The Corner

by Bart Ward

Several steps are involved in processing a transaction in a brokerage house. The process begins when the client places an order with the broker. The broker then writes the order ticket and submits it to the following departments. All of this is handled by the “back office” where the actual accounting, clearing and processing of trades occur. The stockbroker who securities are sold to clients occurs in the “front office.”

• Order department (wire room, order room). This department transmits the order to the proper market for execution. Completed trade tickets are sent to the broker who initiated the trade and to the purchase and sales department.

• Purchase and sales department. The P&S department handles all billing, typically a computerized process. It performs computations for each trade and records all transactions in the client’s accounts. It mails the trade confirmation, which specifies the commission and total cost.

• Margin or credit department. This department handles activities involving credit for cash as well as margin accounts. It computes the date on which clients must deposit money and the amount of the deposit.

• Cashiering department (the cage). This department is responsible for receiving and delivering securities and money. It issues payment only if instructed to do so by the margin department. It sends certificates to transfer agents to be transferred and registered, then forwards the certificates to their cleints. Most brokerage houses use a clearing corporation for such services as the delivery of securities, custody and settlement of trades.

• Reorganization department. This department handles any transaction that represents a change in the securities outstanding. This includes such actions as exchanging or transmitting any securities held for customers involved in tender offers, bond calls, redemptions of preferred stock, mergers and acquisitions.

• Dividend department. This department is responsible for crediting client accounts with dividends and interest payments on client securities held in the firm’s name.

• Proxy department. This department has the responsibility of sending proxy statements to clients whose securities are held in the firm’s name. It also sends out financial reports and other publications received from the issuer for its stockholders.

• Stock record department. This department maintains the ledger that lists the owner of the stock and the location of the certificate.

• Possession and controller’s department. This department is responsible for accounts payable, employee payroll and financial reports to regulatory agencies. The department also sends statements to clients.

• The ACATS department. Automated Customer Account Transfer Service is the process by which stocks, bonds, cash, unit trusts, mutual funds, options and other investment are be transferred from buyer to seller or vice versa. The system facilitates the transfer of securities from one trading account to another at a different brokerage firm or bank. The National Securities Clearing Corporation developed the ACATS system.

Quote of the Week: “Like an ox-cart driver in monsoon season or the skipper of a grounded ship, one must sometimes go forward by going back.”—John Barth

Bart Ward is the chief executive officer of Ward & Co. Ltd. an Anoka based registered investment advisor – specializing in the management of stock and bond portfolios in companies which are listed on the NYSE.

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