Custodian

What Is a Custodian?
A custodian is a financial institution that holds customers' securities for safekeeping in order to
minimize the risk of their theft or loss. A custodian holds securities and other assets in electronic or
physical form. Since they are responsible for the safety of assets and securities that may be worth
hundreds of millions or even billions of dollars, custodians generally tend to be large and reputable
firms. A custodian is sometimes referred to as a "custodian bank."

KEY TAKEAWAYS
 A custodian is a financial institution that holds customers' securities for safekeeping
in order to minimize the risk of their theft or loss.
 A custodian holds securities and other assets in electronic or physical form.
 Since they are responsible for the safety of assets and securities that may be worth
hundreds of millions or even billions of dollars, custodians generally tend to be large and
reputable firms.

How a Custodian Works?

In addition to holding securities for safekeeping, most custodians also offer other services, such as
account administration, transaction settlements, the collection of dividends and interest payments,
tax support, and foreign exchange. The fees charged by custodians vary, depending on the services
that the client desires. Many firms charge quarterly custody fees that are based on the aggregate
value of the holdings. A custodian may also have the right to assert possession over the assets, if
required, often in conjunction with a power of attorney. This allows the custodian to perform actions
in the client's name, such as making payments or changing investments.

Special Considerations
In cases where investment advisors are responsible for customer funds, the advisor must follow
custody rules set forth by the Securities and Exchange Commission (SEC). The person or entity must
be considered a qualified custodian, often limiting the options to banks, registered brokers,
registered dealers, and certain other individuals or entities.
Notices must be supplied to customers when certain activities are conducted on their behalf or using
their assets. Further, account statements must be supplied to the customers to keep them abreast
of the current holdings associated with their assets.
If an account beneficiary is a minor, a custodian is often required due to the rules and regulations
limiting the activities of minors, resulting in the creation of a custodial account. The custodian has
the authority to make contributions and investment decisions regarding the assets in the account,
but the funds are ultimately intended for use by the named beneficiary.
Each account can only have one beneficiary, the minor account holder, and one custodian, a
designated adult representative. The custodian remains in place until he resigns or becomes
incapacitated, or the beneficiary reaches the age of legal adulthood.
Other people can contribute to a minor's account, but they have no authority over how the funds
are managed once they are deposited.

Custodian Bank Examples

In the U.S., some of the largest custodian banks include the Bank of New York Mellon, JPMorgan
Chase, State Street Bank and Trust Co., and Citigroup. Abroad, some of the best-known custodians
are Bank of China (Hong Kong), Credit Suisse and UBS (Switzerland), Deutsche Bank (Germany),
Barclays (England), and BNP Paribas (France).
Broker
What is a Broker?
A broker is an individual or firm that charges a fee or commission for executing buy and sell orders
submitted by an investor. A broker also refers to the role of a firm when it acts as an agent for a
customer and charges the customer a commission for its services. This whole process was
revolutionized by the paradigm shift caused by the internet.
Broker Basics
As well as executing client orders, brokers may provide investors with research, investment plans
and market intelligence. They may also cross-sell other financial products and services their
brokerage firm offers, such as access to a private client offering that provides tailored solutions to
high net worth clients. In the past, only the wealthy could afford a broker and access the stock
market. Online broking triggered an explosion of discount brokers, which allow investors to trade at
a lower cost, but without personalized advice.

KEY TAKEAWAYS
 A broker is an individual or firm that charges a fee or commission for executing buy and sell
orders submitted by an investor.
 A broker can also refer to the role of a firm when it acts as an agent for a customer and
charges the customer a commission for its services.
 Discount brokers execute trades on behalf of a client, but typically don’t provide investment
advice.
 Full-service brokers provide execution services as well as tailored investment advice and
solutions.
 Brokers register with FINRA, while investment advisers register through the SEC as RIAs.

Discount vs. Full-Service Brokers

Discount brokers can execute many types of trades on behalf of a client, for which they charge a
reduced commission in the range of $5 to $15 per trade. Their low fee structure is based on volume
and lower costs. They don’t offer investment advice and brokers usually receive a salary rather than
commission. Most discount brokers offer an online trading platform which attracts a growing
number of self-directed investors.
Full-service brokers offer a variety of services, including market research, investment advice, and
retirement planning, on top of a full range of investment products. For that, investors can expect to
pay higher commissions for their trades. Brokers receive compensation from the brokerage firm
based on their trading volume as well as for the sale of investment products. An increasing number
of brokers offer fee-based investment products, such as managed investment accounts.

Real Estate Brokers

In the real estate industry, a broker is a licensed real estate professional who typically represents the
seller of a property. A broker's duties when working for a seller may include:
 Determining the market values of properties.
 Listing and advertising the property for sale.
 Showing the property to prospective buyers.
 Advising clients about offers, provisions, and related matters.
 Submitting all offers to the seller for consideration.
It is not uncommon to have a real estate broker work for a buyer, in which case, the broker is
responsible for:

 Locating all properties in the buyer's desired area sorted by price range and criteria.
  Preparing an initial offer and purchase agreement for a buyer who decides to make
an offer for a property.
 Negotiating with the seller on behalf of the buyer.
 Managing inspections on the property and negotiating repairs.
 Assisting the buyer through to closing and taking possession of the property.

Broker Regulation

Brokers register with the Financial Industry Regulatory Authority (FINRA), the broker-dealers’ self-
regulatory body. In serving their clients, brokers are held to a standard of conduct based on the
“suitability rule,” which requires there be reasonable grounds for recommending a specific product
or investment. The second part of the rule, commonly referred to as “know your customer,” or KYC,
addresses the steps a broker must use to identify their client and their savings goals, which helps
them establish the reasonable grounds of the recommendation. The broker must make a reasonable
effort to obtain information on the customer's financial status, tax status, investment objectives and
other information used in making a recommendation.
This standard of conduct differs significantly from the standard applied to financial advisors
registered with the Securities and Exchange Commission (SEC) as Registered Investment Advisers
(RIAs). Under the Investment Advisers Act of 1940, RIAs are held to a strict fiduciary standard to
always act in the best interest of the client, while providing full disclosure of their fees.
Real estate brokers in the United States are licensed by each state, not by the federal government.
Each state has its own laws defining the types of relationships that can exist between clients and
brokers, and the duties of brokers to clients and members of the public. (For related reading, see
"Investment Adviser vs. Broker: What's the Difference?")

Real World Example of Brokers

These four top U.S. regulated brokers provide investors and traders access to financial markets.
Brokerage rates as of May 2019.
TD Ameritrade: TD Ameritrade Holding Corporation (AMTD) provides trading in stocks, options,
exchange-traded funds (ETFs), mutual funds, futures contracts and fixed income investments. The
Omaha, Nebraska-based broker services 11 million accounts that total more than $1 trillion in assets
and charges a flat rate of $6.95 per trade.
Charles Schwab: The Charles Schwab Corporation (SCHW) facilitates trading in most financial
markets along with margin lending and cash management services. The broker operates more than
330 brick-and-mortar locations in 46 states and has $3.36 trillion in total client assets. Traders pay a
$4.95 flat rate to trade stocks.
E*TRADE: Founded in 1982, E*TRADE Financial Corporation (ETFC) provides trading in a wide variety
of securities, holding over three million brokerage accounts, with $285 billion in client assets. The
broker offers its customers an assortment of educational resources relating to investing that helps
warrant its flat $6.95 per trade commission rate.
Interactive Brokers: Interactive Brokers Group, Inc. (IBKR), with over $150 billion in client equity,
offer some of the lowest commissions available at $.005 per share with a minimum of $1 per trade.
The broker connects to any electronic exchange globally, which enables trading in equities, options
and futures. Customers receive access to a wealth of tools for tracking and analysing the financial
markets.
Financial Markets

What Are Financial Markets?

Financial markets refer broadly to any marketplace where the trading of securities occurs, including
the stock market, bond market, forex market, and derivatives market, among others. Financial
markets are vital to the smooth operation of capitalist economies.

Understanding the Financial Markets

Financial markets play a vital role in facilitating the smooth operation of capitalist economies by
allocating resources and creating liquidity for businesses and entrepreneurs. The markets make it
easy for buyers and sellers to trade their financial holdings. Financial markets create securities
products that provide a return for those who have excess funds (Investors/lenders) and make these
funds available to those who need additional money (borrowers).
The stock market is just one type of financial market. Financial markets are made by buying and
selling numerous types of financial instruments including equities, bonds, currencies, and
derivatives. Financial markets rely heavily on informational transparency to ensure that the markets
set prices that are efficient and appropriate. The market prices of securities may not be indicative of
their intrinsic value because of macroeconomic forces like taxes.
Some financial markets are small with little activity, and others, like the New York Stock Exchange
(NYSE), trade trillions of dollars of securities daily. The equities (stock) market is a financial market
that enables investors to buy and sell shares of publicly traded companies. The primary stock market
is where new issues of stocks, called initial public offerings (IPOs), are sold. Any subsequent trading
of stocks occurs in the secondary market, where investors buy and sell securities that they already
own.

Types of Financial Markets

Over-the-Counter Markets

An over-the-counter (OTC) market is a decentralized market—meaning it does not have physical

locations, and trading is conducted electronically—in which market participants trade securities
directly between two parties without a broker. An OTC market handles the exchange of publicly
traded stocks that are not listed on the NYSE, Nasdaq, or the American Stock Exchange. In general,
companies that trade on OTC markets are smaller than those that trade on primary markets, as OTC
markets require less regulation and cost less to use.

Bond Markets

A bond is a security in which an investor loans money for a defined period at a pre-established
interest rate. You may think of a bond as an agreement between the lender and borrower that
contains the details of the loan and its payments. Bonds are issued by corporations as well as by
municipalities, states, and sovereign governments to finance projects and operations. The bond
market sells securities such as notes and bills issued by the United States Treasury, for example. The
bond market also is called the debt, credit, or fixed-income market.

Money Markets

Typically the money markets trade in products with highly liquid short-term maturities (of less than
one year) and are characterized by a high degree of safety and a relatively low return in interest. At
the wholesale level, the money markets involve large-volume trades between institutions and
traders. At the retail level, they include money market mutual funds bought by individual investors
and money market accounts opened by bank customers. Individuals may also invest in the money
markets by buying short-term certificates of deposit (CDs), municipal notes, or U.S. Treasury bills,
among other examples.

Derivatives Market

A derivative is a contract between two or more parties whose value is based on an agreed-upon
underlying financial asset (like a security) or set of assets (like an index). Derivatives are secondary
securities whose value is solely derived from the value of the primary security that they are linked
to. In and of itself a derivative is worthless. Rather than trading stocks directly, a derivatives market
trades in futures and options contracts, and other advanced financial products, that derive their
value from underlying instruments like bonds, commodities, currencies, interest rates, market
indexes, and stocks.

Forex Market

The forex (foreign exchange) market is the market in which participants can buy, sell, exchange, and
speculate on currencies. As such, the forex market is the most liquid market in the world, as cash is
the most liquid of assets. The currency market handles more than $5 trillion in daily transactions,
which is more than the futures and equity markets combined. As with the OTC markets, the forex
market is also decentralized and consists of a global network of computers and brokers from around
the world. The forex market is made up of banks, commercial companies, central banks, investment
management firms, hedge funds, and retail forex brokers and investors.

KEY TAKEAWAYS

 Financial markets refer broadly to any marketplace where the trading of securities occurs.
 There are many kinds of financial markets, including (but not limited to) forex, money, stock,
and bond markets.
 Financial markets trade in all types of securities and are critical to the smooth operation of a
capitalist society.
Stock Market
What is the Stock Market?

The stock market refers to the collection of markets and exchanges where regular activities of
buying, selling, and issuance of shares of publicly-held companies take place. Such financial activities
are conducted through institutionalized formal exchanges or over-the-counter (OTC) marketplaces
which operate under a defined set of regulations. There can be multiple stock trading venues in a
country or a region which allow transactions in stocks and other forms of securities.

While both terms - stock market and stock exchange - are used interchangeably, the latter term is
generally a subset of the former. If one says that she trades in the stock market, it means that she
buys and sells shares/equities on one (or more) of the stock exchange(s) that are part of the overall
stock market. The leading stock exchanges in the U.S. include the New York Stock Exchange (NYSE),
Nasdaq, the Better Alternative Trading System (BATS). and the Chicago Board Options Exchange
(CBOE). These leading national exchanges, along with several other exchanges operating in the
country, form the stock market of the U.S.

Though it is called a stock market or equity market and is primarily known for trading
stocks/equities, other financial securities - like exchange traded funds (ETF), corporate bonds and
derivatives based on stocks, commodities, currencies, and bonds - are also traded in the stock
markets. (For related reading, see "What's the Difference Between the Equity Market and the Stock
Market?")

Understanding the Stock Market

While today it is possible to purchase almost everything online, there is usually a designated market
for every commodity. For instance, people drive to city outskirts and farmlands to purchase
Christmas trees, visit the local timber market to buy wood and other necessary material for home
furniture and renovations, and go to stores like Walmart for their regular grocery supplies.

Such dedicated markets serve as a platform where numerous buyers and sellers meet, interact and
transact. Since the number of market participants is huge, one is assured of a fair price. For example,
if there is only one seller of Christmas trees in the entire city, he will have the liberty to charge any
price he pleases as the buyers won’t have anywhere else to go. If the number of tree sellers is large
in a common marketplace, they will have to compete against each other to attract buyers. The
buyers will be spoiled for choice with low- or optimum-pricing making it a fair market with price
transparency. Even while shopping online, buyers compare prices offered by different sellers on the
same shopping portal or across different portals to get the best deals, forcing the various online
sellers to offer the best price.

A stock market is a similar designated market for trading various kinds of securities in a controlled,
secure and managed the environment. Since the stock market brings together hundreds of
thousands of market participants who wish to buy and sell shares, it ensures fair pricing practices
and transparency in transactions. While earlier stock markets used to issue and deal in paper-based
physical share certificates, the modern-day computer-aided stock markets operate electronically.

How the Stock Market Works

In a nutshell, stock markets provide a secure and regulated environment where market participants
can transact in shares and other eligible financial instruments with confidence with zero- to low-
operational risk. Operating under the defined rules as stated by the regulator, the stock markets act
as primary markets and as secondary markets.

As a primary market, the stock market allows companies to issue and sell their shares to the
common public for the first time through the process of initial public offerings (IPO). This activity
helps companies raise necessary capital from investors. It essentially means that a company divides
itself into a number of shares (say, 20 million shares) and sells a part of those shares (say, 5 million
shares) to common public at a price (say, $10 per share).

To facilitate this process, a company needs a marketplace where these shares can be sold. This
marketplace is provided by the stock market. If everything goes as per the plans, the company will
successfully sell the 5 million shares at a price of $10 per share and collect $50 million worth of
funds. Investors will get the company shares which they can expect to hold for their preferred
duration, in anticipation of rising in share price and any potential income in the form of dividend
payments. The stock exchange acts as a facilitator for this capital raising process and receives a fee
for its services from the company and its financial partners.

Following the first-time share issuance IPO exercise called the listing process, the stock exchange
also serves as the trading platform that facilitates regular buying and selling of the listed shares. This
constitutes the secondary market. The stock exchange earns a fee for every trade that occurs on its
platform during the secondary market activity.

The stock exchange shoulders the responsibility of ensuring price transparency, liquidity, price
discovery and fair dealings in such trading activities. As almost all major stock markets across the
globe now operate electronically, the exchange maintains trading systems that efficiently manage
the buy and sell orders from various market participants. They perform the price matching function
to facilitate trade execution at a price fair to both buyers and sellers.

A listed company may also offer new, additional shares through other offerings at a later stage, like
through rights issue or through follow-on offers. They may even buyback or delist their shares. The
stock exchange facilitates such transactions.

The stock exchange often creates and maintains various market-level and sector-specific indicators,
like the S&P 500 index or Nasdaq 100 index, which provide a measure to track the movement of the
overall market.

The stock exchanges also maintain all company news, announcements, and financial reporting,
which can be usually accessed on their official websites. A stock exchange also supports various
other corporate-level, transaction-related activities. For instance, profitable companies may reward
investors by paying dividends which usually comes from a part of the company’s earnings. The
exchange maintains all such information and may support its processing to a certain extent. (For
related reading, see "How Does the Stock Market Work?")

Functions of a Stock Market

A stock market primarily serves the following functions:

Fair Dealing in Securities Transactions: Depending on the standard rules of demand and supply, the
stock exchange needs to ensure that all interested market participants have instant access to data
for all buy and sell orders thereby helping in the fair and transparent pricing of securities.
Additionally, it should also perform efficient matching of appropriate buy and sell orders.
For example, there may be three buyers who have placed orders for buying Microsoft shares at
$100, $105 and $110, and there may be four sellers who are willing to sell Microsoft shares at $110,
$112, $115 and $120. The exchange (through their computer operated automated trading systems)
needs to ensure that the best buy and best sell are matched, which in this case is at $110 for the
given quantity of trade.

Efficient Price Discovery: Stock markets need to support an efficient mechanism for price discovery,
which refers to the act of deciding the proper price of a security and is usually performed by
assessing market supply and demand and other factors associated with the transactions. Say, a U.S.-
based software company is trading at a price of $100 and has a market capitalization of $5 billion. A
news item comes in that the EU regulator has imposed a fine of $2 billion on the company which
essentially means that 40 percent of the company’s value may be wiped out. While the stock market
may have imposed a trading price range of $90 and $110 on the company’s share price, it should
efficiently change the permissible trading price limit to accommodate for the possible changes in the
share price, else shareholders may struggle to trade at a fair price.

Liquidity Maintenance: While getting the number of buyers and sellers for a particular financial
security are out of control for the stock market, it needs to ensure that whosoever is qualified and
willing to trade gets instant access to place orders which should get executed at the fair price.

Security and Validity of Transactions: While more participants are important for efficient working of
a market, the same market needs to ensure that all participants are verified and remain compliant
with the necessary rules and regulations, leaving no room for default by any of the parties.
Additionally, it should ensure that all associated entities operating in the market must also adhere to
the rules, and work within the legal framework given by the regulator.

Support All Eligible Types of Participants: A marketplace is made by a variety of participants, which
include market makers, investors, traders, speculators, and hedgers. All these participants operate in
the stock market with different roles and functions. For instance, an investor may buy stocks and
hold them for long-term spanning many years, while a trader may enter and exit a position within
seconds. A market maker provides necessary liquidity in the market, while a hedger may like to trade
in derivatives for mitigating the risk involved in investments. The stock market should ensure that all
such participants are able to operate seamlessly fulfilling their desired roles to ensure the market
continues to operate efficiently.

Investor Protection: Along with wealthy and institutional investors, a very large number of small
investors are also served by the stock market for their small number of investments. These investors
may have limited financial knowledge, and may not be fully aware of the pitfalls of investing in
stocks and other listed instruments. The stock exchange must implement necessary measures to
offer the necessary protection to such investors to shield them from financial loss and ensure
customer trust.
For instance, a stock exchange may categorize stocks in various segments depending on their risk
profiles and allow limited or no trading by common investors in high-risk stocks. Derivatives, which
have been described by Warren Buffett as financial weapons of mass destruction, are not for
everyone as one may lose much more than they bet for. Exchanges often impose restrictions to
prevent individuals with limited income and knowledge from getting into risky bets of derivatives.

Balanced Regulation: Listed companies are largely regulated and their dealings are monitored by
market regulators, like the Securities and Exchange Commission (SEC) of the U.S. Additionally,
exchanges also mandate certain requirements – like, timely filing of quarterly financial reports and
instant reporting of any relevant developments - to ensure all market participants become aware of
corporate happenings. Failure to adhere to the regulations can lead to suspension of trading by the
exchanges and other disciplinary measures.
Regulating the Stock Market

A local financial regulator or competent monetary authority or institute is assigned the task of
regulating the stock market of a country. The Securities and Exchange Commission (SEC) is the
regulatory body charged with overseeing the U.S. stock markets. The SEC is a federal agency that
works independently of the government and political pressure. The mission of the SEC is stated as:
"to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."

Stock Market Participants

Along with long-term investors and short-term traders, there are many different types of players
associated with the stock market. Each has a unique role, but many of the roles are intertwined and
depend on each other to make the market run effectively.

 Stockbrokers, also known as registered representatives in the U.S., are the licensed professionals
who buy and sell securities on behalf of investors. The brokers act as intermediaries between the
stock exchanges and the investors by buying and selling stocks on the investors' behalf. An
account with a retail broker is needed to gain access to the markets.

 Portfolio managers are professionals who invest portfolios, or collections of securities, for
clients. These managers get recommendations from analysts and make the buy or sell decisions
for the portfolio. Mutual fund companies, hedge funds, and pension plans use portfolio
managers to make decisions and set the investment strategies for the money they hold.

 Investment bankers represent companies in various capacities, such as private companies that
want to go public via an IPO or companies that are involved in pending mergers and acquisitions.
They take care of the listing process in compliance with the regulatory requirements of the stock
market.

 Custodian and depot service providers, which are institution holding customers' securities for
safekeeping so as to minimize the risk of their theft or loss, also operate in sync with the
exchange to transfer shares to/from the respective accounts of transacting parties based on
trading on the stock market.

 Market maker: A market maker is a broker-dealer who facilitates the trading of shares by posting
bid and ask prices along with maintaining an inventory of shares. He ensures sufficient liquidity
in the market for a particular (set of) share(s), and profits from the difference between the bid
and the ask price he quotes.

How Stock Exchanges Make Money

Stock exchanges operate as for-profit institutes and charge a fee for their services. The primary
source of income for these stock exchanges are the revenues from the transaction fees that are
charged for each trade carried out on its platform. Additionally, exchanges earn revenue from the
listing fee charged to companies during the IPO process and other follow-on offerings.
The exchange also earns from selling market data generated on its platform - like real-time data,
historical data, summary data, and reference data – which is vital for equity research and other uses.
Many exchanges will also sell technology products, like a trading terminal and dedicated network
connection to the exchange, to the interested parties for a suitable fee.
The exchange may offer privileged services like high-frequency trading to larger clients like mutual
funds and asset management companies (AMC), and earn money accordingly. There are provisions
for regulatory fee and registration fee for different profiles of market participants, like the market
maker and broker, which form other sources of income for the stock exchanges.
The exchange also makes profits by licensing their indexes (and their methodology) which are
commonly used as a benchmark for launching various products like mutual funds and ETFs by AMCs.
Many exchanges also provide courses and certification on various financial topics to industry
participants and earn revenues from such subscriptions.

Competition for Stock Markets

While individual stock exchanges compete against each other to get maximum transaction volume,
they are facing threat on two fronts.

Dark Pools: Dark pools, which are private exchanges or forums for securities trading and operate
within private groups, are posing a challenge to public stock markets. Though their legal validity is
subject to local regulations, they are gaining popularity as participants save big on transaction fees.

Blockchain Ventures: Amid rising popularity of blockchains, many crypto exchanges have emerged.
Such exchanges are venues for trading cryptocurrencies and derivatives associated with that asset
class. Though their popularity remains limited, they pose a threat to the traditional stock market
model by automating a bulk of the work done by various stock market participants and by offering
zero- to low-cost services.

Significance of the Stock Market

The stock market is one of the most vital components of a free-market economy.
It allows companies to raise money by offering stock shares and corporate bonds. It lets common
investors participate in the financial achievements of the companies, make profits through capital
gains, and earn money through dividends, although losses are also possible. While institutional
investors and professional money managers do enjoy some privileges owing to their deep pockets,
better knowledge and higher risk taking abilities, the stock market attempts to offer a level playing
field to common individuals.
The stock market works as a platform through which savings and investments of individuals are
channelized into the productive investment proposals. In the long term, it helps in capital formation
& economic growth for the country.

KEY TAKEAWAYS

 Stock markets are vital components of a free-market economy because they enable
democratized access to trading and exchange of capital for investors of all kinds.
 They perform several functions in markets, including efficient price discovery and efficient
dealing.
 In the US, the stock market is regulated by the SEC and local regulatory bodies.
 Examples of Stock Markets
 The first stock market in the world was the London stock exchange. It was started in a
coffeehouse, where traders used to meet to exchange shares, in 1773. The first stock
exchange in the United States of America was started in Philadelphia in 1790. The
Buttonwood agreement, so named because it was signed under a buttonwood tree, marked
the beginnings of New York's Wall Street in 1792. The agreement was signed by 24 traders
and was the first American organization of its kind to trade in securities. The traders
renamed their venture as New York Stock and Exchange Board in 1817. (For related reading,
see "The Highest Priced Stocks in America")
Bond Market
What Is the Bond Market?

The bond market—often called the debt market or credit market—is a financial marketplace where
investors can trade in government-issued and corporate-issued debt securities. Governments
typically issue bonds in order to raise capital to pay down debts or fund infrastructural
improvements. Publicly-traded companies issue bonds when they need to finance business
expansion projects or maintain ongoing operations. Bond investors should be mindful of the fact
that junk bonds, while offering the highest returns, present the greatest risks of default.

Understanding Bond Markets

The bond market is broadly segmented into two different silos: the primary market and the
secondary market. The primary market is frequently referred to as the "new issues" market in which
transactions strictly occur directly between the bond issuers and the bond buyers. In essence, the
primary market yields the creation of brand new debt securities that have not previously been
offered to the public.

In the secondary market, securities that have already been sold in the primary market are then
bought and sold at later dates. Investors can purchase these bonds from a broker, who acts as an
intermediary between the buying and selling parties. These secondary market issues may be
packaged in the form of pension funds, mutual funds, and life insurance polices—among many other
product structures.

Types of Bond Markets

The general bond market can be segmented into the following bond classifications, each with its
own set of attributes.

Corporate Bonds: Companies issue corporate bonds to raise money for a sundry of reasons, such as
financing current operations, expanding product lines, or opening up new manufacturing facilities.
Corporate bonds usually describe longer-term debt instruments that provide a maturity of at least
one year.

Government Bonds: National-issued government bonds entice buyers by paying out the face value
listed on the bond certificate, on the agreed maturity date, while also issuing periodic interest
payments along the way. This characteristic makes government bonds attractive to conservative
investors.

Municipal Bonds: Municipal bonds—commonly abbreviated as "muni" bonds—are locally issued by

states, cities, special-purpose districts, public utility districts, school districts, publicly-owned airports
and seaports, and other government-owned entities who seek to raise cash to fund various projects.

Mortgage-Backed Bonds: These issues, which consist of pooled mortgages on real estate properties,
are locked in by the pledge of particular collateralized assets. They pay monthly, quarterly, or semi-
annual interest.

KEY TAKEAWAYS
  The bond market broadly describes a marketplace where investors buy debt securities that
are brought to the market by either governmental entities or publicly-traded corporations.
 National governments generally use the proceeds from bonds to finance infrastructural
improvements and pay down debts.
 Companies issue bonds to raise the capital needed to maintain operations, grow their
product lines, or open new locations.
 Bonds are either issued on the primary market, which rolls out new debt, or on the
secondary market, in which investors may purchase existing debt via brokers or other third
parties.
 Bond Indices
 Just as the S&P 500 and the Russell indices track equities, big-name bond indices like
Barclays Capital Aggregate Bond Index, the Merrill Lynch Domestic Master and the Citigroup
U.S. Broad Investment-Grade Bond Index, manage and measure bond portfolio
performance. Many bond indices are members of broader indices that measure the
performances of global bond portfolios.

Capital Markets
What Are Capital Markets?
Capital markets are venues where savings and investments are channelled between the suppliers
who have capital and those who are in need of capital. The entities who have capital include retail
and institutional investors while those who seek capital are businesses, governments, and people.
Capital markets are composed of primary and secondary markets. The most common capital markets
are the stock market and the bond market. Capital markets seek to improve transactional
efficiencies. These markets bring those who hold capital and those seeking capital together and
provide a place where entities can exchange securities.

KEY TAKEAWAYS
 Capital markets refer to the places where savings and investments are moved between
suppliers of capital and those who are in need of capital.
 Capital markets consist of the primary market, where new securities are issued and sold, and
the secondary market, where already-issued securities are traded between investors.
 The most common capital markets are the stock market and the bond market.

Understanding Capital Markets

The term capital market broadly defines the place where various entities trade different financial
instruments. These venues may include the stock market, the bond market, and the currency and
foreign exchange markets. Most markets are concentrated in major financial centres including New
York, London, Singapore, and Hong Kong. Capital markets are composed of the suppliers and users
of funds. Suppliers include households and the institutions serving them—pension funds, life
insurance companies, charitable foundations, and non-financial companies—that generate cash
beyond their needs for investment. Users of funds include home and motor vehicle purchasers, non-
financial companies, and governments financing infrastructure investment and operating expenses.
Capital markets are used to sell financial products such as equities and debt securities. Equities are
stocks, which are ownership shares in a company. Debt securities, such as bonds, are interest-
bearing IOUs. These markets are divided into two different categories: primary markets—where new
equity stock and bond issues are sold to investors—and secondary markets, which trade existing
securities. Capital markets are a crucial part of a functioning modern economy because they move
money from the people who have it to those who need it for productive use.

Primary Versus Secondary Capital Markets

Capital markets are composed of primary and secondary markets. The majority of modern primary
and secondary markets are computer-based electronic platforms.
Primary markets are open to specific investors who buy securities directly from the issuing company.
These securities are considered primary offerings or initial public offerings (IPOs). When a company
goes public, it sells its stocks and bonds to large-scale and institutional investors such as hedge funds
and mutual funds.
The secondary market, on the other hand, includes venues overseen by a regulatory body like the
Securities and Exchange Commission (SEC) where existing or already-issued securities are traded
between investors. Issuing companies do not have a part in the secondary market. The New York
Stock Exchange (NYSE) and Nasdaq are examples of the secondary market. The secondary market
serves an important purpose in capital markets because it creates liquidity, giving investors the
confidence to purchase securities.

Capital Markets Expanded

Capital markets can refer to markets in a broad sense for any financial asset.
Corporate Finance: In this realm, the capital market is where investable capital for non-financial
companies is available. Investable capital includes the external funds included in a weighted average
cost of capital calculation—common and preferred equity, public bonds, and private debt—that are
also used in a return on invested capital calculation. Capital markets in corporate finance may also
refer to equity funding, excluding debt.
Financial Services: Financial companies involved in private rather than public markets are part of the
capital market. They include investment banks, private equity, and venture capital firms in contrast
to broker-dealers and public exchanges.
Public Markets: Operated by a regulated exchange, capital markets can refer to equity markets in
contrast to debt, bond, fixed income, money, derivatives, and commodities markets. Mirroring the
corporate finance context, capital markets can also mean equity as well as debt, bond, or fixed
income markets.
Capital markets may also refer to investments that receive capital gains tax treatment. While short-
term gains—assets held under a year—are taxed as income according to a tax bracket, there are
different rates for long-term gains. These rates are often related to transactions arranged privately
through investment banks or private funds such as private equity or venture capital.

Investment Bank (IB)

What Is an Investment Bank - IB?
An investment bank (IB) is a financial intermediary that performs a variety of services. Most
Investment banks specialize in large and complex financial transactions, such as underwriting, acting
as an intermediary between a securities issuer and the investing public, facilitating mergers and
other corporate reorganizations and acting as a broker or financial adviser for institutional clients.
Major investment banks include JPMorgan Chase, Goldman Sachs, Morgan Stanley, Citigroup, Bank
of America, Credit Suisse and Deutsche Bank. Some investment banks specialize in particular
industry sectors. Many investment banks also have retail operations that serve small, individual
customers.

How an Investment Bank Works

The advisory division of an investment bank (IB) is paid a fee for their services, while the trading
division experiences profit or loss based on its market performance. Professionals who work for
investment banks may have careers as financial advisors, traders or salespeople. An investment
banking career can be very lucrative, but it typically comes with long hours and significant stress.
Investment banks are most known for their work as financial intermediaries. That is, they help
corporations issue new shares of stock in an initial public offering (IPO) or follow-on offering. They
also help corporations obtain debt financing by finding investors for corporate bonds. The
investment bank's role begins with pre-underwriting counselling and continues after the distribution
of securities in the form of advice. The investment bank will also examine the company’s financial
statements for accuracy and publish a prospectus that explains the offering to investors before the
securities are made available for purchase. Investment banks’ clients include corporations, pension
funds, other financial institutions, governments, and hedge funds. Size is an asset for investment
banks. The more connections the bank has within the market, the more likely it is to profit by
matching buyers and sellers, especially for unique transactions. The largest investment banks have
clients around the globe.
KEY TAKEAWAYS

 Investment banks specialize in complex financial transactions, such as underwriting, IPOs,

facilitating mergers and other corporate reorganizations and acting as a broker or financial
advisor.
 Size is an asset for investment banks, where the more connections the bank has the more
likely it is to profit.
 Because investment banks have external clients, but also trade their own accounts, a conflict
of interest can occur.

Types of Investment Bank Activities

Financial Advisors: As a financial advisor to large institutional investors, the job of an investment
bank is to act as a trusted partner that delivers strategic advice on a variety of financial matters.
They accomplish this mission by combining a thorough understanding of their clients' objectives,
industry and global markets with strategic vision trained to spot and evaluate short- and long-term
opportunities and challenges facing their client.

Mergers and Acquisitions: Handling mergers and acquisitions is a key element of an investment
bank's work. The main contribution of an investment bank in a merger or acquisition is evaluating
the worth of a possible acquisition and helping parties arrive at a fair price. An investment bank also
assists in structuring and facilitating the acquisition in order to make the deal go as smoothly as
possible.

Research: The research divisions of investment banks review companies and author reports about
their prospects, often with "buy", "hold" or "sell" ratings. While research may not generate revenue
itself, the resulting knowledge is used to assist traders and sales. Investment bankers, meanwhile,
receive publicity for their clients. Research also provides investment advice to outside clients in the
hopes that these clients will take their advice and complete a trade through the trading desk of the
bank, which would generate revenue for the bank. Research maintains an investment bank's
institutional knowledge on credit research, fixed income research, macroeconomic research, and
quantitative analysis, all of which are used internally and externally to advise clients.

Criticism of Investment Banks

Because investment banks have external clients, but also trade their own accounts, a conflict of
interest can occur if the advisory and trading divisions don’t maintain their independence. Thus,
most investment banks must maintain what's called a Chinese wall. The wall is a figurative barrier
between the two investment banking departments to help prevent the sharing of information that
would allow one side or the other to unfairly profit.

What Is Private Banking?

Private banking consists of personalized financial services and products offered to the high-net-
worth individual (HNWI) clients of a retail bank or other financial institution. It includes a wide range
of wealth management services, and all provided under one roof. Services include investing
and portfolio management, tax services, insurance, and trust and estate planning.
While private banking is aimed at an exclusive clientele, consumer banks and brokerages of every
size offer it. This offering is usually through special departments, dubbed "private banking" or
"wealth management" divisions.
KEY TAKEAWAYS
 Private banking consists of personalized financial and investment services and products.
 Private banking is an offering for the high-net-worth individual (HNWI) clients of a financial
institution.
 Private banking clients typically receive discounts or preferential pricing on financial
products.
 An assigned "personal banker" coordinates all the HNWI financial activities.
 The range of products and investment expertise offered by a private bank may be limited or
less advantageous than "outside" options.

The Basics of Private Banking

Private banking includes common financial services like checking and savings accounts, but with a
more personalized approach: A "relationship manager" or "private banker" is assigned to each
customer to handle all matters. The private banker handles everything from the special like
arranging a jumbo mortgage to the mundane like paying bills. However, private banking goes
beyond CDs and safe deposit boxes to address a client's entire financial situation. Specialized
services include investment strategy and financial planning advice, portfolio management,
customized financing options, retirement planning, and passing wealth on to future generations.
While an individual may be able to conduct some private banking with $50,000 or less in investable
assets, most financial institutions set a benchmark of six figures' worth of assets, and some exclusive
entities only accept clients with at least $1 million to invest.

Private Banking Perks and Privileges

Privacy is the primary benefit of private banking. Customer dealings and services provided typically
remain anonymous. Private Banks often provide HNWIs with tailored proprietary solutions, which
are kept confidential to prevent competitors from luring a prominent customer with a similar
solution.
Private banking clients typically receive discounted or preferential pricing on products and services.
For example, they may receive special terms or prime interest rates on mortgages, specialized loans,
or lines of credit (LOC). Their savings or money market accounts might generate higher interest rates
and be free of fees and overdraft charges. Also, customers who operate import-export ventures or
do business overseas might operate at a more favourable foreign exchange rate.

If they are managing a client's investments, private banks often provide the client with extensive
resources and opportunities not open to the average retail investor. For example, an HNWI may be
given access to an exclusive hedge fund or a private equity partnership or some other alternative
investment.

Pros of Private Banking

Private banking offers clients a variety of perks and privileges and personalized service—an
increasingly prized commodity in the increasingly automated, digitized banking world. Also, in
addition to the customized products, there is the convenience of consolidated services—everything
under one financial roof. As for the bank or brokerage, it benefits from having the clients' funds add
to their overall assets under management (AUM). Even at discounted rates, the private bank's
management fees for portfolio management and interest on loans underwritten can be substantial.

Pros
 One-stop shopping for financial affairs
 Concierge services/dedicated employees
 Favourable rates, discounted charges
  Perks and privileges
Cons
 Less institutional expertise
 Options limited to proprietary products
 High staff turnover
 Possible conflict-of-interest for employees

Cons of Private Banking

Drawbacks do exist to this exclusivity. Employee turnover rates at banks tend to be high, even in the
elite private banking divisions. There may also be some concern over conflicts of interest and loyalty:
The private banker is compensated by the financial institution, not the client—in contrast to an
independent money manager.

In terms of investments, a client might be limited to the bank's proprietary products. Also, while the
various legal, tax and investment services offered by the bank are doubtlessly competent, they may
not be as creative or as expert as those offered by other professionals on the "outside."
Lucrative as private banking can be, it can pose challenges for the institution, as well. Private Banks
have dealt with a restrictive regulatory environment since the global financial crisis of 2008. The
Dodd-Frank Wall Street Reform and Consumer Protection Act, along with other legislation passed in
the U.S. and around the world, has resulted in a higher level of transparency and accountability.
There are more stringent licensing requirements for private banking professionals that help ensure
customers are being appropriately advised about their finances.

Orders are fundamental instructions investors provide to brokers or trading platforms to purchase or
sell securities, such as stocks, at specified prices. Understanding the various types of these orders is
crucial for effective trading strategies.

1. Market Order:
o Definition: An order to buy or sell a security immediately at the best available
current price.
o Characteristics:
 Executed promptly at the prevailing market price.
 Does not guarantee a specific price.
o Use Case: Suitable when the primary goal is to execute the trade quickly, regardless
of price fluctuations.
o Example: If a stock is trading at $50 and you place a market buy order, the purchase
will occur at or near $50, depending on market conditions.
2. Limit Order:
o Definition: An order to buy or sell a security at a specific price or better.
o Characteristics:
 A buy limit order executes at the limit price or lower; a sell limit order
executes at the limit price or higher.
 Execution is not guaranteed; the order will only fill if the market reaches the
specified price.
o Use Case: Ideal when aiming to control the execution price and willing to wait for
the market to meet your specified price.
o Example: Placing a buy limit order for a stock at $45 means the order will only
execute if the stock's price drops to $45 or below.
3. Stop Order (Stop-Loss Order):
o Definition: An order to buy or sell a security once its price reaches a predetermined
level, known as the stop price.
o Characteristics:
 Becomes a market order when the stop price is reached.
  Primarily used to limit potential losses or protect profits.
o Use Case: Helps in mitigating losses by triggering a sale if the price falls to a certain
level.
o Example: If you own a stock currently priced at $60 and set a stop order at $55, the
order will trigger a sale if the price declines to $55, limiting potential losses.
4. Stop-Limit Order:
o Definition: An order combining the features of stop orders and limit orders; it
becomes a limit order when the stop price is reached.
o Characteristics:
 After activation, the order will only execute at the specified limit price or
better.
 Provides control over the execution price after the stop price is triggered.
o Use Case: Useful when precise control over the execution price is desired after a
certain price level is breached.
o Example: Setting a stop-limit order to sell a stock with a stop price of $48 and a limit
price of $47 means that once the stock falls to $48, a limit order to sell at $47 or
better is activated.
Key Considerations:
 Market Conditions: In volatile markets, prices can change rapidly, affecting the execution of
orders, especially market orders.
 Order Execution: Limit and stop-limit orders may not execute if the market price does not
reach the specified levels.
 Trading Strategy: The choice between order types should align with your investment goals,
risk tolerance, and market outlook.

Trade life cycle in Capital Markets

Ever wondered how on Earth all the different components and stages of a trade fit together? There’s
a well-oiled infrastructure machine that carries through the trade life cycle for literally trillions of
trades – every day! Here’s an explanation of the key stages of the trade life cycle
We start with our investors. An investor (either an individual who invests for themselves, known as a
‘retail investor’, or an institution, an organisation investing on behalf of their clients such as a fund)
scopes out some tasty potential investment opportunities. Once they’ve made a decision to make a
move and buy a particular security, such as shares in a company, the process kicks off…

Stage one: the order

The investor informs the broker firm and their custodian (a financial institution – usually a bank –
which looks after their assets for safekeeping) of the security they would like to buy, and at what
price – either the market price or lower. This is called a buy order.
(A couple more jargon nuggets for you here: A market order is an order to buy or sell at the market
prices. A limit order is an order to buy or sell at a client’s specified price, or higher.)

Stage two: front office action

The investor’s order is received by the front office sales traders at the brokerage firm. From this
point, the order is fed down to the risk management experts in the middle office of the organisation.
The sales traders then ‘execute’ the order…

Stage three: risk management

The risk management team will conduct a number of checks and calculations to see whether the
levels of risk involved with the client’s order mean it’s still safe to accept and proceed to the next
stages. Amongst other things they will check the client placing the order has sufficient stocks to pay
for the security and the limits.

Stage four: off to the exchange

When an order is accepted and validated by the risk management team, the broker firm sends it to
the Stock Exchange…
Now, let’s pause for a breather and consider what’s going on the sell-side of things, i.e. the guys with
the security to sell. They will also put in a sell order to their broker, stating the security they have to
make available on the market and the market price (how much they want to sell it for).
The sell order goes through all of the necessary risk management procedures in the middle office on
this side as well. All being well, it then shoots off to the exchange too…

Stage five: match making

Now it’s time for match making at the exchange. It’s a bit like the awkward Singles’ Night of trading.
The exchange has to find the match between a security’s buy order and sell order. Once the
beautiful moment of a perfect match happens…

Stage six: trade made

A trade is born! Then, quick as a flash, we’re into post trade territory. The exchange sends
information on the trade back to the brokers for confirmation, and also details of the trade to the
investor’s custodian. The brokers’ front office sales team can then inform their clients of the trade.

Stage seven: confirmation

In order to proceed further, confirmation is necessary. The broker on each side of the trade has
checked that their client agrees with details and conditions: details such as which security is being
traded, how much it’s being traded for and the settlement date.
The exchange will also send these details to the custodian who will relay this information to the
broker for confirmation.
Once the trade has been confirmed by the brokers and as long as each party agrees with the details
and conditions, the back-office team gets to work, and the clearing house comes into play…

Stage eight: clearing begins

The clearing house will make all of the necessary calculations for the buy side and the sell side of the
trade in order to determine what’s needed from each of them and by when. It’s their job to make
sure all of the obligations are fulfilled. They inform each party of what’s needed.
Trades are referred to generally as T+1, T+2 and T+3. ‘T’ refers to the transaction date (the date on
which the trade was made). +1, +2 or +3 refers to the settlement date. If a trade is marked T+2 for
example, securities and cash will be exchanged two days after the trade is made. On the settlement
date the sell side must have transferred their security and the buy side must have transferred the
money for their purchase.
The majority of settlements are now T+2. The UK and Irish capital markets will move to a T+2
settlement period from October 2014.

Stage nine: settlement

Finally, the glorious settlement date arrives: the transfer of money and the security. Back-office staff
are responsible for ensuring that these payments are made on time and documented and reported
in the correct manner.
The transfer isn’t done directly between the trading parties: the clearing house will have accounts
for each side of the trade and will facilitate the transfer. The buy side will transfer cash for the
security via the clearing house, and likewise the sell side will hand over their security. Then
everyone’s happy!
At the end of each trade day the clearing house will provide reports on settled trades to exchanges
and custodians.

Trading Account
What Is a Trading Account?
A trading account can be any investment account containing securities, cash or other holdings. Most
commonly, trading account refers to a day trader’s primary account. These investors tend to buy and
sell assets frequently, often within the same trading session, and their accounts are subject to
special regulation as a result. The assets held in a trading account are separated from others that
may be part of a long-term buy and hold strategy.
Basics of Trading Account
A trading account can hold securities, cash and other investment vehicles just like any other
brokerage account. The term can describe a wide range of accounts, including tax-deferred
retirement accounts. In general, however, a trading account is distinguished from other investment
accounts by the level of activity, purpose of that activity and the risk it involves. The activity in a
trading account typically constitutes day trading. The Financial Industry Regulatory Authority (FINRA)
defines a day trade as the purchase and sale of a security within the same day in a margin account.
FINRA defines pattern day traders as investors who satisfy the following two criteria:
 Traders who make at least four day trades (either buying and selling a stock or
selling a stock sort and closing that short position within the same day) over a five-day
week.
 Traders whose day-trading activity constitutes more than 6 percent of their total
activity during that same week.
Brokerage firms can also identify clients as pattern day traders based on previous business or
another reasonable conclusion. These firms will allow clients to open cash or margin accounts, but
day traders typically choose margin for the trading accounts. FINRA enforces special margin
requirements for investors it considers to be pattern day traders.
Opening a trading account requires certain minimum personal information, including social security
number and contact details. Your brokerage firm may have other requirements depending on the
jurisdiction and its business details.
FINRA Margin Requirements for Trading Accounts
Maintenance requirements for pattern day trading accounts are considerably higher than those of
non-pattern trading. The base requirements of all margin investors are outlined by the Federal
Reserve Board’s Regulation T. FINRA includes additional maintenance requirements for day traders
in Rule 4210. Day traders must maintain a base equity level of $25,000 or 25 percent of securities
values, whichever is higher. The trader is permitted a purchasing power of up to four times any
excess over that minimum requirement. Equity held in non-trading accounts is not eligible for this
calculation. A trader who fails to meet these requirements will receive a margin call from their
broker and trading will be restricted if the call is not covered within five days.

KEY TAKEAWAYS
 A trading account is an investment account. For the most part, however, it refers to
an account used to trade securities.
 Trading accounts require personal identification information and have minimum
margin requirements set by FINRA.

Nostro Account
What is a Nostro Account?
A nostro account refers to an account that a bank holds in a foreign currency in another bank.
Nostros, a term derived from the Latin word for "ours," are frequently used to facilitate foreign
exchange and trade transactions. The opposite term "vostro accounts," derived from the Latin word
for "yours," is how a bank refers to the accounts that other banks have on its books in its home
currency.

How a Nostro Account Works

A nostro account and a vostro account actually refer to the same entity but from a different
perspective. For example, Bank X has an account with Bank Y in Bank Y's home currency. To Bank X,
that is a nostro, meaning "our account on your books," while to Bank Y, it is a vostro, meaning "your
account on our books." These accounts are used to facilitate international transactions and to settle
transactions that hedge exchange rate risk.

KEY TAKEAWAYS

 Nostro accounts simplify the process of exchanging and trading in foreign currencies.
 Major examples of convertible currencies are the U.S. dollar, Canadian dollar, British pound,
the euro, and the Japanese yen.
 The bank that is holding a Nostro or Vostro account may be called the "facilitator" bank.
 Nostro accounts are not the same as standard demand deposit accounts because these
types of accounts are denominated in foreign currencies.

Prior to the advent of the euro as a currency for financial settlements on Jan. 1, 1999, banks needed
to hold Nostro accounts in all the countries that now use the euro. Since that date, one Nostro for
the entire eurozone has been sufficient. If a country were to leave the eurozone, either voluntarily or
involuntarily, banks would need to re-establish nostros in that country in its new currency in order to
continue making payments.

Example of a Payment Using a Nostro Account

The following example illustrates the process of making a payment using a nostro account. Bank A in
the United States enters into a spot foreign exchange contract to buy British pounds from Bank B,
which is in Sweden. On the settlement date, Bank B must deliver pounds from its nostro account in
the United Kingdom to the nostro account of Bank A, also in the United Kingdom. On the same day,
Bank A must pay dollars in the United States to the nostro account of Bank B.

Special Considerations

The central banks of many developing countries limit the buying and selling of their currencies,
which is usually to control imports and exports and to control the exchange rate. Banks generally do
not hold nostro accounts in those countries, as there is little or no foreign exchange business. When
a bank needs to make a payment in a country where it does not hold a nostro account, it can use a
bank with which it has a correspondent relationship to make the payment on its behalf.

Vostro Account
What Is a Vostro Account?

A vostro account is an account a correspondent bank holds on behalf of another bank. These
accounts are an essential aspect of correspondent banking in which the bank holding the funds acts
as custodian for or manages the account of a foreign counterpart. For example, if a Spanish life
insurance company approaches a U.S. bank to manage funds on the Spanish life insurer's behalf, the
account is deemed by the holding bank as a vostro account of the insurance company.

Vostro Accounts Explained

A vostro account is established to enable a foreign correspondent bank to act as an agent or provide
services as an intermediary for a domestic bank to execute wire transfers, withdrawals, and deposits
for customers in countries where the domestic bank does not have a physical presence. The term
vostro translated from Latin means "yours," as in your account. From the correspondent bank’s
point of view, the funds held on behalf of other banks are referred to as vostro accounts and are
denominated in the local currency. From the perspective of domestic banks, the funds deposited at
correspondent banks are referred as nostro accounts. Nostro translated from Latin means "ours," as
in our accounts. Nostro accounts are denominated in the foreign currency of the correspondent
bank.

Vostro Accounts in an Agency Relationship

For most banks, the cost of establishing a physical presence in every country their customers might
need banking services is prohibitive. As a solution, domestic banks can initiate agency relationship
agreements with correspondent banks to transact business for customers who are traveling or living
abroad. With these relationships in place, the customer of a domestic bank can walk into the office
of a correspondent bank to withdraw or deposit funds. For example, to process a customer’s
withdrawal of funds at a correspondent bank, the domestic bank deducts the withdrawal amount
plus any fees from the customer’s account and executes a transfer to the vostro account held by the
correspondent bank. The funds are converted to the local currency, deducted from the vostro
account, and paid to the domestic bank’s customer, less the applicable fees.

Vostro Accounts in an Intermediate Relationship

When funds are wired between a domestic and a foreign bank that do not have a direct relationship,
a correspondent bank acts as the intermediary in the transaction. To facilitate the wire, the
originator of the transfer sends the amount of the wire plus applicable fees to the vostro account
held on its behalf by the correspondent bank. The correspondent bank deducts the fees and the
amount of the wire from the vostro account and executes a domestic wire to the receiving bank.
MT535 – Format
MT536 – Format
In the SWIFT MX (ISO 20022) format, the equivalents of MT535 and MT536 are:
 MT535 → semt.002 (Securities Balance Report)
 MT536 → semt.017 (Securities Transactions Report)

Here are the important equivalent fields for both messages:

MT535 (Statement of Holdings) → semt.002 (Securities Balance Report)

MT535 Field MX Equivalent (semt.002) Description
:97A::SAFE/ SfkpgAcct (Safekeeping Account) Account where securities are held
:20C::SEME/ MsgId (Message Identifier) Unique message reference
:35B: FinInstrmId/ISIN (Financial Instrument Identification) Security identifier (ISIN)
:93B::AGGR/ Bal/Qty (Aggregate Balance) Total securities held
:93B::AVAI/ Bal/Qty (Available Balance) Securities available for trading
:93B::PEND/ Bal/Qty (Pending Balance) Securities pending settlement
:19A::MARK/ MktVal/ValAmt (Market Value) Current market value of holdings
:19A::BOOK/ BookVal/ValAmt (Book Value) Value recorded in books
:98A::STAT/ RptDtAndTm (Report Date) Date of the statement
:98A::POST/ Bal/ValDt (Posting Date) Date when the balance was last updated
:98A::VALU/ Bal/ValDt (Valuation Date) Date used for valuation

MT536 (Statement of Transactions) → semt.017 (Securities Transactions Report)

MT536 Field MX Equivalent (semt.017) Description

:20C::SEME/ MsgId (Message Identifier) Unique message reference
:20C::TRRF/ TxRef (Transaction Reference) Trade reference number
:35B: FinInstrmId/ISIN (Financial Instrument Identification) Security identifier (ISIN)
:98A::SETT/ Tx/TxDt (Settlement Date) Date when securities settle
:98A::TRAD/ Tx/TradDt (Trade Date) Date when trade was executed
:98C::ESET/ Tx/ExptdSttlmDt (Expected Settlement Date) Expected settlement date
:36B::SETT/ Tx/Qty (Quantity of Securities) Quantity of securities settled
:19A::SETT/ Tx/TxAmt (Settlement Amount) Amount settled
:95P::PSET/ SttlmPties/DlvrgPty or RcvgPty Delivering or receiving party
:25D::MTCH/ Tx/SttlmSts (Settlement Status) Matched or unmatched status

MT940 – File Specification

Manda
Data tory /
Ta Field Format Option
g Name Field Description / Characteristics (length) al
 The Message Header opens the Domestic MT940 message. It
includes the sender and destination BIC. It will be populated with a
value of:
Alphanum
Message {1:F01WPACAU2SAXXX0000000000}{2:I940WIBSXXXXN}{4: Mandat
N/A eric
Header ory
(variable)
In this example the sender BIC is WPACAU2SAXXX and the destination
BIC is WIBSXXXXN. These values will be hardcoded in the statements
you received.
Transacti This field contains a BankRec generated transaction reference
on which unambiguously identifies the message.
:20 Alphanum Mandat
Referenc It will be populated with the characters "CSCT" followed by the
: eric (16) ory
e "Account BSB" and "Account Number".
Number For Example :20:CSCT032000136465
Account This field identifies current account the account. It will be
:25 Alphanum Mandat
Identifica populated with the "Account BSB" and "Account Number".
: eric (12) ory
tion For Example :25:032000136465
This field contains the Statement Number, followed by
the Sequence Number, separated by a / character.

The Statement Number represents the banking day on which the

Stateme subsequent transactions occurred. This will be an incrementing
nt sequence. For example, the Statement Number for the first banking
:28 Number / Numeric Mandat
day of the year would be 00001 etc.
C: Sequenc (5/3) ory
e
Number The Sequence Number will be populated with 001. This value will
only change for messages sent via the SWIFT network (see SWIFT
Support).

For Example: :28C:00001/001.

This field contains the "final opening balance". It will be populated
as follows:
 Balance
Indicator: C or D for credit or debit opening account
balance amounts respectively (1 Character).
 Balance Date: The statement date
formatted YYMMDD (6 Digits).
Opening
:60  Currency Code: Currency code will be represented Alphanum Mandat
Balance
F:
(final)
as a valid ISO 4217 currency code (3 Characters). eric (29) ory
 Final Opening Balance Amount: Final open
balance amount including decimal places consistent
with the previous Currency Code (19 characters).
For Example :60F:C171120AUD98838,27

Details reported in this tag will match those reported in the

previous statements Final Closing Balance.
:61 Stateme This tag represents a Bank Statement Line for the current Bank Alphanu Optional
: nt Line Statement. It will be populated as follows: meric
 Value Date: Transaction value date (65 for
formatted YYMMDD (6 Digits). line 1)
(34 for
 Entry Date: Transaction entry date line 2)
formatted MMDD (4 Digits).
 Credit/Debit Indicator: Indicator to identify the
transaction as a credit (C) or a debit (D) (1 Character).
 Transaction Amount: Transaction amount including
decimal places consistent with the statement currency
(19 characters).
 Transaction Code: See MT940 Transaction
Codes below
 Transaction Number: Narrative for the current
transaction. For enriched lines, see Enrichment
Support below.
  Reference Separator: Hardcoded reference
separator //
 Bank Reference: Bank generated reference for the
current transaction. This will be derived using a
combination of the Entry Date, Serial
Code and Transaction Code fields.
 CRLF: Present only if the following Supplementary
Details are present. Contains CRLF new-line characters
(optional).
 Supplementary Details: Supplementary payment
information(optional).

For Example (including supplementary

reference): :61:1507020702D115945,00F014NARRATIVE//020715
0143062089CRLF1234567890
Alphanum
eric (6
Stateme
:86 This field reports additional information about the transaction lines of Optiona
nt Line
: 65 l
Narrative described in the preceding statement line (:61:)
character
s)
This field contains the "final" closing balance. It will be populated
as follows:
 Balance
Indicator: C or D for credit or debit opening account
balance amounts respectively (1 Character)
Closing  Balance Date: Balance Date formatted YYMMDD (6
:62 Alphanum Mandat
F:
Balance Digits). eric (29) ory
(Final)  Currency Code: Currency code will be represented
as a valid ISO 4217 currency code (3 Characters).
 Final Closing Balance Amount: Final closing
balance amount including decimal places consistent
with the previous Currency Code.
For Example :62F:C091120AUD98838,27
This field reports any funds that are available to the account
owner if the account is in "credit" or the balance on the account
that will be subject to interest charges if the account is in "debit".
It will be populated as follows:
 Balance
Indicator: C or D for credit or debit opening account
Closing balance amounts respectively (1 Character).
:64 Alphanum Optiona
:
Available  Balance Date: Balance Date formatted YYMMDD (6 eric (29) l
Balance Digits)
 Currency Code: Currency code will be represented
as a valid ISO 4217 currency code (3 Characters).
 Available Closing Balance: Available closing
balance amount including decimal places consistent
with the previous Currency Code.
For Example :64:C091120AUD98838,27
Message The Footer Record closes the Domestic MT940 message. It will be Alphanum Mandat
N/A
Footer populated with a fixed value of -}. eric (2) ory

MT950 – File Specification

Data
Format Mandatory
Tag Field Name Field Description / Characteristics (length) / Optional
20 Transaction 16x Alphanumeri Mandatory
Reference c (variable)
 Number
Account Alphanumeri
25 35x Mandatory
Identification c (16)
Statement Number / Alphanumeri
28C 5n[/5n] Mandatory
Sequence Number c (12)
Alphanumeri
60a Opening Balance F or M Mandatory
c (29)
----
>
6!n[4!n]2a[1!a]15d1!a3!c16x[//16x]
[34x]
Below the format of each subelement:
6!n (Value Date)
[4!n] (Entry Date)
Alphanumeri
2a (Debit/Credit Mark)
c (65 for line
61 Statement Line [1!a] (Funds Code) Optional
1) (34 for
15d (Amount)
line 2)
1!a3!c (Transaction Type)(Identification Code)
16x (Reference for the Account Owner)
[//16x] (Reference of the Account Servicing
Institution)
[34x] (Supplementary Details)
----
>
Closing Balance Alphanumeri
62a F or M Mandatory
(Booked Funds) c (29)
Closing Available
Alphanumeri
64 Balance (Available 1!a6!n3!a15d Optional
c (29)
Funds)

Difference between MT950 and MT940

MT940 : This message type is sent by an account servicing institution (reporting institution) to a
financial institution (concentrating institution) which has been authorised by the account owner to
receive . It is used to transmit detailed information about all entries booked to the account.
Contents:
20 Transaction Reference Number
21 Related Reference
25 Account Identification
28C Statement Number/Sequence Number
60a Opening Balance
61 Statement Line
86 Information to Account Owner
62a Closing Balance (Booked Funds)
64 Closing Available Balance (Available Funds)
65 Forward Available Balance
86 Information to Account Owner

MT950: This message type is sent by an account servicing institution to an account owner.
It is used to transmit detailed information about all entries, whether or not caused by a SWIFT message,
booked to the account.

Contents :
20 Transaction Reference Number
25 Account Identification
28C Statement Number/Sequence Number
60a Opening Balance
61 Statement Line
62a Closing Balance (Booked Funds)
64 Closing Available Balance (Available Funds)

So the difference is primary the RECEIVER of the message (besides the differences in the contents).

If you have made or are about to make an international money transfer either through your bank or
with a payment specialist like Fexco Corporate Payments, you will probably be familiar with terms
like SWIFT code, BIC code and IBAN number. These terms represent essential components in the
transfer of funds between financial institutions – but what are they and when should they be used?
This article will answer these questions and discuss related terms used in the transfer of funds
domestically and internationally.
Following the implementation of SEPA in February 2014 an International Bank Account Number
(IBAN) and a Bank Identifier Code (BIC) are now required in order to make and receive euro
electronic payments. They replace the National Sort Code (NSC) and account number as the main
payment identifiers when making SEPA payments, either by direct credit or direct debit.
SWIFT / Business Identifier Code (BIC)
The SWIFT Code is a standard format for Business Identifier Codes (BIC) and it is used to uniquely
identify banks and financial institutions globally. BIC is the International Standard ISO 9362:2014 and
is used for addressing messages, routing business transactions and identifying business parties.
A BIC Code (Business Identifier Code) is also commonly referred to as a SWIFT Code, SWIFT ID,
SWIFT-BIC or SWIFT address. The latter is popular amongst importers and exporters and is an
informal usage of the more popular BIC code as used by the financial services industry.
SWIFT (Society for Worldwide Interbank Financial Telecommunication), in its role as ISO registration
authority, issues BICs to financial and non-financial institutions, which is why the terms SWIFT and
BIC are often used interchangeably.

In SWIFT MX (ISO 20022) format, the equivalents of MT940 and MT950 are:
 MT940 (Customer Statement Message) → camt.053 (Bank to Customer Statement)
 MT950 (Statement Message) → camt.052 (Bank to Customer Account Report)

MT940 / MT950 Field MX Equivalent (camt.053) Description

:20: (Transaction Reference Unique reference for the
MsgId (Message Identifier)
Number) statement
Account number of the
:25: (Account Number) Acct/Id (Account Identification)
customer
Page number of the
:28C: (Statement Number) Rpt/Pgntn/PgNb (Page Number)
statement
MT940 / MT950 Field MX Equivalent (camt.053) Description
Bal/Tp/Code=OPBD (Opening Book Opening balance of the
:60F: (Opening Balance)
Balance) period
Bal/Tp/Code=ITBD (Interim Opening
:60M: (Interim Opening Balance) Interim opening balance
Balance)
Individual transaction
:61: (Transaction Details) Ntry (Entry Transaction)
details
:86: (Transaction Description) – Ntry/NtryDtls/AddtlNtryInf (Entry Free format transaction
Only for MT950 Details) description
Bal/Tp/Code=CLBD (Closing Book
:62F: (Closing Balance) Final balance of the period
Balance)
Bal/Tp/Code=ITCL (Interim Closing
:62M: (Interim Closing Balance) Interim closing balance
Balance)
:64: (Available Balance) Bal/Tp/Code=AVLB (Available Balance) Balance available for use

Key Notes:
 MT940 focuses more on transactions, while MT950 is primarily a balance statement.
 :86: (Transaction Description) is only present in MT950 for additional balance-related
narrative information.
Let me know if you need further refinements!

How is a SWIFT / BIC code structured?

When making a domestic or international payment, you may be asked to supply a BIC code to
identify the financial institution where the account of the beneficiary resides. The BIC code is easily
identifiable as it is made up of 8 or 11 characters broken down as such:
• Bank code (A-Z) : 4 letter code.
• Country code (A-Z) : 2 letter code.
• Location Code (0-9 or A-Z) : 2 digit code – either letters or numbers.
• Branch Code (0-9 or A-Z) : optional 3 digit code – either letters or numbers*.
*’XXX’ at the end of the SWIFT / BIC code represents a head office.
In the example above, the BIC code is given for JPMORGAN CHASE BANK, N.A. in NEW YORK,NY.
There is no difference between an 8-character BIC (CHASUS33) and a BIC11 ending with XXX
(CHASUS33XXX). Many payment systems will automatically add the XXX when the BIC is being
inserted in an international payment sent over the SWIFT (Society for Worldwide Interbank
Financial Telecommunication (SWIFT)network. Where numbers or letters replace the XXX in a BIC11,
the payment will be routed to a specific branch.
I am receiving a payment / setting up a direct debit – where can I find my SWIFT / BIC Code?
You will find your BIC code on your bank statement (usually top or bottom right), on your internet or
mobile banking transaction pages or alternatively call in to your local branch to request it. Photo ID
is usually required.
International Bank Account Number (IBAN)
An IBAN is an international bank account identifier used to uniquely identify the account of a
customer at a financial institution. It must be noted that the IBAN is not a new account number but
simply a new format for an existing account number.
It is an internationally agreed system of identifying international bank accounts to better facilitate
the communication and processing of cross border transactions. It is the only permissible account
identifier for SEPA payments.
ISO has designated SWIFT to act as the registration authority for national IBAN formats and the ISO
13616 standard specifies the structure of an ISO-compliant national IBAN format.
An IBAN consists of up to 34 alphanumeric characters broken down as such:

• Country Code (A-Z) : 2 letter code.

• Control Code (0-9) : 2 number code.
• Remaining : up to 30 letters and numbers which outlines the domestic bank and account number

In the above example, this German IBAN has the country code DE. The following digits (41) are the
check digits and validate the routing destination and account number combination in this IBAN. The
BBAN is 500105170123456789 where the bank identifier is 50010517 and the account number is
0123456789.
It is important to note that there are no spaces in an IBAN when transmitted electronically. When
printed it is expressed in groups of four characters separated by a single space, the last group being
of variable length. Each country has different fixed lengths so make sure that the IBAN you have
been given matches the country in which the beneficiary account resides.
Check out these IBAN formats by country as a guide when making an overseas payment to your
particular destination.
I am receiving a payment / setting up a direct debit – where can I find my IBAN?
You can access your IBAN from an existing bank account statement, via online banking platform or
simply call to your branch with photo ID.

Nostro Reconciliation
Terms used in the reconciliation process
The account maintained by a bank with another bank is known as a Nostro account and the
statement which it receives from the bank with which it maintains accounts is known as a Nostro
account statement. The replica of this account is maintained by the bank in its books for operational
purposes and is known as a Nostro mirror account. Through the process of reconciliation, banks can
track the status of cash received/receivable and the amount paid/payable and track unsettled
transactions either in mirror or in actual Nostro accounts. For instance, banks can ensure that their
interbank cash flows from FX Spot, FX Forward, FX Swaps, borrowings, placements, derivative trades
and merchant flows like Foreign Bills purchased/realized, Foreign Inward/ Outward Remittances etc.
are received and paid appropriately. It is important for banks to reconcile Nostro accounts
immediately on receipt of the statements from the correspondent banks as this will enable them to
reconcile the same with their Nostro mirror balances and also take quick remedial action in case of
unsettled/ discrepancy in transactions. Most banks receive Nostro account statements through
SWIFT MT940 and MT950. Banks without SWIFT get a soft copy of the statement either by email or a
hardcopy delivered from the local branch of the correspondent bank.
Access to users
Reconciliation is an important activity with only authorized users permitted to do it. To ensure and
manage operational risk in the reconciliation process, generally two independent teams from the
bank are involved. Normally treasury back office users handle settlements, whereas middle office
users take care of Nostro reconciliation.
Process of reconciliation
Nostro debit entries are reconciled against the mirror credit entries Nostro debits may arise due to:
 Honouring the payment messages sent by the bank/payment of draft issued by the
bank
  Charges debited in the Nostro accounts
 Reimbursement to negotiating bank, under Letters of Credit transactions
 Payments on account of interbank deals This is to ensure that all the payment
settlements are acted upon by the correspondent bank and are reflected in the Nostro
statement accordingly. Nostro credit entries are reconciled against the mirror debit
entries.
Nostro credit may arise due to:
 Inward remittances received on behalf of customers
 Interest amount credited
 Receipts from interbank deals
 Realization of bills sent for collection
 Reimbursement of negotiated bills
This is to ensure that all the receipt settlements are acted upon by the correspondent bank and are
reflected in the Nostro statement accordingly. Credit in the Nostro mirror is to be reconciled with
debit in the actual Nostro account. Credit in actual Nostro is to be reconciled with debit in Nostro
mirror accounts.
Various methods of reconciliation
Options include Automated Reconciliation through specialized solutions, wherein Straight Through
Processing is possible and Manual Reconciliation using the Nostro Statements and Mirror Accounts.
Automated Reconciliation happens as the following types of reconciliations:
 Fully matched: Reconcile only when all the given conditions like currency, amount,
value date, transaction reference number, counterparty etc. are matching.
 Partly matched: In this case all the conditions need not be met. Some relaxations can
be made from the auto-matched condition e.g. Reference number etc.
Un-reconciled entries pending post Automated Reconciliation can be cleared through:
 Forced matching: This is a manual process where the user can choose transactions
and force match them.
 In forced matching: One-to-many (one credit with multiple debits or vice versa)
reconciliation can also be done.
Most of the reconciliation solutions support uploading of SWIFT statements MT940 and MT950
along with other types of file formats.
Illustration: XYZ Bank, Mumbai prepares a Nostro Reconciliation Statement for its USD Nostro
Account with ABC Bank in its books as under. Reconciliation Statement of ABC Nostro in USD
Currency for the month ending XXX.

Balance as per the Nostro Statement is the derived figure, which should match with the actual
Nostro Balance. On matching, the Nostro Reconciliation process is deemed complete and thereafter
banks aim to minimize un-reconciled or open items. The following section lists each un-reconciled
entry in the order of importance or risk to the bank:
Un-reconciled mirror debits: These entries are of utmost importance to the bank as they reflect the
extent of fund shortage. They indicate that funds have either been paid without the Nostro credit or
paid twice. In case of interbank transactions, outstanding entries here indicate funds not received
from the counterparty.
Un-reconciled nostro debits: These entries point to a wrong payment or payment of an incorrect
amount. They are second in the order of importance because funds have already left the bank’s
Nostro account. Outstanding entries in case of interbank transactions indicate that funds have been
paid out to the counterparty without a deal in the books or have been paid wrongly or an incorrect
amount has been paid.
Un-reconciled mirror credits: In this case, a payment initiated by the bank is not acted upon by the
Nostro agent. This is true of interbank transactions as well.
Un-reconciled nostro credits: Here, funds received by the bank are not applied either because the
customer is unaware of receipt or undecided on what to do. In case of interbank transactions, it
means that either the counterparty has made a payment without a deal or has paid before the due
date. In the event of a long-pending unapplied Nostro credit, the treasury back office or the branch
where the customer holds the account is contacted and all relevant details are sought. Several
unapplied or incorrect credits in a Nostro account mean a greater propensity of fraud and
reconciliation not being a guarantee for correctness of funds applied, owing to high transaction
volumes. Banks need to control application of funds older than one month through multiple
authorization levels. Unreconciled Nostro credit over long periods attracts the wrong kind of
attention. Staff dealing with this routinely and aware of the workings of this account can collude and
divert these funds to a fraudulent operative account. Frauds of this nature come to light when the
original beneficiary or remitter comes to check with the bank, in all likelihood, after the damage is
done.
Depot Reconciliation
The purpose of a Positions/Holdings & Trades reconciliation is to check and verify that an
organization is holding the same number of securities with a counterparty, as per the counterparty’s
internal system statements. Some participants in the securities market are mandated by law to
perform this reconciliation regularly, but more and more, it is simply becoming a daily best practice
from a trading and operational risk perspective.
The process involves matching of position balances between two or more sources, usually a
custodian/broker record and an internal system. Accounts could be organized by Client, Fund or
Portfolio. The goal is to automatically match all comparable positions and identify breaks on a daily
basis so that they can be categorized and corrected if needed, either with a request to the
custodian/broker, or in the internal system. The next day, a fresh data set flows in for the same
records, identifying matches and breaks for the current day.
The trading space relies on a variety of security IDs depending on geography, exchange platform, and
type of instrument (common examples: Ticker, ISIN, SEDOL, CUSIP, SIN).
Internal Reconciliation
The purpose of Internal Reconciliation is to ensure that data that is represented in more than one
business application and represented consistently across all those applications. Consider the affect
of a single equity principal trade is being executed and settled in all of those applications.
The elements of the trade shown in the below picture and the position that results from it, will be
represented in the applications coloured in “Grey” in the figure.
Flow of an equity trade through configuration

If these amounts are not consistent across applications, then the firm may be exposed to operational
risk, as the users of the systems that are showing the incorrect data will be base decisions of that
data. Therefore each firm has to decide which trade and position eliminates it needs to reconcile
between applications

Client Money
Client Money is money that a Firm holds or receives for or from a client and can be of any currency.
This could be in the form of cash, draft, cheque or electronic transfer and includes money held by
the Firm as stakeholder, and which is not immediately due or payable on demand to the Firm for its
own account.
 “A firm must arrange adequate protection for clients’ assets when it is responsible for them”. In this
context, both client money and other custody assets, as well as safe custody investments, are
included within client assets.

Confirmation Messages Types:

Certainly! Here's a consolidated table highlighting the most important SWIFT MT message types
across various categories, along with their descriptions and ISO 20022 MX equivalents:

MT Message Description ISO 20022 MX Equivalent

MT103 Single Customer Credit Transfer pacs.008 – FI to FI Customer Credit Transfer

General Financial Institution

MT202 pacs.009 – Financial Institution Credit Transfer
Transfer

MT300 Foreign Exchange Confirmation fxtr.001 – Foreign Exchange Trade Instruction

MT320 Fixed Loan/Deposit Confirmation fxtr.003 – Financial Instrument Instruction

MT400 Advice of Payment No direct equivalent

sese.023 – Securities Settlement Transaction

MT500 Instruction to Register
Instruction

comm.001 – Commodity Derivative Trade

MT600 Commodity Trade Confirmation
Instruction

MT700 Issue of a Documentary Credit camt.060 – Letter of Credit Notification

Guarantee/Standby Letter of
MT760 camt.025 – Receipt of Guarantee
Credit

camt.054 – Bank to Customer Debit/Credit

MT900 Confirmation of Debit
Notification

camt.054 – Bank to Customer Debit/Credit

MT910 Confirmation of Credit
Notification

Note: The migration from SWIFT MT to ISO 20022 MX messages is part of a global initiative to
standardize financial messaging, aiming for richer data and improved interoperability. Financial
institutions are encouraged to transition to these MX messages by November 2025.