Chapter 2 - The Environment of Alternative Investments Flashcards Preview

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Flashcards in Chapter 2 - The Environment of Alternative Investments Deck (35)
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1
Q

Keyword ‘Bid-ask spread’

A

Price difference between the highest bid price and the lowest offer.

2
Q

Keyword ‘Buy-side’

A

Refers to institutions and entities that buy large quantities of securities for the portfolios they manage.

3
Q

Keyword ‘Call markets’

A

Buyers and sellers trade securities in call markets or continuous markets. Call markets are generally smaller and follow a pattern of price setting, a period of negotiation and negotiated price setting, and a set period of trading.

4
Q

Keyword ‘Churning’

A

Excessive trading for the purpose of generating commissions.

5
Q

Keyword ‘Commission de Surveillance du Secteur Financier (CSSF)’

A

Responsible for the financial regulation in Luxembourg. Responsible for the supervision of credit institutions, experts in the financial sector, investment companies, pension funds, regulated securities markets, and their operators, multilateral trading facilities and payment institutions.

6
Q

Keyword ‘Continuous markets’

A

Buyers and sellers trade securities in call markets or continuous markets. Continuous markets allow continuous trading as long as the market is open. Limit orders by market participants are maintained to buy securities (bid orders at bid prices) and to sell securities (offer orders at ask price).

7
Q

Keyword ‘Dark pool’

A

Nonexchange trading by large market participants that is hidden from the view of most market participants.

8
Q

Keyword ‘Data providers’

A

Supply funds primarily with raw data, including security prices, trading information, and indices.

9
Q

Keyword ‘Family office’

A

Group of investors joined by familial or other ties who manage their personal investments as a single entity, usually hiring professionals to manage money fro members of the office.

10
Q

Keyword ‘Fourth markets’

A

Electronic exchanges that allow traders to quickly buy and sell exchange0listed stocks via the electronic communications systems offered by these markets.

11
Q

Keyword ‘Management company operating agreement’

A

Agreement between members related to a limited liability company and the conduct of its business related to the law.

12
Q

Keyword ‘Market making’

A

Practice whereby an investment bank or other market participant deals securities by regularly offering to buy securities and sell securities. The market maker seeks to receive the bid-ask spread through regularly selling at the ask price and buying at the bid price.

13
Q

Keyword ‘Market orders’

A

Immediate execution of transaction at best available price.

14
Q

Keyword ‘Market takers’

A

Buy at ask prices and sell at bid prices, generally paying the bid-ask spread for taking liquidity.

15
Q

Keyword ‘MiFID’

A

Markets in Financial Instruments Directive is an EU law that establishes uniform regulation for investment managers in the European Economic Area.

16
Q

Keyword ‘Partnership agreement’

A

Formal written contract creating a partnership.

17
Q

Keyword ‘Platforms’

A

Systems that provide access to financial markets, portfolio management systems, accounting and reporting systems, and risk management systems.

18
Q

Keyword ‘Primary market’

A

Refers to the methods, institutions, and mechanisms involved in the placement of new securities to investors.

19
Q

Keyword ‘Private-placement memoranda’

A

Or offering documents, which are formal descriptions of an investment opportunity that comply with federal securities regulations.

20
Q

Keyword ‘Regulation T margin rule’

A

Federal Reserve leverage rules that include the Regulation T margin rule that currently requires a deposit of at least 50% of the purchase cost or short sale proceeds of a trade (margin).

21
Q

Keyword ‘Secondary market’

A

Facilitates trading among investors of previously existing securities.

22
Q

Keyword ‘Section 3(c )1’

A

HF and other AT pools typically avoid registration through exemptions including Section 3 (c )1 of the company act that limits the number of purchasers to 100 beneficial owners.

23
Q

Keyword ‘Section 3(c )7’

A

Company act, waives registration if there are no more than 500 super qualified investors.

24
Q

Keyword ‘Sell-side’

A

Sell-side institutions, such as large dealer banks, act as agents for investors when they trade securities. Sell-side institutions make their research available to their clients and are more focused on facilitating transactions than on managing money.

25
Q

Keyword ‘Soft dollar arrangements’

A

Agreement or understanding by which an investment adviser receives research services from a broker-dealer in exchange for a fee (such as commissions) paid out of the fund or client account.

26
Q

Keyword ‘Software’

A

May consist of prepackaged software programs and computer languages. Some funds use open-source software, and others pay licensing fees for proprietary software.

27
Q

Keyword ‘Subscription agreement’

A

Application submitted by an investor who desires to join a limited partnership.

28
Q

Keyword ‘Systemic risk’

A

Potential for economy-wide losses attributable to failures or concerns over potential failures in financial markets, financial institutions, or major participants.

29
Q

Keyword ‘Third markets’

A

Regional exchanges where stocks listed in primary secondary markets can also be traded. Allow brokers and dealers to set up trades away from an exchange by listing their prices on the NASDAQ intermarket. Third markets are a segment of the OTC market where nonmember investment firms can make markets in and trade securities without going through the exchange.

30
Q

Keyword ‘Universal banking’

A

Means that banks (especially in Germany) can engage in both commercial and investment banking.

31
Q

What is the term for a private management advisory firm that serves ultra-high net worth investors?

A

Family office or Family Home office

32
Q

List several advantages of Separately Managed Accounts (SMAs) relative to funds.

A

SMA investors are the owners on record of the invested assets, SMAs may have objectives that are designed to suit the specific needs of an investor, and SMAs offer transparency to their investors.

33
Q

Which of the following participants is LEAST LIKELY to be classified as an outside service provider: Arbitrageurs, accountants, auditors, or attorneys?

A

Arbitrageurs

34
Q

Which type of investment adviser may not need to register with the SEC when it has between $25 and $100m in assets under management (AUM) and is subject to registration and examination as an investment adviser at state level?

A

A mid-sized investment adviser

35
Q

List four ways that a hedge fund manger can increase its use of leverage beyond those established by the Federal Reserve’s Regulation T and NYSE and NASD requirements.

A

By registering themselves as broker-dealers, by taking derivative positions to obtain synthetic ownership of securities, by using a joint front office account, and by implementing a repurchase (repo) transaction.