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CISI: 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 does SSI stand for?

A

Standing settlement instructions

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2
Q

How is the issue of duplicate reference data overcome?

A

By having separate reference data repositories (RDRs) that take in data from reliable external sources, Bloomberg/Refinitiv, and internally
This data is then fed into each separate firm system to ensure consistency

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3
Q

How are currencies referenced?

A

three-alphabetic-character ISO code
USD, GBP, EUR

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4
Q

Do ISINs apply to Listed F&Os?

A

Only some
Not all exchanges issue ISINs for contracts
1 ISIN per security globally
Most used

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5
Q

What is a SEDOL code?

A

Stock Exchange Daily Official List
Coding system used by LSE
Issued for all commonly traded securities LSE or not
Will be different per exchange

Some

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6
Q

What is a CUSIP code?

A

Committee on Uniform Security Identification Procedures (CUSIP)
Used by exchanges and clearing houses in US and Canada

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7
Q

Do CUSIPs apply to Listed F&Os?

A

In NA markets only

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8
Q

What is a ticker?

A

Short security description used by stock exchange trading systems in the US and Canada. AAPL IBM

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9
Q

What is the UK version of a ticker?

A

EPIC code, also in Bloomberg system

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10
Q

What is a RIC code?

A

Coding system used by Refinitiv. Refinitiv Instrument Code
IBM.N

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11
Q

Are tickers and RIC codes applied to listed F&Os?

A

Yes, both Bloomberg and Refinitiv allocate codes

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12
Q

Why are price calculation methods needed?

A

There is variance in how principal value is calculated in each different instrument

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13
Q

What is the formula for principal amount?

A

Principal amount = quantity traded x price x price multiplier/divisor

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14
Q

What data does a firm need to store to calculate interest accrual?

A

date from which interest becomes payable
date the borrower will make the next interest payment
redemption date
interest rate
interest calculation method

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15
Q

What are the methods used for calculating interest? (3)

A

30/360
deemed to be 360 days in a year with all months being 30 days long

Actual/360
360 days in a year, normal days in a month

Actual/365 & Actual/Actual
Usual calendar

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16
Q

When did bonds go from 30/Actual / 360 to Actual?

A

After the advent of the Euro in 1999

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17
Q

What is the most common method to calculate currency interest?

A

Actual/360
JPY and GBP use actual/365

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18
Q

What are the 4 unique identifiers for trading parties?

A

BIC
UK National Insurance Number
IBAN
LEI

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19
Q

What is a BIC code?

A

Used on messages between trading parties, exchanges and settlement agents.
Bank Identifier Code
ISO approved
SWIFT handles the registration of these codes

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20
Q

What does ISO stand for?

A

International Organization for Standardisation

21
Q

What are BIC codes made up of?

A

8 or 11 characters long
four characters - bank code
two characters - ISO 3166 alpha-2 country code
two characters - location code
three characters - branch code, optional (XXX for primary office)

Example (primary office);
DEUTDEFF(XXX)
DEUT - Deutsche Bank
DE - Germany country code
FF - Frankfurt

Bad Homburg branch
DEUTDEFF500

22
Q

What does SWIFT stand for?

A

Society for Worldwide Interbank Financial Telecommunications

23
Q

What is an IBAN code?

A

International Bank Account Number
Developed to faciliatate payments in the EU
Not yet adopted outside Europe

24
Q

What is an LEI?

A

Legal Entity Identifier
Universal standard for identifying parties in a financial contract
Created by G20 after economic crisis
Designed to create a global reference data ststem to uniquely identify all legal entities that is party to a financial transaction
All firms need to obtain an LEI
Mandatory with MIFID II

25
Q

How has globalisation of LEIs been aided?

A

Local Operating Units (LOUs) have been formed and must be sponsored by local authorities to assign and maintain LEIs
LSE and DTCC are some

26
Q

What is an LEI made up of?

A

20-digit alpha-numeric code basede on ISO standard
characters 1-4 - LOU that issued LEI
characters 5-6 - Reserved
characters 7-18 - unique alphanumeric string assigned to organisation by LOU
final two characters - checksum digits

27
Q

How many LEIs can be in a trade?

A

Any trade could involve several LEIs, which will be encoded into the detailed transaction, such as:
buyer, buyer’s broker, seller, seller’s broker, exchange where traded, clearing facility, and company that issued the security being traded

28
Q

Who chooses settlement agent, fund manager or investor?

A

Investor

29
Q

Who can be a settlement agent?

A

CSDs, EUI, DTC
ICSDs (international central security depositories) Euroclear
Custodian Banks

30
Q

What is a depot account?

A

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

31
Q

What is a nostro account?

A

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

32
Q

What columns are included in SSIs?

A

Trading party - identity of the party with which the firm is trading
Asset class
Settlement currency
Stock depot - Settlement agent name
Depot account code - code for stock depot
Cash nostro - Settlement agent name
Nostro account code - code for cash nostro
Instruction method - how these instructions are sent

33
Q

Why would the country of a firm or name of trader be required as reference information?

A

So the firm can limit total risk exposure to certain variables, country, trader, industry

Regulations on certain countries

34
Q

How is reference data in trades used in risk management?

A

Credit limits to counterparties,countries, industries
Set certain limits on trading desks

35
Q

Financial regulation is designed to give clients or counterparties a higher level of protectiom?

A

Clients
CPs are fellow professionals

36
Q

What is a Counterparty Agreement?

A

Agreements between firms, covering activities and asset classes
Can sometimes reference industry wide standards
E.g. Swaps agreements are based in ISDA Master Agreement (International Swaps and Derivatives Association)
Bond agreements - ICMA Agreement (International Capital Market Association)

37
Q

What is a client agreement and how must it be stored?

A

services, commisions, service level, investment objectives

must be stored on a durable medium
paper
hard drive

38
Q

How does the trade agreement process differ between a buy-side firm and retail investor?

A

trade confirmation does not need to be affirmed by a retail investor (unless there is a problem)

39
Q

What must a firm do under MiFID II when executing a client order?

A

Provide a trade confirmation no later than t+1

40
Q

What is a mutual exchange of confirmations?

A

Essentially bilateral confirmation. Both firms agreeing to the trade and providing their details.
Need to make sure they are the same and dispute if not.

Matching application flags confirmations, and rejections sent to queue of unmatched items known as ‘exceptions’

41
Q

Where is mutual exchnage of confirmation used? How did it used to be done?

A

Often used in FX, MMF, OTC derivs e.g. swaps
Post SWIFT, fax/post/telex was used to confirm.

42
Q

How do matching engines work?

A

Both parties input their trade details to the engine in real-time, ASAP
Matching engine compares the two trade reports
TRAX - MarketAxess
Also facilitate trade reporting

43
Q

What are the two MiFID II reporting types?

A

RTS (Regulatory Technical Standards)
RTS 1, Equity & Equity-like - within 1min
RTS 2, Non-equity - within 15min

44
Q

Where must off-exchange transactions be reported?

A

to an APA (Approved Publication Arrangement)
* Bloomberg Data Reporting Services ltd.
* Cboe Europe ltd.
* London Stock Exchange plc.
* Tradeweb Europe ltd.
* MarketAxess Post-Trade ltd.

45
Q

Why is post-trade reporting done?

A

FCA says it prevents market abuse and for market surveillance

46
Q

How often do retail customers get statement reports?

A

must be sent every 6 months
they can request they are sent every 3 months minimum

47
Q

What is performace attribution reporting?

A

Firm explains why a portfolio had a certain return

48
Q

Which is public/private - Trade and Transaction reporting

A

Trade - public
Transaction - private

49
Q
A

CISI: Technology in Investment Management (11 decks)

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