When working with orders and making trades within Bricknode Broker you have the option to work with both internal and external counterparties.
What does internal counterparties mean?
Let’s say that you as the house is a brokerage firm or a corporate finance firm and you have two customers that wants to make a trade. Customer A wants to sell 100 shares of Stock XYZ and Customer B wants to buy 100 shares of Stock XYZ.
Within Bricknode Broker you would enter a sell order for the instrument (where the instrument is set up with the Execution Interface Manual ). The image below shows the order entry in the back office interface.
The next step is to execute the order which is done by triggering the “Fill” action on the order:
In the counterparty section Customer B should then be selected as taking the other side of the trade:
For Customer A the result is the following:
For Customer B the result is the following:
By clicking on the printer-icon in the Transactions area the settlement note will be shown.
Customer B is now long 100 shares and since the customer did not deposit any cash the account has a negative cash balance since the account was set up to allow trading on margin.
In this use-case Customer A and Customer B are counterparties and their accounts both exist in the Bricknode Broker system so the total balance of Stock XYZ remains the same.
What does external counterparties mean?
Within Bricknode Broker it is also possible to work with external counterparties, let’s for example say that the house has a relationship with a bank or brokerage firm which it uses to trade stocks on the stock exchange. In this example Customer B would like to sell the 100 shares of Stock XYZ but wants to do it on a stock exchange and the house uses a broker which is called External Counterparty 1.
The External Counterparty has an account set up with the following properties.
In contrast to the accounts of Customer A and Customer B the last setting where it says “Remove Position On Settlement” is checked. Since this External Counterparty does not their account managed in the Bricknode Broker system there is just a virtual counterparty account set up to keep track of what transactions have been made with each external counterparty to keep track of that flow and for reporting purposes.
As soon as a trade is settled with an external counterparty it means that the Stocks in this case has left the Bricknode Broker system and the custodian of the house and instead money should have been received.
By having this setting called “Remove Position On Settlement” activated there will be automatic transactions created when the settlement action is triggered which will remove the shares and the cash from the counterparty account, this means that the liability and receivable towards that counterparty has been closed.
This is how the execution dialogue looks now:
The result of this is that Customer B does not have a balance in Stock XYZ and the negative cash balance is gone too.
The result for the External Counterparty is as follows:
