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CISI Cards - Technology in Investment > Technology in Investment - Chapter 4 > Flashcards

Technology in Investment - Chapter 4 Flashcards

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1
Q

What is the first stage of the Portfolio Management Process

A

Determining and understanding the investment objectives of the client

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2
Q

What is the second stage of the Portfolio Management Process

A

Formulating an investment policy and strategies to meet those objectives

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3
Q

What is the third stage of the Portfolio Management Process

A

Asset allocation

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4
Q

What is the fourth stage of the Portfolio Management Process

A

Asset selection

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5
Q

What is the fifth stage of the Portfolio Management Process

A

Performance measurement

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6
Q

What is the sixth stage of the Portfolio Management Process

A

Suitability

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7
Q

When and why will a buy side firm look to rebalance a portfolio

A

Each month or quarter depending on investment strategy

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8
Q

Is measuring ESG easy?

A

Nah, over 100 companies offering many results and research

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9
Q

Contents of an order - Buy/Sell - What is it?

A

Buying or selling a quantity of an asset

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10
Q

Contents of an order - At best/At market - What is it?

A

Buy or sell at the best available price the member firm can obtain at the time

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11
Q

Contents of an order - Limit - What is it?

A

If selling dont sell below X price
If buying to buy above X price

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12
Q

Contents of an order - Good until cancelled - What is it?

A

There is no time limit on the order

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13
Q

Contents of an order - Expiry date - What is it?

A

If the order can’t be filled by this date, it should be cancelled

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14
Q

Contents of an order - Fill or Kill - What is it?

A

If the order is to buy 10,000 but the investor can only pay 5000, then don’t bother. Fill the order or Kill the order

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15
Q

Under MiFID 2 what are the 3 types of identifiers that must be provided during a trade

A

Client identifier
Firms
Counterparty

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16
Q

Type of Identifier - Client Identifier. What is it?

A

LEI for business, National Insurance for personal

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17
Q

Type of Identifier - Counterparty. What is it?

A

Counterparty dealing with the other side of the trade, LEI will be required when dealing

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18
Q

Type of Identifier - Firm. What is it?

A

Firm executing the trade, they will need to provide their own LEI when submitting order

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19
Q

Agent orrrrrr Principal!!! (Bonds)

A

Principal

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20
Q

Agent orrrrrr Principal!!! (Futures & Options)

A

Agent

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21
Q

Agent orrrrrr Principal!!! (Foreign Exchange)

A

Principal

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22
Q

Agent orrrrrr Principal!!! (OTC Derivatives)

A

Principal

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23
Q

Agent orrrrrr Principal!!! (Equities)

A

Principal

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24
Q

What is a principal order

A

An order that is NOT forwarded to an exchange and come out of their own pool of assets

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25
How many principles are there to treat customers fairly (TCF)
2
26
What is an agency order
Order gets forwarded to an investment exchange
27
What is principle 6 of TCF
Requires a firm to pay due regard to the interests of its customers and treat them fairly
28
What is principle 8 of TCF
Requires a firm to manage conflicts of interest fairly
29
Explain in brief the Order Flow Steps (5)
Order placed by fund manager Sell-side firm acknowledges and decided how to execute When executed a confirmation is returned to fund manager Fund manager checks confirmation Both fund manager and sell side send settlement instructions to their custodians.
30
What are the main capabilities for a buy side dealing system (11)
Automation Compliance MiFID Compliance Support for investment decision-taking Support for all security types invested Multi-currency capabilities Customer reporting Performance measurement Income and capital gains tax computing Broker connectivity Support for algorithmic trading Ability to receive real time market data feeds
31
What are the main Sell-side dealing systems (9)
Automation Compliance MiFID 2 compliance Support for all security types invested Multi-currency capabilities Connectivity to exchanges Connectivity with buy side clients Commission and charges calculation Support for the trading book and ability to mark to market Support for algorithmic trading
32
What is a percentage fee?
% value of the trade charged as a fee
33
What is a flat fee?
Used by execution-only. No matter the Qty the fee will be the same
34
What is a basis point
0.01%. For £1,000,000 to one basis point would be £100
35
What is a sliding scale?
More quantity, less fee
36
What is a reducing scale?
Same as sliding scale except the clients previous orders are added. Sorta like a rewards scheme
37
Whats an exchange fee?
Charged by the exchange where the trade is executed
38
Commission Sharing - What is Cross Border Trading
If a trade is executed in two countries, both brokers may charge a commission
39
Commission sharing - What is split services
Research & Execution. Research is the commission for finding. Execution is the commission for executing
40
What is the current Stamp Duty Reserve Tax?
0.5%
41
What is High Frequency Trading (HFT)
Computers make rapid and complex decsions in milliseconds to place a trade
42
In terms of trading, what is a circuit breaker?
A stop on trading on the S&P 500 if it fell or rose by 10% + in a 5 minute window
43
What is Direct Market Access (DMA)
Routing a security directly to an execution venue, avoiding intervention by a third party
44
What three risks are fund managers exposed too?
Credit Risk Market Risk Operational Risk
45
Capital Ratio = Capital Requirement ------------------------------- (? + ? + ?)
? = Credit, Market and Operational Risk exposure
46
How is Credit Risk usually mitigated?
By using a central securities depository (CSD)
47
How is market risk usually mitigated?
Diversification and hedging
48
What is Mark-to-Market
The calculation of a portfolios assets at their current market value
49
What is Value-At-Risk
A measure of how the market value of an asset is likely to decrease over a certain period of time
50
What defines the effectiveness of VAR analysis
Confidence Level
51
What is the main drawback with VAR analysis
That the confidence level can be 99% but the 1% could have an unlimited potential loss
52
Why is ESG factors becoming more important when making investment choices?
Clients and investment firms are demanding ESG compliant products & proccsesses
53
List the information that you would normally expect to see on an order to sell securities at a maximum price (3.1.2)
Client Identifier Firm Counterparty
54
What are the four steps that an investment firm must take to ensure compliance with Article 21 of MiFID II in the context of ‘best execution’? (3.2.2.)
Establish an execution policy Disclose the policy to clients Monitor effectiveness of arrangements and appropriateness yearly Upon client request, be able to prove you've executed against the policy
55
List the information that you would expect a sell-side firm to include in the trade confirmation that it sends to a fund manager (Inter-alia)
Name of the client Name of the stock Trade date Value date Price of the trade Net amount to be paid or received If the firm acted as the agent or principal if they was the agent, what exchange was used
56
What is Omgeo?
Another type of automated trade information exchange. Used by 1000s
57
What is the difference between a ‘sliding scale’ of commissions and a ‘reducing scale’ of commissions? (3.5.1)
The reducing scale cumulates previous client orders and discounts on the total volume ever purchased. Sliding calculates on the volume of that one trade only
58
What was the cause of the ‘Flash Crash’ of 2010?
A large mutual fund was mis traded by algorithmic trading
59
What factors have driven the use of self-servicing?
People are tech savvy and want instant solutions and advice to investment issues. It is also less manual and cost effective for firms
60
What is the name of the risk management technique that is designed to ensure that all investments are recorded in the dealing system at their current market value? (6.2.1)
Mark to Market
61
Why is it necessary for certain firms to be able to calculate value-at-risk in order to meet their regulatory requirements connected with Basel II? (6.2.2.)
To find out their capital requirement (Pillar 1Basel)
62
What does a CoVaR calculation set out to do? (6.2.2)
Contagion Value at Risk. The same but works out what would hgappen if that 1% went into high stress.
63
What is an ECN
Electronic Communication Networks. ECN is a type of ATS that enables traders and institutional investors to deal directly amongst themselves without the need to go through an exchange or OTC market maker
64
What does ATS stand for? Think ECNs, MTFs & OTFs
Alternate Trading system, u cunt (Said in australian so its friendly)
65
How is price displayed within an ECN
participants can see the best available bid and ask prices, contributing to more efficient and fair markets.
66
Where are ECN's most used?
Equities and Fx markets
67
What is the PTM Levy?
Any transaction over £10,000
68
According to MiFID 2, how often must sell-side firms review the effectiveness of their execution arrangements & venue selections
At least yearly
69
What type of instrument can investors invest in to avoid Stamp Duty Reserve Tax (SDRT)
Listed futures/options
70
A commission fee structure expressed as '3 points per million' is MOST likely to apply to what type of financial instrument?
Bond (James)
71
A commission expressed as £x per lot is used for what financial instrument
Futures & Options contracts
72
What is a Basis Point expressed as ?
1/100th of a & point
73
A firm has calculated its VAR at "£6.5 Million at a 95% confidence level". This means? - Under normal market conditions, there is a 95% probability that the value of its portfolio will INCREASE by at most £6.5 Million during any-one day - Under normal market conditions, there is a 95% probability that the value of its portfolio will DECREASE by at most £6.5 Million during any-one day - Under normal market conditions, there is a 5% probability that the value of its portfolio will INCREASE by at most £6.5 Million during any-one day - Under normal market conditions, there is a 5% probability that the value of its portfolio will DECREASE by at most £6.5 Million during any-one day
Under normal market conditions, there is a 95% probability that the value of its portfolio will DECREASE by at most £6.5 Million during any-one day
74

CISI Cards - Technology in Investment (20 decks)

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