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Secondary Markets Flashcards

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SIE Exam flashcards
1
Q

For which of the following reasons has the exchange the right to prohibit trading in listed securities?

A

Any reason

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2
Q

Which of the following is responsible for providing liquidity in the secondary market trading of government debt securities?

A

Primary dealers

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3
Q

The role of market maker in the US government bond market is fulfilled by:

A

Primary dealers

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4
Q

A company aims to reduce its free float without cancelling any of its shares. All other things being equal, what would the effect of this be on the company’s market capitalisation?

A

The market capitalisation would not be affected

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5
Q

Which of the following is a benefit of a central counterparty service for an order driven execution system?

A

Improved liquidity

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6
Q

Which of the following can be typically traded on a capital market?

A

Corporate bonds

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7
Q

A fund manager wishing to use an index as a benchmark for a fund dealing in Asian equities (excluding Japan) is most likely to use which of the following indices?

A

Hang Seng

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8
Q

Which of the following would be the primary consideration of a company choosing a market on which to float?

A

High liquidity to enable price discovery

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9
Q

Prime brokerage relates to the provision of services by investment banks to whom?

A

Hedge fund clients

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10
Q

Which two of the following statements in reference to electronic order book trading is least likely?

A

The highest priced sell order will be at the top of the sell side of the order book
Orders at the same price will be matched on the basis of highest volume first

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11
Q

A characteristic of quote driven systems is:

A

that there is two-way pricing by market makers

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12
Q

Which of the following represents the main benefit to investors of a central counterparty?

A

Lower risk

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13
Q

On an exchange’s order-driven platform, during which of the following periods is a member firm not permitted to delete orders?

A

Closing algorithm

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14
Q

In which situation is trading in an order book traded security NOT permitted away from the order book?

A

Suspension of listing

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15
Q

To which ONE of the following are primary dealers in government bonds obliged to trade at quoted prices?

A

Broker acting for a client

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16
Q

GEMMs on the London Stock Exchange need to be vetted and registered by which of the following?

A

Prices quoted include accrued interest

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17
Q

Dealer-to-dealer bond trading can take place using all of the following methods apart from which one?

A

BondVision

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18
Q

When an exchange calls a trading halt in an order driven security due to a disorderly market, which of the following is true?

A

Automatic execution ceases, but trading outside the order book is permitted

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19
Q

Which of the following is true of Gilt trading?

A

Only broker-dealers and GEMMs are permitted to deal in principal

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20
Q

When assets have been rehypothecated, to whom do they then belong?

A

Prime broker

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21
Q

If free float increases from 80% to 100%, what is the % increase in market capitalisation?

A

0%

Free float is the percentage of shares held by the public.

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22
Q

Which of the following is true of an inter-dealer broker?

A

They act as principal to other participants

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23
Q

The non-displayed or hidden nature of the buy and sell orders that reside in a crossing platform is best observed in which of the following?

A

Dark pool

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24
Q

On an electronic order book, the best offer price is:

A

The lowest priced sell order

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25
Q

What type of index is the FTSE 100?

A

The lowest priced sell order

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26
Q

What type of index is the FTSE 100?

A

Weighted arithmetic index of stock prices

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27
Q

Which one of the following is not a service covered under prime brokerage?

A

Share buy-back advice

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28
Q

Which of the following monitors compliance with the requirements for authorised firms to report their transactions?

A

FCA Transaction Monitoring Unit

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29
Q

Which one of the following is NOT a service of prime brokerage in relation to hedge funds?

A

Formulating investment strategies

The managers of a hedge fund or alternative asset management vehicle are primarily concerned with formulating and executing investment strategies. The administration of the fund's account is usually left to the prime broker, which has the expertise and organisational systems to offer more specialised and supportive services, such as: 
Securities lending and borrowing 
Leveraged trade execution 
Cash management 
Core settlement 
Custody
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30
Q

Which of the following statements is true about exchange member firms?

A

A stock borrowing and lending intermediary does not take active positions onto its own books
An inter-dealer broker takes a position as if in principal to ensure both parties’ anonymity

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31
Q

If a limit order is entered into an order book during the opening auction call period, what price will it be executed at:

A

The uncrossing price

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32
Q

Which markets does the MSCI World index cover?

A

Global developed

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33
Q

In which two situations may a limit order not receive the limit price?

A

If it participates in the uncrossing

If it is incoming and executes against a better priced limit order residing on the order book

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34
Q

Which of the following best describes the nature of a circuit breaker?

A

It is an automated suspension of trading where prices have moved more than a predetermined amount

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35
Q

definition of prime brokerage

A

A collection of services provided by investment banks to their hedge fund clients

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36
Q

What is the advantage of a quoted market?

A

Enhanced liquidity

37
Q

Which one of the following is an electronic platform to facilitate dealer-to-customer trading in bonds?

A

TradeWeb

38
Q

The role of an inter-dealer broker is BEST described as:

A

Ensuring anonymous transactions between counterparties

39
Q

What is the minimum order size on an electronic order driven system?

A

1 share

40
Q

What is the purpose of the London Stock Exchange’s central counterparty service?

A

To reduce default risk through margin

41
Q

When a company wishes to prevent another company’s possible takeover by another investor, it could use which one of the following methods?

A

Strategic stakebuilding

42
Q

A financial institution acts as broker for two different clients. Client Bee is charged commission at a rate of 0.6% and client Dee is charged a rate of 1.4%. Which of the following would explain the differences between the two cost structures?

A

Client Dee is being provided both recommendations and execution whereas client Bee is receiving execution only

43
Q

Which of the following would be a difference between quote-driven and order-driven systems?

A

Market makers giving bid/offer spread during the MQP

44
Q

A company traded on the UK’s Alternative Investment Market (AIM) has a nominated adviser and a corporate broker. If the company should lose any of these which of the following will occur?

A

The company’s shares will be instantly suspended from trading activities

45
Q

On what basis are companies selected for inclusion in the FTSE 100?

A

Market capitalisation

46
Q

Which of the following is a feature of a quote-driven market rather than an order-driven market?

A

Market makers obliged to quote prices

47
Q

What does the financial term rehypothecation refer to?

A

A prime broker might pledge hypothecated client-owned securities as collateral for a brokerage’s bank loan

48
Q

All of the following are key reasons for the growing popularity of algorithmic trading, except:

A

Trading activities creating systemic risk

49
Q

There are no buy orders on the order book for a particular security. What is disseminated as the best bid price?

A

Zero

50
Q

Which of the following BEST highlights a problem with order-driven markets?

A

No guarantee of execution

51
Q

A fixed interest market maker MUST trade with which of the following once they have displayed two-way prices on a dealing system?

A

Customers

52
Q

Which one of the following is not a usual method of quotation regarding bonds?

A

Redemption date

53
Q

Which of the following statements does not apply to both limit orders and execute and eliminate orders?

A

Participate in the opening auction

54
Q

To whom must primary dealers in the government bond market quote firm two-way prices?

A

Investors known directly to them

55
Q

What is the best definition of free float?

A

The proportion of a company’s shares in public hands

56
Q

Which of the following are permitted after the closing auction of an electronic order driven system?

A

Order deletion

Trade reporting

57
Q

If a trader is using a decentralised dealer market, which of the following are they most likely trading?

A

Corporate bonds

58
Q

An inter-dealer broker (IDB) can deal with which of the following?

A

Market maker acting as principal
Market maker acting as an agent
Stock borrowing and lending intermediary
Broker dealer

59
Q

All of the following are true regarding the auction call period of an order driven system except:

A

Automatic execution of limit orders

60
Q

A UK firm is seeking a dual listing on the New York Stock Exchange. What is the biggest benefit that such a listing would provide?

A

Greater facility to raise capital by access to a bigger market

61
Q

If an investor wishes to enter an order that would execute the entire order at a given price or, failing that, reject the entire order in whole, which order would they choose?

A

Fill or kill order

62
Q

Which of the following is most likely to be true of a discount broker?

A

They charge lower fees for more restricted services as other brokers

63
Q

What is the BIGGEST advantage to the investors of using a central counterparty service (CCP)?

A

Managing credit risk exposure

64
Q

Which one of the following would distinguish an electronic quote-driven system from an order-driven system?

A

Market makers have to quote bid and offer prices

65
Q

A limit order will never execute at its limit price:

A

During the opening auction period

66
Q

Which of the following stock indices can be regarded as a ‘broad measure’ of performance?

A

Nikkei

67
Q

Which of the following is a principal trade?

A

The firm is an actual party to the transaction

68
Q

Why might a hedge fund wish to use a prime broker?

A

A more tailored and bespoke range of services is offered to them

69
Q

A buy order matches a sell order 10 mins before a trading halt was imposed by the exchange. What will happen to this order?

A

The order will proceed straight to the settlement system as normal

70
Q

During normal trading on an electronic order book, in which of the following circumstances would orders be removed from the order book in a given security?

A

If the listing authority suspends that security

71
Q

A firm using an electronic order book that wishes to execute as much of an order as possible, at a price no worse than the specified price, rejecting any unfilled portion from the order book, should use which of the following orders?

A

Execute and eliminate

72
Q

All of the following are uses of the FTSE 100 index except:

A

Provides an indication of company prospects

73
Q

Which of the following would a broker-dealer undertake?

A

Buy and sell shares on their own behalf

Buy and sell shares on behalf of clients

74
Q

Which one of the following services offered by a prime broker would be used by a hedge fund to cover a short position?

A

Securities lending and borrowing

75
Q

When might a limit order be undertaken at a price other than its stated limit price?

A

During the uncrossing algorithm

76
Q

Which of the following is the MAIN benefit to a company of obtaining a listing?

A

To widen access to new sources of capital

77
Q

During trading, using an electronic order book, an order is placed to execute as much as possible at a specified price and reject the unexecuted portion. This order type is known as:

A

Execute and eliminate

78
Q

A broker who offers little or no advice, such as a internet dealing service provider, would be best described as which of the following?

A

Discount broker

79
Q

Which of the following would be the best description of the Dow Jones Industrial Average?

A

A narrow view of companies in the US

80
Q

Dealer-to-dealer bond trading cannot take place using which one of the following methods?

A

TradeWeb

81
Q

A broker-dealer is a member firm that:

A

Buys and sells shares as principal

Arranges the purchase and sale of shares on behalf of clients

82
Q

Which of the following is given access to direct telephone contact systems on the issuance of UK Government bonds?

A

Primary dealers

83
Q

An example of an exchange trading system is an order book. Which of the following can interact with an exchange’s order driven system?

A

Members of the exchange only

84
Q

All broker-dealers do which of the following?

A

Buy or sell for themselves and/or clients

85
Q

A market order contains which of the following information?

A

Whether the order is a buy or sell

Volume of shares

86
Q

What is the minimum number of market makers a stock may have on a hybrid system of an exchange?

A

Zero

87
Q

Which of the following is primarily known for utilising quote driven systems

A

Nasdaq

88
Q

Which of the following is least likely to be a benefit of using a central counterparty for exchange traded transactions?

A

Lower margin costs

Securities (19 decks)

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