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Platforms, Wealth Management and Service Providers > Chapter 4: > Flashcards

Chapter 4: Flashcards

1
Q

What information does a market order contain:

A
  • whether the order is a buy or sell
  • volume of shares
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2
Q

Who guarantees, under certain conditions to act as a counter party on a unit trust trade?

A

Fund manager

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3
Q

Who is the beneficial owner of any position held on a platform?

A

The investor

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4
Q

What is the maximum payment that can be made through the faster payment system?

A

£1,000,000

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5
Q

What is a stop loss?

A

Sell if the price drops to a certain level

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6
Q

There are three methods of which a platform can send and receive messages:

A

Direct data for low volumes
File transfer for medium
API for high volume users

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7
Q

What’s a fill or kill order?

A

Order is executed at a given price or not at all.

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8
Q

When can a Fill or Kill order be used?

A

During continuous order book trading between 8:00am and 4:30pm.

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9
Q

When can a Fill or Kill order not be used?

A

During the opening or closing auction call periods.

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10
Q

Where an investors holds a position in a CIS through a platform, whose name would appear on the CIS register?

A

The nominee

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11
Q

What are omnibus account also known as?

A

Pooling nominee accounts

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12
Q

With pooled accounts, who is the name that appears on record as legal owners?

A

Multiple accounts will be under the same nominee name.

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13
Q

Who has the responsibility for obtaining the registration details for an entry in the register of unit holders?

A

Manager

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14
Q

What is the role of brokers in non-CIS orders?

A

Broker attempts to match a buyer with a seller.

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15
Q

What is the role of a market maker in non-CIS orders?

A

Market maker guarantee to act as a counterparty to trade to to a certain quantity.

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16
Q

What is good till cancelled? GTC

A

A type of order that an investors may place to buy or sell a security that remains active until the order is filled or the investor cancels it.

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17
Q

Transaction handling methods and straight through processing steps (5)

A
  1. Entry transaction - once
  2. Feeds through other systems also requiring the info
  3. each process logically follows the successfully completed previous stage
  4. Exception processing by staff only where required
  5. four steps ahead may be followed by external firms
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18
Q

For file transfer, what is internally generated various times of the day?

A

• CSV or TSV format
• At other points the day message provider sends files back to the customer to adapt their systems

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19
Q

What principles do File transfer comply with?

A

STP principles

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20
Q

What does API stand for?

A

Application program interfaces

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21
Q

How does the API system work?

A

Internal systems generate outgoing and receive incoming messages non manual intervention.

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22
Q

Store and forward process (5)

A
  1. Message entered into carriers software ( converts into FIX)
  2. Validated - does it make sense
  3. Encrypted
  4. Sent to intermediate station (EMX) which forwards to intended recipient. If it can’t send it stores and sends at a later time.
  5. Received by recipients system and de-encrypted to be processed by their internal systems
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23
Q

Aggregation definition

A

Consolidating all buy orders received during the day into a single market order.

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24
Q

One Advantage of aggregation

A

Brokerage charges are reduced for each individual investor.

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25
Q

Does the delay in orders being aggregated apply to open ended funds and why?

A

No because aggregation takes place in time to send the order before the valuation point.

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26
Q

What does the platforms best execution policy need to state?

A

Price, costs, speed, like likelihood of execution and settlement

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27
Q

What pricing do majority of CIS now use?

A

Forward pricing and the platform may experience a spike in order volume in the run up to valuation point.

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28
Q

A simple order will take the form of:

A

• buy or sell 10,000 units/shares of X or
• buy or sell sufficient unit/shares of x for a value of approximately £10,000

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29
Q

Platforms need to support a number of more complex forms of order, due to the different types of users being serviced. What are these?

A

• orders that affect multiple clients
• regular purchases
• regular sales
• in the case of pension access payments
• conversion instructions
• bed & Isa transactions

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30
Q

Who are regular sales used by ?

A

It’s mainly but not exclusively used by clients who are in a pension access drawdown

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31
Q

What are the additional order considerations for listed securities?

A

Price related conditions:
• at best or at market
• limit
• stop loss

Time related conditions:
• good till cancelled or open order
• expiry date
• fill or kill

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32
Q

What is a bed & Isa ?

A

Existing shares are sold, the cash transferred into the ISA and then the shares repurchased with the subscribed money.

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33
Q

What is a benefit of a Bed & Isa transaction?

A

Avoid tax on future capital gains

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34
Q

STP straight through processing consists of?

A

Working practises and systems that enable transactions to move seamlessly through the processing cycle without manual intervention or physical handling.

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35
Q

For STP how will a firm gain maximum efficiencies?

A

Platform will ensure that each transaction ( order or income payments) is entered into the firms system only once.

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36
Q

In what cases will staff need to intervene for STP and what is the common approach for this called?

A

If the stage of the automated process fails.

A common approach is for the platform to establish a ‘repair queue’ to which instructions are routed.

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37
Q

What are the 6 Control processes in the context of investment transactions?

A

• does the quantity make sense?
• does instrument fit risk profile of client
• does instrument qualify for wrap holding
• dealing restriction
• selling more securities than client holds
• product provider restrictions

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38
Q

Why is a control process required?

A

Platform needs to be able to validate orders to detect potential errors.

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39
Q

Range of messages that can be sent include:

A

• buy/sell order

• re registration

• settlement and trade matching
confirmations

• price reporting

• holdings and or valuation information

40
Q

What does the AFM send the platform daily?

A

• Market prices of the assets that are held by the platform

• a list of the holdings that the platform uses to reconcile its clients assets.

41
Q

If there is a discrepancy between the AFMs holdings list and platforms records what can be done by the message carrier?

A

The message carrier can supply a complete transactions history for a given period

42
Q

When a platform sends its settlement instructions to the carrier, who are the instructions passed to?

A

Custodian

43
Q

When settlement of other cash or stock movements actually occurs, is it the custodian who sends reports to the carrier?

A

Yes, who then forwards it to the platform

44
Q

If there are insufficient investors wishing to trade at a given time, who may a broker approach?

A

Market maker

45
Q

The collective investment schemes sourcebook (COLL) requires CIS redemptions to be settled on the?

A

4 business day following the trade (T+4)

46
Q

For redemptions the AFM must ensure that..

A

It remits the proceeds to the investor as failure to make payments would be a breach.

47
Q

The normal settlement cycle for secondary equity markets transactions is?

A

T+2

48
Q

What methods are used for transfers between bank accounts?

A

BACS and CHAPS are well established ways for firms to receive money from their clients

49
Q

What’s is the APACS - Associated for Payment Clearing Services?

A

UK payment association which introduced a new system for institutions to deliver payment services

50
Q

When was the APACS introduced and what is it now known as?

A

2008, now known as Faster payment service

51
Q

What decimal place are authorised collective investment schemes to be traded to?

A

Four decimal places

52
Q

What is a person called when they are not the legal/registered owner of an asset and did not purchase the asset, but have a claim to some of the benefits the asset provides?

A

Beneficial owner

53
Q

What does beneficial ownership aim to prevent?

A

Money Laundering

54
Q

When does a firm not need to obtain the details of the underlying beneficial owner?

A

If the client is a regulated firm or it’s nominee

55
Q

What is a nominee?

A

Person or company who has been entrusted with the safekeeping of investors’ securities or assets

56
Q

Who will the funds register not feature?

A

Beneficial owner

57
Q

Why do nominee companies exist?

A

To be register owner or legal owner of assets on behalf of investment firms.

58
Q

What are the three forms of nominee accounts?

A

• one single pooled nominee account
• multiple pooled nominee accounts
• segregated nominee accounts

59
Q

What is a multiple pooled nominee account?

A

On occasion, a platform operator might wish to separate assets held within one wrapper from those held in another.

60
Q

Advantage of pooled nominee accounts

A

• Transfers between spouses
• Simple and cost effective

61
Q

Disadvantage of pooled nominee account

A

• problems where different investor want to elect different options on a corporate action
• difficulty in allocating perks

62
Q

Duties/ role of a custodian are:

A

• hold in safekeeping assets/securities

• collect info on income from such assets

• administer voluntary and involuntary
corporate actions on securities held

• maintain currency/cash bank accounts

• perform foreign exchange transactions

• provide info e.g. annual general meeting, proxy

• arrange settlement of any purchases

63
Q

What are the additional services custodians may perform?

A

• investment fund services
- fund accounting
- administration
- legal
- compliance
- tax support services

64
Q

Custodians who service assets for their clients in multiple jurisdiction are called?

A

Global custodians

65
Q

What may a global custodian refer to?

A

Individual local banks in such a model as its sub custodians.

66
Q

What are sub custodians often a member of?

A

The same organisation as the Global custodian

67
Q

When a global custodian selects a subcustodian, it should perform a due diligence review to ensure that the sub custodian has:

A

• the necessary regulatory approval, as well as the skills and resources to administer assets in the jurisdictions in which it is operating

• sufficient financial resources to perform these activities.

68
Q

What was the TISA Exchange established for?

A

Facilitate electronic transfer of wrappers and fund unit/shares.

69
Q

Why would a transfer of a platform occur?

A

• investors circumstances have changed
• investor changes FA and the new one uses a different platform
• adviser decided that some or all clients will be better served on a different platform

70
Q

What is (TeX) purpose?

A

Make electronic transfers accurately within 5 working days using standardised agreements and contacts that are based on STP principles.

71
Q

Are shares allowed to be transferred directly to an ISA from outside an ISA?

A

No, HMRC rules do not allow this but a Bed & Isa can be used as an alternative

72
Q

Where an investment club holds assets with a platform, their holding will typically be recorded as a ?

A

Joint account

73
Q

What is a segregated nominee account also known as?

A

Designated nominee or sole nominee account

74
Q

Where an investment club holds assets with a platform, what typically happens to their holdings?

A

Recorded as a joint account

75
Q

TeX purpose as noted in CISI book:

A

Mandates common standards for processing re registration arrangements

76
Q

TeX mandates common standards to cover what?

A

• Liability issues
• SLAs
• Dispute resolution process

To use standard messages to transfer assets and wrappers between platforms of all types.

77
Q

What does TeX not do?

A

Carry the messages

78
Q

Disadvantage of aggregation for exchange traded securities?

A

The price can move adversely while the platform waits for additional orders before placing the single market order.

79
Q

Are brokers applicable for CIS and why?

A

No, as the fund manager can create shares necessary and will cancel surplus shares when required. (Variable)

80
Q

Settlement of UK government bond occurs when?

A

On the following business day T+1

81
Q

Authorised CIS such as unit trusts and open ended investment companies require what to be maintained

A

A “register”

82
Q

For authorised CIS when and what is added to the register?

A

When an investor applies to the fund manager and buys units, the investors name and personal details are added to the register

83
Q

When any other type of entity is inserted between the actual investor and the assets register, what is it like?

A

It is like adding a link in a chain; each entity will only have information about its own links in the chain and does not have visibility of the full chain of information.

84
Q

Platform must maintain client records in what manner for ownership of asset?

A

Clear, current and accurate manner

85
Q

Underlying regulations and or securities laws tend to limit a register recognising up to how many people as joint holders of a given asset?

A

4 people

86
Q

What is the usual number for authorised collective schemes to be traded to?

A

Four decimal places

87
Q

Who can see the beneficial owner in the custody chain?

A

Platforms internal records

88
Q

Instead of the scheme register showing records unit/shares held by various individual investors, what is shown instead?

A

Single position for the platform, the platform itself must evidence how many units/shares are held on behalf of each investor.

89
Q

What is an advantage of a nominee company?

A

As it has no business activities, it is unlikely to become insolvent even if the investment firm using its services runs into financial difficulty.

90
Q

What do nominee companies reduce the risk of?

A

The risk for beneficial owners of their interest not being reflected on the ultimate asset register in cases where financial firms are undergoing difficulty.

91
Q

For segregated nominee accounts, can aggregation take place?

A

No

92
Q

For the single pooled nominee account, what approach is used?

A

Offers maximum aggregation of transactions, and minimised the number of asset positions maintained.

93
Q

Which nominee company is the most expensive to maintain?

A

Segregated nominee accounts as no aggregation takes place, generating no economies of scale.

94
Q

FCA rules would also allow a platform to register assets in the clients own name. However this is unusual for the following reasons:

A

• the asset register would not recognise the platform as owning the asset
• the investor would receive direct communication about each asset held, rather then info flowing from platform
• investor might therefore transact without platform being aware

95
Q

What type of assets/securities do custodians safekeep?

A

Stocks, bonds, commodities such as precious metals and cash (both domestic and foreign currencies)

96
Q

What is the difference between CIS and equity positions in regards to the custody chain?

A

Equity positions must effectively be held with a custodian, resulting in a longer chain of custody

97
Q

For a unit trust it is a legal duty to maintain a register of unit holders. This would normally be updated when?

A

Daily

Platforms, Wealth Management and Service Providers (8 decks)

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