Trade reconciliation is the daily check that every trade in a fund's own records matches the broker's, custodian's or administrator's record of the same trade. Each trade is compared on security, quantity, price, trade date, settlement date and counterparty. Any difference is a trade break, which must be explained and fixed before it settles or reaches the NAV.
Trade reconciliation sits alongside cash and position reconciliation as one of the three core daily checks in fund operations. If you want the work done for you, see how our fund reconciliation services cover trade, position and cash recs as one process.
What is trade reconciliation?
Trade reconciliation compares two records of the same trades and confirms they agree. For a fund, the internal record is usually the order management system or the fund's book of record. The external record is the broker's confirmation, the prime broker or custodian report, or the administrator's ledger.
It is done trade by trade, which is why it is sometimes called trade-by-trade reconciliation. It is also called post-trade reconciliation, because it happens after execution and before settlement.
How does trade reconciliation differ from position and cash reconciliation?
| Reconciliation | What it compares | Catches |
|---|---|---|
| Trade reconciliation | Each trade: security, quantity, price, dates, counterparty, fees | Booking errors, missing or duplicate trades, wrong prices or dates |
| Position reconciliation | Holdings of each security at a point in time | Breaks that trade recs missed, corporate actions, transfers |
| Cash reconciliation | Cash balances and movements by account and currency | Settlement amounts, fees, interest, unexpected movements |
The three work together. A trade booked at the wrong quantity creates a trade break today, a position break tomorrow and a cash break on settlement date. Catching it at the trade stage is the cheapest fix. For the cash side in detail, see our guide to cash reconciliation for funds.
What is the trade reconciliation process?
- Capture both records. Pull the day's trades from the order management system or book of record, and the broker, prime broker or custodian files for the same day.
- Normalize the data. Map security identifiers, counterparty codes, currencies and date formats so the two records can be compared.
- Match on key fields. Match trades on security, direction, quantity, price, trade date, settlement date and counterparty, within agreed tolerances for price and fees.
- Classify the breaks. Sort unmatched items by type: missing trade, duplicate, quantity, price, date, counterparty or fee difference.
- Investigate the cause. Check the order, the confirmation and the allocation to find which side is wrong.
- Resolve and correct. Amend the booking, ask the broker to correct its confirmation, or escalate to the trader.
- Age and report. Track every open trade break by age and value, and report breaks that risk a settlement fail.
- Sign off. A reviewer confirms that all trades are matched or explained before the day is closed.
US equity settlement moved to T+1 in 2024, so for many trades breaks now need to be fixed on trade date itself.
What does a trade reconciliation example look like?
Here is an illustrative example. A hedge fund trades through one prime broker. On 14 October it books five trades. The prime broker's file shows the following.
| Trade | Fund record | Prime broker record | Result |
|---|---|---|---|
| Buy 10,000 ABC at USD 52.10 | 10,000 at 52.10 | 10,000 at 52.10 | Matched |
| Sell 5,000 XYZ at USD 18.40 | 5,000 at 18.40 | 5,000 at 18.40 | Matched |
| Buy 2,500 DEF at USD 101.25 | 2,500 at 101.25 | 2,000 at 101.25 | Quantity break: 500 shares, USD 50,625 |
| Buy 7,000 GHI at USD 9.80 | 7,000 at 9.80 | 7,000 at 9.85 | Price break: USD 0.05, USD 350 |
| Sell 1,200 JKL at USD 64.00 | Not booked | 1,200 at 64.00 | Missing trade: USD 76,800 |
Three breaks need work. The DEF order was partly filled, so the fund's booking is wrong and must be amended to 2,000 shares. The GHI price is outside the 0.01 tolerance; the confirmation shows the broker's price is correct, so the fund rebooks at 9.85. The JKL sale was executed but never booked, so it is added. After corrections, all five trades match and the day is signed off. Every figure here is illustrative.
What causes trade breaks?
- Partial fills booked as full fills.
- Allocation errors, where a block trade is split across funds or accounts incorrectly.
- Manual booking errors in quantity, price or direction.
- Late or missing confirmations from a broker.
- Static data differences, such as different security identifiers or settlement instructions.
- Fees and commissions calculated differently by each side.
- Corporate actions applied on different dates.
What should trade reconciliation software do?
Trade reconciliation software, or a reconciliation engine, automates matching so people only handle the breaks. When comparing tools, check that it can:
| Capability | What to look for |
|---|---|
| Data intake | Files and APIs from every broker, prime broker, custodian and the OMS |
| Matching rules | Configurable keys and tolerances, many-to-one matching for block trades |
| Break workflow | Assignment, commentary, ageing and escalation in one place |
| Audit trail | Every match, override and correction logged with user and time |
| Links to other recs | Trade, position and three-way reconciliation on one dataset |
| Reporting | Daily break reports and trends by counterparty and cause |
Software alone does not resolve breaks. Someone still has to investigate causes and chase counterparties, which is why many managers outsource the work as part of trade operations or reconciliation.
Where does Fundtec fit?
Fundtec runs trade, position and cash reconciliation for privately offered funds on our proprietary platform, Tychi, with a dedicated team that investigates and resolves breaks rather than only listing them. The work runs 24/5 under ISO 27001 and ISO 9001 certified controls, with SOC 1 and SOC 2 attestations in progress, and can also be done inside a client's own systems through our middle office model.
A clean trade reconciliation every day keeps positions, cash and the NAV right. To hand the daily work to a team that owns it, review our reconciliation services for funds.
Frequently asked questions
What is trade reconciliation?
Trade reconciliation is the process of comparing each trade in a fund's own records with the broker's, custodian's or administrator's record of the same trade. It checks security, quantity, price, trade and settlement dates, counterparty and fees. Any difference is a trade break that must be explained and corrected before settlement or before it affects the NAV.
What is the trade reconciliation process?
The process is to capture the fund's trades and the counterparty's records, normalize the data, match trades on key fields within tolerances, classify unmatched items, investigate the cause, correct the booking or ask the counterparty to amend, track open breaks by age and value, and have a reviewer sign off that every trade is matched or explained.
What is post-trade reconciliation?
Post-trade reconciliation is trade reconciliation performed after execution and before settlement. It confirms that the fund, its broker and its custodian agree on every trade, so that settlement instructions are correct. With US equities on T+1 settlement, post-trade reconciliation now usually needs to be completed on trade date.
What is the difference between trade and position reconciliation?
Trade reconciliation compares individual trades, while position reconciliation compares total holdings of each security at a point in time. Trade recs catch booking errors as they happen. Position recs catch anything trade recs missed, as well as corporate actions and transfers. Funds run both daily, alongside cash reconciliation.
What is the best trade reconciliation software?
The best trade reconciliation software for a fund is one that takes data from every broker and custodian, lets you set matching rules and tolerances, manages the break workflow with a full audit trail and links trade, position and cash reconciliation on one dataset. Test candidates with a month of your own trade files before choosing.
