1.The primary distinction between agency trading and principal trading is: A) agency trading are trades that occur with outside firms, while principal trading involves trades within the same firm. B) principal trading involves anonymity at all times, while in agency trading, the party executing the trade is known at all times. C) principal trading involves only one security, while agency trading involves a basket of securities. D) agency trading occurs with a broker who arranges a transaction with a third party at the best possible price, while in principal trading, the principal acts as a dealer taking the opposite side of the trade. The correct answer was D) Agency trades are negotiated trades executed through a broker who searches the market for the best execution price available. The broker does not act in a principal capacity but as an agent for the portfolio manager.
Principal trades occur when a principal acts as dealer and pledges to take the opposite side of an order for a firm price. 2.Which of the following trading methods requires an additional market instrument in order to reduce execution and trading costs? The use of: A) principal trading. B) external crossing. C) futures contracts. D) indications of interest. The correct answer was C) Of all the above trading methods, futures contracts involve the use of another instrument in order to reduce market execution costs. All the other choices involve the use of the securities in question only. The use of futures contracts include buying and selling contracts on a market index while simultaneously selling and buying securities for the portfolio in order to gain fast exposure to a market while minimizing opportunity costs. 3.Which of the following trading methods can potentially give rise to conflicts of interest? A) External crossing. B) Internal crossing. C) Program trading. D) Agency trading. The correct answer was B) Internal crossing
occurs when a portfolio manager executes a buy order for one client and simultaneously executes a sell order for a different client for the same security within the firm. §
Advantage – Utilizing internal crossing networks minimizes execution costs. §
Disadvantage – The ability to offset trades between clients of the same firm is infrequent and rare. Establishing a fair transaction price is difficult since the trade did not occur in the market but between clients of the same firm. This process also raises a conflict of interest question as to why a portfolio manager would buy and sell the same security at the same time. | 
发表于 2008-4-17 18:51
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