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Technology in Investment Management > Chapter 4: The Role of Technology in Trade Capture > Flashcards

Chapter 4: The Role of Technology in Trade Capture Flashcards

1
Q

What are the 6 Stages of the Portfolio Management Process?

A

1) Understanding Client Objectives
2) Formulating a policy to meet those objectives
3) Asset Allocation
4) Asset Selection
5) Performance Measurement
6) Suitability

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2
Q

What Information do Buy Side Firms Need to Make Investment Decisions?

A
  • Cash flow forecasts
  • Economic and Financial Forecasts and research recommendations
  • Market Data
  • Performance measurement software applications
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3
Q

ESG (Social Points)?

A
  • Diversity
  • Human rights
  • Consumer protection
  • Animal welfare
  • Local communities
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4
Q

ESG (Governance Points)?

A
  • Management Structure
  • Employee relations
  • Executive compensation
  • Employee comp
  • Tax Strategy
  • Donations and political lobbying
  • Corruption and bribery
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5
Q

What Are the Challenges of ESG Investing?

A

Usually consists of non quantifiable subjective data, constantly changing regulations as well as different assessment techniques

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6
Q

What are the Parties of an Order?

A

1) Investors and Buy-Side Firms
2) Sell side firms

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7
Q

What is the Difference Between Buy Side and Sell Side?

A

Buy side firms place order for themselves or clients, sell side firms fill those orders

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8
Q

Under MiFID II Rules, What are the 3 Types of Identifiers?

A
  • Client Identifier (LEI of National Insurance)
  • Firm
  • Counterparty
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9
Q

What are the Communication Methods in Which Orders Can be Placed?

A
  • Telephone/Fax
  • Entering details into web provided by the SSF
  • SWIFT messages
  • Input into the sell side firms order management system.
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10
Q

What is a “Hub and Spoke”? Wheels take you down a rou…….

A

Its a third party order-routing service. E,g, Refinitiv through its Autex or Bloomberg through its POMS

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11
Q

What is the Difference Between Sell Side Firms Acting as the “Principal”, rather then the “Agent”?

A

The principal would fulfil an order from its own book. I.e. A security that it owns. forward the order to a market maker or an investment exchange. Whereas the agent will forward the order to a market maker or an investment exchange.

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12
Q

What do Sell Side Firms Act as in the Context of Bonds?

A

The Principal

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13
Q

What do Sell Side Firms Act as in the Context of Futures and Options?

A

The Agent

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14
Q

What do Sell Side Firms Act as in the Context of FX?

A

Principal

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15
Q

What do Sell Side Firms Act as in the Context of OTC Derivatives?

A

Principal

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16
Q

What do Sell Side Firms Act as in the Context of Equities?

A

Agent or Principal

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17
Q

Practical Implications of the MiFID II FCA Requirements for Best Execution?

A

1) Firms must always execute orders from the same type of customers, for the same instrument, according to the pre defined policy.

2) Must obtain consent from the customer.

3) Check their policy is achieving best execution

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18
Q

What are the Two Practical Implications of a Best Execution Strategy?

Big and Loads

A

1) When the order is very large (Ways to go about to not affect the market price)

2) When the Instrument is Quoted on More Than 1 Exchange (Establish the best most liquid price in the best currency)

19
Q

What is TCF?

A

Treating Customers Fairly.

Prevents conflicts between sell side firm and investor from arising. Best execution and execution at the best price.

20
Q

What is ETC?

A

Electronic Trade Confirmation

21
Q

What is Omgeo?

A

A central trade manager service. Started by Refinitiv but now owned DTCC.

It is at present the de facto standard for trade communication between broker and institution.

22
Q

What are the Typical BUY Side Dealing System Capabilities?

A

1) Automation Compliance
2) MiFID II Compliance
3) Support for Investment Decision Taking
4) Support for all security types
5) Multi Currency Capabilities
6) Customer Reporting
7) Performance Measurement
8) Income and Capital Gains Tax Calcs
9) Broker Connectivity and Automation Facilities
10) Support for Algorithmic Trading
11) Ability to receive real time market data

23
Q

What are the Typical SELL Side Dealing System Capabilities?

A

1) Automation Compliance
2) MiFID II Compliance
3) Support for all security types
4) Multi Currency Capabilities
5) Connectivity to exchanges
6) Connectivity with buy side clients
7) Commission and Chargers Calculations
8) Support for the Trading book and ability to mark to market
9) Support for algorithmic trading

24
Q

What is a Flat Fee?

A

Commission charged as a flat fee no matter the size of the trade. Usually charged by execution only brokers.

25
Q

Percentage Fee (Commission)?

A

% of the value of the trade

26
Q

What is a Basis Point?

A

Used in some bond and OTC transactions.

This is a unit equal to 1/100th 1%.

27
Q

What is a Per Unit Fee?

A

Used for Options or Derivatives.

Expressed as £x per lot.

How many units of the underlying instrument are referenced to one unit of the derivative.

28
Q

What is a Sliding Scale (Commission)?

A

May be applied to commissions that are based on percentages or basis points. This refers to the size of the order, not the execution.

29
Q

What is a Reducing Scale?

A

Commissions rate is reduced for clients that place a large amount of orders or large individual order. Calculated as an average.

30
Q

What is an Exchange Fee?

A

Fee charged by the exchange where the trade is executed.

31
Q

What is Cross Border Trading?

A

When the fund manager gives the broker an order, and the broker decides its best to be settled in another country.

32
Q

What are Split Services?

A

The split between research and execution.

33
Q

What is the PTM Levy?

A

Panels of Takeovers and Mergers. A charge automatically imposed on investors and collected by their brokers, when the B/S shares in the UK market in excess of £10K. the charge is £1.

34
Q

What is Algorithmic Trading?

A

The use of computer programmes for entering orders, decides on aspects on the investment order without human intervention.

35
Q

What is HFT?

A

High frequency trading.

36
Q

How Much of the Market do HFT and AT make up of the Equity Market?

A

30-40% or even up to 60% in the UK and European markets.

37
Q

Consequences of HFT and AT?

A
  • Can cause flash crashes. (Dow Jones 2010)\
  • Exacerbates price declines as they sell aggressively to eliminate their long positions, in the face of uncertainty.
38
Q

What is a Curb?

A

A system introduced by the NYSE, that halts trading for 5 minutes on the S&P500 if it falls or rises at least 10% in 5 minutes.

39
Q

What is DMA?

A

Direct market access

A service provided by sell side firms, automatically routing a security to a trading venue, avoiding third party intervention and speeding the process.

40
Q

Self Servicing Features?

A
  • Ability to Sign in to manage accounts.
  • Count opening / closing.
  • Account Maintenance.
  • Making Payments.
  • Entering trades.
  • Reporting.
41
Q

Higher Value Self Servicing Features? Customer support ?

A
  • FAQs
  • Blog (Chats)
  • Details on how to contact the firm.
42
Q

What are the 4 parameters of VaR?

A
  • Time Horizon
  • Confidence Level
  • Volatility
  • Currency
43
Q

What is MTM?

A

Mark-to Market

Determining the true value of a portfolio, by marking to the market value of the securities in their portfolio.

Technology in Investment Management (9 decks)

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