When reconciliation turns up a difference, the firm checks it internally, notifies the counterparty, and follows it through to resolution. Reconciliation between the records in the systems of the front office (sales and trading), the middle office (risk management and similar functions), and the back office (operations and settlement) is carried out by staff independent of the business unit1.

Exchanging the material terms and valuations of all swaps with a counterparty and resolving any differences is called portfolio reconciliation. Under US rules, swap dealers reconcile with each other every business day if they have 500 or more swaps, every week if they have more than 50 but fewer than 500, and every quarter if they have 50 or fewer2.

Notes

  1. 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 27 (page 35), Principle 48 (pages 47–48), and Principle 54 (page 51) (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. ↩

  2. 17 CFR 23.500(i) (Portfolio reconciliation) and 23.502(a)(3)(i)–(iii). ↩