Chapter 9: Regulatory Requirements

Question 1

What is the Purpose of Regulators?

There are 6

Answer 1

• Orderly markets
• Consumer protection
• Education
• Combating financial crime
• Reduce sytemic risk
• Maintain financial stability

Question 2

What are the main activities of regulators?

Answer 2

• Regulate individuals, companies and exchanges
• Supervsion
• Sanction processes
• Passporting regulated status
• Classifications and exemptions

Question 3

What is the main initiative behind MiFIDII?

Answer 3

• fricitonless trade within the EEA
• Suitability, execution and market transparency
• Passporting

Question 4

What is the Transparency directive?

What do they do?

Answer 4

Corporate disclosure, set miminum requirements for periodic financial reporting and disclosure of major shareholders.

Question 5

What are the MiFID business rules?

Answer 5

• Reception and transmission of orders
• Execution of orders
• Portfolio management
• Investment advice
• Underwriting and placing
• Operating MTF and OTF

Question 6

MiFID specifically covers which activities?

It is very generic

Answer 6

• Derivatives
• Commodity derivatives
• Credit derivatives
• Financial CFDs
• Exotics derivatives (weather, carbon etc).

Question 7

What is the Purpose of European market infrastructure regulation (EMIR)?

Answer 7

Improved transparency and reduce the risks associated with the OTC derivatives market (applies to finance and non finance entities.

Question 8

What did EMIR introduce?

There are 3

Answer 8

• Reporting obligation for all OTC derivatives to a trade repository.
• Operational process and margining required for all bilateral OTC derivatives to reduce operational and credit risk.
• Mandatory use of CCP for certain contracts.

Question 9

What are the key details of Fair Treatment of Customers (FTOC)?

Answer 9

• To ensure fait treatment is embedded in the industry.
• Based on 6 outcomes
• FCA approach is that all advisors adhere to its policy.

Question 10

What are the key details of Client categorisation?

Answer 10

• Must be fully under the priciple based approach
• Retail client
• Professional client
• Eligible counterparty

Question 11

What is the rule about retail client, professional client and eligible counterparties?

Answer 11

As knowledge increases protection decreases.

Question 12

What is the Purpose of Best Execution?

Answer 12

A firm must take all reasonable steps to obtain the best possible result for its clients taking into the account the execution factors.

Question 13

What are the execution factors for best execution?

Answer 13

Price, cost, speed, liklehod of execution and settlement or any other consideration.

Question 14

What is the rule for best execution?

What is best execution?

Answer 14

If a client provides a specific instruction, firm acheives best execution if it clearly follows these instructions.

Question 15

What does the SEC regulate?

Answer 15

• Stock options
• Stock index options
• Currency transactions on exchange
• The CBOE

Question 16

What is the CFTC?

Answer 16

Commodity futures and trading comission

Question 17

Which derivatives exchange does the CFTC not regulate?

Answer 17

The CBOE (Chicago board options exchange)

Question 18

Who does the CFTC regulate?

What do they enforce?

Answer 18

• Regulates US derivatives exchanges
• Enforce the Commodities exchange act and commodities futures modernisation act 2000
• Overseeing the NFA

Question 19

What is the NFA?

Answer 19

National futures association

Question 20

What is the NFA?

What do they do?

Answer 20

• Self regulatory organisation
• Oversees derivative firms
• Runs an arbitration scheme

Question 21

What is part 30 of the commodities exchange act (US)?

Answer 21

For any firms to act for investors on a US exchange, the firm must be fully registered with the CFTC

Question 22

What is part 30 of the commodities exchange act (UK)?

Answer 22

For an FCA firm to deal on behalf of US investors on a non derivative exchanges, all order must be routed through a US firm.

Question 23

What is a part 30 exemption?

What does the mean if you application is succesful

Answer 23

A non US firm may deal directly with US investors, when carrying out deals on non US excahnges.

Question 24

What does one need to agree when applying for a part 30 exemption?

There are 4 that one must consider

Answer 24

• Treat all monies of US clients as client money
• Two way risk disclosure
• Agree to be bound by the exchnage and FCA rules
• We provide the FCA with access to client records (not directly to the CFTC).

Question 25

To get a Part 30 exemption, one must agree?

Answer 25

To be a member of the NFA and abide by US rules.