Trader Corrections "as/of" and Past Settlement Date

tamer hamed 4:17:00 AM
Sometimes trades are reported incorrectly. When that happens, the back office makes a bonafide correction. If the correction is made after the trade date, it is entered "as/ of" the date the correction is entered. That day is known as the processing date. The trade is marked as of the trade date that was reported. The settlement date is calculated from the trade, or "as/of" date rather than the processing date.
That's how it works for trades corrected after the trade date but before settlement. For corrections entered after settlement, a similar procedure is used, except that the processing date becomes the settlement date.

Error Accounts
Trading mistakes happen. For example, a customer enters a limit order to buy 500 shares of ABC at $30, but the firm's trader buys shares at that price or better for the proprietary account before filling the customer's order. Or, on that same order, maybe the trader buys 800 shares rather than the 500 indicated.
In either case, the broker dealer moves such trades to its error account. From here, the broker-dealer buys or sells on the open market to complete the erroneous trade. The error account is a short-term account that is not to be used for regular proprietary trading activities.

Basic Knowledge of Settlement
Clearing broker-dealers that are members of the National Securities Clearing Corporation clear and settle transactions efficiently through the NSCC.

Trade Comparison
Trades among clearing broker-dealers are automatically compared and locked-in by the NSCC. This guarantee eliminates counterpart risk, meaning the sell side will be paid for the transaction, no matter what.
The final stage of the process is settlement. This happens at the related entity called the DTC or Depository Trust Company. Like the NSCC, the DTC is also a subsidiary of the Depository Trust Clearing Corporation (DTCC).
Settlement occurs when payment is made and securities are delivered to the accounts of both sides of the trade.

Continuous Net Settlement
Rather than settling with the other side on a per-trade basis, the NSCC's Continuous Net Settlement (CNS) system computes a net-long or net-short amount of either money or securities owed by a member firm on the settlement date. For ABC common stock, Broker-Dealer A is either net-long or net-short. If Broker-Dealer A is net-long, they owe money. If they are net-short, they owe shares of ABC to their NSCC account.

The ACT system used by broker-dealers trading through NASDAQ is a web-based system allowing member firms to submit up to 500 trades in a single computer file.

Trades are locked in by two different methods in the system: trade-by-match, and trade acceptance.
A trade-by-match involves both sides of the transaction entering trade reports to the system, with the system automatically matching them.
A trade acceptance involves a reporting party entering a trade on behalf of the other side of the trade, called the "contra party." In the second case, the contra party has 20 minutes to review the trade in the ACT system's browse function. If the trade is accepted, it becomes locked in. But, if it is rejected, it is purged from the system.

Once a trade has been accepted by both sides of the transaction, it is locked in. Locked in trades are sent to the NSCC and are considered a firm obligation of both the buy and sell side. That means the trade must be honored on the scheduled settlement date. Locked.
If a trade is canceled, the cancellation report must be filed to the ACT system by the party responsible for filing the original trade report.

Don't Know (DK) Trade
Trades are compared for accuracy on the following aspects:
•    Buy/sell side
•    Security
•    Contra party
•    Quantity
•    Price
•    (If applicable) accrued interest

When one side of the trade does not recognize a transaction, or disagrees with the details of a transaction reported by the other side, they DK (Don't Know) Notice the transaction electronically. Perhaps the number of shares is incorrect, or the stock symbol doesn't match the issuer.

Ex-Clearing Transactions
Most trades are settled among broker-dealers electronically through ACT and/or the NSCC. But, some transactions still settle outside of these systems. For example, when-, as-, and if-issued contracts are settled ex-clearing, or outside the typical ACT/ NSCC method.

For ex-clearing transactions:
•    Inter-dealer paper confirmations sent no later than next-day
•    When the confirming member sends a confirmation but does not receive one in return, the confirming member must send a DK notice to the non-confirming member after 4 business days from the trade date
•    After receipt of the DK, the non-confirming member has 4 business days to either confirm or DK the trade
•    If no response is received from the non-confirming member, the confirming member can consider the lack of response as a DK, and can drop the trade

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