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IMC Unit 1 > 1 - Financial Markets and Intermediaries > Flashcards

1 - Financial Markets and Intermediaries Flashcards

1
Q

What are the four main functions in an economy?

A
  1. Financial intermediation
  2. Pooling and managing risk
  3. Payments and settlement services
  4. Portfolio management
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2
Q

Intermediaries significantly reduce information and transaction costs by:

A
  1. Providing services and products that allow savers to become investors
  2. Ensuring the adequate provision of information
  3. Allowing borrowers to access a range of savers that can meet a variety of terms
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3
Q

Insurance companies, pension funds and investment institutions or vehicles (such as an open ended investment companies (OEICS) and unit trusts) all perform what function?

A

Intermediation function

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4
Q

Examples of pooling and managing risk

A

1.Pooled investment products
2.Insurance
3.Derivatives - options and futures

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5
Q

Payment and settlement services

A

Banks are main providers of payment systems that allow money to be exchanged and debts settled.
Settlement services are provided by clearing houses for buyers/sellers of securities.

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6
Q

Main financial institutions

A
  1. Central bank
  2. Deposit institutions
  3. Investment institutions
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7
Q

Role of a central bank as financial institutions

A

Setting monetary framework within which financial organisations operate.
Set short-term interest rates
Lender of last resort to banking sector

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8
Q

Financial institutions act as intermediaries, including deposit and investment institutions. True or false

A

True

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9
Q

Deposit institutions - what are they?

A

Commercial banks and building societies.
Universal banks offer financial services AND deposit/lending facilities.

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10
Q

Investment institutions

A

Invest funds they raise in tradable securities such as bonds and equities.
Include insurance companies and pension funds.

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11
Q

Role of the government? Four functions

A
  1. Provision of public sector services
  2. Regulation
  3. Intervention in the distribution of income
  4. Stabilisation of the economy
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12
Q

Explain the Provision of public sector services as one role of the government

A

Market failure. Providing services that private firms are unwilling or not allowed to provide. Include defence, law and order, maintenance of some infrastructure.

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13
Q

Explain regulation as one role of the government

A

Regulating firms and markets principally to protect the consumer.

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14
Q

Who are the 3 main regulatory bodies In the UK for financial services?

A
  1. FCA
  2. PRA - prudential regulation authority
  3. FPC - financial policy committee
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15
Q

Explain intervention in the distribution of income as a role of the government

A

Redistribution of income and wealth as a policy, as a result of private market transactions. Include state benefits and taxation

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16
Q

Stabilisation as a role of the government explained

A

Use of interest rates to reduce fluctuations in employment and income. Carried out by BOE Monetary policy committee (MPC)

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17
Q

Advantages of indirect investment through intermediaries e.g. pension funds, insurance companies, pooled investment funds

A
  1. Greater diversification
  2. Reduced transaction costs
  3. Access to specialty expertise
  4. Ability to invest in assets that may not be available to the individual investor
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18
Q

Four functions of the financial services industry?

A

Financial intermediation
Pooling and managing risk
Portfolio management
Payment and settlement services

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19
Q

Main financial institutions?

A

Central banks
Deposit institutions
Investment institutions

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20
Q

Role of the government?

A

Provision of public sector services
Regulation
Intervention in the distribution of income
Stabilisation of the economy

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21
Q

Example of investment institutions

A

Insurance companies - life or general
Pension funds

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22
Q

Advantages of indirect investment through intermediaries (insurance companies, pension funds and investment vehicles)?

A

Greater diversification
Reduced transaction costs
Access to specialist expertise
Ability to invest in assets not usually available to individual investors

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23
Q

What is a derivative?

A

A financial contract derived from and underlying asset that speculates price movements of the asset over time

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24
Q

Functions of the securities markets:

A

Raising capital
Creating Liquidity
Price discovery
Transferring risk

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25
Q

Primary markets are ?

A

First issue to the markets (IPO)

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26
Q

Secondary markets are?

A

Subsequent trading of securities
Creating liquidity to investors

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27
Q

Two types of price dissemination?

A

Pre trade transparent: real time data
Post trade transaparent: trade prices soon after trades

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28
Q

Characteristics of a highly liquid market?

A

Large transaction volumes, low bid ask spreads and high depth (low market impact of a trade) - lower transactions costs

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29
Q

Which of these are transaction costs?
1. Broker commission
2. Taxes
3. Bid ask spread
4. Price impact of trade

A

ALL

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30
Q

How much is SDRT?

A

0.5% on all purchases. Rounded to 1p for CREST settlement otherwise it is to nearest £5

31
Q

PTM levy?

A

£1 on all sales and purchases over £10,000

32
Q

central counterparty to LSE SETS / SETSqx?

A

LCH.clear net - assumes risk but collects margin from members

33
Q

are gilts exempt from SDRT?

A

Yea

34
Q

3 types of order execution venues permitted under MiFID?

A

Regulated markets
Multilateral trading facilities
Systematic internalisers

35
Q

What venue was introduced under MiFID II?

A

Organised trading facilities (OTF)

36
Q

What trade stocks included in SETS?

A

FTSE 100 FTSE 250 FTSE Small cap AIM and Irish securities

37
Q

SETSqx - hybrid order electronic and quote driven market making - what stocks are traded here?

A

Less liquid stocks

38
Q

what is SEAQ and what is it used for ?

A

Quote driven display system used as price reference for fixed interest securities and AIM securities not traded on SETS or SETSqx

39
Q

How are international securities traded on london stock exchange?

A

International order book (IOB) or European Quoting service (EQS)

40
Q

Settlement time for LSE Equities?

A

T+2 through CREST

41
Q

Settlement time for gilts ?

A

T+1 through CREST

42
Q

What is electronic trading service for access to government and uk corporate bonds?

A

Order book for retail bonds (ORB)

43
Q

How often do gilts pay coupons?

A

Gross coupons semi annually

44
Q

What is a dual listed company (DLC)?

A

Corporate structure where two corporations function as one operating business through legal equalisation agreement but retain separate legal identities and stock exchange listings

45
Q

What is a benefit of being a dual listed company?

A

Capital gains tax as this could be paid if a merger took place

46
Q

What is a systematic internaliser?

A

An investment firm that deals on its own account by executing customer order flows I. Liquid shares outside either a Regulated market or MTF

47
Q

What is an OTF?

A

Multilateral system designed to capture trading in bonds and derivatives that would not be on regulated markets or MTF

48
Q

Who has the power to create listing rules?

A

FCA as the competent authority via FSMA 2000

49
Q

Conditions for a premium listing?

A
  1. Published account covering at least 3 years
  2. £30 million of listed stock or £200,000 of debt securities
  3. 10% of listed securities must be held by public
  4. Working capital for 12 months
  5. A sponsor
50
Q

AIM listing conditions?

A

No minimum but need a nominated adviser
Aim is classified as an MTF

51
Q

Corporate bond trading characteristics?

A

Decentralised, dealer-based OTC

52
Q

Difference between OTF and regulated markets/MTF?

A

Rules are discretionary

53
Q

Listing authority must approve listing particulars or prospectus prior to listing unless:

A

Offer is made to qualified investors
Offer is made to fewer than 150 persons
Min investment per person is €100k or more
Total consideration is less than €1m over 12 months

54
Q

Conditions for listing on AQSE growth market?

A

Appoint and retain AQSE adviser
24 months audited accounts
10% free float
Corporate governance

55
Q

Disclosure and transparency rules: PDMR must report transactions in securities within how many days?

A

Within 4 days of the transaction

56
Q

Listed companies must notify the market how soon after PDMRs make a transaction?

A

No later than end of following business day

57
Q

Persons of significant control (PSC) must be registered whwre?

A

Statutory registwr

58
Q

What does the shareholders right directive (SRD) require?

A

For shareholders to publish online information regarding the development and implementation of their shareholder engagement policy

59
Q

Climate reporting obligations under pension schemes act 2021 for companies with what AUM?

A

Greater than £1 billion

60
Q

DTR significant stakes: how quick do investors have to notify companies if their stake reaches 3% or the next % (or falls below 3)?

A

WITHIN TWO BUSINESS DAYS

61
Q

How long May companies require interests held ?

A

In the last 3 years

62
Q

AGM rules

A
  1. Within 6 months or year end
  2. Not more than a 15 month interval
  3. Called by directors
  4. Not less than 21 days written notice
  5. Electronic comms - 48 hours after sent
63
Q

General meeting rules

A
  1. Not less than 14 days written notice
  2. Called by directors or 5% or more shareholders
64
Q

General meeting voting -
1. By hands
2. By poll
3. General proxy
4. Special proxy

A
  1. Normal - one vote po
  2. more accurate as vote per share and proxies counted. Can be demanded by FIVE members or 10% or more shareholders
  3. Vote as they see fit
  4. Vote as directed
65
Q

Majority needed for special resolution votes?

A

75%

66
Q

Ordinary resolution votes majority needed?

A

50%

67
Q

What is the NYSE order processing system?

A

Universal Trading Platform (UTP)

68
Q

Eurobond features

A

International bonds
Denominated currency
Annual coupons
Unsecured bearer securities

69
Q

How are Eurobonds traded?

A

OTC and regulated by the ICMA

70
Q

How are Eurobonds settled?

A

T+2 via Euroclear and Clearstream

71
Q

When a listed company receives notification of 5% interest whim must they disclose this information to?

A

Regulatory information service

72
Q

What is an ADR?

A

American depositary receipt - issued by a U.S bank that represents shares in a foreign stock

73
Q

Who issues ADRs?

A

Non-US corporations

IMC Unit 1 (6 decks)

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