Regulation of Markets

Question 1

Investment Exchanges regulated by

Answer 1

FCA

Question 2

Clearing Houses regulated by

Answer 2

BoE

Question 3

3 Types of Investment Exchanges

Answer 3

RIEs

ROIEs

DIEs

Recognised Investment Exchanges
Recognised Overseas Investment Exchanges
Designated Investment Exchanges

Question 4

Examples of RIEs

Answer 4

LSE 
LME
ICE Futures Europe 
NEX Exchange (now called Aquis (AQSE) 
IPSX
Cboe Europe Equities

Question 5

Key difference between ROIEs & DIEs

Answer 5

ROIEs - electronically accessible to UK Firms

DIEs - NOT electronically accessible to UK firms

Question 6

2 Types of Clearing Houses

Answer 6

RCHs

ROCHs

Recognised Clearing Houses
Recognised Overseas Clearing Houses

Question 7

Order Driven Exchange Trading Systems

Answer 7

Where there is natural liquidity - Blue chip shares

Limit and market orders

Electronic trading
LSE SETS

Question 8

Quote Driven Exchange Trading Systems

Answer 8

Where there is LESS natural liquidity - corp bonds

Market Makers
firm price quotes
bid/offer spreads

Screen and phone based
LSE Seaq

Question 9

Market Makers

Answer 9

exchange member that volunteers to provide liquidity thru a price quote

Question 10

Key Points regarding OTC

Answer 10

Over the Counter

Tailored meet clients need

slower execution

less stringent, but increasing regulation

Confidentiality reporting

Specific hedging requirements can be met

Question 11

Trading on exchange

Answer 11

Contract standardised by exchange

Great execution

Exchanges signification regulation -MIFID

Market transparency reporting

Best execution on price

Hedging based on standard contracts

Question 12

Alternate Trading Venues

Answer 12

MTF

OTF

Dark Pool

Systematic Internaliser

Question 13

MTF

Answer 13

Equity trading where no exchange or competition for existing equity exchanges (MIFID I)

Operator - Investment Firms + market operators

Similar to exchange _ MAR 5

Improving liquidity and transparency vs OTC markets

Question 14

OTF

Answer 14

Organised Trading Facility

Similar to MTF but trading bonds and derivatives

Operator - Investment Firms and market Operators

Similar to exchange - MAR 5A

Question 15

DARK Pool

Answer 15

Exchange traded liquidity with OTC confidentiality

Operator - Investment Firms + large fund managers

Considered OTC transparency rules don’t apply

Able to move larger volumes with less market impact

Question 16

Systematic Internalisers

Answer 16

Investment Firm dealing as principal, matching orders directly with clients

Operator - Investment Firms

Similar to exchange MAR 6

Creates direct liquidity without need for external markets

Organised, frequent and systematic basis - Deals on own account by executing client orders outside a regulated market

Question 17

MTFs regulated

Answer 17

MAR 5

Fair and orderly trading
Transparency
Members to be fit and proper

Question 18

IDBs

Answer 18

Inter - Dealer Brokers

Allowing anonymous trading for market maker + other large firms

Incorporates having an anonymous trading screens

Question 19

SBLIs

Answer 19

Stock Lending and Borrowing Intermediaries

Custodian firms

Facilitates short selling and enhances market liquidity

Market maker ends up borrowing shares from SBLO who borrows them from pension fund