SS&C Technologies

Certificate in Alternative
Investment Industry
Ops Curriculum

2014 Marcum Tech Ranked 49th Fortune’s No. 26 in the Best Forbes America’s
Top 40 winner in the 100 Fastest Growing Top 100 Outsourcing Best Small
Software category Companies Provider Companies
Course Objective

Understanding Global Capital Market, market participants, Hedge

Funds and Fund of Funds.

Lifecycle for Listed products.

Understanding Listed products.

a. Equity b. Fixed Income c. Foreign Exchange
d. Exchange traded derivatives (Futures, Options & CFD)

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Global Capital Market
 Capital markets are financial markets for the buying and selling of long-term debt
or equity-backed securities : Primary Market & Secondary Market.

 Market Participants :
 Clearing House
 Stock Exchange
 Depository
 Transfer Agent
 Investor
 Trading Participant

 Hedge Fund : A hedge fund is an alternative investment vehicle available only to

sophisticated investors, such as institutions and individuals with significant assets.

 Fund of Funds : A fund of funds is a pooled investment, such as a mutual fund or a

hedge fund, whose underlying investments are other funds rather than individual
securities.

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a. Investment Manager (IM)
 In HF context, a FIRM that provides Investment Management

Services is a Investment Manager.

Investment  Function includes: Research, Dealing, Marketing, Compliance,

Prime
Manager Broker Risk Management, Product Control, Investor Relations and IT
services.

Administrator
 Current Investor expectations:
 To Focus more on Investment discipline
 Meet Investor demand for reporting and Transparency
 Build Stable Management team with full range of skill sets
 Demonstrate high quality infrastructure
 Keep abreast of Public policy and regulatory requirements

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b. Administrator
 A Financial Services company that is expected to provide

complete and reliable middle-back office and Administration

Services so that the Funds can focus on the management of their
Assets and Marketing.
Investment Prime
Manager Broker
 Services Offered:

# Accounting
# Admin Services
Administrator
# Middle and Back Office Services

 Revenue and Risk:

 Fees charged on the basis of AUM

 Operational risks (missing redemptions, confidentiality

breach, Inaccurate NAV calculations, Incorrect wire

payments)
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c. Prime Broker
 A broker which acts as settlement agent, provides custody for

assets, provides financing for leverage and prepares daily account

statements for its clients.

 Services Offered:

Investment Prime  Financing

Manager Broker
 Securities Lending
 Clearing and Custody

 Additional Services Offered:

Administrator  Customized Technology

Operational Support

 Prime Broker (PB): In our day-to-day

 All Capital activities cash move into/out of the PB account of the

Fund.
PB have cash cut-off time which require attention

 Cash moving out/in of PB is to be matched to bookings done in

our internal System 6

Trade Lifecycle
Trade Life Cycle

Trading :
 Trade Origination / Order Origination
 Trade Execution
 Trade Enrichment
From the Trade
Origination to the
Settlement Operations :
 Trade Validation
 Trade Confirmation
 Clearing & Settlement

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Order/Trade Flow in Automated
Environment

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Order Origination

Orders are received from Clients.

Received by Sales Trader

 By Phone or
 Electronically

New Orders are entered into Order Management

System (Trading System)
This step is referred as ‘Trade Capture’.

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Execution of Trade

When both the parties agree to the details of the trade and are willing to
enter into the deal, the trade gets executed.

Execution Confirmation Received by IM/Client

By Phone or
Electronically

Both buyer and seller now enters in to contract which has legal obligation
on all the parties involved in trade.

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Allocation of Trade

Trades are confirmed with Counter Party

 It’s IM function Why IM executes one bulk trade and then

 Broker has to affirm allocations splits in to different internal entities?
 Normally happens electronically  Better Negotiation/bargaining power
 Confirmation of Allocation is sent  Cost effectiveness
to all IP’s

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Confirmation of Trade

Trade allocation happens at both block and individual trade level

Basic economic trade details are confirmed with Counter Party

 Notional, Net Amount, Maturity, Rate, Price, Trade/Settlement Date
 The communication of confirmation can be through SWIFT, Telex, Fax,
Phone. , etc

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Post-Trade Changes
Amendment/Cancellation/Rebooks

 The trade can be amended by the consent of both the parties

 Can be on account discrepancy in any trade economics
 Erroneous Booking
 Servicing Events in Trade
 Fixing
 Unwind
 Fee
 Revaluation
Cash Flow Settlement

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Clearing and Settlement
The clearing process involves two primary tasks
 Comparison (matching of trades)
 Settlement (delivery of securities or book entry)
 Handled @ Back Office
 Confirmation (First Step)
 Trades are said to be cleared when the counterparties’ records are
identical
 Netting of trades
 Trade settlement occurs when buyers receive their securities and when
sellers receive payment for their securities
 On who’s name the electronic share certificates are held at Depository?

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Equity
Equities
Financial instrument representing a percentage of ownership in a corporation with
a share in the ongoing success of the enterprise.

Various types of equities include:

 Common Stock – most prevalent form of equity investment; shareholders have

voting rights in the management of the corporation

 Preferred Stock – equity security with many fixed income characteristics but
shareholders are not entitled to voting rights

 Cumulative Preferred Stock – stock dividends can be accumulated for later payment

 Convertible Preferred Stock –investor can convert the preferred stock to common

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Purpose of Corporate Action

• Cash dividends and Bonus are classic example where a

Return Profits to Shareholders: public company declares dividend or Bonus to be paid
on each outstanding share.

Influence the Share Price: • If the price of a stock is too high or too low, the liquidity
of the stock suffers.

• Corporate re-structure in order to increase their

Corporate Restructuring: profitability. Spin-offs is an example of a corporate
action where a company breaks itself up in order to
focus on its core competencies.

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Difference in Rights Offer and Dividend

Rights Offer Dividend

• Rights Issues are Shares • Distribution of portion of

issued by a company only company's earnings to its
to its existing Shareholders, decided by
shareholders. the board of directors.

• Investor Exercise the • Types of Dividend:

Right. • Cash Dividend
• Stock Dividend
• Investor Does not • Optional Dividend
Exercise the Right.

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Stock Split & Reverse Stock Split
 Increase / Decrease in the number of outstanding shares of a company’s stock, such that

proportionate equity of each shareholder remains the same.

 Effects of Split
 Number of share increases/decreases to the extent of
Terms(ratio)
 Cost of stock decreases/increases to the extent
Terms(ratio)
 Overall value remains the same

Stock Reverse Stock

Example
Split Split
Original Face
10 5
Value
Original Shares 100 100
Ratio 2:01 1:02
New Face Value 5 10
New Shares 200 50

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Difference in Spin-Off and Merger /
Acquisition
Spin-Off
• The separation of a subsidiary
or division of a corporation
from its parent company.
• Issuing shares in a new
corporate entity.
• A large company may require
to separate a line of business
or create a separate entity.
Merger / Acquisition
• Acquisition:- An acquisition is
the purchase of one company by
another company. An acquisition
may be private or public,
depending on whether the
acquiree or merging company is
or isn't listed in public markets.
An acquisition may be friendly or
hostile.
• Merger :- Two companies merge
together to form one single
entity.
• The shareholders of the
company becoming non-existent
would receive stock in the
merged entity or cash for their
holdings as per agreed terms.
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Difference in Bonus and Change of Name
/ Identifier
Bonus Change of Name / Identifier
• Very popular way of • Change in the Company’s
rewarding the Name, Identifier and Ticker
shareholders as well as from original to new Name,
increasing the share Identifier and Ticker.
capital.
• This has No Effect on:
• Its done by capitalizing the • Cash or Price
reserves created out of • Position
profits.
• Par Value & Market Value.
• Shareholders receive
additional free shares in
proportion to their holding.

• 1:1 bonus means-One new

bonus share for every one
share held

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Bonds
Definition of Bond
 Bond is a debt security, in which the authorized issuer owes the holders a debt
and is obliged to repay the principal and interest (coupon) at a later date,
termed maturity.

 A bond is simply a loan, but in the form of a security,

 The issuer = the borrower,
 the bond holder = lender,
 the coupon = interest .

 Bonds are generally issued for a fixed term (the maturity). For example 10
years.

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Features of Bonds
Issue Price :- the price at which investors buy the bonds when they are first issued

Maturity date :- the date on which the issuer has to repay the nominal amount.

 Coupon :- the interest rate % that the issuer pays to the bond holders.

 Coupon dates :- the dates on which the issuer pays the coupon to the bond holders, e.g. quarterly, semi-annually, annually.

 Clean Price: Current traded price. (Price is always calculated on a percent basis)

 Accrued Interest: Coupon rate % * No of days from the Prev coupon paid / Day Count Denominator

 Dirty Price: Clean price + Accrued Interest

(Price is always calculated on a percent basis)

 Total Cash: Nominal * Dirty price

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REPO & REVERSE
REPO
Difference in Repo and Reverse Repo
Reverse-Repo
• Reverse Repo is the same
repurchase agreement from the
buyers viewpoint.
• On maturity date buyer delivers
the Bonds to the seller and in
turn receives cash (includes sale
price - interest)
Repo
• Repo is a money market instrument
involving 2 parties. One party “sells”
bonds to the other while
simultaneously agreeing to
repurchase them or receive them
back at a specified future date.
• On maturity date seller receives the
Bonds and pays cash to the buyer
(includes sale price + interest)
• If a security pays a coupon during
the term of the repo, the coupon
belongs to the seller of the security.
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Why Repo & Reverse Repo…

• Financing / Funding
REPO • Flexibility of trade
• Efficient use of collateral.

• To cover short sell position

REVERSE REPO • Secured investment
• Repo rates more competitive than bank deposits &
do not possess
risks of rate swings.

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MBS/ABS
What Is a Mortgage?
 A mortgage represents a loan on a property/house that has to be paid over a
specified period of time.

 What is securitization ?
Securitization is the process by which assets are pooled together into one security.
Securitization allows firms to convert small, illiquid assets, primarily loans, into a large
security that can be easily sold into the capital markets.

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Mortgage Process

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Mortgage Backed Securities
Mortgage backed securities are created when mortgage loans are packaged, or
“pooled,” by issuers or servicers for sale to investors. As the underlying mortgage loans
are paid off by the homeowners, the investors receive payments of interest and
principal.

Mortgage securities represent an ownership interest in mortgage loans made by

financial institutions (savings and loans, commercial banks or mortgage companies) to
finance the borrower’s purchase of a home or other real estate.

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Asset-backed Security – ABS
 A financial security backed by a loan, lease or receivables against assets other than
real estate and mortgage-backed securities. For investors, asset-backed securities
are an alternative to investing in corporate debt

 An ABS is essentially the same thing as a mortgage-backed security, except that the
securities it backs are assets such as loans, leases, credit card debt and so on, and not
mortgage-based securities.

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Futures, Options &
CFD
Derivatives
 Derive value from underlying Assets  Participant in derivative Market
 Stocks  Hedgers
Bonds Speculators
Currencies Arbitrageurs
Commodities

Derivatives
Market

Exchange OTC
Traded
Derivatives

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Types Of Futures & Options

Futures Options

Equity Commodity Index Currency Call Put

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Features of Futures Contract

Standardized contract between two parties

Buy or Sell a specified asset

Standard Quantity or Quality

Price agreed today with delivery & Payment occurring on future date

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Features of Options Contracts

 Right but no Obligation

 Pay Premium
Buyer(Holder)
 Margin Requirement – No

 Risk Exposure - Limited

 Obligation but no right

 Receive Premium
Seller (Writer)
 Margin Requirement – Yes

 Risk Exposure – Unlimited

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Features of CFD
 Allows investors to take long or short positions
 No fixed expiry or contract size
 Owning a CFD similar to own a share
 Benefits such as capital gains & Dividends
 Prominent markets
 UK
 Germany
 Australia
 Canada
 Italy
 Singapore

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Futures v/s Options v/s CFD’s

Futures Options CFD’s

• Exchange traded • Exchange traded • OTC

• Standardized
• No Resets
• Fixed maturity
• Investors are not
entitled for dividend &
corporate actions on
underlying.
• Standardized • Customized
• No Resets • Resets regularly
• Fixed maturity (MTM)
• Investors are not • No expiry date
entitled for dividend & • Investors gets benefits
corporate actions on of dividend &
underlying. corporate actions on
underlying.

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Foreign Exchange
What is Foreign Exchange
 “ The foreign exchange (FX) market is where world currencies are bought and sold
against one another.

 Organizational framework
 The market runs 24 hours a day
 Actual currency are not physically traded
 The FX market is an over-the-counter (OTC) market

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Types of Foreign Exchange

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Questions?
Thank you!