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General Flashcards

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SIE Exam flashcards
1
Q

What instruments settled in T +2?

A

ACEEFFG - ADRs, UK corporate debt, Equities, eurobonds, france OATS, fx trade, germany Bunds

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2
Q

What instruments settled in T +1?

A

JUGE -

GILTS, US T-bills and other money market instruments, JGBS, Equities (new issues)

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3
Q

Settlement for repos + securities lending?

A

T+0
Usually overnight

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4
Q

Settlement for certified stock?

A

T+10

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5
Q

Investors ratio (4):

A

EPS = Profit to ordinary shareholders/number of ordinary shares

P/E = Market price per share/ EPS

Dividend yield = (dividend per share/ market price per share )* 100

Dividend cover = EPS/ Dividend per share

= profit after tax/net dividend

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6
Q

Valuation ratio (2):

A

P/E = Market price per share/ EPS

EV/EBITDA

EV = market value of debt + market value of equity

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7
Q

gearing (3)

A

gearing = (interest bearing debt/equity shareholders funds) * 100

Interest bearing debt inc = preference shares and overdrafts

Net debt to equity = (debt - cash)/ equity

Interest cover = (PBIT/Interest cover ) *100

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8
Q

Liquidity ratio (2)

A

current ratio = current assets/current liabilities

quick ratio = (current assets-inventory)/current liabilities

current assets - inventory = cash + receivables

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9
Q

Profitability ratios (3)

A
  1. ROCE = (PBIT/ capital employed) x 100

Capital employed = equity + non-current liabilities
(OR total assets - current liabilities)

  1. ROE = (net income/ shareholders equity) x 100

net income = profit after tax
shareholders equity = capital + reserves

  1. operating profit = op profit/ rev
    gross profit = gross profit/ rev
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10
Q

What are the types of corporate bonds?

A
  1. Secured debt = ABS = Debentures (UK)
    - Fixed charge over assets
    - floating charge over assets = ABS
  2. Unsecured debt = Loanstock (UK) = Debentures (US)
    CEG FP
    Covertible debt
    Exchangeble debt
    Guaranteed debt
    Floating rate notes - coupon float in line with interest rates, trade near par therefore = capital protection
    PIK notes = Unsecured debt (=mezzanine/subordinated)
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11
Q

What instruments are issued bearer (i.e. anonymous and freely transferable)?

A
  1. Gov bonds from
    - France, germany, japan (optional)
  2. Eurobonds
  3. ADRs (must be co-signed to be transferred by good making name e.g. depository trust corporation).
    - Issued in US
    - But depositary bank = legal owner of shares. But investor retains right to vote
    - No entitlement to rights issue, just get cash.
    - Bonus issue adjusts no. of shares
    - Collateral for pre-release = cash/ t-bills
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12
Q

What countries issue annual coupons with their gov. bonds?
What countries issue semi-annual coupons?

A

Annual - EFG
- France and germany
- Eurobonds

Semi-annual
- UK + US + Japan

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13
Q

Gross redemption yield calculation?

A

Flat yield + profit/loss at redemption

Where profit/loss at redemption =
(NV- Market value)/no of years
———————————————— x 100
Marker value

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14
Q

Flat yield

A

Gross annual coupon
——————————— x 100
Market price

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15
Q

Life maturity of bills? notes? bonds?

A

Bills - < 2y
Notes = 2-10 y
Bonds > 10 y

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16
Q

Conversion premium (bond to shares)

A
  1. Conversion bond market price/ no. of shares = Conversion price (NB conversion bond price/conversion price = no. of shares that can be created = conversion ratio)
  2. Conversion price - current share price = conversion premium in £
  3. Conversion premium in £/ current share price = Conversion premium %
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17
Q

When do Forward Fx deals settled?

A

T+3

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18
Q

What’s the RFR of bonds?
What is the equity risk premium?

A

Often the yield on a gov. security

equity risk premium = premium investors need for taking risk for investing in equity e.g. if total return on stock is 10%, and RFR is 4% then equity risk premium = 6%

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19
Q

If given £1: $ 1.5885-1.5595
1. Which rate do you use to buy £100k?
2. To sell £100k
3. To convert $100k to £

A
  1. $1.5595 ie need more dollars
  2. $1.5885 ie you get less dollars
  3. $1.5595 ie you’re buying £ so use the higher rate
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20
Q

What’s the difference between warrants/ covered warrants/ options?
Issued by?
Settled?
Trades?
Maturity?

A

Warrants
- buying right to new shares at fixed price in future
- Issued by company
- Can be issued as sweetener
- Settled physically by company
- No dividends/ voting rights
- Maturity > 1yr
- trades on LSE/OTC

Covered warrants = option that trades on stock exchange vs derivatives + it’s securitised (i.e. bank already has shares to give to you for covered call/ has the cash to give you for covered put)
- When issued by IB instead of company
- existing shares - no dilution
- call and put options
- Maturity < 1yr
- Cash (and physically) settled i.e. implied profit
- trades on LSE

Options
- issued by writer
- Maturity < 1yr
- existing shares - no dilution
- call and put options
- Cash (and physically) settled by writer of option
- trades on derivatives market

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21
Q

What’s the difference between warrants/ covered warrants/ options?
Issued by?
Maturity?
Trades?
Settled?

A

Warrants
- buying right to new shares at fixed price in future
- Issued by company
- Can be issued as sweetener
- Settled physically
- No dividends/ voting rights
- Maturity > 1yr
- trades on LSE/OTC

Covered warrants
- When issued by FI instead of company
- Maturity < 1yr
- Cash settled i.e. implied profit
- trades on LSE

Options
- Maturity < 1yr
- Cash settled
- - trades on derivatives market

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22
Q

Zero coupon bonds issued at a discount?

A
  1. T-bills
  2. Commercial paper
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23
Q

Conversion premium for warrants?

A

Strike price + warrant price - current share price

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24
Q

What are the open-ended Collective investments?

Close-ended?

A

Open-ended:
- Unit trusts, ICVC = CIS

Close ended?
- Investment trust company

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25
Q

What Collective investments have secondary market?
What ones don’t?

A

Secondary market
- Investment trust company

No secondary market
- Unit trusts and ICVC

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26
Q

How are the different Collective investments valued?
Legal structure
How are they priced?
Legal owner?
Types of Units Where do you buy units/ shares from?

A

CIS (Unit trust (trust), ICVC)
- NAV
- Unit trust = trust, OIEC = company
- Buy from unit trust from unit trust manager + ICVC buy shares from Authorised corporate director
- Priced: Unit trusts = single/ 2 way, ICVC = single
- Legal owner: trustee in unit trust, depository in ICVC
-Types of units: Income/ accumulated

Investment trust
- Company therefore indep. auditors
- Supply + demand (often on discount to NAV)
- Buy shares on LSE
- priced: bid/ offer
- Ordinary/ preference shares
- can borrow money > leveraged returns
- can invest in private companies
- closed-ended therefore can have longer term view as investors can just pull out their money (but share price can be volatile as with any share)

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27
Q

What is share capital?

A

NV x no. of shares

(inc ordinary + preference shares)

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28
Q

Current assets

Non current assets

A
  1. ITPC
    Inventory, trade receivables, prepayments, cash
  2. ITI
    Intangibles, tangible, investments
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29
Q
  1. Capital and reserves? Specifically the capital reserve accounts
  2. Liabilities?
  3. Non-current liabilities?
A
  1. SSRR
    Share capital, share premium, retained earnings, revaluation reserve

Capital reserve = share premium and reevaluation reserve (form capital base of company)

  1. TB
    Trade payables, borrowings
  2. PB
    Provisions, borrowings
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30
Q

Theoretical ex-rights price?

A

How much each share is worth after the rights issue

  1. Old shares x old share price = x
  2. New shares you’ll get x new share price = y
  3. (x + y ) / total number of shares

TERP = subscription price + nil paid price

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31
Q

Theoretical nil paid price ?

A

= value of a right

NPP = Theoretical ex price - subscription price

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32
Q

Theoretical bonus paid price?

A

= new share price after bonus issue

  1. No. of shares x market price = X
  2. Theoretical bonus paid price = X/total number of shares

Where total number of shares = old shares + new shares

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33
Q

Max subscription at nil cost ?

A

= selling portion of rights issue to can buy the rest at no cost = tail swallowing

  1. total rights x (sub cost/TERP) = no. of rights to be sold (round up)
  2. total rights - no. of rights to be sold = max. nil paid rights (i.e. how many rights you’ll have left after selling the rest)

= (NPP/TERP) x No. of rights

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34
Q

What are free float shares?

A

Shares available to public other than those held by owners who have > 5% + those held by directors

35
Q

What’s the difference between special ex trade and special cum trade?

A

Special ex-trade
- Buy during div period but without div therefore cheaper
- avoid income tax
- for up to 10 days before ex div date

Special cum trade
- Buy during no div period but with div
- allowed up to + day before div paid date
- avoid capital gains tax

36
Q

How many days between div declaration and record date?

A

6 business days

37
Q

How many days are existing shareholders given for rights issue to decide?

A

10 business days

38
Q

What are the 3 models of delivery vs payment?

A

Model 1
- Securities and payment settled gross
- transfer on trade by trade
- EU

Model 2
- Securities settled gross, payment settles net basis
- end of processing cycle
- EM + US

Model 3
- Securities and payment settles net
- end of processing cycle
- eg CLS

39
Q

Difference between execute and eliminate order, all or nothing, fill or kill order?

A

Execute and eliminate order
- limit order but unfulfilled portion is cancelled

All or nothing
- stays in order book until all of it can be executed at specific price otherwise it’s deleted

Fill or kill order
- specific price and volume and if can’t be filled immediately whole order is cancelled

40
Q

What’s the trading day on SETS

A
  1. 7:50-8am: Opening auction - add orders but no automatic execution. Shadow uncrossing price
  2. 8am: Matching - execution > uncrossing algo allows for max trades
  3. 8-4:30pm: Continuous order book trading
  4. 4:30-4:35: Closing auction - add orders but no automatic execution
  5. Matching
  6. Until 5pm: Housekeeping - delete but not add, no automatic execution
41
Q

What are the value weighted indices?
Price weighted?

A

Value
- market cap- S&P, NASDAQ, FTSE, MSCI

Price
- one share/ company - Dow Jones, Nikkei 225

42
Q

What type of PE and dividend yield would a high growth company?

A

High P/E, low dividend yield

43
Q

Difference between dealer paper and direct paper?

A

Dealer paper
- Commercial paper issued using IB as intermediary

Direct paper
- Commercial paper issued direct to money market funds. often issued by FI as they have continuous programmed which they roll over

44
Q

What are the 2 types of free cash flow?

A

Enterprise cash flow = FCF to the firm
- FCF before payments made to debt/ equity holders

Equity cash flow = FCF to shareholders
- FCF after considering payments to debt holders but before dividends paid

45
Q

Impact of increasing increase rates on bonds and equities?

A

Bond prices fall (inversely to yields)

Equity prices fall (higher cost of borrowing + potentially reduced sales as consumers spend less)

46
Q

What’s the difference between MTFs/ OTC ?

A

MTF
- trading system (op by IB/market operator) that allows for trading of equities (+ exotic products e.g OTC securities ) between multiple parties
e.g. AIM

OTC
- process of trading products between broker-dealer network instead of on an exchange
- Securities inc.: BCD-FS = bonds, crypto, derivatives, Fx, small stocks

47
Q

Examples of registered securities?

A

GILTS, Equities, debentures

48
Q

Settling agency for:
France + Ger
UK
US
Japan

A
  • France + Ger > euroclear/ clearstream (same as Eurobonds)
    UK > CREST
    US > fixed income clearing corporation
    Japan > Tokyo stock exchange
49
Q

What can increase the share capital?

A

Convertibles, warrants, bonus issues (funded via share premium account)

50
Q

How do cash transactions affect cash flow statement?

A
  • Increase in assets/ decrease in liabilities –> cash outflow
  • Decrease in assets/ increase in liabilities –> cash inflow
51
Q

NAV/ share

A

(Assets- Liabilities)/ no. of ordinary shares

52
Q

How do you calculate reduction in NAV/ share after scrip issue?

A

1 + no. of shares

e.g. if 1:4 scrip issue, NAV/share reduces by 1/5

53
Q

Difference between associate company and subsidiary company?

A

Associate = 20-50% ownership
Subsidiary = > 50%

54
Q

Zero div preference share

A

Paid by split capital investment trust (for companies that have limited life)
Have end date where pay investor pre-determined price (higher than what you invested)

55
Q

Relationship between price of bond , coupon, FY and GRY?

A

Price > par –> coupon > FY > GRY

Price < par –> coupon < FY < GRY

56
Q

What is the discount rate?
R/s with par value and price?

A
  • Interest rate
  • Yield to maturity/ GRY/ FY
  • expected return

discount rate < coupon -> par < price

57
Q

How long is the ex coupon period for UK gilts

A

7 business days

58
Q

What is dirty price of a bond?
How do you calculate accrued interest?

A

Dirty price = clean price + accrued interest

payment x (no. of days from last payment/ no. of days in payment period)

payment = Coupon
clean price = quoted

59
Q

What does it mean for £ to strengthen against $

A

Strengthening of GBP against $ then you get more $ for your pound

60
Q

The difference between a tender off and an auction?

Difference between UK/US t-bill/bond issues?

What is paid in non-competitive auction?

A

Tender offer (single price) - the successful bidders pay the lowest successful price e.g. with stocks IPO (or fixed price offer)

US
- T-bill: issued - tender, priced - tender (single price)
- bond: issued - auction, priced - tender (single priced)

UK
- T-bill: issued - tender, priced - competitive tender (pay price bid)
- bond: issued - auction , priced - (pay price bid)

non-competitive auction = volume weighted average price of the successful competitive bids

61
Q

What are the rules for listing on a main market?

Rules for remaining on main market

A

Apply to FCA (regulates them)
PTMPDL = Please tell mum pack dodo -L

  1. Publically traded
    - 10% min free float
    - freely transferable
    - AGM
    - rep by sponsor
  2. trading records of at least 3yrs
  3. Min market value
    - £30m for shares
    £200k for debt securities
  4. must publish prospectus
  5. Protection against dilution
    - max 20% right to issue warrants and convertibles restricted
  6. pay listing fee

—–—————————

  1. half yearly reports + annual accounts
  2. notify market of price sensitive info
62
Q

What are the features of a structured product?

A
  • combines >= 2 single financial instruments e.g. bond + derivative
  • offer risk return profiles that you don’t get with normal assets e.g. high growth/ income, low risk
  • have a defined term (Early redemption penalties), defined return and defined risk

Examples:
* structured deposit
- protected under FSCS
- asset = cash deposit and returns linked to performance of another asset eg FTSE 100 index
* structured investment
- Capital protected product e.g. ZCB funds long option
- capital at risk product e.g. accelerated tracker but no capital protection
- buffer zone product - participate in return of an asset + negative returns protected to predetermined level. full exposure to loss if if it’s breached

Call risk - may have auto-call features that stop product early and prevent further profit/ recovery from loss

63
Q

Criteria for listing on junior market?

Criteria for continuing?

When is prospectus required?

A

Apply to LSE
1. Must have nominated adviser (/NOMAD/listing agent)+ corporate broker
2. no restriction on transferability of shares
= looser conditions for getting on
——-
1. if stop having nomad (advises on exchange rules)/ broker (helps price and market shares) there shares are suspended by exchange i.e. trading stopped?
2. if dont have these for 1 month, shares removed from AIM

Prospectus if public offer > £5m from >= 150 non qualified EU investors

64
Q

Examples of PIPs?
SIPs

A

PIP - PR Newswire, regulatory news service, business wire

SIP - Thomson reuters, bloomberg, dow jones

65
Q

Difference between open-ended property funds and REITS
Valued?
Who do you trade with?
risks?

A

Open-ended property funds
- valued: NAV of property portfolio
- trade: management company
- risks: m/g costs can reduce returns, can be subject to suspension of trading (moratoria)

Real-estate investment trust = close ended fund
- valued: supply/ demand
- trade: stock exchange
- risks: investor is taxed, can behave like a share in terms of volatlity

66
Q

How can you hedge if you’re long the underlying position using derivatives?

A

Short Future
- benefit from price falling as agreed to buy at fixed price above that
- risk of reducing gain if price starts rising again and havent exited

Long put Option
- pay premium –> reduces gains

CFD
- short position
- risk of reducing gain if price starts rising again and havent exited

67
Q

How do you calculate simple interest?

A

Amount spent on total bond/ market price per bond= No of bond

Coupon * No of bond * NV (100)

68
Q

Difference between shelf registration + scheduled programme

A

Shelf registration = company has 2 years to issue bonds without re-registering. often used in US with MTN

Scheduled programme= company goes through a bank to borrow money

69
Q

What are capital events?
Income events?

A
  1. Capital events i.e. bring about changes to share capital/ repayment of principle borrowed

Shares
- Rights issue
- bonus issue
- splits and consolidations

Bonds
- redemptions
*callable/ puttable issues
*bullet issue = conventional bonds that pay redemption once = riskier as payment is far in future
*sinking funds

  1. Income events
    Shares
    - Dividends

Bonds
- coupons

70
Q

How does LSE (+other exchanges) provide liquidity?

A
  1. Order driven (for liquid stocks)
    - prices det. buy/ sell orders
    - electronic trading
  2. Quote driven (for less liquid stocks)
    - market makers provide liquidity (must have min 2 per security) up to specific level
    e.g. NASDAQ/SEAQ
    - If run out of shares, they can buy through IDB/ borrow through SBLI
  3. Hybrid
    - order book but also have market makers can also provide liquidity
71
Q

What happens to the collateral the market maker hands over to pension fund in SBLI?

A
  • if income generating, pension fund come keep the income and “rebate” the commission they usually charge the market maker
72
Q

Difference between trading suspension and listing suspension?

Who enforces disclosure rules?

A

Trading is suspended by exchange e.g. LSE for breaking behavior rules

Listing is suspended by regulator e.g. FCA

disclosure rules enforced by UK listing authority

73
Q

What’s the difference between benefits you get in pooled nominee/ designated and sole corporate account?

A

Pooled
- Dividend: Y
- Vote: N
- Corporate actions: Y
- Perks: N

Designated
- Dividend: Y
- Vote: Y (broker would have to nominate you)
- Corporate actions: Y
- Perks: N

Sole
- Dividend: Y
- Vote: Y
- Corporate actions: Y
- Perks: Y

74
Q

Active bond portfolio m/g?

Passive bond portfolio m/g?

A

Active - APIR
- Anomaly switch - exploits mismatch price
- Policy switch - exploits mismatch -caused by e.g. interest rate movements
- Inter-market switch - trading on the spread between bond and benchmark
- Riding the yield curve - buying LT bond and selling before maturity

Passive -CD/ID = avoid reinvestment risk
- Cash matched/dedicated portfolio - match cash flow of bonds to liabilities
- Immunization/duration matched - match duration of bonds to liability (types = bullet, barbel, ladder)

75
Q

What’s the difference between high-water mark vs hurdle rate?

Carry trade?

A

High watermark - if fund under hedge fund control falls then rises they cant take additional fee until max is surpassed

Hurdle rate - min profit a hedge fund must make before it can charge an incentive fee

Carry trade - borrow funds in currency with low interest rates and invest in often gov bonds in a country with high yield

76
Q

Difference between transaction report and trade report?

A

Trade report - members of exchanges must report trades ASAP/ automatic if on electronic order book/ or within 3 mins manually if trade occurs off order book. exchange then makes this available to marketplace to give idea of liquidity

Transaction report - done by both parties of a trade

77
Q

What is a request for quote system?
What trades on this?

A
  • Dealer to customer systems operate on RFQ basis
  • dealers in direct competition > price improvement
  • high yield bonds, bonds from developing markets, ABS
78
Q

Interest rate parity?

A

F/S = (1 + r variable)/(1+ r base)

79
Q

Additional disclosures that may be needed on top of financial statements (3)

A
  1. statement of comprehensive income
  2. statement on changes of equity
  3. accounting policy notes + previous years figures
80
Q

What does cum-scrip mean?
Cum-rights?

A

Cum-scrip price = market price before scrip issue

Cum-rights price = market price before rights

81
Q

Difference between price return, total price return index and net total return?

A

Price return - looks at just price

total return index - performance of group of stocks assuming dividends is reinvested

net total return - same as above but removes witholding tax

82
Q

Exceptions to limit order executing at limit price?

A
  • uncrossing algorithm run if better uncrossing price (2x on SETS, 4x on SETSqx)
83
Q

Difference between syndicate group and origination team?

A

Syndicate - underwriting firms helps co. type of security, time and price to offer. Inc LM +/- co-lead manager

Origination team - sponsor (listing agent), corporate broker, legal, PR, accountants

84
Q

Difference between floating rate notes and index linked gilts?

A

FRN - coupon is based on published interest rate e.g. LIBOR and reset when this changes

ILG = coupon and redemption linked to RPI

Securities (4 decks)

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