ACI Dealing Certificate cheat sheet

Primary market = new issuance of securities; secondary market = trading of already-issued instruments between investors.

Money market instruments mature in one year or less (T-bills, CDs, commercial paper, repos); capital market instruments exceed one year (bonds, equities).

Bid-offer spread is the dealer's compensation for market-making; a wider spread signals lower liquidity or higher risk.

LIBOR was discontinued; its replacements include SOFR (US), SONIA (UK), €STR (euro area) and TONAR (Japan), all based on actual overnight transactions.

Yield curve shapes: normal (upward-sloping), inverted (downward-sloping, often a recession signal), flat, and humped.

A central bank raising policy rates typically steepens short-end yields and strengthens the domestic currency, all else equal.

Clearing houses (CCPs) novate trades, becoming buyer to every seller and seller to every buyer, and collect initial and variation margin.

Systemic risk = risk that failure of one participant propagates through interbank exposures and payment systems.

Direct quote = domestic currency per unit of foreign currency; indirect quote = foreign currency per unit of domestic currency.

Forward rate formula (interest rate parity): F = S × (1 + r_quote × d/360) / (1 + r_base × d/360), where d = days to settlement.

A forward points quote is added to (premium) or subtracted from (discount) the spot rate; points reflect the interest rate differential.

Base currency is the first currency in a pair (EUR/USD: EUR is base, USD is quote/term currency).

T+2 is standard spot settlement for most pairs; USD/CAD settles T+1.

A FX swap = simultaneous spot and forward transaction in opposite directions; used to roll or fund currency positions.

Cross rate: derive a rate from two USD pairs, e.g. EUR/JPY = EUR/USD × USD/JPY.

Purchasing power parity (PPP) links exchange rates to relative price levels; deviations persist in the short run due to capital flows.

Simple interest: I = P × r × d/360 (or d/365 for sterling and some currencies); day-count conventions vary by instrument.

Discount pricing for T-bills and commercial paper: Price = Face × (1 − discount rate × d/360).

Bond price = sum of discounted coupon payments plus discounted face value; price and yield move inversely.

Duration measures price sensitivity: %ΔPrice ≈ −Modified Duration × ΔYield (in decimal).

Money market yield vs discount yield: yield = discount rate / (1 − discount rate × d/360).

FRAs and interest rate futures fix a borrowing or lending rate for a future period; futures are margined daily, FRAs are not.

An interest rate swap exchanges fixed for floating payments on a notional; the fixed rate is set so the swap has zero value at inception.

Forward rate agreement settlement: (Reference rate − Contract rate) × Notional × d/360, discounted to settlement date.

Front-running (trading ahead of a known client order) is prohibited market abuse.

Insider dealing: trading on material non-public information breaches market-abuse rules in all major jurisdictions.

Spoofing = placing orders with intent to cancel before execution to mislead other participants; a criminal offence in many markets.

Best execution requires firms to take all sufficient steps to obtain the best possible result for clients, considering price, cost, speed and likelihood of settlement.

Chinese walls and information barriers separate advisory/private-side teams from trading and sales functions.

Conflicts of interest must be identified, disclosed and managed; personal account dealing typically requires pre-clearance.

Market manipulation includes wash trades, marking the close, and disseminating false or misleading information.

Record-keeping: communications and order records must be retained for the period set by the regulator (commonly 5–7 years).