Clearing, Settlement and Custody

Clearing, settlement and custody is at the heart of everything that happens in the financial markets. The evolution of clearing and settlement is one of that is still happening and as such, it is impacting on the operations function through both new practices but also, increasingly, in terms of regulation, risk and reputation.

In essence, the efficient clearing and settlement operation is managing risk, not because it is a direct part of the process but rather because it is a bi-product. The routine procedure relate to reconcilliation and record keeping. If these are performed efficiently and accurately, it will result in accurate records of activity and profit/loss.

The settlement process is a key element in identifying and correcting erros made by dealers and traders. Failure to identify the error or act promptly will result in potentially serious financial loss, as well as worrying the auditors and regulators.

In addition to these concerns the financial service sector is also undergoing a massive rationalization of the structure of clearing and settlement and seeking the twin goals of automation and shortening settlement cycles. The challenge for operations managers is considerable: manage costs, eradicate inefficiencies, create an environment to be competitive, and implement the procedures to meet future changes that will occur.

In this book the author looks at some of the different roles, the processes and procedures, and the key issues, in order to help those in operations meet the challenge.

Clearing, Settlement and Custody covers:

• the clearing, settlement and custody functions analysing how they work and the interaction between the organizations involved
• the roles of clearing houses, central counterparties, central securities depositories and the custodians
• the impact on the workflow and procedures in the operations function at banks, brokers and institutions
• the changes that are taking place in the industry and what this means for operations managers and supervisors.

1. The structure of clearing and settlement
2. The role of the clearing house and central depositories
3. Bond settlement
4. Equity clearing and settlement
5. Derivatives clearing and settlement
6. Custody services
7. Other clearing and settlement
8. Operational issues and the future

• Appendix 1: Relevant websites
• Appendix 2: Understanding London SPAN

An excellent introduction to the investment banks, Back-Office. Recommended reading.