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Financial Markets And institutions > 1.0 - Financial Markets And institutions > Flashcards

1.0 - Financial Markets And institutions Flashcards

0
Q

What areas are in the flow of funds in an economy

A
  • personal sector
  • business sector
  • government sector
  • financial intermediaries
  • overseas sector
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1
Q

Why is money used in a Monetary Economy?

A
  • divisible
  • sufficient quantities
  • generally accepted
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2
Q

What are capital markets for?

A

Raising long term capital - over 5 year

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3
Q

What are Money Markets for?

A

Raising short term capital - a day to a year

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4
Q

What is financial dis-intermediation

A

When borrowers and lender borrow from each other directly - this is required for securitisation of debt

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5
Q

What is Securitisation of debt?

A

Creation of tradable securities backed by less liquid assets like mortgages - it enables borrowing from non banks

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6
Q

Why do derivatives like swaps and options make it harder to assess risk?

A

These transactions are off balance sheet so aren’t easily evident on a financial statement

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7
Q

What amounts are dealt with in the Money Markets?

A

£50,000 or more usually

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8
Q

What are the key features of the money markets (4)

A
  • operated by banks who borrow and lend wholesale
  • a primary and secondary market exists
  • transactions are usually £50,000 or more
  • emphasis on liquidity and efficiency
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9
Q

What are the main types of banks and what do they do?

A

Retail banks- essentially high street banks
Wholesale banks - specialise in large loans
Clearing banks - operate clearing system for settling payments like checks. Do both the above but are the main retail banks
Investment Bank - offer services in investors. Act as brokers, underwriters and advisors in corporate actions like mergers

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10
Q

What are the main Features of a Building Society?

A
  1. It’s main assets are the mortgages of its customers
  2. One of their liabilities are the balances of investor members who have saving accounts
  3. 50% of funds must be from share accounts of members
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11
Q

What % of a building societies funds must be from share accounts of a member?

A

50

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12
Q

What are the Similarities between Banks and Building Societies?

A
  • banks are involved in the mortgage market
  • societies provide services like cash cards and cheque books which only banks used to
  • There are fewer building societies as they have been taken over by banks or others or have gone public and become a bank
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13
Q

What is Open Market Operations?

A

Removal of cash from the banking system when there is a surplus and injection when there is a deficit

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14
Q

What are the two purposes of the Central Bank?

A

Monetary and financial stability

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15
Q

Banks providing life assurance is known as what two terms?

A

Bancassurance or all finanz

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16
Q

What is Bancassurance or all finanz?

A

Banks providing life insurance

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17
Q

Where do London and Edinburgh rank as fund management centres in Europe?

A

4th and 6th

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18
Q

How does ABI define bancaasurers?

A

Insurance companies that are subsids of banks and building societies and whose primary market is the banks or buildings societies customer base

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19
Q

What % of Eurobonds does the UK issue?

A

60%

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20
Q

What share of the secondary market of Eurobonds does the Uk have?

A

70%

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21
Q

How do German and French raise industrial finance?

A

Germany get industrial finance directly from banks as stock market has limited liquidity. In France the government works closely with major industrial projects

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22
Q

Which countries former stock markets became Euronext?

A

Brussels, France and Amsterdam

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23
Q

Which country has the worlds largest government bond market?

A

US

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24
Q

What amount do US dollar denominated bonds make up of the total market?

A

Half?

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25
Q

Who regulates US markets?

A

Securities and Exchange Commission

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26
Q

What are the two approaches for US financial services?

A

By an investment bank and add it to company holdings.

Create own investment bank as a subsid and use existing customer and client base

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27
Q

Who has the second largest bond market in the world?

A

Japan

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28
Q

What % of stock turnover in Japan does the TSE account for?

A

80%

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29
Q

Who are the key regulators in Japan?

A

Ministry of finance and financial services agency with the latter reporting to the former

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30
Q

How members are there in the EU?

A

27

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31
Q

What is a free trade area?

A

When there is no restriction on the movement of goods and services between countries

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32
Q

What is a customs union?

A

An extension of a free trade area where there are common external tariffs and there is free trade between all members

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33
Q

What is a common market?

A

Combines free trade area and customs union but also has free movement of the four factors of production

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34
Q

How is inflation measured?

A

CPI or HCIP

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35
Q

What legislation created the uk inflation target?

A

BOE Act 98

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36
Q

What are the three types of Eu legislation and what precedent do they have?

A

Regulations - which automatically become part of the law
Directives - which must be implemented in 2 years
Decisions - issued to a person, state or company and is immediately binding

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37
Q

Who determines EU interest rates?

A

ECB

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38
Q

What is the PSNCR

A

The gap between government expenditure and income

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39
Q

What are the aims of industrial policy?

A

Competition
Stable macroeconomy
Flexibility in labour and capital markets
Legal system which gives trust and confidence

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40
Q

What is Innovation Policy?

A

It balances intellectual property protection with exploiting the new development

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41
Q

Which government department plays the key role in industrial policy?

A

Department for Business, Innovation and Skills

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42
Q

What is the role of the PRA?

A

Oversea prudentially significant firms

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43
Q

What is the role of the FCA?

A

Regulation of Conduct

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44
Q

What are voluntary codes?

A

Regulation and industry develops itself e.g. Banks following banking code til 09 when 2009 FSA starting regulating

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45
Q

When can dividends be paid?

A

6 months and a year

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46
Q

What is the difference between on OEIC and unit trust as both are open ended

A

Unit trust doesn’t have shares

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47
Q

How are funds priced?

A

OEIC and unit trusts there is a relationship between price and underlying asset value and value of units
Investment trusts and ETF are priced according to supply and demand

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48
Q

Are investment trust closed or open ended?

A

Close except on issue of new shares

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49
Q

What types of derivatives contracts exist?

A

Swaps, Options and Futures

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50
Q

How are derivatives traded?

A

OTC and exchange traded with the later being more standardised

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51
Q

What is Forex?

A

Currency Exchange

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52
Q

What is this biggest centre for Forex?

A

London

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53
Q

What is a Spot?

A

Forex transaction which settles T + 2

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54
Q

What is a Forward?

A

Forex transaction for the future

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55
Q

What characteristics should a securities market have?

A

Cost efficiency - e orders will do this the most
Liquidity - affected by IT, stock availability and settlement services
Price discovery and transparency - how an eq price is reached

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56
Q

What is the standard trading method for shares, futures and options?

A

Order driven

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57
Q

What is the bid offer spread, market price or price impact?

A

The difference between price which you can buy and sell

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58
Q

What are the four purchase costs and how much are they?

A

Purchase cost
Brokers commission - around 1.5% to 7k and 1.0 % above, execution only services are £10 and above
Stamp Duty and SDRT - SDRT 0.5% on equities on crest rounded up to nearest 1p. Stamp duty is for less common purchases- 0.5% to nearest £5 or 0.1 for Ireland
Panel on Takeovers and Mergers Levee - £1 is above 10k
Big offer spread is also a cost

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59
Q

What terms can be used to describe the different price at which you can buy and sell?

A

Bid offer spread, market price and price impact

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60
Q

What is a limit order?

A

Only processed if the price is better than the stated minimum

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61
Q

What is the other term for liquidity risk?

A

Marketability risk

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62
Q

How many market makers does Sets have?

A

0

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63
Q

How many market makers does setsqx have?

A

At least one per stock

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64
Q

How many market makers does seaq have?

A

At least 2 per stock

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65
Q

What full listed stocks does sets trade?

A

Those defined as liquid by mifid

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66
Q

What full listed stocks does setsqx trade?

A

Those classed as illiquid by mifid

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67
Q

What aim stocks does sets trade

A

Most aim stocks

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68
Q

What types of aim stocks are traded on setsqx?

A

all aim euro stocks not traded on sets

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69
Q

What is the LSE’s international board?

A

It allows uk and other countries to trade on other stock markets during domestic hours and runs as an MTF under LSE’s RIE

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70
Q

What is the LSE’s international order book?

A

E order book for trading international securities with a secondary listing on the LSE

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71
Q

Who regulates AIM?

A

LSE

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72
Q

What is the LSE’s European quoting service?

A

Order driven market making and trade reporting platform that supports all EU regulated market liquid securities except those on either sets

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73
Q

What is NMS

A

Market makers must quote prices up to a certain volume

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74
Q

What is the SETS system also known as?

A

The Order Book

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75
Q

What is the Order Book?

A

sets system

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76
Q

Who is the central counterparts to all sets trades?

A

London clearing house also called LCH.Clearnet. All trades novate to the, and they buy and sell from investors

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77
Q

How does the order book prioritise?

A

Price then time

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78
Q

What times does setsqx have auctions?

A

8, 11, 3, 4.35

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79
Q

What is Exchange Market size?

A

Two way prices based up to transaction size determined on history

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80
Q

When must setsqx quote!

A

From 8 until the end of the day!

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81
Q

What is minimum quote size?

A

The minimum number of shares a market maker is prepared to buy or sell

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82
Q

What is a cross listing?

A

When a firm has shares on two exchanges

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83
Q

What are the features of a DLC?

A

Two corps act as a single entity and envolves a legal equalisation agreement and separate stock exchange listings. There are different shareholders. Works like a joint venture
Potentially creates higher maintenance costs and greater compliance burden e.g. Us sarbanes-only Act

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84
Q

What is an Open Offer?

A

A syndicate of banks will underwrite the Bon issue by buying the bonds and selling them on to investors

85
Q

What is a bought deal?

A

When the lead bank buys all the bonds and sells them to the other banks in the syndicate

86
Q

How are gilts usually traded?

A

OTC

87
Q

How are gilts paid?

A

Gross unless otherwise stated

88
Q

How are gilts priced?

A

They use the accrual convention where interest is calculated by days since last coupon and days in coupon period

89
Q

What is a tranche?

A

Issuing a gilt on the same terms as one that already exists

90
Q

What is a tranchette?

A

A small tranche

91
Q

What privileges do GEMM get?

A

Strip and reconstitute gilts and access to IDB

92
Q

What is the function of an IDB?

A

Allows GEMM to unwind positions anonymously

93
Q

What is the function of SBLI’s?

A

They buy dormant stock and make it accessible to market makers for a fee of around 0.5%

94
Q

What is a broker dealer or dual capacity?

A

All LSE firms as they are both brokers and dealers

95
Q

What are MTF’s?

A

Work like an exchange by matching orders

96
Q

What is another name for dark liquidity pools?

A

Non-displayed liquidity venues

97
Q

What is the iceberg facility?

A

Offered by LSE and Liffe and causes only a small part of the order to be displayed at a time

98
Q

What are systematic internaliser?

A

An investment firm which deals on its own account by executing order flow in liquid shares outside a regulated market or MTF

99
Q

What is an ORB

A

E-order driven service that offers certain gilts and uk bonds listed on LSE’s main market

100
Q

What Re the features of an ORB

A

EU regulations distinguish between wholesale and retail.
Most corp bonds are wholesale and the secondary market is OTC
Order through an order book or through a broker who gives DMA
Starts with an auction at 8-8.45 and closes at 4.30
Gilts settle at t+1 and bons t+2
All bonds are listed in main market

101
Q

What is another name for HFT?

A

Flash trading

102
Q

What is layering or spoofing?

A

Placing many small orders on one side and a single large order on the other to create misleading info on supply and demand

103
Q

Benefits of HFT

A

Improves liquidity
Lower transaction costs
Great efficiency in market pricing

104
Q

When do UK equities now settle?

A

T+2

105
Q

When is the ex dividend date for UK equities?

A

Thursday and close book is a Friday

106
Q

What are the key strategies of HFT

A

Market making based on order flow - anticipating pending orders
Based on tick data- info on prices volume and times
Event arbitrage - price responses based on history
Statistical arbitrage - detecting statistically persistent phenomena

107
Q

When doe gilts settle?

A

Same day or t+1

108
Q

Through what do UK equities and bins settle through?

A

Euro clear UK and Ireland (Crest) which operates an e-dematerialised settlement system

109
Q

What is DVP

A

When both parties Re ready to settle T the same time

110
Q

Up to what length can special settlements to negotiated?

A

260 days

111
Q

What day is the ex dividend date?

A

Thursday

112
Q

When is the record date?

A

Friday

113
Q

What are the special ex dividends?

A

Shares -10 days before ex dividend date
Bonds -5
Gilts - 0

114
Q

Who regulates the LSE?

A

FCA

115
Q

Who regulates the full list?

A

UKLA

116
Q

What are the features of a premium and standard listing?

A

£700,000 shares
£200,000 debt
Freely transferable
Premium needs 3 years trading but waived for high growth firms and also needs a sponsor and capital for 12 months - standard need none of this
Sufficient marketability 25%
Disclose - price sensitive info, significant transactions, changes in registers and dividend (semi annually)
Include certain things in financial report

117
Q

What are the obligations of a listing sponsor?

A 
Ensure the following-
Company and directors are aware of obligations
The firm is suitable for listing
Liase with UKLA and submit documents
Co-ordinate listing process
118
Q

When must an annual report be submitted?

A

4 months after year end

119
Q

When must a semi annual report be submitted?

A

2 months after half year end

120
Q

What is to be done if they become aware public forecasts are wrong?

A

Correct them but they don’t have to tell analysts

121
Q

When must documentation for a full listing be submitted?

A

48 hours before

122
Q

What documents must be submitted for a full listing?

A

Doc that confirms they have adequate working capital and produce a prospectus

123
Q

What are the listing requirements for aim?

A

appoint a NOMAD
Freely transferable
Have broker support
Publish price sensitive info and significant transactions
Produce and admission document
If there is less than 2 years trading history there must be a lock in where people agree not to sell shares for a year

124
Q

What are listing requirement for ISDX?

A 
Appoint ISDX corporate advisor
Demonstrate appropriate corp governance 
Publish reports within 9 months of admission 
12 months of capital 
Freely transferable 
Shares must settle electronically
125
Q

Which exchanges offer a fat track procedure?

A

Aim and Access Market of the Munich Stock Exchange (Bayerische Boerse)

126
Q

What is the prospectus directive?

A

EU directive meaning firms must issue a prospectus approved by a competent authority

127
Q

What are the exemptions to the prospectus directive?

A

Offers made only to qualified investors
Private placements made to a fewer than 150 people per country
If miminum consideration payable by. Any person fro transfers of securities is at least £100,000 or denominations of £100,000
Total consideration in EEa states is less than £100,000
Share which over the last 12 months represent less than 10% of the number of shares of the same market already admitted in the market

128
Q

How long do PDMR have to report their own transactions to the company?

A

4 business days

129
Q

How and when must the company notify the market?

A

Through a RIS and no later than the next business day

130
Q

What is the Model Code?

A

It restricts PDMR dealing on own account at certain times

131
Q

How long do people have to notify the company of a share change?

A

2 Business days

132
Q

What are the other threshold notification levels?

A

5% and 10% - OIEC and EES and US investment managers

133
Q

Do companies have to keep a register of interests in shares?

A

No

134
Q

What does S793 CA 2006 do?

A

Allows public companies to ask people who may have had an interest in the last three years to confirm this interest and the firm must keep this info

135
Q

How does the companies act define a controlled party?

A

One stakeholder owns 33.3% of capital

136
Q

What is a concert party?

A

When people act together. No written or oral agreement needed, they are treated as an individual owning the total amount

137
Q

What must contained in the directors remuneration report which must be published due BIS regulations?

A

Annual statement with major decisions on remuneration, changes and context
Report directors remuneration policy
Annual report on remuneration and statement of implementation
These were created to give greater transparency and shareholders power over pay

138
Q

How frequently is remuneration policy put to shareholders?

A

Every 3 years
If shareholders don’t approve the current policy can remain
Seek approval at a GM
Seek a different remuneration policy

139
Q

How does corporate governance operate?

A

Comply or explain

140
Q

What must annual corp gov reports include?

A

How the main principles have been applied and if the firm has complied with relevant code principles

141
Q

What are the main principles of the corporate governance code and how many are there?

A

5

  1. Leadership- the board led by the chairman are collectively responsible
  2. Effectiveness- board should have right balance of skills, experience and knowledge
  3. Accountability - board should present a balanced assessment of the firms position
  4. Remuneration - sufficient level to attract, retain and motivate
  5. Relations with shareholders - dialogue and mutual understanding
142
Q

What is the approach of the stewardship code?

A

Comply or Explain

143
Q

How many and what are the principles of the stewardship code?

A

7

  1. Publicly disclose policy
  2. Have a robust policy and managing and disclosing conflicts of interest
  3. Monitor invested companies
  4. Clear guidelines on when and how to escalate activities to protect and enhance shareholder value
  5. Act collectively with other investors
  6. Clear voting policy and disclose it
  7. Report periodically on stewardship and voting policy
144
Q

What type of resolution is needed to remove directors?

A

Ordinary

145
Q

What does DTR allow?

A

Delay of disclosure of public info if it would not mislead the public, the confidentiality of the info is secure and the release of the info would prejudice legitimate interests

146
Q

For what is member approval needed?

A

Exceed delegated power
Allot shares
MKe a substantial contract with a mother director
Get a long service agreement

147
Q

What % of votes must a member have to demand a meeting?

A

Normally 10% occasionally 5

148
Q

After the requisiting of a GM what time frame is there for notice of a meeting to be sent out?

A

21 days

149
Q

How long after notice of a General meeting has gone out must it be held?

A

28 days

150
Q

If there is no notice sent out when can shareholders convene a meeting?

A

3 months after the requisition date

151
Q

What fall of net assets requires directors to call a meeting?

A

If assets fall by half or more

152
Q

When can an AGM be held?

A

Within 6 months of the financial year end

153
Q

What is considered at an AGM?

A 
Approving accounts
Changes in directors
Dividend changes
Changes of auditors 
Giving directors power to change remuneration
154
Q

How much notice is needed for a GM?

A

14 days

155
Q

How much notice is needed for an AGM?

A

21 days

156
Q

What % of agreement is needed for companies to call GM without notice period of 14 days?

A

90% for private

95% for public

157
Q

For what is a special resolution required?

A 
Change in name
Winding up
Reducing share capital 
Present petition for winding up
Restriction of objects and articles
158
Q

What must be done for a special resolution?

A

Text must be set out in full and and they must deliver a signed copy to the registra

159
Q

In a private company who can propose a written resolution?

A

Director or holder of 5%

160
Q

What is the voting period for a written resolution for a private company?

A

28 days

161
Q

What is the documentation around a written resolution?

A

A 1000 word statement may accompany it and documents regarding the resolution must be submitted within 21 days of requisition

162
Q

What is another name for a special proxy?

A

Two way proxy

163
Q

What must done for record keeping purposes?

A

Minutes of GM and copies of resolutions outside of GM must helper for 10’years

164
Q

Who can demand a poll vote?

A

Any 5 or more members or those holding 10 of the voting rights

165
Q

What are the risks of investing in foreign securities?

A 
Political
Economic
Info gap
Lack of regulations 
High sector concentration like Russian oil
166
Q

What is the creation fee of an ADR

A

1.5%

167
Q

When do ADR’s settle?

A

T + 3

168
Q

What do ADR and GDR allow?

A

Trading of an equity on a different exchange without an actual listing

169
Q

How are ADR’s traded?

A

International Order Book

170
Q

Who regulate NasDaq?

A

Securities exchange commission

171
Q

How are Us equities traded?

A

Through universal trading platform

172
Q

Who is the clearing house for US equities?

A

DTC

173
Q

When do US equities settle?

A

T + 3

174
Q

What tax is paid on overseas us equities?

A

30% unless a double taxation treaty exists meaning it will be halved

175
Q

Who issues us gov bonds

A

Us treasury

176
Q

How and when can us bonds be traded?

A

OTC and open from 9.00 to 16.00

177
Q

What types of US bonds exist?

A

T- bills which are 3-12 month and are discount to face value
T- notes - 2-10’years coupon security
T - bonds - 10+’years coupon security

178
Q

How frequently are us bonds issued?

A

Weekly issue of 3/6 month bills
Monthly of 1 year bills and 2/5 year notes
Quarterly for long dated stock

179
Q

What is a Yankee Bond?

A

Dollar bond issued in the US by overseas companies

Can’t be sold until a 40’day seasoning

180
Q

How is the TSE operated?

A

Order driven through the CORES dealing system

181
Q

When do jap equities settle?

A

T + 3

182
Q

What withholding tax exists form overseas jap equities

A

20 %

183
Q

How are JGB traded?

A

TSE and OTC

184
Q

How do international borrowers get access to jap bonds?

A

Through samurai and shiksa bonds and private auction

185
Q

What % of the primary and secondary market do JGB cover?

A

50 and 80

186
Q

What stock do agencies and municipals issue in Japan

A

Quasi government

187
Q

What is the name of the French exchange?

A

Euronext

188
Q

How are French equities processed?

A

Through a computerised order book called NSC

189
Q

When do French equities settle?

A

T+3

190
Q

How do French equities settle?

A

Through Euroclear France

191
Q

How are French bonds settled?

A

Through clear stream and Euroclear

192
Q

What amount of French bonds are public companies?

A

Over half

193
Q

Are French bonds backed by the government?

A

No

194
Q

What is the name of the German exchange?

A

Deutsche Borse

195
Q

How are German equities traded?

A

Through computerised order book called XETRA

196
Q

When do German equities settle?

A

T + 2

197
Q

What is role of Clearstream for German equities?

A

Clearing, settlement and custody

198
Q

When do German bonds settle

A

T+3

199
Q

What are the types of German banking sector bonds?

A

Pfandbrife - bonds collaterised against portfolios on loans
Offenliche - backed by loans to the public sector
Hypotheken - backed by mortgages

200
Q

How do emerging markets usually trade?

A

OTC

201
Q

What are the features of emerging markets?

A

OTC and usually only for locally registered. Settlement is normally by central banks with no counterparty. Physical delivery and non-electronic orders aren’t uncommon

202
Q

What is a Eurobond?

A

Issued outside the currency of the issuing country

203
Q

When do Eurobonds pay coupon and how is it paid?

A

Gross annually

204
Q

Who regulates EUROBONDS?

A

ICMA

205
Q

How does the Eurobond market work?

A

Telephone driven with no actual market

206
Q

When do Eurobonds settle?

A

T +2 but confirmed at t+1

207
Q

What are the two types of CSD?

A

Dematerialised - no physical document

Immobilised - certificates immobilised in a depository

208
Q

What are the roles of CSD and ICSD?

A 
ISCD
International client base
Cross border activity
All securities
Settlement 
Custody
Collateral management 
Other services
Securities lending
CSD 
Local client base
Domestic activities
Local securities
Settlemt 
Custody
209
Q

Ways of reducing agency problem?

A

Profit related pay
Share rewards
Executive share options

Separation of roles
Accounting standards
Corporate governance

Financial Markets And institutions (14 decks)

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