International Finance Bank LTD

Clearing & Settlement Procedures

This document provides an exhaustive and precise description of the institutional trading workflow at IFB for cash securities (DVP), OTC derivatives, and repurchase agreements (repos), incorporating multiple secure communication methods. It is designed to serve as a comprehensive operating blueprint for professional front, middle, and back office teams operating within regulated financial institutions.

1. Communication Channels and Identification Methods

Trade initiation and pre-negotiation occur via secure and compliant digital platforms. Each officer involved must utilise a unique, verifiable identifier to ensure accountability, regulatory traceability, and auditability. Accepted platforms include:

  • Bloomberg IB Chat (BBG ID): Standard in institutional finance with audit trail integration.
  • Symphony Secure Chat: MiFID II-compliant, encrypted communication with desktop and mobile support.
  • Refinitiv Messenger (Reuters ID): Often used in FX, commodities and fixed income.
  • ICE Instant Messaging: Integrated with trading venues and futures execution.
  • Proprietary encrypted internal systems: Must store logs and comply with recordkeeping obligations.
  • Secure Email: Used post-trade for affirmation and legal confirmation when chat is unavailable.

2. DVP (Delivery Versus Payment) Cash Securities Transactions

DVP transactions involve the simultaneous exchange of securities and corresponding cash payments. The primary objective is to eliminate principal risk. The process is governed by pre-defined Standard Settlement Instructions (SSIs) and custodial protocols.

Step-by-Step Workflow:

  • Pre-Trade Negotiation: Desk officers communicate via chat or secure messenger. They agree on the following: ISIN/CUSIP, quantity, unit price, total consideration, currency, settlement venue (DTC, Euroclear, Clearstream), and SSIs.
  • Trade Ticket Generation: Each counterparty enters the trade into their Order Management System (OMS) or Execution Management System (EMS). This populates trade details including T+2 as the standard settlement cycle.
  • Matching and Affirmation: Trade details are reconciled via matching platforms such as Omgeo CTM, OASYS, by DTCC or Markit-Wire for derivatives or through bilateral SWIFT messages (MT540-544). Any discrepancies must be resolved before settlement instructions are released.
  • DVP Settlement: On T+2, the custodian ensures that securities are delivered executed via international central securities depositories (ICSDs) or institutional trading desks to the buyer’s account only upon receipt of cash. If either leg fails, the transaction does not proceed.

3. Over-the-Counter (OTC) Derivatives

OTC derivatives include contracts such as interest rate swaps, credit default swaps, total return swaps, and FX forwards. These transactions are typically documented under an ISDA Master Agreement and CSA (Credit Support Annex), with margin requirements as per EMIR and/or UK EMIR.

Execution and Lifecycle:

  • Trade Negotiation: Economic terms such as notional, trade date, effective date, maturity, spread or strike, floating rate index, reset dates, and day count convention are defined through secure communication channels.
  • Confirmation: Matching via MarkitWire or DSMatch is required. Electronic affirmation must occur within T+0 for IRS and CDS; T+1 for FX and equity derivatives.
  • Collateral Management: Daily margining is conducted per CSA terms. Initial and variation margin calls are transmitted via AcadiaSoft or SWIFT MT527. Independent third-party valuation agents (e.g., TriOptima) may be used to resolve disputes.
  • Settlement: Payments arising from coupon exchanges or final cash settlements are executed through designated custodial accounts. For cleared derivatives, a CCP such as LCH or ICE Clear intermediates and novates the transaction.

4. Repurchase Agreements (Repos)

Repos involve the sale of securities with an agreement to repurchase them at a later date. These function as collateralised short-term funding transactions and are governed by the GMRA framework.

Trade Workflow:

  • Trade Initiation: The parties agree on collateral (usually HQLA), repo rate, haircut, start and end dates, and margining terms. This is done via secure messaging platforms or via Triparty platforms.
  • Initial Leg: Securities are transferred to the buyer against cash (DVP). Settlement occurs via DTC, Euroclear, Clearstream, or via tri-party agents like BNY Mellon or JPMorgan.
  • Ongoing Collateral Management: Daily revaluation is performed and margin calls issued if collateral falls below required thresholds. Substitution of collateral is permitted with prior notice.
  • Repurchase Leg: On maturity, the seller returns the cash and receives the securities. All interest is accounted for as repo income.

5. Risk Controls and Operational Safeguards

Key risk mitigation strategies include:

  • Daily reconciliation of positions and margin calls to avoid disputes.
  • Use of Omgeo Alert to maintain golden-source SSIs.
  • Legal enforceability ensured by robust documentation (ISDA, GMRA).
  • Use of real-time matching systems to minimise settlement failure risk.
  • Employing trade repositories and UTI tagging to ensure regulatory compliance (SFTR, EMIR).