Chapter 1 | The Canadian Securities Industry Flashcards

1
Q

A _ _ _ _ _ _ is an institution such as a bank that borrows money from suppliers of capital and lends it to users of capital.

A

A financial intermediary is an institution such as a bank that borrows money from suppliers of capital and lends it to users of capital.

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2
Q

TRUE OR FALSE?

The Canadian securities industry is mainly regulated by the provinces.

A

ANSWER
TRUE

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3
Q

Canadian provinces have the power to create and enforce their own laws and regulations through _ _ _ _ _ _

A

Canadian provinces have the power to create and enforce their own laws and regulations through SECURITIES COMMISSIONS.

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4
Q

COMPLETE THE SENTENCE:

Securities commissions delegate some of their powers to _ _ _ _ _ _ _ such as the Investment Industry Regulatory Organization of Canada (IIROC).

A

**ANSWER:

Securities commissions delegate some of their powers to self-regulatory organizations (SRO) such as the Investment Industry Regulatory Organization of Canada (IIROC).**

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5
Q

NOTE ONLY /

A Self Regulatory Organizations (SROs) is a non-governmental organization that regulates the operations, standards of practice, and business conduct of its members with a view to promoting the public interest.

The BRITISH COLUMBIA SECURITIES COMMISSION (BCSC) has the statutory power to recognize SROs. The BCSC currently recognizes the Mutual Fund Dealers Association (MFDA), the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Public Accountability Board (CPAB) as SROs.

A

NOTE ONLY /

A Self Regulatory Organizations (SROs) is a non-governmental organization that regulates the operations, standards of practice, and business conduct of its members with a view to promoting the public interest.

The BRITISH COLUMBIA SECURITIES COMMISSION (BCSC) has the statutory power to recognize SROs. The BCSC currently recognizes the Mutual Fund Dealers Association (MFDA), the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Public Accountability Board (CPAB) as SROs.

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6
Q

List 2 Self Regulatory Organizations (SROs)

A

ANSWER:

Mutual Fund Dealers Association (MFDA), the Investment Industry Regulatory Organization of Canada (IIROC)

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7
Q

NOTE ONLY

The BRITISH COLUMBIA SECURITIES COMMISSION (BCSC) is the independent provincial government agency reporting to the Legislature through the minister responsible for the administration of the Securities Act.

A

NOTE ONLY

The BRITISH COLUMBIA SECURITIES COMMISSION (BCSC) is the independent provincial government agency reporting to the Legislature through the minister responsible for the administration of the Securities Act.

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8
Q

The term _ _ _ _ _ _ describes any organization that facilitates the trading or movement of financial instruments that transfer capital between suppliers and users of capital.

A

ANSWER:

The term FINANCIAL INTERMEDIARY describes any organization that facilitates the trading or movement of financial instruments that transfer capital between suppliers and users of capital.

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9
Q

Give 3 examples of financial intermediaries?

A

ANSWER:

investment dealers, banks, credit unions, trust companies, and insurance companies.

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10
Q

_______ is the procedure by which financial trades settle - that is, the correct and timely transfer of funds to the seller and securities to the buyer.

A

ANSWER:

CLEARING is the procedure by which financial trades settle - that is, the correct and timely transfer of funds to the seller and securities to the buyer.

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11
Q

_______ is the irrevocable moment when cash and securities are exchanged.

A

ANSWER:

Settlement is the irrevocable moment when cash and securities are exchanged.

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12
Q

The _ _ _ _ _ Fund and similar organizations provide insurance against dealer insolvency.

A

ANSWER:

The Canadian Investor Protection Fund and similar organizations provide insurance against dealer insolvency.

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13
Q

_____ trading occurs when a brokerage buys securities in the secondary market, holds these securities for a period of time and then sells them.

A

PRINCIPAL trading occurs when a brokerage buys securities in the secondary market, holds these securities for a period of time and then sells them.

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14
Q

Explain Agency Trading?

A

**ANSWER:

An agency transaction is the other popular method for executing a client’s orders. More complicated than regular principal transactions, these deals involve the search for and transfer of securities between clients of different brokerages.**

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15
Q

EXPLAIN WHAT AN INITIAL PUBLIC OFFERING IS?

A

What is an Initial Public Offering - IPO?

The process of offering shares in a private corporation to the public for the first time is called an initial public offering (IPO).

Growing companies that need capital will frequently use IPOs to raise money, while more established firms may use an IPO to allow the owners to exit some or all their ownership by selling shares to the public.

In an initial public offering, the issuer, or company raising capital, brings in underwriting firms or investment banks to help determine the best type of security to issue, offering price, amount of shares and time frame for the market offering.

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16
Q

Retail firms include _ _ _ _ _ and _ _ _ _ _ .

A

ANSWER:

Retail firms include full-service investment dealers and self-directed brokers (also known as discount brokers).

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17
Q

_ _ _ _ _ _ brokers, are considered the do-it-yourself approach to investing. They execute trades for clients at reduced rates, but they do not provide investment advice.

A

SELF-DIRECTED BROKERS are considered the do-it-yourself approach to investing. They execute trades for clients at reduced rates, but they do not provide investment advice.

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18
Q

_ _ _ _ _ _ are investment dealers that serve organizations that trade large volumes of securities.

A

**ANSWER:

INSTITUTIONAL FIRMS are investment dealers that serve exclusively institutional clients, organizations that trade large volumes of securities.**

Institutional clients include pension funds and mutual funds, and may be domestic or foreign institutional firms.

In Canada, foreign firms account for about one-third of all institutional clients. Foreign firms include affiliates of many of the major U.S. and European securities dealers.

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19
Q

_______ firms offer products and services across the industry and participate fully in both the retail and institutional markets.

A

ANSWER:

INTEGRATED FIRMS offer products and services across the industry and participate fully in both the retail and institutional markets.

Most integrated firms underwrite all types of federal, provincial, and municipal debt, as well as corporate debt and equity issues. They are active in secondary markets, including the money market, as well as on all Canadian stock exchanges and some foreign exchanges.

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20
Q

______ performs all staff functions pertaining directly to portfolio management activities.

Functions include Portfolio management
Trading, Sales, and Marketing.

A

ANSWER:

Front Office

21
Q

_________ performs functions critical to the efficient operation of the firm. Duties include Compliance, Accounting, Audits,
Legal

A

ANSWER:

MIDDLE OFFICE

22
Q

This area settles the firm’s security transactions.

A

ANSWER: BACK OFFICE

23
Q

The success of an investment dealer rests largely on profits generated by _ _ _ _ _ _ _

A

ANSWER:

SALES DEPARTMENT

24
Q

TRUE OR FALSE?

By participating in the secondary market and maintaining an inventory of outstanding securities, investment dealers add liquidity to the market with relative ease by making transactions from their inventory, rather than waiting for simultaneous matching buy-sell orders from other investors.

A

ANSWER: TRUE

25
Q

COMPLETE THE SENTENCE:

During a trading day, exchange members act as both buyers and sellers of many listed stocks. Rather than each member making a separate settlement with another member on each trade during the course of a trading day, a designated central clearing system handles the daily settlement process between members.

A

ANSWER:

During a trading day, exchange members act as both buyers and sellers of many listed stocks. Rather than each member making a separate settlement with another member on each trade during the course of a trading day, a designated CENTRAL CLEARING SYSTEM handles the daily settlement process between members.

26
Q

The central clearing system uses a process called ______ to establish and confirm a credit or debit position balance, in the form of cash or security, for each dealer member.

This process compiles each firm’s clearing settlement sheets and informs each member of the securities or funds it must deliver to balance its account.

A

ANSWER:

The central clearing system uses a process called NETTING to establish and confirm a credit or debit position balance, in the form of cash or security, for each dealer member.

The NETTING PROCESS compiles each firm’s clearing settlement sheets and informs each member of the securities or funds it must deliver to balance its account.

27
Q

_ _ _ _ _ banks are banks that are not a subsidiary of a foreign bank and are considered domestic banks even if they have foreign shareholders.

A

SCHEDULE I banks are banks that are not a subsidiary of a foreign bank and are considered domestic banks even if they have foreign shareholders.

28
Q

Voting shares of large Schedule I banks must be widely held, with the control of any single shareholder or group of shareholders restricted to no more than ___%

A

Voting shares of large Schedule I banks must be widely held, with the control of any single shareholder or group of shareholders restricted to no more than 20%

29
Q

NOTE ONLY / SCHEDULE II BANKS

Schedule II banks are incorporated and operate in Canada as federally-regulated foreign bank subsidiaries. The deposits that these banks accept may be eligible for deposit insurance provided by the CDIC. The banks may also engage in all types of business permitted to a Schedule I bank.

A

NOTE ONLY / SCHEDULE II BANKS

Schedule II banks are incorporated and operate in Canada as federally-regulated foreign bank subsidiaries. The deposits that these banks accept may be eligible for deposit insurance provided by the CDIC. The banks may also engage in all types of business permitted to a Schedule I bank.

30
Q

SCHEDULE III BANKS

A

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

Schedule III banks tend to focus on corporate and institutional finance and investment banking. Examples of Schedule III banks in Canada include Barclays Bank, Comerica Bank, and The Bank of New York Mellon.

31
Q

INSURANCE TWO MAIN LINES OF BUSINESS?

A

ANSWER:

The insurance industry has two main lines of business: life insurance and property and casualty insurance.

32
Q

_________ is the most important aspect of the insurance business in Canada.

A

UNDERWRITING is the most important aspect of the insurance business in Canada.

33
Q

TRUE OR FALSE? The Bank Act forbids banks from selling insurance through their branch networks, with the exception of insurance related to loans and mortgages.

A

ANSWER: TRUE

34
Q

_ _ _ _ _ companies make direct cash loans to consumers, who are usually unable to secure a loan from a bank. These companies typically charge higher rates of interest than banks.

A

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

35
Q

_________companies purchase instalment sales contracts from retailers and dealers at a discount, when items such as new cars, appliances, or home improvements are bought on instalment plans by consumers.

A

Sales finance companies purchase instalment sales contracts from retailers and dealers at a discount, when items such as new cars, appliances, or home improvements are bought on instalment plans by consumers.

36
Q

Financial technology companies, known collectively as the _____ industry, take advantage of computer technology to support or enable a variety of banking and financial products and services, including online loans, electronic wallets, and automated financial planning software.

A

Financial technology companies, known collectively as the FINTECH industry, take advantage of computer technology to support or enable a variety of banking and financial products and services, including online loans, electronic wallets, and automated financial planning software.

37
Q

TRUE OR FALSE?

Robo-Advisor portfolios are created using algorithms based on modern portfolio theory and on online client questionnaires.

A

ANSWER: TRUE

38
Q

TRUE OR FALSE? Robo-Advisors may offer financial planning in varying degrees?

A

ANSWER: TRUE

39
Q

TRUE OR FALSE? Robo- Advisors portfolios are built primarily with exchange-traded funds.

A

ANSWER: TRUE

40
Q

A _ _ _ _ _ can raise capital by bringing a new issue of securities to the financial markets.

A

A FINANCIAL INTERMEDIARY can raise capital by bringing a new issue of securities to the financial markets.

41
Q

COMPLETE THE SENTENCE

For buying equities, the secondary market is commonly referred to as the _ _ _ _ _ This includes the New York Stock Exchange (NYSE), Nasdaq and all major exchanges around the world. The defining characteristic of the secondary market is that investors _ _ _ _ _ _

A

ANSWER

For buying equities, the secondary market is commonly referred to as the STOCK MARKET . This includes the Toronto Stock Exchange, New York Stock Exchange (NYSE), Nasdaq and all major exchanges around the world. The defining characteristic of the secondary market is that investors TRADE AMONG THEMSELVES.

42
Q

_ _ _ _ _ establish and enforce industry regulations that protect investors and maintain fair, equitable, and ethical practices.

A

ANSWER:

Self-regulatory organizations (SRO)

43
Q

INSURANCE UNDERWRITING?

A

INSURANCE UNDERWRITING 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.

44
Q

COMPLETE THE SENTENCE

When a private company goes public and issues stocks in the primary market for the very first time, the sale is known as an_____________

A

ANSWER: When a private company goes public and issues stocks in the primary market for the very first time, the sale is known as an INITIAL PUBLIC OFFERING.

45
Q

COMPLETE THE SENTENCE

Investment dealers act on their clients’ behalf as ______ in the transfer of financial instruments between different investors.

A

ANSWER:

Investment dealers act on their clients’ behalf as AGENTS in the transfer of financial instruments between different investors.

46
Q

DEMUTUALIZATION?

A

Demutualization is the process through which a member-owned company becomes shareholder-owned; frequently this is a step toward the initial public offering (IPO) of a company. Insurance companies often have the word “mutual” in their name, when they are mutually owned by their policy holders as a group.

In recent years, however, there has been a strong trend for these companies to demutualize, converting to a shareholder ownership base.

Generally, policy holders are offered either shares or money in exchange for their ownership rights.

Because shares can be traded or sold - in contrast to ownership rights, which can not - demutualization increases the possibility of profit for those involved, and tends also to benefit the economy.

47
Q

EXCHANGE TRADED FUND (ETF)?

A

An ETF, or exchange-traded fund, is a marketable security that tracks a stock index, a commodity, bonds, or a basket of assets. Although similar in many ways, ETFs differ from mutual funds because shares trade like common stock on an exchange.

48
Q

OPEN END MUTUAL FUND?

A

An open-end fund is a type of mutual fund that does not have restrictions on the amount of shares the fund can issue.

The majority of mutual funds are open-end, providing investors with a useful and convenient investing vehicle.

49
Q

CLOSED END FUNDS?

A

Closed-End Investments
A closed-end fund has a fixed number of shares offered by an investment company through an initial public offering (IPO).

Thereafter, closed-end fund shares are traded on an exchange, just like an individual stock. Investors acquire fund shares by purchasing them on the exchange through a brokerage account.

The price of shares in a closed-end fund is more reflective of the market than the net asset value of the fund itself.