What is Post Trade Compliance?

Post-trade compliance in global custody is the process of ensuring that all investment activities happening after a trade are properly managed when assets are held across different countries and markets. Global custodians are like international financial warehouses – they keep assets safe for large investors like pension funds, insurance companies, and investment managers who invest money worldwide.

When trades happen across different countries, global custodians need to check that everything follows both local and international rules. For example, if a U.S. pension fund buys stocks in Japan through their global custodian, the custodian must ensure the trade follows both U.S. and Japanese regulations. This becomes especially important because different countries have different settlement cycles, trading hours, and regulatory requirements.

The compliance process starts as soon as the custodian receives notice of a trade. They first verify that the trade details match between all parties involved – the buyer, seller, and any intermediaries. This is crucial because even small discrepancies can cause big problems when dealing with millions of dollars worth of assets. The custodian must also check that the client actually has permission to make these types of investments under their investment guidelines and local regulations.

Money movement is another critical area where compliance comes into play. Global custodians must ensure that the right amount of money is available in the correct currency at the right time. They need to monitor exchange rates, maintain proper cash balances in various currencies, and make sure all money transfers comply with international banking regulations and anti-money laundering rules.

Tax compliance is particularly complex in global custody. Different countries have different tax rates, withholding requirements, and tax treaties with other nations. The global custodian must ensure they're applying the correct tax treatments to all transactions and maintaining proper documentation to support any tax benefits their clients claim. They also need to help clients reclaim taxes when they're entitled to do so under international agreements.

Corporate actions present another compliance challenge. When companies issue dividends, merge with other companies, or make other corporate changes, global custodians must ensure their clients' rights are protected according to local laws. They need to track announcement dates, record dates, and payment dates across different time zones and make sure their clients receive all benefits they're entitled to.

Asset segregation is a fundamental compliance requirement in global custody. Custodians must keep each client's assets completely separate from both the custodian's own assets and those of other clients. This segregation must be maintained at all levels – in the custodian's own books, in local market depositories, and with any sub-custodians they use. They need to have clear records showing exactly who owns what at all times.

Reporting is a major part of post-trade compliance in global custody. Custodians must provide regular reports to their clients showing all their holdings, transactions, and corporate action events. These reports must meet both the clients' needs and regulatory requirements in various jurisdictions. They also need to report certain types of transactions to regulators in different countries, especially for monitoring market manipulation and money laundering.

Risk monitoring is ongoing throughout the post-trade process. Global custodians need to watch for various types of risks – market risk, counterparty risk, operational risk, and country risk. They need systems to flag any unusual patterns or potential problems before they become serious issues. This includes monitoring sub-custodians they use in local markets to ensure they continue to meet safety and compliance standards.

Technology plays a crucial role in managing all these compliance requirements. Global custodians invest heavily in systems that can handle different market practices, time zones, languages, and regulations. These systems need to communicate with various market infrastructures around the world while maintaining accurate records and providing real-time information about compliance status.

When problems do occur, global custodians need robust procedures for resolving them quickly. This might involve fixing failed trades, correcting wrongly processed corporate actions, or addressing regulatory inquiries. They need to maintain detailed audit trails of all their actions and be able to demonstrate to regulators that they have proper controls in place.

Looking ahead, post-trade compliance in global custody continues to evolve. New regulations, changing market practices, and advancing technology like digital assets all impact how compliance is managed. Global custodians must constantly update their systems and procedures to keep up with these changes while maintaining the accuracy and security their clients depend on.