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CISI Cards - Technology in Investment > Technology in Investment - Chapter 4 > Flashcards

Technology in Investment - Chapter 4 Flashcards

1
Q

What is the first stage of the Portfolio Management Process

A

Determining and understanding the investment objectives of the client

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2
Q

What is the second stage of the Portfolio Management Process

A

Formulating an investment policy and strategies to meet those objectives

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3
Q

What is the third stage of the Portfolio Management Process

A

Asset allocation

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4
Q

What is the fourth stage of the Portfolio Management Process

A

Asset selection

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5
Q

What is the fifth stage of the Portfolio Management Process

A

Performance measurement

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6
Q

What is the sixth stage of the Portfolio Management Process

A

Suitability

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7
Q

When and why will a buy side firm look to rebalance a portfolio

A

Each month or quarter depending on investment strategy

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8
Q

Is measuring ESG easy?

A

Nah, over 100 companies offering many results and research

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9
Q

Contents of an order - Buy/Sell - What is it?

A

Buying or selling a quantity of an asset

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10
Q

Contents of an order - At best/At market - What is it?

A

Buy or sell at the best available price the member firm can obtain at the time

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11
Q

Contents of an order - Limit - What is it?

A

If selling dont sell below X price
If buying to buy above X price

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12
Q

Contents of an order - Good until cancelled - What is it?

A

There is no time limit on the order

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13
Q

Contents of an order - Expiry date - What is it?

A

If the order can’t be filled by this date, it should be cancelled

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14
Q

Contents of an order - Fill or Kill - What is it?

A

If the order is to buy 10,000 but the investor can only pay 5000, then don’t bother. Fill the order or Kill the order

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15
Q

Under MiFID 2 what are the 3 types of identifiers that must be provided during a trade

A

Client identifier
Firms
Counterparty

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16
Q

Type of Identifier - Client Identifier. What is it?

A

LEI for business, National Insurance for personal

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17
Q

Type of Identifier - Counterparty. What is it?

A

Counterparty dealing with the other side of the trade, LEI will be required when dealing

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18
Q

Type of Identifier - Firm. What is it?

A

Firm executing the trade, they will need to provide their own LEI when submitting order

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19
Q

Agent orrrrrr Principal!!! (Bonds)

A

Principal

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20
Q

Agent orrrrrr Principal!!! (Futures & Options)

A

Agent

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21
Q

Agent orrrrrr Principal!!! (Foreign Exchange)

A

Principal

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22
Q

Agent orrrrrr Principal!!! (OTC Derivatives)

A

Principal

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23
Q

Agent orrrrrr Principal!!! (Equities)

A

Principal

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24
Q

What is a principal order

A

An order that is NOT forwarded to an exchange and come out of their own pool of assets

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25
Q

How many principles are there to treat customers fairly (TCF)

A

2

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26
Q

What is an agency order

A

Order gets forwarded to an investment exchange

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27
Q

What is principle 6 of TCF

A

Requires a firm to pay due regard to the interests of its customers and treat them fairly

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28
Q

What is principle 8 of TCF

A

Requires a firm to manage conflicts of interest fairly

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29
Q

Explain in brief the Order Flow Steps (5)

A

Order placed by fund manager
Sell-side firm acknowledges and decided how to execute
When executed a confirmation is returned to fund manager
Fund manager checks confirmation
Both fund manager and sell side send settlement instructions to their custodians.

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30
Q

What are the main capabilities for a buy side dealing system (11)

A

Automation Compliance
MiFID Compliance
Support for investment decision-taking
Support for all security types invested
Multi-currency capabilities
Customer reporting
Performance measurement
Income and capital gains tax computing
Broker connectivity
Support for algorithmic trading
Ability to receive real time market data feeds

31
Q

What are the main Sell-side dealing systems (9)

A

Automation Compliance
MiFID 2 compliance
Support for all security types invested
Multi-currency capabilities
Connectivity to exchanges
Connectivity with buy side clients
Commission and charges calculation
Support for the trading book and ability to mark to market
Support for algorithmic trading

32
Q

What is a percentage fee?

A

% value of the trade charged as a fee

33
Q

What is a flat fee?

A

Used by execution-only. No matter the Qty the fee will be the same

34
Q

What is a basis point

A

0.01%. For £1,000,000 to one basis point would be £100

35
Q

What is a sliding scale?

A

More quantity, less fee

36
Q

What is a reducing scale?

A

Same as sliding scale except the clients previous orders are added. Sorta like a rewards scheme

37
Q

Whats an exchange fee?

A

Charged by the exchange where the trade is executed

38
Q

Commission Sharing - What is Cross Border Trading

A

If a trade is executed in two countries, both brokers may charge a commission

39
Q

Commission sharing - What is split services

A

Research & Execution. Research is the commission for finding. Execution is the commission for executing

40
Q

What is the current Stamp Duty Reserve Tax?

A

0.5%

41
Q

What is High Frequency Trading (HFT)

A

Computers make rapid and complex decsions in milliseconds to place a trade

42
Q

In terms of trading, what is a circuit breaker?

A

A stop on trading on the S&P 500 if it fell or rose by 10% + in a 5 minute window

43
Q

What is Direct Market Access (DMA)

A

Routing a security directly to an execution venue, avoiding intervention by a third party

44
Q

What three risks are fund managers exposed too?

A

Credit Risk
Market Risk
Operational Risk

45
Q

Capital Ratio = Capital Requirement
——————————-
(? + ? + ?)

A

? = Credit, Market and Operational Risk exposure

46
Q

How is Credit Risk usually mitigated?

A

By using a central securities depository (CSD)

47
Q

How is market risk usually mitigated?

A

Diversification and hedging

48
Q

What is Mark-to-Market

A

The calculation of a portfolios assets at their current market value

49
Q

What is Value-At-Risk

A

A measure of how the market value of an asset is likely to decrease over a certain period of time

50
Q

What defines the effectiveness of VAR analysis

A

Confidence Level

51
Q

What is the main drawback with VAR analysis

A

That the confidence level can be 99% but the 1% could have an unlimited potential loss

52
Q

Why is ESG factors becoming more important when making investment choices?

A

Clients and investment firms are demanding ESG compliant products & proccsesses

53
Q

List the information that you would normally expect to see on an order to sell securities at a maximum price (3.1.2)

A

Client Identifier
Firm
Counterparty

54
Q

What are the four steps that an investment firm must take to ensure compliance with Article 21 of MiFID II in the context of ‘best execution’? (3.2.2.)

A

Establish an execution policy
Disclose the policy to clients
Monitor effectiveness of arrangements and appropriateness yearly
Upon client request, be able to prove you’ve executed against the policy

55
Q

List the information that you would expect a sell-side firm to include in the trade confirmation that it sends to a fund manager (Inter-alia)

A

Name of the client
Name of the stock
Trade date
Value date
Price of the trade
Net amount to be paid or received
If the firm acted as the agent or principal
if they was the agent, what exchange was used

56
Q

What is Omgeo?

A

Another type of automated trade information exchange. Used by 1000s

57
Q

What is the difference between a ‘sliding scale’ of commissions and a ‘reducing scale’ of commissions? (3.5.1)

A

The reducing scale cumulates previous client orders and discounts on the total volume ever purchased. Sliding calculates on the volume of that one trade only

58
Q

What was the cause of the ‘Flash Crash’ of 2010?

A

A large mutual fund was mis traded by algorithmic trading

59
Q

What factors have driven the use of self-servicing?

A

People are tech savvy and want instant solutions and advice to investment issues. It is also less manual and cost effective for firms

60
Q

What is the name of the risk management technique that is designed to ensure that all investments are recorded in the dealing system at their current market value? (6.2.1)

A

Mark to Market

61
Q

Why is it necessary for certain firms to be able to calculate value-at-risk in order to meet their regulatory requirements connected with Basel II? (6.2.2.)

A

To find out their capital requirement (Pillar 1Basel)

62
Q

What does a CoVaR calculation set out to do? (6.2.2)

A

Contagion Value at Risk. The same but works out what would hgappen if that 1% went into high stress.

63
Q

What is an ECN

A

Electronic Communication Networks.

ECN is a type of ATS that enables traders and institutional investors to deal directly amongst themselves without the need to go through an exchange or OTC market maker

64
Q

What does ATS stand for? Think ECNs, MTFs & OTFs

A

Alternate Trading system, u cunt (Said in australian so its friendly)

65
Q

How is price displayed within an ECN

A

participants can see the best available bid and ask prices,

contributing to more efficient and fair markets.

66
Q

Where are ECN’s most used?

A

Equities and Fx markets

67
Q

What is the PTM Levy?

A

Any transaction over £10,000

68
Q

According to MiFID 2, how often must sell-side firms review the effectiveness of their execution arrangements & venue selections

A

At least yearly

69
Q

What type of instrument can investors invest in to avoid Stamp Duty Reserve Tax (SDRT)

A

Listed futures/options

70
Q

A commission fee structure expressed as ‘3 points per million’ is MOST likely to apply to what type of financial instrument?

A

Bond (James)

71
Q

A commission expressed as £x per lot is used for what financial instrument

A

Futures & Options contracts

72
Q

What is a Basis Point expressed as ?

A

1/100th of a & point

73
Q

A firm has calculated its VAR at “£6.5 Million at a 95% confidence level”. This means?

  • Under normal market conditions, there is a 95% probability that the value of its portfolio will INCREASE by at most £6.5 Million during any-one day
  • Under normal market conditions, there is a 95% probability that the value of its portfolio will DECREASE by at most £6.5 Million during any-one day
  • Under normal market conditions, there is a 5% probability that the value of its portfolio will INCREASE by at most £6.5 Million during any-one day
  • Under normal market conditions, there is a 5% probability that the value of its portfolio will DECREASE by at most £6.5 Million during any-one day
A

Under normal market conditions, there is a 95% probability that the value of its portfolio will DECREASE by at most £6.5 Million during any-one day

74
Q
A

CISI Cards - Technology in Investment (20 decks)

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