Life Cycle of a Futures Trade

CS On-Boarding 2011

Contents
1. Trade Flow: The Basics 2. Day One 3. Day Two 4. Day Three 5. Day y Four 6. Day Five

Trade Flow: The Basics

Trade Flow
Client Newedge g ( (FCM) )
Client places order with Newedge.

Activities
Exchange g / Clearing g House
Newedge executes trade

Order instructions from client to buy or sell a security Execution a clients order remains open until it is filled at the exchange. This is known as execution

Front Office

Exchange Client
Client sends confirmation files (or p ) of recaps) their trades Fill that is assigned to an order Fill that is assigned to an order

Fill the executed trade details flow back to the trader and the client. The fill is like a receipt that is assigned to an order containing information pertaining to how and where the order was executed. This can be electronic or traditionally, was paper Allocations post-execution summaries of a completed and closed customer orders that are sent to Middle Office Confirmation the client sends recap files to the clearing member to confirm the orders they made. This is usually sent for give-in business, or in some markets (e.g. France) confirmations are mandatory from a regulatory standpoint Exchange trade feed the trade data sent from the exchange at regular intervals (real-time (real-time, hourly) to middle office. This data is compared and matched to the data from the client and the Front Office Clearing House trade data is sent to the Clearing House for settlement

Allocations are sent downstream to middle office for processing

Top day exchange trade feed

Exchange sends trades to Clearing House for settlement End of day exchange trade feed

Middle Office

Trade data sent downstream to back office and client services

Back Office

Margin calls

Margin Calls the Clearing House calculates the value of the clearing members open positions and may request an additional margin from the clearing member Netting and settlement the clearing house nets multilaterally against all their member firms and sends settlement instructions to each clearing member Commissions following settlement, the clearing Fees & Commissions member calculates the clients open positions and charges the appropriate fees and commission

Client
Netting and settlement instructions Client reporting

Clearing House

Client Services

Day One
On June 20th, Client ABC Trading has shorted 2 Sep 11 Topix trades at 809.50 and 817.00. The settlement Th ttl t price i was 806.50 806 50 resulting lti in i a market k t to t market k t of 135,000 JPY. As ABC Trading is single currency margined, they will be paying their initial margin requirement in USD. Thus, the Open Trade Equity in JPY is converted to USD in the converted total column and combined with the USD OTE from the Sep e-Mini contracts.

Day One Statement

Day Two
On June 21st, the settlement price for Sep 11 Topix was 815.00. ABC Tradings positions lose money on the day. ABC also sent in USD in wires to meet the margin call from June 20th as reflected in Cash Journals. As the Total Equity converted into USD covers the Initial Margin, there is no margin call for the Day Two.

Day Two Statement

Day Three
On June 22nd, the settlement price for Sep 11 Topix was 826.50. ABCs unrealized p&l for the day is -265,000 JPY. The wire in from ABC was in USD and goes to the Cash Journals bucket in USD. ABCs converted Total Equity covers the converted Initial Margin and there will be no margin call.

Day Three Statement

Day Four
On June 23rd, ABC closes out its positions, making a realized profit on its Sep 11 Topix positions of 70,000 JPY. There are no margin requirements for this statement because there are no open positions and Total Equity=Ending Account Balance.

Day Four Statement

Day Five
On June 24th, ABC Trading has no open positions, but there is a foreign currency balance of 61,692 JPY. ABC may choose to convert the Ending Account Balance or Total Equity either by request with their CS Representative or on an Auto-Convert program with Newedge.

Day Five Statement