Securities: Secondary Markets

Which of the following is primarily known for utilising quote driven systems?

A NYSE

B Nasdaq

C Multi-lateral trading facilities

D Deutsche Borse

The correct answer is: B - Nasdaq

Explanation:

The Nasdaq primarily uses market makers for trading.
The NYSE primarily uses specialists who trade open outcry.
The other two exchanges are primarily order book markets.

Dealer-to-dealer bond trading cannot take place using which one of the following methods?

A IDB voice broking

B Brokertec

C Direct phone contact

D TradeWeb

The correct answer is: D - TradeWeb

Explanation: TradeWeb is a dealer-to-customer bond trading method.

Which exchange has a mix of open outcry and electronic trading platforms?

A Deutsche Borse

B London Stock Exchange

C New York Stock Exchange

D Euronext-NSC

The correct answer is: A - Order driven

Explanation: Dark pools refer to the non-displayed or hidden nature of the buy and sell orders that reside in a crossing platform. The term dark liquidity can also be applied to all forms of non-displayed liquidity such as the order blotters of buy-side dealing desks.
Even though there are few organised dark pools within Europe, there is dark liquidity. Dark liquidity is provided when exchanges offer iceberg orders which enable traders to have a lot more available to trade than is currently displayed on the screen or in an order book at any moment in time. The biggest sources of dark liquidity are within the investment banks and major brokers.

A limit order will never execute at its limit price:

A During the uncrossing period

B During the opening auction period

C If executed against an at best order

D If executed against a better priced fill or kill order

The correct answer is: B - During the opening auction period

Explanation: Automatic execution does not take place during the opening auction period, so execution will never take place.

A fixed interest market maker MUST trade with which of the following once they have displayed two-way prices on a dealing system?

A Primary dealers

B Fixed interest market makers

C IDBs

D Customers

The correct answer is: D - Customers

Explanation: Fixed interest market makers are not obliged to offer firm prices for other market makers or IDBs.

GEMMs on the London Stock Exchange need to be vetted and registered by which of the following?

A LSE

B FCA

C DMO

D DTI

The correct answer is: C - DMO

Explanation: The Debt Management Office issues gilts and vets gilt-edged market makers.

Which of the following is true of an inter-dealer broker?

A They deal as principal to other participants

B They set and publish prices

C They seek and bring together market participants

D They take positions in anticipation of market participant needs

The correct answer is: A - They deal as principal to other participants

Explanation: IDBs trade on instruction as principal. They have a passive role which includes price display (on screen) but not price setting.

A broker-dealer is a member firm that:

I Makes two-way prices in securities in which it is registered

II Buys and sells shares as principal

III Is an intermediary between market makers

IV Arranges the purchase and sale of shares on behalf of clients

A I and II only

B I and III only

C II and IV only

D I, II, III and IV

The correct answer is: C - II and IV only

Explanation:

Broker-dealer broken down:
Broker - the firm buys and sells as an agent
Dealer - the firms buys and sells as principal

The other answers describe a market maker or an inter-dealer broker.

BondVision is an example of which of the following?

A An electronic platform to facilitate dealer-to-customer trading in bonds

B A voice trading mechanism used between two parties trading in bonds

C A proprietary single dealer system developed by some larger banks

D A direct phone contact mechanism used dealer-to-dealer

The correct answer is: A - An electronic platform to facilitate dealer-to-customer trading in bonds

Explanation: BondVision is an electronic platform to facilitate dealer-to-customer trading in bonds.

An inter-dealer broker (IDB) can deal with which of the following?

I Market maker acting as principal

II Market maker acting as an agent

III Stock borrowing and lending intermediary

IV Broker dealer

A I only

B I and II

C I, II and III

D I, II, III and IV

The correct answer is: D - I, II, III and IV

Explanation: IDBs offer their services to other member firms. These are often market makers wishing to trade-out of large positions but retain their anonymity.

When an exchange calls a trading halt in an order driven security due to a disorderly market, which of the following is true? 

A The security cannot be traded either on the order book or outside the order book

B The security can be traded either on the order book or outside the order book

C Automatic execution ceases, but trading outside the order book is permitted

D Automatic execution continues, but trading outside the order book is not permitted

The correct answer is: C - Automatic execution ceases, but trading outside the order book is permitted

Explanation: If a trading halt is called automatic execution is halted; however trading is permitted away from the order book.

To which ONE of the following are primary dealers in government bonds obliged to trade at quoted prices?

A Broker acting for a primary dealer

B Broker acting for an IDB

C Broker acting for themselves

D Broker acting for a client

The correct answer is: D - Broker acting for a client

Explanation: Primary dealers, e.g. GEMMS, must quote firm prices to brokers acting as agents for a client and also to any clients known directly to them.

To whom must primary dealers in the government bond market quote firm two-way prices?

A Anyone on request

B Other primary dealers

C Customers on demand

D Secondary information providers

The correct answer is: C - Customers on demand

Explanation:

Primary dealers e.g. GEMMs are obliged to make effective two-way prices to customers on demand, up to a size agreed with the DMO.

Thye are not required to quote firm two-way prices to other GEMMs.

Which of the following is true of Gilt trading?

A Only GEMMs are bound by the LSE best execution rules

B Only broker-dealers and GEMMs are permitted to deal in principal

C Only broker-dealers and Gilt-edged inter-dealer brokers know the identity of the market makers

D Only GEMMs can perform agency trades

The correct answer is: B - Only broker-dealers and GEMMs are permitted to deal in principal

Explanation: This seems like an incomplete question - possibly a trial question. Although not explicit in the question, the answers specifically refer to the roles of a GEMM, Gilt IDB and broker dealer (B-D). Of these three, the Gilt IDB cannot take positions in the market by dealing in principal. Both GEMMs and B-Ds are bound by the LSE rules. Only the Gilt IDB knows the identity of the market makers it deals with. B-D can perform agency trades.

What type of index is the FTSE 100?

A Unweighted arithmetic index of stock prices

B Unweighted geometric index of stock prices

C Weighted geometric index of stock prices

D Weighted arithmetic index of stock prices

The correct answer is: D - Weighted arithmetic index of stock prices

Explanation: It is weighted according to each constituent's market capitalisation.

Which of the following stock indices can be regarded as a 'broad measure' of performance?

A Nikkei

B CAC

C Dow Jones

D Hang Seng

The correct answer is: A - Nikkei

Explanation:

Nikkei 225 - broad measure.
CAC 40 - narrow measure.
DJIA (Dow Jones Industrial Average) - 30 shares, therefore narrow measure.
Hang Seng - narrow measure.

A fund manager wishing to use an index as a benchmark for a fund dealing in Asian equities (excluding Japan) is most likely to use which of the following indices?

A Nikkei 225

B Hang Seng

C Extramark

D Stoxx

The correct answer is: B - Hang Seng

Explanation: The best answer here is Hang Seng as it is a non-Japanese Asian index. Extramark is a FTSE technology index and the Stoxx indices are numerous.

Which of the following monitors compliance with the requirements for authorised firms to report their transactions?

A LSE Market Operations Division

B PRA Structural Reform Committee

C FCA Transaction Monitoring Unit

D The National Storage Mechanism

The correct answer is: C - FCA Transaction Monitoring Unit

Explanation: In the UK, the Financial Conduct Authority's Transaction Monitoring Unit (TMU) monitors compliance with the requirements for authorised firms to report their transactions, as well as approving certain reporting mechanisms that can be used.

Which of the following can be typically traded on a capital market?

A Corporate bonds

B Traded stock options

C Units of a Unit Trust

D Premium bonds

The correct answer is: A - Corporate bonds

Explanation: Corporate debt securities are traded in both order and quote driven systems by member firms.

In which situation is trading in an order book traded security NOT permitted away from the order book?

A Pre-offer period

B Suspension of listing

C Suspension of automatic execution

D Disorderly market

The correct answer is: B - Suspension of listing

Explanation: When the exchange calls a halt to automatic execution, non-order book trading is still permitted.

What country does the Nikkei cover and how many stocks does it include?

Japan, 225

What country does the Hang Seng cover and how many stocks does it include?

Hong Kong/China, variable (narrow)

What country does the Eurofirst 300 cover and how many stocks does it include?

Europe, 300

What country does the DAX cover and how many stocks does it include?

Germany, 40

What country does the CAC cover and how many stocks does it include?

France, 40

What country does the STOXX cover and how many stocks does it include?

Global Markets, 600

What country does the MSCI cover and how many stocks does it include?

Global Markets, 1700

What country does the FTSE 100 cover and how many stocks does it include?

UK, 100

What country does the FTSE All Shares cover and how many stocks does it include?

Representing 98-99% of UK market capitalisation

What country does the DOW Industrial Average cover and how many stocks does it include?

USA, 30

What country does the NASDAQ Composite cover and how many stocks does it include?

USA, over 3,000

What country does the Standard and Poor 500 cover and how many stocks does it include?

USA, 500

Who issues gov bonds in the UK?

DMO

Who issues gov bonds in the USA?

The U.S. Department of the Treasury issues government bonds in the United States.

Who issues gov bonds in Japan?

The Ministry of Finance issues government bonds in Japan.

Who issues gov bonds in Eurozone?

The Eurozone government bonds are issued by various national governments, while the European Central Bank also plays a key role in the overall bond market.

What are the 2 B2B electronic bond dealer platforms?

BrokerTec, MTS Cash

What are the 2 B2C electronic bond dealer platforms?

TradeWeb, MTS Bond Vision

What is MTS Bond vision?

B2C

What is TradeWeb?

B2C

What is MTS Cash?

B2B

What is BrokerTec?

B2B

What are the benefits of a CCP?

Benefits of a Central Counterparty (CCP):

• Reduced counterparty risk

• Providing total anonymity

• Reduced administration

• Facilitates netting

• Improved pricing (due to anonymity)

Can you amend, delete or add orders during the uncrossing algo?

No

What happens during interruption to automatic execution?

Price moved too much within a time, trading will restart with an intraday auction

Is there automatic execution during the opening auction?

No

Is there automatic execution during the closing auction?

No

What can you do during the housekeeping period? Is there automatic execution?

Delete, but no addition. No automatic execution.

Does IDB settle transactions as agent or principal?

Although the IDB acts as an agent between two firms it settles the transaction as if it were principal. However, it does not hope to make profits from price rises or falls by taking a position in the market.

Whats the common trading method in Deutsche Borse?

Electronic

Whats the common trading method in LSE?

Electronic

Whats the common trading method in NASDAQ?

Electronic

Whats the common trading method in NYSE?

Electronic & Open out cry

Whats the common trading method in Euronext?

Electronic

Whats the common trading method in TSE (Japan)?

Electronic