The trade record is the starting point of every later step for the back office that checks the entry, and for the staff who use the record to value trades, manage risk, and report. If the record is wrong, the valuation, the confirmation reconciliation, and the settlement all proceed on the wrong terms.

Entering the trade, and the operations that use the record

Trade capture is the recording of the terms of an executed trade in the institution's internal systems. Consider a hypothetical example in which a financial institution enters into a five-year interest rate swap with a counterparty, with a notional amount of 10 billion yen. The institution pays a fixed rate of 1% a year and receives a floating rate. If these terms are entered correctly, the system calculates the fixed payment as 100 million yen a year (10 billion yen × 1%). If the notional amount is entered as 1 billion yen, the payment is recorded as 10 million yen a year, and the market value and the position are also calculated as if the trade were one-tenth the size.

The entered record is the basis for the operations that follow. The US Federal Reserve Board's examination manual (1998; the "examination manual" below) says the trade record is used for accounting entries and for settlement through maturity. Recorded trades are revalued periodically, and the instructions for payments and receipts at maturity are generated from this record1. The examination manual (2003) also calls for procedures that record every trade accurately, so that management can understand the size of the risks and the profit and loss2.

For an OTC derivative such as an interest rate swap, the record entered on the trade date keeps being used to calculate interest payments for years until maturity. It is also the basis for processing events during the life of the trade, such as exercise and early termination (lifecycle events)1.

Entry errors are caught by a unit other than the one that did the trade. The examination manual (1998) says the duties of the front office (sales and trading) and the back office (operations and settlement) should be separated (segregation of duties), and that the back office should be the place where errors are detected and reported to traders3. The roles of each unit as a whole are covered in Front, Middle and Back Office Roles.

The flow from execution to reconciliation

From execution to handing the trade over for reconciliation with the counterparty, the process runs through entry, an internal check, and the handover. Who makes the entry depends on how the institution's systems are built. In the examination manual (1998), where the front and back offices have separate trading systems, the back office enters the trade from the trade ticket written by the trader. In STP or other automated systems, which process a trade in one continuous flow from execution to settlement, the front office usually enters it, and the back office checks it before accepting it4.

Who checks whether an entered trade stays within limits (market risk risk limits, credit limits for each counterparty, and so on) also varies between institutions. In some, back-office staff do the check, and in others a risk management unit independent of the front office does it5. The figure below shows an example in which the front office enters the trade and the middle office (risk management and similar functions) checks the limits.

Front officeMiddle officeBack officeMismatchMatchAgree the tradewith thecounterpartyEnter the tradein the systemCheck the tradeis within limitsCheck the entryagainst thetrade recordsCorrect the entryand send itback for checkingSend confirmationand pass on forreconciliation
Figure 1From trade entry to reconciliation with the counterparty
Figure description

After the front office enters the trade terms, the middle office checks the limits and the back office checks whether the entry matches the trade records. If it does not, the front office corrects the entry and the back office checks it again. If it does, the back office sends a confirmation and passes the trade on for reconciliation with the counterparty. A unit other than the one that made the entry checks the trade before it goes outside the institution.

The back office checks that the trade ticket or entry received from the front office is correct, collects any missing information, and records it. Once the check is done, it sends a trade confirmation to the counterparty. If the confirmation that comes back from the counterparty matches, the trade is confirmed; if there are differences, they go to a resolution process1. Where the trader hands the trade ticket to the back office, the trader drops out of the processing after the handover. From then on, the trader is involved only in reconciling their own positions with a record the back office keeps separately, and in checking reports the back office prepares6.

The exchange of confirmations, what to do when reconciliation finds a mismatch, confirmation deadlines, and the types of entry error and how they lead to losses are covered in Booking Errors and Confirmation Mismatches.

When trades are sent to an electronic confirmation service

The flow so far has the back office prepare a confirmation and send it to the counterparty. When a confirmation platform is used, the executed trade's terms go to the service instead.

According to OSTTRA's description, when a broker, dealer, or trading venue sends a trade to the service and the parties accept it (affirm it), the process moves to the next step. That step is typically trade booking and confirmation7. Where the back office sends the confirmation, the order is entry, back-office check, and sending the confirmation1.

In electronic confirmation, the terms are confirmed by matching the trades the parties each submit, or by the parties affirming (accepting) them7.

Items to enter and when to enter them

The items entered are the trade terms needed to draw up the contract without going back to the trader. The trade record includes the following items8. An interest rate swap has no single settlement date, so the example puts the start date and the maturity date in the settlement date row.

Item In the interest rate swap example
Trade date and time of execution The date and time the trade was agreed
Settlement date The start date of the trade and the maturity date five years later
Counterparty The counterparty's name
Instrument Interest rate swap in which the institution pays fixed and receives floating
Amount Notional amount of 10 billion yen
Price or rate Fixed rate of 1% a year
Settlement method and location (depending on the product) The account used to pay and receive interest

The trade ticket states the type of instrument clearly and contains all the information needed to draw up the contract9. The items for reporting trade data to the authorities also include the effective date, the maturity date, the parties to the trade, the direction, and the notional amount10.

The entry is made at the time of the trade or right after it. Trade tickets and position records are to be prepared promptly and completely, and depending on the volume and pace of trading, they may need to be prepared almost at the same time as the trade11.

In Japan, securities firms and similar firms (financial instruments business operators engaged in Type I financial instruments business) prepare order tickets, including for OTC derivatives trades. The date and time of execution and the execution price are among the items on the ticket. For proprietary trades, the ticket is prepared promptly when the order is placed. When the ticket is prepared by computer, the items other than the execution results are entered by the time the order is placed. The date and time of entry are recorded automatically12.

For trades outside normal trading hours or outside the dealing room, the institution specifies in advance the authorized staff and the instruments they may trade, and such trades are reported promptly in writing and recorded1314.

Checks and approvals by each unit

After entry, staff outside the unit that did the trade check what was entered and whether the trade stays within the rules. How the checking roles are divided depends on the institution's organization, but the examination manual (its 1998 and 2003 sections) shows the following split.

Who What they check in trade capture
Front-office trader Time-stamps the trade ticket and checks its content. Reconciles daily positions with the record the back office keeps separately176
Back office Checks the entry against the trade ticket and collects missing information. Records in a register the reasons for trades at off-market prices118
Unit independent of trading Detects excesses over approved trading limits from daily reports19
Management Approves trades that will exceed a limit before the limit is exceeded, and keeps a record. Checks the reasons for trades at off-market prices20

In some setups, both the trader and a back-office staff member sign the trade ticket9. To check prices, the trader's daily trade records are compared with the day's market price range. Trades at off-market prices can be used to shift profit or loss to another institution or another period, so their reasons are recorded and approved2118. Trades agreed orally are confirmed as soon as possible. Trades agreed over the phone are recorded and later supported by written documents, and the terms agreed orally are checked against the terms later confirmed in the confirmation22.

The limit check starts before the trade. Before trading, the trader checks that the trade fits within the counterparty's credit limit and the other approved trading limits23. For the foreign exchange trades covered by the FX Global Code, credit limits are set independently of the front office, and only trades within approved limits are accepted24. The check after the trade confirms that the trade passed this pre-trade check and, if it exceeds a limit, that it was approved in advance.

Procedures for correcting and canceling entries

Entries are corrected and canceled through a set procedure that involves staff other than those who made the entry. For foreign exchange trades, the FX Global Code calls for the following procedure. The processes for novation, amendment, and cancellation of trades are clearly defined, and the duties of operations, sales, and trading staff are kept separate. The status of amendments and cancellations is reported regularly to the managers in each of these areas25. After an amendment or cancellation, confirmations are exchanged again as soon as practicable26. Monitoring of trading is also expected, to detect profit and loss or risk being concealed or manipulated through trades or adjustments with no genuine business purpose27.

In the earlier example, suppose the front office entered the notional amount as 1 billion yen, and the back office checked the entry against the trade ticket and found the error, since the trade was for 10 billion yen. The front office corrects the entry to 10 billion yen, and the back office checks the corrected entry again before sending the confirmation. The original 1 billion yen record is not deleted but kept together with the record of the correction. In Japan, securities firms and similar firms may prepare order tickets by entering them directly into a computer. For that case, a system that keeps the records of canceled or amended entries as they are is listed as a point to note15.

Numbers, times, and holdover management

Numbering trade tickets sequentially lets the institution reconstruct the history of its trades when needed17. Recording the time of execution makes it possible to check the prices of intraday trades and to reconstruct trading activity. The examination manual (1998) also lists, as a point to check, that for each trader the order of the ticket time stamps roughly matches the order of the ticket numbers28.

Trades not posted to the books by the end of the day are managed in a register as holdovers. The examination manual (1998) lists, as points for the examiner to check, that holdover trades can be identified as such in the register, that they are included in the traders' position reports, and the reasons where holdovers are frequent29.

Notes

  1. Board of Governors of the Federal Reserve System, "Trading and Capital-Markets Activities Manual," Section 2060.1, page 3 (February 1998), continuation of "TICKET FLOW." ↩ ↩2 ↩3 ↩4 ↩5

  2. Examination manual, Section 2060.1, page 2 (April 2003), "INTERNAL CONTROLS." ↩

  3. Examination manual, Section 2050.1 "Operations and Systems Risk (Front-Office Operations)" (February 1998), page 1 (second paragraph of the section). ↩

  4. Examination manual, Section 2050.1 (February 1998), "Transaction Flow," page 2. ↩

  5. Examination manual, Section 2060.1, page 1 (April 2003; the paragraph on the management responsibilities performed by the back office). ↩

  6. Examination manual, Section 2060.1, page 2 (April 2003, "TICKET FLOW") and page 3 (February 1998, continuation of "TICKET FLOW"). ↩ ↩2

  7. OSTTRA, "Trade Processing," the Affirm item and the Confirm item. Checked on October 8, 2026. ↩ ↩2

  8. Examination manual, Section 2050.1 (February 1998), "Transaction Flow," pages 2–3. ↩

  9. Examination manual, Section 2060.4 "Operations and Systems Risk (Back-Office Operations): Internal Control Questionnaire," page 2 (February 1998), "TICKET FLOW," questions 1–4. ↩ ↩2 ↩3

  10. Financial Services Agency, "店頭デリバティブ取引等の規制に関する内閣府令第４条第１項で定める作成・保存・報告事項 ガイドライン" (Guidelines on the items to be prepared, retained, and reported under Article 4, paragraph 1 of the Cabinet Office Order on the regulation of OTC derivatives transactions, our translation) (December 2022), "報告事項 一覧" (List of reporting items): the items for the effective date, maturity date, parties to the trade, direction, and notional amount (in Japanese). ↩

  11. Examination manual, Section 2050.1 (February 1998), "SOUND PRACTICES," page 4. ↩

  12. "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 157, paragraph 1, item 3; Article 158, paragraph 1, items 10 and 11, and paragraph 2, items 1 and 3. The activities covered are those in "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 2, paragraph 8, items 1 to 4 (item 4 is OTC derivatives transactions). ↩

  13. 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; the "Code"), Principle 36 (pages 41–42) (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. ↩

  14. Examination manual, Section 2060.1, page 3 (February 1998; the paragraph on trades outside normal trading hours). ↩

  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.), III-3-3(4) "注文伝票のコンピュータへの直接入力による作成" (Preparing order tickets by direct entry into a computer), ④ and ⑤ (in Japanese). ↩ ↩2

  16. The Financial Services Agency guidelines on OTC derivatives reporting items above (December 2022), definition of item 101 "Action type" in the table of reporting items (in Japanese). ↩

  17. Examination manual, Section 2060.3 "Operations and Systems Risk (Back-Office Operations): Examination Procedures" (February 1998), "TICKET-FLOW PROCEDURES," steps 1 and 2, page 2. ↩ ↩2

  18. Examination manual, Section 2060.1, page 3 (February 1998; the paragraph on off-market trades in the continuation of "TICKET FLOW"). ↩ ↩2

  19. Examination manual, Section 2060.4, page 2 (February 1998), "SEGREGATION OF DUTIES," question 15. ↩

  20. Examination manual, Section 2060.3 (February 1998), "TICKET-FLOW PROCEDURES," steps 3 and 7, pages 2–3. ↩

  21. Examination manual, Section 2050.1 (February 1998), "TRADE CONSUMMATION," page 2 (the paragraph on daily trade records and off-market prices), and page 4 (the paragraph on trades at off-market rates under "UNACCEPTABLE PRACTICES"). ↩

  22. Examination manual, Section 2060.1, page 2 (April 2003; the paragraph on confirming trades agreed orally). ↩

  23. Examination manual, Section 2050.1 (February 1998), "TRADE CONSUMMATION," page 2. ↩

  24. The Code, Principle 29 (page 36). ↩

  25. The Code, Principle 45 (page 46). ↩

  26. The Code, Principle 46 (page 46). ↩

  27. The Code, Principle 38 (pages 42–43). ↩

  28. Examination manual, Section 2060.1, page 3 (February 1998; the paragraph on recording the time of execution). ↩

  29. Examination manual, Section 2060.3 (February 1998), "TICKET-FLOW PROCEDURES," steps 8 and 9, page 3. ↩