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The Post-Trade - Matching and Confirmation (Part 1)

Updated: Jul 13, 2022

Interested in The Trade Life Cycle?

From the point a securities order is placed in a digital channel, there are several operations applied on the order and these operations depend on the asset you are trading...

This paper will walk through the operations after the securities are placed in the digital channels.

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The objective of the post-trade stage is to complete the exchange of the asset and cash for orders that have completed the trade stage.
The key activities in the Post-Trade stage are: "Matching", "Confirmation", "Settlement and Clearing".  In this Article, we will be sharing about Settlement and Clearing.
< Figure 1: Centralized Matching Process >


Since there are many parties, high trading volume, and many data items involved in the trading process, records in each party could be unavoidably mis-matched. The mismatch problem could be due to manual mistakes or system problems from one or more than one of the parties. It is important to catch the trade mismatch before the settlement to avoid settlement failure and save time and money in the settlement process.

For example, the order quantities, settlement instructions or OTC traded contract terms from the buy side and the sell side could be mis-match. This may be due to system bugs or miscommunication between the buy side and the sell side of the intermediate counterparty.

Depending on the asset class and degree of automation and standardization of the trading process, the mismatch rate and the matching approach are different. The higher degree of automation and standardization in the trade process, the low the mismatch rate and the simpler the matching process.

Equities traded at stocks exchange usually have Straight-Through-Process (STP). The trade records are highly standardized. The matching process is automatically done at the moment of the order completion in the trade stage. Hence it has an extremely low or even no mismatch rate, and the matching process is fully automated.

While derivatives traded through OTC usually have a trading process manually or only partially automated. In addition, each OTC traded contract could be different. Such a process is more error prone and has a higher mismatch rate. The matching process could also be very manual, such as by phone, fax, or email.

Other than the stocks exchanges, an automatic matching process could be carried out between the trade parties. In such a case, trade details will be sent to another party through electronic means, such as electronic files (for batch order matching process) or messages (for real-time order matching process). The format of the files or message could be proprietary or based on industry standards. One of the standards is the SWIFT (Society for Worldwide Interbank Financial Telecommunication) message, which is originally for payment transactions but has evolved to cover securities trading transactions. The way they respond to each other should be a proprietary protocol defined between the parties.

Apart from carrying out the matching process by the trade parties themselves, agents are providing centralized trade record matching services.

For instance, the Depository Trust & Clearing Cooperation (DTCC) provides a centralized trade matching platform for multi-asset classes. DTCC adopts a typical matching process in the industry.

In this process, a trade workflow is defined for each trading process. Then different parties in the workflow submit their trade records. The matching engine matches the records according to the workflow and determines if the records from all parties are matched. If the records are mismatched, the engine will identify which party has incorrect records. The engine will send the acknowledgment to each party to confirm if the trade records are matched or if there are any mismatched records.

The trade record matching process for institutional clients is far more complicated. This is because that involves data items that aggregate values from several trade orders. Hence complex logic is required in the matching process to handle this trade process complexity.


As the name stated, confirmation is the process to confirm the matching result. The process is simple for matched trades. However, it could be challenging for unmatched trades because you have to identify which record is correct and make amendments to another record. In other words, confirmation also involves the process of resolving the mismatch trades.

The simplest way to resolve mis-match trades is to clarify the trade details by phone calls, emails, or even face-to-face discussion. However, such a manual way may only be suitable for low volume trading environment, such as derivatives trading through OTC.

There is a need for an automatic, efficient, transparent, and fair protocol to resolve mis-match trades. One of the approaches is to use the typical matching mechanism mentioned in the last section. Throughout the workflow of the trade process, the original value of the mismatch data item could be determined. It will be taken as the correct value and applied to all the mismatched trade records.

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