Csc 1 Flashcards
Provinces borrow money thru
issue bonds to the federal government
borrow funds from Canada Pension Plan (CPP) assets
issue debt domestically through a syndicate of investment dealers
issue short-term treasury bills and savings bonds similar to CSBs issued by the federal government.
Government borrow money via 4 instruments
treasury bills (T-bills),
marketable bonds,
Canada Savings Bonds (CSBs)
Canada Premium Bonds (CPBs).
municipalities attempt to spread their cost over several periods through issuance of
Serial debentures = installment debentures.
2 most popular structured products that have various combinations of characteristics of debt, equity and investment funds.
linked notes
exchange-traded funds (ETFs)
Three components of the securities industry
Fin instruments
Fin markets
Fin intermediaries
one of the most commonly used forms of private equity
leveraged boyout (LBO)
bid - ask price
highest price buyer wants to pay - smallest price seller wants to accept
3 characteristics of liquid market
- Frequent sales
- Narrow price spread between bid and ask prices
- Small price fluctuations from sale to sale
5 exchanges in Canada
- The TSX lists senior equities, some debt instruments that are convertible into a listed equity,
income trusts and Exchange-Traded Funds (ETFs). - The TSX Venture Exchange trades junior securities and a few debenture issues.
- CNSX Canadian National Stock Exchange - trades securities of emerging companies.||| CDNX = sum of (Alberta, Winnipeg, Vancouver Stock Exchange + Canadian Dealing Network)
- The Montreal Exchange trades all fi nancial and equity futures and options.
- ICE Futures Canada trades agricultural futures and options.
Unnlisted trades required to be reported in Canada?
Just in Ontario. The Ontario Securities Commission (OSC) requires that trades of unlisted securities be reported through the Canadian Unlisted Board Inc. (CUB). CUB was launched as an automated system after the reorganization of the equity markets in Canada. It offers an Internet web-based system for dealers to report completed trades in unlisted and unquoted equity securities in Ontario, as required under the Ontario Securities Act.
Quotation and trade reporting systems (QTRS)
Quotation and trade reporting systems (QTRS) are entities, other than an exchange or registered dealer, that disseminate price quotations for the purchase and sale of securities and report completed transactions to the applicable securities commission.
Alternative trading systems (ATSs)
Alternative trading systems (ATSs) are privately owned computerized trading facilities that match buy and sell orders for securities traded outside of recognized exchanges. ATSs can be owned by individual brokerage firms or by groups of brokerage firms.
all bond and money market securities are sold through
With the exception of a few debentures listed on the TSX and TSX Venture Exchanges, all bond and money market securities are sold through dealer markets.
Three electronic trading systems for fixed income
CAN D EAL CanDeal, a member of IIROC, is a joint venture between Canada’s six largest investment dealers, and is operated by the TMX Group. It is recognized as both an ATS and an investment dealer. It offers institutional investors access to Government securities and to money market instruments.
CBID CBID, also a member of IIROC and an ATS, operates two distinct fixed-income marketplaces: retail and institutional. The retail fixed-income marketplace is accessible by registered dealers on behalf of retail clients. The institutional fixed-income marketplace is accessible by registered dealers, institutional investors, governments and pension funds.
CAN PX CanPX is a joint venture of Investment Industry Association of Canada (IIAC)/IIROC dealer member firms. The CanPX system is an information processor for government and corporate debt securities that provides investors with real-time bid and offer prices and hourly trade data. The service covers Government of Canada bonds, treasury bills, and provincial bonds, and a select list of corporate bonds from major industrial issuers.
Trends in Financial Markets
Trends in Financial Markets There have been many changes to global capital markets over the last several years:
• ATSs are taking market share away from traditional stock exchanges. • Exchanges are merging and taking over other exchanges to meet the challenge of globalization. Ten years ago, there were over 200 exchanges in the world; today there are fewer than 100.
• In addition to mergers and takeovers, exchanges are forming alliances, partnerships and electronic links with exchanges in other countries to foster global trading.
Define investment capital and describe its role in the economy.
Define investment capital and describe its role in the economy.
• Investment capital is available and investable wealth (e.g., real estate, stocks, bonds and money) that is used to enhance the economic growth prospects of an economy.
In direct investment, an individual or company invests directly in an item (e.g., house, new plant or new road); indirect investment occurs when an individual buys a security and the issuer invests the proceeds.
Capital has three characteristics: it is mobile, it is sensitive, and it is in short supply. • •
Trades and other transactions are settled through
Trades and other transactions are settled through organizations like CDS Clearing and Depository Services Inc. and banks.
SROs (self regulatory orgs) does
monitor the markets to ensure fairness and transparency, and they set and enforce rules that govern market activity.
Canadian Investor Protection Fund (CIPF) provide
Canadian Investor Protection Fund (CIPF) provide insurance against insolvency while provincial regulators oversee the markets and the SROs.
CSI provide
education for industry participants
Canadian self regulatory orgs
Investment Industry Regulatory Organization of Canada IIROC
Mutual Funds Dealers Association
Integrated firm
Institutional plus individual
Discount brokers are more popular with those investors who are willing to
research individual companies themselves
in exchange for lower commission rates.
To sell securities to the public, an IA must
be registered with the provincial securities commission,
be of legal age,
have passed the CSC and the Conduct and Practices Handbook exam, and
participate in a 90-day training program.
Complete the Wealth Management Essentials Course within 30 months of their registration.
middle-office staff work in the field of
compliance,
accounting,
audits and
legalities
primary objective of the back office is to
primary objective of the back office is to settle the firm’s security transactions in an efficient and effective manner; this activity is otherwise known as the trade settlement function
Investment dealers sometimes act as
principals, and at other times act
on their clients’ behalf as agents.
Most Canadian-owned banks are designated as Schedule
Schedule I banks and the foreign-owned banks are either Schedule II or Schedule III banks.
voting shares of large Schedule I banks must be
widely held, subject to rules that restrict the control of any individual or group and non-NAFTA (North American Free Trade Agreement) shareholders to no more than 20 per cent.
In contrast, a single shareholder, including a company, can control a medium-sized bank (shareholder equity of less than $5 billion) by owning up to 65% of the voting shares, provided that the remaining shares remain publicly traded.
A small bank (shareholder equity of less than $1 billion) can be owned by one individual or organization.
entities, other than an exchange or
registered dealer, that disseminate price quotations for the purchase and sale of securities and report completed transactions to the applicable securities commission
- Quotation and trade reporting systems (QTRS)
- Alternative trading systems (ATSs)
Equity ATSs now in operation in Canada include
- CNSX’s Pure Trading,
- Bloomberg Tradebook Canada,
- OMEGA ATS,
- Chi-X Canada,
- Instinet Canada Cross ICX,
- Liquidnet Canada, and
- MATCH Now, operated by TriAct Canada Marketplace LP.
In Canada, ATSs are members of the
Investment Industry Regulatory
Organization of Canada (IIROC).
CanDeal,
a member of IIROC, is a joint venture between Canada’s six largest investment dealers, and is operated by the TMX Group. It is recognized as both an ATS and an investment dealer. It offers institutional investors access to Government securities and to money market instruments.
CBID
a member of IIROC and an ATS, operates two distinct fixed-income marketplaces:
retail and institutional. The retail fixed-income marketplace is accessible by registered dealers on behalf of retail clients. The institutional fixed-income marketplace is accessible by registered dealers, institutional investors, governments and pension funds.
CanPX
a joint venture of Investment Industry Association of Canada (IIAC)/IIROC dealer member firms.
The CanPX system is an information processor for government and corporate debt securities that provides investors with real-time bid and offer prices and hourly trade data.
The service covers Government of Canada bonds, treasury bills, and provincial bonds, and a select list of corporate bonds from major industrial issuers.
Capital has three characteristics: i
it is mobile, it is sensitive, and it is in short supply.
Retail firms include
- Full-service retail firms offer a wide variety of products and services for the
retail investor. - Discount brokers execute trades for clients at reduced rates but do not provide
advice. Discount brokers are more popular with those investors who are willing to research
individual companies themselves in exchange for lower commission rates.
The front office usually includes
all staff functions pertaining directly to portfolio management
activities. Accordingly, all portfolio management, trading, and sales and marketing staff would be
part of the front office.
as a principal, the securities firm does
owns securities as part of its own inventory at some stage in its buying and selling transactions with investors.
The difference between buying and selling prices is the dealer’s gross profit or loss.
as an agent, the broker does
acts for or on behalf of a buyer or a seller but does not itself own title to the securities at any time during the transactions.
The broker’s profit is the agent’s commission charged for each transaction.
In Canada, securities are cleared through
CDS Clearing and Depository Services Inc. (CDS).
voting shares of large Schedule I banks must be
widely held, subject to rules that restrict the control of any individual or group and non-NAFTA (North American Free Trade
Agreement) shareholders to no more than 20 per cent.
medium-sized bank (shareholder equity of less than $5 billion)
one shareholder can own 65% of the voting shares
Schedule II banks
derive their greatest share of revenue from retail banking and
electronic financial services
foreign bank subsidiaries
Schedule III
tend to focus on corporate and institutional finance and investment banking
foreign bank branches of foreign institutions
The federal legislation governing credit unions is
Cooperative Credit Associations Act
Office of the Superintendent of Financial Institutions (OSFI) is
a regulatory body for all
federally regulated financial institutions
Canada Deposit Insurance Corporation(CDIC) is
a federal Crown Corporation that provides deposit insurance and contributes to the stability of Canada’s financial system. CDIC insures eligible deposits up to $100,000 per depositor in each member institution (banks, trust companies and loan companies), and reimburses depositors for the amount of any insured deposits if a member institution fails.
Accounts and products insured by CDIC include:
- Savings and chequing accounts
- Guaranteed investment certificates (GICs) and other term deposits that mature in five years or less
- Money orders, certified cheques, traveller’s cheques and bank drafts
- Accounts that hold realty taxes on mortgaged properties
CDIC does not insure:
- Mutual funds and stocks
- GICs and other term deposits that mature in more than five years
- Bonds and Treasury bills
- Debentures issued by governments, corporations, or chartered banks
- Deposits held in foreign currency
It is possible to have more than $100,000 in deposits eligible for CDIC coverage, provided
the deposits are held in more than one of CDIC’s six deposit insurance categories. These categories include deposits held:
• in one name
• jointly in more than one name
• in a trust account
• in a registered retirement savings plan (RRSP)
• in a registered retirement income fund (RRIF)
• in a mortgage tax account
In Canada, the regulation of the securities business is
a provincial responsibility.
Autorité des marchés financiers
AMF
responsible for administering the regulatory framework for Québec’s financial sector, notably in the areas of insurance, deposit insurance institutions, the distribution of financial products, financial services, and securities.
Canadian Securities Administrators(CSA), a
forum to co-ordinate and harmonize regulation of the Canadian capital markets.
Mutual Fund Dealers Association (MFDA) is
the mutual fund industry’s self-regulatory organization responsible for regulating the distribution and sales of mutual funds by its members in Canada. The MFDA does not regulate the mutual funds themselves, as this responsibility has remained with provincial securities commissions.
IDA
Investment Dealers Association of Canada
UMIR
Universal Market Integrity Rules
MFDA
Mutual Fund Dealers Association
CIPF
Canadian Investor Protection Fund
MFDA IPC
Mutual Fund Dealer Association Investor Protection Corporation
Accounts of a customer such as cash, margin, short sale, options, futures and
foreign currency are
combined and treated as one general account entitled to the maximum coverage.
The maximum amount of financial loss that CIPF may pay to a customer is
the shortfall between any available securities and cash that the customer is entitled at the date of insolvency and the
distribution of any assets of the insolvent dealer member, less any amounts owed by the client to the member.
CIPF Coverage provided for a customer’s general account is limited to
$1,000,000 for losses related to
securities and cash balances.
Separate accounts of customers are each entitled to the maximum coverage of $1,000,000 unless they are combined with other separate accounts.
Customers have x days to file a claim with the CIPF.
The 180-day period commences on the date of bankruptcy, if applicable, or the date of insolvency as determined and communicated by the CIPF.
BIA
Bankruptcy and Insolvency Act
The MFDA Investor Protection Corporation (MFDA IPC) provides protection for
eligible customers of insolvent MFDA member firms.
Each account is eligible for up to $1,000,000 in coverage.
The IPC does not cover customers’ losses that result from changing market values, unsuitable investments, or the default of an issuer of a mutual fund.
Arbitration is a method of
dispute resolution in which an independent arbitrator (SRO) is chosen to:
• Listen to the facts and arguments of the parties to a dispute;
• Decide how the dispute should be resolved; and
• Decide what remedy, if any, should be imposed.
To be eligible for arbitration, the dispute must meet the following
criteria:
• Attempts must have been made to resolve the dispute with the investment dealer.
• The claim cannot exceed $100,000…. Claims that do not fit within the dollar amount mentioned above may still be arbitrated if both parties agree to the process.
• The events in dispute must have originated
after January 1, 1992 in British Columbia,
after January 1, 1996 in Québec,
after June 30, 1998 in Ontario,
after July 1, 1999 in Alberta,
Saskatchewan and Manitoba, and
after June 30, 1999 in Newfoundland, Prince Edward Island, New Brunswick and Nova Scotia.
OBSI
Ombudsman for Banking Services and Investments(OBSI). OBSI is an independent organization that investigates customer complaints against financial services providers, including banks and other deposit-taking organizations, investment dealers, mutual fund dealers and mutual fund companies.
The general principle underlying Canadian securities legislation is
full, true and plain disclosure of all pertinent facts by those offering the securities for sale to the public.
such disclosure is normally made in a prospectus issued by the company and
accepted for filing by the administrator concerned.
Generally, the acts use three basic methods to protect investors:
- registration of securities dealers and advisors,
- disclosure of facts necessary to make reasoned investment decisions and
- enforcement of the laws and policies.
The industry also relies on the SROs for their members’ compliance to
legislation.
Who must register with IIROC as well as with the applicable administrator.
All employees of IIROC dealer members who deal with the investing public
Such employees must meet IIROC’s requirements for approval which include, as a minimum, completion of the Canadian Securities Course (CSC) and an examination based on the Conduct and Practices Handbook (CPH) course.
New investment advisors must also complete a 90-day training program before they are permitted to deal with the public.
After licensing, the registrant is subject to a six-month period of supervision by his or her supervisor.
New registrants must also complete CSI’s Wealth Management Essentials Course (WME) within 30 months of becoming licensed as an IA.
Participation in the industry’s Continuing Education program is also a condition of maintaining a licence.
Applicants not giving any advice to clients may choose to be registered as
investment representatives(IRs). The proficiency requirements for IRs are similar to those for IAs, with the exception of the length of the training period (30 days as opposed to 90 days) and the 30-month requirement.
In order to become a Sales Manager, the candidate must successfully complete
the Branch Managers Course (BMC).
Within 18 months they must also complete the Effective Management Seminar (EMS). Both courses are offered by CSI.
NRD
National Registration Database () is a web-based system used by investment dealers and employees to file registration forms electronically when applying for approval by any one or more of the stock exchanges, the CSA or IIROC.
NAAF
The first step in complying with this regulation is completion of a New Account Application Form() prior to the acceptance of any order. A partner, director, officer or branch manager of the advisor’s firm must approve the application prior to or promptly after the completion of the first transaction.
CRM
Client Relationship Model ()
bucketing
Confirming a transaction where no trade has been executed
information be sent to shareholders and administrators:
- Comparative audited annual financial statements within 120 days of the financial year-end for companies listed on the TSX Venture Exchange and 90 days for senior issuers on the TSX;
- Comparative unaudited quarterly interim financial statements within 60 days of the end of each of the first three quarters of the financial year for companies listed on the TSX Venture Exchange and 45 days for issuers on the TSX.
The right of rescission must be brought within
180 days of the date of the transaction.
A proxy is
a power of attorney given by a shareholder that gives a designated person the authority to vote
the shareholder’s stock.
A proxy must be in writing and signed by the shareholder granting the proxy.
If a shareholder does not vote or leaves the items on the proxy form unmarked, the ballot is automatically cast with management’s viewpoint.
A takeover bid is
an offer to the shareholders of a company to purchase the shares of the company that, with the offeror’s already owned securities, will in total exceed 20% of the outstanding voting securities of the company.
A takeover bid that is not exempted under the relevant act must comply with a number of rules including the following:
• The takeover bid must be sent to all holders in the province of the class of securities sought, including securities that are convertible into securities of that class prior to the expiry of the bid.
• The offeror shall deliver a takeover bid circular setting out certain prescribed information. This includes details about the bid, the offeror’s holdings in the target company and its
relation to management of the target company.
• A directors’ circular must be sent to the security holders of the target company within 15 days of the date of the bid. The board of directors of the target company is required to
provide certain information and to include either a recommendation to accept or reject the takeover bid and the reason for their recommendation. If that is not done, then the board is required to issue a statement that they are unable to make or are not making a recommendation. If no recommendation is made, they must specify the reasons for not making a recommendation.
• Any securities taken up by the offeror under the bid must be paid for within three business days.
A takeover bid is exempt from the above requirements in any of the following cases:
• It is made through the facilities of the exchange in accordance with the by-laws, regulations
and policies of such exchange.
• It involves acquisitions which do not aggregate more than 5% of the securities of a class
within a 12-month period and the price paid for any of the securities does not exceed the
market price at the date of acquisition.
• It is an offer by way of private agreement with five or fewer security holders at a price not
exceeding 115% of the market price of the securities.
• It is an offer to purchase shares in a private company.
• In Ontario only, it is an offer where the number of holders of securities subject to the bid
does not exceed 50 and the securities held constitute in aggregate less than two per cent of
the outstanding securities of that class.
Most of the acts state that every person or company accumulating 10% or more of the outstanding voting securities of any class of a reporting issuer, or securities convertible into such securities, is required to
issue a press release immediately.
The right of rescission gives the purchaser the right to
cancel the purchase of securities if the prospectus contains a misrepresentation. The purchaser has 180 days after the purchase to take advantage of this right.
takeover bid steps
- Offeror must send the bid to all holders in the province of the calss of securities sought, including securities that a convertible inor securities prior to the expiry of the bid.
- Offeror should delived a TAKEOVER BID CIRCULAR with : (1) details about the bid, (2) existing holdings in the target company, (3) relation to the management of the company
- Directors should sent a CIRCULAR to the holders within 15 days of the bid with (1) certain information (2) recommendation to accept or reject the bid (3) reasons for the recommendation. If 2&3 impossible, reasons for lack of recommendation should be provided.
EARLY WARNING DISCLOSURE
1. Most of the acts state that every person or company accumulating 10% or more of the outstanding voting securities of any class of a reporting issuer, or securities convertible into such securities, is required to issue a press release immediately
- After a formal bid is made for voting securities of a reporting issuer and before the expiry of the
bid, every person or company, other than the offeror under the bid, acquiring five per cent or
more of the securities of the class subject to the bid is required to issue a press release reporting
this information.
GDP income based calculation
Labour + Land + Capital + Entrepreneur
GDP expansion
stable inflation normal inventory increasing capacity rising profits startups outweight bankruptcies steady or falling unemployment
GDP peak
excessive demand shortage of labor rising inflation rising interest rates = falling bonds declining sales & profits rising inventory declining equities
GDP conrtaction
declining economic activity postponed investment by the business bankrupcies outnumber startups falling employment falling incomes falling confidence lower spending
GDP trough
falling interest
falling inflation
consumer starting to consume
stock price rally
recovery
increasing production cautious hiring caution investment wage pressure are restrained declining inflation
Leading economic indicators
Housing starts Commodity prices Equity prices Money supply Hours worked per week Manufacturers orders
Concident indicators
Pers income
Gdp
Retail sales
Industrial production
Lagging indicators
Unemployment Business spending - plant and equipment Labour cost Business loans and interest Inflation
Current account
current account records the exchanges of goods and services between Canadians and foreigners, the earnings from investment income, and net transfers such as for foreign aid.
Financial or capital account (of balance of payments)
capital and financial account records financial flows between Canadians and foreigners related to investments by foreigners in Canada and investments by Canadians abroad.
Who acts as the Government’s fiscal agent
Bank of Canada act as the Government’s fiscal agent (i.e., being the Government’s financial advisor on debt management, foreign exchange and monetary policy and acting as its agent in financial transactions); and
Meaning of … target for the overnight rate is 5.25%
For example, if the operating band is 5% to 5.5%, then the target for the overnight rate is 5.25%.
Bank rate definition
Bank Rate is the minimum rate at which the Bank of Canada will lend money on a short-term basis to the chartered banks and other members of the Canadian Payments Association (CPA) in its role as lender of last resort. It is closely related to the Target for the Overnight Rate because the Bank Rate is the upper limit of the operating band. Continuing with our example from above, with an operating target range of between 5% and 5.5%, the Bank Rate is 5.5%.
two main open market operations that the Bank uses to conduct monetary policy
The two main open market operations that the Bank uses to conduct monetary policy are Special Purchase and Resale Agreements and Sale and Repurchase Agreements.
SPRA
Special Purchase and Resale Agreements
SPRA – the Bank lends overnight at the upper limit of the operating band
SPR
the Bank sells securities at the lower end of the operating band
LVTS
Each day, billions of dollars flow through the financial system to settle transactions between the major financial institutions. These transactions include cheques, wire transfers, direct deposits, pre- authorized debits and bill payments. To facilitate the transfer of these payments, the Bank established the Large Value Transfer System (LVTS) in 1991. This system allows participating financial institutions to conduct large transactions with each other through an electronic wire system. Among other things, this system permits these financial institutions to track their LVTS receipts and payments electronically throughout the day and to know the net outcome of these flows by the end of the day (same day settlement).
drawdown
drawdown refers to the transfer of deposits to the Bank from the chartered banks, effectively draining the supply of available cash balances from the banking system. This decreases deposits and reserves available to the banks to utilize in their business. Removing money from the system causes a contraction in the availability of loans to consumers and businesses, and this places upward pressure on interest rates.
redeposit
redeposit is just the opposite, a transfer of funds from the Bank to the chartered banks. This increases deposits and reserves and the availability of funds in the banking system. Adding money to the system places downward pressure on interest and gives banks an incentive to increase loans to consumers and businesses.
callable bonds in canada?
n Canada, most corporate and provincial bond issues are callable. Government of Canada bonds
and municipal debentures are usually non-callable.
not transferable and not marketable.
Canada Savings Bonds(CSBs) and Canada Premium
Bonds(CPBs), which are not transferable and not marketable.
instalment debentureor serial bond.
Part of the bond matures in each year during the term of the bond
instrument that most municipalities use to raise capital from market sources is
the
instalment debentureor serial bond
collateral trust bond is one that is
secured, not by a pledge of real property, as in a mortgage
bond, but by a pledge of securities, or collateral
equipment trust certificate. These
certificates
pledge equipment as security instead of real property
Eurobonds are issued
in a foreign market and are denominated in a currency other than
that of the market where the bonds are issued
preferred debentures.
The characteristics of these securities fall between standard debentures and
preferred shares:
• They are very long-term instruments with terms in the range of 25–99 years.
• They are subordinated to all other debentures, but rank ahead of preferred shares.
• Interest can often be deferred at management’s discretion for up to five years.
• They often trade on an exchange.
banker’s acceptance(BA)
is a commercial draft (i.e., a written instruction to make payment)
drawn by a borrower for payment on a specified date.
BAs are sold at a discount and mature at their face value
Settlement day for GoC treasury bills
Same day
Settlement day for GoC bonds maturing in 3 or less yrs
Next day
Settlement day for GoC bonds maturing in more than 3 yrs
Third clearing day
Significant influence
20%+ ownership
dollar cost averaging.
a dividend reinvestment plan is an automatic savings plan which solves the problem of reinvesting small amounts of cash. Participating shareholders acquire a gradually increasing share position in the company, and because purchases by the plan are made regularly, shareholders can reduce the average cost paid per unit, a process known as
A retractable preferred
shareholder can force the company to buy back the retractable preferred
for cash on a specified date(s) and at a specified price(s).
price weighted index
DJI, Nikkei
equal weighted index
Value line
Free credit balances are
uninvested funds held in client accounts that the dealer member may
use as a financing source for its business.
MAXIMUM EQUITY LOAN VALUES
At $2.00 and over 50% of market value At $1.75 to $1.99 40% of market value At $1.50 to $1.74 20% of market value Under $1.50 No loan value Securities Eligible for Reduced Margin* 70% of market value
Montréal Exchange lists
options on stocks, bonds andindexes,
andfutures (forwards that are exchange-traded) on bonds andindexes.
ICE Futures Canada lists
futures andfuture options on agricultural goods such as canola and western barley.
What is the ceiling imposed on the total amount of bids for a government bond offering submitted by any primary dealer?
40%
what yield will be awarded to the firms that submitted a non-competitive tender?
average of competitive successful bids
