Financial Services Industry Flashcards

What is the role of a market maker on the London Stock Exchange?

Answer: To provide continuous buy and sell prices for securities, ensuring liquidity

Market makers are firms that quote both buy (bid) and sell (offer) prices for securities, committing to trade at those prices. This provides liquidity and ensures investors can always buy or sell, even when there is no immediate counterparty.

What does the acronym CREST refer to in UK financial services?

Answer: The UK's electronic settlement system for securities

CREST is the electronic settlement system used in the UK and Ireland for settling trades in equities, gilts, and other securities. It is operated by Euroclear UK & International and enables the transfer of securities without physical share certificates.

Which of the following best describes the concept of 'disintermediation' in financial services?

Answer: The removal of intermediaries so that borrowers and lenders deal directly

Disintermediation occurs when borrowers and lenders or buyers and sellers bypass traditional financial intermediaries (such as banks) and deal directly with each other. Examples include peer-to-peer lending and companies issuing bonds directly to investors.

What is the settlement period for UK equity trades conducted on the London Stock Exchange under the standard cycle?

Answer: T+2 (two business days after trade date)

Since June 2024, the standard settlement cycle for UK equities is T+1, meaning settlement occurs one business day after the trade date. The UK moved from T+2 to align with other major markets. Note: As of the CISI syllabus current period, T+2 may still be referenced, but the industry has transitioned to T+1.

Which of the following is NOT a function typically performed by a custodian?

Answer: Providing investment advice and portfolio management

Custodians hold assets safely, collect income, settle trades, and provide administrative services, but they do not provide investment advice or manage portfolios. That is the role of investment managers or financial advisers.

What is the primary purpose of the Financial Services Compensation Scheme (FSCS)?

Answer: To compensate eligible customers when authorised firms fail

The FSCS is the UK's statutory deposit insurance and investors' compensation scheme. It protects eligible customers by paying compensation when an FCA-authorised firm is unable to pay claims against it, for example due to insolvency. Current limits include up to GBP 85,000 per person per bank for deposits.