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Technology in Investment Management > Chapter 5: The Role of Technology in the Pre-Settlement Phase > Flashcards

Chapter 5: The Role of Technology in the Pre-Settlement Phase Flashcards

1
Q

What is Static Data?

A

The accuracy of the Reference data.

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2
Q

What is a Settlement Agent?

A

Employed by a trading parting to settle particular trades within a country.

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3
Q

What are Standing Settlement Instructions?

A

Control the selection of which settlement agent settles trades in particular instruments for the two parties concerned.

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4
Q

Issues that Can Arise with Reference Data?

A
  • Duplicates
  • Inaccuracies
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5
Q

How are Inaccuracy Risks with Reference Data Addressed? (RDRs)

A

By the issuance of Reference Data Repositories.

These separate data gathered externally (Bloomberg etc.), compared to that entered manually internally.

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6
Q

Reference Data Repositories Advantages?

A
  • Ensure consistency across all LOBs
  • Some reference elements may come from consistent reliable sources.
  • Can use multiple feeds to see best price.
  • Properly managed by a dedicated team,
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7
Q

Reference Data Repositories Disadvantages?

A
  • Costly
  • Impractical to link all systems (room for error)
  • Costly to implement a management team
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8
Q

What are Market Rules Used to Determine?

A
  • The default settlement date.
  • Fees and charges.
  • Trade Currency
  • Settlement Currency
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9
Q

What is a ISIN Code?

A

International Securities ID Number

Futures? Some coverage.

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10
Q

What is a SEDOL Code?

A

Stock Exchange Daily Official List.

Listing for all commonly traded securities, if it is traded in more than one country then it will have more than one code.

Futures? Some coverage.

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11
Q

What is a CUSIP Code?

A

Committee on Uniform Security Identification Procedures.

Futures? NAMR markets only.

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12
Q

What is a Ticker?

A

EPIC code also used with the Bloomberg System.

Futures? Yes.

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13
Q

What is a RIC code?

A

Refinitiv Instrument Code.

Futures? Yes.

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14
Q

What is the Equation for Futures and Options Pricing?

A

Principal Amount = Quantity Traded x Price x Price Multiplier / Price Divisor

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15
Q

What Factors do Firms Need to Calculate Interest?

A

1) The date when the interest becomes payable
2) The date the borrower will make the next interest payment.
3) The date when the interest ceases to become payable (capital returned)
4) Interest Rate
5) Interest rate calculation

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16
Q

What are the Types of Interest Rate Calculations? (Dates)

A
  • 30/360 (Deemed 360 days in a year and each month to be 30 days long)
  • Actual/360 (There are deemed to be 360 days, and we can follow the conventional calendar dates).
  • Actual/365 (We follow the actual calendar, Although is expressed as over 365)
  • Actual / Actual
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17
Q

Accrued Interest Calculation? Tom owes me money

A

= T/S x C/N

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18
Q

Other Information that Needs to be Stored for Financial Instruments?

A
  • Name of Security
  • Date that it was issued
  • Date that it Matures or Expires
  • Default Trading Book
  • Minimum size of a trade
  • Number of shares / unites in issue
  • Security issuer
19
Q

What are the 3 Unique Identifiers?

A
  • The BIC code
  • UK National Insurance Number
  • IBAN
20
Q

How Long is an BIC Code?

A
  • Four characters (Bank Code)
  • Two Characters (1 alpha country code)
  • Two Characters (Location code)
  • Three Characters Optional (Branch Code)
21
Q

What is an IBAN Code?

A

Used to facilitate payments within the European Union. However is not yet used in standard messaging and the rest of the world generally.

22
Q

What is the BBAN?

A

Part of the IBAN code standing for the Basic Bank Account Number.

23
Q

What is the Purpose of the Legal Identifier Regulatory Oversight Committee?

A

Encourage the expansion of the use of the LEI.

24
Q

What is the Global Legal Entity Identifier Foundation?

A

Collects and stores a database for all the LEIs.

25
Q

Are All Companies and Legal Entities Required to Have or Apply for a LEI?

A

Yes

26
Q

What is a Local Operating Unit?

A

A unit that has been formed and must be sponsored by a regulator to assign and maintain LEIs to firms on a cost recovery basis. LSE and DTCC are examples of LOUs that can issue and administer an LEI.

27
Q

LEI Number Compilation?

A

1-4: LOU
5-6: Reserved
7-18: Unique alphanumeric strings assigned to the organization by the LOU.
19-20: Checksum digits

28
Q

Issues with LEIs?

A
  • Keeping up to date is challenging.
  • Additional data will also need to be added to the register.
  • Is the responsibility from regulated firms to obtain an LEI on behalf of a non regulated firm.
29
Q

What are SSIs?

A

Standing Settlement Instructions.

30
Q

Who Appoints the Settlement Agent, The Fund Manager or the Investor?

A

The Investors.

31
Q

What is a Depot? (Dah-Pot)

A

The account with the settlement agent, that is used to record transactions and balances in security quantities.

32
Q

What is a Nostro? (….. in Nostril)

A

The account with the settlement agent that is used to record transactions and balances in money accounts.

33
Q

What are other Forms of Internal Reference Calculations?

A
  • Base Currency
  • Commission rates and calculation methods
  • Credit Limits.
34
Q

KRIs for Poor Pre-Settlement Techniques?

A

A high level of unmatched instructions.

A high number of queries about realized and unrealized profits, and interest income.

35
Q

UK Regulatory Recognized Client Agreements?

A

“Terms of business which have been signed by the client or to which the client has consented in writing”

36
Q

What Must Client Agreements Exists On?

A

1) Paper

2) Any Instrument which enables the recipient to store information’s, in a way accessible for future reference

37
Q

When is a Sell Side Firm Required to Submit Order Confirmation to a Client?

A

No later than the end of the following business day.

38
Q

What are the Technological Implications of the Trade Management Process? SWIFT removed…..

A

From 1990s onwards SWIFT messages were introduced to remove the headcount of employees for manually intervening these confirmation and checking them.

39
Q

What is a Matching Engine?

A

Provides a level of automation in the trade matching process, by matching trade reports.

40
Q

What is an APA?

A

Approved Publication Arrangements.

41
Q

What is the Reporting Timescale of an RTS2 (Equity) Transaction?

A

As near to real time but within 1 minute of the transaction.

42
Q

What is the Reporting Timescale of an RTS1 (Non-Equity) Transaction?

A

As near to real time but within 15 minutes of the transaction.

43
Q

What is the Difference Between a Trade Report and a Transaction Report?

A

Transaction Reports - are for private dissemination of data to the regulator and their use is entirely different

44
Q

Who are SSIs Used by?

A

Institutional clients only

Technology in Investment Management (9 decks)

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