Chapter 1 Flashcards
What is the difference between user and supplier of capital?
User: Borrower, entrepreneurs
Supplier: Investor
Who is in charge of regulating Canadian securities industry?
They can enforce their laws through securities commissions (aka securities administrators). They also delegate some powers to SROs such as IIROC.
What does IIROC stand for
Investment Industry regulatory organization of Canada
What do SRO’s do
Enfore industry regulations, protect investors, maintain fair, equitable ethical practices
What is CDS
It is the clearing and depository services. Clearing is the process of confirming and matching security trade details. settlement is the irrevocable money when cash and securities are exchanged
What is a financial intermediary
Any org that facilitates the trading or movement of financial instruments. Include investment dealers, banks, credit unions, trust companies, insurance companies
What is the difference between primary and secondary market
Primary: When company goes public and issues stock for first time (IPO)
Secondary: When previously issued or outstanding securities can be traded
What are the three categories of investment dealers make up the Canadian economy?
- Retail firms: separated between full service (offer products and services, give advice) and self-directed brokers/discount brokers (Execute trades at reduced rate)
- Institutional firms: exclusively institutional clients which trade large volumes of securities, such as pension funds, mutual funds, foreign institutional investors. (foreign firms = 1/3 of institutional clients)
- Integrated Firms: Offer both retail and institutional. generally Underwrite all types of federal, provincial, municipal debt, and corporate debt/equity
What is an investment boutique
Smaller retail or investment dealer whcih specialize in a specific segment.
What is the organization within firms
Senior management: chairperson, president, vice-president, directors and vice-presidents
Front office: All staff functions directly related to portfolio management (portfolio management, trading, sales, marketing)
Middle Office: Performs functions critical to the efficient operation of the firm (Compliance, accounting, audit, legal)
Back Office: settlement of trades
What is generally largest unit in firm’s front office
Sales department
Describe principal transactions
The dealer owns the security in their inventory at some stage of buying and selling. difference between buy-sell price is profit/loss. They also act as underwriters by purchasing share issuances then sell at a profit. Most secondary trading of debt securities is generally a principal transaction
Describe Agency transactions
The dealer does not own the security, but charge a commission for each trade
What is the process of Netting done by CDS
Establishing a credit or debit position balance for each dealer member.
What is a chartered bank? What are the three types?
All banks operating under the bank act.
1. Schedule I: Domestic bank, attract and centralize most Canadian savings. Large ( >12b) max 20% holdings, Medium (2b<Medium<12b) max 65% holdings, small (<2b) can be fully owned
2. Schedule 2: incorporated and operate in Canada, federally regulated, might be elibigle for CDIC insurance. Permitted to engage in all types of business Schedule 1 banks do. derive most revenue from retail banking and electronic financial services
3. Schedule 3: federally regulated, foreign bank branches, tend to focus on corporate and institutional finance and investment banking
What is a credit union and caisse populaire
Offer wide variety of banking services. Provide: deposit taking, lending, mortgages, mutual funds, insurance, invesmtne dealer services, debit/credit cards. Often cater to members from common interest groups (same neighbourhoods, ethinic background, same business, etc)
What federal legislation governs credit unions
The Cooperative Credit Assocaition Act. Limit activities of credit unitoons, they can provide financial services to their members, entities in which they have a substantial investment and certain cooperative institutions. Can also provide admin, education and other services to cooperative institutions. Must Follow a “prudent portfolio approach”: prohibits acquiring substantial investments in entities other than financial and quasi-financial entities
What is a trust/loan comapany
Federally/provincially incoporated trust companies are the only ones allowed to engage in trust business. They are in charge of individual assets, they can also provide estate planning and asset management
What are the main lines of business of an insurance company
- life insurance
- Health and disability
- Term and whole life insurance
- pension plan
- RRSP
- Annuities - Property and casualty insurance
- home
- auto (largest premiums)
-commericla business
What is the most important aspect of insurance business in canada
Underwiitng (evaluation the risk and associated contractual responsibility that the company is willing to accept)
2nd most important is reinsurance (exchanging risk between insurance companies)
What closed/open-end funds
They sell units/shares to invest in well diverse securities portfolio
closed: only 1 issuance of shares at startup and other infrequent periods
open: also called mutual funds, consistently issues shares (makes up 95% of aggregate funds)
What is a consumer finance company
make direct cash loans to consumers who cant get bank loan, higher rates for higher risk
What is sales finance companies
instalment sales contracts from retailes and dealers at a discount for things such as cards, appliances, home improvements
What is fintech
financial technology companies, ie. online loans, electronic wallets, automated financial planning. Challeges traditional financial services instituitons
