Accreditation Test Flashcards
Who at NZX do you notify to cancel an order?
Surveillance Department
What steps should be followed if a participant wants to execute an order that is significantly different to the last traded price?
Start with a bid close to the last traded price.
Incrementally change the bids consistent with usual trading in that product to reveal any potential buyers or sellers.
This must be done in a way to ensue a better price for the client and a less material price change.
The incremental price changes need only be left in the market for a short time.
What crossings can be placed outside of quotations?
VWAP, Special and Portfolio.
What is the key characteristic of an orderly market?
Participants can determine the volumes and prices at which they can deal by using the central order book.
According to the Key Principles, markets should be . . .
Fair, orderly and transparent.
According to the NZX Key Principles, why should participants endeavour to trade on the market?
To try to provide a deeper and more liquid market with greater transparency.
What is the key factor in an orderly market?
The steady movement in the price of the financial product being traded.
Before allowing an order to proceed what must a participant determine?
Whether the order is consistent with recent trading activity or whether the execution of the order will materially affect the price or market for the relevant financial product.
Is following client orders a valid reason to disregard orderly market considerations?
No
What is the measure of a disorderly market?
Price changes are different to recent activity.
What is an Indication of Interest (IOI)?
Conditional non binding expression of interest to trade financial products, which may be provided in electronic, written or verbal form.
When should participants submit orders to the market?
When they receive them.
Can orders received at the same time be bundled?
Yes, to provide equal priority to price and volume.
What are the two categories of Principal Trading?
Proprietary Trading
Client Facilitation
What must a participant do when it deals as a principal with one of its clients?
Disclose this to the client.
What is facilitation?
Where the participant acts as principal in order to help the client complete their order. Also known as flow trading.
For what reason would a participant conduct facilitation?
To provide liquidity and execution certainty to clients wishing to execute large transactions or execute at a certain price.
What is the difference between Passive and Active facilitation.
Passive is client initiated and Active is participant initiated.
What risk is increased with active facilitation?
That a participant will be competing with a client to buy or sell a financial product
Why do clients intentions need to be confidential when conducting facilitation?
To prevent their order being front run
What is Market Manipulation?
Conduct that creates a false or misleading appearance of the trading activity, the price/yield of, or the market for (including supply and demand) a quoted financial product. Both trading that is intended to create this impression and that has the effect of creating this impression may be considered manipulative.
What is the difference between direct and indirect market manipulation?
Direct is when you are trying to gain a benefit from the financial product you are trying to manipulate. Indirect is when you are trying to gain a benefit from a related financial product such as a derivative of the manipulated product.
Name three ways trading can be market manipulation
Setting a specific price
Ensuring a price stays above or below a specific level
Marking the close
Can a trade with a legitimate commercial purpose be market manipulation?
Yes
Does there need to be intent for market manipulation to occur?
No
Does there need to be effect for market manipulation to occur?
No
What is Trading Participant obliged to consider before accepting an order for execution?
The impact of the order on the market
Whether there is a legitimate commercial reason for the order
Whether the client or a related person may have an interest in creating a false or misleading market
Name some types of conduct that are suspicious in relation to market manipulation
Trading with no change in beneficial ownership
A client trading in a manner that does not appear to be in there best interests
Placing orders on both sides of the market
Entering multiple orders at various price levels
Entering orders then withdrawing them before they can trade
Placing orders around the close then withdrawing them afterwards
What is a good indication of genuine facilitation?
The trading participant assuming some price risk or differences in timing between receipt of client buy and sell orders
Are you allowed to trade to correct the market price after making an error?
No
Where are off market trades reported, including crossings?
The trading system
What are some factors NZX consider when assessing whether market manipulation has occurred?
The timeframe in which orders are given or executed and the impact of those orders on the market price.
What three things need to be included when submitting an order?
Security
Price/yield (unless market order)
Quantity to be bought or sold
How does the matching system prioritise orders?
Price/Yield then time of entry
Can an order be withdrawn after being matched?
No
Can an order be matched partially?
Yes
Can the quantity of an accepted but not matched order be increased without losing priority?
No but it can be reduced
What should you do if you have made an error in an order that will have a market impact?
Notify NZX immediately
Can you trade off market or undertake a crossing during a market halt?
No
What is the settlement period for on market trades?
Two working days after the trade has been executed
Name the trading session types on the NZX
Pre-Opening Session
Opening Order Match
Normal Trading Session
Pre-Close Session
NZSX Close
Adjust Session
Enquiry Session
What hours are the pre opening session?
0830 - 1000
What are Dealers able to do in the pre-opening session?
Dealers may enter, amend and withdraw orders however orders will not be matched. Dealers may enter into off market trades until 15 mins before the end of the pre-open session.
When does the opening orders match occur?
At a random time 30 seconds either side of 1000
What is the opening oders match?
A single price print that becomes the opening price for the day
When does the normal trading session occur?
1000 - 1645
What are dealers able to do in the Normal trading session?
Dealers can enter, amend and withdraw orders into the trading system.
When does the pre close session occur?
1645 - a random time 30 seconds either side of 1700
What can dealers do in the pre close session?
Dealers may enter, amend or withdraw orders, however no matches will occur. You cannot enter in to off market trades.
When does the NZX Close occur?
A random time 30 sec either side of 1700
What happens at NZX Close?
An instantaneous match of orders by the trading system based on overlapping orders submitted during the pre close session.
When does the Adjust Session occur?
A period of 30 mins after NZX close
What can a dealer do in the Adjust session?
Orders may be withdrawn from the trading system but not added. The quantity and price may be adjusted on the condition that the adjustment does not improve the dealers position in the market. No orders will be matched by the trading system.
When does the Enquiry session occur?
From the close of the Adjust session until the start of the next days pre-opening session
What can a dealer do in the Enquiry session?
A dealer cannot enter, amend or withdraw orders in the trading system, but can conduct off market transactions.
Who is responsible for reporting a negotiated trade between two trading participants?
The seller
What is a crossing?
Then a Participant executes a trade where it is the principal on one side and agent on the other or acting as the agent for both sides.
What are the parameters for the price of a crossing?
They must be between quotes (the best bid and ask on the central order book).
What is a the minimum size for a crossing?
$50,000 unless there is price improvement
What is a special crossing?
A transaction for the lesser of $1,000,000 or 5% of the issuers market cap. The securities quoted on the NZX to be bought or sold are of a single issuer or of the same class and are fully paid.
What are the requirements for a portfolio crossing?
The portfolio comprises a number of purchases and or sales of different securities in a single agreement for an agreed price.
There are atleast 5 purchases or sales of different securities greater than $150,000 each
The total consideration of all purchases or sales is greater than $2,500,000
What does it mean for the NZX to quote on an Ex-basis?
The ex period is one business day before the record date of a corporate action and if a security trades within this period the buyer is not entitled to any benefit arising from the corporate action
What corporate actions may cause a security to be in an ex-period?
Dividends, interest, capital returns, bonus issues, rights issues or priorities
What is the minimum order value allowed for securities quoted on the NZX?
Not less than the minimum registerable value for that security as determined by the issuer
What is the minimum increment change for the yield of a security?
0.005, half a basis point
When must a client receive risk warning?
Whenever they trade in a security that they have not previously received a risk warning for
When can you accumulate/bundle an order?
When you have instructions from a client to do so
What is a LIC?
Listed investment company
What are the key principles of trading conduct?
Conflicts of interest must be appropriately managed
Participants should always place the interests of their clients before there own interests
Markets should be fair orderly and transparent
Participants should have systems and controls in place in order to meet their requirements under NZX Rules an legislation
Participants should follow good broking practice
What is the priority order for flags in the Trade Source section of an Off Market trade entered in the trading system
Late reported/late trade
Put through
Portfolio
Special
VWAP
Private Negotiated Deal
