Technology in Investment - Chapter 5 Flashcards
What are the four main challenges with reference data
1 Gather required data from separate sources
2 Store it securely
3 Update when necessary
4. Utilize it appropriately
What is a Standing Settlement Instruction?
Provide details of which “Settlement Agents” are to be used by both parties
What is reference data needed for
Automation
What is a reference data repositories (RDRs) and what departments does it feed?
A extra storage space for data from external and internal sources. Feeds back, middle and front office operations
3 Advantages to a Reference Data Repositories (RDRs)
Ensures consistent data across all platforms
Can take in data from reliable external sources like Bloomberg & Refinitiv
Data is maintained by a dedicated team
3 Disadvantages to Reference Data Repositories
Costly to build system
Costly to maintain system
Other systems will need to be enhanced to function with a RDR
What are the four components of Inter-alia
Default settlement date (Usually T+2)
What fees and charges apply
Trade currency (Buy currency)
Settlement currency
What is an ISO currency code
3 character code eg.
USD
GBP
EUR
What code would GBP, EUR and USD fall under
ISO Country code
What is a Principal Amount?
Principal Amount = ? x ? x ?or?
Principal Amount = Qty traded X Price X Price Multiplier or Price Divisor
What is 30/360
360 days in a year and all months are 30 days long
What is Actual 360
360 days in a year, calendared days in a month
Actual/365
365 days in a year, calendared days in a month
Actual/Actual
Use the actual amount of days in a year and month
Formula for calculating Accrued interest using Actual/Actual
Accrued Interest = ?/? X ?/?
T/S X C/N
T = Number of calendar days from, and including last payment date to and including the value date
S = The actual number of calendar days in the current interest period
C = Annual rate of interest
N = Number of payments
What does the ‘T’ stand for in the accrued interest calculation
T = Number of calendar days from, and including last payment date to and including the value date
What does the ‘S’ stand for in the accrued interest calculation
S = The actual number of calendar days in the current interest period
What does the ‘C’ stand for in the accrued interest calculation
C = Annual rate of interest
What does the ‘N’ stand for in the accrued interest calculation
N = Number of payments
What is a BIC code
Called a SWIFT code, it is messages between trading parties.
How many digits is a BIC Code and what format is is set in?
1-4 = Bank Code
5-6 = Country code
7-8 = Location Code
9-11 = Branch code (optional)
What type of code would this be an example of?
DEUTDEFF
BIC/SWIFT:
- DEUT identifies Deutsche Bank.
- DE is the country code for Germany.
- FF is the code for Frankfurt.
What is an IBAN Code?
Superlong code used by weird countries for the same purposes as BIC/Swfit codes
How many digits is a IBAN Code and what format is is set in?
30 +
Country the domestic bank account number
How many digits is a IBAN Code and what format is is set in?
32 Max, with the country then the domestic account number
What type of code would this be an example of?
GB65 LOYD 30000 0000 1029 69
IBAN.
GB65 Country
LOYD Bank
Account Number
What is a LEI Code
Legal Entity Identifier. Used to identifier any party in any transaction
How many digits is LEI and in what format?
20 Digit
1-4 Local Operating Unit
5-6 reserved
7-18 Unique to party
18-20 checksum digits
No LEI?
No Trade!
Match the digit count to the code type!
20 Digits BIC CODE
30 + Digits IBAN CODE
8-11 Digits LEI CODE
Answer:
20 digits = LEI
8-11 digits = BIC
30 + digits = IBAN
Apart from SSI, what 7 details also must be recorded about each client/counter party during a transaction (FAT CACC)
Full name
Additional names and addresses where trade confirmations get sent
Type of party, like an investor or exchange
Commission scale that applies to the party
Any credit limit granted to the party
Contact details
Country of incorporation/residence
What is a depot account?
The account held with the settlement agent, measures the qty of the transaction
What is a Nostro account?
The account held with the settlement agent, measure’s the money amounts
What are the 2 key risk indicators when using reference data?
High level of failed trades
Higher number of queires on unreleased income and profits
What is an ISDA Master Agreement
Standard counter party agreement for derivatives
Trade agreement process - What are the three processes for a buy-side firm.
Confirmation, Affirmation and Allocation
Trade agreement process - Retail investors
Normal except the confirmation is not usually responded to by the client (Unless there is an issue)
Trade agreement process - Market Counterparty
Either a matching engine or a mutual exchange of confirmations
What is a Mutual Exchange of Confirmations
Simply the buyer confirming their buy Vs the seller confirming their sale
What is OMEGO
A Matching engine
What is a matching engine
Matches two trade reports together shortly after execution
What is the time frame for post trade reporting - RTS 2
Near to real time, or at least one minute
Under MiFIR RT22 does transaction reporting matte rif your a retail or wholesale client
Nein
List of FCA approved APAs
- Bloomberg Data Reporting Services ltd.
- Cboe Europe ltd.
- London Stock Exchange plc.
- Tradeweb Europe ltd.
- MarketAxess Post-Trade ltd.
What is the time frame for post trade reporting - RTS1
Near to real time, but up to 15 mins
What are the four technological implications on Regulatory Transaction Reporting
- Ensure trade capture systems record all the required data (Such as trade details and ISIN Numbers)
- Correct transactions are reported to APA and ARM
- Automated transaction reports
- And rejections or issues are captured by APA/ARM
What is rule 16.3.2 ( 2 parts )
Statements must be sent every 6 months with the client able to change this to three months
The firms must inform clients of this right to change to 3 months
What are the 7 requirements for Commercial customer reporting
- List of and valuation of the holdings at the statement date
- Compares the performance of the fund to a ‘benchmark’
- Makes an attempt at ‘performance attribution’
- Capital cash statement
- Income statement
-Corporate actions settlements
-Capital gains tax reports and vouchers
What is the difference between a depot and a nostro account
Depot is quantities of securities, nostro is the monetary value
List 3 advantages and disadvantages for building/maintaining a reference data repository
What is the FCAs definition of a client agreement
‘terms of business which have been signed by the client or to which the client has consented in writing’. It then further defines ‘terms of business’ as ‘a statement in a durable medium of the terms and conditions on which a firm will carry on a regulated activity with or for a client or retail customer’.
What trading code combines security type and the country of trade
ISO Currency code
List the 5 tech requirements for the trade agreement process for a SELL side firm
Need the technology to send confirmations
Tech for the confirmation/affirmation/allocation process. Institutional need matching engines like OMEGO
Technology to communicate with matching engines
If involved in FX they will need technology to match currency
Technology to tracking matching and show errors
List the 3 tech requirements for the trade agreement process for a BUY side firm
Need tech to match confiratmions
Need tech to send affirmations and allocations to sell-side
Need tech to track state of play and confirmations
What chapter is this
Funf
