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.
Investment dealer
Services and Products Offered
Underwrite new securities in the primary market
Trade securities in the secondary market as agent or principal
Provide investment and financial planning advice
Research
Examples
BMO Nesbitt Burns
CIBC World Markets
Odlum Brown Ltd.
TD Waterhouse Canada Inc.
Maison Placements Canada Inc.
Chartered bank schedule 1
Services and Products Offered
Loan funds to businesses and consumers
Accept savings and term deposits from businesses and consumers
Sell mutual funds to investors
Sell other investment products
Specialized lending:
Residential mortgages
Project financing for businesses
Foreign lending to corporations or governments
Credit card lending
Examples
Bank of Montreal
Royal Bank of Canada
TD Canada Trust
Canadian Imperial Bank of Commerce
Bank of Nova Scotia
National Bank of Canada
Laurentian Bank of Canada
Canadian Western Bank
Schedule II
Services and Products Offered
Make commercial loans to businesses
Issue financial paper in the money market
Take deposits for businesses
Sell mutual funds and other investment products to investors
Provide all types of business services that Schedule I banks are permitted to provide
Examples
Citibank Canada
AMEX Bank of Canada
Schedule III
Services and Products Offered
Most are full-service branches
Can accept deposits
Some are merely lending branches
Examples
Deutsche Bank
Comerica Bank
Insurance company
Services and Products Offered
Term deposits and GICs
Segregated funds and other investment products
Life insurance:
Life and health
Disability
Term and whole life
Property and casualty insurance:
Home
Car
Commercial business
Liability
Examples
London Life
Canada Life
Sun Life of Canada
Great-West Life
Investment fund company
Services and Products Offered
Sell shares or units to the public
Invest proceeds in a diversified portfolio of securities
Examples
Mutual Funds
Invesco
CI Funds Inc.
Closed-End Funds
Friedberg Mercantile Group Ltd.
Other intermediaries
Services and Products Offered
Savings and deposits, estate and asset planning
Employee and government pension plans
Business and consumer deposit taking and lending
Mortgages, mutual funds, insurance, and term deposits
Fixed-term loans to small businesses
Examples
Trust and mortgage companies
Pension plans
Credit unions and caisses populaires
Federal Business Development Bank
Finance companies
Savings banks
Institutional firm
Institutional firms work with institutional clients, such as mutual funds and pension funds. They do not participate in the retail market.
Retail firm
Retail firms offer a variety of products and services to investors like yourself. They also provide various levels of advice, depending on the client’s circumstances.
Self directed broker
Self-directed brokers execute trades at reduced commission rates for investors who make their own investment decisions. Self-directed brokers are not licensed to provide investment advice.
Middle and back office
The middle office handles compliance, accounting, and auditing, and the back office handles trade settlement.
