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Contents

Product ETF REIT SPDRS &iSHARES Block bids etc Indices Repo Bonds Trading & venues Trading Flow Order Flow Order types Diff betwn OTC & exchange txn Best Execution Clearing and settlement Presettlement Cross border settlement ICSD, CSD Custodian Etrading ECN ATS Dark Pools ALGO Program Trading Definitions Advantage Popular strategies High frequency strategies Diff betwn common & quant algo strategies VWAP , TWAP General Main markets Diff betwn Order driven & quote driven mkts IB - Overview IB Functions Front running Market open Price determination SWIFT PPP

Products

What is an ETF?
An ETF (or Exchange-Traded Fund) is a tradable open-ended fund or unit investment trust. The ETF issues shares or trust receipts giving the owner of the shares an economic interest in the fund assets. An index-based ETF seeks to track the performance of an index by holding in its portfolio either the contents of the index or a representative sample of the securities in the index. ETFs offer flexible, low-cost exposure to the performance of whole markets or market segments in just one easy transaction. ETFs can be bought and sold on NYSE Euronext at any time during trading hours. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features Designed to track specific market indexes, exchange-traded funds (ETFs) combine the broad diversification of a mutual fund with the trading flexibility of a stock
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What is a REIT?
Real Estate Investment Trust, is an investment vehicle created by an act of Congress in 1960. REITs were designed to provide investors with the opportunity to participate directly in the ownership or financing of real estate projects by providing them with a tradable interest in a pool of real estate-related assets. REITs own, and often operate, income-producing real estate such as office buildings, apartments, shopping centers, warehouses and hotels. Pays dividends of at least 90% of the REITs taxable income At least 75% of the company's total investment assets must be in real estate. Must derive at least 75% of its gross income from rents or mortgage interest.
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SPDRS & iSHARES


One of these ETF's is called the Standard & Poor's Depositary Receipts; NYSE: SPY, originating from a chain of ETFs called the SPDRs, pronounced "spiders", and is issued by SSgA State Street Global Advisors. Barclays Global Investors offers the iShares S&P 500 NYSE: IVV, which is similar to the SPDRs, but is structured differently. Both the SPDRs and the iShares have a management expense ratio of under 0.1% a year; making them an efficient proxy for the underlying index, while achieving a performance close to the S&P 500 (minus fees and expenses).

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Block Trading
Block Bids A potentially more cost-efficient way to sell out a large position would be to work with J.P. Morgan Equity Capital Markets (ECM) to sell the stock to another institution in a block sale. ECM can target a broad group of potential buyers in strict confidence without indicating the seller's identity. Leveraging our banking relationships, J.P. Morgan can communicate quickly and provide rapid execution if the issuer is a willing seller. Once a match is made, the seller is identified and the trade is executed at a negotiated spread. Reverse Inquiry Reverse Inquiry provides a means by which institutional accounts can seek additional liquidity through the facilitation of direct shelf takedowns or block sales. By tapping J.P. Morgan Equity Capital Markets (ECM), institutional clients can place inquiries into issuers who have shelf registrations or can strategize about the purchase or sale of stock in the form of a block sale.

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Flow Derivatives
ETFs, or exchange traded funds, are tracking stocks that attempt to replicate the performance of an equity or fixed income sector or index Equity Futures Equity Swaps Listed and OTC Options Volatility Products
Including variance swaps on indices and single stocks

Equity Finance & Structured Finance


Borrow/Loan Structured Finance

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Special Equity Trading


Programs and Services Corporate Share Repurchase Programs Stock and Portfolio Sales
Venture Capital Distributions An exit framework for venture capitalists that typically look to monetize investments within a three to five-year timeframe

J.P. Morgan executes the following types of trades Portfolio trading


Agency Guaranteed Incentive Exchange for Physical (EFP) Exchange Traded Funds (ETF)

Program trading is a generic term used to describe a type of trading in securities, usually consisting of baskets of fifteen stocks or more
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Indices
A capitalization-weighted index is an index whose components are weighted according to the total market value of their outstanding shares. Also called a market-value-weighted index In a price-weighted index such as the Dow Jones Industrial Average, the price of each component stock is the only consideration when determining the value of the index. The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock market companies; the NYSE Euronext and the NASDAQ OMX. The NASDAQ-100 is a stock market index of 100 of the largest domestic and international non-financial companies listed on the NASDAQ. It is a modified market value-weighted index. The companies' weights in the index are based on their market capitalizations, with certain rules capping the influence of the largest components The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. DJIA is the average is price-weighted, and to compensate for the effects of stock splits and other adjustments, it is currently a scaled average
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Key Terms
Dow Jones Industrial Average (DJIA): An index of 30 blue chip U.S. stocks used to measure the performance of the U.S. financial markets. Introduced on May 26, 1896 by Charles H. Dow, it is the oldest stock price measure in continuous use and has become the most widely recognized market indicator in the world. NYSE Composite Index: This index closely reflects the broader market, as it represents 77% of the total market capitalization of all publicly traded companies in the United States. Furthermore, it encompasses 61% of the total market capitalization of all publicly traded companies around the world. Standard & Poor s 500 (S&P 500): An index of 500 stocks that represents the price trend movements of the major common stock of U.S. public companies. Stock Index: A basket of stocks used to track the market. Typically, this is used for long-term evaluation. The performance of a group of stocks is averaged, and over time, that average serves as an indicator of the market s general movement.

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REPO
A Repurchase agreement (also known as a repo or Sale and Repurchase Agreement) allows a borrower to use a financial security as collateral for a cash loan at a fixed rate of interest. In a repo, the borrower agrees to sell immediately a security to a lender and also agrees to buy the same security from the lender at a fixed price at some later date. A repo is equivalent to a cash transaction combined with a forward contract. The cash transaction results in transfer of money to the borrower in exchange for legal transfer of the security to the lender, while the forward contract ensures repayment of the loan to the lender and return of the collateral of the borrower. The difference between the forward price and the spot price is the interest on the loan while the settlement date of the forward contract is the maturity date of the loan. Repo Participant Near leg Far leg Borrower Seller Cash receiver Sells securities Buys securities Reverse repo Lender Buyer Cash provider Buys securities Sells securities Back
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Bonds Immunisation & Management Strategies


A bond portfolio is said to be immunized when it is structured to produce a target rate of return, regardless of any changes in bond prices or market interest rates. Banks can immunize the balance sheet by holding approximately equal amounts of assets and liabilities for a defined period of time
A strategy that matches the durations of assets and liabilities, thereby minimizing the impact of interest rates on the net worth

The four principal strategies used to manage bond portfolios are:


Passive, or "buy and hold" Index matching, or "quasi passive" Immunization, or "quasi active" Dedicated and active

Indexing Bond Strategy


Indexing is considered to be quasi-passive by design. The main objective of indexing a bond portfolio is to provide a return and risk characteristic closely tied to the targeted index.

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Trading & Venues

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ELECTRONIC TRADING
Electronic trading,
sometimes called etrading, is a method of trading securities (such as stocks, and bonds), foreign currency, and exchange traded derivatives electronically. It uses information technology to bring together buyers and sellers through electronic media to create a virtual market place. NASDAQ, NYSE Arca and Globex are examples of electronic market places. Exchanges that facilitate electronic trading in the United States are regulated by either the SEC or the Commodity Futures Trading Commission, and are generally called electronic communications networks or ECNs

Electronic Communication Networks


Is the term used in financial circles for a type of computer system that facilitates trading of financial products outside of stock exchanges. The primary products that are traded on ECNs are stocks and currencies

Bond trading electronic channels


eSpeed TradeWeb Bloomberg BondVision Trading Screen Bond trading electronic channels

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Trading flow and related systems

Fund managers
Order entry Order capture

Traders
Order placement

Sales Traders
Manual entry

Exchanges

OMS

FIX
connection

DMA Broker Dark Pools Algorithmic Trading

Block Crossing

EMS

Real time Matching

Asset management Firms

Brokers

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Trading Flow Key components


OMS supports both front and back office functions covering Order management Compliance monitoring Implementation of trading strategies Real time trade analysis Reporting budgeting EMS execution management system Supports mainly front office tasks , order management , implementation of trading strategies and algorithms, real time TCA and DMA with an emphasis on trading speed Network of exchanging standard FIX protocol messages

FIX connections DMA


An electronic trading system that allows placing of orders without going through the sales trader, as if directly accessing the market

Algo trading
Using computer programs to trade automatically;

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Order types
A market order instructs your broker to buy or sell the stock immediately at the prevailing price, whatever that may be Limit orders instruct your broker to buy or sell a stock at a particular price. The purchase or sale will not happen unless you get your price You enter a stop loss order at a point below the current market price. If the stock falls to this price point, the stop loss order becomes a market order and your broker sells the stock. If the stock stays level or rises, the stop loss order does nothing A Good till canceled order instructs your broker to keep the order active until you cancel it The all or none order states you want the entire order filled or none of the order filled An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will be executed at a specified price (or better) after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or sell) at the limit price or better. A conditional order that becomes a market order when a security reaches a specified price. When using a buy market-if-touched order, a broker will wait until the security falls to a certain level before purchasing the asset. A sell market-if-touched order will activate when the price of a security rises to the specified level

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Difference between exchange traded and OTC txns

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Difference between Order driven and Quote driven markets

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Best execution
In deciding how to execute orders, your broker has a duty to seek the best execution that is reasonably available for its customers' orders. That means your broker must evaluate the orders it receives from all customers in the aggregate and periodically assess which competing markets, market makers, or electronic communications networks (ECNs) offer the most favorable terms of execution. Some of the factors a broker needs to consider when executing its customers' orders for best execution include: the opportunity to get a better price than what is currently quoted,
the speed of execution, the likelihood trade will be executed

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Functions / Roles of Organizations related to Trading, Clearing, Settlement

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ATS Alternative Trading System Catch all term for Trading venues other than Stock exchanges 3 types Real time matching systems, Block crossing systems Broker dark pools

Benefits faster and low cost executions Real time matching systems Displayed markets , bid-ask quotes are displayed Block crossing systems Non displayed markets , execution prices are determined based on exchange traded prices or negotiations Broker dark pools Non displayed markets, execution prices Back are determined based on exchange traded prices
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Dark pool
Dark pools of liquidity (also dark pools or dark liquidity) are crossing networks that provide liquidity that is not displayed on order books. Matches buy and sell orders without displaying the orders This is useful for traders who wish to move large numbers of shares without revealing themselves to the open market Dark pools are best executing large orders for illiquid stocks; focus is on price and not time A crossing network is an ATS (Alternative Trading Systems) that matches buy and sell orders electronically for execution without first routing the order to an exchange or other displayed market, like an ECN (Electronic Communication Network), which displays a public quote. Instead the order is either anonymously placed into a black box or flagged to other participants of the crossing network. The advantage of the crossing network is the ability to execute a large block order without impacting the public quote. Back
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Custodian
When an institutional investor invests in securities it will commonly employ the services of a custodian to administer these securities by:
providing safe keeping of the investor's assets in the local market; making appropriate arrangements for delivery and receipt of cash and securities to support settlement of the investors' trading activities in that market; providing market information to the investor on developments and reforms within that market; collecting dividend income, interest paid on debt securities and other income payments in the local market; more broadly, managing the client's cash flows; monitoring and managing entitlements through corporate actions and voting rights held by the investor in the local market; managing tax reclaims and other tax services in the local market; ensuring that securities are registered and that transfer of legal title on securities transactions proceeds effectively; ensuring that reporting obligations to the regulatory authorities, and to other relevant bodies, is discharged effectively.
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Global custodian & sub custodian


A global custodian provides investment administration for investor clients, including processing cross-border securities trades and keeping financial assets secure (ie, providing safe custody) outside of the country where the investor is located
A subcustodian is employed by a global custodian as its local agent to provide settlement and custody services for assets that it holds on behalf of investor clients in a foreign market

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International Central Security Depositories (ICSD), CSD


The main functions of a depository are typically: to enable members to hold book entry accounts for dematerialised securities; to settle transactions between members on a DvP basis, often in central bank funds; to provide basic custody services associated with safe custody. The type of instruments typically eligible to be deposited in a CSD or ICSD include equities, government bonds, corporate bonds and money market instruments Euroclear UK & Ireland provides depository services for dematerialised UK and Irish securities The Depository Trust Company (DTC). Provides depository services for corporate stocks and bonds, municipal bonds, money market instruments (eg, commercial paper), ADRs, some mutual funds Euroclear France acts as the central securities depository and primary settlement system for trading on Euronext Paris Clearstream Banking Frankfurt (CBF) acts as the central depository Japan Securities Depository Centre (JASDEC) acts as the CSD for equities The Hong Kong Securities Clearing Company (HKSCC) is the central depository for equities CDP, a wholly-owned subsidiary of the Singapore Exchange (SGX), provides integrated clearing, settlement and depository services in the Singaporean market India has two depositories, the National Securities Depository Limited (NSDL) and the Central Securities Depository Limited (CSDL). Clearstream operates settlement and custodian services on behalf of approximately 2,500 customers across 40 markets and in 94 global locations Back

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SWIFT

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Pre settlement & Trade confirmation

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Key elements of a cross border trade


Order placement
Investment manager places order with its broker Broker executes client's order with counterparty broker, either via the stock exchange or OTC. If it is a cross-border trade, this global broker may use a local broker to execute the trade. Broker notifies investment manager of trade using electronic trade confirmation (ETC) or manual communication such as fax or telephone If it is a block trade, the investment manager notifies the broker of how the purchased securities are to be allocated across different accounts. On receipt of this information, the broker will issue a trade confirmation. The investment manager will check the trade details and, if these are correct, it will send an affirmation message to the broker. The investment manager sends a settlement instruction to global custodian notifying the custodian of settlement details. The global custodian will instruct its sub-custodian to settle the trade or it may settle the trade itself if it acts as its own settlement agent in that market. The trade will settle at a local CSD, or physically, depending on the form in which the instrument is held For CSD-eligible trades, the settlement agent sends settlement instructions to the CSD. These are generally matched at the CSD against settlement instructions submitted by the counterparty The CSD will send notification of those that match, and any trades that fail to match. Any mismatches must be investigated and resolved 30

Trade execution

Confirmation/affirmation

Settlement instructions

Positioning of cash and securities


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Cross border settlement (contd)


If a successful match is found the trade will be queued and will go forward for settlement. For trade settlement to be completed successfully, necessary cash and securities must be in position on settlement date to discharge the settlement obligations of the respective counterparties. This process is known as positioning . The settlement agent will receive notification from the CSD of whether successful settlement has taken place. This settlement notification is communicated by the subcustodian to the global custodian and then back to the investment manager

Investigation and repair of trade fails


Failed trades are investigated and resolved

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Purchasing Power Parity


Purchasing power parity (PPP) is a theory that states that identical goods should cost the same in two countries. For example, if a basket of goods costs GBP100 in London, and the same basket of goods costs USD150 in New York, then the exchange rate should be GBP1 = USD1.50. If, after a number of years, the same basket of goods costs GBP125 in London and yet it remains at USD150 in New York, then one might expect the exchange rate to be GBP1.00 = USD1.20; this would demonstrate a decline in the value of sterling. This 'Law of One Price' describes the principle of Absolute PPP. The principle of Relative PPP tells us that the rate of appreciation of a currency (ie, currency A relative to currency B) is equal to the difference in inflation rates between the two countries. For example, if the UK has an inflation rate of 2.0% and the US has an inflation rate of 3.5%, the US dollar will depreciate against UK sterling by 1.5% annually

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Strategies

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Program Trading
Program trading is a generic term used to describe a type of trading in securities, usually consisting of baskets of 15 stocks or more and $1M min in value Involves trading in securities, usually consisting of stocks traded on the New York Stock Exchange, and their corresponding options traded on the Chicago Board Options Exchange and/or the American Stock Exchange; and the Standard & Poor's 500 Index futures contract traded on the Chicago Mercantile Exchange. The trading of these items is based purely on their price in relation to each other on a predetermined basis; and not on any fundamental analysis reason such as an individual company's earnings, dividends, or growth prospects; or, on any overall economic reasons such as interest rate movements, currency fluctuations, or governmental or political actions In stock index arbitrage a trader buys (or sells) a stock index futures contract such as the S&P 500 futures and sells (or buys) a portfolio of up to 500 stocks (can be a much smaller representative subset) at the NYSE matched against the futures trade. The program trade at the NYSE would be pre-programmed into a computer to enter the order automatically into the NYSE s electronic order routing system at a time when the futures price and the stock index were far enough apart to make a profit.

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Algorithmic Trading
In electronic financial markets, algorithmic trading or automated trading, also known as algo trading, black-box trading or robo trading, is the use of computer programs for entering trading orders with the computer algorithm deciding on aspects of the order such as the timing, price, or quantity of the order, or in many cases initiating the order without human intervention. In this "high frequency trading" (HFT) computers make the decision to initiate orders based on information that is received electronically, before human traders are even aware of the information It is widely used by pension funds, mutual funds, and other buy side (investor driven) institutional traders, To divide large trades into several smaller trades in order to manage market impact, and risk. Sell side traders, such as market makers and some hedge funds, provide liquidity to the market, generating and executing orders automatically. Algorithms are a more efficient way to trade in an environment where cost, speed, consistency and the prevention of information leakage are crucial in attaining alpha These algorithms or techniques are commonly given names such as "Stealth", "Iceberg", "Dagger", "Guerrilla", "Sniper" and "Sniffer . (used for extremely illiquid stocks)

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ALGO Trading - Advantages


Enhanced DMA strategies (see Table 1, overleaf), such as pegging, iceberging , and smart order routing require minimal quantitative input, and the trader does not delegate any real decision-making to the algorithm. While these facilities add value to trading desk capabilities and performance, their behaviour is fairly easy to understand Algorithms that require quantitative input are generally designed to minimise execution risk against a user-specified benchmark, typically Volume Weighted Average Price (VWAP), Time Weighted Average Price (TWAP), Implementation Shortfall (IS), Participate, or Market on Close (MOC)

Advantages ( To institutional investors ) achieve consistent good executions because execution expertise has been distilled into
rules High degree of anonymity because the data do not pass through human hands Absence of any ambiguity in execution instructions Cheaper commission than on trades done manually

Advantages (To brokers )


Process large quantities of orders without hiring more traders Distill the expertise of talented traders into rules and share it across the firm Attract new customers interested in Algo trading

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Overview of popular Algo and strategies


Name of the Strategy
VWAP TWAP Implementation shortfall (IS) Arrival price Participation Close price Iceberg Guerilla, Snipe Pegging Short sell Stop Loss

Description
Average execution price should be close to ( or better than) the VWAP price Average execution price should be close to ( or better than) the TWAP price Minimsie cost as calculated from IS , taking into a/c market impact and timing risk Minimise disparity between avg execution price and the price when the order was placed Execute trade without exceeding a given % of market volume Minimise disparity between avg execution price and closing price, taking into a/c market impact and timing risk Break off one piece of a larger order and disclosing only that piece to the market, automatically revealing the next piece after that piece is absorbed Do not disclose bid to the market, executing order only when requisite bid or offer emerge Peg order price to best quoted price Created in response to restrictions on short selling Place orders to buy when prices rise above specified stop loss and sell when prices fall below stop loss

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High Frequency Strategies


The Liquidity Algo Trade
Break up an institutional sized order and use an automated strategy across multiple market places and over time, to minimize market impact You know the asset, side and size to trade High speed search for liquidity at a price

The Alpha Seeking Algo Trade


Implement a strategy using historical models and real time market data, find and exploit profitable trading opportunities stat arb/ pairs trading / news Do not know in advance the security or timing of the trade Aka black box, quant, etc.

Market Making
Given a list of securities, stocks, options, etc. and a source of order flow, adhere to the order handling rules and trade at the spread Automate the expertise of a Series 55 licensed trader under all market conditions Most NASDAQ and ISE market makers are fully automated The NYSE is offering ability to interface algo capabilities to floor specialists

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Implementation shortfall
In financial markets, Implementation Shortfall is the difference between the decision price and the final execution price (including commissions, taxes, etc.) for a trade. This is also known as the "slippage". Agency trading is largely concerned with minimizing implementation shortfall and finding liquidity The decision price is the price of the stock that prompted the decision to buy or sell. The most common decision prices is the close price or the arrival price From the fund manager's point of view, his decision to trade is often based on the closing price of the day's trading (along with the entire history of the stock and other signals/indicators). When he decides to buy a particular stock the next day, it is because he believes that the price will go up from that closing price. Thus his decision price is the close price. However the broker, unless she is explicitly told what levels to buy at or what prompted the desire to buy, does not know when or why the decision was made. Her best guess is that the current price at the time the order is received is what prompted the decision and thus her decision price is the arrival price. In financial markets, market impact is the effect that a market participant has when it buys or sells an asset. It is the extent to which the buying or selling moves the price against the buyer or seller, i.e. upward when buying and downward when selling. market liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value

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Difference between common and quant algo strategies

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VWAP & TWAP


VWAP is a trading acronym for Volume-Weighted Average Price, the ratio of the value traded to total volume traded over a particular time horizon (usually one day). It is a measure of the average price a stock traded at over the trading horizon PVWAP = Volume Weighted Average Price Pj = price of trade j Q j = quantity of trade j j = each individual trade that takes place over the defined period of time, excluding cross trades and basket cross trades. In financial markets, market impact is the effect that a market participant has when it buys or sells an asset. It is the extent to which the buying or selling moves the price against the buyer or seller, i.e. upward when buying and downward when selling. It is closely related to market liquidity; in many cases "liquidity" and "market impact" are synonymous TWAP trading strategy, that is a strategy that will attempt to execute an order and achieve the Time Weighted Average Price or better

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General

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Main Markets & players


Exchanges NYSE NYSE Arca AMEX NASDAQ Custodians Clearing houses

Auction Market: Floor brokers and specialists interacting with quotes and orders on the floor of the NYSE
Specialist: A member of the NYSE who is responsible for maintaining a fair and orderly market in the stocks they are allocated. At all times, specialists must put their customers interests above their own.

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Exchange highlights
NASDAQ (National Association of Securities Dealers Automated Quotation). Offers a hybrid model where market-makers compete with the order driven system The NYSE Hybrid Market is an order-driven market model that attempts to integrate the best aspects of the auction market with automated trading The American Stock Exchange (AMEX). Is an order driven market where investors can route orders to the exchange electronically, or manually via a floor broker. Amex s NETS equity trading system can trade any equity-based product in the US, regardless of the exchange on which a company or product is listed Euronext, the integrated exchange for trading equities on the French, Belgian, Dutch and Portugese markets, has confirmed its merger with NYSE to form NYSE-Euronext

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What is Investment Banking?


Provide strategic, financial and valuation advisory services Use industry knowledge, expertise and contacts to advise senior executives and boards of directors
Identify and assess strategic opportunities Interpret market information and enhance shareholder value Provide general valuation services (e.g., segment analysis, break-up valuations, fairness opinions)

Raise capital through the issuance of securities


Act as intermediary between issuers and investors Provide access to equity and fixed income capital (e.g., investment-grade, bank, high-yield, preferred stock) Create specialized securities and derivatives (e.g., convertibles, trust preferred securities and warrants ) Sell-side assignments (represent client in sale of its company or some of its assets) Buy-side assignments (represent potential acquirers and negotiate transactions) Hostile take-over defense/advisory

Advise companies in merger & acquisition and restructuring transactions


Offer specialized products and services that satisfy the needs of corporate and government clients
Private equity (e.g., Merchant Banking, Real Estate, Venture Capital, Other) Fixed income principal transactions Privatization Monetization Asset-backed securities

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Main functions of an investment bank


Capital Markets - Sales, Trading & Research (Equity and Fixed Income)
Distributes new security (primary) issues to institutional investors/clients Transacts blocks of previously issued (secondary) securities through private placement or negotiation Maintains markets for securities already distributed Provides research on securities, companies, industries and economies

Private Client Services


Provides investment and financial advisory services Focuses on high net worth individuals and mid-sized institutional investors

Investment Banking
Provides strategic, financial and valuation advisory services Raises capital through the issuance of securities Advises companies in merger & acquisition and restructuring transactions Offers specialized products and services to meet the needs of corporate and government clients

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Reference Data

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Reference Data Key Points


Reference data has experienced a sort of renaissance in recent years, spurred on by events in all main areas of the securities business. Brokerage institutions place great value on data accuracy and have intensified their efforts to maintain pristine data, the often-cited golden copy. With reference data errors ranging anywhere from 5% to 10% of trade costs (due to failed trades), it is not uncommon to see the largest firms spend US$75 million on enterprise reference data management Reference data projects are in progress across the industry, as all firms have initiated projects in the past two years to address reference-data management concerns. Brokerage institutions place great value on data accuracy and have intensified their efforts to maintain pristine data: the often-cited golden copy. While both buy-side and sell-side institutions are motivated by a number of factors to improve their reference data, the prime drivers of these efforts are cost and efficiency The product silos that define the way brokerage firms have historically been aligned have led to the existence of multiple data-management groups, uncoordinated procedures, and distinct datasets. Most firms believe that centralization and standardization are the factors posing the greatest challenges to improving data quality Both buy-side and sell-side institutions expect to invest the bulk of their data budgets in maintenancerelated issues. An overwhelming majority of firms feel that a centralized organizational structure is the best one for managing their data, but a de-centralized data set-up is the norm in the industry. Most securities firms feel that their staff resources could use improvement in order for them achieve their reference-data objectives.

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Reference Data Key Points


First, ticker plants are needed to take data from the exchange and prepare it for delivery. Feed handlers then are needed to normalize the data and consolidate multiple feeds into a single stream. From the feed handler comes the stream processor, which looks for certain data and separates the wheat from the chaff. 4. The desired data then is sent to an event processor that analyzes the data even closer for specific data conditions that trigger "events," such as the creation of a quote, order or order cancellation. 5. In addition, you also need a high-speed messaging bus so that once the data is delivered it gets transported and processed quickly. 6. Then there is storage. Once data is captured, you'll want to store it for back testing to determine if the conditions you are searching for and the events you want to create will actually be effective. 7. So for a simple, albeit not light-speed fast, aggregated data feed, you now need ticker plants, feed handlers, normalizers, stream processors and time-series databases. 8. as vendor feeds come in, it's vital that feeds are parsed to a staging area and rules engine, and then are loaded to "golden copy" for use across the enterprise. Rounding out the technology component should be workflow tools, a database-management system and query layer 9. The data architecture is not just a collection of off-the-shelf and vendor technologies; it is a ground-up analysis of business requirements and the technology needed to satisfy those needs. It requires an understanding of need, use, latency, source and brand, married with technology, connectivity, bandwidth and cost. Data needs to be thought of as a precious commodity - and managed as such. 10. The information is compared and contrasted. Exceptions are cleansed, enriched where required and then distributed 1. 2. 3.

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Definition & Classification of Reference data


Referential data are common information shared and used daily by many banking activities. Dynamic data: i.e. data whose values change on a frequent basis. An example would be that we produce daily in order to run the profit & loss calculation or risk analysis on their stock positions. We produce daily forex rates, interest rates curves, futures prices, bonds prices, stocks prices, funds or indexes prices, etc. Static data: i.e. descriptive data. For example, a description of listed products is a prerequisite to book new deals on all market trading activities. On regular and massive demand, we are required to understand and describe the intrinsic characteristics of products like futures, bonds, securities, stocks, warrants, as well as new products created by our front-offices. Environmental data: Where we maintain the hierarchy classification of all activities corporate and investment banking, publish up to date calendars, collect counterpart ratings, etc

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