-------------A clearing house is for derivatives NOT equities ------------
A clearing house stands between two clearing firms (also known as member firms or clearing participants) and its purpose is to reduce the risk of one (or more) clearing firm failing to honor its trade settlement obligations. A clearing house reduces the settlement risks by netting offsetting transactions between multiple counterparties, by requiring collateral deposits (a.k.a. margin deposits), by providing independent valuation of trades and collateral, by monitoring the credit worthiness of the clearing firms, and in many cases, by providing a guarantee fund that can be used to cover losses that exceed a defaulting clearing firm's collateral on deposit.
Once a trade has been executed by two counterparties either on an exchange, or in the OTC markets, the trade can be handed over to a clearing house which then steps between the two original traders' clearing firms and assumes the legal counterparty risk for the trade. This process of transferring the trade title to the clearing house is called novation. It can take fractions of seconds in highly liquid futures markets; or days, or even weeks in some OTC markets.
-------custodian bank is for equities NOT euity-derivatives----------------
A Custodian bank, or simply custodian, is a specialized financial institution responsible for safeguarding a firm's or individual's financial assets and is not likely to engage in "traditional" commercial or consumer/retail banking such as mortgage or personal lending, branch banking, personal accounts, ATMs and so forth. The role of a custodian in such a case would be to:
* hold in safekeeping assets/securities such as stocks, bonds, commodities such as precious metals and currency (cash), domestic and foreign
* arrange settlement of any purchases and sales and deliveries in/out of such securities and currency
* collect information on and income from such assets (dividends in the case of stocks/equities and coupons (interest payments) in the case of bonds) and administer related tax withholding documents and foreign tax reclamation
* administer voluntary and involuntary corporate actions on securities held such as stock dividends, splits, business combinations (mergers), tender offers, bond calls, etc.
* provide information on the securities and their issuers such as annual general meetings and related proxies
* maintain curreny/cash bank accounts, effect deposits and withdrawals and manage other cash transactions
* perform foreign exchange transactions
* often perform additional services for particular clients such as mutual funds; examples include fund accounting, administation, legal, compliance and tax support services
* provide regular and special reporting on any or all their activities to their clients or authorized third parties such as MAIC Trust Account services for mergers & acquisitions payments.
Wednesday, August 11, 2010
Tuesday, July 14, 2009
Quantitative Analysis = "Highly" Technical Analysis (?)
a re-post of : http://rmquant.blogspot.com/2007/02/quantitative-analysis-highly-technical.html
Quantitative Analysis = "Highly" Technical Analysis (?)
Branding Quantitative Analysis as "Technical Analysis" will probably bring in some violent reactions from quants. But I just want to point out the similarities that they share. In fact, it can be seen that Quantitative Analysis is a higher form of Technical Analysis.
Technical Analysis is commonly described as Charting. It is the study of charts (graphical representation of past price movements) and finding patterns in them. Investment decisions are then based on these patterns. People say this is superstition as price moves randomly and just forms these patterns by chance. Technical analysis also utilize quantitative techniques via Technical Indicators. Technical Indicators aren't just numbers, they are results of some statistical modelling. Indicators like MACD and Bollinger Bands are actually similar to statistical measures used by quants today (mean and standard deviation respectively). These measures are used for momentum and mean reversion strategies. Technical analysis also looks into other quantifiable variables found in the market like traded volume, open interest, bid ask spreads, etc. Technical analysis gives rise to automatic trading rules which is also done with quantitative analysis.
In the Jan/Feb 2007 Issue of CFA Magazine, there is an article ("Perpetual Motion by Susan Trammell, CFA") about a recent study on trends in quantitative investing. Below are some findings:
Phenomena Being Modeled:
* Fund Capacity: 20%
* Impact of Trades: 24%
* Textual Data: 2%
* Higher Moments: 2%
* Regime Shifts: 10%
* Volatility: 20%
* Extreme Events: 10%
* Momentum / Reversal: 31%
* Trends: 28%
Modeling Methodologies Used:
* Shrinkage / Averaging: 9%
* Regime Shifting: 4%
* Nonlinear: 7%
* Contegration: 7%
* Cash Flow: 17%
* Behavioral: 16%
* Momentum / Reversal: 28%
* Regression: 36%
As seen in the survey results, trends, momentum, and reversal models are quite popular in quantitative analysis. These are also the same phenomena being modeled by technical analysis but at a less "scientific" degree.
The relationship of Technical and Quantitative analysis can be likened to the relationship between Astrology and Astronomy. One is seen as superstition while the other as a science. Astrology came about due to the lack of sophisticated tools and theories. The same with Technical Analysis -- people relied on charts because it was easier to analyze than numbers. But in the advent of faster and more powerful computers, large amounts of numbers can be analyzed with ease.
To see the survey results, please refer to www.theintertekgroup.com.
Quantitative Analysis = "Highly" Technical Analysis (?)
Branding Quantitative Analysis as "Technical Analysis" will probably bring in some violent reactions from quants. But I just want to point out the similarities that they share. In fact, it can be seen that Quantitative Analysis is a higher form of Technical Analysis.
Technical Analysis is commonly described as Charting. It is the study of charts (graphical representation of past price movements) and finding patterns in them. Investment decisions are then based on these patterns. People say this is superstition as price moves randomly and just forms these patterns by chance. Technical analysis also utilize quantitative techniques via Technical Indicators. Technical Indicators aren't just numbers, they are results of some statistical modelling. Indicators like MACD and Bollinger Bands are actually similar to statistical measures used by quants today (mean and standard deviation respectively). These measures are used for momentum and mean reversion strategies. Technical analysis also looks into other quantifiable variables found in the market like traded volume, open interest, bid ask spreads, etc. Technical analysis gives rise to automatic trading rules which is also done with quantitative analysis.
In the Jan/Feb 2007 Issue of CFA Magazine, there is an article ("Perpetual Motion by Susan Trammell, CFA") about a recent study on trends in quantitative investing. Below are some findings:
Phenomena Being Modeled:
* Fund Capacity: 20%
* Impact of Trades: 24%
* Textual Data: 2%
* Higher Moments: 2%
* Regime Shifts: 10%
* Volatility: 20%
* Extreme Events: 10%
* Momentum / Reversal: 31%
* Trends: 28%
Modeling Methodologies Used:
* Shrinkage / Averaging: 9%
* Regime Shifting: 4%
* Nonlinear: 7%
* Contegration: 7%
* Cash Flow: 17%
* Behavioral: 16%
* Momentum / Reversal: 28%
* Regression: 36%
As seen in the survey results, trends, momentum, and reversal models are quite popular in quantitative analysis. These are also the same phenomena being modeled by technical analysis but at a less "scientific" degree.
The relationship of Technical and Quantitative analysis can be likened to the relationship between Astrology and Astronomy. One is seen as superstition while the other as a science. Astrology came about due to the lack of sophisticated tools and theories. The same with Technical Analysis -- people relied on charts because it was easier to analyze than numbers. But in the advent of faster and more powerful computers, large amounts of numbers can be analyzed with ease.
To see the survey results, please refer to www.theintertekgroup.com.
Tuesday, October 28, 2008
8 OMS Offerings (from 2003)
8 OMS Offerings (from 2003)
http://www.wallstreetandtech.com/story/supp/WST20030416S0004
http://www.wallstreetandtech.com/story/supp/WST20030416S0004
Wednesday, September 17, 2008
financial advisers and stock brokers
http://www.consumerismcommentary.com/2007/09/21/financial-advisers-and-stock-brokers-whats-the-difference/
You would think that the roles and responsibilities would be clear and there would be a strong line between individuals who call themselves financial advisers and those who call themselves stock brokers. The obvious answer is that advisers give impartial advice based on the best interest of the client and brokers sell products as a third party.
Advisers are sworn to put their clients’ interests ahead of their own, thanks to the Investment Advisers Act of 1940. This Act defines an adviser as, “Any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities.” The Act also precludes brokers from being considered investment advisers.
In that case, what is a broker? The act also provides this definition. A broker is, “Any person engaged in the business of effecting transactions in securities for the account of others, but does not include a bank.” The key word is effecting, which astute readers will realize is not the same word as affecting. Brokers make the trades happen. Today’s brokers are “broker-dealers,” meaning they make the trades happen, and they sell financial products to customers for a fee.
Exchange, OTC, Third Market
Where stocks trade - Exchange, OTC, Third Market
http://ola.orcasnet.com/olt/help/ehelp13.html
As mentioned a little earlier, one of the benefits of owning common stock is liquidity and that liquidity comes from a very active marketplace.
In the United States, the securities markets are first separated into two major market categories: primary and secondary.
The Primary Market is when a company sells their shares to the public for the first time in an Initial Public Offering (IP0). The company itself receives the proceeds from an IP0.
The Secondary Market, on the other hand, is where trades are made between investors who are now the ones to get the proceeds, not the companies who originally issued the shares in IPOs.
The Secondary Market is broken down into four component markets, only three of which will be of immediate interest to investors.
The Exchange or "Auction" Market
This market includes the New York Stock Exchange and the American Stock Exchange as well as the various "regional" exchanges such as the Philadelphia Stock Exchange and the Pacific Exchange. Stocks trading on any of these exchanges are said to be "listed" on those exchanges. That means they meet the various requirements imposed by the exchanges. At the same time, there is in the word "listed" an homage to times past when the names of stocks actually were written down by hand on large wallboards for all brokers to see. To this day, for example, the NYSE is still called "The Big Board."
The Over-the-Counter Market (OTC)
Unlike the exchanges which all occupy actual bricks-and-mortar physical addresses, the OTC market is an association of broker/dealers connected by computer and telephone networks who trade "unlisted" securities. Further, the OTC Market is usually broken down into three component markets including National Market Stocks, those being the best known and financially stable OTC companies; Small Capitalization Stocks, meaning riskier emerging growth companies; and finally, the speculative "Pink Sheet" or "Bulletin Board" stocks. The OTC market is regulated by both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Unlike the auctions on the exchanges, OTC trades are negotiated. Most OTC broker/dealers follow price changes on the FINRA's automated quotation system which has become well-known to many investors by its acronym, "Nasdaq".
The Third Market
Here nonexchange member broker/dealers and institutional investors trade over the counter in exchange-listed securities. Any listed security can be traded in the Third Market. Each trade must be reported to the Consolidated Tape within 90 seconds. Third market trades closely reflect the trading activity of any given stock on its primary exchange.
orders for listed stocks are executed in the Third Market or on Regional Exchanges.
The Third Market in action
Many orders for listed stocks are sent to a broker/dealer in the Third Market for execution. The Third Market is part of the overall OTC market. Specifically, it is a telephone and computer network of broker/dealers who are registered with the FINRA to make markets in exchange-listed securities.
When your market buy order gets to the market, the market maker immediately "fills" it at the best price then available. We use the word "immediately" because that's when market orders are filled. The so-called "best price" is continuously tracked as it changes throughout the day by computers in every broker/dealer office.
Your limit triggers and short sale ticks
In the system, it is the price activity on the stock's primary exchange that always determines when the various limit orders can be executed as well as short sales, and it is the movement of the stock on the primary exchange that triggers the uptick rule for your short sale.
The OTC Market
The OTC market works a bit differently than the Third Market.
Since the OTC trades "not listed" securities there is no bookmarking because the stock isn't traded on an exchange.
In the system, investors are guaranteed a trade at the best bid and ask price available when the order reaches the OTC market maker. This price is known as the "inside price". It is also called the "National Best Bid and Offer" (NBBO) because it represents a composite of prices from broker/dealers throughout the country.
On Market orders, the NBBO is good for a minimum 100 shares. Above that, the greater the size of the order, the greater is your chance of being filled in partial executions at higher prices.
On limit orders, the NBBO is still good for a minimum of 100 shares but you're still risking partial executions. However, in this case, you do not have the additional concern of rising prices to contend with. Some investors place AON (all or none) restrictions on their order to avoid partial executions.
You can also enter limit orders and sell short in the OTC market just as you would for listed stocks.
http://ola.orcasnet.com/olt/help/ehelp13.html
As mentioned a little earlier, one of the benefits of owning common stock is liquidity and that liquidity comes from a very active marketplace.
In the United States, the securities markets are first separated into two major market categories: primary and secondary.
The Primary Market is when a company sells their shares to the public for the first time in an Initial Public Offering (IP0). The company itself receives the proceeds from an IP0.
The Secondary Market, on the other hand, is where trades are made between investors who are now the ones to get the proceeds, not the companies who originally issued the shares in IPOs.
The Secondary Market is broken down into four component markets, only three of which will be of immediate interest to investors.
The Exchange or "Auction" Market
This market includes the New York Stock Exchange and the American Stock Exchange as well as the various "regional" exchanges such as the Philadelphia Stock Exchange and the Pacific Exchange. Stocks trading on any of these exchanges are said to be "listed" on those exchanges. That means they meet the various requirements imposed by the exchanges. At the same time, there is in the word "listed" an homage to times past when the names of stocks actually were written down by hand on large wallboards for all brokers to see. To this day, for example, the NYSE is still called "The Big Board."
The Over-the-Counter Market (OTC)
Unlike the exchanges which all occupy actual bricks-and-mortar physical addresses, the OTC market is an association of broker/dealers connected by computer and telephone networks who trade "unlisted" securities. Further, the OTC Market is usually broken down into three component markets including National Market Stocks, those being the best known and financially stable OTC companies; Small Capitalization Stocks, meaning riskier emerging growth companies; and finally, the speculative "Pink Sheet" or "Bulletin Board" stocks. The OTC market is regulated by both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Unlike the auctions on the exchanges, OTC trades are negotiated. Most OTC broker/dealers follow price changes on the FINRA's automated quotation system which has become well-known to many investors by its acronym, "Nasdaq".
The Third Market
Here nonexchange member broker/dealers and institutional investors trade over the counter in exchange-listed securities. Any listed security can be traded in the Third Market. Each trade must be reported to the Consolidated Tape within 90 seconds. Third market trades closely reflect the trading activity of any given stock on its primary exchange.
orders for listed stocks are executed in the Third Market or on Regional Exchanges.
The Third Market in action
Many orders for listed stocks are sent to a broker/dealer in the Third Market for execution. The Third Market is part of the overall OTC market. Specifically, it is a telephone and computer network of broker/dealers who are registered with the FINRA to make markets in exchange-listed securities.
When your market buy order gets to the market, the market maker immediately "fills" it at the best price then available. We use the word "immediately" because that's when market orders are filled. The so-called "best price" is continuously tracked as it changes throughout the day by computers in every broker/dealer office.
Your limit triggers and short sale ticks
In the system, it is the price activity on the stock's primary exchange that always determines when the various limit orders can be executed as well as short sales, and it is the movement of the stock on the primary exchange that triggers the uptick rule for your short sale.
The OTC Market
The OTC market works a bit differently than the Third Market.
Since the OTC trades "not listed" securities there is no bookmarking because the stock isn't traded on an exchange.
In the system, investors are guaranteed a trade at the best bid and ask price available when the order reaches the OTC market maker. This price is known as the "inside price". It is also called the "National Best Bid and Offer" (NBBO) because it represents a composite of prices from broker/dealers throughout the country.
On Market orders, the NBBO is good for a minimum 100 shares. Above that, the greater the size of the order, the greater is your chance of being filled in partial executions at higher prices.
On limit orders, the NBBO is still good for a minimum of 100 shares but you're still risking partial executions. However, in this case, you do not have the additional concern of rising prices to contend with. Some investors place AON (all or none) restrictions on their order to avoid partial executions.
You can also enter limit orders and sell short in the OTC market just as you would for listed stocks.
Merrill Brokers and 'Discount Brokers'
Merrill has a strong sales organization and a great record of coming up with new products. It was the company that invented the cash management account a generation ago, combining brokerage and banking services in a single product.
And, as a full-service investment bank doing business with corporate clients, Merrill can give brokerage customers an inside track on the stock and bond offerings it underwrites. In addition, it has more than 400 analysts on staff producing the kinds of reports investors crave.
But Merrill faces an enormous challenge remaking its corporate culture. Stockbrokers making hundreds of thousands of dollars or more annually may be reluctant to steer clients to cheap Internet stock trading. And it is saddled with the huge overhead of a traditional Wall Street firm.
Internet trading ``directly threatens Merrill's broker culture and they have to lower their cost structure,'' said Goldman Sachs analyst Richard Strauss. ``But do I think they will get their act together ultimately? Yes.''
Discount Brokers provide stock research and access to public offerings mainly through alliances with outside investment banks.
There are still some stockbrokers who fleece their clients, just like the cigar-chomping, feet-on-the-desk villains of Schwab lore. In reality, Merrill has been moving toward a more customer-friendly way of doing business for a long time. For example, the firm now puts more client money into outside mutual funds than its own proprietary funds.
``They are perpetuating a stereotype of our financial consultants a la the 1970s,'' said Merrill's Thomson.
And, as a full-service investment bank doing business with corporate clients, Merrill can give brokerage customers an inside track on the stock and bond offerings it underwrites. In addition, it has more than 400 analysts on staff producing the kinds of reports investors crave.
But Merrill faces an enormous challenge remaking its corporate culture. Stockbrokers making hundreds of thousands of dollars or more annually may be reluctant to steer clients to cheap Internet stock trading. And it is saddled with the huge overhead of a traditional Wall Street firm.
Internet trading ``directly threatens Merrill's broker culture and they have to lower their cost structure,'' said Goldman Sachs analyst Richard Strauss. ``But do I think they will get their act together ultimately? Yes.''
Discount Brokers provide stock research and access to public offerings mainly through alliances with outside investment banks.
There are still some stockbrokers who fleece their clients, just like the cigar-chomping, feet-on-the-desk villains of Schwab lore. In reality, Merrill has been moving toward a more customer-friendly way of doing business for a long time. For example, the firm now puts more client money into outside mutual funds than its own proprietary funds.
``They are perpetuating a stereotype of our financial consultants a la the 1970s,'' said Merrill's Thomson.
Broker and Dealer
The difference between a broker and a dealer
A broker does not sell you stock or buy stock from you. A broker acts as your "agent," in effect putting you in touch with the other half of the trade you want to make. And for that service, the broker charges you a commission. acts as a broker.
A dealer, on the other hand, can and does act as a "principal," actually taking stock out of its own dealer inventory and selling it to you. Normally, in this transaction, the dealer charges an investor a net price which includes a "markup" on shares purchased or a "markdown" on shares sold. In any given trade, the broker/dealer can charge a commission or a markup but never both.
Another name frequently used instead of broker/dealer is "market maker."
http://ola.orcasnet.com/olt/help/ehelp13.html
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