CISI CMP Securities flashcards

31 cards. Read the term and the definition here. The deck at the top of this page is optional.

Primary market

The market in which an issuer raises new capital by issuing securities to investors. Proceeds go to the issuer, not to a selling shareholder.

Secondary market

The market in which investors trade existing securities among themselves. Proceeds go to the seller, and the issuer receives no new capital.

Market maker

A firm that continuously quotes firm two-way bid and offer prices within defined size and spread tolerances, earning the bid-offer spread rather than taking directional risk.

Central counterparty

An entity that interposes itself between trade counterparties by novation, becoming buyer to every seller and seller to every buyer, and collecting margin to manage default risk.

Client categorisation

Classification of clients as retail, professional, or eligible counterparty. The category determines disclosure, best execution, and appropriateness obligations, with retail receiving the highest protection.

Suitability assessment

A check that a recommendation fits the client's objectives, risk tolerance, financial circumstances, and knowledge. It applies to advised and discretionary business, not pure execution-only dealing.

Best execution

The obligation to take all sufficient steps to obtain the best possible result for clients, considering price, cost, speed, likelihood of execution and settlement, size, and order nature.

Market abuse

Insider dealing, unlawful disclosure of inside information, and market manipulation. Firms must monitor for it and file suspicious transaction reports without tipping off the client.

Modified duration

A measure of a bond's price sensitivity to yield changes. A modified duration of five implies roughly a five percent price fall for a one percent rise in yield.

Net asset value

The value of a fund's assets minus its liabilities, divided by shares outstanding. Open-ended funds issue and redeem at NAV; closed-ended funds trade at a market price that may differ.

Option premium

The price the buyer pays the seller for the right, but not the obligation, to buy or sell the underlying at the strike price before or at expiry.

Covered interest parity

The principle that the forward exchange rate reflects the interest rate differential between two currencies, so a forward is not a directional forecast of the spot rate.

Know your client

Collecting objectives, time horizon, risk tolerance, financial circumstances, and restrictions before recommending. Every recommendation must be consistent with the documented profile.

Limit order

An order to buy or sell only at a specified price or better. It prioritises price certainty but may not execute if the market never reaches the limit.

Client money segregation

Holding client cash in designated client bank accounts separate from firm money, reconciling regularly, and never using it for the firm's own purposes.

Execution-only dealing

A service where the client initiates the trade without a personal recommendation. It is normally restricted to non-complex products and requires an appropriateness check where relevant.

Inducements

Fees, commissions, or non-monetary benefits paid to or by a firm. They must be disclosed, consented to, or qualify as minor benefits that enhance service quality.

Trade confirmation

A prompt post-trade statement showing instrument, price, quantity, charges, venue, execution time, and settlement date, allowing the client to verify the execution.

Personal account dealing

Employees trading for their own accounts. Firms require pre-clearance, restrict dealing in covered or restricted stocks, and may impose minimum holding periods.

Whistleblowing

Reporting suspected misconduct through protected internal or regulatory channels. Firms must protect the reporter's identity and prohibit retaliation against them.

Theoretical ex-rights price

The price after a rights issue, calculated as the market value before the issue plus the proceeds from new shares, divided by total shares after the issue.

Variation margin

Cash or collateral settled daily to reflect mark-to-market moves on a derivative position, covering current exposure rather than potential future exposure.

Time-weighted return

A performance measure that removes the effect of external cash flows, isolating the manager's investment performance rather than the investor's timing decisions.

Yield to maturity

The total return on a bond held to maturity, accounting for all coupon and principal cash flows and assuming reinvestment at that yield.

Beta

A measure of a security's sensitivity to market movements. A beta above one implies greater volatility than the market; diversification cannot remove this systematic risk.

Regulated activity

An activity specified in law that requires authorisation or exemption. A firm's permission defines which activities and instruments it may undertake.

Approved person

An individual performing a controlled function who must be fit and proper, trained, and supervised. Changes in role are notified to the regulator.

Client money reconciliation

A regular comparison of client money records with bank statements and internal ledgers to confirm that client balances are fully backed and correctly segregated.

Ombudsman escalation

A route for clients whose complaint is unresolved after the firm's final response. Firms must inform clients of the scheme, its scope, and any time limits.

Dark pool

A trading venue that executes orders without pre-trade transparency. It can reduce market impact for large orders but raises concerns about price discovery and fairness.

Short selling

Selling borrowed securities in the expectation of buying them back cheaper. It requires locate and borrow arrangements, and large net short positions are disclosed.