Trade Confirmations

After an FX forward or an interest rate swap is executed and before it settles, the two sides check in writing that they hold the same terms. The client also checks the confirmation it receives against its own records.

What a confirmation is for

The financial institution's back office (operations and settlement) prepares the confirmation and sends it to the client, and the client checks the confirmation it receives against its own records.

A trade confirmation puts the terms of an executed trade in writing so that both parties can check that they have recorded the same terms. According to the 1998 examination manual of the US Federal Reserve Board, swaps were usually agreed by phone and then confirmed by fax, letter, or another form of confirmation. The parties were bound by the trade from the moment of the initial agreement, and the contract documents were exchanged afterward¹.

According to the 1998 examination manual, a confirmation sets out the terms of the trade in detail, so it served as legal evidence and also helped with practical checking and fraud prevention². Recorded phone calls can also be used to verify a trade, but they supplement the process of sending and checking confirmations and do not replace it. At the time, courts in some jurisdictions gave little weight to phone verification alone, and some jurisdictions accepted only paper confirmations. The confirmation was treated as the final safeguard against errors and fraud in trading³.

Terms set out in a confirmation

A confirmation sets out the terms of the trade in detail². Under US swap rules, a confirmation is a record that the parties have agreed to all of the terms of the trade⁴. Consider a hypothetical example in which Company Q, a corporate client, enters into an FX forward with a bank to prepare for paying for its imports.

In the 1998 examination manual, a trade record includes the trade date, the time of execution, the settlement date, the counterparty, the product, the amount, the price or rate, and, for some products, the settlement method and location⁵. An error in the direction, the amount, the rate, or the delivery date on the confirmation changes what is paid and received on the delivery date. If the direction were reversed, Company Q would pay US dollars instead of receiving them. If the amount were off by one digit and written as USD 10 million, Company Q would pay 1.5 billion yen. So Company Q checks each item on the confirmation against its own records.

From sending the confirmation to its return

After execution, the financial institution's operations and settlement department sends the confirmation, and the client checks it and sends it back. The steps up to execution are covered in Trade Execution. Following the 1998 examination manual, the confirmation for Company Q's FX forward is exchanged in this order.

1. The bank's front office (sales and trading) agrees on the terms with Company Q, executes the trade, and enters the terms into the system⁶.
2. The bank's back office (operations and settlement) checks what was entered, then prepares the confirmation and sends it to Company Q. Because the trade is with a corporate client, the bank sends the confirmation in duplicate and asks Company Q to sign and return one copy².
3. Company Q checks the confirmation against its own records. If everything matches, it signs one copy and returns it. If anything differs, it tells the bank which terms differ⁷.
4. The bank's back office reconciles the returned confirmation with its own records. If they match, the trade moves on to booking and settlement⁷.

In the 1998 examination manual, the back office was to send the confirmation, not the front office that made the trade, and the confirmation was to be addressed to a department at the counterparty that is independent of the people who made the trade. If the parties agreed to change the terms after execution, a new confirmation was obtained for the changed terms³. Under US swap rules, a confirmation is created when the receiving party signs the record of terms sent by the other party⁴.

Confirmations can be sent by mail or fax, or electronically. For foreign exchange trades, the FX Global Code sets out how confirmations should be sent. The Code is a set of principles for foreign exchange market participants, not law. Market participants send confirmations by a secure method as soon as possible after execution, and they work toward electronic and automated processing. They use industry-agreed templates and standardized message formats wherever possible. General communication channels such as email greatly increase the risk of fraudulent messages and leaks of confidential information, so if they are used, they need to meet information security standards⁸.

What to do when a confirmation is not returned or the terms do not match, and the rules on confirmation deadlines, are covered in Booking Errors and Confirmation Mismatches.

How paper and electronic confirmation differ

In a paper confirmation, one side prepares and sends a confirmation, and the receiving side compares it with its own records by hand, signs it, and returns it. Electronic confirmation does this comparison on a service, and the trade is confirmed by trade matching or affirmation⁹. For credit derivatives around 2005, faxes and comparison by hand were used¹⁰.

When a mismatch appears, the confirmation is not made, so the parties check the differing items and resolve them. With paper, the receiving side reports the items that differ, and the sending side checks them against its own records⁷. With electronic confirmation too, items that do not match, and disputes, are handled through a process between the parties⁹.

How the master agreement and the confirmation divide the terms

A confirmation sets out the terms of a single trade, and the terms common to trades with the same counterparty go in the master agreement. The Act on Close-out Netting of Specified Financial Transactions Conducted by Financial Institutions, etc. (the Close-out Netting Act) also defines a master agreement. It is a contract that a financial institution and its counterparty make in order to carry out two or more transactions on an ongoing basis, and it sets out basic matters such as how obligations are to be performed¹¹.

In the 1998 examination manual, the contract documents for a single swap consisted of the confirmation, the payment schedule, and the master agreement. Parties usually signed one master agreement with each counterparty and handled all their swaps under it. So two swaps had separate confirmations and payment schedules but could share the same master agreement. Swap contracts were usually made under standards drawn up by the International Swaps and Derivatives Association (ISDA) and others¹.

The terms in the master agreement apply to all trades made under it. For example, suppose a financial institution and its counterparty trade under a master agreement that includes a close-out netting provision. If a petition to start bankruptcy or similar proceedings is filed against one of them, then under the Close-out Netting Act, the values of all trades under that master agreement are added up and offset into a single claim or obligation. This is called close-out netting¹¹.

How a trade report differs

A trade report (a document delivered at the conclusion of a contract) is how a financial institution informs a client of a trade under the Financial Instruments and Exchange Act, and it differs from a confirmation in both purpose and legal basis. When a financial instruments transaction contract with a client is concluded, or in similar cases, a financial instruments business operator, etc. must provide the client with information on the contract without delay. Financial instruments business operators, etc. include financial instruments business operators such as securities firms and registered financial institutions such as registered banks. This is the rule on "provision of information upon conclusion of a contract, etc." in Article 37-4 of the Financial Instruments and Exchange Act¹². The Cabinet Office Order calls the document delivered at that time a document delivered at the conclusion of a contract¹³. In practice, securities firms call this document a trade report¹⁴, and the Financial Services Agency's Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc. also call the document sent to notify the client at execution a trade report¹⁵.

The Cabinet Office Order sets out what a trade report contains. It includes the financial institution's trade name, the date the contract was concluded, the fees, the client's name, and how the client can contact the financial institution. On the trade itself, it includes whether it is a purchase or a sale, the issue, the quantity, the unit price, the amount the client pays and how it is calculated, and the type of transaction. For derivatives transactions, it also includes the type and amount of margin or other deposits and the expiry of the transaction¹³. From April 1, 2025, the financial institution can choose whether to deliver it on paper or provide it electronically. If the client asks for paper, it must be delivered on paper¹⁶.

For OTC derivatives, this information does not have to be provided if a contract document setting out the terms of the trade is delivered for each contract. The same applies if the items of that contract document are provided electronically, unless the client asks for the contract document to be delivered¹⁷. In addition, if the client is a professional investor (a client defined by law, such as a qualified institutional investor, the national government, or the Bank of Japan), this rule does not apply in principle¹⁸.

Figure description

The figure checks two questions in order from the top. The first is whether the client is not a professional investor, and the second is whether the trade is handled without a contract document that sets out its terms. Each question has an exit on a "No" answer: the client is a professional investor, or a contract document is delivered for each trade. If the client is not a professional investor and no contract document is delivered for each trade, a trade report must in principle be provided. The figure covers only these two questions. Article 110, paragraph 1 of the Cabinet Office Order on Financial Instruments Business, etc. also covers other cases, such as clearing brokerage by a clearing participant, handling of accidents, discretionary investment contracts, and partial changes to a contract. The figure also does not decide whether a trade falls under Article 37-4 of the Financial Instruments and Exchange Act.

The two questions in the figure are applied to Company Q's FX forward below. Consider a hypothetical example in which the FX forward is a trade covered by Article 37-4 of the Financial Instruments and Exchange Act.

• Example 1 (Company Q is not a professional investor, and the bank does not use the method of delivering a contract document for each trade) passes question 1 and question 2, so a trade report must in principle be provided.
• Example 2 (Company Q is a professional investor) answers "No" at question 1 and takes the professional-investor exit in the figure, so this rule does not apply in principle.
• Example 3 (Company Q is not a professional investor, and the bank delivers a contract document setting out the terms of the trade each time a trade is executed) passes question 1 and gets "No" at question 2. It leaves at the contract-document exit in the figure, so no trade report needs to be provided. Whether a confirmation counts as this contract document cannot be said here.

Notes

1. Board of Governors of the Federal Reserve System, "Trading and Capital-Markets Activities Manual," Section 4325.1 "Interest-Rate Swaps" (February 1998), "Swap Agreement," page 2. ↩ ↩²

2. Board of Governors of the Federal Reserve System, "Trading and Capital-Markets Activities Manual," Section 2060.1 "Operations and Systems Risk (Back-Office Operations)" (February 1998), "Confirmations," page 3. ↩ ↩² ↩³

3. Board of Governors of the Federal Reserve System, "Trading and Capital-Markets Activities Manual," Section 2060.1 (February 1998), "Confirmations," pages 3–4. ↩ ↩²

4. 17 CFR 23.500(a) (Acknowledgment) and 23.500(c) (Confirmation). ↩ ↩²

5. Board of Governors of the Federal Reserve System, "Trading and Capital-Markets Activities Manual," Section 2050.1 "Operations and Systems Risk (Front-Office Operations)" (February 1998), "Transaction Flow," page 3. ↩ ↩²

6. Board of Governors of the Federal Reserve System, "Trading and Capital-Markets Activities Manual," Section 2050.1 (February 1998), "Transaction Flow," page 2. ↩

7. Board of Governors of the Federal Reserve System, "Trading and Capital-Markets Activities Manual," Section 2060.1 (February 1998), "Ticket Flow," page 3. ↩ ↩² ↩³

8. Global Foreign Exchange Committee, "グローバル外為行動規範" (FX Global Code, December 2024 version, provisional Japanese translation by the Tokyo Foreign Exchange Market Committee), Principle 46 (pages 46–47) (in Japanese). The English original is Global Foreign Exchange Committee, "FX Global Code" (December 2024), https://www.globalfxc.org/uploads/fx_global.pdf; the principle numbers are the same, and the page numbers are those of the translation. ↩

9. OSTTRA, "Trade Processing," the Affirm and Confirm items under "Explore our Trade Processing Solutions" (acceptance triggers the next step; discrepancies and disputes are managed through workflows between counterparties; confirmation is by matching or affirming; legal confirmations are created using standard terms managed by the platforms) and the introduction. Checked on October 8, 2026. ↩ ↩²

10. GAO-07-716, the first paragraph of "Two Factors Largely Caused the Confirmation Backlogs at Dealers" (confirmations sent by fax, and the receiving side compares them with its own records by hand). ↩

11. "金融機関等が行う特定金融取引の一括清算に関する法律" (Act on Close-out Netting of Specified Financial Transactions Conducted by Financial Institutions, etc., in Japanese), Article 2, paragraph 4 (close-out netting events), paragraph 5 (master agreement), and paragraph 6 (close-out netting), and Article 3. ↩ ↩²

12. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 37-4, paragraph 1. Financial instruments business operators, etc. and financial instruments transaction contracts are defined in Article 34, and the registration of a financial institution that conducts derivatives transactions as a business is in Article 33-2, paragraph 1, item 3. ↩

13. "金融商品取引業等に関する内閣府令" (Cabinet Office Order on Financial Instruments Business, etc., in Japanese), Article 98-2, paragraph 1, item 1(a) (document delivered at the conclusion of a contract), Article 99, paragraph 1, Article 100, paragraph 1, and Article 102, paragraph 1. ↩ ↩²

14. 日本証券業協会 (Japan Securities Dealers Association), "金融商品取引に係る書類のデジタル原則化に向けて" (December 2, 2021), page 6, "３証券業界における顧客交付書面の現状" (Current state of documents delivered to clients in the securities industry), table of the regulatory overview (row for 契約締結時等交付書面) (in Japanese). ↩

15. Financial Services Agency, "金融商品取引業者等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc.) (October 2026), IV-3-1-2(2)② (page 128) (in Japanese). ↩

16. Financial Services Agency, "金融商品取引契約に係る顧客交付書面のデジタル化について" (Digitalization of documents delivered to clients for financial instruments transaction contracts, our translation) (February 20, 2025) (in Japanese). The treatment of clients who ask for paper is in Article 98-2, paragraph 1 of the "金融商品取引業等に関する内閣府令" (Cabinet Office Order on Financial Instruments Business, etc., in Japanese). ↩

17. "金融商品取引業等に関する内閣府令" (Cabinet Office Order on Financial Instruments Business, etc., in Japanese), Article 110, paragraph 1. Item 2(e) covers delivery of a contract document, and items 3 to 7 cover cases such as clearing brokerage, handling of accidents, discretionary investment contracts, and partial changes to a contract. ↩

18. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 45, item 2. Professional investors are defined in Article 2, paragraph 31. ↩