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There are different entities involved when trading, not just “a broker”:
- banks
- execution management systems
- brokers
- custodians
- clearing/settement agencies
Typically, these entities sit in different legal systems, and you cannot settle trades (whether buying or selling) with all of them working.
E.g. when you trade equities with your bank, it routes your order to an execution management system for equities, like Bloomberg EMSX or State Street’s Charles River IMS.
Brokers around the world are connected to this execution management system and depending on your order instructions multiple brokers will try to best match your order with a counterparty (which can be another end customer like you or their own trading desk trading on their own book or some fund/ETF manager redeeming or rebalancing).
If there is a “best” match* broker (as in best-for-you given your conditions), the order will be executed.
Next step is clearing by an independent clearing/settlement agency like DTCC (Depository Trust & Clearing Corporation) or SIX. Clearing is the process of preparing a trade for settlement. It confirms that the trade details match (price, quantity, buyer, seller). The clearinghouse also acts as a central counterparty, stepping between the buyer and the seller, ensuring both parties have the financial capability to fulfill their obligations, etc.
Settlement is the final step where the actual transfer of assets (e.g., securities) and funds occurs to fulfill the terms of the trade. This typically happens a (business) day or two after you traded (after successful execution). This is the famous T+1 or T+2 often discussed on this forum.
At settlement time your new securities (assuming you bought some) arrive from the clearinghouse at your bank’s custodian (or sub-custodian) and are held there.
And the seller receives your money from the clearinghouse (minus fees collected by your and his bank, and fees by the parties involved in between).
Swissquote is a bank, a broker and a custodian, and has several sub-custodians (like BNP Paribas, Swissquote Bank Europe SA in Luxembourg and Swissquote MEA Ltd).
When you buy, say, VT via Swissquote, they will likely route your order with your conditions to Bloomberg EMSX, connected brokers (around the world) will bid on your order, the best one is matched and EMSX will declare the order as executed. The executed order will likely be cleared and settled by DTCC – DTCC receives your money and the seller’s VT shares and makes sure everythings checks out as it should.
A day later, the seller receives your money (minus fees, see above) and Swissquote receives the seller’s shares and holds them for you in their custody account or one of their sub-custody accounts.
Simple, isn’t it?
* If there are multiple “best” matches, there is some algorithm that will pick one.
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