Regulation of Markets Flashcards
Investment Exchanges regulated by
FCA
Clearing Houses regulated by
BoE
3 Types of Investment Exchanges
RIEs
ROIEs
DIEs
Recognised Investment Exchanges
Recognised Overseas Investment Exchanges
Designated Investment Exchanges
Examples of RIEs
LSE LME ICE Futures Europe NEX Exchange (now called Aquis (AQSE) IPSX Cboe Europe Equities
Key difference between ROIEs & DIEs
ROIEs - electronically accessible to UK Firms
DIEs - NOT electronically accessible to UK firms
2 Types of Clearing Houses
RCHs
ROCHs
Recognised Clearing Houses
Recognised Overseas Clearing Houses
Order Driven Exchange Trading Systems
Where there is natural liquidity - Blue chip shares
Limit and market orders
Electronic trading
LSE SETS
Quote Driven Exchange Trading Systems
Where there is LESS natural liquidity - corp bonds
Market Makers
firm price quotes
bid/offer spreads
Screen and phone based
LSE Seaq
Market Makers
exchange member that volunteers to provide liquidity thru a price quote
Key Points regarding OTC
Over the Counter
Tailored meet clients need
slower execution
less stringent, but increasing regulation
Confidentiality reporting
Specific hedging requirements can be met
Trading on exchange
Contract standardised by exchange
Great execution
Exchanges signification regulation -MIFID
Market transparency reporting
Best execution on price
Hedging based on standard contracts
Alternate Trading Venues
MTF
OTF
Dark Pool
Systematic Internaliser
MTF
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
OTF
Organised Trading Facility
Similar to MTF but trading bonds and derivatives
Operator - Investment Firms and market Operators
Similar to exchange - MAR 5A
DARK Pool
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
Systematic Internalisers
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
MTFs regulated
MAR 5
Fair and orderly trading
Transparency
Members to be fit and proper
IDBs
Inter - Dealer Brokers
Allowing anonymous trading for market maker + other large firms
Incorporates having an anonymous trading screens
SBLIs
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
