Chapter 1 - The Canadian Securities Industry Flashcards
What are the three categories of securities firms in Canada? What is the focus of each type of firm?
Integrated Firm - participate in both the retail and institutional markets offering products and services across the industry. Most underwrite all types of federal, provincial and municipal debt as well as corporate debt and equity issues. They are active in secondary markets as well as on all Canadian stock exchanges and some foreign exchanges.
Retail Firm - include full service investment dealers and self-directed brokers. Offer a wide variety of products and services for the retail investor. They provide advice as well.
Institutional Firm - investment dealers that serve exclusively institutional clients, organizations that trade large volumes of securities. Example, pension funds, mutual funds. Can be domestic or foreign.
What are the roles of the front office, middle office, and back office of an investment dealer?
Front office
- portfolio management
- trading
- sales
- marketing
Middle office
- compliance
- accounting
- audits
- legal
Back office
- trade settlement
What is a market maker?
A market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a tradable asset held in inventory, hoping to make a profit on the bid–ask spread, or turn.
What role does CDS Clearing and Depository Services Inc. play in Canada?
Central clearing system for securities.
What is the difference between a principal and an agent? How do each of these roles generate revenue for the investment dealer?
Principal - Investment dealers OWN the securities as part of their inventory. The difference between the buying price and the selling price of the securities is their profit or loss.
Agent - when investment dealers act as agents on behalf of buyers or sellers they don’t own the securities they’re dealing with. Their profit is the commission they charge for each transaction.
What are the three types of chartered banks in Canada? What’s the difference between each type?
Schedule I Banks - domestic banks
ie. RBC, Scotiabank
Schedule II Banks - federally regulated foreign bank subsidiaries. Engage in same business as schedule I banks. ie. Citibank Canada, AMEX Bank of Canada
Schedule III Banks - federally regulated foreign bank branches of foreign institutions. Focus on corporate and institutional finance and investment banking.
ie. Barclays Bank, The Bank of New York Mellon
Which type of bank has strict ownership rules?
Schedule I banks. No more than 20% can be held by single shareholder or group of shareholders for a large bank.
Medium size bank (shareholder equity of 2 - 12 billion) can have a single shareholder own up to 65%.
Small bank (less than 2 billion) can be fully owned by one person or organization.
What is a credit union?
Often cater to members from a common interest group ie. same neighbourhood, similar ethnic background, or belong to same business or social group.
Offer business and individuals many banking services - deposits, lending, mortgages, mutual funds, insurance.
What role do insurance companies play in the financial markets?
Act as trustees for the funds entrusted to them by policyholders. Have to exercise extreme caution in selecting their investments so they can meet future contractual obligations.
Underwriting is the most important aspect of the insurance business in Canada. It is the business of evaluating the risk and associated contractual responsibility that the insurance company is willing to accept in exchange for its clients’ insurance premiums.
What is a trust company?
Trust companies act as a trustee in charge or corporate and individual assets such as property, stocks and bonds. They also provide estate planning and asset management. Accept savings, issue term deposits, make personal and mortgage loans and sell rrsps.
What is the purpose of an investment fund?
Companies or trusts that sell shares or units to the public and invest the proceeds in a diverse securities portfolio.
Closed-end funds typicall issue shares only at the start up or other infrequent periods.
Open-end funds (mutual funds) continually issue shares to investors and redeem these shares on demand.
What are the two government-related pension plans in Canada?
Canada Pension Plan
Old Age Security
What is a robo-advisor? What are the common attributes of a robo-advisor?
An online investment advice platform.
- provide clients with goal-based online investment management.
- portfolios are created using algorithms
What is Netting?
The number of securities and the amount of cash that has to change hands among the various members each day is substantially reduced through a process called netting where the clearing system establishes and confirms a credit or debit cash or security position balance for each member firm, compiles their clearing settlement sheets and informs each member of the securities or funds it must deliver to balance its account.
What is Clearing?
Clearing refers to the process of confirming and matching security trade details.
