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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 Did Systemic Internalisers Replace?

A

Broker Crossing Networks

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2
Q

What is an RIE?

A

Recognised Investment Exchange

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3
Q

What is an ROIE?

A

Recognised Overseas Investment Exchange

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4
Q

What is a DIE?

A

Designated Investment Exchange.

Does not carry on a regulated activity in the UK and is not a regulated market.

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5
Q

Example of RIEs?

A
  • LSE
  • LME
  • ICE Futures Europe
  • CBOE Europe Ltd
  • Aquis Stock Derivatives Exchange Europe ltd
  • Euronext London ltd
  • IPSX UK ltd
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6
Q

What are the Three Economic Functions of an Investment Exchange?

A

1) Provide means for companies to raise new capital.
2) To provide facilities for investors to trade securities.
3) To create standardized derivative instruments.

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7
Q

What is an Order-Driven System?

A

No market makers.

Buyers submit bids and sells submit sells orders, when these meet an exchange occurs.

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8
Q

What is a Quote-Driven System?

A

Where a member of an exchange takes on the responsibility of quoting two way prices (buy & sell).

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9
Q

What is a Hybrid System?

A

Offers both systems (Order and Quote) depending on security liquidity.

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10
Q

What is the SETS?

A

Stock Exchange Electronic Trading System. (Hybrid)

Order driven systems for most liquid securities on the LSE etc.

Flagship order book.

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11
Q

What is the SETSqx?

A

Stock Exchange Electronic Trading System (Quotes and Crosses). (Hybrid)

Provides quotes and market making for all the UK domestic equities that aren’t listed ion SETS.

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12
Q

What is the SEAQ?

A

Stock Exchange Automated Quotations. (Quote)

Is the quote driven market for fixed interest securities and the AIM securities that aren’t traded on either.

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13
Q

What is the Order Book for Retail Bonds?

A

Hybrid Platform for the trading of government bond (GILT strips) and a selection of sterling denominated corporate bonds.

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14
Q

Order Book for Reta

A
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15
Q

What is the RNS?

A

Regulatory News Service.

For companies who have a requirement to publish price sensitive information. They can make their announcements here.

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16
Q

What is the Corporate Events Diary?

A

An online calendar whereby UK firms are able to publish the dates of significant events. E.g. AGMs or P&L releases.

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17
Q

What is the SEDOL Masterfile?

A

Is a database that provides the provides a common ID (SEDOL Code) for any securities, not just LSE.

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18
Q

What is the European Regulatory Trade Reporting System?

A

The system, whereby brokers and dealers in Europe have a legal obligation to report all trades to the regulators electronically.

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19
Q

What do Developers Need Access to When Developing In-House?

A
  • Data Exchange Specifications
  • Data Dictionaries
  • Data Security Standards
  • Service Level Standards
  • Testing Facilities
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20
Q

What is a Modular System?

A

A package that contains a number of core elements, but has the option to add additional market interfaces or reporting and performance functionality.

21
Q

What is a Front-to-Back Package?

A

A solution for a firm such that the trading, portfolio management, reporting, performance, compliance monitoring risk and client data, are all held and managed on the same system.

22
Q

What is a CCP?

A

Central Counter Party.

They provide services re:

Settlement and Custody Services
CCP services

23
Q

Who Provides Custody Services for UK Cash-Settled Securities?

A

Euroclear UK & Ireland

24
Q

What is an RCH?

A

Recognised Clearing House

25
Q

What are the RCHs as Per the Financial Services Act 2012?

A
  • LME Clear Ltd
  • CME Clearing Europe Ltd
  • EUI
  • LCH ltd
  • ICE Clear Europe
26
Q

What is the EUI Often Described as ?

A

Central Securities Depositaries (CDS)

27
Q

What is DVP? And what is its Purpose?

A

Delivery-versus-payment.

This is where EUI offers settlement between 5:30 and 13:00 each BD. The buyer takes the delivery of the security, and then guarantees payment.

Also has an automated registrar, to provide regulators with certs etc..

28
Q

Other Services Provided by The EUI? Processing

Payment of?

A

1) Custody Services
2) Payment of Dividends
3) Processing of Corporate Actions
4) Specialized facilities for Stock Lending and Borrowing

29
Q

What is the DEX?

A

Data Exchange Manual

Contains all the necessary message formats to communicate with the EUI.

30
Q

On SETS are Individuals Aware of the Party Trading With?

A

No

31
Q

What is Novation?

A

The substitution of one party to a contract by another party.

32
Q

3 Advantages of a CCP?

A

1) Post-Trade Anonymity
2) Netting of Positions
3) Reduction of Credit Risk (Requires collateral for margin agreements)

33
Q

What are the Two Aspects of a Margin?

A

Initial Margin

Variation Margin

34
Q

What is SPAN? SPAR

A

Standardized Portfolio Analysis of Risk, this is used to calculate the initial value of the margin.

35
Q

How are the Types of Margin Calls Settled? (Variation and Initial)

A

Variation margin calls must be settled in cash, whereas the initial margin calls can be settled using securities.

36
Q

What is an MSN?

A

Multilateral Settlement Netting.

37
Q

What are the Main Competitive CCPs?

A
  • SwapClear (OTC)
  • RepoClear (Sale and Repurchase agreements for OTC markets)
38
Q

Benefits of LCH Operating a CCP Service for Repo Trades?

A
  • Credit Risk Reduction
  • Balance Sheet Netting
  • Multilateral Settlement Netting
  • Post Trade Anonymity
39
Q

What is a GCM?

A
  • General Clearing Member
  • A member of the ICE Clear, able to clear trades.
40
Q

What is a NCM?

A
  • Non Clearing Member
  • Not permitted to clear their own trades, must assign or delegate a GCM.
41
Q

Are CCPs Needed on the SEAQ?

A

No

42
Q

What is the Role of a Trade Repository?

A

Centrally collect and maintain the records of OTC derivatives. It is also to provide regulators with risk profiles of firms and CPs

43
Q

Who are European Trade Repositories Supervised By?

A

ESMA under EMIR regulations.

44
Q

What is Rifinitv?

A

Provides fast and real time information on securities.

Previously owned by Blackrock and Reuters.

Now owned by the LSE group.

Produces official daily market fixings for 50 currencies. Covers 2,000 market makers.

45
Q

What are the Three Groups of Information Provided by Vendors?

A

1) Pre-Trade - Liquidity and price discovery
2) Pre-Trade - Analytics
3) Trade execution and post trade services.

46
Q

What is the TNS?

A

Rifinitvs Trade Notification Service for confirming FX trade info.

47
Q

What are Transaction Reports For?

A

Handed to the regulator to reduce incidents of market abuse and undertake market surveillance.

48
Q

What is an NCA?

A

National Competent Authority.

In the UK is the FCA and trades must be reported via an ARM, ASAP or at least end of the next business day (T+1).

49
Q

Who does EMIR Mandate the Reporting of all Derivatives To?

A

Trade Repositories centrally collect and maintain the records of all derivatives contracts.

Technology in Investment Management (9 decks)

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