ch.2-The canadian securities market

Question 1

Intermediaries

Answer 1

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

Question 2

3 categories of firms that make up canadian securities industry (IIR)

Answer 2

1. Integrated firms
2. Institutional Firms
3. Retail Firms

+ securities firm

Question 3

Integrated firms

Answer 3

• offer products and services that cover all aspects of industry
• full participation in institutional + retail markets
• smaller securities dealers called “ Investment Boutiques”

Question 4

Institutional firms

Answer 4

serve institutional clients only

Question 5

Retail firms

Answer 5

Covers the rest of securities industry incl full service firms + discount brokers

Question 6

Integrated firm structure

Answer 6

• management: senior mgmt - chairman, executive vice president, vice presidents, etc…
• Front/middle/back office

Question 7

Front office

Answer 7

All staff functions pertaining directly to portfolio mgmt activities

Question 8

Middle office

Answer 8

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

Question 9

Back office

Answer 9

Settle firms security transactions in efficient and effective manner

• known as “Trade settlement Function”
• ensures all firms security transactions (purchases/sales) settled correctly

Question 10

Investment dealer functions: Principal VS agent

Answer 10

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)

Question 11

Schedule I banks

Answer 11

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

Question 12

Schedule II banks

Answer 12

• 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

Question 13

Schedule III banks

Answer 13

• 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

Question 14

Trust Companies

Answer 14

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

Question 15

Investment Funds

Answer 15

companies or trusts that sell shares and invest proceeds in diverse securities portfolio

• Closed End fund
• Open end funds (mutual funds)

Question 16

Closed end funds

Answer 16

• investment fund

- typically issues shares only at start up or infrequent periods

Question 17

Open end funds (Mutual funds)

Answer 17

• Investment fund

- continually issue shares to investors and redeem shares on demand

Question 18

Savings bank

Answer 18

• Alberta trust treasury branches (ATB)
• formed when banks pulled out their branches from smaller towns
• provides full range of financial services to Albertans

Question 19

-Sales finance and consumer loans companies

Answer 19

make direct cash loans to consumers who usually repay principal and interest in installments

Question 20

clearing

Answer 20

confirming + matching security trade details

Question 21

settlement

Answer 21

moment of irrevocable exchange of cash securities

Question 22

CIPF

Answer 22

Insurance against Insolvency

Question 23

CSI

Answer 23

education for industry participants

Question 24

Investment dealer

Answer 24

play significant role in securities industry 2 main functions:

1. trf capital btwn savers–> users in primary market
   - investors have 1st opportunity to buy newly issued security
2. Maintain Secondary markets
   - where existing securities trf btwn investors

Question 25

Securities firm (Investment Dealer)

Answer 25

main intermediaries that bring new issues to market

Question 26

Investment boutiques

Answer 26

• smaller securities investment dealer

- specialize in stock/bond trading, research on particular industries, portfolio mgmt, tax shelter sales, etc….

Question 27

Principal Transactions

Answer 27

• 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.

Question 28

Agent Transactions

Answer 28

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)

Question 29

Bank Act

Answer 29

• 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

Question 30

firewalls

Answer 30

-controls on how banks share information between subsidiaries.

Question 31

Credit Unions and Caisses Populaires

Answer 31

• 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

Question 32

Cooperative Credit Associations Act

Answer 32

Limits activities of credit unions to providing financial services to members, entities that they have substantial investments in + some cooperative institutions

Question 33

Insurance companies

Answer 33

2 main businesses:

1. Life insurance
2. Property and casualty Insurance

Question 34

Life Insurance

Answer 34

• insurance against loss of life, livelihood, health
• term
• whole life

Question 35

Property and casualty Ins

Answer 35

protects against loss of property- incl home, auto, commercial business insurance.