ch.2-The canadian securities market Flashcards
Intermediaries
Any organization that facilitates trading or movement of financial instruments that trf capital between suppliers and users
- Chartered banks
- life insurance companies
- investment funds
- trust+mortgage companies
- pension plans
- credit unions
- caisses populaires
3 categories of firms that make up canadian securities industry (IIR)
- Integrated firms
- Institutional Firms
- Retail Firms
+ securities firm
Integrated firms
- offer products and services that cover all aspects of industry
- full participation in institutional + retail markets
- smaller securities dealers called “ Investment Boutiques”
Institutional firms
serve institutional clients only
Retail firms
Covers the rest of securities industry incl full service firms + discount brokers
Integrated firm structure
- management: senior mgmt - chairman, executive vice president, vice presidents, etc…
- Front/middle/back office
Front office
All staff functions pertaining directly to portfolio mgmt activities
Middle office
Functions that are critical to the efficient operation of entire firm
-ensure firms products and services designed and delivered in conformance with industry best practices
Back office
Settle firms security transactions in efficient and effective manner
- known as “Trade settlement Function”
- ensures all firms security transactions (purchases/sales) settled correctly
Investment dealer functions: Principal VS agent
Principal: securities firm owns securities as part of inventory (underwrites new securities)
Agent: acts for/on behalf of buyer seller- doesnt own title to securities
-charges commission (no profit from spread)
Schedule I banks
Canadian owned banks
- Provide variety of services through investment dealer, insurance, mortgage, trust , mutual fund, wealth mgmt services
- RBC, CIBC, BMO, SCOTIA, TD, NATIONAL BANK OF CANADA
- adhere to firewalls
Schedule II banks
- foreign bank subsidiaries
- incorporated and operate in Canada as federally regulated foreign subsidiaries
- focus on retail banking + electronic financial services
- can engage in SOME types of business as sch.I banks
Schedule III banks
- federally regulated bank branches of foreign institutions
- authorized under bank act to do banking in Canada
- focus on corporate and institutional finance and investment banking
Trust Companies
only corporation in Canada authorized in Canada to engage in trust business
-acts as trustee
-offers estate planning and asset mgmt
- savings acct, term deposits, RRSP’s, etc
often overlaps bank services
Investment Funds
companies or trusts that sell shares and invest proceeds in diverse securities portfolio
- Closed End fund
- Open end funds (mutual funds)
Closed end funds
- investment fund
- typically issues shares only at start up or infrequent periods
Open end funds (Mutual funds)
- Investment fund
- continually issue shares to investors and redeem shares on demand
Savings bank
- Alberta trust treasury branches (ATB)
- formed when banks pulled out their branches from smaller towns
- provides full range of financial services to Albertans
-Sales finance and consumer loans companies
make direct cash loans to consumers who usually repay principal and interest in installments
clearing
confirming + matching security trade details
settlement
moment of irrevocable exchange of cash securities
CIPF
Insurance against Insolvency
CSI
education for industry participants
Investment dealer
play significant role in securities industry 2 main functions:
- trf capital btwn savers–> users in primary market
- investors have 1st opportunity to buy newly issued security - Maintain Secondary markets
- where existing securities trf btwn investors
Securities firm (Investment Dealer)
main intermediaries that bring new issues to market
Investment boutiques
- smaller securities investment dealer
- specialize in stock/bond trading, research on particular industries, portfolio mgmt, tax shelter sales, etc….
Principal Transactions
- Underwriting/financing: purchase from gov/company- new issue of securities
- dealers act as principals (use own money to buy issue, hold till able to sell)
-other principal transactions:
~easy trans. made from inventory instead of waiting to match buy/sell– liquid
~may act as market makers-
~trade own account with intent of making profit.
Agent Transactions
Acting as Broker: firm is agent in secondary securities transactions
-clients who buy/ell are principals/owners of securities. Broker acts as agent (never owns)
Bank Act
- regularly updated every 5 yrs
- says what bank can do, operating rules that allow it to function
- ALL BANKS OPERATE UNDER BANK ACT
- Sch.I,II,III banks
firewalls
-controls on how banks share information between subsidiaries.
Credit Unions and Caisses Populaires
- diverse services (business and consumer deposit taking/lending mortgages, mutual funds, insurance, trust services, investment dealer services, debit/credit card
- adhere to Cooperative Credit Associations act
Cooperative Credit Associations Act
Limits activities of credit unions to providing financial services to members, entities that they have substantial investments in + some cooperative institutions
Insurance companies
2 main businesses:
- Life insurance
- Property and casualty Insurance
Life Insurance
- insurance against loss of life, livelihood, health
- term
- whole life
Property and casualty Ins
protects against loss of property- incl home, auto, commercial business insurance.
