Chapter 1: The Financial Seevices Industry

Question 1

Bond features/investor goals

Answer 1

• Lend £ to an issuer in return for interest payments
  
  • Set date for principal to be repaid
• If issuer becomes insolvent, lenders are paid before shareholders

Question 2

Equity features/investor goals

Answer 2

• Paid after bond holders/other creditors if the ompany becomes insolvent.
• have voting rights in certain company decisions

Question 3

Bearer and registered shares

Answer 3

• Bearer= physical certificates of ownership.
• Registered=Ownership is recorded in a digital register

Bearer shares are easier to transfer as they are physical bits of paper.

Question 4

Issues/challeneges of bearer shares

3 points

Answer 4

• Difficult to monitor the benenficial owner - AML risk
• Difficult for the issuing firm to know who to pay dividends/interest to.
• Expesnive to store the physical certificates securely

Question 5

Where are bearer shares held- immobilisation

Answer 5

Central securirites depositories (CSDs)

• Examples are Euroclear, Clearstream.
• When beaerer shares are held in a CSD tehy are referred to as immobilised.
• Removes the downsides of beaer shares - offer security, shares are monitored so can’t be used fro dodgy stuff, issuers know who the holder is so can pay dividends/interest to the right person.

Question 6

Examples of securirites held in CSDs

Answer 6

• Eurobonds
• American Depository receipts (ADRs)

Question 7

Contents of the wholesale sector

Answer 7

• Equity, Bond, FX, derivatives markets
• Insurance Markets
• Fund mgmt
• Investment banking
• Custodial banking

Question 8

Retail sector contents

5 of them

Answer 8

• Retail banking
• Insurance
• Pensions
• Investment services
• Financial planning and financial advice

B2C=business to customer - decribes retail sector

Question 9

Equity markets- what type of order system do they use, largest mkt

Answer 9

• Quote/order driven
• Gloabl market cap as of summer 2023=$109 trillion
• Largest exchange=NYSE - market cap $24.3 tril.
• 2nd largest - NASDAQ - mkt cap - $20.1 tril
• 3rd - Shanghai $7.26 tril

Figures as of summer 2023 quoted in USD

Question 10

what do MTFs and ATSs do

Answer 10

AKA - crossing networks or matching engines

Work by bringing together multiple parties to execute transactions e.g. buying/selling securities.

MTF=multilateral trading facility. ATS=alternative trading system.

Question 11

Dark pools - IDBs

Answer 11

IDB=inter dealer broker

dark pool=proprietary trading platforms. AKA electronic communication networks - ECNS

Question 12

Bond markets

Answer 12

• higher value and lower frequency of trades than equity mkts.
• Majority OTC market
• 2022 end - mkt value of 133 tril USD

Question 13

FX markets

Answer 13

• Largest fin mkt - daily turnover $7.5 tril
• Supply and demand driven pricing
• OTC mkt - brokers/dealers negioate directly with eachother=no official exchange
• Some FX futures/swaps are exchange traded
• 2022 mkt composition - UK - 38%, US 19%, JPN - 4, HKG 7%, SGP - 9%

Question 14

Participants of the retail and wholesale sectors

Strong exisiting knowledge