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CISI DERIVS > Manually added flashcards > Flashcards

Manually added flashcards

1
Q

What is TIMS?

A

Theoretical Inter-market margaining system used for mixed portfolio based margining. Consists of premium margin (value of position at close of trading) + risk marging (option pricing formula to measure potential change in position value). This replaces SPAN and is used on the CBOE exchange. Margin will be on a gross basis whilst SPAN is on a net basis.

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2
Q

What is a protected payment system?

A

Used by clearing houses to collect marging owned via Direct Debit

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3
Q

What is inter-commodity credit/inter-commodity spread

A

Scanning risk adjustment to take into account offsetting positions

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4
Q

When is initial margin paid on long equity positions?

A

Not paid as premium is paid in full (T+1) where the holder pays the clearing house before the end of the trading day

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5
Q

What is intra-market spread?

A

Spread between the same underlying but different expiries on the future

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6
Q

What is intermarket spread

A

Spread between different but connected underlyings of futures

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7
Q

What is a covered short call and what is it used for

A

F-C = -P : Capture the profits in a stable market and premium generated shields downside risk (market falling)

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8
Q

Option spread must contain what characteristics?

A

Either be of two puts or two calls and also be the purchase of one option and the sale of the other

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9
Q

Formula for number of contracts needed to hedge a CTD bond?

A

Nominal value of CTD(no. bonds bought * nominal)/future vale * Price Factor

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10
Q

Which platform provides straight-through processing?

A

LME Select via LCH

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11
Q

What is sold on ICE?

A

Energy contracts, financials, & agriculturals

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12
Q

What is traded on Euronext derivs?

A

Financials and soft agriculturals

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13
Q

What is traded on LSE Derivatives?

A

Financials

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14
Q

Which exchange are some forwards traded on?

A

LME Select via LCH

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15
Q

Purpose of MIFID?

A

Harmonise EEA regulations & cover passporting

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16
Q

Purpose of FCA?

A

Regulated conduct, competition, & market abuse

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17
Q

Purpose of Dodd Frank?

A

Regulate transparency in the US and mandatory clearing of OTC trades

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18
Q

What is the commodities futures modernisation act?

A

legalised single stock futures

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19
Q

Which act created the part 30 restriction?

A

Commodities Exchange Act

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20
Q

What is the CFTC the regulator of?

A

US derivatives exchanges (but not the CBOE - SEC), overseeing the NFA, enforcing commodities exchange act and commodity futures modernisation act

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21
Q

What is the purpose of NFA?

A

Self regulating organisation, oversees derivative firms, runs an arbitration scheme (programme to safeguard integrity)

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22
Q

Which exchange uses TIMS?

A

CBOE and must have a gross margin instead of UK net margin

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23
Q

What is an “options on close”

A

Exercise into a futures position due to premium paid on expiry

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24
Q

What happens to a futures contract after a bonus/right issue?

A

Exchange adjusts the contract to include it

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25
Q

Is Gamma positive or negative for long puts?

A

Gamma is positive for long options, negative for short options.

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26
Q

Which options greeks are highest ATM?

A

All option greeks except for delta

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27
Q

What is dynamic hedging?

A

Where a portfolio is rebalanced based on delta hedging

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28
Q

What is another name for a synthetic long?

A

Reversal (long the synthetic & short the future)

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29
Q

What is a conversion?

A

When the price of a synthetic is greater than the future therefore short the synthetic and long the future

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30
Q

Benefits of a protected short call

A

Income in a stable environment and slight protection from a falling market

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31
Q

Benefits of a covered short put

A

Income in a stable environment and slight protection from a rising market

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32
Q

Why would an investor benefit from a falling interest rate market if they have a negative Rho?

A

Rho is correlated to the profitability of the portfolio in a specific change in interest rates. (Negative Rho will profit from falling environments and positive rho will benefit from rising environments)

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33
Q

Which exchanges provide a mutual offset link

A

Exchanges with a different time zone (e.g. SGX & CME / MCX & CME)

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34
Q

What is the process from execution to delivery?

A

Trade is matched & registered (or registered then matched for OTC), Trade is registered to the clearing house via TRS / UCP and then margined, monitored and prepared for settlement. DvP, change of ownership, tax, and then settlement.

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35
Q

When does novation occur?

A

At trade registration system (post execution)

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36
Q

For mutual and inddependent guarantee, which is used by US and which Is used by UK?

A

Mutual guarantee used by UK clearing house, independent guarantee used by US clearing house

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37
Q

What is the process in the event of a default for a mutual guarantee clearing house?

A

Default members margin, then default members contributions, then other members contribution and then their own funds

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38
Q

What is the process after a independent guarantee clearing house after a member defaults

A

Default members margin, then clearing house own funds (including insurance)

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39
Q

Wht is in the default fund?

A

Contributions made by members based on proportionate volume and value of average daily trades novated

40
Q

How is the collateral for a default fund placed? Also occurs with initial margin

A

Haircuts will apply

41
Q

What does STAN stand for?

A

Systems for Theoretical Analysis & Numiercal Simulation

42
Q

What are the different SPAN adjustments?

A

Intermonth change (intramarket spread - different expiry), Spot month change, Inter-commodity credit (intermarket spread - different but connected assets)

43
Q

Does variable magin apply for long equity index & single stock options

A

No both initial margin and variable margin doesn’t apply

44
Q

What applys to short equity index and single stock option positions with regards to initial margin and variable margin

A

Applies to initial margin, doesn’t apply to variable margin

45
Q

Does variable margin apply for bond and STIR options (both long and short)

A

Yes

46
Q

What are the initial margin collateral restrictions

A

No: Swiss govt bonds, equity, undated bonds, and foreign denominated bonds (e.g. US denominated UK gilts)

47
Q

What is the purpose of EMIR?

A

Reporting OTC derivatives, margining to reduce operational risk, mandatory use of CCP’s

48
Q

What is a collar?

A

Cap and floor combined, usually by selling a floor and using that money to buy a cap.

49
Q

What is a ratchet / cliquet?

A

Lock in profits at specific intervals

50
Q

What are the two types of asian style options?

A

Strike is fixed and exervised against avg price over life, or strike is unknown & its set on average of asset price

51
Q

Who is the payer leg of a FRA?

A

Payer receives the fixed and pays the floating

52
Q

Who is the received of a FRA?

A

Receiver pays variable and receives fixed

53
Q

What is the TRS / UCP?

A

Registration system between exchange and clearing house (between order book and clearing)

54
Q

What is a covered short call and what is it used for

A

Benefit from a stable market and slight protecting from a falling market

55
Q

What is a reversal trade?

A

Synethetic long (synthetic < future)

56
Q

What is a conversion trade?

A

Synthetic short ( synthetic > future)

57
Q

When is gamma negative, positive, and at it’s highest?

A

Positive for long options, negative for short options, at it’s highest ATM & short dated

58
Q

When is vega positive, negative, and at it’s highest?

A

Positive for long options, negative for short options, at it’s highest ATM & long dates

59
Q

When is theta positive, negative, and at it’s highest?

A

Positive for long options, negative for short options, at it’s highest ATM & long dated

60
Q

When is rho positive, negative, and at it’s highest?

A

Positive for calls, negative for puts, highest ATM, ITM, and for long dated options.

61
Q

What is a property swap?

A

total return swap on property

62
Q

What is a total return swap

A

A type of credit derivatives as income & capital is affected

63
Q

How do you calculate the price of a put from a call when given underlying cash price

A

C-P = S-K (options on futures) C-P=S-K/(1+r)^t

64
Q

What is a binary option also known as and what is it

A

Known as a digital option and pays a fixed charge or nothing at all

65
Q

What is a give up trade also called

A

An allocation

66
Q

What is a block trade?

A

Large transaction between an exchange and a wholesale client. Exchange specifies the size before it becomes a block trade and the price is negotiated off the order book then executed and reported back to exchange.

67
Q

What is the invoice amount formula

A

(EDSP * scale factor * price factor ) + accred interest

68
Q

What can a spot month margin also be described as in reference to the actual delivery

A

Covers the risk of default during the delivery process

69
Q

What is the difference between CFD’s and spread betting?

A

CFD’s subject to capital gains tax on realized gains, also subject to commissions

70
Q

What is meant by volume and open interest in the option market?

A

Volume - no# contracts open | Open interest - no# contracts open even after some are closed out (indication of liquidity)

71
Q

What are the different types of arbitrage

A

Intertemporal - Prices between different maturity dates being ‘out of line’ / Geographic - prices between two identical contracts across multiple exchanges / Value chain - prices between crude oil and refined products

72
Q

Why would a trader go for a flex option

A

Customize contract terms whilst retaining the benefit of CCP

73
Q

Which options terms are set by an exchange and which are customizable in a flex option

A

Exchange - Quantity & Asset /// Custom - Strike, Expiry, Expiry Style

74
Q

What does PSNCR stand for

A

Public Sector Net Cash Requirement

75
Q

Examples of exotic commodites?

A

Freight, Weather, Emissions, Cryptocurrenies & Hybrids

76
Q

What are the common electronic platforms of exchanges?

A

LME Select // ICE Connect // Euronext Optiq (aquis) // CME Globex

77
Q

Which commodities are physically delivered?

A

Non financial futures except brent

78
Q

What does TIMS margin consist of?

A

Premium margin (value of position at close) + Risk margin (option pricing formula for potential change in position value)

79
Q

What is aluminium used for?

A

Transport

80
Q

What is lead used for?

A

Batteries

81
Q

What is TIN used for?

A

Solder

82
Q

What is Zinc used for?

A

Galvanizing

83
Q

What commodities are available on CME?

A

CME: Energy products (gas oil, crude oil, natural gas) // NYME: energy + precious metals (gold, silver) + base metals (aluminium, copper) // CBOE: agriculatural and soft commodities

84
Q

What is traded on NYMEX?

A

Ferrous metals (iron ore, hot rolled steel)

85
Q

What is traded on CBOT?

A

Agricultural and soft commodoties // Gold, metals, and ethanol

86
Q

Where are TAPO’s traded?

A

LME

87
Q

What are agricultual products

A

Corn, What, Oats, Soybean oil, Rapseed & Wool

88
Q

What are soft commodities?

A

Cocoa, Coffee, Orange juice and sugar (not tea)

89
Q

What is copper used for?

A

Electrics, buildings

90
Q

What is nickel used for?

A

stainless steel and alloys

91
Q

What is traded on euronext derivs?

A

Soft commodities

92
Q

What is traded on ICE

A

Crude Oil

93
Q

What is traded on Dubai Mercantile Exchange?

A

Crude Oil

94
Q

What is traded on European climate exchange?

A

environmental contracts

95
Q

What is traded on MCX

A

Soft and agricultural commodities

96
Q

Requirements for a Part 30 CFTC exemptions?

A

Client money regs, two way risk disclosure, provide FCA to client records, join NFA arbitration scheme, bound by exchange & FCA rules

CISI DERIVS (1 decks)

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