Technology in Investment - Chapter 3 Flashcards
What is a multi-lateral-trading facility (MTF)
Type of system or service that brings together multiple parties interested in buying and selling financial instruments, especially those that may not have an official market.
Are MTF’s regulated by a body or self regulated?
self regulated
What is an investment exchange
A firm or organization that provides the platform for investors to invest in different products. (Bonds, Equities, Derivatives & Commodities mainly)
Are investment exchanges regulated by a body or self regulated?
Regulated by the local governing body. (FCA in UK)
What type of new investment platform did MiFID 2 introduce?
Organized trading facility
What is an organized trading facility?
An unregulated market place to trade everything EXCEPT EQUITIES
Are OTFs regulated by a body or self regulated or unregulated
Unregulated
What is a Systematic Internalizer (Si)
When investment firms execute client orders outside a OTF,MTF or investment exchange.
What must an SI publish?
Bid/offer quotes for liquid instruments
disclose quotes on request for ill-liquid instruments
What did SI replace?
BCN - Broker Crossing Networks
What is an Recognized Investment Exchange (RIE)
A UK Based Exchange recognized by the FCA
What is an Recognized Overseas Investment Exchange (ROIE)
One that is outside of the UK, but has UK business and is recognized by the FCA.
Eg. NASDAQ & AUS EX
What is an Designated Investment Exchange (DIE)
Overseas exchange that is not regulated by the FCA. However the FCA may add them to their list of designated exchanges
What is a funds platform
Service used by financial advisors to manage their investment portfolios
How many types of order handling systems are there
3
What is an order driven system?
When the buyers price matches that of the sellers sell price, a trade is matched confidentially and executed
What is a quote driven system?
When the market maker sets the price.. The identity is always known
What is a hybrid system?
A system that offers both quote driven and order driven abilities
What is the LSE
London Stock Exchange
How many trading systems will LSE offer to its members firms
4
Name the four trading systems that LSE offer
SETS
SETSqx
SEAQ
Order Book for retail bonds
What is SETS
The main order system for LSE, it is a hybrid system
What is SETSqx
Q - Quotes X- Crosses. It offers four quote driven auctions a day. G. (HYBRID SYSTEM)
What is SEAQ
Quote driven system for securities not traded on SETS or SEAqx (QUOTE DRIVEN)
What is the order book for
Government bonds and retail bonds trading
What type of investment system is the order book
Hybrid System
What type of investment system is SETSqx
Hybrid System
What type of investment system is SETS
Hybrid
What type of investment system is SEAQ
Quote Driven
What is the Regulatory News Service
Companies who have shares or bonds on the listed exchange have a legal duty to make announcement about price sensitive information (Newsflash)
What is the corporate events diary
A online calendar for marking events that will effect securities traded on the LSE
What is the SEDOL Masterfile
Database of securities that provides a common ID code (SEDOL code). This code is used worldwide
Participant Services
Supplies member firms with information about their market share or quality of execution
What is European Regulatory Trade Reporting
Broker-Dealers in EU have a legal obligation to report all their trades electronically
What are the two key things that technology departments may be involved in when connecting Investment exchanges to their systems?
Developing trade capture applications or implementing package systems
What is a data exchange specification (DES)
They cover the message format for data that is to sent or received from the investment exchange
What is a package system?
An over the counter system brought by the firm to provide a front-to-back for portfolio trading and management
Whats a fund platform
one stop shop for wealth managers & financial advisors to manage portfolios
What 3 types of messaging are commonly used by fund platforms?
Euroclear EMX, Calastones & SWIFTS
What extra service does a fund platform sometimes offer an investment manager?
What-If analysis
Whats the difference between Clearing houses and Central Counterparties?
None, just a new name
What 2 services to Central Counterparties offer to their customers?
Settlement & Custody services
Central Counterparty (CCP) services
For UK cash-settled securities, the settlement and custody services are provided by ?
Euroclear UK & Ireland (EUI)
What are the four recognized clearing houses in the UK?
LME Clear LTD
CME Clearing Europe LTD
Euroclear UK & Ireland (EUI)
ICE Clear Europe LTD
What system does the Euroclear UK & Ireland use to settle all UK/Ireland registered equities?
CREST
What happens during Delivery vs Payment (DvP)
The buyer of securities takes delivery of the securities, and the buyer’s payment bank guarantees to pay the seller’s payment bank, which in turn is obliged to pay the seller.
What are the four other services provided by the Euroclear UK & Ireland
Custody Services
Payment of dividends, to members
processing of corporate action entitlements to its members
Specialized facilities for stock lending and borrowing
What manual can be used to understand how communication works within Euroclear UK & Ireland (EUI) ?
Data Exchange Manual (DEX)
What 3 products do Central Counterparty Services deal with ?
Securities
Exchange Traded Funds & Options
OTC Derivatives
What is novation?
‘The substitution of one party to a contract by another party’
What are the three benefits to settling trades in a CCP?
Secrecy of trade
Netting of trades
Reduction of credit risk between the two parties
What is offered by members to ensure CCPs meet there margin requirements
Collateral
What does SPAN do? (Standardized Portfolio Analysis of Risk)
Used to calculate the margin payments
Why might a member firm pay a CCP a margin payment
Because a futures contract has fallen in price and the maturity date is approaching
What type of product does the Clearing Party ‘SwapClear’ deal with?
Swaps - Currencies
What type of product does the Clearing Party ‘RepoClear’ deal with?
Sale & Re-purchase agreements
What is the difference between a GCM and NCM
GCM needs connectivity to both systems, NCM needs one
How many connections does GCM need?
2
How many connections does NCM need?
1
in SETS Trade flows what is an exchange member also
Exchange member is also a clearing member
What companies are the two main supplies of real time fast data
Bloomberg & Refinitiv
What type of financial products does RTS1 Reporting under MiFID 2 contain
Shares, depositary receipts, exchange-traded funds, certificates
RTS1 is as near to real time as possible or within how many minutes?
1
What type of financial products does RTS2 Reporting under MiFID 2 contain
Bonds & structured financial products
RTS2 is as near to real time as possible or within how many minutes?
5
Difference between transaction reports and trade reports?
Trade is public.
Transaction is private for regulation
Who must MiFIR transaction reports be sent to
National Competent Authority (NCA)
What financial product type does the EMIR transaction reports cover?
Derivatives
Name 3 types of Transacting/Publication
MiFIR Transaction reporting
EMIR Transaction reporting
SFTR Transaction reporting
The Securities Financing Transactions Regulation’s (SFTR) covers what financial products? (4)
Repurchase transactions
Securities/commodities
Buy/sell back transactions
Margin lending transactions
