Fa Break Trace

Break Trace

When to use

Use this when two sources that should agree do not — the accounting book vs the custodian/prime-broker feed, position vs holdings report, cash ledger vs bank, or trade-date vs settlement-date view — and you need to find which transaction causes the gap and why. This is the drill-down that turns a headline difference into a named, ownable item.

Not for: proving a full GL account to a subledger (use fa-gl-recon), or tying the whole NAV package together (fa-nav-tieout). This isolates and classifies one break, then hands the fix downstream.

Method

1. State the two sides. Name source A and source B, the exact field (quantity, market value, cost, or cash), the as-of date, and the basis of each (trade date vs settlement date, local vs base currency, clean vs dirty price).
2. Compute the break. A − B, signed. Decision point: confirm you are comparing like for like first — a "break" that is really TD-vs-SD or clean-vs-dirty is a definition mismatch, not a real difference. Normalize before you hunt.
3. Localize by decomposition. Split the difference by security, then by transaction type (buy/sell/corporate action/income/fee/FX), narrowing until one line carries the gap. For value breaks, decompose into quantity × price × FX to see which factor moved.
4. Pull the two transaction records. Compare quantity, price, trade/settle date, fees, accrued interest, and FX rate field by field.
5. Classify the break. Timing (one side posted, the other pending), quantity, price/valuation, FX, corporate-action, fee/accrual, booking error, or missing/duplicate transaction.
6. Attribute root cause and side. State which source is wrong (or both) and why. Decision point: if you cannot say which side is right, escalate to the counterparty for their record before booking anything.
7. Assign clearing. Recommend the correction (rebook, accrue, chase custodian, await settlement), owner, and expected clear date; flag the item aged if it recurs.

Example

Position break in XYZ: accounting shows 10,000 sh; custodian shows 10,050. Difference +50 (accounting long). Decompose: no price factor (quantity break). Pull transactions — a 100-for-99 stock split (a 1.0101 ratio) settled on the custodian but the corporate action wasn't applied on the book; expected new quantity 10,000 × 100/99 ≈ 10,101 vs custodian 10,050 doesn't match either, so re-examine: custodian applied a partial. Root: unapplied corporate action on the book and a pending 50-share sell on the custodian not yet on the book. Split into two named items — apply the CA (book), await the sell settlement — each of which clears cleanly. Neither side was "wrong"; two timing/event items overlapped.

Pitfalls

• Netting two breaks into one. A single aggregate difference can be two offsetting errors; if the decomposition leaves a clean residual, keep splitting — don't sign off on a net that hides a large plus and a large minus.
• Comparing trade date to settlement date. The most common false break. Normalize both sides to the same date basis before computing anything.
• Assuming the custodian is right. Custodian feeds carry stale prices, missed corporate actions, and their own booking lags; treat both sides as suspect until you find the cause.
• Clean vs dirty price on bonds. A value break equal to accrued interest is a convention mismatch, not a real difference.
• FX rate source drift. A value break that scales with a currency's positions is an FX-rate or FX-timing difference — check the rate and the rate date, not the quantity.

Output format

Break: <security/cash> | Field: <qty/MV/cost/cash> | As-of: <date>
Source A: <name/basis> <value> | Source B: <name/basis> <value> | Difference: <signed>
Normalization checked: TD/SD <ok> | ccy <ok> | clean/dirty <ok>
Decomposition: <by security → txn type → factor>
Offending transaction(s): <id, qty, price, date, fee, fx>
Classification: <timing/qty/price/fx/CA/fee/error/missing/dup>
Root cause & side: <A wrong / B wrong / both / counterparty> — <why>
Clearing: <action> | owner: <who> | expected clear: <date> | aged: Y/N

Reference

Break taxonomy

• Timing: one side posted (TD) and the other pending (SD), unsettled trade, in-transit cash/wire, pending corporate action. Self-clears — track the expected date.
• Quantity: unapplied split/dividend-in-kind, missed corporate action, wrong lot, partial fill booked whole.
• Price / valuation: stale price, wrong price source, clean-vs-dirty, wrong valuation point, manual override not carried.
• FX: different rate, different rate date/time, or triangulation vs direct quote.
• Fee / accrual: commission, custody, or accrued-interest difference; one side gross, the other net.
• Booking error: wrong account, sign flip, transposition, wrong CCY, duplicate, or wholly missing transaction.

Decomposition math

A market-value break decomposes as MV = quantity × price × fx. Compare each factor across sources: if quantity and fx tie but value doesn't, it's a price break; if quantity ties and value scales with the currency, it's fx. A transposition in any figure produces a difference divisible by 9 (e.g., 540 vs 450 = 90). A break exactly 2× a known transaction signals a sign flip — one side added what the other subtracted. A round, whole-position difference points to a missing or duplicated transaction.

Trade date vs settlement date

• Trade-date accounting recognizes the position/cash on execution; most fund NAVs are struck TD.
• Settlement-date recognizes on cash movement; custodian cash often reports SD.
• A break between a TD book and an SD custodian view for unsettled trades is expected and self-clears at settlement — do not book a correction, reconcile the timing.

Corporate actions as break sources

Splits, reverse splits, stock/scrip dividends, spin-offs, mergers, rights, and returns of capital change quantity and/or cost basis. A break that appears on the ex-date or pay-date of a known action is almost always an unapplied or differently-timed corporate action. Confirm the ratio, ex/record/pay dates, and elective vs mandatory treatment before rebooking.

Aging and escalation

Classify by age: T+0/T+1 current (expected to clear at settlement); >5 days investigate; >30 days presumed error — escalate to the counterparty and consider a reserve. Every open break needs an owner, a category, and an expected clear date. An aged position or cash break is a control finding: it can mask a real loss, a fraud, or a valuation error, so it never ages silently.

Cash vs position breaks

A cash break (ledger vs bank) is usually fees, interest, FX, or unbooked wires. A position break (book vs custodian) is usually corporate actions, settlement timing, or lot mismatches. When both a cash break and a position break appear for the same security on the same date and are economically linked (e.g., a sale booked one side but not the other), clear them together — fixing one alone re-opens the other.