1.0 - Financial Markets And institutions Flashcards
(210 cards)
0
Q
What areas are in the flow of funds in an economy
A
- personal sector
- business sector
- government sector
- financial intermediaries
- overseas sector
1
Q
Why is money used in a Monetary Economy?
A
- divisible
- sufficient quantities
- generally accepted
2
Q
What are capital markets for?
A
Raising long term capital - over 5 year
3
Q
What are Money Markets for?
A
Raising short term capital - a day to a year
4
Q
What is financial dis-intermediation
A
When borrowers and lender borrow from each other directly - this is required for securitisation of debt
5
Q
What is Securitisation of debt?
A
Creation of tradable securities backed by less liquid assets like mortgages - it enables borrowing from non banks
6
Q
Why do derivatives like swaps and options make it harder to assess risk?
A
These transactions are off balance sheet so aren’t easily evident on a financial statement
7
Q
What amounts are dealt with in the Money Markets?
A
£50,000 or more usually
8
Q
What are the key features of the money markets (4)
A
- operated by banks who borrow and lend wholesale
- a primary and secondary market exists
- transactions are usually £50,000 or more
- emphasis on liquidity and efficiency
9
Q
What are the main types of banks and what do they do?
A
Retail banks- essentially high street banks
Wholesale banks - specialise in large loans
Clearing banks - operate clearing system for settling payments like checks. Do both the above but are the main retail banks
Investment Bank - offer services in investors. Act as brokers, underwriters and advisors in corporate actions like mergers
10
Q
What are the main Features of a Building Society?
A
- It’s main assets are the mortgages of its customers
- One of their liabilities are the balances of investor members who have saving accounts
- 50% of funds must be from share accounts of members
11
Q
What % of a building societies funds must be from share accounts of a member?
A
50
12
Q
What are the Similarities between Banks and Building Societies?
A
- banks are involved in the mortgage market
- societies provide services like cash cards and cheque books which only banks used to
- There are fewer building societies as they have been taken over by banks or others or have gone public and become a bank
13
Q
What is Open Market Operations?
A
Removal of cash from the banking system when there is a surplus and injection when there is a deficit
14
Q
What are the two purposes of the Central Bank?
A
Monetary and financial stability
15
Q
Banks providing life assurance is known as what two terms?
A
Bancassurance or all finanz
16
Q
What is Bancassurance or all finanz?
A
Banks providing life insurance
17
Q
Where do London and Edinburgh rank as fund management centres in Europe?
A
4th and 6th
18
Q
How does ABI define bancaasurers?
A
Insurance companies that are subsids of banks and building societies and whose primary market is the banks or buildings societies customer base
19
Q
What % of Eurobonds does the UK issue?
A
60%
20
Q
What share of the secondary market of Eurobonds does the Uk have?
A
70%
21
Q
How do German and French raise industrial finance?
A
Germany get industrial finance directly from banks as stock market has limited liquidity. In France the government works closely with major industrial projects
22
Q
Which countries former stock markets became Euronext?
A
Brussels, France and Amsterdam
23
Q
Which country has the worlds largest government bond market?
A
US
24
What amount do US dollar denominated bonds make up of the total market?
Half?
25
Who regulates US markets?
Securities and Exchange Commission
26
What are the two approaches for US financial services?
By an investment bank and add it to company holdings.
| Create own investment bank as a subsid and use existing customer and client base
27
Who has the second largest bond market in the world?
Japan
28
What % of stock turnover in Japan does the TSE account for?
80%
29
Who are the key regulators in Japan?
Ministry of finance and financial services agency with the latter reporting to the former
30
How members are there in the EU?
27
31
What is a free trade area?
When there is no restriction on the movement of goods and services between countries
32
What is a customs union?
An extension of a free trade area where there are common external tariffs and there is free trade between all members
33
What is a common market?
Combines free trade area and customs union but also has free movement of the four factors of production
34
How is inflation measured?
CPI or HCIP
35
What legislation created the uk inflation target?
BOE Act 98
36
What are the three types of Eu legislation and what precedent do they have?
Regulations - which automatically become part of the law
Directives - which must be implemented in 2 years
Decisions - issued to a person, state or company and is immediately binding
37
Who determines EU interest rates?
ECB
38
What is the PSNCR
The gap between government expenditure and income
39
What are the aims of industrial policy?
Competition
Stable macroeconomy
Flexibility in labour and capital markets
Legal system which gives trust and confidence
40
What is Innovation Policy?
It balances intellectual property protection with exploiting the new development
41
Which government department plays the key role in industrial policy?
Department for Business, Innovation and Skills
42
What is the role of the PRA?
Oversea prudentially significant firms
43
What is the role of the FCA?
Regulation of Conduct
44
What are voluntary codes?
Regulation and industry develops itself e.g. Banks following banking code til 09 when 2009 FSA starting regulating
45
When can dividends be paid?
6 months and a year
46
What is the difference between on OEIC and unit trust as both are open ended
Unit trust doesn't have shares
47
How are funds priced?
OEIC and unit trusts there is a relationship between price and underlying asset value and value of units
Investment trusts and ETF are priced according to supply and demand
48
Are investment trust closed or open ended?
Close except on issue of new shares
49
What types of derivatives contracts exist?
Swaps, Options and Futures
50
How are derivatives traded?
OTC and exchange traded with the later being more standardised
51
What is Forex?
Currency Exchange
52
What is this biggest centre for Forex?
London
53
What is a Spot?
Forex transaction which settles T + 2
54
What is a Forward?
Forex transaction for the future
55
What characteristics should a securities market have?
Cost efficiency - e orders will do this the most
Liquidity - affected by IT, stock availability and settlement services
Price discovery and transparency - how an eq price is reached
56
What is the standard trading method for shares, futures and options?
Order driven
57
What is the bid offer spread, market price or price impact?
The difference between price which you can buy and sell
58
What are the four purchase costs and how much are they?
Purchase cost
Brokers commission - around 1.5% to 7k and 1.0 % above, execution only services are £10 and above
Stamp Duty and SDRT - SDRT 0.5% on equities on crest rounded up to nearest 1p. Stamp duty is for less common purchases- 0.5% to nearest £5 or 0.1 for Ireland
Panel on Takeovers and Mergers Levee - £1 is above 10k
Big offer spread is also a cost
59
What terms can be used to describe the different price at which you can buy and sell?
Bid offer spread, market price and price impact
60
What is a limit order?
Only processed if the price is better than the stated minimum
61
What is the other term for liquidity risk?
Marketability risk
62
How many market makers does Sets have?
0
63
How many market makers does setsqx have?
At least one per stock
64
How many market makers does seaq have?
At least 2 per stock
65
What full listed stocks does sets trade?
Those defined as liquid by mifid
66
What full listed stocks does setsqx trade?
Those classed as illiquid by mifid
67
What aim stocks does sets trade
Most aim stocks
68
What types of aim stocks are traded on setsqx?
all aim euro stocks not traded on sets
69
What is the LSE's international board?
It allows uk and other countries to trade on other stock markets during domestic hours and runs as an MTF under LSE's RIE
70
What is the LSE's international order book?
E order book for trading international securities with a secondary listing on the LSE
71
Who regulates AIM?
LSE
72
What is the LSE's European quoting service?
Order driven market making and trade reporting platform that supports all EU regulated market liquid securities except those on either sets
73
What is NMS
Market makers must quote prices up to a certain volume
74
What is the SETS system also known as?
The Order Book
75
What is the Order Book?
sets system
76
Who is the central counterparts to all sets trades?
London clearing house also called LCH.Clearnet. All trades novate to the, and they buy and sell from investors
77
How does the order book prioritise?
Price then time
78
What times does setsqx have auctions?
8, 11, 3, 4.35
79
What is Exchange Market size?
Two way prices based up to transaction size determined on history
80
When must setsqx quote!
From 8 until the end of the day!
81
What is minimum quote size?
The minimum number of shares a market maker is prepared to buy or sell
82
What is a cross listing?
When a firm has shares on two exchanges
83
What are the features of a DLC?
Two corps act as a single entity and envolves a legal equalisation agreement and separate stock exchange listings. There are different shareholders. Works like a joint venture
Potentially creates higher maintenance costs and greater compliance burden e.g. Us sarbanes-only Act
84
What is an Open Offer?
A syndicate of banks will underwrite the Bon issue by buying the bonds and selling them on to investors
85
What is a bought deal?
When the lead bank buys all the bonds and sells them to the other banks in the syndicate
86
How are gilts usually traded?
OTC
87
How are gilts paid?
Gross unless otherwise stated
88
How are gilts priced?
They use the accrual convention where interest is calculated by days since last coupon and days in coupon period
89
What is a tranche?
Issuing a gilt on the same terms as one that already exists
90
What is a tranchette?
A small tranche
91
What privileges do GEMM get?
Strip and reconstitute gilts and access to IDB
92
What is the function of an IDB?
Allows GEMM to unwind positions anonymously
93
What is the function of SBLI's?
They buy dormant stock and make it accessible to market makers for a fee of around 0.5%
94
What is a broker dealer or dual capacity?
All LSE firms as they are both brokers and dealers
95
What are MTF's?
Work like an exchange by matching orders
96
What is another name for dark liquidity pools?
Non-displayed liquidity venues
97
What is the iceberg facility?
Offered by LSE and Liffe and causes only a small part of the order to be displayed at a time
98
What are systematic internaliser?
An investment firm which deals on its own account by executing order flow in liquid shares outside a regulated market or MTF
99
What is an ORB
E-order driven service that offers certain gilts and uk bonds listed on LSE's main market
100
What Re the features of an ORB
EU regulations distinguish between wholesale and retail.
Most corp bonds are wholesale and the secondary market is OTC
Order through an order book or through a broker who gives DMA
Starts with an auction at 8-8.45 and closes at 4.30
Gilts settle at t+1 and bons t+2
All bonds are listed in main market
101
What is another name for HFT?
Flash trading
102
What is layering or spoofing?
Placing many small orders on one side and a single large order on the other to create misleading info on supply and demand
103
Benefits of HFT
Improves liquidity
Lower transaction costs
Great efficiency in market pricing
104
When do UK equities now settle?
T+2
105
When is the ex dividend date for UK equities?
Thursday and close book is a Friday
106
What are the key strategies of HFT
Market making based on order flow - anticipating pending orders
Based on tick data- info on prices volume and times
Event arbitrage - price responses based on history
Statistical arbitrage - detecting statistically persistent phenomena
107
When doe gilts settle?
Same day or t+1
108
Through what do UK equities and bins settle through?
Euro clear UK and Ireland (Crest) which operates an e-dematerialised settlement system
109
What is DVP
When both parties Re ready to settle T the same time
110
Up to what length can special settlements to negotiated?
260 days
111
What day is the ex dividend date?
Thursday
112
When is the record date?
Friday
113
What are the special ex dividends?
Shares -10 days before ex dividend date
Bonds -5
Gilts - 0
114
Who regulates the LSE?
FCA
115
Who regulates the full list?
UKLA
116
What are the features of a premium and standard listing?
£700,000 shares
£200,000 debt
Freely transferable
Premium needs 3 years trading but waived for high growth firms and also needs a sponsor and capital for 12 months - standard need none of this
Sufficient marketability 25%
Disclose - price sensitive info, significant transactions, changes in registers and dividend (semi annually)
Include certain things in financial report
117
What are the obligations of a listing sponsor?
```
Ensure the following-
Company and directors are aware of obligations
The firm is suitable for listing
Liase with UKLA and submit documents
Co-ordinate listing process
```
118
When must an annual report be submitted?
4 months after year end
119
When must a semi annual report be submitted?
2 months after half year end
120
What is to be done if they become aware public forecasts are wrong?
Correct them but they don't have to tell analysts
121
When must documentation for a full listing be submitted?
48 hours before
122
What documents must be submitted for a full listing?
Doc that confirms they have adequate working capital and produce a prospectus
123
What are the listing requirements for aim?
appoint a NOMAD
Freely transferable
Have broker support
Publish price sensitive info and significant transactions
Produce and admission document
If there is less than 2 years trading history there must be a lock in where people agree not to sell shares for a year
124
What are listing requirement for ISDX?
```
Appoint ISDX corporate advisor
Demonstrate appropriate corp governance
Publish reports within 9 months of admission
12 months of capital
Freely transferable
Shares must settle electronically
```
125
Which exchanges offer a fat track procedure?
Aim and Access Market of the Munich Stock Exchange (Bayerische Boerse)
126
What is the prospectus directive?
EU directive meaning firms must issue a prospectus approved by a competent authority
127
What are the exemptions to the prospectus directive?
Offers made only to qualified investors
Private placements made to a fewer than 150 people per country
If miminum consideration payable by. Any person fro transfers of securities is at least £100,000 or denominations of £100,000
Total consideration in EEa states is less than £100,000
Share which over the last 12 months represent less than 10% of the number of shares of the same market already admitted in the market
128
How long do PDMR have to report their own transactions to the company?
4 business days
129
How and when must the company notify the market?
Through a RIS and no later than the next business day
130
What is the Model Code?
It restricts PDMR dealing on own account at certain times
131
How long do people have to notify the company of a share change?
2 Business days
132
What are the other threshold notification levels?
5% and 10% - OIEC and EES and US investment managers
133
Do companies have to keep a register of interests in shares?
No
134
What does S793 CA 2006 do?
Allows public companies to ask people who may have had an interest in the last three years to confirm this interest and the firm must keep this info
135
How does the companies act define a controlled party?
One stakeholder owns 33.3% of capital
136
What is a concert party?
When people act together. No written or oral agreement needed, they are treated as an individual owning the total amount
137
What must contained in the directors remuneration report which must be published due BIS regulations?
Annual statement with major decisions on remuneration, changes and context
Report directors remuneration policy
Annual report on remuneration and statement of implementation
These were created to give greater transparency and shareholders power over pay
138
How frequently is remuneration policy put to shareholders?
Every 3 years
If shareholders don't approve the current policy can remain
Seek approval at a GM
Seek a different remuneration policy
139
How does corporate governance operate?
Comply or explain
140
What must annual corp gov reports include?
How the main principles have been applied and if the firm has complied with relevant code principles
141
What are the main principles of the corporate governance code and how many are there?
5
1. Leadership- the board led by the chairman are collectively responsible
2. Effectiveness- board should have right balance of skills, experience and knowledge
3. Accountability - board should present a balanced assessment of the firms position
4. Remuneration - sufficient level to attract, retain and motivate
5. Relations with shareholders - dialogue and mutual understanding
142
What is the approach of the stewardship code?
Comply or Explain
143
How many and what are the principles of the stewardship code?
7
1. Publicly disclose policy
2. Have a robust policy and managing and disclosing conflicts of interest
3. Monitor invested companies
4. Clear guidelines on when and how to escalate activities to protect and enhance shareholder value
5. Act collectively with other investors
6. Clear voting policy and disclose it
7. Report periodically on stewardship and voting policy
144
What type of resolution is needed to remove directors?
Ordinary
145
What does DTR allow?
Delay of disclosure of public info if it would not mislead the public, the confidentiality of the info is secure and the release of the info would prejudice legitimate interests
146
For what is member approval needed?
Exceed delegated power
Allot shares
MKe a substantial contract with a mother director
Get a long service agreement
147
What % of votes must a member have to demand a meeting?
Normally 10% occasionally 5
148
After the requisiting of a GM what time frame is there for notice of a meeting to be sent out?
21 days
149
How long after notice of a General meeting has gone out must it be held?
28 days
150
If there is no notice sent out when can shareholders convene a meeting?
3 months after the requisition date
151
What fall of net assets requires directors to call a meeting?
If assets fall by half or more
152
When can an AGM be held?
Within 6 months of the financial year end
153
What is considered at an AGM?
```
Approving accounts
Changes in directors
Dividend changes
Changes of auditors
Giving directors power to change remuneration
```
154
How much notice is needed for a GM?
14 days
155
How much notice is needed for an AGM?
21 days
156
What % of agreement is needed for companies to call GM without notice period of 14 days?
90% for private
| 95% for public
157
For what is a special resolution required?
```
Change in name
Winding up
Reducing share capital
Present petition for winding up
Restriction of objects and articles
```
158
What must be done for a special resolution?
Text must be set out in full and and they must deliver a signed copy to the registra
159
In a private company who can propose a written resolution?
Director or holder of 5%
160
What is the voting period for a written resolution for a private company?
28 days
161
What is the documentation around a written resolution?
A 1000 word statement may accompany it and documents regarding the resolution must be submitted within 21 days of requisition
162
What is another name for a special proxy?
Two way proxy
163
What must done for record keeping purposes?
Minutes of GM and copies of resolutions outside of GM must helper for 10'years
164
Who can demand a poll vote?
Any 5 or more members or those holding 10 of the voting rights
165
What are the risks of investing in foreign securities?
```
Political
Economic
Info gap
Lack of regulations
High sector concentration like Russian oil
```
166
What is the creation fee of an ADR
1.5%
167
When do ADR's settle?
T + 3
168
What do ADR and GDR allow?
Trading of an equity on a different exchange without an actual listing
169
How are ADR's traded?
International Order Book
170
Who regulate NasDaq?
Securities exchange commission
171
How are Us equities traded?
Through universal trading platform
172
Who is the clearing house for US equities?
DTC
173
When do US equities settle?
T + 3
174
What tax is paid on overseas us equities?
30% unless a double taxation treaty exists meaning it will be halved
175
Who issues us gov bonds
Us treasury
176
How and when can us bonds be traded?
OTC and open from 9.00 to 16.00
177
What types of US bonds exist?
T- bills which are 3-12 month and are discount to face value
T- notes - 2-10'years coupon security
T - bonds - 10+'years coupon security
178
How frequently are us bonds issued?
Weekly issue of 3/6 month bills
Monthly of 1 year bills and 2/5 year notes
Quarterly for long dated stock
179
What is a Yankee Bond?
Dollar bond issued in the US by overseas companies
| Can't be sold until a 40'day seasoning
180
How is the TSE operated?
Order driven through the CORES dealing system
181
When do jap equities settle?
T + 3
182
What withholding tax exists form overseas jap equities
20 %
183
How are JGB traded?
TSE and OTC
184
How do international borrowers get access to jap bonds?
Through samurai and shiksa bonds and private auction
185
What % of the primary and secondary market do JGB cover?
50 and 80
186
What stock do agencies and municipals issue in Japan
Quasi government
187
What is the name of the French exchange?
Euronext
188
How are French equities processed?
Through a computerised order book called NSC
189
When do French equities settle?
T+3
190
How do French equities settle?
Through Euroclear France
191
How are French bonds settled?
Through clear stream and Euroclear
192
What amount of French bonds are public companies?
Over half
193
Are French bonds backed by the government?
No
194
What is the name of the German exchange?
Deutsche Borse
195
How are German equities traded?
Through computerised order book called XETRA
196
When do German equities settle?
T + 2
197
What is role of Clearstream for German equities?
Clearing, settlement and custody
198
When do German bonds settle
T+3
199
What are the types of German banking sector bonds?
Pfandbrife - bonds collaterised against portfolios on loans
Offenliche - backed by loans to the public sector
Hypotheken - backed by mortgages
200
How do emerging markets usually trade?
OTC
201
What are the features of emerging markets?
OTC and usually only for locally registered. Settlement is normally by central banks with no counterparty. Physical delivery and non-electronic orders aren't uncommon
202
What is a Eurobond?
Issued outside the currency of the issuing country
203
When do Eurobonds pay coupon and how is it paid?
Gross annually
204
Who regulates EUROBONDS?
ICMA
205
How does the Eurobond market work?
Telephone driven with no actual market
206
When do Eurobonds settle?
T +2 but confirmed at t+1
207
What are the two types of CSD?
Dematerialised - no physical document
| Immobilised - certificates immobilised in a depository
208
What are the roles of CSD and ICSD?
```
ISCD
International client base
Cross border activity
All securities
Settlement
Custody
Collateral management
Other services
Securities lending
```
```
CSD
Local client base
Domestic activities
Local securities
Settlemt
Custody
```
209
Ways of reducing agency problem?
Profit related pay
Share rewards
Executive share options
Separation of roles
Accounting standards
Corporate governance
