Chapter 1 Terms

Question 1

AGENT

Answer 1

An investment dealer operates as an agent when it acts on behalf of a buyer or a seller of a security and does not itself own title to the securities at any time during the transactions.

Question 2

BROKER

Answer 2

An investment dealer or a duly registered individual that is registered to trade in securities in the capacity of an agent or principal and is a member of a Self-Regulatory Organization.

Question 3

Canadian Investor Protection Fund (CIPF)

Answer 3

Canadian Investor Protection Fund (CIPF)

A fund that protects eligible customers in the event of the insolvency of an IIROC dealer member. It is sponsored solely by IIROC and funded by quarterly assessments on dealer members.

Question 4

CDS Clearing and Depository Services Inc. (CDS)

Answer 4

CDS provides customers with physical and electronic facilities to deposit and withdraw depository-eligible securities and manage their related ledger positions (securities accounts). CDS also provides electronic clearing services both domestically and internationally, allowing customers to report, confirm and settle securities trade transactions.

Question 5

Clearing

Answer 5

Clearing
The process of confirming and matching security trade details.

Question 6

Closed End Fund

Answer 6

Shares in closed-end investment companies are readily transferable in the open market and are bought and sold like other shares. Capitalization is fixed.

Question 7

Consumer Finance Company

Answer 7

Makes direct cash loans to consumers, who usually are unable to secure a loan from a bank. Consumer finance companies typically charge a higher interest rate than banks.

Question 8

Discount Brokers

Answer 8

Discount Brokers

Brokerage house that buys and sells securities for clients at a greater commission discount than full-service firms. Also known as self-directed brokers.

Question 9

Financial Intermediary

Answer 9

Financial Intermediary

An institution such as a bank, life insurance company, credit union or mutual fund which receives cash, which it invests, from suppliers of capital.

Question 10

FINTECH

Answer 10

Financial technology companies that take advantage of computer technology to provide more efficient financial products and services.

Question 11

FIREWALL

Answer 11

Firewall

Policies implemented to separate and isolate persons within a firm who make investment decisions from persons within a firm who are privy to undisclosed material information which

may influence those decisions. For example, there should be separate fax machines for research departments and sales departments.

Question 12

Initial Public Offering (IPO)

Answer 12

Initial Public Offering (IPO)

A new issue of securities offered to the public for investment for the very first time. IPOs must adhere to strict government regulations as to how the investments are sold to the public.

Question 13

Institutional Firm

Answer 13

Institutional Firm

Investment dealer that serves institutional clients exclusively.

Question 14

INTEGRATED FIRM

Answer 14

Integrated firm
Investment dealer that offers products and services that cover all aspects of the industry, including full participation in both the institutional and the retail markets.

Question 15

INVESTMENT DEALER

Answer 15

investment dealer

A person or company that engages in the business of trading in securities in the capacity of an agent or principal and is a member of IIROC.

Question 16

INVESTMENT FUND

Answer 16

investment fund

A fund or company that sells units or shares and invests the proceeds in a portfolio of securities. There are two principal types: closed-end and open-end or mutual fund. Shares in closed-end investment companies are readily transferable in the open market and are bought and sold like other shares. Capitalization is fixed. Open-end funds sell their own new shares to investors, buy back their old shares, and are not listed. Open-end funds are so-called because their capitalization is not fixed; they normally issue more shares or units as people want them.

Question 17

Investment Industry Regulatory Organization of Canada (IIROC)

Answer 17

Investment Industry Regulatory Organization of Canada (IIROC)

The Canadian investment industry’s national self-regulatory organization. IIROC carries out its regulatory responsibilities through setting and enforcing rules regarding the proficiency, business and financial conduct of dealer firms and their registered employees and through setting and enforcing market integrity rules regarding trading activity on Canadian equity marketplaces.

Question 18

MARKET MAKER

Answer 18

market maker

A trader employed by a securities firm who is authorized and required, by applicable self-regulatory organizations (SROs), to maintain reasonable liquidity in securities markets by making firm bids or offers for one or more designated securities.

Question 19

MONEY MARKET?

Answer 19

money market

That part of the capital market in which short-term financial obligations are bought and sold. These include treasury bills and other federal government securities, and commercial paper, and bankers’ acceptances and other instruments with one year or less left to maturity. Longer term securities, when their term shortens to the limits mentioned, are also traded in the money market.

Question 20

MUTUAL FUND?

Answer 20

mutual fund

An investment fund operated by a company that uses the proceeds from shares and units sold to investors to invest in stocks, bonds, derivatives and other financial securities.

Mutual funds offer investors the advantages of diversification and professional management and are sold on a load or no load basis. Mutual fund shares/units are redeemable on demand at the fund’s current net asset value per share (NAVPS).

Question 21

PENSION FUND?

Answer 21

pension fund A regular payment made to a retired employee from an investment fund that the employee and/or employer has contributed to during the working life of the employee.

Question 22

PRIMARY MARKET?

Answer 22

primary market

The market for new issues of securities. The proceeds of the sale of securities in a primary market go directly to the company issuing the securities.

Question 23

PRINCIPAL

Answer 23

principal

The person for whom a broker executes an order, or a dealer buying or selling for its own account. The term may also refer to a person’s capital or to the face amount of a bond.

Question 24

RETAIL FIRM?

Answer 24

retail firm

Retail firms are investment dealers that serve only retail clients. Retail firms include full-service firms and discount brokers.

Full-service firms offer a wide variety of products and services for the retail investor. Discount brokers execute trades for retail clients at a reduced rate, but do not provide investment advice.

Question 25

ROBO-ADVISOR

Answer 25

robo-advisor

An online investment service that provides clients with automated investment advice.

Question 26

SALES FINANCE COMPANY

Answer 26

sales finance company

Purchases, at a discount, instalment sales contracts from retailers and dealers when such items as new cars and appliances are bought on instalment plans.

Question 27

SAVINGS BANK?

Answer 27

savings bank

A financial institution whose main role is to accept savings deposits and pay interest on those deposits. Usually set up by a government and is similar in function to a credit union.

Question 28

SCHEDULE I BANK

Answer 28

schedule I bank

Canadian-owned banks. The largest 6 banks in Canada out-distance the asset size of other Canadian-owned banks. Schedule I banks are regulated by the Bank Act.

Question 29

SCHEDULE II BANK

Answer 29

schedule II bank

Banks that are incorporated and operate in Canada as federally regulated foreign bank subsidiaries. Schedule II banks are regulated by the Bank Act.

Question 30

SCHEDULE III BANK

Answer 30

schedule III bank

Banks that are federally regulated foreign bank branches of foreign institutions that have been authorized under the Bank Act to do banking business in Canada.

Question 31

SELF-DIRECTED BROKER

Answer 31

self-directed broker

Also known as discount brokers. Self-directed brokers offer discounted transaction costs and do not provide investment advice to investors.

Question 32

SELF-REGULATORY ORGANIZATION

Answer 32

self-regulatory organization (SRO)

An organization recognized by the Securities Administrators as having powers to establish and enforce industry regulations to protect investors and to maintain fair, equitable, and ethical practices in the industry and ensure conformity with securities legislation. Canadian SROs include the Investment Industry Regulatory Organization of Canada and, the Mutual Fund Dealers Association.

Question 33

SECONDARY MARKET?

Answer 33

secondary market

The market where securities are traded through an exchange or over-the-counter subsequent to a primary offering. The proceeds from trades in a secondary market go to the selling dealers and investors, rather than to the companies that originally issued the shares in the primary market.

Question 34

MARKET MAKER?

Answer 34

Market Maker

A market maker helps to create a market for investors to buy or sell securities. Market makers are typically large banks or financial institutions. They help to ensure there’s enough liquidity in the markets, meaning there’s enough volume of trading so trades can be done seamlessly.

Without market makers, there would likely be little liquidity. In other words, investors who want to sell securities would be unable to unwind their positions due to a lack of buyers in the market.

Market makers help to keep the market functioning, meaning if you want to sell a bond, they are there to buy it. Similarly, if you want to buy a stock, they’re there to have that stock available to sell to you.

Question 35

SETTLEMENT?

Answer 35

settlement

The moment of irrevocable exchange of cash and securities.

Question 36

UNDERWRITING

Answer 36

underwriting

The purchase for resale of a security issue by one or more investment dealers or underwriters. The formal agreements pertaining to such a transaction are called underwriting agreements.