10 Questions
What is the responsibility of senior management of a trading institution?
Monitoring dealer/dealer and dealer/broker relationships
Why is it crucial for senior management to monitor dealer/dealer and dealer/broker relationships?
To prevent undue concentration of business with a single broker
What role does senior management play in the choice of brokers and electronic broking platforms?
They are responsible for authorizing the brokers and platforms
Why should any freely negotiable brokerage be agreed only by senior management of both trading institutions?
To avoid potential conflicts of interest
What is the purpose of forwarding a copy of the brokerage agreement to the operations department?
To facilitate prompt calculation and payment of brokerage
Why should senior management periodically monitor the pattern of broker usage?
To identify any discrepancies in broker usage
What is the primary function of money brokers in the interbank market?
Arranging deals between parties and receiving brokerage fees
Why are brokers not allowed to act in any discretionary fund management capacity?
To avoid conflicts of interest
What policy should the management of a broking company impose to ensure brokers execute on most favorable terms for the dealers?
Best execution policy
What should brokers do if they suspect any attempts at market manipulation?
Escalate the matter to senior management
Study Notes
Senior Management Responsibility in Trading Institutions
- Senior management is responsible for monitoring dealer/dealer and dealer/broker relationships to ensure fairness, transparency, and compliance with regulatory requirements.
- They play a crucial role in selecting brokers and electronic broking platforms to ensure the best possible execution of trades.
Brokerage Agreements and Monitoring
- Any freely negotiable brokerage should be agreed upon by senior management of both trading institutions to prevent unauthorized or unfavorable agreements.
- A copy of the brokerage agreement should be forwarded to the operations department to ensure they are aware of the terms and conditions.
- Senior management should periodically monitor the pattern of broker usage to identify any irregularities or biases.
Role of Money Brokers in the Interbank Market
- The primary function of money brokers in the interbank market is to facilitate transactions between banks, acting as intermediaries.
Brokers' Responsibilities and Limitations
- Brokers are not allowed to act in any discretionary fund management capacity to prevent conflicts of interest and maintain their impartiality.
- Broking companies should impose a policy to ensure brokers execute trades on the most favorable terms for the dealers, prioritizing their clients' interests.
- If brokers suspect any attempts at market manipulation, they should report it immediately to prevent fraudulent activities and maintain market integrity.
Test your knowledge about the roles and relationships of dealers and brokers in trading institutions. Learn about the importance of active management involvement and electronic broking platforms in monitoring these relationships.
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