Kindly help me with this query. Scratching my head on how trades are reported to CCP.
Let’s consider an example where an institutional client say a mutual fund of dealer (large investment bank) places an order of buy of 1,00,000 shares of ABC company.
Case 1: Dealer has inventory of 1,00,000 shares of ABC company. Sells it to client at agreed price.
Case 2: Dealer doesn’t trade in this security i.e. ABC company. Gives up the trade to some other broker/dealer. In this case it is not party to the trade only routing it to some other broker who trades in this security.
Case 3: Dealer buys the shares from market and then sells it to client.
In all the above cases for a given scenario, how many trades are reported to the CCP for each case by the dealer?
My understanding is following -
Case 1: Single trade of sell order mentioning the counterparty as institutional client.
Case 2: No trade is reported to CCP from dealer as it is not a party to the trade.
Case 3: Two trades reported. One as buy trade with counterparty as some broker or some client as it is bought from market. Second as sell trade with counterparty as institutional client.
I have just mentioned one scenario to. If there is any article or link to explore on this topic that would also help.
Agency type of trading is straight forward, you just report trades to CCP as instructed by client as there is no usage of any inventory.
Hmm… all transactions today take place on the exchange. So if a a client asks the dealer to buy shares, the order is placed on the exchange. On the exchange institutional trades could potentially happen through bulk and block deals, or just in the normal market.
So there is any reporting of trades to the Clearing Corp, they get the trades directly from the exchange. A broker reports margin of their customers to the CC.
Thanks Nithin for prompt reply. Another follow up question. What if the securities are traded OTC like MBS securities in US where clearing has to happen via CCP (FICC in US)? How are trades are reported by dealer for above cases as there is no exchange in between?