Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CISI: Technology in Investment Management > Chapter 3: Technology and the Functional Flow of Financial Instruments > Flashcards

Chapter 3: Technology and the Functional Flow of Financial Instruments Flashcards

1
Q

What is an MTF?

A

Multilateral trading facility
Brings together multiple parties interested in buying or selling financial instruments

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is an OTF, introduced by MiFID II

A

Organised trading facility.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the 3 classifications for investment exchanges, per FCA?

A

Recognised Investment Exchange e.g. LSE
Recognised Overseas Investment Exchange e.g. NASDAQ
Designated Investment Exchange - not regulated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the top 3 RIE (recongised investment exchanges)

A

LSE- Stocks
LME - Metals
CBOE Europe

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the 3 types of exchange order-handling systems?

A

Order driven
Submit bid or offer to a system, matching system decides when a deal is made. Anonymous

Quote driven
Market makers take on the obligation of always making sure there is a two way price. Purchase off market maker

Hybrid systems offer both;
Order queue, but market makers step up to cover liquidity if needed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the 4 trading systems offered by LSE

A

SETS - hybrid - all securities
SETSqx hybrid - 4 auctions a day
SEAQ - quote driven
Order Book for Retail Bonds - hybrid - initial auction followed by continuous trading supported by market makers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is a funds platform?

A

Services used my intermediaries and clients to manage investments. One stop shop.
Connected to market, tax-efficient wrappers.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is required for In-House development of trading venues?

A

Data exchange specifications (DESs) CREST Manual on messages
Data dictionary, what it means how it connects
Data security standards
Service level standards, when we can communicate to venue
Testing facilities, CREST test window

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is a trading venue package?

A

Modular levels of service offered to different clients

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What two services do clearing houses (CCPs) provide?

A

Settlement and Custody services
Central Counterparty Services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the 4 UK Recognised Clearing Houses?

A

LME Clear ltd
Euroclear UK & Ireland (EUI)
LCH ltd
ICE Clear Europe ltd
As per FSA 2012

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is EUI and its equivalent institutions commonly known as? DTC, SIX SIS etc

A

CSDs, Central Securities Depositories

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What happens when a trade is originated in the SETS system?

A

Trade is novated by a CCP, take on obligations of both parties
Enables multilateral settlement netting

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How do company registers get updated?

A

EUI has connections to the systems used by registrars
Registers update and issue share certificates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What 4 other services does EUI provide?

A

Custody
Dividend payments
COAC entitlements
Facilities for stock lending and borrowing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What assets do Central Counterparties Cover?

A

securities
exchange-traded futures and options
OTC derivatives

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How does SETS work?

A

When an order to buy from Party A is matched with an order to sell from Party B in order-driven market systems such as SETS, neither of the parties is aware of the identity of the other party.
As soon as the exchange has matched the orders, its systems inform a clearing house. The clearing house then takes over the obligations.

18
Q

What is the process of substituting a contract from one party to another called?

A

Novation.
As a result of novation, the clearing house has become the CCP – every other counterparty settles its obligations with the clearing house and not with each other.

19
Q

What are the advantages to CCPs?

A

Anonymity, only make txns with CCP
Netting of positions
Reduction in credit risks (FCA monitors CCP)

20
Q

How do CCPs monitor the ability of members to meet obligations?

A

They must place collateral with CCPs to meet margin requirements.

21
Q

What happens if the share price of ABC falls here?

On 1 February, Party A buys a futures contract that obliges it to take delivery of 1,000 shares in ABC
plc on 30 March in return for payment by Party A of £10 per share. So, the total amount it has to pay
to the CCP if it still holds the contract on 30 March would be £10,000.

A
  1. However, by 7 February, the price of ABC plc shares is only £8 per share. Party A stands to lose £2,000 if it still holds the position on 30 March. The CCP, therefore, requires Party A to make a margin payment of £2,000 to cover the CCP’s risk.
  2. If, at some time between 8 February and 30 March, the price of ABC shares rises to £9 per share, then the CCP will refund £1,000 to Party A. If, however, it falls to £7 per share, then the CCP will demand
    another £1,000 from Party A.
22
Q

What methodology do CCPs use to calculate initial margin?

A

SPAN (Standardized Portfolio Analysis of Risk)
Assessment of one-day risk for an account

23
Q

How do variation and initial margin calls differ?

A

Initial margin calls can be covered by bonds and other collateral
Variation margin calls must be covered by cash

24
Q

How does Multilateral Settlement Netting work with CCPs?

A

If Party A buys 100 shares of ABC plc in one day in 100 different trades, these can be netted by the CCP into one transaction.
Lowers settlement fees

25
Q

What are the 3 LSE CCPs?

A

LCH
SIX X-Clear (Swiss)
EuroCCP (CBOE)

26
Q

What is LCHs service for clearing of swaps?

A

SwapClear

27
Q

What is LCHs service for clearing of repos?

A

RepoClear

28
Q

How is margin managed by CCPs in SETS trades?

A

Receiver of the shares must cover any fall in the market price of shares.

29
Q

What is the EUI trade flow for SEAQ trades?

A

Investor A places order to buy with Exchange Member A
When this is fulfilled by a market maker both instructions are fed into EUI
EUI settles trade if both parties sufficient

30
Q

What is a trade repository?

A

Entity that centrally collects and maintains the records of OTC derivatives.

31
Q

What is the purpose of trade repositories?

A

Provide regulators with visibility of risk exposures of firms and CPs
EMIR and Frank-Dodds

32
Q

What are the two primary suppliers of Real-Time market data?

A

Refinitiv, Bloomberg

33
Q

What functionality is offered by Real-Time information vendors? (3)

A

Pre-trade - liquidity and price discovery. Consolidate market data

Pre-trade - analytics. Price complex derivatives

Trade execution and post trade services. Order routing hubs
Refinitiv TNS - FX trade confirmation

34
Q

What are investment firms obliged to report under MiFIR?

A

Real-Time Post-Trade transparency
(price forming)

35
Q

What are the two types of trade reporting timelines under MiFIR?

A

RTS1 - Shares, depositary receipts, ETFs, certs etc
RTS2 - Bonds, structured finance products, emission allowances, derivatives

36
Q

What are the two time limits to the two reporting timeline under MiFIR?

A

RTS1 - <1m
RTS2 - <5m

37
Q

What is the difference between trade and transaction reports?

A

Trade reports are for public use
Transaction reports are for regulator/FCA use

38
Q

When must transaction reports be published to regulator?

A

t+1

39
Q

What does SFTR stand for?

A

Securities Financing Transactions Regulation Reporting

40
Q

Is STFR an EU Regulation or Directive and how do they differ?

A

the SFTR is an EU Regulation, as opposed to an EU Directive, meaning that it has direct effect in each of the EU member states, without the need for further implementing national legislation.

41
Q

What are securities financing transactions?

A

repos
stock/commodities borrow/loan
margin lending transactions

42
Q

What are the types of clearing house membership?

A

A firm can have its trades cleared by another firm, called a General Clearing Member (GCM) who manage margin requirements of clients

A firm that does not clear its own trades is known as a Non-Clearing Member (NCM), or dealer member.

CISI: Technology in Investment Management (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions