Chapter 9: Regulatory Requirements Flashcards
What is the Purpose of Regulators?
There are 6
- Orderly markets
- Consumer protection
- Education
- Combating financial crime
- Reduce sytemic risk
- Maintain financial stability
What are the main activities of regulators?
- Regulate individuals, companies and exchanges
- Supervsion
- Sanction processes
- Passporting regulated status
- Classifications and exemptions
What is the main initiative behind MiFIDII?
- fricitonless trade within the EEA
- Suitability, execution and market transparency
- Passporting
What is the Transparency directive?
What do they do?
Corporate disclosure, set miminum requirements for periodic financial reporting and disclosure of major shareholders.
What are the MiFID business rules?
- Reception and transmission of orders
- Execution of orders
- Portfolio management
- Investment advice
- Underwriting and placing
- Operating MTF and OTF
MiFID specifically covers which activities?
It is very generic
- Derivatives
- Commodity derivatives
- Credit derivatives
- Financial CFDs
- Exotics derivatives (weather, carbon etc).
What is the Purpose of European market infrastructure regulation (EMIR)?
Improved transparency and reduce the risks associated with the OTC derivatives market (applies to finance and non finance entities.
What did EMIR introduce?
There are 3
- Reporting obligation for all OTC derivatives to a trade repository.
- Operational process and margining required for all bilateral OTC derivatives to reduce operational and credit risk.
- Mandatory use of CCP for certain contracts.
What are the key details of Fair Treatment of Customers (FTOC)?
- To ensure fait treatment is embedded in the industry.
- Based on 6 outcomes
- FCA approach is that all advisors adhere to its policy.
What are the key details of Client categorisation?
- Must be fully under the priciple based approach
- Retail client
- Professional client
- Eligible counterparty
What is the rule about retail client, professional client and eligible counterparties?
As knowledge increases protection decreases.
What is the Purpose of Best Execution?
A firm must take all reasonable steps to obtain the best possible result for its clients taking into the account the execution factors.
What are the execution factors for best execution?
Price, cost, speed, liklehod of execution and settlement or any other consideration.
What is the rule for best execution?
What is best execution?
If a client provides a specific instruction, firm acheives best execution if it clearly follows these instructions.
What does the SEC regulate?
- Stock options
- Stock index options
- Currency transactions on exchange
- The CBOE
What is the CFTC?
Commodity futures and trading comission
Which derivatives exchange does the CFTC not regulate?
The CBOE (Chicago board options exchange)
Who does the CFTC regulate?
What do they enforce?
- Regulates US derivatives exchanges
- Enforce the Commodities exchange act and commodities futures modernisation act 2000
- Overseeing the NFA
What is the NFA?
National futures association
What is the NFA?
What do they do?
- Self regulatory organisation
- Oversees derivative firms
- Runs an arbitration scheme
What is part 30 of the commodities exchange act (US)?
For any firms to act for investors on a US exchange, the firm must be fully registered with the CFTC
What is part 30 of the commodities exchange act (UK)?
For an FCA firm to deal on behalf of US investors on a non derivative exchanges, all order must be routed through a US firm.
What is a part 30 exemption?
What does the mean if you application is succesful
A non US firm may deal directly with US investors, when carrying out deals on non US excahnges.
What does one need to agree when applying for a part 30 exemption?
There are 4 that one must consider
- Treat all monies of US clients as client money
- Two way risk disclosure
- Agree to be bound by the exchnage and FCA rules
- We provide the FCA with access to client records (not directly to the CFTC).
To get a Part 30 exemption, one must agree?
To be a member of the NFA and abide by US rules.
