Course 1 - Chapter 2 Flashcards
Alternative Trading Systems (ATS) (3)
Privately owned computerized networks that match orders for securities outside of recognized exchange facilities (also known as PETS - Proprietary Electronic Trading Systems)
Must be reg’d as an investment dealer and a member of an SRO
Cannot list securities themselves
Ask price
The lowest price a seller will accept for the financial instrument being quoted
Auction market (2)
Mkt in which securities are bought/sold by brokers acting as agents for their clients
Example: TSX
Dealer market (2)
Mkt where trades are conducted over-the-counter in which the dealers act as principals when B-ing and S-ing securities for clients
Also called the Unlisted Market
Bid-ask spread (2)
The difference between the current bid and ask
Calc’d as Bid - Ask
Bid price
The highest price a Buyer is willing to pay for the financial instrument being quoted
Bourse de Montreal (Montreal Exchange)
A stock exchange that deals exclusively w/ non-agricultural options/futures in Canada, including all the options/futures products that previously traded on TSX
Canadian Securities Exchange (2)
Alternative mktplace for trading equity securities and emerging companies (IPOs)
Launched in 2003
Canadian Unlisted Board Inc.
A web-based system for investment dealers to report completed trades in unlisted and unquoted equity securities in ON
CanDeal
Provides institutional investors w/ electronic access to federal bond bid and offer prices and yields from its six bank-owned dealers
CanPX (2)
Joint venture of several IIROC firms
Operates as an electronic trading system for fixed-income securities providing investors with real-time bed and offer prices and hourly trade data
Capital (5)
Economist def: machinery, factories & inventory required to produce other products
Investor def: the total of financial Assets invested in securities, a home and other fixed assets, plus cash
Real capital: physical goods, real estate, land, etc.
Representational capital: Money, stocks, bonds, etc.
Economic value that represents the invested savings of individuals, corp’s, gov’ts and other org’s
CBID
An electronic trading system for fixed-income securities operating in the retail mkt
CBID Institutional
An electronic trading system for fixed-income securities operating in the institutional mkt
Common share / stock (2)
Securities representing ownership in a company.
Carry voting privileges and are entitled to the receipt of div’s, if declared
Equity securities
Evidence of a share of ownership stake in the company that issued the security
ICE NGX Canada (3)
Natural Gas exchange
Headquartered in Calgary, Alberta
Provides electronic trading, central counterparty clearing and data services to the North American natural gas and electricity markets
Institutional Investor (2)
Org’s, such as pension and mutual fund companies, that trade in large-share quantities or dollar amounts
Typically have a steady flow of money to invest
Investment advisor (IA) (4)
An individual licensed to transact in the full range of securities
Must be registered by the securities commission of the province in which they work
Refers to EEs of SRO member firms only
Also known as a Registrant/ Registered Representative
Last price
Price at wich the last trade on a stock occurred
Liquidity (2)
- The ability of the market in a particular security to absorb a reasonable amount of B-ing or S-ing at reasonable price changes
- A corp’s current assets relative to its current liabilities (cash position)
MarketAxess (2)
Provides mkt data and a trading platform with access to multi-dealer competitive pricing for a wider range of corp bonds and other types of fixed-income instruments
IIROC member
Market Maker
Trader employed by a securities firm who is auth’d and required, by SROs, to maintain reasonable liquidity in securities mkts by making firm bids / offers for one or more designated securities
Money Market (3)
The part of the capital market in which short-term financial obligations are bought/sold.
Includes T-bills, fed gov’t securities, commercial paper, bankers’ acceptances, and other instruments with 1 yr or less till maturity
Longer term securities, when term is shortened to limits above, are also traded here
NEO Exchange
An exchange that provides listing services and facilitates trading in securities listed on the NEO, TSX and TSX Venture
Over-the-counter market (OTC) (4)
Market for securities made up of securities dealers who may/may not be members of a recognized stock exchange
Mainly conducted over the phone
Also called Unlisted/ dealer/ street mkt
Example: NASDAQ
Preferred share (3)
A class of share capital that entitles owners to a fixed div’ ahead of the company’s common shares and to a stated $ value per share in the event of liquidation
Usually no voting right unless a stated number of div’s have been committed
Also called Preference shares
Primary market (2)
The mkt for new issues of securities
Proceeds of the sale in a primary mkt go directly to the company issuing the securities
Retail investor (2)
Individual investors who B and S securities for their own personal accts, not for another company/ org
Usually B in smaller quantities than institutional investors
Secondary market (2)
The mkt where securities are traded through an exchange or over-the-counter subsequent to a primary offering
Proceeds from trades in this mkt go to the selling dealer/investors, not the company who originally issued the shares
Stock Exchange
A mktplace where Buyers and Sellers of securities meet to trade w/ each other and where prices are established according to laws of supply and demand
Stocks
Ownership interest in a corp that represents a claim on its earnings and assets
Toronto Stock Exchange (TSX)
The largest stock exchange in Canada w/ over 1700 companies listed
TSX Alpha Exchange (3)
An exchange that provides trading in securities listed on TSX and TSXV
Order price and volume info publicly available
Wholly owned by TMX Group Inc
TSX Venture Exchange (2)
Canada’s public venture mktplace
Result of a merger of Vancouver and Alberta Stock Exchanges in 1999
Direct vs Indirect Investment (2)
Direct examples: you invest your savings into your first home, a gov’t invests in building a new highway, a corp’ pays start-up costs for a new plant
Indirect examples: Investor buys stocks/bonds, a parent invests in an RESP, a couple deposits their savings at a bank
3 characteristics of Capital (3)
- Mobility - selective about where it settles, looks for favourable conditions; always moves towards uses/users that offer the highest risk-adjusted returns
- Sensitivity to enviro - eg. gov’t stability, economic activity, hospitable investment climate, etc.
- Scarcity - limited/finite quantity
Evaluating Country Risk (6)
- Political enviro: likelihood of internal/external conflict
- Economic trends: how strong is growth in key areas (eg. GDP, inflation, economic activity)
- FIscal policy: how high are taxes/gov’t spending and how much does the gov’t encourage savings/investments?
- Monetary policy: soundness of nation’s money supply mngmt & foreign exchange stability
- Investment opportunities: opportunities present, returns compared to risks
- Labour force: %age of the labour force that is skilled/ productive
Suppliers of Capital (4)
- Individual
- Non-fin domestic corps (not significant)
- Gov’ts w/ a surplus
- Foreign investors
Users of Capital (3)
- Individuals
- Businesses
- Governments
Fixed-income (debt) securities
Issuer promises to repay the loan at maturity and, in the interim, makes interest payments to investor
Examples: T-bills, bonds
Derivatives
Product whose value is derived from the value of an underlying instrument, such as a stock or index
Examples: Options, forwards
Managed products
Also called investment funds, typically pools of capital gathered from investors to buy securities according to a specific investment mandate
Examples: Mutual funds, ETFs, Private equity funds such as Bershire Hathaway
Structured products (2)
A financially engineered product with he characteristics of debt, equity and an investment fund
Examples: Principal protected notes, Index-linked GICs
Characteristics of a liquid market
- Frequent trades
- Narrow price spread b/w bid and ask prices
- Small price fluctuations from trade to trade
OTC derivatives market
Large international financial institutions dominate
Market open 24 hrs per day
Derivative products can be custom designed by the B and S, w/ special features added to the basic properties of options and forwards. - complex
