Trading, custody and settlement describe the full life-cycle of a securities transaction: an order is placed with a broker, matched against a counter-order on an exchange, then confirmed, cleared and settled through a central depository — where securities are also held in safekeeping and corporate actions are processed — with legal ownership and cash changing hands on the settlement date under a T+ convention.
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Must-know for the exam
✓Trade life-cycle: order → execution (matching on the exchange) → clearing (confirm/net obligations) → settlement (securities and cash change hands). Legal ownership passes only at settlement.
✓A MARKET order prioritises certainty of execution (fills immediately at the best available price); a LIMIT order prioritises price (executes only at the limit or better, and may not fill at all).
✓Bid = highest price a buyer will pay; offer/ask = lowest price a seller will accept; the offer is always ≥ the bid. The bid-offer SPREAD is a cost of trading.
✓Spreads are narrow for liquid securities and wide for illiquid ones; a market order 'crosses the spread' and pays that cost immediately.
✓An EXCHANGE provides price discovery, order matching (price-then-time priority), listing/disclosure and market integrity — it is the marketplace, not usually your counterparty. In Singapore this is SGX.
✓A CENTRAL DEPOSITORY (CSD) holds securities in electronic book-entry form, maintains the register and settles trades by adjusting account balances. In Singapore this is The Central Depository (CDP).
✓A BROKER is the licensed intermediary that gives investors access to the exchange; investors generally cannot trade directly and pay brokerage commission for execution.
✓T+n settlement means settlement occurs n BUSINESS days after the trade date (T); weekends and public holidays are skipped, not counted.
✓Cash equity markets have been shortening cycles to cut risk — many major markets are now T+1 while others remain T+2; know the T+ concept rather than memorising a single number.
✓Settlement is normally DELIVERY-VERSUS-PAYMENT (DvP): securities move only if cash moves simultaneously, removing principal (one-sided) settlement risk.
✓CUSTODY is safekeeping and administration of securities; dematerialised (electronic) holdings reduce loss/theft/forgery risk and enable fast transfer.
✓Direct/name-on-register = investor is the registered holder; nominee/custodian = custodian is legal/registered holder while the investor is the BENEFICIAL owner. Client assets should be SEGREGATED from the custodian's own.
✓Corporate actions are MANDATORY (automatic, e.g. cash dividend, stock split, bonus issue) or VOLUNTARY (holder must elect by a deadline, e.g. rights issue, scrip dividend, takeover tender).
✓The RECORD DATE fixes who is entitled; on/after the EX-DATE the security trades without the entitlement, and the price typically falls by about the entitlement's value.
The trade life-cycle — from order to settlement
A securities transaction moves through several distinct stages. Understanding who does what at each stage is the key to this topic.
•ORDER — the investor instructs a broker to buy or sell a stated quantity of a security, specifying an order type and (usually) a price.
•EXECUTION (trade) — the order is routed to an EXCHANGE (or other trading venue) and MATCHED against an opposite order; a price is struck and a trade is done.
•CLEARING — after the trade, the obligations of each side are confirmed and netted; the clearing house/central counterparty determines who owes what.
•SETTLEMENT — on the settlement date, the securities are delivered to the buyer and the cash is paid to the seller, completing the transfer of ownership.
Only at SETTLEMENT does legal ownership actually pass. Execution creates a binding obligation to settle; settlement discharges it.
Order types — market vs limit
The two most fundamental order types differ in whether the investor prioritises CERTAINTY OF EXECUTION or CERTAINTY OF PRICE.
•A MARKET ORDER is an instruction to buy or sell IMMEDIATELY at the best price currently available. It prioritises getting done over the exact price — execution is (almost) assured but the fill price is not, and can move against the investor in a fast or thin market (slippage).
•A LIMIT ORDER sets a maximum price to pay (buy) or a minimum price to accept (sell). It prioritises price over certainty: it will only execute at the limit or better, so it may be partially filled or not filled at all if the market never reaches the limit.
Other common conditions layered on top include STOP orders (which become active only once a trigger price is reached, often used to limit losses) and validity conditions such as day orders (expire at the close) or good-till-cancelled (GTC) orders.
Rule of thumb: use a market order when speed matters most; use a limit order when price matters most and you can wait.
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