Chapter 1 The Financial Services Sector Flashcards
Bearer vs Registered certificates
Securities, like equities and bonds, take one of two main forms – registered or bearer – and the form
determines how an investor proves ownership of a particular investment.
Bearer certificates, as their
name suggests, mean that the person that bears (or holds) them has title to them, like banknotes. Bearer securities are easier to transfer as there is no register and
they can simply be handed over.
In comparison, registered certificates require that the holder’s ownership is recorded in a digital register
as the owner (or title-holder) of the investment.
Where are bearer securities typically held and ‘immobilised’?
It is important to note that many bearer securities are held in central securities depositories (CSDs), such
as Euroclear and Clearstream, and are technically referred to as ‘immobilised’. This removes the worry
about physical security, makes it easier for the issuer to pay any income due and also lessens the risk of
inappropriate use because the CSDs will be communicating with financial services regulators. Examples
of securities that are usually held in bearer form are eurobonds and American depositary receipts
(ADRs) (both are further detailed in chapter 2).
What is the professional sector?
The wholesale sector is also often referred to as the professional sector or institutional
sector. It is the business-to-business (B2B) area where both sides of a transaction are businesses, not
individuals.
Which are the largest stock exchanges in the world by market capitalisation?
The New York Stock Exchange (NYSE) is the largest exchange in the world and had a domestic
market capitalisation of US$22.1 trillion as of Winter 2022 (domestic market capitalisation is the
value of shares listed on an individual exchange).
* The other major US market, Nasdaq, was ranked as the second largest, with a domestic market
capitalisation of US$17.2 trillion, meaning that the two New York exchanges account for more than
one third of all exchange business worldwide.
Where are the main global centres for foreign exchange trading?
UK, US
What services do custodian banks provide?
Acting as a custodian by providing services to asset managers involving the
safekeeping of assets, the administration of the underlying investments, settlement, corporate
actions and other specialised activities. Custodian relationships are generally necessary for access to
international markets.
What kind of market is FX
As FX is an OTC market, meaning one where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. Instead, FX trading is distributed among major financial centres.
Custodian Bank core activities (8)
- holding assets in safekeeping, such as equities and bonds
- arranging settlement of any purchases and sales of securities
- processing corporate actions, including collecting income from assets, namely dividends in the case
of equities and coupons in the case of bonds - providing information on the underlying companies and their annual general meetings (AGMs)
- managing cash transactions
- performing FX transactions when required
- larger custodians often have an international network of country branches or affiliated local custody
firms, thereby enabling access to foreign markets, and - providing regular reporting on all their activities to their clients.
