Chapter 7 - Clearing & Settlement (8%) Flashcards
What are the three stages of Clearing & Settlement ?
Pre-Settlement & Clearing
Settlement
Post-Settlement
What happens during the Settlement phase (Phase 2)
Ownership of the security is transferred from seller to buyer
What happens during the Post Settlement phase (Phase 3)
Entails the management of failed transactions and subsequent accounting of trades
What are the two levels buyer & seller data is transferred ?
Trading Counterparties compare details
Custodians compare settlement instructions
What are the three main pathways when deciding to enter a custody arrangement?
- Appointing a local custodian in each market they invest
- Appoint a global custodian
- Hold cash in a CSD with each market or use a ICSD if international
Why would a Sub-Custodian be employed?
A sub-custodian is employed by a global custodian as its local agent to provide settlement and custody services for assets that it holds on behalf of investor clients in a foreign market.
When selecting a sub-custodian, a global custodian may?
Appoint one of its own branches, if possible
Appoint a local agent bank
Appoint a regional provider that can offer sub-custody
What is a reciprocal arrangement in custody?
Custodian A lives in Country A but wants business in B
Custodian B lives in Country B but wants business in A
They help each other out kindly!
4 Strengths of a Local custodian
- They are country specialists
- Eyes and ears for a global custodian in the local market
- Regular dealings with local government, regulation and language
- Offer reciprocal business opportunities
3 Disadvantages of a Local Custodian
- Their credit rating may not meet requirements laid down by some global custodians or global broker dealers
- Can not leverage the technology regional custodians have
- May not be able to offer package deals like regional custodians
Whenever shares are brought or sold, who is responsible for updating the register
The company registrar
Shares that are not registered are described as?
Bearer shares
What are the three Nominee companies?
Pooled, Designated & Sole
What is a Sole Nominee Company
Where a single nominee name is used per client
What is a Pooled Nominee Company? (Sometimes called Omnibus or Commingled)
Individual clients are grouped together within a single nominee registration
What is a Designated Nominee Company (Sometimes called Numbered Accounts)
Nominee account has unique IDs for each account
Why has Luxemburg immobilized bearer shares
Fear that they have come from criminal activity, they are not immobilized in government owned CSDs
What is a Corporate Nominee
The corporate nominee is a halfway house between the pooled and the designated nominee structures offered by stockbrokers. It will result in a single entry for all the shareholders together in the company’s register (like the pooled nominee) but beneath this the issuing company (or its registrar) will be aware of the individual holdings that make up the nominee.
What is a Nominee?
An individual that is employed by an investor to have all the legal ownership rights of a security, but not the beneficial ones.
What does Cum-dividend mean?
With the Dividend
What are the 5 stages of the Cum and Ex Dividend sequence
- Dividend Declared
- Record or books closed date
- Ex-dividend date
- Dividend paid
- Ex-dividend period
What happens during the Dividend declared stage?
On this date, the company declare they plan to pay a dividend on this date
What happens during the Record or Books closed date?
The list of shareholders the dividend will be paid to is recorded
What happens during the Ex-Dividend date?
Typically the Thursday before the record date
