Q & A Database

The GIPS Standards Q&A database contains questions and answers (Q&As) on various searchable topics that provide additional interpretation on an issue. Q&As are considered to be authoritative guidance and must be followed in order to claim compliance with the GIPS standards.

Content from prior Q&As was included in the GIPS Standards Handbook as much as possible and many Q&As were archived. Change the Status drop-down filter to "Archived" to see the archived Q&As.

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Archived

Effective: 1 March, 2004 - 31 December, 2013

Categories: Trade-Date Accounting

Source: Investment Performance Council (IPC)

The GIPS standards currently state that firms are required to use trade-date accounting as of 1 January 2005. How should trade date be defined?

For the purposes of the GIPS standards, trade-date accounting is defined as “recognizing the asset or liability within at least 3 days of the date the transaction is entered into.” Settlement-date accounting is defined as “recognizing the asset or liability on the date in which the exchange of cash, securities, and paperwork involved in a transaction is completed.” When using settlement-date accounting, any movement in value between the trade date or booking date and the settlement date will not have an impact on performance return until settlement date; whereas for trade-date accounting, the change in market value will be reflected for each valuation between trade date and settlement date. If the trade and settlement dates straddle a performance measurement period-end date, then performance return comparisons between portfolios that use settlement-date accounting and those that use trade-date accounting may not be valid. The same problem occurs when comparing settlement-date portfolios and benchmarks. The principle behind requiring trade-date accounting is to ensure there is not a significant lag between trade execution and reflecting the trade in the performance of a portfolio. For the purposes of compliance with the GIPS standards, portfolios are considered to satisfy the trade-date accounting requirement provided that transactions are recorded and recognized consistently and within normal market practice–typically, a period between trade date and up to three days after trade date (T+3). After 1 January 2005, all firms must recognize transactions on trade date as defined herein.