After the Trade Is Made: Processing Securities Transactions

Inhaltsverzeichnis

After The Trade Is Made, Revised Ed.Preface
Chapter I. Overview of the Industry
I-A. Broker/Dealers

I-A-1. What Are Broker/Dealers?
I-A-2. What Are the Types of Broker/Dealers?
I-A-3. What Are the Component Parts of a Typical Broker/Dealer?
I-A-3-a. Front Office
I-A-3-b. Middle Office
I-A-3-c. Back Office
I-A-3-d. Other Key Components
I-B. The Markets
I-B-1. What Are Markets?
I-B-2. What Is a "Two-Sided" Market?
I-B-3. The Different Marketplaces
I-C. Industry Regulators
I-C-1. Who Are the Regulators?
I-C-1-a. Securities and Exchange Commission
I-C-1-b. State Regulators
I-C-1-c. Self-Regulatory Organizations (SROs)
I-C-1-d. The Commodities Futures Trading Commission
I-C-1-e. Other Regulators
I-D. Required Examinations
I-E. Regulatory Reporting

I-E-1. Net Capital
I-E-2. Customer Protection
I-E-3. FOCUS
I-F. Who Are Our Clients?
I-F-1. Clients Who Provide Product
I-F-2. Types of Clients
I-F-3. Main Categories of Clients
I-F-4. Types of Accounts
I-G. What Are The Industry Organizations?
I-G-1. Depositories
I-G-2. Clearing Corporations
I-G-3. Industry Utilities
I-G-4. Banks
I-G-5. The Bond Market Association (TBMA)
I-G-6. Security Industry Association (SIA)
Chapter II. Products That We Offer
II-A. Corporate Securities

II-A-1. Common Stock
II-A-1-a. Voting
II-A-1-b. Dividends
II-A-1-c. Underwriting
II-A-1-d. Trading of Common Stock
II-A-1-e. Common Stock as an Investment Vehicle
II-A-2. Preferred Stock
II-A-2-a. Dividends
II-A-2-b. Underwriting
II-A-2-b-i. Dividend Rate
II-A-2-b-ii. Cumulative and Noncumulative Dividends
II-A-2-b-iii. Callable
II-A-2-b-iv. Convertible
II-A-2-b-v. Participating
II-A-2-b-vi. Adjustable-Rate Preferred
II-A-2-b-vii. Reverse Floating Rate
II-A-2-b-viii. Putable Preferred
II-A-2-b-ix. Self-Liquidating Preferred
II-A-2-c. Summary of Preferred
II-A-3. Rights and Warrants
II-A-3-a. Rights
II-A-3-a-i. Cum Rights
II-A-3-b. Ex-Rights
II-A-3-c. Arbitrage
II-A-3-d. Warrants
II-A-3-e. The Certificate
II-A-4. Corporate Bonds and Notes
II-A-4-a. Payment of Interest
II-A-4-b. The Marketplace
II-A-4-c. Pricing of a Corporate Bond
II-A-4-c-i. Accrued Interest
II-A-4-d. Bond Ratings
II-A-4-e. Indenture
II-A-4-f. Retiring Bonds
II-A-4-g. Bond Security
II-A-4-g-i. Mortgage Bonds
II-A-4-g-ii. Collateral Trust Bonds
II-A-4-g-iii. Equipment Trust Bonds
II-A-4-g-iv. Debenture Bonds
II-A-4-h. Registration
II-A-4-i. Default
II-A-4-j. Other Bond Features
II-A-4-j-i. Callable Bonds
II-A-4-j-ii. Convertible Bonds
II-A-4-j-iii. Zero-Coupon and Floating-Rate Bonds
II-A-4-k. Bonds and Notes Summary
II-A-5. Commercial Paper
II-A-5-a. Issuance
II-A-5-b. Trading
II-A-5-c. Settlement
II-A-5-d. Handling the Certificates
II-A-5-e. Financing
II-A-5-f. Maturity
II-B. Municipal Securities
II-B-1. The Competitive Underwriting
II-B-2. Offering of Municipal Bonds
II-B-3. The Effect of Income Tax Rates
II-B-4. Municipal Bonds
II-B-4-a. Trading Municipal Bonds
II-B-4-b. Basis Pricing
II-B-4-c. Types of Municipal Bonds
II-B-5. Municipal Notes
II-B-6. Municipal Securities Summary
II-C. U.S. Treasury Instuments
II-C-1. The Fed Auction
II-C-2. U.S. Treasury Bonds and Notes
II-C-3. Treasury Strips
II-C-4. U.S. Treasury Bills
II-C-5. Settlement
II-C-6. U.S. Treasury Instruments Summary
II-D. Mortgage-Backed and Asset-Backed Securities
II-D-1. Role of Mortage Banker
II-D-2. TBAs/Forwards
II-D-3. Modified Passthroughs
II-D-4. Collateralized Mortgage Obligations (CMOs)
II-D-5. Interest Only/Principal Only
II-D-6. Puts, Calls, and Standbys
II-D-7. Asset-backed Securities (ABSs)
II-E. Bank-issued Securities
II-E-1. Bankers' Acceptances (BAs)
II-E-1-a. Use in Importing
II-E-1-b. Trading
II-E-2. Certificates of Deposits (CDs)
II-E-2-a. Types of CDs
II-E-2-b. Trading
II-E-2-c. Interest
II-E-3. Asset-backed Securities and Private Label
II-F. Mutual Funds
II-F-1. Open- and Closed-End Funds
II-F-2. Net Asset Value versus Market Value
II-F-3. Load versus No-Load
II-F-3-a. Load Funds
II-F-3-b. No-Load Funds
II-F-3-c. ABC Funds
II-F-3-d. Quotes
II-F-4. Rule 12b-1
II-F-5. Bond Units
II-F-6. Money Market Funds
II-F-7. Mutual Funds Summary
II-G. Exchange-Traded Funds (ETFS)
II-G-1. Types of ETFs
II-G-2. How They Are Named
II-G-3. Characteristics of ETFs
II-H. Hedge Funds
II-H-1. Goals of Hedge Funds
II-H-2. Pricing Hedge Funds
II-I. Options
II-I-1. Listed versus OTC Options
II-I-2. American versus European Forms
II-I-3. Equity Options
II-I-4. Debt or Interest Rate Options
II-I-4-a. U.S. Treasury Bill Options
II-I-4-b. U.S. Treasury Note and Bond Options
II-I-5. Index Options
II-I-6. Foreign Currency Options
II-I-7. Settlement
II-I-8. Option Clearing Corporation (OCC)
II-I-9. Expiration
II-J. Futures and Forwards
II-J-1. Futures Contracts
II-J-1-a. Types of Futures Contracts
II-J-1-b. Settlement
II-J-1-c. Margin
II-J-1-d. Margin Requirements
II-J-1-d-i. Clearing Corporation Margin Requirements
II-J-1-d-ii. Brokerage Firm Margin Requirements
II-J-1-e. Types of Margin
II-J-1-f. Delivery
II-J-1-g. Daily Trading Limits
II-J-2. Forward Contracts
II-K. Swaps
II-K-1. Interest Rate Swaps
II-K-2. Currency Swaps
II-K-3. Commodity Swaps
II-K-4. Swaps Summary
II-L. Currency
II-L-1. What Is Foreign Exchange (FX)?
II-L-2. Users of the Market
II-L-3. Derivatives
II-L-4. Settlement
II-M. American Depositary Receipts (ADRs), American Depositary Shares (ADSs), and Global Depositary Receipts (GDRs)
II-M-1. American Depositary Receipts and Shares
II-M-2. Global Depositary Receipts
II-N. Restricted Stock
II-N-1. Rule 144 Stock
II-N-2. Rule 145 Stock
II-N-3. Rule 144A Stock
II-O. Summary of Investment Products
Chapter III. The Marketplaces and Order Management
III-A. The Market

III-A-1. Agency Transaction
III-A-2. Principal Transaction
III-B. Order Routing
III-B-1. Retail Order Entry
III-B-2. Institutional Order Entry
III-B-3. Order Requirements
III-B-4. The Quote
III-B-5. The Size
III-B-6. Time Constraints of Orders
III-B-6-a. Day Order
III-B-6-b. Good Through (GTC, GTM, GTW, and so on)
III-B-7. Type of Orders
III-B-7-a. Market Order
III-B-7-b. Limit Order
III-B-7-c. Short Sales
III-B-7-d. Stop Orders
III-B-7-e. Stop Limit Order
III-B-7-f. Fill or Kill (FOK) Order
III-B-7-g. Immediate or Cancel (IOC) Order
III-B-7-h. All or None (AON) Order
III-B-7-i. Not Held (NH) Order
III-B-7-j. At the Opening Orders
III-B-7-k. On the Close Orders
III-B-7-l. Spread Orders
III-B-7-m. Straddle Orders
III-B-7-n. Combination Orders
III-B-7-o. One-Cancels-the-Other (OCO) Order
III-B-7-p. Facilitation Order
III-B-8. Conclusion
III-C. The Exchanges
III-C-1. Types of Exchanges
III-C-2. The New York Stock Exchange
III-C-2-a. House Brokers
III-C-2-b. Independent Brokers
III-C-2-c. Specialists
III-C-2-c-i. Making Markets
III-C-2-c-ii. Executing Orders
III-C-2-d. The Crowds on the Floor
III-C-2-e. The Auction Market
III-C-2-f. Priority, Precedence, and Parity
III-C-2-f-i. Priority
III-C-2-f-ii. Precedence
III-C-2-f-iii Parity
III-C-2-g. The Specialist's BookIII-C-3. The American Stock Exchange (AMEX)
III-C-4. Chicago Board Option Exchange
III-C-4-a. Opening Rotation
III-C-4-b. The Floor
III-C-4-c. Executing Orders
III-C-4-c-i. Time and Date Entered
III-C-4-c-ii. Buy or Sell
III-C-4-c-iii. Open or Close
III-C-4-c-iv. Quantity, Type, Class, and Series of Option
III-C-4-c-v. Customer, Firm, Market Maker/Specialist
III-C-4-c-vi. Firm Name or Designation
III-C-5. The International Security Exchange
III-C-6. The Future Exchanges
III-D. The Over-The-Counter (OTC) Market
III-D-1 NASDAQ
III-D-1-a. NASDAQ Systems
III-D-1-a-i. SOES
III-D-1-a-ii. ACES
III-D-1-a-iii. CAES
III-D-2. Other Over-the-Counter Equity Markets
III-D-2-a. Bulletin Board Securities
III-D-2-b. Electronic Commerce Networks (ECNs) and Alternate Trading Systems (ATSs)
III-D-3 The Debt Market
III-D-3-a. The Corporate Bond Market
III-D-3-b. The Municipal Bond Market
III-D-3-c. The Treasury Market
III-D-3-d. The Mortgage-Backed and Asset-Backed Securities Markets
III-D-3-e. Money Market Instruments
III-D-4. The Derivative Market
III-D-4-a. Options
III-D-4-b. Forwards
III-E. The Third Market
III-F. The Fourth Market
III-G. Odd Lots


Chapter IV. The Trade-Processing System
IV-A. Order Management System
IV-B. Client Account Control


IV-B-1. New Accounts/Name and Address
IV-B-1-a. New Account Form
IV-B-1-a-i. Terms and Conditions
IV-B-1-a-ii. Client Information
IV-B-1-a-iii. Standing Instructions
IV-B-1-a-iv. Type of Account
IV-B-1-a-v. Client's Signature Block
IV-B-1-b. Types of Accounts
IV-B-2. Client Master Database Information Gathering
IV-B-2-a. Data Entry (NAOW)
IV-B-2-b. Automated Client Account Transfer System (ACATS)
IV-B-2-c. Account Opening Procedure
IV-B-2-d. Account Maintenance
IV-B-2-e. Institutional Accounts/SID/ALERT
IV-C. Security Properties Control
IV-C-1. Security Master Database
IV-C-2. Security Master Database Information Gathering
IV-D. Coding
IV-D-1. Unique Number
IV-E. Trade Figuration
IV-E-1. Agency versus Principal Transactions
IV-E-2. Regualtory Fee
IV-E-3. Equity Trade Figuration
IV-E-4. Bond Figuration
IV-E-5. Money Market Instruments
IV-F. Comparison
IV-F-1. Order Management System
IV-F-2. Equity Comparison
IV-F-3. Workings of the Clearing Corporation
IV-F-3-a. National Securities Clearing Corporation
IV-F-3-a-i. Principal Transactions
IV-F-3-a-ii. Market-Maker Trades
IV-F-3-a-iii. Agency Transactions
IV-F-3-a-iv. Principal Transactions (Modified)
IV-F-3-b. Equity Transaction Comparison
IV-F-3-b-i. What Is Being Compared?
IV-F-3-b-ii. Types of Comparison
IV-F-3-c. Regular Way Contract
IV-F-3-d. Trade Reporting and Compliance Engine (TRACE) Comparison
IV-F-4. Netting
IV-F-5. Continuous Net Settlement (CNS)
IV-G. Balancing of The Customer Side
IV-H. Fixed-Income Clearing Corporation

IV-H-1. Forwards and TBAs
IV-H-2. Mortgage-Backed Security Division of Fixed Income Clearing Corporation
IV-H-2-a. The Allocation
IV-H-3. Government Security Division of Fixed Income Clearing Corporation (GSD)
IV-I. Options
IV-I-1. OTC Options Comparison
IV-I-2. Listed Option Comparison
IV-I-2-a. ROTNs
IV-I-3. Posistion Reconcilement
IV-I-4. Option Exercise
IV-I-5. Ex by Ex
IV-J. Futures Comparison
IV-K. Trade Confirmation

Chapter V. Margin
V-A. Cash Versus Margin Purchases
V-B. Terminology
V-C. Cash Account
V-D. Margin Account
V-E. A Brief Lesson In Margin


V-E-1. Regulation T ("Reg T")
V-E-2. Maintenance Rules
V-E-3. Loan Value
V-E-4. Margin Excess and Buying Power
V-E-5. Minimum Maintenance Requirement
V-E-6. Restricted Accounts
V-E-7. Special Memorandum Account (SMA)
V-F. Margin-Long Position
V-F-1. Reg T Excess
V-F-2. Buying Power
V-F-3. Minimum Maintenance Requirement
V-F-3-a. A Working Illustration
V-G. Margin-Short Sales
V-G-1. Required Margin
V-G-2. Mark to the Market
V-G-3. Maintenance Requirement
V-H. Maintenance Excess
V-I. Day Trading
V-J. The Margin/Credit Department as Part of Client Relationship Management


V-J-1. Account Maintenance
V-J-2. Sales Support
V-J-3. Clearance for Issuance of Checks
V-K. Margin Department's Daily Routine
V-K-1. Reports to Produce
V-K-1-a. Exception Report
V-K-1-b. Items Due
V-K-2. Extensions
V-K-3. Close-Outs
V-K-4. Delivery of Securities
V-K-5. The Margin/Credit Workstation
V-L. Option Margin
V-L-1. Option Margin Theory
V-L-2. Margin Calculation for an Uncovered Equity Option
V-L-3. Margin for Spread Positions
V-L-4. Margin for Straddle or Combo Positions
V-M. Future Margin
V-M-1. Standard and Maintenance Margin
V-M-2. Mark to the Market
V-M-3. Variation Margin
V-M-4. Delivery and Payment
V-M-5. Standard Portfolio Analysis of Risk (SPAN) Margin
Chapter VI. Settlement
VI-A. Segregation (SEG)
VI-B. Receive and Deliver


VI-B-1. Preparation for Settlement
VI-B-2. Settlement Cycle Begins
VI-B-2-a. The Projection Report
VI-B-2-b. The Seg Report
VI-B-2-c. Seg Control
VI-B-2-d. Needs Analysis Report
VI-C. Fail To Receive/Fail To Deliver
VI-D. Financing Positions

VI-D-1. Bank Loan
VI-D-2. Stock Loan
VI-D-3. Stock Borrows
VI-D-4. Repos
VI-D-4-a. Government Security DIvision (GSD) of FICC GCF Repo Service
VI-D-4-b. Matched Book
VI-D-5. Letters of Credit
VI-D-6. Unsecured Loans
VI-E. Custodial Services
VI-E-1. Safekeeping
VI-E-2. Customer Seg
VI-E-3. Exemptions
VI-F. Settlements of Mortgage-Backed Securities
VI-F-1. GNMA Passthrough Securities
VI-F-2. Electronic Pool Notification (EPN)
VI-G. Settlement with GSCC and The FED
VI-H. Option Settlement

VI-H-1. Daily Activity Settlement
VI-H-2. OCC Margin
VI-H-3. Expiration
VI-I. Institutional Settlement
VI-I-1. Trade Suite, OASYS, Omgeo
VI-I-2. Alert and SID
VI-J. Mutual Fund Settlement
VI-J-1. Clearance
VI-J-1-a. Closed-End Fund Transacton Clearance
VI-J-1-b. Open-End Fund Transaction Clearance
VI-J-2. Acquiring Fund Shares
VI-J-2-a. FundServ
VI-J-2-b. Mutual Fund Profile Service (MFPS)
VI-J-2-c. ACATS/FundServ
VI-J-3. Defined Contribution
Chapter VII. Custodial Services
VII-A . Automated Customer Account Transfer Systems (ACATS)
VII-B. Transfers
VII-C. Standing Instructions
VII-D. Dividends and Bond Interest
VII-E. Corporate Actions (AKA Reorganizations)


VII-E-1. Mergers
VII-E-2. Acquisitions
VII-E-3. Tender Offers
VII-E-4. Stock Splits
VII-E-5. Reverse Stock Splits
VII-E-6. Spinoffs
VII-E-7. Processing Corporate Actions
Chapter VII. Role of the Banks
VIII-A. Custodian
VIII-B. Financing


VIII-B-1. Collateralized Loans and Hypothecation
VIII-B-2. Letters of Credit
VIII-B-3. Lines of Credit
VIII-C. Transfer Agent
VIII-D. Registrar
VIII-E. Paying Agent
VIII-F. Product Issuer


VIII-F-1. Commercial Paper
VIII-F-2. Certificates of Deposit
VIII-F-3. Bankers' Acceptances
VIII-F-4. Asset-Backed and Mortgage-Backed Securities and Whole Loans
VIII-G. Foreign Exchange
VIII-H. Client

Chapter IX. Cash Accounting
IX-A. The Accounting Process
IX-B. Account Categories
IX-C. Debits and Credits
IX-D. Journal and Ledger


IX-D-1. Journal Entries
IX-D-2. Ledger Account
IX-D-3. Trial Balance
IX-D-4. Profit and Loss Statement and Balance Sheet
Chapter X. Brokerage Accounting
X-A. Cash Moves The Security
X-B. Location Accounts
X-C. Offset To Short Sales
X-D. Chart of Brokerage Accounts


Chapter XI. Stock Record
XI-A. Types of Stock Records

XI-A-1. Activity Stock Record
XI-A-2. Summary Stock Record
XI-A-3. Trade Date Stock Record
XI-B. Breaks and Illogical Positions
XI-C. Account Nomenclature

Chapter XII. General Ledger
XII-A. Daily Cash Report
XII-B. General Business
XII-C. Trial Balance
XII-D. Profit and Loss Statement
XII-E. Balance Sheet
XII-F. Statement of Cash Flow


Chapter XIII. Regulatory Reporting
XIII-A. Net Capital and Aggregate Indebtedness (Rule 15c3-1 of The 1934 Securities and Exchange Act)

XIII-A-1. The Broker/Dealer's Capital
XIII-A-2. Computation of Net Capital
XIII-B. Customers Protection-Reserves and Custody of Securities (Rule 15c-3-3 of The 1934 Securities and Exchange Act)
XIII-C. Focus

Chapter XIV. Conclusion
Glossary
Index

Portrait

David M. Weiss has been active in the brokerage industry for more than thirty-five years. Currently an independent consultant and lecturer, he was formerly the director of business, industry, and product training for a major international investment bank, vice president of new products for a primary marketplace, and chief operations officer of a broker dealer as well as holding other management positions.