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Canadian Securities Course (CSC) > Volume 1 > Flashcards

Volume 1 Flashcards

1
Q

Identify a characteristic of large Schedule l bank voting shares.

A

Single shareholder or group of shareholders may own up to 20%.

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2
Q

Identify the action of a dealer as principal in an underwriting.

A

Purchase the issue anticipating to resell at a profit.

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3
Q

Select the term that is used to refer to the controls that inhibit information sharing between various businesses and business units.

A

Firewall.

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4
Q

Identify the type of investment fund that continually issues shares to investors and redeems these shares on demand.

A

Mutual fund.

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5
Q

Identify the federally regulated foreign bank subsidiaries that have been authorized under the Bank Act to do banking business in Canada.

A

Schedule II.

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6
Q

Indicate the role that an investment dealer is taking when the firm does not assume ownership of securities at some stage in the buying and selling transaction with investors.

A

Agent.

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7
Q

Identify the term used to refer to the difference between what banks pay as interest on deposits and what they charge as interest on loans.

A

Spread.

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8
Q

Kuy, a very successful and knowledgeable investor, has inherited $200,000 and wants to create a diversified portfolio while minimizing costs. Determine the type of investment firm that is best suited for this client.

A

Self-directed broker.

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9
Q

A large furniture store wants to sell its consumer instalment contracts to generate cash. Determine the financial intermediary the store should contact.

A

Sales finance company.

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10
Q

Which department is responsible for the portfolio management activities in a securities firm?

A

Front office.

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11
Q

Identify the process by which the number of securities and the amount of cash that has to change hands among the various exchange members each day is substantially reduced.

A

Netting.

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12
Q

Identify the investment service that feature portfolios created using algorithms based on modern portfolio theory and online client questionnaires.

A

Robo-advisors.

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13
Q

Thuy’s firm develops more efficient online financial planning applications for investors and investment advisors. Identify the type of firm Thuy owns.

A

Fintech.

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14
Q

ABC Securities offers a wide range of products and services to both retail and institutional clients, as well as underwriting bond and equity issues. Determine the category of firm ABC belongs to.

A

Integrated.

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15
Q

XYZ Investments, an investment dealer, regularly takes positions in DEF Inc, a TSX listed equity, with a goal of improving liquidity in DEF while smoothing out unwarranted price fluctuations. Identify the role XYZ likely plays in the stock market.

A

Market maker.

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16
Q

Identify a characteristic of capital.

A

Mobility.

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17
Q

Identify the transaction that takes place in the secondary market.

A

Resale of previously issued securities.

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18
Q

Identify a difference between auction and dealer markets.

A

Prices are publicly visible in the auction market but not in the dealer market.

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19
Q

Select the exchange in Canada that deals exclusively with financial futures and options.

A

The Montréal Exchange.

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20
Q

Choose the system that the Ontario Securities Commission requires firms to us to report unlisted trades in Ontario.

A

Canadian Unlisted Board.

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21
Q

Identify the role that the Canadian Securities Exchange (CSE) plays in the Canadian marketplace.

A

Market for emerging companies.

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22
Q

What is capital synonymous with?

A

Wealth, both real (land, buildings, material goods) and representational (money, stocks, bonds)

Represents the invested savings of individuals, corporations, governments, and other organizations.

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23
Q

Define direct investment.

A

Investment where capital is directly put into a project or asset

Examples include investing in a home, government infrastructure, or a new plant.

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24
Q

Define indirect investment.

A

Investment where accumulated savings are used to buy securities issued by a government or corporation

Typically involves purchasing stocks or bonds.

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25
Q

List the three important characteristics of capital.

A
  • Mobility
  • Sensitivity to its environment
  • Scarcity
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26
Q

What factors should be considered in evaluating country risk?

A
  • The political environment
  • Economic trends
  • Fiscal policy
  • Monetary policy
  • Investment opportunities
  • The labour force
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27
Q

What happens when capital investment is deficient in an economy?

A

Industry slackens, unemployment rises, and living standards decline.

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28
Q

Who are the suppliers of capital?

A
  • Individuals
  • Non-financial domestic corporations
  • Governments
  • Foreign investors
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29
Q

What is the role of individuals as capital suppliers?

A

Individuals save money to spend at an opportune time in the future.

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30
Q

How do non-financial domestic corporations generate capital?

A

Through large savings mainly in the form of corporate earnings.

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31
Q

How do governments become suppliers of capital?

A

By operating at a surplus and investing their profits.

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32
Q

What is the primary market?

A

A market where newly issued securities are sold by companies and governments to investors.

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33
Q

What is the secondary market?

A

A market where investors trade securities that have already been issued.

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34
Q

What is an auction market?

A

A market where securities are bought and sold by investors through investment dealers acting as agents.

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35
Q

Define bid-ask spread.

A

The difference between the bid price and the ask price.

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36
Q

What are fixed-income securities?

A

Securities that formalize a relationship where the issuer promises to repay the loan at maturity and makes interest payments

Examples include Treasury bills and bonds.

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37
Q

What are equity securities?

A

Securities that represent ownership stake in a company

Examples include common stock and preferred shares.

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38
Q

What are derivatives?

A

Products whose value is derived from the value of an underlying instrument, such as a stock or index.

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39
Q

List examples of managed products.

A
  • Mutual funds
  • Exchange-traded funds
  • Private equity funds
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40
Q

What characterizes a liquid market?

A
  • Frequent trades
  • Narrow price spread
  • Small price fluctuations
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41
Q

What do Canadian stock exchanges trade?

A
  • Common and preferred shares
  • Rights and warrants
  • Exchange-traded funds
  • Income trusts
  • Convertible debentures
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42
Q

What is the purpose of financial instruments?

A

To set out the rights and obligations of buyers (capital suppliers) and sellers (capital users) of securities.

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43
Q

Fill in the blank: The capital market includes various individual financial markets, including _____ markets, _____ markets, and _____ markets.

A

[stock, bond, money]

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44
Q

What does the Toronto Stock Exchange (TSX) list?

A

Equities, convertible debt instruments, income trusts, and exchange-traded funds.

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45
Q

What types of instruments does the TSX Venture Exchange list?

A

Equities and a few debenture issues.

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46
Q

What services does ICE NGX Canada provide?

A

Electronic trading, central counterparty clearing, and data services for natural gas and electricity markets.

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47
Q

What types of companies does the Canadian Securities Exchange list?

A

Equities of emerging companies.

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48
Q

What is Cboe Canada known for?

A

Providing listing services and facilitating trading in public companies, ETFs, Canadian Depositary Receipts™, SPACs, and closed-end funds.

49
Q

What percentage of all volume traded in Canadian-listed securities goes through Cboe Canada?

A

Approximately 15%.

50
Q

What is TMX Group Limited?

A

An amalgamation of TSX Group companies that includes TSX, TSX Venture Exchange, TSX Alpha Exchange, and the Montreal Exchange.

51
Q

What characterizes dealer markets?

A

They consist of a network of banks and investment dealers where market makers post bid-and-ask quotations.

52
Q

True or False: Dealer markets are centralized marketplaces.

A

False.

53
Q

What is the primary function of investment dealers in dealer markets?

A

They act as principals and market makers.

54
Q

What is the volume of trading (in dollars) for debt securities compared to equities?

A

Significantly larger.

55
Q

What is another name for dealer markets?

A

Unlisted markets.

56
Q

Fill in the blank: Over-the-counter trading in equities is conducted in a ______ manner.

A

similar.

57
Q

What do market makers hold in dealer markets?

A

An inventory of securities.

58
Q

What do investment dealers charge for their services in unlisted trades?

A

A commission.

59
Q

Who dominates the OTC derivatives market?

A

Large international financial institutions.

60
Q

What is a key feature of OTC derivative products?

A

They can be custom designed with special features.

61
Q

In Ontario, what does the Ontario Securities Act require for unlisted trades?

A

Reporting through the web-based system of the Canadian Unlisted Board Inc.

62
Q

What do alternative trading systems (ATS) provide?

A

Automated matching and execution of trades.

63
Q

What must an ATS be registered as?

A

An investment dealer and a member of CIRO.

64
Q

True or False: ATSs can list securities.

A

False.

65
Q

What is CanDeal?

A

A debt ATS and investment dealer offering access to government securities and money market instruments.

66
Q

What does MarketAxess provide?

A

Market data and a trading platform for corporate bonds and fixed-income instruments.

67
Q

What does CanPX offer?

A

A composite display of real-time bid and offer quotations for Government of Canada bonds and Treasury bills.

68
Q

What is the role of provincial and territorial agencies in the Canadian securities industry?

A

Each province and territory creates legislation and regulations for the securities industry.

69
Q

What is the Canadian Securities Administrators (CSA)?

A

An umbrella organization of Canada’s ten provincial and three territorial securities regulators.

70
Q

What is the mission of the CSA?

A

To develop a national regulatory system that fosters fair, efficient, and vibrant capital markets.

71
Q

What is a self-regulatory organization (SRO)?

A

A private industry organization that regulates its own members and enforces securities legislation.

72
Q

What is the Canadian Investment Regulatory Organization (CIRO)?

A

Canada’s national SRO overseeing investment dealers and trading activity on debt and equity marketplaces.

73
Q

What are the primary functions of CIRO?

A

Financial compliance, business conduct compliance, registration, enforcement, market surveillance.

74
Q

True or False: CIRO regulates mutual funds themselves.

A

False

75
Q

What does the Office of the Superintendent of Financial Institutions (OSFI) regulate?

A

Federally regulated financial institutions, including banks, insurance companies, and pension plans.

76
Q

What is the primary role of the Canadian Investor Protection Fund (CIPF)?

A

Investor protection in the event of dealer member insolvency.

77
Q

Fill in the blank: The CIPF protects eligible customers against loss due to _______.

A

insolvency of dealer members.

78
Q

What is the maximum coverage amount provided by the CIPF for combined accounts?

A

$1 million.

79
Q

What does the Canada Deposit Insurance Corporation (CDIC) insure?

A

Eligible deposits up to $100,000 per depositor in each member institution.

80
Q

List some types of accounts covered by CDIC.

A
  • Savings accounts
  • Chequing accounts
  • Guaranteed investment certificates
  • Foreign currency deposits
81
Q

What does the Financial Services Regulatory Authority of Ontario (FSRA) regulate?

A
  • Financial planners and advisors
  • Property and casualty insurance
  • Life and health insurance
  • Credit unions
  • Loan and trust companies
82
Q

What is the purpose of the Financial Professionals Title Protection Rule?

A

To establish minimum educational requirements and professional standards for financial planners and advisors.

83
Q

True or False: The CIPF covers client losses resulting from changing market values.

A

False

84
Q

What are the principles that underlie securities legislation aimed at?

A
  • Ensuring market integrity
  • Protecting investors
  • Promoting a fair and efficient securities marketplace
85
Q

What happens when two or more regulations conflict in the securities industry?

A

The strictest standard applies.

86
Q

What types of laws also apply to the securities industry?

A
  • Criminal Code of Canada
  • Money laundering legislation
  • Privacy laws
  • Corporate law
  • Bankruptcy and insolvency laws
87
Q

What is the purpose of regulation in the securities industry?

A

To protect investors, ensure fairness, maintain economic stability, and support social objectives.

88
Q

What does demutualization refer to?

A

A company that was owned by its members converting to a company owned by shareholders.

89
Q

Define corporate governance.

A

The system of rules, policies, and procedures by which a company is controlled.

90
Q

True or False: Business failure at one securities dealer can affect the entire industry.

A

True.

91
Q

What are the four primary objectives of regulators in the securities industry?

A
  • Consumer protection
  • Fairness
  • Economic stability
  • Social objectives
92
Q

What is the difference between principles-based regulation and rules-based regulation?

A

Principles-based regulation sets objectives and allows firms to decide how to meet them, while rules-based regulation imposes detailed rules.

93
Q

What is a significant practical difficulty of principles-based regulation?

A

Different people may assess the same situation and arrive at different conclusions.

94
Q

What is the general principle underlying Canadian securities legislation?

A

Full, true, and plain disclosure of all pertinent facts by those offering securities for sale.

95
Q

What methods do securities acts use to protect investors?

A
  • Registration of securities dealers and advisors
  • Disclosure of necessary facts for investment decisions
  • Enforcement of laws and policies
96
Q

Fill in the blank: The National Registration Database (NRD) is a _______ system used by investment dealers to file registration forms electronically.

A

[web-based]

97
Q

What is the gatekeeper role in the securities industry?

A

Guarding markets from possible wrongdoing by unscrupulous clients.

98
Q

What are the requirements for IAs to comply with their gatekeeper role?

A
  • Collect and record accurate and complete client information
  • Monitor activity in client accounts
  • Report suspicious transactions
99
Q

What are the key amendments introduced by the Client Focused Reforms (CFRs)?

A
  • Conflicts of Interest
  • Know Your Client (KYC)
  • Suitability
  • Know Your Product (KYP)
  • Relationship Disclosure
100
Q

What does the conflicts of interest amendment require firms to do?

A

Address material conflicts of interest in the best interest of the client.

101
Q

What is the suitability obligation in the context of the CFRs?

A

To apply due diligence to ensure each investment recommendation is appropriate for the client.

102
Q

True or False: Investment Representatives (IRs) can provide advice to clients.

A

False.

103
Q

What must registrants do according to Part 13 of NI 31-103 regarding conflicts of interest?

A
  • Identify material conflicts
  • Address them in the best interest of the client
  • Disclose conflicts at account opening or in a timely manner
104
Q

What is required for Know Your Client (KYC) obligations under the CFRs?

A

Registrants must collect an expanded list of information and confirm its accuracy with clients.

105
Q

What does the Know Your Product (KYP) obligation entail?

A

Firms must understand the securities they recommend to clients and have policies to assess them.

106
Q

What must a firm do when it identifies material conflicts of interest?

A

The firm must disclose any material conflict of interest that may impact a client at the time of account opening, or in a timely manner if the conflict is identified later.

Disclosure must be prominent, specific, and written in plain language.

107
Q

What are the foundational pre-conditions to suitability in the securities industry?

A

KYC (Know Your Client) and KYP (Know Your Product) obligations.

Neglecting either may lead to non-compliance with regulatory expectations.

108
Q

What KYC information is required to meet suitability obligations?

A
  • Personal circumstances
  • Financial circumstances
  • Investment knowledge
  • Investment needs and objectives
  • Risk profile
  • Investment time horizon

Risk profile includes both risk tolerance and risk capacity.

109
Q

What is the client’s risk profile according to NI 31-103?

A

It should reflect the lower of their risk tolerance and their risk capacity.

Risk tolerance refers to willingness to accept risk, while risk capacity refers to ability to endure financial loss.

110
Q

What must registrants do to confirm KYC accuracy and timeliness?

A
  • Obtain client confirmation that KYC information is accurate
  • Update KYC information when aware of significant changes
  • Review KYC information every 36 months
  • Update KYC information on initial contact and annually during review

The changes emphasize the importance of current and accurate KYC information.

111
Q

What does suitability mean in the context of client interactions?

A

Ensuring that all interactions, including account opening and recommendations, take the client’s unique situation into account.

Suitability assessments are required during specific trigger events.

112
Q

What is the KYP rule?

A

Representatives are responsible for understanding the products in a client’s account, including construction, features, risks, and costs.

This is crucial for making suitability determinations.

113
Q

What must a relationship disclosure document include?

A
  • Description of account nature
  • Types of products and services
  • Risks to consider
  • Risks of using borrowed money
  • Conflicts of interest
  • Operating and transaction charges
  • Complaint handling procedures
  • Suitability determination statement
  • Explanation of performance benchmarks
  • Reporting details

This document helps inform clients about their accounts and associated risks.

114
Q

What is arbitration in the context of dispute resolution?

A

A method where an independent arbitrator listens to both sides and decides how to resolve the dispute.

It is often cheaper and faster than court action.

115
Q

What are the eligibility criteria for arbitration?

A
  • Attempts to resolve the dispute with the investment dealer
  • Claim does not exceed $500,000

Higher claims may be arbitrated if both parties agree.

116
Q

What does the Ombudsman for Banking Services and Investments (OBSI) do?

A

Investigates customer complaints against financial services providers and provides prompt and impartial resolution.

The process is not binding but firms that do not comply with recommendations are publicly reported.

117
Q

What constitutes unethical conduct in securities trading?

A
  • Deceiving the public about prices or values
  • Creating false appearances of trading
  • Manipulating the market
  • Making fictitious trades
  • Using high-pressure sales techniques
  • Misleading clients about risks
  • Front running
  • Conduct bringing disrepute to the industry

Unethical practices can lead to severe penalties for both individuals and firms.

118
Q

What are prohibited sales practices designed to do?

A

Curb unethical behavior, dishonest conduct, and high-pressure selling tactics.

Regulations exist to protect investors and maintain market integrity.

119
Q

What is the National Do Not Call List (DNCL)?

A

A list that prohibits telemarketers from calling registered numbers for more than 31 days.

Advisors must comply unless making exempted calls.

Canadian Securities Course (CSC) (2 decks)

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