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Securities And Investments > Chapter X - Exchanges > Flashcards

Chapter X - Exchanges Flashcards

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SIE Exam flashcards
1
Q

What products does the following exchange involve and what style is it?NASDAQ

A

Equities. Known for technology firms and volatile stocksElectronic trading. Many of the trades are undertaken through market makers.2nd biggest market in the USA

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2
Q

What products does the following exchange involve and what style is it?LSE

A

London stock exchange - equities.Main trading system is SETS (order driven), SETSqx (quotes and crosses) and SEAQ (stock exchange automated quotation) ( both using market makers to keep the shares liquid).LSE also has an electronic ORB (order book for retail bonds) for UK Gilts and retail sized corporate bonds on exchange.LSE also is the majority shareholder in MTS - electronic exchange that dominates trading in the Euro government bond market.4th biggest

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3
Q

What products does the following exchange involve and what style is it?Euronext

A

Equity, bond and derivativesOrder-driven electronic trading in Paris, Brussels, Lisbon and Amsterdam (UK derivatives only) via a harmonised order book (all listed stocks from the 5 countries are on one platform)

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4
Q

What products does the following exchange involve and what style is it?Deutsche borse

A

EquityElectronic trading - order book (Xetra), owns Clearstream (central securities depository - provides banking and custody and settlement services)

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5
Q

What products does the following exchange involve and what style is it?TSE

A

Tokyo stock exchangeEquityElectronic trading, continuous auction format with price controls (order driven)3rd biggest

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6
Q

What products does the following exchange involve and what style is it?NYSE

A

Equity. Largest.Continuous auction format/open outcry, some electronic trading (hybrid)

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7
Q

What are the 2 main categories of trading systems that stock market trading is conducted through?

A

Quote-driven: employ market makers (bid offer spreads). There is always a buyer or seller and so help liquidity - screen and phone based. (NASDAQ and LSE’s SEAQ are the last remaining examples)Order-driven: more common. Electronic order book (e.g. LSE’s SETS) or an auction process (e.g. NYSE floor) that match buyers and sellers. Matches in chronological order by price and quantity. Negotiated prices.

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8
Q

What type of trading platform is LSE’s SETS?

A

It combines electronic order-driven trading with integrated market maker liquidity provisions for 2-way guaranteed prices.FTSE All Share Index and some AIM stocks, some euro dominated Irish stocks and ETFs

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9
Q

What type of trading system is LSE’s SEAQ?

A

Automated Quotation system - competitive market-making system for non-SETS/SETqx shares (AIM stocks not already traded on SETqx) and corporate bonds. Trades between 2 market makers is over the phone.Between 0800-1630Minimum volume quote by MM is up Normal Market Size (2.5% of average daily trading volume)Reporting done within 3 minutes

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10
Q

What type of system is LSE’s SETSqx?

A

Less liquid shares that are not traded on SETS. Hybrid system central order book with buy and sell orders and prices included by market makers. No minimum number of MM

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11
Q

What are the alternatives to trading on an exchange?

A

OTC - directly with counter partiesMTFs - multilateral trading facilities - alternative trading systems.

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12
Q

What are the two ways shares can be issued?

A

1) Registered - investors name being on the share register. More commonly this is on a non-certificated basis. During the move to paperless (dematerialised) settlement through CREST in Europe it is T+2.2) Bearer - ownership by transfer of the share certificate where the names are deleted in the register and shares certificate is reissued. T+10

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13
Q

If a company is required to maintain a share register who is it maintained by?

A

A company registrar. An electronic copy is also held by CREST so trades can be settled electronically.

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14
Q

What are the 6 key steps to clearing?

A

1) recording key trade info so counterparties can agree on terms2) formalising the legal obligation between counterparties3) matching and confirming trade details4) agree procedures for settling the transaction 5) calculate settlement obligations with instructions to brokers, custodians and central securities6) managing margin and making margin calls

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15
Q

What are the two ways trades can be cleared?

A

1) Bilateral settlement - cleared and settled directly between the trading counterparties. Each party bears direct credit risk against each counterparty2) central counterparty (CCP) - it becomes the buyer and seller to every seller and buyer. It takes the credit risk itself. The two parties are anonymous with each other - called novation. (E.g. LCH.Clearnet provides CCP services to UK and NYSE Euronext European for equity, derivates and energy products)

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16
Q

CCP’s act of becoming a seller to the buyer and a buyer to the seller is called what?

A

Novation

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17
Q

Who provides CCP services to the UK and NYSE Euronext European markets and in what markets?

A

LCH.Clearnet for equity, derivatives and energy products.

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18
Q

What is clearing?

A

The process through which the obligations held by the buyer and seller to a trade are defined and legally formalised. I.e the obligation each must fulfil in terms of delivering securities or funds for the trade to settle successfully.

19
Q

What is settlement?

A

Process through which the legal title (ownership) is transferred from the seller and buyer in exchange for the equivalent value in cash.

20
Q

What is CREST?

A

The central securities depository for UK and Irish equities. It is computer based.

21
Q

What are CREST’s key features?

A

1) Holdings are uncertified2) There is real time matching of trades3) settlement takes place in multiple currencies4) electrons transfer of title (ETT) takes place on settlement5) settlement generates guaranteed obligations to pay cash outside CREST.6) coverage includes shares, corporate and government bonds and other securities held in registered form.7) it also offers a mechanism to facilitate the settlement of trades when the investor holds paper share certificates.

22
Q

What coverage does CREST have?

A

Shares, corporate and government bonds and other securities held in registered form.

23
Q

What is the simultaneous transfer of legal title called in a trade?

A

Delivery versus payment (DvP)

24
Q

What is CREST structure?

A

1) Member - have PARTICIPANT IDs and at least one MEMBER ACCOUNT ID (further accounts (securities accounts) will be used so investments of different clients can be segregated).2) CREST Users - communicate with each other only via CREST’s electronic networks (BT SettleNET and SWIFT). Users input their instructions and receive information via the network

25
Q

What are the 3 ways shares in CREST can be held?

A

1) Direct member - members name on issuing company register (they can hold more than one account for different clients e.g brokers, fund managers, custodian)2) Personal member - private investors who’s names will appear on the issuing company’s register but a Direct member is their sponsor who provides the link to CREST.3) Custodian - the shareholder appoints a nominee who is the Direct member of CREST. The nominee holds the securities in behalf of the shareholder.

26
Q

What is a requirement of CREST members?

A

To appoint a CREST payment bank for all settlements.

27
Q

What are CMA’s? (CREST)

A

Cash memorandum accounts - CREST maintains one or more for each member in one or more CREST settlement currencies.

28
Q

What does the ‘register’ of securities comprise of?

A

1) CREST maintains the uncertified part of the register - THE OPERATOR REGISTER OF SECURITIES.2) The relevant issuer maintains the certified part of the register - the ISSUER REGISTER OF SECURITIES.

29
Q

What are 4 key steps to settlement in CREST?

A

1) Trade matching - CREST authenticates the buy and sell instructions. If the data is indents all for both members, CREST creates a matching transaction2) Stock settlement and 3) Cash settlement - instantaneous. CREST checks if the parties have the correct cash and stock. Stock moves between members account and cash changes between members CMAs4) Register update - CREST automatically updates its Operator Register of Securities, the ETT (Electronic Transfer of Title) changes at this point.

30
Q

What is ETT?

A

Electronic transfer of title. The title of securities is evidenced and transferred without the need for a written instrument.

31
Q

Which is larger for derivatives: OTC or exchange traded?

A

OTC

32
Q

What products does the following exchange involve and what style is it?LIFFE

A

Trades financial derivates (options and futures) over equities and equity indices and futures on interest rates. It’s also trades derivates on soft commodities.

33
Q

What products does the following exchange involve and what style is it?Eurex

A

Trades German bond futures and options and European index products

34
Q

What products does the following exchange involve and what style is it?ICE

A

InterContinental Exchange - trades energy commodity contracts and emission futures.

35
Q

What products does the following exchange involve and what style is it?LME

A

London Metal Exchange - futures and options contracts on a range of metals. Open outcry plus LME select electronic platform.

36
Q

What products does the following involve and what style is it?EMX

A

It was taken over by Euroclear, the parent company that owns CREST.It is a platform to place orders with fund management group. It now has an automated straight-through processing (STP) platform for fund dealing and settlement.

37
Q

What are traded on LSE’s extraMARK?

A

ETFs

38
Q

On SETS what is limit order and what is best order?

A

Limit order - no. of shares at a specified price (buy or sell)Best order - no. of share at best price (buy or sell)

39
Q

Can MM trade on SETS?

A

Yes in an order driven way but they don’t have to

40
Q

What is registered vs bearer securities?

A

Registered : in the owners name/name of nomineeThey can be dematerialised (electronic) or immobilised (paper that don’t move)Bearer : eg. Eurobonds, anonymous to the issue (they don’t know who it is is) whoever has it it proof

41
Q

What is CREST?

A

Centralised securities depositary (it doesn’t handle cash - it only creates cash obligations)

42
Q

What are MTFs?

A

Multi trading facilitates - promoted during MiFID as an alternative trading system to stop some exchanges having a monopoly.They are electronic trading of securities on LSE

43
Q

What are MTFs?

A

Multi trading facilitates - promoted during MiFID as an alternative trading system to stop some exchanges having a monopoly.They are electronic trading of securities on LSE

44
Q

What are MTFs?

A

Multi trading facilitates - promoted during MiFID as an alternative trading system to stop some exchanges having a monopoly.They are electronic trading of securities on LSE

Securities And Investments (10 decks)

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