Section 3.4 - Regulation of Investment Exchange

Question 1

Who recognises and supervises REIs

Answer 1

FCA

Question 2

How do Bank Of England and FCA differ

Answer 2

• BoE is responsible for payments system under the banking act 2009.
• BoE is also responsible for managing micro-prudnetial regulation of its risks
  *FCA recognises many different exchanges wheres BoE recognises clearing houses

Question 3

What are some recognised Investment exchanges

Answer 3

• London Stock Exchange (LSE)
• London Metal Exchange
• ICE Future Europes

Question 4

What are the key changes MiFID II

Answer 4

• Limit on size positions held
• FCA power to request infomation to ensure positions limits are being complied with

Question 5

What is the London Stock Exchange aims

Answer 5

• Provides a wide range of secruties to the market e.g. real estate investments trusts
• LSE has the authority for admitting public companies for listing - companies can only being admitted if meet the lisiting re with UKLA rules - Companies who dont meet these requirements can apply to AIM

Question 6

What are ICE Futures

Answer 6

• ICE Futures is a recognised Investment Exchange where futures and options are traded electronically.
• ICE memebrs can only trade and clear contracts
• Traders and Brokers tend to execute business on ICE Future Europe
• If trading on behalf of a client then a separate‘back-to-back’ contract’ should be formed between member and client
• ICE Clear Europe is a clearing house for ICE Futures Europe and therefore regulated by the BoE.

Traders - Act on behalf

Question 7

How can derivatives be traded?

Answer 7

• Derivatives can either be traded on organised exchanges or OTC (ICE Futures Europe)
• Electronically

Question 8

How can increased transaprency in OTC markets be achieved

Answer 8

• Through following the key initatives of MiIFR, MiIFD II and EMIR

Question 9

What are derivatives exchange

Answer 9

• Derivatives exchanges are REI’s so regulation is carried out by the exchange

Question 10

What does the EMIR require from firms in the EU when entering a derivative contract

Answer 10

• Report every derivative contract so that they enter a trade depositary
• The report after every transaction is catogrised into 2 groups; counteprarty and characterstics of contract e.g. price, derivative
• Implement new risk management standards
• Clear those OTC derivatives subject to mandatory clearing obligations - Moved to CCP

Question 11

What regulation must Investment firms must make public infomation through

Answer 11

• Approved Publication Arrangement (AMA)

Question 12

Who does a mandatory clearing obligation apply to

Answer 12

• It applies to contracts of financial counterparties e.g banks and non financial counterparties that are above the threshold of:
• 1bnin gross notional value for the OTC credit and equity derivatives (indivdual threshold)
• 3bn in gross notional value for interest rate and forgien exchange (indivdual threshold)
• 3bn in gross notional value for** commodities** (combined threshold)

Question 13

What regulatory body recognises Trade depositaries

Answer 13

• The FCA
• Examples include deopisatry trust and clearing coporations
• IRFS 9 ensures derivatives are measured fairly

IRFS - International Financing Reporting Standard