General Flashcards
What instruments settled in T +2?
ACEEFFG - ADRs, UK corporate debt, Equities, eurobonds, france OATS, fx trade, germany Bunds
What instruments settled in T +1?
JUGE -
GILTS, US T-bills and other money market instruments, JGBS, Equities (new issues)
Settlement for repos + securities lending?
T+0
Usually overnight
Settlement for certified stock?
T+10
Investors ratio (4):
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
Valuation ratio (2):
P/E = Market price per share/ EPS
EV/EBITDA
EV = market value of debt + market value of equity
gearing (3)
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
Liquidity ratio (2)
current ratio = current assets/current liabilities
quick ratio = (current assets-inventory)/current liabilities
current assets - inventory = cash + receivables
Profitability ratios (3)
- ROCE = (PBIT/ capital employed) x 100
Capital employed = equity + non-current liabilities
(OR total assets - current liabilities)
- ROE = (net income/ shareholders equity) x 100
net income = profit after tax
shareholders equity = capital + reserves
- operating profit = op profit/ rev
gross profit = gross profit/ rev
What are the types of corporate bonds?
- Secured debt = ABS = Debentures (UK)
- Fixed charge over assets
- floating charge over assets = ABS - 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)
What instruments are issued bearer (i.e. anonymous and freely transferable)?
- Gov bonds from
- France, germany, japan (optional) - Eurobonds
- 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
What countries issue annual coupons with their gov. bonds?
What countries issue semi-annual coupons?
Annual - EFG
- France and germany
- Eurobonds
Semi-annual
- UK + US + Japan
Gross redemption yield calculation?
Flat yield + profit/loss at redemption
Where profit/loss at redemption =
(NV- Market value)/no of years
———————————————— x 100
Marker value
Flat yield
Gross annual coupon
——————————— x 100
Market price
Life maturity of bills? notes? bonds?
Bills - < 2y
Notes = 2-10 y
Bonds > 10 y
Conversion premium (bond to shares)
- Conversion bond market price/ no. of shares = Conversion price (NB conversion bond price/conversion price = no. of shares that can be created = conversion ratio)
- Conversion price - current share price = conversion premium in £
- Conversion premium in £/ current share price = Conversion premium %
When do Forward Fx deals settled?
T+3
What’s the RFR of bonds?
What is the equity risk premium?
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%
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 £
- $1.5595 ie need more dollars
- $1.5885 ie you get less dollars
- $1.5595 ie you’re buying £ so use the higher rate
What’s the difference between warrants/ covered warrants/ options?
Issued by?
Settled?
Trades?
Maturity?
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
What’s the difference between warrants/ covered warrants/ options?
Issued by?
Maturity?
Trades?
Settled?
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
Zero coupon bonds issued at a discount?
- T-bills
- Commercial paper
Conversion premium for warrants?
Strike price + warrant price - current share price
What are the open-ended Collective investments?
Close-ended?
Open-ended:
- Unit trusts, ICVC = CIS
Close ended?
- Investment trust company
What Collective investments have secondary market?
What ones don’t?
Secondary market
- Investment trust company
No secondary market
- Unit trusts and ICVC
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?
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)
What is share capital?
NV x no. of shares
(inc ordinary + preference shares)
Current assets
Non current assets
- ITPC
Inventory, trade receivables, prepayments, cash - ITI
Intangibles, tangible, investments
- Capital and reserves? Specifically the capital reserve accounts
- Liabilities?
- Non-current liabilities?
- SSRR
Share capital, share premium, retained earnings, revaluation reserve
Capital reserve = share premium and reevaluation reserve (form capital base of company)
- TB
Trade payables, borrowings - PB
Provisions, borrowings
Theoretical ex-rights price?
How much each share is worth after the rights issue
- Old shares x old share price = x
- New shares you’ll get x new share price = y
- (x + y ) / total number of shares
TERP = subscription price + nil paid price
Theoretical nil paid price ?
= value of a right
NPP = Theoretical ex price - subscription price
Theoretical bonus paid price?
= new share price after bonus issue
- No. of shares x market price = X
- Theoretical bonus paid price = X/total number of shares
Where total number of shares = old shares + new shares
Max subscription at nil cost ?
= selling portion of rights issue to can buy the rest at no cost = tail swallowing
- total rights x (sub cost/TERP) = no. of rights to be sold (round up)
- 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
What are free float shares?
Shares available to public other than those held by owners who have > 5% + those held by directors
What’s the difference between special ex trade and special cum trade?
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
How many days between div declaration and record date?
6 business days
How many days are existing shareholders given for rights issue to decide?
10 business days
What are the 3 models of delivery vs payment?
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
Difference between execute and eliminate order, all or nothing, fill or kill order?
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
What’s the trading day on SETS
- 7:50-8am: Opening auction - add orders but no automatic execution. Shadow uncrossing price
- 8am: Matching - execution > uncrossing algo allows for max trades
- 8-4:30pm: Continuous order book trading
- 4:30-4:35: Closing auction - add orders but no automatic execution
- Matching
- Until 5pm: Housekeeping - delete but not add, no automatic execution
What are the value weighted indices?
Price weighted?
Value
- market cap- S&P, NASDAQ, FTSE, MSCI
Price
- one share/ company - Dow Jones, Nikkei 225
What type of PE and dividend yield would a high growth company?
High P/E, low dividend yield
Difference between dealer paper and direct paper?
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
What are the 2 types of free cash flow?
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
Impact of increasing increase rates on bonds and equities?
Bond prices fall (inversely to yields)
Equity prices fall (higher cost of borrowing + potentially reduced sales as consumers spend less)
What’s the difference between MTFs/ OTC ?
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
Examples of registered securities?
GILTS, Equities, debentures
Settling agency for:
France + Ger
UK
US
Japan
- France + Ger > euroclear/ clearstream (same as Eurobonds)
UK > CREST
US > fixed income clearing corporation
Japan > Tokyo stock exchange
What can increase the share capital?
Convertibles, warrants, bonus issues (funded via share premium account)
How do cash transactions affect cash flow statement?
- Increase in assets/ decrease in liabilities –> cash outflow
- Decrease in assets/ increase in liabilities –> cash inflow
NAV/ share
(Assets- Liabilities)/ no. of ordinary shares
How do you calculate reduction in NAV/ share after scrip issue?
1 + no. of shares
e.g. if 1:4 scrip issue, NAV/share reduces by 1/5
Difference between associate company and subsidiary company?
Associate = 20-50% ownership
Subsidiary = > 50%
Zero div preference share
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)
Relationship between price of bond , coupon, FY and GRY?
Price > par –> coupon > FY > GRY
Price < par –> coupon < FY < GRY
What is the discount rate?
R/s with par value and price?
- Interest rate
- Yield to maturity/ GRY/ FY
- expected return
discount rate < coupon -> par < price
How long is the ex coupon period for UK gilts
7 business days
What is dirty price of a bond?
How do you calculate accrued interest?
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
What does it mean for £ to strengthen against $
Strengthening of GBP against $ then you get more $ for your pound
The difference between a tender off and an auction?
Difference between UK/US t-bill/bond issues?
What is paid in non-competitive auction?
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
What are the rules for listing on a main market?
Rules for remaining on main market
Apply to FCA (regulates them)
PTMPDL = Please tell mum pack dodo -L
- Publically traded
- 10% min free float
- freely transferable
- AGM
- rep by sponsor - trading records of at least 3yrs
- Min market value
- £30m for shares
£200k for debt securities - must publish prospectus
- Protection against dilution
- max 20% right to issue warrants and convertibles restricted - pay listing fee
—–—————————
- half yearly reports + annual accounts
- notify market of price sensitive info
What are the features of a structured product?
- 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
Criteria for listing on junior market?
Criteria for continuing?
When is prospectus required?
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
Examples of PIPs?
SIPs
PIP - PR Newswire, regulatory news service, business wire
SIP - Thomson reuters, bloomberg, dow jones
Difference between open-ended property funds and REITS
Valued?
Who do you trade with?
risks?
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
How can you hedge if you’re long the underlying position using derivatives?
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
How do you calculate simple interest?
Amount spent on total bond/ market price per bond= No of bond
Coupon * No of bond * NV (100)
Difference between shelf registration + scheduled programme
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
What are capital events?
Income events?
- 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
- Income events
Shares
- Dividends
Bonds
- coupons
How does LSE (+other exchanges) provide liquidity?
- Order driven (for liquid stocks)
- prices det. buy/ sell orders
- electronic trading - 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 - Hybrid
- order book but also have market makers can also provide liquidity
What happens to the collateral the market maker hands over to pension fund in SBLI?
- if income generating, pension fund come keep the income and “rebate” the commission they usually charge the market maker
Difference between trading suspension and listing suspension?
Who enforces disclosure rules?
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
What’s the difference between benefits you get in pooled nominee/ designated and sole corporate account?
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
Active bond portfolio m/g?
Passive bond portfolio m/g?
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)
What’s the difference between high-water mark vs hurdle rate?
Carry trade?
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
Difference between transaction report and trade report?
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
What is a request for quote system?
What trades on this?
- Dealer to customer systems operate on RFQ basis
- dealers in direct competition > price improvement
- high yield bonds, bonds from developing markets, ABS
Interest rate parity?
F/S = (1 + r variable)/(1+ r base)
Additional disclosures that may be needed on top of financial statements (3)
- statement of comprehensive income
- statement on changes of equity
- accounting policy notes + previous years figures
What does cum-scrip mean?
Cum-rights?
Cum-scrip price = market price before scrip issue
Cum-rights price = market price before rights
Difference between price return, total price return index and net total return?
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
Exceptions to limit order executing at limit price?
- uncrossing algorithm run if better uncrossing price (2x on SETS, 4x on SETSqx)
Difference between syndicate group and origination team?
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
Difference between floating rate notes and index linked gilts?
FRN - coupon is based on published interest rate e.g. LIBOR and reset when this changes
ILG = coupon and redemption linked to RPI
