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Pricing Processes Overview

Pricing is the process undertaken when a price for a trade is being provided by the seller to a prospective buyer.

Process Flow

Pricing flow

graph LR RFQ[Request for Quote] --> PT[Price Trade] click RFQ "/processes/frontoffice/Pricing/request_for_quote/" "Exclusive for Subscriber" click PT "/processes/frontoffice/Pricing/price_trade/" "Exclusive for Subscriber" PT --> RTQ[Response to Quote] click RTQ "/processes/frontoffice/Pricing/response_to_quote/" "Exclusive for Subscriber"

Pricing in the big picture

graph LR Pricing[Pricing] --> PDC[Pre-deal Checks] click Pricing "/processes/frontoffice/Pricing/" "Free Resource" click PDC "/processes/frontoffice/PreDealChecks/" "Free Resource" style Pricing fill:#ff784e PDC --> TE[Transaction Execution] click TE "/processes/frontoffice/TransactionExecution/" "Free Resource" TE --> CRU[Credit Risk Control] click CRU "/processes/credit_risk/credit_risk_control/" "Free Resource" TE --> MRU[Market Risk Control] click MRU "/processes/market_risk/market_risk_control/" "Free Resource" TE --> ACC[Accounting] click ACC "/processes/finance/accounting/" "Free Resource" TE --> CONF[Confirmation] click CONF "/processes/operations/confirmations/" "Free Resource" CONF --> SETT(Settlement) click SETT "/processes/operations/settlements/" "Free Resource" SETT --> ACC

Impacts of pricing

Issue in the pricing space would lead to below potential issues

  • Bad pricing result in client unwillingess to trade
  • Bad pricing result in the need for traders to take on additional risk which is difficult to hedge
  • Delay pricing result in client moving on to other liquidity provider

People

There are two main participants involved in the pricing process.

  • Price Maker at times also known as liquidity provider
  • Price Taker

Price makers are participants who provide a price for particular instruments to the market for which are either dealable or indicative (dealable price are derived upon further details are provided by the price taker)

Price takers are participants who are seeking for a price of a particular instruments and looking to execute the transaction with the price maker

This is a process owned internally in the bank by Sales and Trading.

Systems

Pricing Systems Flow

The pricing process involves the interactions between various systems.

  • The market data provider systems provides the prices from a published market source.
  • The price engine performs the tasks of blending prices from various published market source to a blended price based on defined internal logic.
  • The execution system is where the actual action of pricing takes place before a trade gets booked.
  • The voice mechanism for interacting with clients to reach a price and trade agreement.
  • The risk management system and trade processing system at times is where the actual action of pricing takes place depending on organization and asset classes.