Quick Answer
Comparison requires an adequate security description, the transaction price, and any other information needed for agreement. Different reported details never establish a matched comparison. Self-clearing firms clear for themselves and introducing firms use a clearing broker-dealer, while a clearing corporation can also assume member obligations and stand between the two sides.
Comparison creates a common record of the transaction. Settlement later completes the delivery of securities and payment between the parties.
What Must a Trade Comparison Include?
An interfirm comparison or confirmation must give the buyer and seller enough information to agree on the transaction details.
| Comparison content | Standard |
|---|---|
| Security description | Must include an adequate description of the security. |
| Price | Must include the price at which the transaction occurred. |
| Other necessary information | Must include any other information needed for the buyer and seller to agree on the transaction details. |
Exam Tip: Gotchas
- A comparison must carry everything the parties need to agree. Beyond the security description and price, include any other information needed for agreement.
When Does Comparison Show Agreement?
A comparison shows agreement only when the buyer and seller agree on the required transaction details. Different reported details do not support a matched comparison.
Exam Tip: Gotchas
- Different required details do not establish agreement. Do not treat different reports as a matched comparison.
Who Performs the Clearing and Settlement Work?
The exam can describe a firm, another broker-dealer, or a facility. Identify who performs the work and who provides the processing channel.
| Operating model | Operational distinction |
|---|---|
| Self-clearing broker-dealer | The firm performs its own clearing and settlement work. |
| Introducing broker-dealer | The firm sends its transactions to another broker-dealer for clearing and settlement. |
| Clearing broker-dealer | The other broker-dealer performs clearing and settlement work for the introducing firm. |
| Clearing facility | The organization or system provides clearing and settlement processing. Under a continuous net settlement arrangement, the clearing corporation also assumes member settlement obligations and receives the related rights. This places it between delivering and receiving members. It is not the broker-dealer serving an introducing firm. |
| Institutional clearing and settlement arrangement | The arrangement supports clearing and settlement for institutional transactions. |
Exam Tip: Gotchas
- A clearing broker-dealer and a clearing facility are different. The broker-dealer performs work for a firm. The facility supports processing, and a clearing corporation can also assume member obligations under its settlement arrangement.
How Do Comparison and Settlement Differ?
Comparison and settlement have different functions. Comparison establishes whether the parties agree on the required transaction details. Settlement covers delivery of securities and payment. Clearing arrangements use their own procedures to process transactions.
Positions that remain open can be carried forward and recycled.
Exam Tip: Gotchas
- Comparison is not settlement. Comparison establishes agreement on transaction details. Settlement covers delivery and payment, but processing through an arrangement does not prove completion because positions can remain open and recycle.
What Should You Check on Exam Day?
- Different required details do not establish buyer and seller agreement.
- A self-clearing firm performs its own work; an introducing firm uses a clearing broker-dealer.
- A clearing broker-dealer performs work for a firm. A clearing facility provides processing, and its arrangement can place the clearing corporation between members as counterparty.
- Comparison establishes agreement; settlement completes delivery and payment.
- Processing through a settlement arrangement does not by itself prove completion. Open positions can carry forward and recycle.