UK Equity Market

Question 1

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

Answer 1

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

Question 2

What is traded on SETS?

Answer 2

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

Question 3

What type of trading is SETS?

Answer 3

o Continuous order book trading

Question 4

What is SETS qx?

Answer 4

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

Question 5

What securities are traded on SETS qx?

Answer 5

Less liquid securities (not traded on SETS)

Question 6

What type of trading is made on SETSqx?

Answer 6

Combines periodic electronic order book and quote-driven market making

Question 7

What are fixed income/ interest securities traded on?

Answer 7

SEAQ

Question 8

What is SEAQ

Answer 8

A Quote driven platform.

not a continuous order book platform (instead advertising)

Question 9

What is shown on the display of SEAQ?

Answer 9

Electronic display of market maker quotes

Question 10

What does SEAQ stand for?

Answer 10

Stock Exchange Automated Quotation

Question 11

what is traded on the international Order book?

Answer 11

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

Question 12

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

Answer 12

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

Question 13

What are European Union liquid securities traded on?

Answer 13

o European Quoting service (EQS)

Question 14

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

Answer 14

Order book for Retails Bonds (ORB)

Question 15

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

Answer 15

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.

Question 16

What are Gilts?

Answer 16

These are UK government bonds

Question 17

Who auctions Gilts?

Answer 17

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

Question 18

How are coupons for Gilts paid?

Answer 18

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

Question 19

when does the ex-dividend date occur?

Answer 19

seven days before coupon payment

Question 20

Who are Gilts registered by?

Answer 20

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

Question 21

Who receives the coupon for a Gilt?

Answer 21

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.

Question 22

What happens before a coupon is due to be paid?

Answer 22

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).

Question 23

What platform are Gilt deals settled by?

Answer 23

settle via CREST

Question 24

Who owns CREST?

Answer 24

Euroclear UK and Ireland

Question 25

Who are the key market participants in Gilts?

Answer 25

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

Question 26

What must GEMMs do?

Answer 26

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

Question 27

Who do GEMMs have special arrangements with?

Answer 27

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

Question 28

Who do GEMMs deal with?

Answer 28

Big institutions not retail directly.

Question 29

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

Answer 29

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

Question 30

What is the market for GILTS?

Answer 30

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

Question 31

How are corporate bonds issued?

Answer 31

private placements (not necessarily auctions) normally through a bought deal or fixed price re-offer

Question 32

what is a fixed-price re-offer?

Answer 32

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

Question 33

What is a brought deal?

Answer 33

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

Question 34

What market are corporate bonds sold on?

Answer 34

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

Question 35

List the features of OTC

Answer 35

* Decentralised trading | * Securities not listed on an exchange

Question 36

What is an Multilateral trading facilities (MTFs)

Answer 36

Trading platforms organised by investment firms themselves

Question 37

Give an e.g. of an MTFs

Answer 37

BATS Chi-X Europe, Turquoise

Question 38

Why have MTFs arisen

Answer 38

• 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

Question 39

Do MTFs act under regulations?

Answer 39

* These like other exchanges act under a considerable number of rules * Brought about since advent of MIFID in 2007

Question 40

What is a systematic internaliser?

Answer 40

* 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

Question 41

What is an Organised trading facilities (OTFs)

Answer 41

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

Question 42

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

Answer 42

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

Question 43

What has the creation of OTFs meant?

Answer 43

Increased the overall market transparency and reduce the prevalence of opaque market models and products Increased the quality of the market (more liquidity etc.)

Question 44

What were OTFs introduced under?

Answer 44

MiFID II

Question 45

What is traded on an OTF?

Answer 45

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

Question 46

What are the rules and regulations on an OTF?

Answer 46

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

Question 47

What is a dark pool?

Answer 47

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

Question 48

What do dark pools allow?

Answer 48

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

Question 49

Who is likely to use a dark pool?

Answer 49

Likely to be the domain of big institutions