Chapter 4: The Role of Technology in Trade Capture Flashcards
Why might a pension fund need to sell assets?
If they need to pay out pensions, considered a liability
What are the 5 topics covered by Social in ESG?
Diversity
Human rights
Consumer protection
Animal welfare
Local communities
What is the challenge with ESG ratings?
Subjective
What does a buy-side firm need to do before placing an order on behalf of a customer?
Needs to ensure that the order is compatible with the customers investment objectives.
Documented in an investment mandate
Known as pre-trade compliance
What does the term at best or at market mean?
buy or sell at the best price the member firm can obtain
What information has to be provided in a trade under MiFID II?
Client Identifier (LEI)
Firm (LEI)
Counterparty (LEI)
How can orders be placed?
telephone
firms web page
SWIFT
DTCC/Omego
Refinitiv, Autex
Bloomberg, POMS and TOMS
What is the difference between an order being filled by a firm as agent or principal
agent - they send to market and charge a fee
principle - they take on the book, buy or sell
What does a sell side firm act as principal or agent for the below?
Bonds
Futures and options
Foreign exchange
OTC
Equities
Bonds - Principal, reach out to market makers
F&O - Always agent
FOREX - Principal
OTC - Principal
Equities - both
Which regulation requires best execution?
MiFID II
What are the two principles in TCF (Treating Customers Fairly)?
- Principle 6 (customers’ interests) requires a firm to pay due regard to the interests of its customers and to treat them fairly.
- Principle 8 (conflicts of interest) requires a firm to manage conflicts of interest fairly.
What is the order flow of a trade? between fund manager and sell side
Fund manager sends order to sell side
Sell side decides how to execute, agent or principal
Sell side sent confirmation of details to the fund manager
- td/vd / price / net cost / agent/principal
Fund manager affirms confirmation or rejects
Fund manager provides allocation details
Sell side allocates the shares to each client/fund
Fund manager reaffirms the above
Settlement instructions sent to custodians
What is the Omego Central Trade manager?
Developed by Refintiv, acquired by DTCC in 2013. Electronic trade confirmation platform.
What is an example of a principal trade?
Fund places order with broker
Broker sources best price for order
Broker purchases order
Broker then sells to fund at a higher price
What are some requirements of dealing platforms for buy & sell side?
Automation compliance
Regulatory compliance (MiFID II)
Support for multi currencies and securities
Connectivity to participants
Commission / Tax calculations
Algorithmic trading support
What is a basis point commision?
1 bp is equal to 1/100th of 1%
in this context of bonds, they can say 5bp per million
$500 per 1m
What method of fees in commonly used in F&O contracts?
Per unit - “£ per lot”
Exchange specifies how many units of underlying are referenced to one lot
When is SDRT applicable?
(0.5%) When purchasing:
Shares in a company that is incorporated in the UK
Shares in a foreign company that maintains a share register in the UK
Options for the above
What is Stamp Duty?
Tax that is paid by the final investor
Can avoid by using listed futures and options or CFDs
What is the PTM Levy?
Any transaction over £10,000 is charged £1 on LSE
Panel of Takeovers & Mergers
Enforces rules on takeovers
What is algorithmic trading?
The use of computer programs to enter orders on exchanges
What proportion of trade volume is algorithmic?
30-60%
What was introduced in response to the 2010 flash crash?
Volatility circuit breakers
10% change in 5 minutes, 5 min halt
How do Sell-Side firms offer algorithmic trading to their clients?
DMA - Direct Market Access
Routing a security order directly to an execution venue
