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CISI: Securities > Chapter 5: Secondary Markets > Flashcards

Chapter 5: Secondary Markets Flashcards

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SIE Exam flashcards
1
Q

What is a Broker?

For securities (simply)

A

Somebody who arranges trades on behalf of a client. Sometimes offering advice and charges commission.

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2
Q

What is a Dealer?

For securities (simply)

A

A dealer deals as principal as they take the principal position. Selling of buying from clients.

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3
Q

What do Investments Banks Pose as in Markets?

A

Broker-Dealers

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4
Q

What is an ATS?

A

Alternative Trading System

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5
Q

As per MiFID II, What are the 3 Trading Venues for Equities?

RMS

A

1) Regulated Markets
2) Multi Lateral Trading Facilities
3) Systematic Internalisers

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6
Q

is

What is OTC?

A

Over the Counter

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7
Q

What is a Dark Pool?

A

Term that refers to a trading system where stocks are traded without the price being displayed until the trade is complete.

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8
Q

What is a Dark Pool Reffered to, in Europe?

A

MTF
(Multi Lateral Trading Facility)

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9
Q

What is a Private Placement?

A

A funding round for securities, which are sold without an IPO, without an approved prospectus to a small number of private investors.

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10
Q

Do Securities in a Placement Have to be Registered with the SEC?

Which Reg are they exempt from?

A

No, exempt from Reg D

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11
Q

What is a Frontier Market?

What are they AKA?

A

Less liquid / developed version of the emerging markets,

Pre - emerging

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12
Q

What is the Market Cap of the SSE and SZSE?

A

USD$7 Trillion and USD$5 Trillion

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13
Q

What is an Inter-Dealer Broker?

Why are these used?

A

Registered agent between dealers.

To protect their identity.

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14
Q

What are the Key Reasons Algorithmic Trading is Used?

3

A
  • Removing Emotion
  • Preservation of Discipline
  • Speed, accuracy and reduced costs
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15
Q

What % of Exchanges are Made up of HFT?

A

50% or more

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16
Q

What is Latency?

How can this be minimised?

A

Time taken to interact with the market.

Co-location, traders using serves in the same location to reduce time.

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17
Q

What are the 7 Main Services Provided by Prime Brokers?

S L C C C R Acc

A
  1. Securities Lending and Borrowing
  2. Leveraged trade execution
  3. Cash Management
  4. Core Settlement
  5. Custodian
  6. Rehypothecation
  7. Access to OTC markets
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18
Q

What is Rehypothecation?

A

Rehypothecation is the practice where banks, brokers, or individuals use collateral that they do not own to help finance assets

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19
Q

What is a Limit Order?

What is an Example?

A

An order that has both a price limit and a time limit.

e.g. Sell 100 shares @ 360 by 30/11/24

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20
Q

What is an Iceberg Order?

Why are these used?

A

Type of limit order, whereby the size is masked. To prevent market upset.

21
Q

What is a Market Order?

A

Do not specify a price and are immediatley executed at the best availible price.

22
Q

What is an Execute and Eliminate Order?

A

Will execute as much of the trade as possible and cancel the rest if i cant meet the price requirements.

23
Q

What is a Fill-or-Kill Order?

A

Will fill all of the order at the best price, or if it cant be met, the wole order cancelled.

24
Q

What is an All-or-None Order?

A

Same as FoK, if the order cannot be filled immediatley, it will wait till the end of the tradin day before cancelled.

25
Q

What are “Multiple Fills”?

A

When a buy order has been filled with 3 orders of similar price, the weighted average is what is charged to all deals.

26
Q

What are the Benefits of Using a CCP?

There are 5

A
  1. Reduced Counterparty Risk
  2. Providing total anonymity
  3. Reduced administration
  4. Facilitating netting of transactions
  5. Improved Prices
27
Q

What is Novation?

Why is it used.

A

Novation is the replacement of one of the parties in an agreement between two parties, with the consent of all three parties involved.

Protect a firm in case of default.

28
Q

What do Full Service Brokers Provide?

What is a typical % of commision for this?

A
  • Provides the client with execution, research and advice.

Typically charge 1.5%.

29
Q

What do Discount Brokers Provide?

A
  • Execution only, meaning the fees will be lower.
  • There is however a minimum charge in case the order is too small.
30
Q

What are Account Fees?

When are these waived?

A
  • Fees for managing and undertake admin on behalf of a client.
  • This can be waived if the client is very active over a certain period.
31
Q

What Fee is Charged by Exchanges?

A

Stamp duty / Stamp Duty Reserve Tax

32
Q

What is a Cap-Weighted Index?

A

An index that weights its constituents in terms of its market capitalisation.

33
Q

What is a Price-Weighted Index?

A

An index that weights its constituents in terms of its share price.

34
Q

What is Free Float Market Capitalisation?

A

Where larger companies affect the price of the index more than the smaller ones.

35
Q

Is the Dow (DJIA) Mkt-Cap Weighted or Price-Weighted?

How many companies?

A

Price weighted of 30 companies, selected by a committee.

36
Q

How is the DJIA Calculated?

A

DJIA = ∑p / d

P = Prices
D = Dow Divisor

37
Q

Why Might the Dow Divisor Change?

A

To instantly capture any stock splits or price altering company events, to avoid discontinuity.

38
Q

What are the Criticisms of the Dow?

A

That influencial companies with a smaller share price will have little to no impact on the price sway of the Index. This is why the S&P is recommended to give an understand of the market as a whole.

39
Q

What is Total Return?

A

Measures the performance and price return, with all dividends reinvested.

40
Q

What is Net Total Return?

A

Total return - Tax

41
Q

What is a Free Float?

Who is this ? (retail)

A

The amount of stock in circulation that is not held by:
* Shareholders owning 5% or more
* Restricted stock
* insider holdings

42
Q

What is the Free Float Factor?

What is the % rounded to and why is it used.

A

A percentage of issued shares traded in the open market, rounded to the nearest 5%. This then is mulitplied by the market cap to give an understanding of its weighting, and behaviour of the open market.

43
Q

Who are the 4 Major Participants for Government Bond Markets?

A
  1. Gov issuing agency
  2. Primary dealers
  3. Broker dealers
  4. Inter-dealer brokers
44
Q

What is the Main Obligation of a GEMM?

A

To make 2 way prices for customers on demand.

45
Q

What is a Non-GEMM LSE Member Firm AKA?

What can these do?

A

Broker-dealers, that can buy/sell gilts.

46
Q

What is a Decentralised Dealer Market?

A

Method for dealing in corporate bonds.

47
Q

What is the ORB?

A

The LSEs order book for retail bonds.

48
Q

Who uses Electronic Trading Platforms such as MTS Cash or BrokerTec?

A

Dealer to Dealer.

CISI: Securities (11 decks)

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