Recommendation on Fixed Income Trades Market structure
Can someone recommend a book or online resource on "Fixed Income Trades and Market structure" and the trade flow?
Thanks
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Maybe, what are you trying to figure out? What's your story?
Something similar to this video. But, need a more detail one on individual steps and with the systems involved
Wanted to know the "detailed" trade's workflow from the point order (from PM) arrives in EMS dashboard until completion.
To keep this simple lets assume the bond is a corporate bond and the dealer selling it to you is long the bond, most fixed income cash trading is done over the counter and there is a not a centralized exchange to clear trades. Here is a rough outline
1. Buyside PM or trader reaches out to sell side sales guy and asks for an offer (price where the sell side bank would sell the bond) on a corporate bond (3MM AAPL 3.25 27s)
2. Sell side sales guy asks sell-sider trader to offer to 3MM AAPL 3.25 27, the sell side trader tells the sell side sales guy a price where he would sell the bond
3. Sell-side sales guy sends price to buy side trader, and the buy side trader agrees to the price, sell side sales confirms price with sell side trader and the trade is completed
4. Sell side sales guy sends buy side trader a confirmation of the trade and each party will enter the trade into their respective trade booking systems (usually this is done automatically when the confirmation is sent and matched)
5. Once trade is entered into respective systems those systems will tell each side custodian bank (entity that holds the securities) the details of the trade, if those details match the sell side custodial bank will issue a confirm to the buyside custodial bank
6. On the day of settlement usually 2 or 3 days from execution of the trade, the buy side bank posts the cash and the sell side bank sends the bonds. The bonds are now in the buy side custodial account and the sell side custodial bank has taken the cash.
This is correct, but I doubt if many people who need to understand this do on their first day of work. Front office folks have rarely thought about settlement, and back office people usually learn it on the job.
Hi,
Thanks for the detailed step-by-step info. I really appreciate this.
One clarification, on Step 6, on Settlement day, do the buy side sends the cash to 'their' custodian?
Also, will you mind letting know the equivalent for Equities and Currencies?
Unlike bonds (where they get traded Over-the-counter) equities traded in Exchange and dark pool, REF, RFM. I know currencies (forwards and futures), they all have different workflows. Thanks for your help in advance.
It just that I couldn't find a book which details the workflows for each asset classes in simple terms along with the systems.
Each custodial account the buy side has set up will have a bank account linked to it that the custodian will debit or credit when a trade settles.
I don't really know much about settlement of equities or currencies.
Hi,
Could you please clarify the quoting convention? is the offer communicated in terms of YTM or is the Sales Dealer required to compute the Clean Price?
And I have a couple of other questions as well if you don't mind:
1. Can you negotiate the settlement? T+0 or T+1 or T+2?
2. What the genreally accepted (I understand that it is an OTC trade) tick size for the offer or bid? - Should the offer or bid be in multiple(s) of 25 Million or 50 Million?
And with regards to point 4, how are these details communicated? is it reported by the sell-side on a settlement platform of some exchange? and your (buy-side) back office authenticates and accepts the trade?
It is just for my understanding. Thanks in advance!
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