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54 Cards in this Set
- Front
- Back
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What are the steps involved in investing money in securites |
1.) trading 2.) pre-settlement and clearing 3.) settlement 4.) post- settlement |
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The process of buying or selling an instrument |
Trading |
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after a trade has been executed, a number of procedures and checks must be conducted before settlement can be completed |
pre-settlement |
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matching the trade instructions supplied by each counterparty to ensure that the seller has sufficient securities to deliver and buyer has sufficient funds to purchase |
clearing |
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the process through which legal title of a security is transferred from seller to buyer in exchange for the equivalent value in cash |
settlement |
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the management of failed transactions and the subsequent accounting of trades |
post-settlement |
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What data is required for matching of settlement instructions |
-title of security -security ID -cpty delatils and acct numbers -trade & settle date -price -buy or sell -qty -net settlement amt -trading conditions -# of dates and amt of accrued int - vs Free or vs Pay |
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What type of clearing is when each trading party bears direct credit risk against each counterparty it trades with |
bilateral |
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Who is the cleared that provides CCP services in the UK and NYSE Euronext European markets for trading equities, derivatives, and energy products |
LCH.Clearnet |
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In the US, where does the clearing of broker-to-broker trades in equities, corp bonds, municipal bonds, unit investment trusts, and ETFs |
National Securities Corporation (NSCC) |
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Who interposes itself between the counterparties to a trade, becoming the buyer to every seller and the seller to every buyer? What is this process called? |
CCP (Central counterparty); novation |
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A firm that is eligible to clear only its own trade obligations |
individual clearing member (ICM) |
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A firm that is eligible to clear its own obligations and/or to clear trades on behalf of other trading firms. |
general clearing member (GCM) |
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Established a set of common organizational, conduct of business and prudential standards for CCPs with activities in the EU member states |
European Market Infrastructure Regulation (EMIR) |
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When trading partners agree to offset their positions or obligations. |
netting |
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What are the benefits of netting |
reduces credit and liquidity risk |
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What is the purpose of OMEGO |
to support centralized matching and communication between buy-side and sell-side customers and their respective settlement agents |
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The Omego solution consists of: |
-central matching system - central static database of settlement instructions |
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one stop trade matching and regulatory system developed by the International Capital Market Assoc (ICMA) |
TRAX
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Computerized network for the transfer of US dollar payments |
CHIPS
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Electronic funds transfer system. RTGS system in which allows member banks to transfer funds on their own behalf or on behalf of customers |
Fedwire |
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UK's high-value payment system providing RTGS for credit transfers |
CHAPS |
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Handles the processing on internet, telephone and standing order payments in the UK |
Faster Payments Service |
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RTGS system for the euro that ensures same-day payment finality in central bank money |
TARGET |
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Private initiative that is supported by largest FX banks to eliminate settlement risk and to reduce the systemic liquidity risk in FX markets |
Continuous Linked Settlement Bank (CLS) |
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Settlement referring to the seperate, non-simultaneous exchange of cash and securities between counterparties |
Free of Payment |
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procedure whereby appropriate technical, legal and contractual arrangements are in place to ensure that a transfer of securities is final |
Delivery vs Payment |
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Trades between the same two counterparties in the same security are offset |
bilateral settlement |
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all trades in the same security by any number of counterparties. For each security traded this will result in each counterparty making only one transfer of cash or securites |
multilateral settlement |
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each trading company will settle a single netted cash balance and a single netted securities balance calculated at close of business on trade date |
trade date netting |
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failed trades from previous days may be re-presented for netting in a later multilateral netting cycle |
continuous net settlement (CNS) |
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settlement occurs on a specific number of days after the trade date |
rolling settlement |
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trades executed within a specified period settled on a specified date |
fixed date settlement |
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3 main purposes of FX transactions |
to obtain ccy to settle immediate pmt commitments to hedge against future exchange rate mvmts to speculate, or trade, in ccy in order to make profits from changes in exchange rates |
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GBP/USD - which ccy is base, which is quoted? |
GBP= base USD= quoted |
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GBP/USD 1.7426-30 Which price is bid? Which is offer? |
Bid- 1.7426 Offer 1.7430 |
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Who gets bid price? Who gets offer? |
Seller gets bid price. Buyer gets offer price. |
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a single outright transaction involving the exchange of two ccy at a rate agreed at time of contract. Settlement takes place within 2 business days |
spot transactions |
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transaction for settlement more than 2 days in the future. No standard settlement dates. Exchange rate is fixed at the time the tran is agreed. no exchange of money until s/d |
outright forward |
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simultaneous purchase and sale of a specified amount of foreign ccy for 2 different s/d. Combines 2 deals, one for spot and one for forward |
FX swap |
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the exchanged rate is set for some date in the future, but at that date the quoted ccy in not exchanged. instead the rate is compared against the prevailing spot rate. the profit or loss is calculated as if a reverse tran had been completed |
non-deliverable forward |
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provides a right, but not the obligation, for the option holder to enter into a FX tran, usually at some day in the future at a predetermined exchage rate w the issuer |
FX option |
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the theory that states that identical goods should cost the same in 2 countries |
Purchasing Power Parity (PPP) |
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the finite risk that one party may default before both counterparties have met their settlement obligations |
Herstatt risk |
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accounting procedure by which the proceeds of a securities sale are credited to the seller's account and the costs of the purchase are debited from the buyer's acct on the date the trade actually settles |
Actual settlement date accounting (ASDA) |
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funds will be credited or debited on settlement date, even if trades settlement is not yet final and irrevocable on that date |
contractual settlement date accounting (CSDA) |
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if the SELLER has failed to deliver securities by the specified deadline, the buyer will purchase the securities from a third party at current market price |
buy-in |
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if the BUYER is unable to deliver cash payment to enable the trade to settle |
sell-out |
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In the UK, how soon are firms required to match all trades to avoid fine? |
by close of business on T+1 |
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what fine will be charged for each transaction that remains unmatched at close of business on T+1 |
4GBP |
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What is the max number of days unmatched trades can be fined? |
30 days |
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How long does a buyer have to dispute interest rate claims? How long does a buyer have to pay interest rate fines? |
15 days to dispute 30 days to pay |
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what is made by seller if a buyer or its clearing agent has caused a trade settlement to fail |
interest rate claim for the loss of interest on the net amt they would have received |
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Any interest rate claim under what amount is written off? |
$500 |
