Securities Operations:
3-Day Intensive Bootcamp


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  • Level: Introductory
  • 21 CPE Credits
  • Group-Live
  • Prerequisite: none
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  • US $2,495
  • Group discounts available

INSTRUCTOR

Charlotte Scott  Read bio

course overview

This program provides an intensive analysis of the middle- and back-office operation functions of U.S. Broker/Dealers and Registered Investment Advisers (RIA) and the requisite controls. A detailed overview of these functional building-blocks includes the trade lifecycle process from order and trade execution through clearance and settlement. Custody and control topics include a description of stock record, margin, stock loan and asset services.     

Participants will gain an understanding of the organizational infrastructures of a broker/dealer. Process flows that support these functional areas are a major focus of the program, but attention is also given to potential gaps and exposures that create Operational Risk for broker/dealers and RIA’s.  The interdependencies of operation functions among entities such as investment managers, broker/dealers, custodians, clearing houses and depositories are a major focus of the program.

Case studies with an operational risk perspective will be used (e.g., MF Global, Peregrine Financial, Madoff, Société Générale). The program content also promotes discussion of real-life “war stories” involving operational Key Risk Indicators (KRI’s), such as concentrations, exceptions, limits trade breaks, failed trades, stock record breaks, suspense entries, DK’s, and cancels/corrects.  Participants will learn how these events, if not properly managed and reported, can have a negative impact on firms, their customers and counterparties.  

The program content will also reference information that is publicly available that can be used to benchmark operational risk and control indicators. 

course details

Course Objectives

By the end of this course, participants should be able to:

  • Identify mission-critical functions within the lifecycle of a trade, from the inception of an order through settlement, as well as the follow-up required for the effective management of failed trades
  • Explain the critical functions of New Account and Product reference or (static) data set-up for both broker/dealers and RIA’s.
  • Gain perspective on the interactions between the internal operation of a Broker/Dealer and the industry infrastructure, including confirmation/affirmation service providers, clearing houses, depositories and settlement systems.
  • Evaluate Key Risk Indicators (KRI’s) of operational risk and the source of the information in the firm
  • Analyze metrics related to the control of trade activity, including fails, breaks, cancels/corrects, STP levels, and the cost per trade.
  • Compare the roles of broker/dealers, RIA’s, clearing firms, prime brokers and custodians
  • Describe impact of operational risk on Corporate Action processing
  • Evaluate the importance of books and records, including how a stock record is used to demonstrate possession and control of firm and client assets
  •  Distinguish the areas of operational support for margin and stock loan businesses within broker/dealers
  •  Examine the use of firm policies and procedures, internal controls and audit coverage, as well as governance
  • Describe the internal operational processes of a fund manager
     

Session 1:  Introduction to the Broker/Dealer and Registered Investment Advisers (RIA’s)

By the end of the session, participants will be able to:

  • Explain the role of the broker/dealer and the RIA in the financial industry
  • Recognize different types of investors and clients: retail, institutional, hedge funds
  • Identify key components of the industry infrastructure to set the stage for Operations: the markets, the clearing houses and depositories
  • Discuss the role of clearing firms, custodians and prime brokers
  • Describe how the Middle- and Back-Office operation is organized
  • Describe how new accounts are set up and identify the information required for different types of account
  • Identify the functions supporting due diligence, Know Your Customer (KYC), Anti-Money Laundering (AML), FATCA and suitability issues related to customer accounts
  • Define necessary authorizations, approvals, disclosures documentation to set up a new account
     

Session 2:  Product Types and Characteristics

By the end of the session, participants will be able to:

  • Describe each of the major product categories characteristics, including equities, fixed income products, and derivatives
  • Define the set-up and maintenance of product reference information for each and the controls necessary to maintain the integrity of this data on a Product Master File
                     

Session 3: Marketplaces for Securities

By the end of the session, participants will be able to:

  • Describe the overview of the marketplaces where equity and fixed income products are traded
  • Compare the differences in market structures for listed vs OTC
  • Contrast principal vs agency trading
  • Identify the interfaces between the business units of the Firm and the marketplaces
     

Session 4: Order and Trade Management

By the end of the session, participants will be able to:

  • Identify the origination of client orders, order capture and routing
  • Highlight the importance of edit, validation, and compliance checks for Compliance checks for orders
  • Capture of trade execution detail and its relay back to the firm and the client
  • Describe the current state of electronic trading platforms
  • Describe how trade information needs to be enriched with information related to net money, delivery instructions, and clearance and settlement information
  • Identify where trade information is booked and the importance of the Middle Office as a control function
  • Discuss interfaces to the firm’s books and records
     

Session 5: Trade Confirmation and Affirmation

By the end of the session, participants will be able to:

  • Identify the importance trade enrichment:  trade figuration
    • Calculation of final money on a trade
    • Price XNumber of Shares or Principal Amounts
    • Accrued Interest on Bonds
  • Compare the confirm process for retail vs institutional trade
  • Review type of information on a confirmation
  • Highlight how the confirmation process protects clients and counterparties and manages risk
  • Describe the transaction flow for confirmation/affirmation activity
  • Discuss the allocation process for investment managers
  • Understand the importance of delivery instructions
    • SSI (Standing Settlement Instruction) Databases
  • Appreciate the role of the global and local custodian in the confirmation process
  • Identify confirmations required for non-trade and third-party activity notices
  • Describe confirmation/affirmation services such as Omgeo
  • Evaluate reasons for trade breaks or discrepancies and DK’s, as well as their resolution
  • Explain how the cancellation/correction or trade amendment process works, and risks associated with these
  •  

Session 6: Street-Side Trade Reporting, Comparison and Clearance

By the end of the session, participants will be able to:

  • Describe how street-side trades are reported and compared
  • Identify Contract Sheets, Locked-in Trades, Advisories
  • Understand the purpose of Clearing Houses in supporting the safety and soundness of the financial markets
  • Evaluate clearing relationships with clearing firms, clearing banks and collateral requirements
  • Highlight issues related to how collateral is held
  • Describe the structure of the NSCC and the FICC
  • Understand the calculation of settlement date obligations as a result of clearing
  • Appreciate the role of a Central Counterparty (CCP) and its role in settlement risk management.
  • Review the CNS process and multilateral netting as well as its impact on liquidity management for self-clearing firms
     

Session 7: Settlement, Cashiering, and Custody

By the end of the session, participants will be able to:

  • Evaluate the settlement process for the exchange of assets to complete the trade lifecycle on the contractual settlement date
  • Describe how settlement occurs at DTC and the Federal Reserve Bank. 
  • Recognize the role of custodians and their interactions with broker/dealers and RIA’s in the settlement process
  • Discuss how securities and cash settlement is handled for retail clients
  • Identify the updates and data requirements for the settlement process
  • Recognize when a fail has occurred and evaluate fails as a source of risk and exposure, their financial impact to the firm’s regulatory net capital, and to the market as a whole
  • Identify what needs to occur to clean up fails, claims and the buy-in process
  • Describe the support required by technology deployed to support operation of a broker/dealer and an RIA
  • Explain how third party asset verification and custodial reporting are performed
  • Define the reconciliation processes for settlement and custody
  • Review the reasons and changes associated with the upcoming acceleration of settlement schedules to T+2
     

Session 8:  Stock Record of a Broker/Dealer

By the end of the session, participants will be able to:

  

  • Describe how a Stock Record is structured and its purpose
  • Identify issues of possession and control related to firm and customer positions
  •  Compare long and short positions and understand what they indicate
  •  Recognize a stock record break and illogical position and discuss what it indicates and how it must be resolved
  •  Describe the role that stock records plays in protecting customer assets and how reconciliations provide verification of assets
     

Session 9:  Stock Loan and Repo

By the end of the session, participants will be able to:

  • Explain the motivations of stock loan participants: who borrows and why, who lends and what they hope to achieve
  • Highlight the operation needed to support this and sources of operational and credit risk
  • Review short sale requirements, including locating and borrowing securities
  • Describe the opening and closing legs of a stock loan transaction, how contracts are compared and settled
  • Review the recall process and what happens in the event that stock is not returned
  • Identify the importance of collateral management and mark-to-market capability for stock loan transactions
  • Analyze the impact of a dividend or corporate action event while a loan is open
  • Discuss how and why rebates are paid to borrowers
  • Define repos and how they are used by broker/dealers and fund managers
  • Explain how a tri-party repo works
                     

Session 10:  Customer Margin

By the end of the session, participants will be able to:

  

  • Discuss margin terms for both the business and risk management
  • Identify how credit risk is a factor in margin approvals and limits
  • Describe Reg T Margin and what it provides
  • Explain the functions of a margin department in brokerage operations
  • Identify what is covered by margin and rehypothecation agreements
  • Review the requirements of seg for customer securities
  • Analyze the areas of risk posed by margin businesses and the role played by Operations in managing these risks
  • Discuss how initial, maintenance and house margin requirements are calculated
     

Session 11:  Cash Accounting

By the end of the session, participants will be able to:

  • Describe cash transaction types and required journal processing
  • Recognize the entries that are made as a result of both trade and non-trade-related activity
  • Describe how cash balances are maintained for clients, interest paid on balances and sweep accounts
  • Identify what occurs in relation to suspense, break and wash account entries and how they are resolved
  • Review the feeds from sub-ledgers to General Ledger
  • Define required cash reports and reconciliations with cash agents and correspondent accounts
     

Session 12:  Asset and Position Services

By the end of the session, participants will be able to:

  • Identify the various types of both mandatory and voluntary corporate actions and re-org activity (mergers, acquisitions, tender offers, bond calls, bankruptcies, rights and warrants exercises, convertible issues, etc.)
  • Describe the steps related to income distributions and entitlements in the form of dividends and interest
  • Discuss the role of the issuer, corporate trustee, transfer agent, broker/dealer, custodian, and depository in corporate action
  • Review voting issues and the proxy process
  • Examine the flow of shareholder communications
  • Evaluate the key areasof operations risk associated with handling corporate action events, included miscommunication to account holders, missing deadlines for event elections, and incorrect payables/receivables
  • Identify the role of market data vendors, how information related to corporate action events is “scrubbed”, and storage of the “the golden copy” of an event
     

Session 13:  Regulatory and Financial Reporting

  

By the end of the session, participants will be able to:

  • Identify the source information used to producekey financial and regulatory reports:
  • FOCUS reports
  • Net Capital (15c3-1)
  • Customer Protection (15c3-3)
  • Profit and Loss
  • Examine areas of risk related to the production of these reports
     

Session 14:  Mutual Fund Service Providers

By the end of the session, participants will be able to:

  

  • Identify the role and responsibility of the fund’s service providers, including custodians, fund transfer agents and administrators, fund accountants and providers of shareholder services
  • Recognize interfaces required for underwriters/ distributors/wholesalers/sales agents
  • Identify investor types and motivations
  • Describe the schematics of fund manager compensation programs
  • Highlight the role of the “fund of funds”
     

Session 15: Fund Distribution Channels

By the end of the session, participants will be able to:

  • Identify and describe the various distribution channels for mutual funds and what is required to support them
  • Explain account liquidation and the corresponding operational issues
  • Discuss the flow of information and cash through fund distribution channels
  • Describe the process of fund distribution and the required interfaces
  • Identify how sales charges and fees are calculated
     

Session 16: Shareholder Servicing

By the end of the session, participants will be able to:

  

  • Identify major shareholder service function
  • Discuss fund transfer agent operations for proprietary and non-proprietary funds
  • Explain the flow of shareholder service activities
  • Examine transfer agent disbursements and cash flows from the fund to investors, including shareholder redemptions
  • Understand the functions provided by NSCC for the fund industry, including ACATS, FundServ, and Network
  • Evaluate the requirements for shareholder reporting and statements
     

Session 17: Fund Administration

By the end of the session, participants will be able to:

  • Describe the role of the Fund Administrators
  • Compare and contrast fund administration provided for mutual funds vs hedge funds
  • Discuss the communication paths among Fund operation groups, the Custodians, and the Fund Administrator
  • Appreciate selection criteria and fee structures for the fund administrators and differentiating characteristics
  • Identify areas that support accounting and reporting functions
  • List gaps and exposures in the fund administration process that create operations risk
     

 Session 18: Investment and Portfolio Accounting

By the end of the session, participants will be able to:

  • Identify the functions of both investment and portfolio accounting
  • Discuss the information and its sources required for both
  • Explain the requirements for performance measurement and attribution
  • Describe how daily NAV calculations are performed, as well as valuation and timing issues that are related
  • Recognize what type of reporting result from investment and portfolio accounting
  • Recognize what type of fund reporting result from investment and portfolio accounti

 

In-house instruction is available.  Contact us to inquire.


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