📊 OTC Derivatives: From Trade Execution to Confirmation

OTC derivatives are a vital part of global financial markets. Unlike exchange-traded products, these contracts are privately negotiated, which makes the trade lifecycle extremely important for accuracy, transparency, and risk control.

Here’s a simple breakdown of the process 👇

🔹 1. Trade Execution

🤝 The deal is agreed between two parties. ✔ Negotiation can happen via phone, email, or electronic platforms.

🔹 2. Trade Capture

🖊 The executed trade is entered into the trading system. ✔ This makes the deal official and ready for downstream processing.

🔹 3. Trade Enrichment

💡 Extra details are added to ensure smooth settlement. ✔ Example: nostro account details, Standing Settlement Instructions (SSIs), counterparty data.

🔹 4. Trade Validation

🔍 The system validates the captured trade. ✔ Checks include counterparty, product type, trade dates, and rates.

🔹 5. Trade Verification

✅ The trade details are reconfirmed with the Front Office. ✔ Ensures what was executed matches what is recorded.

🔹 6. Trade Confirmation

📄 Both parties exchange legal confirmations of the trade. ✔ ISDA templates help standardize this step. ✔ Platforms like ICE Link are often used for faster processing.

⚡ Why does it matter?

Since OTC derivatives are not exchange-traded, these steps are critical to:

• Minimize operational risk
• Avoid settlement failures
• Ensure legal enforceability
• Maintain trust between counterparties

This structured process keeps complex financial markets running smoothly and safely.

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