Dealing Flashcards
Do exchanged-traded or OTC products generally have more liquidity?
Exchange traded
What are the two different types of market?
Order-driven
Quote-driven
In an order-driven market, if two investors bid the same price, whose order is fulfilled?
The investor who submitted their bid first
How do market makers profit in a quote-driven market?
Bid-offer spread between the high and low price
What’s the difference between a principal and an agent?
Principal acts on their own behalf whereas an agent acts as an intermediary between the client and the buyer/seller.
What is an interdealer broker?
They act as agent between dealers and market makers, but settle as a principal.
Which types of securities do price transparency rules apply to?
All of them
What does ‘best execution’ generally mean for retail clients?
Executing at the lowest total cost
How often should firms review their best execution and allocation policies?
At least annually
What must a firm ensure if they choose to aggregate client orders?
-Clients are informed
-No client is disadvantage by the action
Define ‘front running’
Dealing in a security in advance knowledge of a client order that could affect the price. This is market abuse.
What action could a firm take to reduce any conflicts of interest?
Set up Chinese/Ethical walls between different functions
What’s the difference between Recognised and Designated Investment Exchanges?
Recognised - UK
Designated - Overseas
How do trades tend to differ between those that occur via MTFs and those that occur via Dark Pools?
MTF - High volume/low value
Dark Pool - Low volume/high value
True or false? Dark pools have both pre- and post-trade price transparency.
False. They don’t have pre-trade price transparency.
