -- Contents -- Introduction -- Acknowledgements -- PART ONE INVESTMENTS AND SECURITIES EXPLAINED -- 1 An Introduction to Financial Instruments -- 1.1 Introduction -- 2 Equities -- 2.1 Listed and unlisted equities -- 2.2 Multi-listed securities -- 2.3 The issuance of listed equities - the primary market -- 2.4 The secondary market in equities -- 2.4.1 Trade prices in the secondary market -- 2.4.2 Secondary market terminology -- 2.4.3 Forms of securities -- 3 Debt Instruments -- 3.1 Types of debt instruments -- 3.1.1 Straight bonds -- 3.1.2 Floating rate notes (FRNs) -- 3.1.3 Zero coupon bonds -- 3.1.4 Asset-backed securities -- 3.1.5 Index linked bonds -- 3.1.6 Convertible bonds -- 3.1.7 Bonds with warrants attached -- 3.1.8 Bills -- 3.2 Accrued interest on bonds in the secondary market -- 3.3 More trade terminology -- 3.4 How prices are formed in the secondary market -- 3.4.1 The yield curve -- 3.4.2 The importance of a credit rating and the role of the rating agencies -- 4 Cash -- 4.1 Cash as a means of exchange -- 4.1.1 Interest calculation methods for currencies -- 4.2 Cash as an investment class -- 4.2.1 Foreign exchange transactions -- 4.2.2 Money market loans and deposits -- 4.3 More trade terminology -- 5 Derivatives -- 5.1 Exchange traded derivative contracts -- 5.1.1 Traded options -- 5.1.2 Exchange traded futures -- 5.2 More trade terminology -- 5.3 OTC derivatives -- 5.3.1 Interest rate swaps -- 5.3.2 Other OTC derivatives in brief -- 6 Common Attributes of Financial Instruments -- 6.1 Summary of all trade terminology used in Chapters 1 to 5 -- 6.2 Summary of basic trade arithmetic for transactions in securities, futures and options -- 6.2.1 Calculating the principal value of a trade -- 6.2.2 Calculating the consideration -- 7 Market Participants -- 7.1 Introduction.

7.2 Investors -- 7.3 Institutional fund managers -- 7.4 Private client stockbrokers and investment managers -- 7.5 Investment banks that accept and execute orders from investors -- 7.5.1 Investment banks' business activities -- 7.5.2 A typical application systems configuration for an investment bank -- 7.6 Investment exchanges -- 7.6.1 The world's major investment exchanges -- 7.6.2 Connecting to stock exchange trading systems -- 7.7 Settlement agents -- 7.7.1 Clearing houses or central counterparties -- 7.7.2 Central securities depositaries and international central securities depositaries -- 7.7.3 Commercial custodians -- 7.8 Other market participants -- 7.8.1 Information vendors -- 7.8.2 Money brokers -- 7.8.3 Stock lending intermediaries -- 7.8.4 Registrars and transfer agents -- 8 How Investment Firms are Regulated -- 8.1 Introduction -- 8.2 Objectives of regulation -- 8.3 The global perspective -- 8.3.1 The Bank for International Settlements (BIS) and the Basel Accord -- 8.4 The European perspective -- 8.4.1 The European Capital Adequacy Directive (CAD) -- 8.4.2 The Markets in Financial Instruments Directive (MiFID) -- 8.5 The UK perspective - the role of the financial services authority -- 8.6 Specific offences in the United Kingdom -- 8.6.1 Insider dealing -- 8.6.2 Market abuse -- 8.6.3 Money laundering -- 8.7 Regulation and its impact on the IT function -- 8.7.1 Impact on the application configuration -- 8.7.2 Impact on the way that the department is managed -- 8.7.3 Other regulations that affect the IT department -- 9 Straight-Through-Processing -- 9.1 Introduction -- 9.1.1 Client orders and their contents -- 9.1.2 Buy-side and sell-side connectivity -- 9.2 To what extent is STP actually achieved in practice? -- 10 The Role of Accurate Static Data in the STP Process -- 10.1 Static data overview.

10.2 Duplication of static data across systems -- 10.3 Instrument group static data -- 10.4 Instrument static data -- 10.4.1 Instrument identification codes -- 10.4.2 Stock exchange ticker symbols -- 10.4.3 Static data needed to perform security calculations -- 10.4.4 Other instrument static data -- 10.4.5 Instrument associations -- 10.5 Trading party and settlement agent static data -- 10.5.1 Trading party identifiers -- 10.5.2 Other trading party static data -- 10.6 Standard settlement instructions (SSIs) -- 10.6.1 Overview -- 10.6.2 Examples of SSI data -- 10.6.3 Omgeo AlertsTM - centralised storage of SSI data -- 10.6.4 Identification of depot and nostro account numbers -- 10.7 Static data that is internal to the firm concerned -- 10.8 Normal working days and public holidays -- 10.9 Country information -- 11 Communications Between Industry Participants -- 11.1 SWIFT -- 11.1.1 Introduction -- 11.1.2 SWIFT connectivity -- 11.1.3 SWIFT message standards -- 11.2 The financial information exchange (Fix Protocol) -- 11.3 Other message standards -- 12 The Trade Agreement and Settlement Processes -- 12.1 The trade agreement process -- 12.1.1 Mutual exchange of confirmations -- 12.1.2 The confirmation, affirmation and allocation model -- 12.1.3 Use of a central matching engine -- 12.1.4 Confirmation followed by no further action -- 12.2 Communications between the trade party and its settlement agent -- 12.2.1 Introduction -- 12.2.2 Contents of settlement instructions -- 12.2.3 Transmission of settlement instructions -- 12.2.4 Information supplied by settlement agents between receipt of instruction and actual settlement event -- 12.2.5 The process of settling the trade - settling within tolerance -- 12.2.6 Information provided by the agent when the trade settles -- 12.2.7 The role of the unique reference number of the settlement instruction.

12.2.8 Potential problems caused by the use of ISIN codes in status and final settlement messages -- 12.2.9 Relevant SWIFT messages concerned with settlement -- 13 Failed Trades - Causes, Consequences and Resolution -- 13.1 Failed trades - causes -- 13.1.1 Unmatched settlement instructions -- 13.1.2 The seller has insufficient securities to deliver -- 13.1.3 The buyer has insufficient cash or credit to make payment -- 13.2 Consequences of failed trades -- 13.2.1 Purchases - cash perspective -- 13.2.2 Purchases - securities perspective -- 13.2.3 Sales - cash perspective -- 13.2.4 Sales - securities perspective -- 13.3 The prevention and resolution of failed trades and the impact on IT applications -- 14 An Overview of Investment Accounting -- 14.1 Role of the financial control department -- 14.2 Departmental systems -- 14.3 The general ledger -- 14.3.1 Assets and liabilities, income and expenses, gains and losses -- 14.3.2 General ledger account types for securities and investment firms -- 14.3.3 A unique general ledger account -- 14.3.4 Selecting the correct account to which an entry should be posted -- 14.3.5 A typical view of a general ledger account -- 14.3.6 Posting errors and their possible causes -- 14.3.7 Profits and losses in foreign currencies - translation into base currency -- 15 The Stock Record - Using the double-entry Convention to Control Positions and Security Quantities -- 16 Example STP Flows of Equity Agency Trades - When Execution Venue is the London Stock Exchange -- 16.1 Introduction -- 16.1.1 Background to the London Stock Exchange and its trading platforms -- 16.2 Equity agency trades with institutional investor customers -- 16.2.1 Process overview -- 16.2.2 Order placement -- 16.2.3 Order execution -- 16.2.4 Trade amounts -- 16.2.5 Trade agreement -- 16.2.6 Regulatory trade reporting -- 16.2.7 Settlement.

16.2.8 General ledger postings for the trade and the settlement -- 16.2.9 Settlement date postings -- 16.2.10 Stock record postings for the trade and the settlement -- 16.3 Equity agency trades with private investor customers -- 16.3.1 Order placement -- 16.3.2 Order execution -- 16.3.3 Trade agreement -- 16.3.4 Regulatory trade reporting -- 16.3.5 Settlement -- 16.3.6 General ledger postings for the trade and the settlement -- 16.3.7 Stock record postings for the trade and the settlement -- 16.4 Direct market access -- 16.4.1 Introduction -- 16.4.2 DMA technology -- 17 The STP Flow of Debt Instrument Trades -- 17.1 Introduction -- 17.2 Order placement -- 17.3 Order execution -- 17.4 Trade amounts -- 17.5 Trade agreement -- 17.6 Regulatory trade reporting -- 17.7 Settlement -- 17.8 General ledger postings for the trade and the settlement -- 17.9 Stock record postings for the trade and the settlement -- 17.10 Position-related events -- 18 The STP Flow of Foreign Exchange and Money Market Trades -- 18.1 Foreign exchange -- 18.1.1 Order placement -- 18.1.2 Order execution -- 18.1.3 Trade amounts -- 18.1.4 Trade agreement -- 18.1.5 Settlement -- 18.1.6 General ledger postings -- 18.1.7 Stock record postings -- 18.1.8 Revaluing the position -- 18.2 Money market -- 18.2.1 Order placement -- 18.2.2 Order execution -- 18.2.3 Trade amounts -- 18.2.4 Trade agreement -- 18.2.5 Regulatory trade reporting -- 18.2.6 Settlement -- 18.2.7 General ledger postings -- 18.2.8 Stock record postings -- 18.2.9 Accrual of interest -- 19 The STP Flow of Futures and Options Transactions -- 19.1 Introduction -- 19.2 Futures and options - common process steps -- 19.2.1 Order placement -- 19.2.2 Order execution -- 19.2.3 Trade agreement -- 19.2.4 Regulatory trade reporting -- 19.2.5 Settlement -- 19.2.6 Marking to market -- 19.2.7 Interest accrual.

19.3 Futures-specific process steps.