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IMC Unit 1 - Chapter 1 > UK Equity Market > Flashcards

UK Equity Market Flashcards

1
Q

What are UK shares traded on? and what type of platform is this?

A

Traded on SETS (order driven – continuous runs all day until market closes)

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2
Q

What is traded on SETS?

A

o FTSE All-Share and the most liquid AIM (alternative investment market) and Irish securities

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3
Q

What type of trading is SETS?

A

o Continuous order book trading

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4
Q

What is SETS qx?

A

Hybrid) – Stock Exchange trading system quotes and crosses – hybrid between the above and below platforms.

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5
Q

What securities are traded on SETS qx?

A

Less liquid securities (not traded on SETS)

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6
Q

What type of trading is made on SETSqx?

A

Combines periodic electronic order book and quote-driven market making

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7
Q

What are fixed income/ interest securities traded on?

A

SEAQ

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8
Q

What is SEAQ

A

A Quote driven platform.

not a continuous order book platform (instead advertising)

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9
Q

What is shown on the display of SEAQ?

A

Electronic display of market maker quotes

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10
Q

What does SEAQ stand for?

A

Stock Exchange Automated Quotation

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11
Q

what is traded on the international Order book?

A

Depositary receipts on international securities – things like GDRs / ADRs (American depository receipts) not for shares themselves

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12
Q

Can securities listed in other markets be traded on the London Market?

A

Securities listed in other markets (currently SGX- e.g. securities listed in Singapore can be traded on the London market) during London trading hours

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13
Q

What are European Union liquid securities traded on?

A

o European Quoting service (EQS)

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14
Q

What are Gilts, supranational and UK corporate bonds traded on?

A

Order book for Retails Bonds (ORB)

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15
Q

What is the London clearing house called? and what does it do?

A

LCH.Clearnet

these act as the central counterparty (CCP) to SETS/SETS qx trades. This ensures that both sides of the trade honour the deal when using SETS/ Sets qx platforms.

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16
Q

What are Gilts?

A

These are UK government bonds

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17
Q

Who auctions Gilts?

A

Auctioned by the Debt Management Office (DMO) on behalf of the government

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18
Q

How are coupons for Gilts paid?

A

• Coupons generally paid gross (unless you opt to have them payed net) and semi-annually

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19
Q

when does the ex-dividend date occur?

A

seven days before coupon payment

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20
Q

Who are Gilts registered by?

A

registered by an entity knows as Computer Shares Investor Services and they hold the Gilt register

21
Q

Who receives the coupon for a Gilt?

A

7 days before the payment of a coupon they will observe who owns the bond – regardless of purchase whoever is holding the bond at this time will receive the entire 6 months coupon.

22
Q

What happens before a coupon is due to be paid?

A

The worth of the Gilt drops below the clean price because an owner will miss out on the payment and won’t start earning interest on the bond until the ex-dividend period has closed. So there will be a period where a bond is trading with negative accrued interest (up to 7 days).

23
Q

What platform are Gilt deals settled by?

A

settle via CREST

24
Q

Who owns CREST?

A

Euroclear UK and Ireland

25
Q

Who are the key market participants in Gilts?

A

gilt-edged market makers (GEMMs) – give quote prices during the mandatory quote period.

26
Q

What must GEMMs do?

A

Must bid in DMO primary auctions – they have to be present with every issue of Gilts whether or not they want to buy these.

27
Q

Who do GEMMs have special arrangements with?

A

Special dealing arrangements with the DMO and inter-dealer brokers (IDBs)

28
Q

Who do GEMMs deal with?

A

Big institutions not retail directly.

29
Q

What do inter-dealer brokers IDBs offer in terms of GILTS?

A

o The IDBs offer a mechanism unwinding positions (e.g. if can’t get the bonds out) but doing this with large anonymity.

30
Q

What is the market for GILTS?

A

There is no centralised market for these. OTC market (over the counter market) not through platforms like SETS

31
Q

How are corporate bonds issued?

A

private placements (not necessarily auctions)

normally through a bought deal or fixed price re-offer

32
Q

what is a fixed-price re-offer?

A

an underwriter would buy and then offer these out through a syndicate but everyone would be using the same price.

33
Q

What is a brought deal?

A

when the entire issue has been underwritten – if issuing houses don’t raise the money through the market then the underwriters will pay. The entire issue has been guaranteed in a bought deal. Trading of these is de-centralised

34
Q

What market are corporate bonds sold on?

A

decentralised, dealer-based OTC market - There is no centralised market for these. OTC market (over the counter market) not through platforms like SETS

35
Q

List the features of OTC

A
  • Decentralised trading

* Securities not listed on an exchange

36
Q

What is an Multilateral trading facilities (MTFs)

A

Trading platforms organised by investment firms themselves

37
Q

Give an e.g. of an MTFs

A

BATS Chi-X Europe, Turquoise

38
Q

Why have MTFs arisen

A

• These are alternative exchanges – come about as a market for exchange traded assets that aren’t currently featured on places like the London Stock Exchange

39
Q

Do MTFs act under regulations?

A
  • These like other exchanges act under a considerable number of rules
  • Brought about since advent of MIFID in 2007
40
Q

What is a systematic internaliser?

A
  • Investment firms dealing own account in liquid shares outside a regulated market of MTF
  • They are marrying a buyer and a seller from their own client base
41
Q

What is an Organised trading facilities (OTFs)

A

Multilateral system which is not classified as a regulated market or MTF

New category of trading facility introduced in MiFID II to capture trading in bond and certain kinds of derivatives that would not be traded on organised markets or MTFs

42
Q

What was the case previously with many transactions that now sit under OTFs?

A

many transactions that were considered off exchange/ venue now sit under this environment

43
Q

What has the creation of OTFs meant?

A

Increased the overall market transparency and reduce the prevalence of opaque market models and products

Increased the quality of the market (more liquidity etc.)

44
Q

What were OTFs introduced under?

A

MiFID II

45
Q

What is traded on an OTF?

A

capture trading in bond and certain kinds of derivatives that would not be traded on organised markets or MTFs

46
Q

What are the rules and regulations on an OTF?

A

Trading on regulated markets and MTFs is governed by rules whereas trading on OTFs is discretionary

47
Q

What is a dark pool?

A

MTFs that have opted out of the requirements for pre-trade transparency

48
Q

What do dark pools allow?

A

This lack of transparency can allow large trades to be traded without price impact, thus potentially getting a better price on sizeable orders.

49
Q

Who is likely to use a dark pool?

A

Likely to be the domain of big institutions

IMC Unit 1 - Chapter 1 (5 decks)

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