Chapter 2: Canadian Securities Industry

Question 1

Securities regulation is a _____ responsibility

Answer 1

provincial

Question 2

OSC and BCSC

Answer 2

Ontario Securities Commission (OSC)

BC Securities Commission (BCSC)

Question 3

Self Regulatory Organizations (SROs) provide

Answer 3

oversight and enforcement for some rules

Question 4

Other SRO Players

Answer 4

The Canadian Depository for Securities (CDS)
Canadian Investor Protection Fund (CIPF)
Canadian Securities Institute (CSI)

Question 5

Full-service brokers

Answer 5

Full-service brokers offer “high-touch” service and advice (High fees)

Question 6

Brokers can be…

Answer 6

full-service or discount

Question 7

Discount brokers

Answer 7

Discount brokers offer limited services, such as stock and bond trade execution, but no advice (Low fees)

Question 8

Globalization

Answer 8

• Markets are no longer restricted to local suppliers and issuers of capital
• Canadian investors can buy US listed shares; Canadian banks lend to US borrowers

Question 9

Post-crisis financial regulation is…

Answer 9

increasing the compliance responsibility for financial firms

Question 10

FATCA

Answer 10

Foreign Account Tax Compliance Act

Question 11

AML

Answer 11

Anti-Money Laundering

Question 12

As Principals in primary markets…

Answer 12

• Investment Dealer agrees to a price with the issuer and buys all of the shares/bonds (aka “bought deal”)
• Investment Dealer then sells the purchased shares or bonds to investors

Question 13

As Agents in primary markets…

Answer 13

• Investment Dealer markets the shares or bonds to investors on a “best efforts” basis; the Investment Dealer does not purchase

Question 14

Secondary Markets

Answer 14

Investment Dealers buy and sell securities on financial markets

Question 15

As principals in secondary markets…

Answer 15

Invest their own capital and earn a spread between purchase and sale prices (aka proprietary or liability trading)

Question 16

As agents in secondary markets…

Answer 16

Invest their clients’ capital and earn a commission on executed trades (aka brokerage)

Question 17

What happens after a trade is executed?

Answer 17

• Trade is “settled”
• CDS “clears” or “settles” the trade (hence the term “clearinghouse”) as the central repository keeping track of who owns each share of a company

Question 18

What happens when the trade is “settled”?

Answer 18

• Cash from the buyer’s brokerage account is transferred to the brokerage account of the seller
• Share ownership is transferred from the seller to the buyer

Question 19

What happens when CDS “clears” or “settles”?

Answer 19

• Registered owners have their name on the (electronic) share certificate (really a book entry)
• Shares in “street” form are registered in the name of the brokerage
• The broker then keeps track of individual client ownership

Question 20

Banks in Canada are governed by the…

Answer 20

Bank Act

Question 21

Six Big Banks

Answer 21

BMO, BNS, CIBC, NA, RY, TD

Schedule I banks

Question 22

Schedule I
Schedule II
Schedule III

Answer 22

• Schedule I: Domestic Banks
• Schedule II: Subsidiaries of Foreign Banks
• Schedule III: Branches of Foreign Banks

Question 23

Conglomerate

Answer 23

six big banks (BMO, BNS, CIBC, NA, RY, TD)

Question 24

The Canadian Depository for Securities (CDS)

Answer 24

• Clears, or settles, trades

- Owned by the TMX

Question 25

Canadian Investor Protection Fund (CIPF)

Answer 25

• Insures brokerage account contents (not losses!)

Question 26

Canadian Securities Institute (CSI)

Answer 26

• Offers courses required for licensing by regulators

- Owned by Moody’s