6. Business Conduct: Post-Trade (POST)

Confirmation Process

6.1 POST Principle 1

Market Participants should confirm trades as soon as practicable, and in a secure and efficient manner

6.1.1

Market Participants should confirm trades as soon as practicable after execution, amendment or cancellation. The use of automated trade confirmation matching systems, when available, is strongly recommended. Market Participants should also implement operating practices that segregate responsibility for trade confirmation from trade execution.

6.1.2

Confirmations should be transmitted in a secure manner wherever possible, and electronic and automated confirmations are encouraged. When available, standardised message types and industry-agreed templates should be used to confirm trades.

6.1.3

Open communication methods such as email can significantly increase the risk of fraudulent correspondence or disclosure of Confidential Information to unauthorised parties. If confirmations are communicated via open communication methods, those methods should comply with relevant information security standards.

6.1.4

If Market Participants bilaterally choose to match trades using front-end electronic dealing platforms in place of exchanging traditional confirmation messages, the exchange of trade data should be automated and flow straight through from the front-end system to operations systems. Strict controls should be in place so that the flow of data between the two systems is not changed and that data is not deleted or manually amended. Any agreements between the parties to use electronic dealing platforms for trade matching rather than exchanging traditional confirmation messages should be documented in the legal agreement between the parties.

6.2 POST Principle 2

Market Participants should identify and resolve confirmation and settlement discrepancies as soon as practicable

6.2.1

Market Participants should confirm, and reconcile, trades as soon as practicable after execution, amendment or cancellation, preferably on a same day basis.

6.2.2

Market Participants that identify discrepancies between received confirmations or alleged trades and their own trade records should investigate internally and inform their counterparts with the aim to resolve such discrepancies as soon as practicable. Market Participants should also carefully reconcile all alleged trades and inform senders of unknown confirmations that these cannot be allocated to any internal trade record.

6.2.3

Escalation procedures should be established to resolve any unconfirmed or disputed terms as a matter of urgency, and processes should be in place to detect and report any adverse trends that emerge in the discrepancies.

6.2.4

Escalation procedures should also include notification to trading and other relevant internal parties so that they know which counterparties may have practices that do not align with best practice regarding confirmation of trades. The Market Participant's management should receive regular discrepancy information, which should include as a minimum, - the number, latency, size of transaction, mark to market (where applicable), and proximity to settlement of unconfirmed deals so that they can evaluate the level of operational risk being introduced by maintaining dealing relationships with each of their firm's counterparties.

Clearing and Settlement Processes

6.3 POST Principle 3

Market Participants should perform timely account reconciliation processes

6.3.1

Market Participants should conduct a regular reconciliation process to reconcile expected cash flows against actual cash flows, on a timely basis. The sooner reconciliations are performed, the sooner a Market Participant can detect missing or erroneous entries and know its true account balances so that it can take appropriate action to confirm that its accounts are properly funded. Reconciliations should be carried out by personnel who are not involved in processing trades that would affect the balances of accounts held with correspondent banks.

6.3.2

Full reconciliation should occur across nostro accounts as early as possible. To aid in the full reconciliation of their nostro accounts, Market Participants should be capable of receiving automated feeds of nostro activity statements and implement automated nostro reconciliation systems. Market Participants should also have measures in place to resolve disputes.

6.3.3

Escalation procedures should be in place and be initiated to deal with any unreconciled cash flows and/or unsettled trades.

6.4 POST Principle 4

Market Participants should identify settlement discrepancies and submit compensation claims in a timely manner

6.4.1

Market Participants should establish procedures for detecting non-receipt of payments, late receipt of payments, incorrect amounts, duplicate payments and stray deliveries/receipts of Precious Metals/payments and for notifying appropriate parties of these occurrences. Escalation procedures should be in place for liaising with counterparties that fail to make deliveries/payments and more broadly for the resolution of any disputes. Escalation should also be aligned to the commercial risk resulting from fails and disputes. Market Participants that have failed to make a delivery/payment on a value date or have received a delivery/payment in error (e.g., stray, duplicate) should arrange for proper value to be applied or pay compensation costs in a timely manner.

6.4.2

All instances of non-receipt of payment should be reported immediately to the counterparty’s operations and/or trading units. Market Participants should update their settlement exposure with the most recent projected cash flow movements. Market Participants may wish to consider a limited dealing relationship with counterparties that have a history of settlement problems and continue to fail on their payments.

6.5 POST Principle 5

Market Participants should measure and monitor their settlement risk and seek to mitigate that risk when possible

6.5.1

Market Participants should develop timely and accurate methods of quantifying their Precious Metals settlement and risk. The management of each area involved in the Market Participant’s Precious Metals operations should obtain at least a high-level understanding of the settlement process and the tools that may be used to mitigate settlement risk.

6.5.2

The netting of settlements in Precious Metals trades is encouraged in unallocated transactions, where netting is possible. Where used by Market Participants, a process of settling payments on a net basis should be supported by appropriate bilateral documentation. Such netting may be bilateral or multilateral.

6.5.3

Market Participants should be cognizant of, and manage, the different risks presented by the allocated/physical settlement of Precious Metals compared to unallocated settlement, a non-exhaustive list of which would include:

• Warehousing;
• Transportation;
• Delivery capability and capacity;
• Grade and quality if non-GDL bars; and
• Consideration of the difference between allocated and non-allocated transactions.

6.6 POST Principle 6

Market Participants should utilise Standing Settlement Instructions (SSIs)

6.6.1

SSIs for all relevant products should be in place, where practicable, for counterparties with whom a Market Participant has a trading relationship. The responsibility for entering, authenticating and maintaining SSIs should reside with personnel clearly segregated from a Market Participant’s trading and sales personnel, and ideally from those operational personnel responsible for trade settlement. SSIs should be securely stored and provided to all relevant settlement systems so as to facilitate straight-through processing. The use of multiple SSIs with the same counterparty for a given product and currency is discouraged. Because of the settlement risks it introduces, the use of multiple SSIs with the same counterparty for a given product and currency should have appropriate controls.

6.6.2

SSIs should be set up with a defined start date and be captured and amended (including audit trail recording) with the appropriate approvals, such as review by at least two individuals. Counterparties should be notified of changes to SSIs with sufficient time in advance of their implementation. Changes to and notifications of SSIs, and new SSIs should be delivered via an authenticated, and standardised, message type whenever possible.

6.6.3

All trades should be settled in accordance with the SSIs in force on the value date. Trades that are outstanding at the time SSIs are changed (and have a value date on or after the start date for the new SSIs) should be reconfirmed prior to settlement (either bilaterally or through an authenticated message broadcast).

6.6.4

Where SSIs are not available (or existing SSIs are not appropriate to the particular trade), the alternate settlement instructions to be used should be delivered as soon as practicable. These instructions should be exchanged via an authenticated message or other secure means and should subsequently be verified as part of the trade confirmation process.

Payments

6.7 POST Principle 7

Market Participants should request direct payments

6.7.1

Market Participants should request direct payments when conducting Precious Metals transactions and recognise that third-party payments may significantly increase operational risk and potentially expose all parties involved to money laundering or other fraudulent activity. Market Participants engaging in third-party payments should have clearly formulated policies regarding their use, and any such payments should comply with such policies.

6.7.2

At a minimum, these policies should require the payer to be furnished with a clear understanding of the reasons for third-party payments and for risk assessments to be made in respect of Anti-Money Laundering (AML), counter-terrorism financing and other Applicable Law. Arrangements for third-party payments should also be agreed upon and documented between the counterparties prior to trading. In the event a third-party payment is requested after a trade has been executed, the same level of due diligence should be exercised, and relevant compliance and risk approvals should be sought and secured.

6.7.3

Cash payments are allowed as long as they conform to the requirements of LBMA's Responsible Sourcing Guidance.