K, L, M, N, O, P

Question 1

“Know Your Client” (KYC) rule

Answer 1

An industry best practice that stipulates an
investment professional should give
appropriate cautionary advice to and
perform appropriate action for a client
based on the client’s investment objectives
and needs.

Question 2

Laddered portfolio

Answer 2

In a laddered portfolio, bonds are initially
purchased with each maturity up to 30
years in equal proportions

Question 3

Late trading

Answer 3

An illegal activity where a mutual fund
company allows a trader to enter an order,
either to purchase or sell, after the
established cut-off time.

Question 4

Leverage

Answer 4

The use of borrowed money to extend the

buying power of a fund.

Question 5

Limited partnership (LP)

Answer 5

A common form of business organization
with one or more general partners who
manage the business and assume legal debts
and obligations, and one or more limited
partners who are liable only to the extent of
their investment.

Question 6

Liquidity date

Answer 6

Pre-specified times of the year when
investors may be allowed to redeem units in
an alternative investment fund.

Question 7

Lockup

Answer 7

The time period that initial investments
cannot be redeemed from an alternative
investment fund or product.

Question 8

Long–short investing

Answer 8

A portfolio construction technique 
designed to take greater advantage of 
information within the equity market. 
Purchases of stocks are offset dollar for 
dollar with short sales of other stocks

Question 9

Macaulay duration

Answer 9

The weighted average maturity of a bond
where the weights are the relative
discounted cash flows in each period.

Question 10

Macaulay duration formula

Answer 10

A formula devised by Frederick Macaulay
in 1938 to deal with the valuation and time
pattern of duration on bond:

Question 11

Managed futures fund

Answer 11

A fund that invests in listed fi nancial and
commodity futures markets and currency
markets around the world

Question 12

Management expense ratio (MER)

Answer 12

The amount charged to a fund by the fund
manager before any returns are paid out to
investors. The MER includes the fund
manager’s compensation and other expenses
associated with operating the fund.

Question 13

Management styles

Answer 13

The term used to describe an equity
portfolio manager’s investment strategy;
generally falls into two categories: active or
passive.

Question 14

Manufacturer (of a PPN)

Answer 14

An entity that helps the issuer of a PPN
design the notes and market them to
investors and distributors.

Question 15

Market depth

Answer 15

The number of shares available at the bid

price and offer price.

Question 16

Market price

Answer 16

The price that a security will fetch on open
bidding in the market. Depending on the
type of security, market prices can be
interpreted in different ways.

Question 17

Market timing

Answer 17

Buying or selling global securities after
global markets have closed (but still remain
open in North America because of time
zone differences) to take advantage of
information that will affect the securities
when the markets reopen the next day.

Question 18

Market–neutral investing

Answer 18

See Long–short investing

Question 19

Means values

Answer 19

The actions taken in the present to achieve

a future goal.

Question 20

Micro-cap stocks

Answer 20

Companies that tend to have a market
capitalization between $50 million and
$300 million.

Question 21

Minimum investment exemption

Answer 21

Allows the sale of securities without a 
prospectus to investors who make a 
prescribed minimum investment; NI 
45-106 sets this minimum at $150,000 
across all jurisdictions in Canada.

Question 22

Modern portfolio theory (MPT)

Answer 22

A theory developed by Harry Markowitz
that contends that diversification of a
portfolio across different asset classes with
low or negative correlation characteristics
will minimize risk.

Question 23

Mortgage-backed securities

MBSs

Answer 23

Portfolios of mortgages assembled and sold
in tranches to increase mortgage capital for
lenders and offer secure higher-yielding
medium-term investments, comparable to
government bonds

Question 24

National instruments

Answer 24

A series of regulations developed by the
CSA that are applicable across the country
and serve to harmonize rules and
regulations in each jurisdiction

Question 25

Net asset value (NAV)

Answer 25

The market value of the fund’s units or

shares on a particular date.

Question 26

New product development

committee

Answer 26

A committee put together to vet and assess
new investment fund or product
opportunities for the investment
management firm.

Question 27

NI 81-102

Answer 27

The National Instrument that applies to
mutual funds in Canada and outlines the
permitted derivative activities that these
funds can undertake.

Question 28

NI 81-104

Answer 28

The National Instrument introduced in
2002 that permits a broader use of
derivatives by funds that fall into the
definition of commodity pools.

Question 29

Non-exempt investors

Answer 29

Non-exempt investors

Question 30

Offering memorandum exemption

Answer 30

An exemption that waives the requirement
for the security or fund to be distributed
with a prospectus.

Question 31

Offi ce of the Superintendent of 
Financial Institutions (OSFI)

Answer 31

An independent agency of the Government
of Canada that supervises, monitors and
regulates the investment industry.

Question 32

Ontario Securities Commission

OSC

Answer 32

An example of a Canadian securities
regulator. The OSC’s mandate, as set by the
Government of Ontario, is “to provide
protection to investors from unfair,
improper or fraudulent practices and to
foster fair and efficient capital markets and
confidence in capital markets.”

Question 33

Passive bond management

Answer 33

A bond management style where no
attempt is made to predict the direction or
magnitude of interest rates, thereby
minimizing the effects of interest-rate risk
on a bond portfolio.

Question 34

Passive portfolio management

Answer 34

A portfolio management style that is
consistent with the view that securities
markets are efficient, that is, that securities
prices at all times reflect all relevant
information concerning expected return
and risk.

Question 35

Peer investment manager

performance surveys

Answer 35

Surveys that are produced by a number of
the larger pension consulting firms and
contain sufficient information to evaluate
the effectiveness and competitiveness of an
individual firm’s investment process.

Question 36

Pension consultants

Answer 36

Pension consultants

Question 37

Performance attribution

Answer 37

Evaluating an investment manager’s
performance by attributing the success or
failure of the portfolio to specific decisions
the manager made.

Question 38

Performance benchmark

Answer 38

A benchmark against which a new
investment product will be measured to
explain the fund’s performance.

Question 39

Personal Information Protection
and Electronic Documents Act
(PIPEDA)

Answer 39

A federal law that regulates how businesses,
including investment management fi rms,
handle and secure personal and private
data

Question 40

Plan sponsor

Answer 40

In the case of a private pension plan, the
employer offering the pension plan to its
employees.

Question 41

Pooled fund

Answer 41

An open-ended trust in which investors
contribute funds that are then invested, or
managed, by the institutional investment
manager

Question 42

Pooled investment vehicles

Answer 42

Portfolios where investors place their money
to achieve diversification at lower costs;
some examples are mutual funds, hedge
funds and private investment partnerships.

Question 43

Portable alpha

Answer 43

The process of using derivatives or short
selling to separate the alpha and beta return
decisions and to apply the alpha to
portfolios of other asset classes.

Question 44

Portfolio accounting information

Answer 44

Information provided to an institutional 
investor in the portfolio management 
report that includes detailed portfolio 
holdings, a report on all security 
transactions and an income report

Question 45

Portfolio management information

Answer 45

Information provided to an institutional 
investor in an investment management 
fi rm’s quarterly report to clients that 
includes return data, holdings data, 
attribution analysis and market 
commentary

Question 46

Portfolio management report

Answer 46

The document of record that an
institutional client refers to for information
on a firm’s holdings and performance.

Question 47

Portfolio manager

Answer 47

An individual, or a team of individuals,
who advises clients on investments
appropriate to the clients’ individual
circumstances and investment objectives;
the portfolio manager is also responsible for
making the day-to-day investment
management decisions affecting the
portfolios for which he or she is responsible

Question 48

Portfolio turnover

Answer 48

A way to measure the degree or amount of
active management, specifically trading
activity; calculated by dividing the annual
market value of securities trades by the
market value of the portfolio.

Question 49

Pre-operational audit

Answer 49

An audit of all systems and processes before
the launch of a new investment fund, to
ensure that all operational aspects associated
with the sale and management of the new
fund are functioning properly at industry
standards.

Question 50

Pre-trade compliance testing

Answer 50

A process to ensure that all security trades
are compliant with all security regulations
pertaining to both capital market conduct
and the particular fund, as well as all of the
investment guidelines and restrictions that
are agreed upon with the investors prior to
the execution of the trade

Question 51

Prime brokerage structures

Answer 51

Structures that allow managers to establish

a stock loan account with a broker.

Question 52

Principal-protected notes (PPNs)

Answer 52

A debt instrument where the principal is
protected by a guarantee from the issuer of
the note.

Question 53

Private equity

Answer 53

Equity investments not actively traded on
public markets; classified as alternative
investments.

Question 54

Pro-forma fi nancial projection

Answer 54

Financial projections prepared for a new 
fund that include three key inputs or 
assumptions: assets under management 
(revenue); fees charged to investors 
(revenue); all fees and expenses to be 
charged to the fund.

Question 55

Project management committee

Answer 55

A committee that is responsible for all of
the steps and activities required to bring a
new product to market after it has been
approved by the new product development
committee.

Question 56

Provincial and territorial securities

commissions

Answer 56

The governing securities regulators in
Canada; they are charged with enforcing
and helping to frame the various securities
acts of the provinces

Question 57

Prudent man rule

Answer 57

Mandates acting as a thoughtful and careful
person would, given a particular set of
circumstances.