Chapter 1: Technology in investment management Flashcards
what is the function of retail banks?
Taking deposits from and lend funds to retail
customers
Provide payment and money transmission
services
what is the function of building societies?
Groups of people pool their savings allowing
some members to build or buy houses
Jointly owned by individuals that have deposited
or borrowed money from them – the ‘members’
what is the role of investment banks?
- Provide advice to, and arrange
finance for, companies wanting
to float on the stock market - Raise additional finance by
issuing further shares or bonds - Carry out mergers and
acquisitions - provide services for institutions
wanting to invest in shares and bonds
(pension funds and asset managers)
what are asset owners?
organisations and individuals that legally own the assets managed by firms
what are the most common types of asset owners?
- pension funds
- sovereign wealth funds
- insurance companies
- ultra-high net worth individuals (UHNWIs),
and - retail investors.
what is the role of insurance companies?
Facilitate the effective management of
risks. collect premiums in
exchange for the cover provided. This
premium income is then used to buy
investments such as shares and bonds. premiums will be used to pay claims that arise
what is the role of wealth managers?
- Arrange stock market trades on behalf of their
private investors and charity clients - Advise investors which stocks, bonds, or mutual funds
to buy - May offer “execution-only” services where
instructions are followed but no advice is given
what is the difference between fund managers and wealth managers?
- Wealth managers focus on the overall financial well-being of an individual, while fund managers focus on managing specific pools of assets
what are platforms in investment management?
online services designed to enable wealth managers, financial advisers and retail investors to manage their investment portfolios
what are users able to do with platforms?
- view and monitor
- research
- keep track
- place orders
- monitor tax liabilities
- perform modelling
- compare returns
what is the role of financial advisors?
offer financial planning services to private investors. establish the client’s investment objectives and attitude to risk, and then
recommend suitable investments that will meet the client’s requirements
what is a robo-advisor?
New type of financial adviser that provide investment services
online based on a set of computerised rules and/or algorithms
with a minimal amount of human involvement.
what are custodians?
banks that specialise in safe custody services
looking after portfolios of shares and bonds on behalf of
others, such as fund managers, pension funds and insurance
companies.
what are TPAs?
Third-party administrators (TPAs) undertake
investment administration on behalf of other firms
and specialize in this area
what is the FX market?
decentralized market where currencies are traded. Trading of foreign currencies is always done in pairs, where one currency is bought and the other is sold, and the price at which this takes place is the exchange rate
what do securities include?
bonds and equities that can be bought, sold, borrowed and lent
what is the principal amount in securities?
The number of shares multiplied by the price
what is the consideration in securities?
Principal amount + fees and charges
what is the value date?
date on which the investor should pay the consideration of the trade and take legal ownership of the instrument (T+2)
what is the settlement date in securities?
date on which the investor actually does pay the consideration of the trade, and takes legal ownership of the instrument. Settlement date should be the same as value date, but there may be a delay in the process
what is the consideration in relation to bonds?
principal amount + accrued interest + commission + fees and charges
what is automation?
set of working practices and systems that enable transactions to move seamlessly through the processing cycle, without manual intervention or redundant handling
what are the principles of automation in securities?
- trade is entered into the firms systems only once
- Trade processing should be done in a series of logical steps, with each step depending on the successful completion of the one before it
- Clerical intervention should be avoided as far as possible, but clerical staff should be able to manage by exception
how has automation solutions improved the financial industry?
- shorten settlement cycles
- reduce systematic and operational risk
- improve the certainty of settlement
- minimise operational cost
- improve customer
what does data need to be in the asset management industry?
- accurate
- complete
- timely
- securely delivered
what are the challenges in relation to data?
- different sources, difficult to integrate
- can struggle to process data due to multiple platforms
