Project Record

Compliance Tool for Bond Trade Labeling

Execution-quality labeling for bond trades with visual comparison against bid/mid/ask valuations.

complianceexecutionbonds

Context

Compliance and execution-quality reviews require a consistent way to label bond trades as favorable, fair, or unfavorable relative to market. Mid-price (or bid/ask mid) is used as a benchmark; execution price is compared in basis points so that different bonds and tenors can be compared.

Problem

Raw execution data does not indicate whether a trade was done well. We need a rule that (1) computes cost in bps vs. a reference price, (2) accounts for side (buy vs. sell), and (3) maps the result to a small set of labels for reporting and escalation. The benchmark (mid, VWAP, etc.) must be available at execution time or from a separate feed.

Labels

Trades are tagged as favorable, fair, or unfavorable based on slippage in bps against mid-price benchmark.

\text{cost}_{bps} = \frac{P_{exec} - P_{mid}}{P_{mid}} \cdot 10^4

Adjusted by side for buys vs sells: for buys, positive cost is bad (paid above mid); for sells, negative cost is bad (sold below mid). Thresholds (e.g. ±5 bps = fair band) are configurable per market or desk.

Implementation

Inputs: execution records (price, side, size, time), benchmark series (mid or bid/ask).
Join execution to nearest benchmark; compute cost in bps; apply side convention; assign label.
Output: labeled trades for dashboards, regulatory reports, and exception queues. Optional visual comparison (execution vs. bid/mid/ask) for audit.

Trade-offs

Mid is a simple benchmark; VWAP or arrival price would be more accurate for large orders but require more data. Thresholds are policy choices and may need to vary by liquidity or instrument type.