Course 1 - Chapter 1 Flashcards
Agent
An investment dealer acting on behalf of a buyer (B) or seller (S) of a security - does not own the security at any point of the transaction (tx)
Broker
An investment dealer or individual that is reg’d to trade in securities in the capacity of agent or principal and is a member of an SRO (eg. IIROC)
Capital Markets
Financial markets where debt and equity securities trade. Include organized exchanges and private placement sources of debt/equity.
CDS Clearing and Deposit Services Inc. (3)
- Provides customers (cxs) w/ physical/electronic facilities to deposit & w/draw depository-eligible securities & manage their related ledger positions.
- Also provides domestic and international electronic clearing services, allowing cxs to report, confirm & settle securities trade txs.
NOT considered a financial intermediary
Clearing
Process of confirming/ matching security trade details
Closed-end fund (2)
Shares are readily transferable in the open market (mkt) and are bought/sold like other shares.
Capitalization (# of shares available) is fixed.
Consumer finance company (2)
Makes direct cash loans to consumers who are usually unable to secure a bank loan.
Typically charge a higher interest rate than banks (eg. Cash Money in Canada)
Discount broker
A brokerage that facilitates trades for a client at a greater discount than full-service firms, but does not provide any advice (ie. Self-directed)
Financial Intermediary
An institution (eg. a bank, life insurance company, mutual fund, credit union, etc.) which receives cash, which it invests, from suppliers of capital
Institutional firm (3)
Investment dealer that serves institutional clients only
Can be domestic or foreign
Example: Mutual fund or pension fund
Integrated firm
Investment dealer that offers products/services that cover all aspects of the industry, including full participation in both the institutional and retail mkts
Investment dealer
A person/company that engages in the business of trading in securities in the capacity of agent or principle and is a member of IIROC (an SRO)
Investment fund (2)
A fund/company that sells units/shares and invests the proceeds in a portfolio of securities.
There are 2 types: Closed-end and Opened-end (mutual) funds
Investment Industry Association of Canada (IIAC)
A member-based professional ass’n that rep’s the interests of mkt participants
Mutual fund (4)
An investment fund operated by a company that uses the proceeds from shares/units sold to investors, to invest in stocks, bonds, derivatives and other fin’ securities.
Offer diversification advantages and professional mngmt.
Sold on a load/no-load basis
Redeemable on demand @ fund’s current Net Asset Value Per Share (NAVPS)
Open-end fund (2)
These funds sell their own new shares to investors, buy back their old shares, and are not listed. (I.e. Mutual Fund)
So-called “open-end” bc their capitalization is not fixed - they will normally issue more shares/units as ppl want them
Pension fund (3)
A pool of assets managed w/ the goal of supplying its ben’s w/ income during their retirement years
2 types:
1. Defined-benefit: provides employees (EEs) w/ a pre-determined specified payment amount of funds when they retire
- Defined-contribution: allows EEs and employers (EMPs) to contrib’ to a plan that invests funds over time, but the final benefit amount @ retirement depends on how the contrib’s have been invested over the plan’s life span
Primary market distribution
The issuance of securities in the primary mkt
Principal (3)
The person for whom a broker executes an order (can be a dealer B-ing or S-ing for his own acct)
Can also refer to a person’s capital
Can also refer to the face amount of a bond
Retail firm
Investment dealers that serve only retail clients, including full-service firms and discount brokers.
Robo advisor
An online investment service that provides clients with automated investment advice.
Sales finance company
Purchase, at a discount, instalment sales contracts from retailers and dealers when such items as new cars and appliances are bought on instalment plans (eg. The Brick’s 0% financing payment plan is facilitated by a Sales finance company)
Savings bank
A fin. institution whose main role is to accept savings deposits (dep’s) and pay interest on those dep’s.
Usually set up by a gov’t and similar in function to a credit union
Schedule I (chartered) bank (10)
Canadian-owned banks
30 exist, but the largest 6 (BMO, BNS, RY, TD, CM & NA) out-distance the asset size of other Cad-owned banks
Centralize most savings of Canadians
Voting shares of large banks must be widely held (no more than 20% may be owned by a single shareholder
Medium-sized (Shareholder equity of $2-12 billion) has a 65% limit and the remainder must be publicly traded
Small-sized (share. equ. <$2bilion) can be solely owned
Eligible for CDIC coverage
Can operate in diverse sectors of fin’ industry, but w/ firewalls in place
Major income source is lending funds at interest rates higher than the rate they pay out on dep’s and other borrowings
Regulated by the Bank Act
Schedule II bank (6)
Banks that are incorp’d and operate in Canada as federally regulated foreign bank subsidiaries
MAY be eligible for CDIC coverage
MAY be able to participate in all sectors of fin. industry
Derive most revenue from retail banking and electronic fin’ services
Examples: Citibank Canada, AMEX Bank of Canada, etc.
Regulated by the Bank Act
Schedule III bank (4)
Banks that are federally regulated foreign bank branches of foreign institutions that have been auth’d under the Bank Act to do banking business in Canada
Tend to focus on corporate/ institutional finance and investment banking
Examples: Barclays Bank, Comerica Bank, etc.
Helps Sched. I banks to conduct international operations & provides a conduit for investment/borrowing of foreign capital in Canada
Self-directed broker
(Discount broker) offers discounted tx costs and do not provide investment advice
Settlement
The moment of irrevocable exchange of cash/securities
How is Market Activity measured?
By the variety/size of new issues ask well as the depth/liquidity of trading of those issues
Self-Regulatory Organizations (SROs) (3)
Establish and enforce industry regulations that protect investors and maintain fair, equitable and ethical practices
Monitor the markets
Example: IIROC
How is the Canadian securities industry regulated? (2)
Mainly by the provinces, who create/enforce their own laws and regulations through securities commissions
Sec’s commissions delegate specific authorities to SROs, who are responsible for setting the rules that govern many aspects of investment dealer operations
Canadian Investor Protection Fund (CIPF)
Provides insurance against dealer insolvency
Front Office (3)
Performs all staff functions pertaining directly to portfolio mngmt activities
Usually comprises largest single group of a firm’s EEs
Examples: trading, sales, marketing, etc.
Middle Office (2)
Performs functions critical to the efficient operations of the firm
Example: Compliance, Accounting, Audits, Legal
Back Office
Settles the firm’s security txs
Example: Trade settlement
Services provided by Investment Dealers (5)
- Informed advice about terms/features for new issues in primary mkt based on knowledge of secondary mkt
- Add liquidity to mkt by making txs from their inventory rather than waiting for simultaneous B-S matching orders
- Sometimes act as market makers by taking positions in assigned listed stocks to enhance market liquidity & smooth undue price distortions
- Sometimes buy listed stocks as principals, accumulating larger blocks of shares to service institutional clients
- Add liquidity to secondary market, thereby enhancing the primary mkt by assuring the Bs of new securities will be able to sell their holdings at reasonable prices
CDSX
Facility for the clearing and settlement of trades in equity/debt securities and various cross-border txs
Operated by CDS
Mktplaces such as TSX, alternative trading systems and over-the-counter systems report trades to CDS
Uses a process called netting to establish/confirm a credit/debit position balance
Netting
Process to establish/confirm a credit/debit position balance by compiling each firm’s clearing settlement sheet and informing each member of the securities/funds it must deliver to balance its account, on a daily basis
Cooperative Credit Associations Act (CCAA) (4)
Federal legislation governing credit unions, which limits their activities
Requires associations to adhere to investment rules based on the “Prudent portfolio approach”
Prohibits associations from acquiring substantial investments in entities, other than an approved list
Set limits designed to restrict exposure of associations to real property and equity securities
Trust companies
Only corp’s in Canada auth’d to engage in a trust business
Act as trustee in charge of corp and individual assets (eg. property, stocks and bonds)
Offer broad range of fin. services (some of which overlap chartered bank services) including estate planning and asset mgnmt
Insurance Companies (3)
Two main lines of business:
1. Life insurance: health/disabilty, term/whole, pensions, RRSPs, annuities
- Property and casualty insurance: protection against loss for home, auto, commercial
Perform underwriting and reinsurance
Underwriting
The business of eval’ing risk and associated contractual responsibility that the insurance company is willing to accept in exchange for its clients’ premiums
Reinsurance
The practice of exchanging risk b/w insurance companies to facilitate better risk mngmt
What is the largest aggregate premiums in property and casual lines of business?
Automobile insurance (followed by property and liability)
Insurance Companies Act (4)
Federal legislation governing insurance companies:
- Enhances their power to make consumer/corporate loans
- Restricts their activities such as in-house trust services and deposit-taking
- Allows ONLY Life insurance companies to offer annuities and segregated funds
Attributes of Robo-Advisors
- Goal-based online investment mngmt
- Create portfolios using algorithms based on modern portfolio theory and online client questionnaires
- Telephone call w/ an advisor to verify computer-gen’d portfolio is suitable to client
- Advisor support online or phone
- Portfolios built mainly w/ ETFs
- Regular portfolio rebalancing
- Various degrees of fin. planning offered
- Service can be provided to end client as well as intermediaries (eg. advisors/ employers)
- Competitive positioning based on client experience w/ ease of navigation, speed, integration os services across devices, transparency of performance/ fees
- Optimized mgnmt using tools such as tax-efficient rebalancing across acct types
Common sources of retirement income in Canada
- EPP
- CPP/OAS
- Personal savings
- Liquidation of fixed assets
- Sale of a business/ succession
Bitcoin the token
a piece of code that represents ownership of a digital concept w/ financial value
Bitcoin the protocol
The distributed network (blockchain) that maintains the ledger of balances of bitcoin the token
Blockchain (2)
The open-source code that creates a shared public ledger - powers Bitcoin
Available to record/validate the txs that have taken place in the past, which cannot be altered
