Volume 1, Chap 1 The Canadian Securities Industry Flashcards
What is a financial intermediary
Is an Institution such as a bank that borrows money from suppliers of capital and lend it to users of capital.
Investors lend funds to the intermediary, and the intermediary, in turn, lend those funds to borrowers in the form of loans, mortgages, and other products.
How is market activity measured
by the variety and size of new issues that are brought to the market, as well as the depth and liquidity of trading those issues.
How is the Canadian Securities industry mainly regulated
by the provinces
What kind of regulations are the provinces allowed to enforce
they can enforce their own laws and refulations through securities commissions. (called securities admin in some provinces.
What do securities commissions delegate
some of their powers to self-regulatory orgs (SRO) such as the investment industry regulatory organization of Canada (IIROC).
What do Self-Regulatory organizations (SRO) do
establish and enforce industry regulations that protect investors and maintain fair, equitable, and ethical practices. Responible for setting the rules that govern many aspects of the investment dealers’ operations, including sales, finance, and trading.
Who are the three industry players
- Suppliers of Capital (Investors)
- Investment Dealers
- Users of Capital (Borrowers)
What are the three Industry support mechanisms
- Self regulatory Orgs
- Markets
- Clearing and settlements
What are the three Self-Regulatory Orgs
- Canadian Securities Institute (Industry Educator)
- Canadian Investor Protection Fund (Industry Insurance Fund)
- Provincial Regulator (Securities Commission)
What are Investment Dealers (brokers)
act as intermediaries by matching investors with the users of capital. Each side of the transaction has its own dealer who matches the trades through the markets.
Where are transactions cleared and settled
Through Orgs such as CDS Clearing and Depository Services Inc. and banks.
What is Clearing
The process of confirming and matching security trade details
What is a settlement
is the irrevocable moment when cash and securities are exchanged.
What does the Canadian Investor Protection Fund do
Provide insurance against dealer insolvency
What is a financial Intermediary
Any org that facilitates the trading or movement of the financial instruments that transfer capital between suppliers and users of capital.
What are some examples of financial intermediarys
Investment dealers
banks
credit unions
trust companies
insurance companies.
What are the main functions of agents and principals
- They help to transfer capital from suppliers to users through the underwriting and distribution of new securities. Takes place in the primary market distribution (or primary offering) When a company goes public and takes to market as IPO.
- They maintain secondary markets in which previously issued or outstanding securities can be traded.
What are the three categories of investment dealers
- Retail Firms
- Instutional Firms
- Integrated firms
What is a retail firm
include full-service investment dealers and self-directed brokers (discount brokers). offer a wide variety of products and services to include various levels of adbise, depending on the financial and wealth management concerns of their invetor clients. Self-directed brokers are considered the do-it-youself approach to investing. execute trades at a reduced rate and do not offer investment advise.
What is an institutional firm
investment dealers that serve exlusively institutional clients, orgs that trade large volumes of securities. clients include pension funds and mutual funds and may be domestic or internation firms.
What are integrated firms
offer products and services across the industry and participate fully in both the retail and institutional markets. Most integrated firms underwrite all types of federal, provincial, and minicipal debt, as well as corp debt and equity issues. Active in secondary markets, including the money market, and Canadian stock exchange, and some foreign.
Who are senior management
usually includes chairperson, a president, an EVP, directors, and departmental vice-presidents. Most work at head office but can be in charge of regional branch offices.
What is front, middle, and back offices
Three level org structure of most investment dealers. Allows them to manage client portfolios effectively and provess trades efficiently, in compliance with regulatory requirements.
What are the roles of front, middle, and back offices
Front office - Performs all staff functions pertaining directly to portfolio management activities.
Middle office - performs functions critical to the efficient operation of the firm.
Back office - settles the firms security transactions
What are the functions of front office
- portfolio management
- trading
- sales
- marketing
What are the functions of the middle office
- compliance
- accounting
- audits
- legal
What are the functions of back office
trade settlement
What is a principal transaction
when they act as principals, investment dealers may own the securities as part of their inventory.
Underwriting - in the securities business, underwriting refers to purchasing from a government body or a company a new issue of securities, on a give date at specified price. when they act as principals, they use their own capital to buy an issue to then sell it at a profit.
What is an Agency Transaction
When dealers act as agents on behalf of buyers or sellers, they do not own title to the securities that they deal with, at any time during the transaction. Agents profit is commision charge for ea transaction.
What is the difference between agent and principal
Principal will most likely take into own inventory and agents will not own period.
What are services provided by investment dealers
- provide informed advice about terms and features for new issues in primary market based on current knowledge in secondary markets.
- add liquidity to the market by making transactions from their inventory, rather than waiting for simultaneous matching buy-sell orders from other investors.
- Act as market makers and carry out market-making duties by taking positions in assigned listed stocks to enhance market liquidity and smooth out undue price distortions.
- buy listed stocks as principals, accumulating large blocks of shares
- the liquidity they add to the secondary market enhances the primary market by assuring that the buyers of new securities will be able to sell their holdings at resonable prices.
What is CDS Clearing and Depository Services Inc.
Valued partner to dealers that operate in the securities market, providing reliable clearing services.
What is CDSX
CDS operates, and is the facility for the clearing and settlement of trades in equity and debt securities in Canada and for various cross-border transactions
Which exchanges use CDSX
TSX, TSX venture exchange, and alternative trading systems
Who are participants in CDS
Banks
Investment dealers
trust companies
What is netting
establish and confirms a credit or debit position balance, in the form of cash or security, for each dealer member.
- Process compiles each firms clearing settlement sheets and informs each member of the securities or funds it must deliver to balance its account.
what is the primary role of chartered banks
to accept and safeguard deposits from individuals and businesses, mainly in the form of deposits and lend to other users.
What regulatory act are chartered banks operated under
the Bank Act
What are the three forms of chartered banks
Schedule I,II,III chartered banks
What are Schedule I banks
Thought of as the big 6 but include more than 30 others
What is a firewall
the barriers that inhibit information sharing across a banks various business units
What is a Schedule II Bank
are incorporated and operate as federally-regulated foreign bank subsidaiaries. Can engage in all activities a Sch I bank can. Derive most revenue from retail banking and electronic financial services.
Ex - AMEX bank of canada, Citibank Canada, UBS Bank
What are Schedule III banks
Federally regulated foreign bank branches of foreign institutions that are auth under the bank act to do business in canada. Tend to focus on corp and institutional finance and investment banking.
ex - Barclays bank, comerica bank and the bank of new york mellon.
What is a credit union and what do they do
offer businesses and consumers a wide banking services. provide deposit-taking services, lending, mortgages, mutual funds, insurance, investment dealer services, and debit and credit cards.
Mostly offer services to common interest groups, such as people who live in same neighbourhood, same ethnic backgrounds, or same business or social group.
what is a credit union regulated under
Cooperative credit associations act (CCAA)
What does the CCAA have to adhere to
Rules based on the prudent approach.
Prohibits associations from acquiring substantial investments in entities, other than a list of auth financial and quasi-financial entities. also sets a number of limits designed to restrict exposure to real property and equity securities
What is a trust and loan company
only corporation authorized to engage in a trust business. Act as a trustee in charge of corp and individual assets such as property, stocks and bonds. Can also offer most services banks offer, like savings, term deposits, loans, and sell RRSPs.
What is an insurance companies two main lines of business
life insurnace, and property and casualty insurance
what are related products for life insurance
Health and disability
term and whole life insurance
pension plans
RRSP
Annuities
What is included in Casualty insurance
Home
Auto
Commercial business
What is insurance underwriting
most important aspect of the insurance business. evaluates risk, and associated contractual responsibility that the companies are willing to accept in exchange for its clients premiums.
What is the federal legislation governing insurance companies
the insurance companies act.
Can shedule I banks own insurance companies
yes
what business is a bank forbidden to sell in regards to an insurance company they own and what act do they fall under
the bank act forbids them from selling insurnace through their branch networks, except mortgage and loan insurance.
What are other three other financial intermediaries
Investment funds
Consumer finance companies
Sales finance companies
What are two different kinds of investment funds
Closed-end funds
Open - funds
What is a closed end fund
issue shares only at start-up or at other infrequent periods
what is a open-end fund
Commonly called mutual funds - issues shares to investors and redeem these shares on demand.
which market is larger open end or closed end funds
Open-end funds and account for 95% of aggregrate funds invested.
What is a consumer finance company
make direct cash loans to consumers, who are able to secure loan from a bank. typically charge higher rates than other banks
what is a sales finance company
purchase instalment sales contracts from retailers and dealers at a discount, when items such as new cars, appliances, or home improvements are bought on installement plans.
What is a financial technology company
known as fintech, take advantage of computer tech to support or anable a variety of online products, including online loans, e wallets, and automated fin planning software.
What is a robo-advisor
provides clients with advice, in contrast to the execution-only model of self-directed brokerage.
What are some variations and services of robo-advisors
- provide clients with goal-based online investment management
- portfolios are created using algorithms based on modern portfolio theory and questionaires
- a phone call with an advisor verifies that the computer-generated profolio is suitable for client
- advisor support typically online or by phone
- portfolios are built primarily with ETF
- regulary rebalanced
What are the 4 categories of social economic shift
Demographics
defined benefit and defined contribution plans
savings rates
debt levels
what do demopraphics explain
aging population (baby boomers), health care, education, all aspects of life.
What is a Defined Benefit
Provides employees with a pre-determined specified payment amount of funds when they retire
what is a defined contribution pension plan
allows employees and emloyers to contribute to a plan that invests funds over time to save for retirement.
