Trade link types
Table of Contents
1. Summary
A link type names the reason two trades are joined. The trade model carries the types below; each row says what the link connects, the role each end plays, what causes it, and which page owns the detail. One property sorts them: the economic effect. A type with an effect is a trade event, and a type without is an annotation. Adding a reason means adding a row here, not a special case in code.
Some collections of trades used to be filed here and are not links: structures, merges, compressions, allocations and process runs. Each is a trade group with an identity of its own, and its trades reference the group rather than each other. The last section lists them and where they now live.
2. Detail
2.1. How to read the catalogue
Trade links states the principle: a link with an economic effect is a trade event, and a link with no economic effect is an annotation. The tables below follow that split. The first table's links cut a version of the trades they join, and some of them need a confirmation. The second table's links are recorded, displayed and reported, and they change no term.
A link is directed. The from end is the trade the link starts at and the to end the trade it reaches, and the roles column names both.
2.2. Trade events: links with an economic effect
| Link type | From → to | Cause | Detail |
|---|---|---|---|
| Close-out | original → closing | The parties end the trade early, in full or in part | Trade Activity; Confirmations |
| Novation or assignment | transferred → new counterparty | One party transfers its position to a third party | the note below |
| Roll | rolled → replacement | A position is rolled to a new date by closing the trade and booking a replacement | Trade Blotter; Trade Structures and Deal Composition |
| Exercise | exercised → resulting | The holder exercises an option, in full or in part, into a new trade | the note below |
| Misbooking correction | correction → erroneous original | A trade was booked in error and is cancelled and rebooked | Trade Versioning |
2.3. Annotations: links with no economic effect
| Link type | From → to | Cause | Detail |
|---|---|---|---|
| Linked cash | trade → cash flow | A coupon, fee, rebate or principal falls due | Linked cash |
| Fixing | fixed → fixing | The rate of a non-deliverable forward fixes | Deliverability and non-deliverable instruments; Trade Blotter |
| Wash or back-to-back | client-facing → risk-bearing | Risk is routed to the book that owns it | Wash books and risk routing |
| Book move | backed-out → destination | The trade must change to a book with a different legal entity, branch, regulatory book or accounting classification, so it is closed out and rebooked | Book moves |
| What-if copy | original → hypothetical | A user copies a trade into a sandbox to experiment on it | Sandbox |
| Dealt from | hypothetical → actual | A hypothetical is dealt, so a new actual trade is booked | Sandbox; Trade Classification |
| Hedge | hedged → hedging | A desk records a risk relationship | Trade Blotter |
| User-defined link | either → either | A user records an association | Trade Blotter |
2.4. Notes
On novation. Novation changes the parties rather than the terms. Under the ISDA Master Agreement a party may not transfer its interest without the prior written consent of the other party, and the 2005 ISDA Novation Protocol sets a same-day consent process between the transferor, the transferee and the remaining party. The substance is that a novation is a new legal relationship, not an edit to an existing one, and a system that models it as an edit loses the audit trail. Our model treats it as a link between two trades, directed from the transferred trade to the trade with the new counterparty. The firm's own side is just as fixed: a trade that must move to a book owned by another legal entity is closed out and rebooked in the new book, and the two trades are linked (see Book lifecycle).
On exercise. Exercising an option ends it, or reduces it, and may create a trade. A physically settled FX option exercised into an FX forward or spot is the common case: the option is the exercised end and the new trade the resulting end. A partial exercise reduces the option's notional by amendment and links it to the trade generated for the exercised amount. An option that settles in cash creates no trade; its settlement is linked cash. FpML calls the two ends the originating and the resulting trade.
On misbooking correction. A correction cancels the erroneous trade
and books a new one, and the link runs from the correction back to the
original. It replaces the single successor_trade_id field: that field
named one kind of relation on one side of it, while the link names its
reason and both ends. Trade Versioning sets out the
cancel-and-rebook sequence.
Netting has several senses. Merging trades into one is an operation with an identity, covered by Trade merge. Netting settlement amounts is a payment mechanic: it nets cash flows, not trades, and it carries no link. Credit netting is the netting set.
Split has two senses. Allocating a block splits it into child trades, an operation covered by Trade allocation. Separately, the blotter's Link Split breaks an existing link.
A move within the boundary is not a link. A trade that moves to a book with the same legal entity, branch, regulatory book and accounting classification keeps its identity: the move amends its booking and creates no trade and no link. See Book moves.
Restructure is not a link. A restructure renegotiates the terms of the same trade, so it is an amendment that cuts a new version; see Trade Versioning. A roll is a link only where it closes the trade and books a replacement.
Expiry and downsizing are not links. Expiry moves a trade to
expired and generates nothing; a partial close-out reduces the
notional of the same trade by amendment. Where expiry produces a
settlement, the resulting cash is linked cash. Exercise
into a new trade is the exception, and has its own row.
2.5. Groups rather than links, and the structure beside them
A trade group has an identity of its own: an operation attaches to the set of trades as a whole, and the group carries a foreign key to the run that created it. Its trades reference the group, and each trade's role in it is recorded with the reference. A structure is the other case. It is a trade set too, and what it adds to the set is a product rather than a run.
| Collection | Economic effect | Roles of its trades | Detail |
|---|---|---|---|
| Structure | Yes; a change to a leg is a change to the deal | leg, by its role in the structure | Trade Structures and Deal Composition |
| Merge | Yes; the contributors close and the result opens | contributor, result, bridge | Trade merge |
| Compression | Yes; trades terminate or reduce | terminated, partially terminated, replacement | Trade compression |
| Allocation | None for the firm's risk; the counterparty moves to the allocations | block, allocation, bridge | Trade allocation |
| Funding roll | None; a funding mechanic | generated | Tom/Next |
| Sweep run | None; a cash-management mechanic | generated | Spot Sweep |
| Cleardown | None; a period-end reset | generated | Central remittance — see its cleardown section |
2.6. Sources
- ISDA, Novation Protocol: https://www.isda.org/traditional-protocol/isda-novation-protocol/
3. See also
- Trade links — the principle, the invariants, and the prior art behind the term.
- Trade sets and trade groups — why the collections in the last table are groups.
- Trade — the structure note that orders this cluster.
- Trade Structures and Deal Composition — the composition ladder and the structure operations.
- Trade Activity — the activity taxonomy, and which activities cut a version.
- Trade Blotter — Link / Unlink, Allocate (Split), Aggregate / Net, Roll Forward.
- Trade Lifecycle — the states a trade moves through.
- Knowledge — the hub of all knowledge notes.