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Investment Environment > financial markets > Flashcards

financial markets Flashcards

1
Q

broker dealers dual capacity means

A

deals as principal and agent

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2
Q

SBLI

A

assist in stock lending

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3
Q

IDB

A

agent between two brokers

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4
Q

local

A

trader acting on own behalf

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5
Q

exchange members and clearing house members require

A

formal membership

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6
Q

order driven platform

A
  • natural liquidity
  • negotiate prices
  • electronic trading
    -(LSE SETS)
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7
Q

quote driven platform

A

-less natural liquidity
- market makers
- firm prices
- bid/offer
- screen and phone

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8
Q

hybrid systems

A
  • order book with market maker
  • 5 period auctions
    LSE SETSqx
    No continuous order book
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9
Q

SETS is for what type of securities

A
  • FTSE all share index
  • most liquid AIM and Irish shares
  • EFPs/ETFs
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10
Q

SETSqx used for

A
  • shares
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11
Q

SEAQ used for

A
  • shares too illiquid for SETS and SETSqx
  • corporate bonds
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12
Q

LCH

A

central counterparty to all trades executed on SETS

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13
Q

CREST

A

settlement system for UK and Irish securities
owned by Euroclear Uk and ireland

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14
Q

liquidity

A
  • central market place
  • real-time price and vol info
  • regulated participants
  • standardised contracts for derivatives
  • risk mngmnt through clearing and settlement systems
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15
Q

transparency

A
  • MiFID pre-trade disclosure
  • exchanges and MTFs display current prices and trading volumes
  • MiFID post-trade disclosure
  • all firms completed transactions asap
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16
Q

liquidity can be reduced by

A
  • unattractive prices
    = asset becomes unpopular
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17
Q

stamp duty

A

0.5%
CREST round to nearest 1p
if
paper-based to nearest £5

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18
Q

takeover panel levy

A

£1 on every transaction over £10K

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19
Q

variety of costs in market

A
  • venue costs (MTF cheaper than RIE)
  • size of order (larger cheaper)
  • exchange traded or OTC ( OTC contracts higher)
  • mgmnt fees
  • property (direct property variety of costs)
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20
Q

market order

A

price is secondary
speed is priority

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21
Q

limit order

A

price/ vol is priority
speed is secondary

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22
Q

order book : higher the NMZ the

A
  • higher the liquidity
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23
Q

order book ranked prices on each side

A

buy side highest to lowest
sell side lowest to highest

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24
Q

quote platform MM :

A
  • mandatory quoting period (MQP)
  • min volume quote ( 1xExchnge market size)
  • manual reporting to exchange (within 3 mins to LSEs European Trade reporting service)
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25
Q

hybrid system SETS qx hsve

A
  • min quote order size (1xExchange market size)
  • reporting MM trades ( within 3 min)
  • no continuous order book trading
  • limit orders only
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26
Q

MTF purpose, operator, regulatory , benefits

A

-access to capital with no exchange or competition for existing exchanges
- investment firms and market operators
- treated as an exchange
- better liquidity and transparency than OTC

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27
Q

OTF purpose, operator, regulatory , benefits

A
  • altenrative for RIE for bonds and derivatives and imporves transparency
  • invesmtent firms and market operators
  • exchange but with discretionary execution
  • better liquidity and price discovery
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28
Q

Dark pool purpose, operator, regulatory , benefits

A
  • exchange-traded liquidity and OTC confidentiality and anonymity through hidden orders
  • invesment firms and private organisations
  • OTC with no MiFID transparency
  • move large vol with less market impact
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29
Q

systematic internaliser purpose, operator, regulatory , benefits

A
  • direct source of liquidity from investment firms that match orders with clients
  • invesmtent firms
  • mini-exchange
  • direct liquid without the need for external markets
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30
Q

Gilt-edged MM must

A

deal in all gilt issues (DMO auciotns) or none at all

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31
Q

UK government gilts
participants
obligations of GEMMs
primary markets
dealing and reporting: LSE
other dealing methods
settlement

A

-gilt-edged market makers, brokers, inter-dealer borkers
-to sign up at DMO and provide with data relevant to gilt market, pariticipate in DMO auctions, quote firm bid/offer spreads during MQP
-gvnmts issue gilts for PSNCR, managed by DMO through auctions ad taps (insufficient demand withdraw)
- quote driven, trade reports as close to rela time as possible
- OTC e-dealing system
- CREST, T+1

32
Q

gilts go ex-coupon ….. before coupon date

A

7 days

33
Q

STRIPS market (converting large denomination gilts)

A
  • designated as strippable by the DMO
  • permitted parties:
    GEMMs
    HM treasury
    BoE
34
Q

coorporate bonds :
primary market
secondary market
settlement

A
  • private placement , bought deal, fixed price reoffer, underwritting
  • OTC, some on LSE SEAQ and ORB
    -T+2
35
Q

eurobonds

A

international bonds
- bearer documents
- euro curreny (any currency held outside country of origin)
- gross annual coupon
international capital markets association
OTC market
- reporting T+1 to ICMA
settlement
- T+2
- Euroclear and clearstream

36
Q

derivative markets: exchange traded
participants
trading
uses

A
  • principal and agency
  • ICE Futures europe, London metal exchange
  • speculation (take on risk), hedging (reduce risk), arbitrage (risk-free profits from price anomalies)
37
Q

ICE connect

A

derivatives order driven platform

38
Q

International swaps and derivatives association

A

proffessional body that monitors OTC derivative market and produces standardised deocumentation (legally binding contracts)

39
Q

EMIR

A
  • regulation of OTC derivaitves
  • provisions
    OTC derivative trades reported to a trade repository
    financial and non-financial counterparties to adequately manage the risk of the contract (reconciliations, collateral)
  • use central counterparty where mandatory clearing is in effect
40
Q

central counterparty service

A
  • novation
  • clearing house as guarantor
    principal to principal
    manages credit exposure
    protects against default
    trade anonymously
  • clearing house as registrar
    facilitates closing out
    protects anonymity
  • counterparty risk
    contingent liability investments
41
Q

title transfer collateral arrangements

A

full ownership transfer of client’s money to firm
BUT
no guarantee of return of money
prohibited when retail client
must be a full written agreement with the client

42
Q

CREST settlement (calculates and collect SDRT)

A

T+2 for equities and bonds
T+1 for gilts
t+10 paper based
+ settles money market instruments and funds, international securities

43
Q

Intenrational bonds (eurobonds)

A

t+2
clearstream/ euroclear

44
Q

dodd-frank wall street reform and conusmer protection act 2010

A

US tighter regulation on OT C derivative markets like EMIR

45
Q

bond is a

A

medium to long-term seucirty

46
Q

bill is a

A

short-term security (maturing in less than a year)

47
Q

with options

A

buyer pays ppremium to seller but has no obligation
seller has a potential obligation

48
Q

with futures

A

there is an obligation on both sides but no premium is paid

49
Q

foreign exchange market is an

A

OTC market that is quote driven

50
Q

to avoid default risk (herstatt risk) in fx markets trades are settled through

A

continuous linked settlement offering payment vs. payment protection

51
Q

spot market for fx settlement

A

t+2

52
Q

mifid pre-trade requirements apply to

A

trades on regulated market
MTF

53
Q

mifid post trade requirements apply t o

A

all firms conducting trades on or off exchange

54
Q

order book trade reports happens

A

automatically

55
Q

illiquid markets

A

costs higher

56
Q

gilt market orders below and above 5000

A

higher costs, lower costs

57
Q

GEMMs provide liquidity by

A

quoting 2 way prices structured to the nearest £0.0001 per £100 nominal value

58
Q

gilts quoted at a … but the settlement is the …

A

clean, dirty price (includes interest accrued)

59
Q

STRIPS (seperate trading of registered interest and principle securities)

A

allows cash flows on gilt to be traded as a seperate instrument

60
Q

eurobond ICMA rpeorting and settlement

A

t+1, t+2

61
Q

eurocelar and clearstreem settle

A

eurobonds

62
Q

LSE offer members the choice of 2 CCPs

A

LCH or SIX X-Clear

63
Q

pre-trade disclosure applies to

A

exchange or MTF

64
Q

IDB can act as —- between 2 MM

A

central counterparty in a riskless principal transaction

65
Q

advantage of order book trading

A

single price trading

66
Q

Market makers ….. to provide quotes

A

volunteered

67
Q

SEAQ, SEAqx require at least .. MM per specific security

A

2, no in number

68
Q

MTF can be seen as a midpoints between

A

exchange and OTC

69
Q

otf

A

bonds
structured finance products
emission allowances

70
Q

GEMMs provide two way prices to

A

broker dealers acting as agents

71
Q

off order book trades are reported through

A

LSE European trade reporting service

72
Q

GEMMS supervised by

A

FCA

73
Q

corporate bonds : primary market

A
  • private placement ( small issue)
  • bought deal ( medium issue)
  • fixed price reoffer (large issue)
  • underwriting
74
Q

international swaps and derivatives association ISDA

A

monitor OTC derivatives market and produced standardized documentation for contracts

75
Q

securities and exchange commission SEC and commodity futures trading commission CFTC

A

regulate derivatives market in US

Investment Environment (10 decks)

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