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Clearing – FX Transaction Lifecycle

Clearing – Foreign Exchange Process Flow

Now that we have understood the pre trade and trade steps of the trade lifecycle lets understand clearing. Clearing is the same as trade confirmation whereby the trade gets passed on to the back office, which in turn confirms the trade with the counterparty.

Image The Foreign Exchange Trade Lifecycle

The Foreign Exchange Trade Lifecycle

 

Clearing – Trade Confirmation Process

Deals done though the Reuters/Bloomberg dealing systems go directly to back office as STP deals. Backoffice (BO) does the counterpart confirmations confirming the important rate, amount, date, and settlement instructions with the counterpart bank.

In the example before between 2 dealers Dealer 1’s bank’s BO will send a paper/electronic confirmation to Dealer 2 s bank with the trade details. Dealer 2s bank will check the deal in their systems and also confirm of the deal done. By the end of day the FX back office would have confirmed thousands of such deals with their counterparts banks and reconcile these deals with all the dealers positions.

Next we examine the most crucial sub process in the lifecycle – Settlements

Related topics

Forex

Exchange Rates

Cross Rates

 

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