See how you can get ready for It!
“This post will help you understand how you can start your carrier with Investment Banking firms in India. List of operation that they performed for which you can prepare for it to apply for jobs”
“INVESTMENT BANKING”
Lets first understand what is Investment Bank firms?
An Investment Bank is a type of financial institution that helps companies, governments, and other organizations raise money (capital) and provides financial and strategic advisory services. Unlike commercial banks, which deal mainly with deposits and loans for individuals and small businesses, investment banks focus on large-scale financial transactions.
They also provide financial assistance to their client with various product such as FX, Commodity, Loans, Derivatives, OTC, ETD, Brokerage etc..
Key Functions of an Investment Bank:
- Underwriting and Capital Raising:
- Help companies issue stocks (equity) or bonds (debt) to raise funds.
- Example: If a company wants to go public through an IPO (Initial Public Offering), an investment bank helps set the price, buys the shares from the company, and sells them to investors.
- Help companies issue stocks (equity) or bonds (debt) to raise funds.
- Advisory Services (M&A):
- Advise on mergers, acquisitions, divestitures, and restructurings.
- Example: If Company A wants to buy Company B, an investment bank may assess the deal’s value and help with negotiations.
- Advise on mergers, acquisitions, divestitures, and restructurings.
- Trading and Sales:
- Buy and sell securities (like stocks, bonds, Derivatives) on behalf of clients or for the bank itself.
- Buy and sell securities (like stocks, bonds, Derivatives) on behalf of clients or for the bank itself.
- Asset Management and Research:
- Manage large investment portfolios for institutional clients.
- Conduct research on industries and companies to guide investment decisions.
- Manage large investment portfolios for institutional clients.
Major Investment Banks operations in India :
- Goldman Sachs
- JPMorgan Chase
- Morgan Stanley
- Bank of America Merrill Lynch
- Citigroup
- Barclays
- Societe Generale
- United Bank of Switzerland
- Deutsche Bank
- MUFG
- Nomura
- Standard Charted
Key Operations which is being performed by all the investment Banks in India :
- KYC
- Reference Data
- Loans Ops
- Derivatives
- Risk management Team
- Internal Auditor
- ETD
- Reporting
- IT and many more
This blog will help you understand how one can prepare themself to start their career with worlds leading Investment Banks firms which operate from India from major cities like Bangalore, Pune, Chennai, Gurugram, Hyderabad, Mumbai etc.
Lets understand how the trade Life cycle of the bank looks as its really important to understand their operations.
TRADE LIFE CYCEL
The Trade Life Cycle refers to the entire process a financial trade goes through — from initiation to settlement. It is a series of steps that ensure a trade is correctly executed, confirmed, and recorded. This process is crucial for investment banks, brokers, asset managers, and financial institutions to manage risk, comply with regulations, and ensure timely settlement.
🔁 Phases of the Trade Life Cycle
Here’s a simplified overview of the key stages:
1. Pre-Trade:
- Market Research and Analysis:Investors and institutions analyze market conditions and identify suitable investment opportunities.
- Client Onboarding:For institutions, this involves verifying potential clients and establishing trading relationships.
- Transaction Cost Analysis:Evaluating the potential costs associated with a trade before execution.
- Risk Assessment:Determining the risks involved in the trade and implementing necessary controls.
2. Trade Initiation and Execution:
- Order Placement: An investor places an order to buy or sell a financial instrument through a broker or directly on an exchange.
- Trade Execution: The order is matched with a corresponding order from another party, and the trade is executed on the exchange.
- Trade Capture: The executed trade is recorded and booked in the relevant systems.
3. Trade Capture:
- To ensure that all trade information is accurately entered based on Trade Recap, Its a soft copy which is being exchanged by both the counterparty which would have all the agreed trade economics so that:
- The trade can be confirmed and settled properly.
- The bank can track risk, regulatory compliance, and profit/loss.
- Downstream systems (like settlement, risk, and accounting) work with clean data
- Usually done in the Front Office (by traders or salespeople) Or by a Middle Office trade capture team.
4. Trade Processing:
- Confirmation: Details of the executed trade are confirmed between the parties involved.
- Clearing: This involves managing the risk associated with the trade, often through a clearinghouse.
- Settlement: The final stage where securities are delivered to the buyer and payment is transferred to the seller.
5. Post-Trade and Reconciliation:
- Reconciliation: Ensuring that all trade details are accurate and matched across different systems.
- Reporting: Generating reports on trading activity for various purposes.
- Archiving: Storing trade-related information for future reference and compliance.
Now lets see the list of operations for which you can prepare for it..
1. KYC – Know your Customer
What is KYC Operation in an Investment Bank?
KYC (Know Your Customer) operations in an investment bank refer to the process of verifying the identity and background of clients before they are allowed to open accounts or trade. It’s a key part of the compliance and anti-money laundering (AML) framework.
🎯 Purpose of KYC:
- Prevent money laundering
- Combat terrorist financing
- Comply with regulatory requirements (e.g., SEBI in India, SEC in the US)
- Understand the client’s financial profile and risk level
🧩 KYC Operation – Key Components:
| Step | Description |
|---|---|
| 🔍 Client Identification | Collect legal documents (PAN, Aadhaar, Passport, etc.) |
| 📝 Client Due Diligence (CDD) | Understand client’s nature of business, source of funds |
| 🧠 Risk Assessment | Classify client as Low, Medium, or High risk |
| 📂 Document Verification | Validate submitted documents for authenticity |
| 🔁 Ongoing Monitoring | Regularly review transactions to detect unusual behavior |
| 🔄 Periodic Reviews | Update KYC records regularly, especially for high-risk clients |
👥 Who Performs KYC?
- Operations/Compliance Teams in the Middle Office or Back Office
📄 Example Documents Collected:
- For individuals:
- PAN Card, Aadhaar, Passport, Address Proof, Bank Statement
- For companies:
- Certificate of Incorporation, Board Resolution, GST details, Director IDs
🧾 Real-World Example:
A hedge fund wants to trade with an investment bank. The KYC team will:
- Check legal registration documents
- Screen for sanctions or watchlists (like OFAC or UN lists)
- Verify the identity of beneficial owners
- Approve or escalate if any red flags appear
⚠️ Importance of KYC:
- Avoid regulatory fines (can be in millions)
- Maintain trust and transparency
- Prevent fraud and financial crime
2. REFERENCE DATA
📘 What is Reference Data in an Investment Bank?
Reference data refers to the static or slowly changing information used to support trade processing, risk management, compliance, accounting, and reporting in an investment bank.
It is not transactional data (like trade records), but it’s essential for ensuring that trades are processed correctly and consistently across systems.
📊 Types of Reference Data:
| Category | Description | Examples |
|---|---|---|
| 📄 Client Data | Details about counterparties | Legal name, address, LEI (Legal Entity Identifier), KYC status |
| 💼 Instrument/Product Data | Information about financial instruments | ISIN, CUSIP, Ticker, Bond Maturity, Option Strike Price |
| 🌍 Market Data | Information about financial markets | FX rates, interest rates, indices |
| 🏛 Counterparty/Legal Entity Data | Legal and compliance-related details | Entity structure, ownership, sanctions screening |
| 📆 Calendar Data | Trading and settlement dates | Holidays, settlement cycles (e.g., T+2) |
| 🔧 Static Data | System configuration or mapping data | Country codes, currency codes, product hierarchies |
🧠 Why Reference Data is Important:
- Trade booking accuracy (wrong ISIN can lead to booking the wrong security)
- Risk calculations
- Regulatory reporting
- Settlement matching
- Avoiding compliance issues
🏦 Where It’s Used:
- Front Office: To book trades correctly
- Middle Office: For trade validation and confirmations
- Back Office: For settlement and reconciliation
- Compliance/Risk: For screening and risk assessment
🧰 Systems That Manage Reference Data:
- Golden source systems (central reference data stores): e.g., Markit EDM, GoldenSource, Bloomberg Reference Data
- Data Vendors: Bloomberg, Reuters, S&P Capital IQ, etc.
⚠️ Key Challenges in Reference Data:
- Data inconsistency across systems
- Duplicate or outdated records
- High volume of instruments and clients
- Regulatory pressure for data quality
3. LOANS
💼 What is Loan Operation in an Investment Bank?
Loan operations in an investment bank refer to the back-office and middle-office processes that support the origination, booking, servicing, and lifecycle management of loans — especially syndicated loans, leveraged loans, and corporate lending.
These operations ensure that loan agreements are executed properly, cash flows are tracked, and payments and reporting are accurate.
🔁 Key Functions in Loan Operations:
| Function | Description |
|---|---|
| 📑 Loan Booking | Recording loan terms (amount, interest rate, tenor, borrower, etc.) into internal systems |
| 🧾 Disbursement | Releasing funds to the borrower on the agreed drawdown date |
| 📆 Interest & Principal Calculation | Calculating interest due, repayment amounts, and amortization schedules |
| 💰 Cash Management | Managing inflows/outflows, repayments, prepayments, fees, etc. |
| 📬 Notices & Confirmations | Sending interest/payment notices and confirmations to clients |
| 🔄 Loan Lifecycle Events | Handling restructurings, rollovers, rate changes, covenant tracking |
| 📉 Reporting | Internal reporting (risk, P&L) and external reporting (regulatory, client reports) |
🏦 Types of Loans Handled:
- Syndicated Loans (multiple lenders, one borrower)
- Leveraged Loans (to high-risk companies with high debt)
- Term Loans (fixed schedule)
- Revolving Credit Facilities (borrow, repay, borrow again)
- Bridge Loans (short-term funding)
- Project Finance (infrastructure/large projects)
🧰 Common Tools and Systems:
- Loan IQ
- ACBS (Automated Commercial Banking System)
- Finastra Fusion Loan IQ
- Excel-based models (for small institutions)
📌 Example Workflow:
- Loan Agreement Signed
- Operations team books loan into system
- Funds disbursed to client’s account
- Interest is accrued daily; client is notified before due date
- Client makes payment; operations reconciles and closes installment
- Loan monitored for any changes or defaults
🔒 Compliance & Risk Checks:
- AML/KYC of borrower
- Credit limits and exposures
- Covenant monitoring
- Sanctions screening
⚠️ Challenges in Loan Operations:
- Manual processes (high risk of errors)
- Complex documentation
- Changing interest rates (e.g., LIBOR to SOFR transition)
- Regulatory scrutiny
4. DERIVATIVES
📘 What are Derivatives in an Investment Bank?
Derivatives are financial contracts whose value is based on (or derived from) the value of an underlying asset like stocks, bonds, interest rates, currencies, or commodities.
In an investment bank, derivatives are used for:
- Hedging risk
- Speculation
- Arbitrage
- Custom solutions for clients
🔑 Key Types of Derivatives:
| Type | Description | Example |
|---|---|---|
| 📄 Forward Contracts | Private agreements to buy/sell an asset at a future date at a fixed price | FX forward to lock in future exchange rate |
| 📜 Futures Contracts | Standardized forwards traded on exchanges | Nifty Futures, Crude Oil Futures |
| 🛡 Options | Gives buyer the right, but not the obligation, to buy/sell an asset | Call Option on Reliance stock |
| 🔁 Swaps | Two parties exchange cash flows (e.g., fixed ↔ floating interest) | Interest Rate Swap, Currency Swap |
| 🧩 Credit Derivatives | Based on credit events (default, downgrade, etc.) | Credit Default Swap (CDS) |
🏦 How Investment Banks Use Derivatives:
| Activity | Description |
|---|---|
| 💰 Trading/Speculation | Proprietary traders use derivatives to bet on market movements |
| 🛡 Risk Hedging | Hedging interest rate, FX, or credit risk from client exposures |
| 👨💼 Client Services | Creating customized derivative contracts to help clients manage risk |
| 💱 Market Making | Quoting prices in derivatives to provide liquidity in the market |
| 📊 Structuring | Designing complex financial products using combinations of derivatives |
🧠 Real-World Example:
A corporate client wants to hedge interest rate risk on a loan.
→ The investment bank offers an interest rate swap, exchanging their floating-rate payments for fixed-rate ones.
🔍 Key Risk Areas:
- Market risk (price movements)
- Credit risk (counterparty defaults)
- Operational risk (errors in booking or settlement)
- Model risk (valuation issues in complex derivatives)
🔄 Derivative Trade Lifecycle Includes:
- Trade Capture
- Trade Validation
- Confirmation & Matching
- Margining & Collateral
- Settlement
- Valuation & Risk Reporting
Would you like:
- A derivative trade lifecycle diagram
- A comparison of exchange-traded vs OTC derivatives
- Or an explanation of how options or swaps work in detail?
5. RISK Management Team
🛡️ Risk Management Team in an Investment Bank
The Risk Management Team in an investment bank is responsible for identifying, analyzing, monitoring, and controlling risks that arise from the bank’s operations, trading, and client interactions.
Their main goal is to protect the bank from potential financial losses, regulatory penalties, or reputational damage.
🏦 Types of Risks Managed:
| Type of Risk | Description | Example |
|---|---|---|
| 📉 Market Risk | Loss due to market movements (prices, interest rates, FX, etc.) | Stock prices drop after the bank takes a long position |
| 💸 Credit Risk | Risk that counterparties may default | A client fails to repay a loan or bond |
| ⚙️ Operational Risk | Errors, fraud, or system failures | Trade entered incorrectly or system crash |
| 🧾 Regulatory/Compliance Risk | Violating laws or regulations | Failure to report to SEBI, RBI, or SEC |
| 🌍 Liquidity Risk | Not having enough cash or assets to meet obligations | Cannot fund margin calls or settlements |
| 🔄 Counterparty Risk | Risk that the other party in a derivative contract fails | CDS buyer defaults before payout is due |
| 🧠 Model Risk | Inaccurate models used for pricing or risk calculation | Option pricing model gives wrong value |
🔧 Key Functions of the Risk Management Team:
- Risk Identification
- Detect potential risks from products, clients, or trades.
- Risk Measurement & Quantification
- Use tools like VaR (Value at Risk), Stress Testing, Exposure Analysis, and Scenario Analysis.
- Risk Monitoring
- Real-time tracking of positions, exposures, limits, and thresholds.
- Risk Control & Limits Setting
- Set and enforce risk limits for traders, desks, and portfolios.
- Reporting
- Regular reports to senior management, regulators, and audit committees.
- Regulatory Compliance
- Ensure adherence to Basel III, MiFID II, SEBI norms, etc.
🧰 Tools & Systems Used:
- Murex, Calypso, RiskMetrics, Sungard, Bloomberg Risk, Quantitative models
- Programming: Python, R, SQL for analytics and stress models
👨💼 Team Structure:
| Role | Responsibility |
|---|---|
| Chief Risk Officer (CRO) | Overall head of risk governance |
| Market Risk Manager | Focuses on price/market-related risks |
| Credit Risk Analyst | Evaluates client creditworthiness |
| Operational Risk Manager | Tracks internal process failures |
| Quantitative Risk Analyst | Builds and tests risk models |
🧠 Example Scenario:
A trader at the bank takes a large leveraged position in oil futures.
👉 The Market Risk Team monitors real-time price fluctuations.
👉 If risk exposure exceeds preset limits, alerts are triggered, and positions may be reduced or hedged.
Would you like:
- A breakdown of market risk vs credit risk teams
- Details on VaR (Value at Risk) methodology
- Or an example of how a risk breach is handled?
6. Internal AUDIT
📋 What is Internal Audit in an Investment Bank?
Internal audit is an independent function within an investment bank that evaluates whether the bank’s internal controls, risk management systems, compliance practices, and operations are functioning effectively and in line with regulatory requirements and company policies.
👉 Its core purpose is to provide assurance to senior management and the board that risks are being identified and managed properly.
🧠 Key Objectives of Internal Audit:
| Goal | Description |
|---|---|
| ✅ Control Testing | Assess if internal controls (manual and automated) are effective and working |
| ⚖️ Regulatory Compliance | Verify that the bank complies with laws (e.g. SEBI, RBI, Basel III, MiFID, etc.) |
| 🔍 Risk Management Review | Ensure proper risk identification, mitigation, and monitoring |
| 💻 System & Process Review | Check for weaknesses or inefficiencies in business systems and operations |
| 🔄 Fraud Prevention & Detection | Identify unusual patterns or gaps that could lead to fraud or loss |
| 📈 Operational Efficiency | Recommend improvements in processes, cost-saving, or automation |
🏢 Areas Audited in an Investment Bank:
| Function Audited | What’s Reviewed |
|---|---|
| 📊 Trading Desks | Trade capture, limits, market abuse controls |
| 💳 Operations | Trade settlements, reconciliations, payment controls |
| 💼 Risk Management | VaR models, stress testing, breach handling |
| 📋 Compliance | AML/KYC policies, client onboarding, sanctions screening |
| 📂 IT Systems | Access controls, cybersecurity, change management |
| 💰 Finance & Treasury | Liquidity monitoring, capital adequacy, financial reporting |
| 🤝 Client Services | Data privacy, communication standards, complaint handling |
👥 Who Performs the Internal Audit?
- Internal Audit Department – reports directly to the Audit Committee (not management)
- Professionals with backgrounds in finance, risk, IT, compliance, and operations
- Uses standards from IIA (Institute of Internal Auditors) and frameworks like COSO
🔄 Audit Process Flow:
- Planning – Identify key risk areas and define audit scope
- Fieldwork – Interview staff, test controls, review documentation
- Issue Identification – Spot gaps, control failures, or compliance breaches
- Reporting – Issue audit report with risk ratings and recommendations
- Follow-Up – Ensure agreed actions are implemented (usually within 90 days)
🛠 Tools Used:
- Audit Management Systems: TeamMate, ACL GRC, Galvanize, MetricStream
- Data Analytics Tools: Excel, SQL, Python, Power BI for trend and anomaly detection
⚠️ Common Audit Findings in Investment Banks:
- Trades not booked properly (front office vs back office mismatch)
- Inadequate documentation for large exposures
- Unauthorised system access
- Weak controls around client onboarding and AML
- Delayed or missing reconciliations
Would you like:
- A sample internal audit checklist
- A breakdown of how IT audit differs from operational audit
- Or examples of audit findings in real banks?
7. ETD – EXCHANGE TRADED DERIVATIVES
📘 What is ETD (Exchange-Traded Derivative) in an Investment Bank?
ETD (Exchange-Traded Derivative) refers to a standardized financial derivative contract that is traded on a regulated exchange, such as NSE, BSE, CME, or ICE. In investment banks, ETDs are handled by trading, operations, clearing, and risk teams as part of their derivatives business.
🔁 Key Features of ETDs:
| Feature | Description |
|---|---|
| 🏛 Standardized | Contract terms (size, expiry, underlying) are fixed by the exchange |
| 📈 Traded on Exchange | No direct negotiation between buyer and seller — trades go through the exchange |
| 🤝 Cleared by Clearing House | Reduces counterparty risk; clearing house becomes central counterparty (CCP) |
| 📆 Daily Mark-to-Market | Profits/losses are settled daily via margin accounts |
| 💼 Transparent Pricing | Prices are publicly available in real-time |
📊 Common Types of ETDs:
| Type | Underlying | Example |
|---|---|---|
| 📄 Futures | Stocks, bonds, indices, commodities, FX | Nifty Futures, Gold Futures |
| 🛡 Options | Right to buy/sell underlying at fixed price | Bank Nifty Options, S&P 500 Options |
🏦 Role of ETDs in an Investment Bank:
| Area | Activity |
|---|---|
| 📉 Trading | Speculating or hedging using futures/options on behalf of clients or for proprietary trading |
| 🧾 Clearing & Settlement | Margin calculation, trade matching, exchange reporting |
| 🔍 Risk Management | Monitoring exposure, market risk, and margin requirements |
| 💬 Client Services | Providing access to global derivative exchanges and advisory services |
| 📋 Compliance & Reporting | Ensuring regulatory compliance with SEBI, CFTC, MiFID II, etc. |
💼 ETD Trade Lifecycle:
- Trade Execution → Order placed and matched on the exchange
- Trade Capture → Trade is entered into the bank’s internal system
- Clearing → Trade novated to clearing house (CCP)
- Margining → Daily margin calls and collateral management
- Settlement → Final settlement on expiry (cash or delivery)
🧰 Systems Used:
- Exchange Platforms: NSE, BSE, CME, ICE
- Clearing Systems: NSCCL (India), CME Clearing
- Internal Systems: Murex, Calypso, GMI (for ETD back-office processing)
✅ Benefits of ETDs:
- Lower credit risk (due to central clearing)
- High liquidity and transparency
- Lower cost than some OTC products
⚠️ Challenges in ETD Operations:
- Managing large volume of trades
- Intraday margin and collateral requirements
- Regulatory reporting (especially cross-border)
7. REPORTING
📊 What is Reporting in an Investment Bank?
Reporting in an investment bank refers to the process of collecting, analyzing, and presenting data related to trades, risk, compliance, finance, and operations. These reports are used internally by management and externally for regulators, investors, and clients.
🧩 Types of Reporting in an Investment Bank:
| Report Type | Purpose | Audience |
|---|---|---|
| 📈 Trade Reporting | Details of executed trades (price, quantity, time) | Regulators, internal compliance |
| 🛡 Risk Reporting | Market, credit, liquidity, and operational risk exposure | Risk teams, senior management, CRO |
| 🧾 Regulatory Reporting | To comply with local/global regulations (e.g. SEBI, RBI, MiFID II, Basel III) | Regulators |
| 📊 Financial Reporting | Profit & loss, balance sheet, income statements | CFO, board, shareholders |
| 🔍 Compliance Reporting | AML, KYC, suspicious activity, trade surveillance | Compliance officers, regulators |
| 📬 Client Reporting | Reports on portfolios, trades, fees | Clients (institutional or retail) |
| 📆 Operational Reporting | Settlement status, failed trades, breaks | Operations teams |
🛠 Key Tools Used for Reporting:
- Excel, SQL, Python, Power BI, Tableau – for data analysis & dashboards
- Reporting Engines: AxiomSL, SAP, Calypso Reports, Cognos
- Trade Repositories: DTCC, UnaVista (for regulatory submission)
🌐 Examples of Regulatory Reports:
| Regulation | Region | Report |
|---|---|---|
| 📋 MiFID II | EU | Transaction and trade reporting (T+1) |
| 📉 Basel III | Global | Capital adequacy, leverage, liquidity (LCR/NSFR) |
| 🏦 SEBI / RBI | India | Foreign inflow/outflow, FPI/FII trade data |
| 💹 EMIR | EU | Derivative trade reporting |
| 💰 Dodd-Frank | US | OTC derivative reporting, stress tests |
🔄 Reporting Workflow Example:
- Data Collection – From trading, risk, finance, operations systems
- Data Validation – Clean, enrich, and standardize data
- Report Generation – Use templates, dashboards, or code
- Review & Sign-Off – By responsible teams or senior managers
- Distribution – To clients, regulators, or internal teams
✅ Why Reporting Is Critical:
- Ensures regulatory compliance (avoids fines or penalties)
- Supports risk management and decision-making
- Maintains transparency with clients and regulators
- Tracks performance and operational health
⚠️ Reporting Challenges:
- Managing high data volumes
- Ensuring accuracy and timeliness
- Adapting to frequent regulatory changes
- Breaking data silos across systems
8. OTC – Over the counter Derivatives
📘 What are OTC Derivatives in an Investment Bank?
OTC (Over-The-Counter) derivatives are financial contracts that are privately negotiated and traded directly between two parties, rather than on an exchange. In investment banking, OTC derivatives are used for customized hedging, trading, and structured financial solutions.
They play a major role in managing risk, generating revenue, and serving client-specific needs.
🔑 Key Features of OTC Derivatives:
| Feature | Description |
|---|---|
| 🤝 Privately Negotiated | Terms are customized between the investment bank and counterparty |
| 📋 Flexible Structure | Tailored to meet specific client needs (tenor, notional, payoff, etc.) |
| ⚖️ Less Regulated (historically) | Now more regulated post-2008 (e.g. via Dodd-Frank, EMIR) |
| 📉 Bilateral Risk | Counterparty credit risk exists (mitigated using collateral/margining) |
🧩 Common Types of OTC Derivatives:
| Type | Description | Example |
|---|---|---|
| 🔁 Swaps | Exchange of cash flows (fixed ↔ floating, etc.) | Interest Rate Swap, Currency Swap |
| 📜 Forwards | Agreement to buy/sell an asset at a future date at a fixed price | FX Forward, Commodity Forward |
| 🛡 Options (Non-standard) | Customized right to buy/sell under specific conditions | Exotic options, barrier options |
| 🧾 Credit Derivatives | Transfer of credit risk between parties | Credit Default Swap (CDS) |
🏦 Investment Bank’s Role in OTC Derivatives:
| Function | Description |
|---|---|
| 📈 Trading/Market Making | Quoting prices for OTC derivatives and managing risk positions |
| 💼 Structuring | Designing custom derivative solutions for clients (e.g., corporates, hedge funds) |
| 🧾 Sales | Offering derivative products to clients (for hedging or speculation) |
| 🛠 Operations | Trade capture, confirmation, settlement, and lifecycle management |
| 🔍 Risk Management | Monitoring market risk, credit risk, and collateral exposure |
| 📋 Compliance/Reporting | Meeting regulatory requirements (e.g., trade reporting, collateral rules) |
🔄 OTC Derivatives Trade Lifecycle:
- Trade Negotiation – Terms agreed between parties
- Trade Capture – Entered into internal systems (Murex, Calypso, etc.)
- Confirmation – Legal confirmation sent and matched
- Valuation – Marked-to-market periodically
- Collateral/Margining – Daily margin calls (via CSA agreements)
- Settlement/Maturity – Final payment or cash flow exchange
⚠️ Risks in OTC Derivatives:
| Risk Type | Description |
|---|---|
| 🔄 Counterparty Risk | Other party may default |
| 📉 Market Risk | Underlying asset price may move unfavorably |
| ⚙️ Operational Risk | Manual errors or system failures |
| 📋 Regulatory Risk | Failure to comply with new rules (e.g., reporting, clearing) |
🧠 Example Scenario:
A corporate client with a ₹500 Cr loan wants to protect itself from rising interest rates.
👉 The investment bank offers an Interest Rate Swap:
The client pays fixed and receives floating.
The bank books the trade, calculates daily P&L, and manages margin/collateral.
🔁 OTC vs ETD (Exchange-Traded Derivatives):
| Feature | OTC | ETD |
|---|---|---|
| Customization | High | Low (standardized) |
| Traded On | Bilateral (private) | Exchange |
| Credit Risk | Bilateral | Cleared via CCP |
| Transparency | Lower | High |
| Example | Interest Rate Swap | Nifty Futures |
If you get yourself updated with all this topics and update your resume accordingly than this will help you in finding a good jobs in Investment Banking firms in India and Abroad.
All the Best!!
