Chapter 6 - IT CISI

?
What is an FoP (Free of Payment) instruction?
Payment and delivery are NOT inextricably linked as with DvP
1 of 37
FoP creates what type of risk?
Credit
2 of 37
Before generating an FoP settlement instruction - what is required?
Second level of authorization because it is high risk
3 of 37
The identity of the other party & its settlement agent are represented by what code?
BIC or CSD codes
4 of 37
What are the 3 ways in which Settlement Instructions can be transmitted?
SWIFT, proprietary standard message, email / fax / telex
5 of 37
What does the status code "UNM0" mean?
Unmatched - you have sent an instruction but your counterparty hasn't.
6 of 37
What does the status code "USEC" mean?
Trade is unmatched, but you have no stock to deliver - try to borrow.
7 of 37
What is the threshold if a firm wishes to "settle within a tolerance"?
USD 25.00
8 of 37
What is the motivation of the BORROWER of Stock Lending?
to acquire a specific quantity of a given stock to meet their commitment to deliver
9 of 37
What is the motivation of the LENDER of stock?
To increase their return by loaning out stock for a fee.
10 of 37
What is the motivation of the BORROWER of Repo Transaction?
to lend cash on a secured basis
11 of 37
What is the motivation of the LENDER of Repo Transactions?
To borrow cash at a better rate of interest than it would if it borrowed on an unsecured basis & use securities as collateral
12 of 37
What is the purpose of a REPO transaction?
To allow one party to use securities as collateral for its cash borrowing - a sale or repurchase agreement
13 of 37
What is the essence of a Repo Transaction?
Exchanging cash for securities
14 of 37
In a repo transaction, what is returned to the lender at the closing leg?
collateral and interest
15 of 37
In a stock loan transaction, what is to be paid by the lender and borrower?
lender pays interest on the collateral vs borrower pays a fee for using the stock
16 of 37
Why would a Market Maker or Sell-Side firm decide to borrow securities?
They've run short on positions (sold more stock than bought) or they cannot deliver their securities.
17 of 37
Why do Hedge Funds use Stock Lending?
To influence the management of the company concerned - by borrowing they can vote at company meetings
18 of 37
Why do traditional fund managers lend stock?
Because of the fee they receive - generates extra income
19 of 37
Under UK Law the BORROWER of securities becomes what type of owner?
Nominal Owner - receives all dividends, coupons and any action proceeds during the period of the loan.
20 of 37
Under the UK Law, what rights does the LENDER of stock have?
Beneficial owner, loses voting rights but is repaid any proceeds recieved by the borrower
21 of 37
Securities firms that act as specialized intermediaries in the stock lending area to create liquidity in the market are known as what?
Stock Lending Intermediaries (SLIs)
22 of 37
How do SLI's make money?
on collateral interest rates and stock lending fees
23 of 37
What is the Secure-IP Based Network?
highly secure telecommunications based on the IP Protocol
24 of 37
SWIFTNet Link
suite of software products that ensures technical interoperability between users by providing the functionality required to communicate over these services
25 of 37
SWIFTNet PKI
A security layer that is essential to SWIFT environment with regarding sending / receiving messages. Use of authentication keys to encrypt messages.
26 of 37
What is the Store and Forward Principle?
Messages being sent to an intermediate station whee they are kept and sent at a later time to the final destination or to another intermediate station.
27 of 37
When origin and destination stations may not be available for communications at the same time due to time zone differences, different working days or system failure what type of Connectivity would be best suitable?
Store and Forward Principle
28 of 37
What is the ACK/NACK protocol?
Part of the SWIFT network validation process, if successful = ACK, if unsuccessful = NACK (not acknowledged) and is sent back to sender.
29 of 37
What are FIN messages (aka MT messages)?
Range of SWIFT messages developed before year 2000 - tagged data. Each message is assigned a message IDENTIFIED CODE eg MT300 (FX confirmation)
30 of 37
What is XML (Extensible Markup Language)?
Flexible way to create common information formats and share them on the internet, intranets and elsewhere - ISO 20022
31 of 37
A closed user group administered by SWIFT, allowing firms to interact with financial institutions is called what?
SCORE
32 of 37
What is needed to be eligible for SCORE?
Corporates must be listed on a regulated stock exchange of a country which is a member of FAFT
33 of 37
A closed user group which is not eligible for SCORE and where the corporate can only communicate with their bank is called what?
MA-CUG
34 of 37
If a corporate wishes to communicate with several banks what can it do?
register in multiple MA-CUGs
35 of 37
What type is the interactive communications services "based on the exchange of request and response messages" between two parties called?
SWFITNet InterAct
36 of 37
What are the main features of FIX protocol?
controlled by no single entity, structured to meet the business requirements of each firm, communications made directly between each broker / institution by prior bilateral agreement
37 of 37

Other cards in this set

Card 2

Front

FoP creates what type of risk?

Back

Credit

Card 3

Front

Before generating an FoP settlement instruction - what is required?

Back

Preview of the front of card 3

Card 4

Front

The identity of the other party & its settlement agent are represented by what code?

Back

Preview of the front of card 4

Card 5

Front

What are the 3 ways in which Settlement Instructions can be transmitted?

Back

Preview of the front of card 5
View more cards

Comments

No comments have yet been made

Similar Business Studies resources:

See all Business Studies resources »See all CISI - IT resources »