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IMC Unit 1 > Chapter 9 > Flashcards

Chapter 9 Flashcards

1
Q

what rights do ordinary give shareholders

A

basic rights
- right to vote in a company general meetings
- right to a dividend
- right to a surplus on winding up

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2
Q

what rights do preference shares give

A

offer a fixed dividend
no voting rights

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3
Q

what do derivatives derive their value from

A

from other products

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4
Q

what is a future

A

an agreement between 2 parties who agree to buy / sell a specific quantity of a specific asset in the future for an agreed price

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5
Q

who is in a long position

A

person who agrees to buy in future

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6
Q

who is in short position

A

person who agrees to sell in future

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7
Q

what is an option

A

gives the buyer the right to buy (call) sell (put) an asset at a fixed price before a certain date

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8
Q

what does an exchange aim to do

A

to create a transparent market

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9
Q

why is lower levels of liquidity a disadvantage

A

it leaves investors unable to crystalise profits / limit losses

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10
Q

what is liquidity risk

A

the risk that an investor may be unable to sell an asset that they own at a fair price

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11
Q

what happens to spreads/transaction costs when a market is illiquid

A

the spreads tend to be wider
transactions tend to be higher

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12
Q

in spreads what are the 2 prices

A

lower price is bid - price at which sold
higher price is offer - price at which buy

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13
Q

what are the 2 capacities that a broker can deal at on a market

A

deal as principal - firm trading on own behalf
deal as agent - firm trading on behalf of a customer

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14
Q

a broker / dealer has to apply to where to register as a market maker

A

to the LSE and have to register to a market in a specific security

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15
Q

what is the purpose of a stock borrowing and lending intermediary

A

they assist in stock lending

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16
Q

what is an interdealer broker meant to do

A

they act as an agent between the 2 brokers to reduce giving away info about identity

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17
Q

what is SETS used for

A

continous order book execution system for FTSE LIST and liquid AIM

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18
Q

what is SETSqx used for

A

it’s a hybrid system
periodic order book execution with market maker support for most other UK shares

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19
Q

what is SEAQ for

A

it is a quote driven system for any shares that are too illiquid for SETS or SETSqx

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20
Q

what is order driven

A

used where there is natural liquidity
where there is negotiated prices

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21
Q

what is quote driven

A

used where there is less natural liquidity
it needs market and price makers
members can compete on both price and volume

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22
Q

how many auctions are there on SETS

A

3 auctions

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23
Q

what is a limit order

A

an order to buy and sell a specific volume of shares at a specific price or better

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24
Q

what is an at best order

A

tells the exchange that the trader wants to buy or sell a particular value of shares at the best possible price

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25
what is the order priority for best order
price then time
26
when do market makers have to quote prices on a quote driven market
the mandatory quote period
27
what is the min volume needed to quote
the exchange market size
28
what is the exchange market size
a measure of the liquidity provided by the exchange and is based on the average number of shares per day
29
how many auctions are there on SETSqx
5
30
what are the alternative venues to the LSE
MTF OTF darkpool systematic internaliser
31
what are GEMMS also known as
primary dealers
32
who does GEMMS create liquidity in the market
they provide 2 way price quotes on gilts
33
who can GEMMS make a market on
index linked gilts non index linked gilts both
34
who are GEMMS registered with
the debt management office
35
who is the DMO
it is part of the government which controls the registering process
36
what are the obligations of GEMMS
- expected to participate in DMO auctions - quote firm bid / offer spreads
37
why do governments issue gilts
to cover the public sector net cash requirement- the different between spending and taxation
38
who managed a primary market
the DMO through auctions and taps
39
what is a tap
where the issue of gilts is announced and the investors are invited to tender for the issue
40
where are gilts registered
the LSE
41
when firms do deals on gilts where do they have to report it to
the LSE
42
when firms do deals on gilts where do they have to report it to
the LSE
43
if a retail client wishes to do business with a GEMM how do they do so
through a broker a GEMM will not deal directly with a retail client
44
what is the standard settlement for a gilt trade
T+1
45
what does stripping a gilt do
converting large domination gilts either into smaller domination gilts or into 0 coupon bonds
46
what are the 3 different categories of corporate bonds
private placement bought deal fixed price reoffer
47
what is a private placement corporate bond
usually for small issuances directly from the company to institutional / professional investors
48
what is a bought deal corporate bond
an investment bank buys the whole issue who then sells the bonds on a different prices
49
what is a fixed price reoffer
syndicate of an investment bank buy the bond who then sells it on at fixed prices to customers of the syndicate
50
when is underwriting needed for corporate bonds
needed for larger issuances
51
who are the market makers in the primary market of corporate bonds
essentially the same of GEMMS however they make use of the SEAQ
52
what are the secondary market for corporate bonds
mainly OTC some on LSE SAQ and ORB
53
what is the settlement period for corporate bonds
T+2
54
what is a domestic corporate bond
UK company buying £ bonds in London
55
what is a foreign corporate bond
UK company buying $ bonds in NY
56
what is an international bond
a security where the denomination of the bond and the country of issue are different
57
what is euro currency
any currency held outside its country of origin
58
who is the regulator of the Eurobond market place
ICMA
59
when a deal is struck in the eurobond market who must it be reported to
the ICMA
60
where are Eurobonds traded
on the OTC market
61
what is the reporting period for the eurobond market
T+1
62
what is the standard settlement period for the eurobond market
T+2
63
what are the venues for the eurobond market
Euroclear Clear Stream
64
how are derivatives traded
on an exchange or over the counter
65
what is the main derivative exchange in the UK
the ICE Futures Europe London metal exchange is the other one
66
what does ICE futures europe use to arrange, clear and register settlement on its contracts
Ice Clear Europe
67
what can over the counter do for contracts
it can have bespoke contracts as they are non-standardised
68
liquidity on OTC vs the exchange
liquidity on the exchange is lot more than on OTC
69
what is the European markets infrastructure regulation
it is a regulation of OTC derivatives
70
what are the 3 requirements for those who trade derivatives
- all OTC derivative trades have to be reported to a trade repository - all financial and non financial counterparties have to manage risk of the contract - requirement to use a central counterparty where mandatory clearing is in effect
71
what is settlement
the process of organising payment and delivery of a security and is the point at which the legal title change hands
72
where are settlements done through
CREST
73
where else can settlements be done
on paper using a stock transfer form
74
when must a central counterparty be used in trades
all securities traded on SETS must be routed through a central counterparty to clear the trades
75
what is novation
it is the process of making 2 contracts - 1 between buyer and clearing house - 1 between seller and clearing house
76
what is novation
it is the process of making 2 contracts - 1 between buyer and clearing house - 1 between seller and clearing house
77
who acts as the guarantor in the central counterparty service
the clearing house
78
what is the initial margin
before registration of a deal take place the clearing house will call for collateral from both firms it is sufficient to cover the risk by providing the guarantee
79
who acts as the registrar in the central counterparty service
the clearing house
80
what is the variation margin
it is daily receipts and payments of unrealised profits and losses i.e. it is used to cover adverse movements from the previous business day
81
when does settlement risk occur
when either of the 2 transaction do not occur smoothly
82
what does the LCP counterparty do for investors
it lowers the default risk
83
what price of sell is at the top of the sell side of an order book
the lowest sell price
84
what is the International Order book
the LSE exchange where international securities
85
when should eurobond trades be confirmed
on a T+1 basis
86
what is the standard settlement in the US
T+2
87
at what stage does a clearing house become a central counterparty to a trade
when the trade is registered
88
what execution venues are permitted by MiFID
regulated markets MTF systematic internalisers
89
what are dark pools typically
MTFs that have opted out of the requirement for transparency
90
where are options settled
ICE Clear Europe
91
gilts priced above or below par are low risk investments
gilts priced below par
92
who protects against settlement risk
CREST through delivery vs payment
93
what is the universal trading platform
used to passing orders to designated market makers for matching against the order book
94
who is the regulator for the Eurobond market
the ICMA
95
who is the regulator for the Eurobond market
the ICMA
96
what is ORB
the LSE's order book for retail bonds order driven trading service that allows retail investors access to some gilts, supranational and UK corporate bonds
97
what is IOB (International Order Book)
it is an order driven system for international depository receipts
98
what is EQS? (European Quoting Service)
a quote driven system for European listed securities
99
gilts accrue interest on what basis
actual / actual
100
what is ICE clear europe
a central counter party service
101
what is the LCH
the central counter party service used for SETS transactions
102
what is a systematic internaliser
firms providing market making services directly to their clients
103
when is a market pre-trade transparent
when it publishes real time data about quotes and orders
104
what is the MiFID post trade disclosure rule
all firms must disclose completed transactions as soon as possible if venue is an order book this is done automatically
105
who receives stamp duty tax
the HMRC
106
What is the most liquid market
AIM
107
Order driven liquidity
Most liquid
108
What is the main feature of a quote driven market
Firms making 2 way prices
109
What does a larger market size mean for liquidity
More liquid
110
Can market makers and GEMMs choose which equity/ gilt they wish to deal in
Market makers can choose which securities to trade GEMMs must deal in all gilt issues or none
111
Who monitors the OTC derivative market
The international swaps and derivatives association
112
can ORB be used by retail investors
non
113
what is bid price
buy
114
what is offer price
sell
115
what is the role of a systematic internaliser
to facilitate cross trades between clients
116
LCH is the central counter party for who
the SETS
117
Cis the settlement system for GILTS
CREST

IMC Unit 1 (11 decks)

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