unit 2 | the canadian securities industry Flashcards
Which level of government manages securities regulations?
Provincial
- Ontario Securities Commission (OSC), BC Securities Commission (BCSC)
What do Self Regulatory Organizations (SROs) do? Examples?
Provide oversight & enforcement for some rules
- IIROC, TSX, TSX Venture Exchange
Define IIROC
Investment Industry Regulatory Organization of Canada
- Important regulator of investment banks (BMO, RBC → IIROC members work in the institution to regulate)
What does The Canadian Depository for Securities (CDS) do?
- Clears, or settles, trades
- Owned by TMX
What does the Canadian Investor Protection Fund (CIPF) do?
Insures brokerage account contents (not losses)
What does the Canadian Securities Institute (CSI) do?
- Offers courses required for licensing by regulators
- Owned by Moody’s
Who are Investment Dealers?
Small number of national-scope investment dealers
- Big Banks, a few independent (not bank owned)
What are “boutique” investment dealers?
Seniors from big corporations that open up own firm
- Lesser clients, bigger profits to self
- May specialize in specific sectors or products
Departments within an investment dealer:
- Underwriting (settling of shares/bonds)
- Trading
- Investment banking
- Brokerage
Define brokers
Investment/financial advisor (wealth management)
- Can be full-service or discount
Full-service brokers
Full-service brokers offer “high-touch” service & advice
- High fees
Discount brokers
Discount brokers limited services (ex. Stock & bond trade execution) but no advice
- Low fees
Describe leverage in the finance sector
- The Financial Services industry is highly leveraged
- Short-term borrowing finances long-term investments
- Borrow money every 90 days to finance a 20 year mortgage
- Borrow short, lend long
How has the evolution of technology change the financial industry?
- Enhanced market efficiency
- Increased interconnectedness of markets
> Interlisted securities
> Multiple listing for securitie
What change did globalization bring to the financial industry?
- Markets are no longer restricted to local suppliers & issuers of capital
- Canadian investors can buy US listed shares; Canadian banks lend to US borrowers
Regulatory Changes
- Post-crisis financial regulation is increasing the compliance responsibility for financial firms
> Foreign Account Tax Compliance Act (FATCA)
> Anti-Money Laundering (AML) - At the same time that technology increasingly facilitates easier capital flows, regulation creates additional barriers
Primary Markets/New Issues
(Also called Debt or Equity Underwriting/Financing)
- Investment dealers buy & sell newly issued securities to investors (Ex. BMO Capital Market)
Investment dealers as Principals (Primary Markets)
Investment Dealer agrees to a price with the issue & buys all of the shares/bonds (aka “bought deal”) → with their own money
Investment dealers as Agents (Primary Markets)
Investment Dealer markets the shares or bonds to investors on a “best efforts” basis (gets commission) → the Investment Dealer does not purchase
Secondary Markets
Investment Dealers buy & sell securities on financial markets
Investment dealers as Principals (Secondary Markets)
Invest their own capital & earn a spread between purchase & sale prices (aka proprietary or liability trading)
Investment dealers as Agents (Secondary Markets)
Invest their clients’ capital & earn a commission on executed trades (aka brokerage)
What happens after a trade is executed?
The trade is “settled”
- 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
What does the CDS do during trade settlement?
CDS “clears” or “settles” the trade (“clearinghouse”) as the central repository keeping track of who owns each share of a company
- 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
