Module 16 Study Note Flashcard
Question:
What is a derivative?
Answer:
A financial instrument whose value is derived from the value of an underlying asset.
Question:
Explain the term 'synthetic position' in options.
Answer:
Creating a position that mimics another financial instrument using a combination of options and/or the underlying asset.
Question:
Explain the function of a clearing house in the derivatives market.
Answer:
It acts as an intermediary between buyers and sellers, ensuring trade completion and managing risk.
Question:
What is the significance of derivatives markets in Malaysia's capital market development?
Answer:
They provide risk management tools, price discovery, and liquidity to the financial markets.
Question:
Define the role of Bursa Malaysia Derivatives Berhad.
Answer:
It is the exchange that facilitates trading of derivatives in Malaysia.
Question:
What are the primary types of derivatives traded in Malaysia?
Answer:
Futures and options.
Question:
What is a futures contract?
Answer:
A standardized agreement to buy or sell an asset at a predetermined price at a specified time in the future.
Question:
Who are the typical intermediaries in the futures and options markets?
Answer:
Brokers, market makers, and clearing members.
Question:
Define 'margin' in the context of futures trading.
Answer:
Margin is the collateral required to open and maintain a futures position, acting as a security deposit.
Question:
What is an option contract?
Answer:
A contract that gives the buyer the right, but not the obligation, to buy or sell an asset at a specified price before a certain date.
Question:
What is the significance of the Capital Markets and Services Act 2007?
Answer:
It governs the regulation of the capital markets in Malaysia, including derivatives trading.
Question:
What is the role of a trading participant?
Answer:
A trading participant is an entity authorized to trade on the exchange on behalf of clients or for its own account.
Question:
Describe the discretionary account in derivatives trading.
Answer:
An account where the broker has the authority to make trading decisions without the client's prior approval.
Question:
What is a segregated account in the context of derivatives trading?
Answer:
An account where clients' funds are kept separate from the brokerage's own funds for protection.
Question:
What are the typical offences under the Rules of Bursa Malaysia Derivatives Berhad?
Answer:
Insider trading, market manipulation, and failure to comply with trading and reporting rules.
Question:
What is the role of participants in confirming trades?
Answer:
Participants must verify and confirm the details of each trade to ensure accuracy and compliance.
Question:
Explain the concept of order matching in the derivatives market.
Answer:
Order matching is the process of pairing buy and sell orders in the market to execute trades.
Question:
What is the function of the arbitration process in the derivatives market?
Answer:
It provides a mechanism to resolve disputes between market participants outside the court system.
Question:
Describe the role of participants in dealing with clients' complaints.
Answer:
Participants must address complaints promptly, investigate thoroughly, and provide resolutions or escalate as necessary.
Question:
What is the KLIBOR futures contract?
Answer:
A futures contract based on the three-month Kuala Lumpur Interbank Offered Rate (KLIBOR).
Question:
What are contract specifications?
Answer:
Detailed terms and conditions of a derivative contract, including the underlying asset, contract size, expiration date, and settlement method.
Question:
What are the emergency rules in the context of derivatives trading?
Answer:
Rules that allow the exchange to take actions during unusual market conditions to maintain stability and integrity.
Question:
What are the general conduct requirements for participants in the derivatives market?
Answer:
Participants must act with integrity, maintain confidentiality, and avoid conflicts of interest.
Question:
What is the process for a participant to trade on other exchanges?
Answer:
Participants must comply with the regulatory requirements of the foreign exchange and obtain necessary approvals.
Question:
Explain 'order types' in derivatives trading.
Answer:
Different instructions for executing trades, such as market orders, limit orders, and stop orders.
Question:
What is meant by 'trading suspension' for participants?
Answer:
A temporary halt in a participant's ability to trade on the exchange due to regulatory or disciplinary reasons.
Question:
Describe the USD denominated refined, bleached, and deodorized palm olein futures contract.
Answer:
A futures contract based on the specified grade of palm olein, traded in USD.
Question:
What is the function of a market maker?
Answer:
A market maker provides liquidity by being willing to buy and sell derivatives at publicly quoted prices.
Question:
What is an option on a stock index futures contract?
Answer:
An option that derives its value from the underlying stock index futures contract.
Question:
What is the purpose of clients' margin payment?
Answer:
To provide security for potential losses and ensure the integrity of the market.
