Canadian investment marketplace Flashcards
Buyer vs. seller’s price
Always at a deficit
Primary vs. Secondary market
Marché primaire = achète directement de l’émetteur
Marché secondaire = achète d’un autre investisseur
Investment dealer
Acts as an intermediary by matching investors with users of capital
SRO
Sets and enforces rules that govern market activity and monitors the markets to ensure fairness and transparency
Provincial regulator
Oversees the market and the Canadian Investment Regulatory Organization
Financial market
The place where suppliers and users of capital trade financial instruments.
Settlement
The irrevocable moment where cash and securities are exchanged.
Clearing
The process of confirming and matching security trade details.
Primary market
Assume that the Canadian National Railway (CNR) wants to expand its rail service into the southern United States. To raise the necessary capital to finance the expansion, the company decides to sell a new issue of common shares on the TSX. The company approaches RBC Capital Markets to underwrite the issue.
RBC agrees to underwrite one million shares of CNR at a price of $20 per share. CNR now has the proceeds it needs to finance its expansion project.
RBC sells these shares on the TSX at a price of $25 per share.
Secondary market
A month after the CNR issue began trading on the TSX, it is now trading at $27 per share. Scotia Capital enters the market and purchases a 200,000-share block of CNR.
The following week, one of Scotia Capital’s institutional clients, a large pension fund, wishes to buy 50,000 shares of CNR. Scotia Capital sells the shares to the pension fund at $27.25 a share, making a profit of $0.25 per share (the spread).
A retail client places an order to buy 1,000 shares of Fortis Inc. Her advisor sends the order to the trading desk where it is sent to the TSX’s trading platform and matched with another investor’s sell order.
Primary
Arabella, a client of BMO Nesbitt Burns, places an order to buy 1,000 shares of Cymbria Corp. at the market (the best price currently available on the TSX).
Her advisor sends the order to the trading desk, where the order is filled from the firm’s inventory. BMO Nesbitt Burns is obligated to give Arabella the best price currently available on the market even though they are selling shares that they own.
BMO Nesbitt Burns makes their profit through the spread.
Agent
Nigel, a client of TD Waterhouse, places an order to buy 100 CNR shares at the market (the best price currently available on the TSX).
An investment representative at TD accepts the order, which is immediately routed through to the TSX’s trading platform where it is matched with a sell order. Shortly thereafter, Nigel receives confirmation of the trade at a price of $27.76 per share.
At no point did TD Waterhouse assume ownership of these shares.
TD makes their profit by charging a fee or a commission to the client.
Identify the function a securities firm performs when underwriting new issues.
Underwriting is generally handled by principals in the primary market because it relates to bringing a new issue of securities, stocks, or bonds to market. Agency transactions generally take place in the secondary market for existing and outstanding securities.
Identify the types of firms that serve both retail and institutional clients with a complete offering of products and services.
Integrated firms offer products and services across the industry and participate fully in both the retail and institutional markets. Most integrated firms underwrite all types of federal, provincial, and municipal debt, as well as corporate debt and equity issues. They trade actively in secondary markets, including the money market, and on all Canadian and some foreign stock exchanges.
Identify the type of process used to settle trades between member brokers, trading on the TSX.
The central clearing system (CDSX) uses a process called netting to establish and confirm a credit or debit position balance, in the form of cash or security, for each dealer member. The netting process compiles each firm’s clearing settlement sheets and informs each member of the securities or funds it must deliver to balance its account. In this way, the number of securities and the amount of cash that must change hands among the various members each day is substantially reduced.
