Securities Operations: A Guide to Trade and Position Management

21

Reflecting Trade Settlement Internally

21.1 INTRODUCTION

Once a trade has settled at the custodian, it is essential for the STO to update its internal books and records immediately, with the detail of securities and/or cash movements.

To make an analogy, a small company trading in sports equipment is likely to have its purchases of goods from its wholesale supplier delivered to its premises, where the goods would be checked and a cheque given to the supplier's driver. Following the receipt of the goods and payment of the cash, the sports goods company would need to update its books and records to ensure that:

• the purchase is no longer showing as outstanding;
• the goods are showing as having been received and added to the inventory of goods held in the warehouse;
• the cash is showing as having been paid and deducted from the cash balance held at the bank.

Unless the sports goods company updates its internal records as above, its books and records will not reflect the factual situation, resulting in:

• the purchase still appearing as outstanding when it is in fact settled (thereby mis-stating the company's outstanding contractual commitment);
• the record of the quantity of goods in the warehouse appearing as fewer than the true number (potentially affecting future deliveries of goods from the warehouse);
• the record of cash within the bank showing as greater than the actual balance ...