csc volume 1

cash basis of accounting

less than 20% of a subsidiary

public float

-part of issued shares that are outstanding and available for trading by the public

-excludes shares owned in large blocks by institutions.

number of shares outstanding to be lower than the number of shares issued

company redeemed shares

advantage for an issuer to use the Short Form Prospectus System

shortens the time period by which a new issue may be offered to the public

over-allotment option

dealer initially sells more stock than the original offer by the issuer to the public

ceiling imposed on the total amount of bids for a government bond offering submitted by any primary dealer

40%

yield will be awarded to the firms that submitted a non-competitive tender

average of 5 successful bids

allow significant news to be reported and widely disseminated

temporary halt on trading

3 characteristics of capital

mobile

sensitive to the environment

scarce

factors that affect capital

political

economic

fiscal

monetary

risk

labour force

only source of capital is

savings

retail investors

individual investors who buy and sell securities for their own personal accounts, and not for another company or organization

indirect investment

occurs when the saver buys the securities issued by governments and corporations, who in turn use the funds for direct productive investment

government makes use of four main instruments

treasury bills

marketable bonds

canada savings bonds (CSBs)

canada premium bonds (CPB)

instalment / serial debentures

municipalities use _____ to spread long term projects over several years

instalment / serial debentures

3 components of the financial industry

markets

instruments

intermediaries

open-end fund/ mutual fund

-fund raises capital by selling shares/units to investors

-as unit holders, investors receive part of the money made from the fund's investments

Derivatives

products based on or derived from an underlying instrument like a stock or index

Most common derivatives

options

forwards

Private Equity

financing of firms unwilling or unable to find capital using public measures

venture capital

invest when business produce little of no cash flow, unproven technology etc. and have little/ no collateral

Several methods by which private investors finance firms

LBO

growth capital

turnaround

early stage VC

late stage VC

distressed debt

distressed debt acquisition

purchase of debt securities of private or public companies that are trading below par due to financial troubles at the firm

private equity investors are typically

-Public pension plans

-Private pension plans

-Endowments

-Foundations

-High net worth investors

Role of private equity in a portfolio

return enhancement (reward for accepting much lower liquidity typical of private equity)

portfolio diversification

efficient markets

speedy transactions

low transaction costs

high degree of liquidity

effective regulation

Primary Market

-New securities are sold by companies and governments to investors for the first time.

-Companies raise capital by selling stocks or bonds which governments raise capital by selling bonds

Secondary Market

Investors trade securities that have already been issued by companies and governments

In this market, buyers and sellers trade among each other at a price that is mutually beneficial to both parties.

In auction markets

buyers enter bids and sellers enter offers for a stock

bid

Highest price a buyer is willing to pay for the security being quoted

ask

lowest price a seller will accept

spread

difference between the bid and ask prices

liquid market

frequent sales

narrow price spread between bid and ask prices

small fluctuations from sale to sale.

Canada has 5 exchanges

Toronto Stock Exchanges (TSX)

TSX Venture Exchange

Montreal Exchange (Bourse de Montréal MX) (owned by TMX group)

Canadian National Stock Exchange (CNSX)

ICE Futures Canada

IIROC

Investment Industry Regulatory Organization of Canada

UMIR

Universal Market Integrity Rules

dealer market, over-the-counter (OTC) or as unlisted markets.

a negotiated market

Market Makers

monitoring the opening and trading to ensure that orders are properly executed

maintaining a continuous two-sided market at an agreed upon maximum spread throughout the day

executing all tradable orders that meet a maximum number of shares as agreed upon with the exchange.

dollar volume of dealer markets is

much larger

unlisted market

more speculative, and in most cases offer lower liquidity than listed securities

OTC derivatives market

Dominated by financial institutes such as banks and brokerage houses

open 24 hours a day

products can be custom designed by the buyer and seller.

CUB

Canadian Unlisted Board Inc

where unliment securities must be reported in ONtario

OSC

Ontario Securities Commission

QTRS

Quotation and Trade Reporting Systems

Alternative Trading Systems (ATS)

are privately owned computerized trading facilitates that match buy and sell orders for securities traded outside of recognized exchanges.

can be owned by inimical brokerage firms or by groups of brokerage firms.

have the potential to threaten market stability die to lessened market transparency, cross-border trading issues and technological glitches such as insufficient system capacity.

members and regulated by IIROC

taking market share away from traditional market exchanges

Equity ATSs now in operation in Canada include

-CNSXs Pure Trading

-Bloomberg Tradebook Canada

-OMEGA ATS

-CHI-X Canada Cross ICX

-Liquidnet Canada

-MATCH Now, operated by TriAct Canada Marketplace LP.

Three fixed-income electronic trading systems

CanDeal

CBID

CanPX

SROs

Self-regulatory organizations

CIPF

Canadian Investor Protection Fund

provide insurance against insolvency

Intermediary

organization that facilitates the trading or movement of the financial instruments that transfer capital between suppliers and users

GIC

Guaranteed Investment Certificate

fixed rate of interest

principal and interest is guaranteed

special features:

-escalating rate

-laddered

-instalment

-indexlinked

stere-rate-linked

investment dealers

-can act as agents in the transfer of instruments between different investors

-can act as principals

-Investment dealers are also known as brokerage firms or securities houses

Two main roles of the securities industry

-underwriting of securities within the primary market, transfer capital

- investment dealers maintain secondary markets in which previously issued or outstanding securities can be traded.

3 types of firms

-Integrated firms

-institutional firms

-retail firms

integrated firm

-offers products and service that cover all aspect of the industry

-includes full participation in both institutional and retail markets

-underwrite all types of federal, provincial and municipal and corporate debt and corporate equity issues

-actively trade in secondary markets including the money market

-trade on all Canadian and some foreign stock

-provide ancillary services to securities issuers and large and small investors

-services include:

-economic, industry, corporate and securities research and advice

-merger and acquisition advice

-tax counselling

-loans to investors with margin accounts

retail firms

full service firms

discount brokers

primary objective of the portfolio management team

earn a competitive rate of return on the investor's assets with an amount of risk that is acceptable to the investor

institutional clients

-pension plans

-mutual funds

-insurance companies

-endowments

-charitable foundations

-family trusts/estates

-corporate treasuries

to sell securities to the public, an IA must be

- registered with the provincial securities commission

-be of legal age

-passed the CSC and Conduct and Practices Handbook Exam

-participated in a 90 day training program

-must complete the Wealth Management Essentials course within 30 months

middle office

-provides functions that are critical to the efficient operation of the entire firm

-duties:

-compliance

-accounting

-audits

-legalities

back office

settle the firm's security transactions in an efficient and effective manner; known as the trade settlement function

-Security trades are not complete until they are "settled"

dealer as principal

own stock

clearing system

securities are cleared through CDS Clearing and Depository Services Inc.

banks

Largest 6 _____ control more than 90 percent of 2.9 trillion in assets

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 shareholders to no more than 20%

Schedule I chartered banks

-giants of Canada's capital market

-23 Schedule I banks

6 major canadian banks

RBC Royal Bank

CIBC

BMO Bank of Montreal

Scotiabank

TD Bank Financial Group

National Bank of Canada

chinese walls

Controls that inhibit information hearing between various business and subsidiaries

Schedule II chartered banks

incorporated and operate in Canada as federally regulate foreign bank subsidiaries

AMEX Bank of Canada

Citibank Canada

BNP Paribas Canada

Schedule III banks

federally regulated foreign bank branches of foreign institutions that have been authorized under the Bank Act to do banking business in Canada

-Tend to focus on corporate and institutional finance and investment banking

Trust and loan companies

-Federally and provincially incorporated _____ offer a broad range of finical services which in many cases overlap services provided by chartered banks,

-they accept savings, issue term deposits make personal and mortgage loans and sell RRSPs and oner tax-deffered plans

Credit unions and caisses populaires

-credit unions and caisses populaires offer diverse services such as business and consumer deposit taking and lending, mortgages, mutual funds, insurance, trust services, investment dealer services and debit and credit cards.

two main business of the insurance industry

life insurance

property and casualty insurance

Life insurance

insurance against loss of life, livelihood or health

such as health and disability insurance

term and whole life insurance

pension plans

registered retirement savings plan

annuities

main sources of a life insurance company's funds are

-premiums on whole life

-term and group insurance policies

-premiums being paid for annuities

-pensions

- group medical and dental care

-interest on policy loans and mortgages

-interest and dividends on securities and mortgages already owned

Property and Casualty Insurance

encompasses protection against loss of property, including home, auto and commercial business insurance

insurance regulation

Insurance Companies Act. 1992

permits life insurance companies to explicitly own trust and loan companies and thus enter new financial business through subsidiaries.

Investment Funds

-companies or trusts that sell shares (often called units) to the public and invest the proceeds in a diverse securities portfolio.

-Closed-End Funds typically issue shares only at start-up or other infrequent periods while -Open-End Funds (mutual funds) continually issue shares to investors and redeem these shares on demand.

-Mutual funds are much larger, accounting for 95% of aggregate funds invested

OSFI

Office of the superintendent of financial institutions

CDIC

Canada deposit insurance corporation

federal Crown Corporation that provides deposit insurance and contributes to the stability of Canada's financial systems

To be eligible for CDIC insurance

-deposits must be held with a member institution in Canadian currency and payable in Canada.

-term deposits must be repayable no later than 5 years from the date of deposit

-the $100,000 maximum includes all insurable types of deposits you have with the same CDIC member

-deposits at different branches of the same member institution are not insured separately

accounts and products insured by CDIC Include

-savings and chequing accounts

-GICs and other term deposits that mature in 5 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 5 years

-Bonds and Treasury bills

-Debentures issued by government corporations or chartered banks

-deposits held in foreign currency

How to have more than 100k in CDIC coverage. eg. provided deposits are held in more than one of CDICs 6 deposit insurance categories

-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 tac account

provincial regulators

regulation of securities business is provincial mandate in Canada

Canadian SROs include

IIROC

MFDA

IIROC plays the following roles

financial compliance

business conduct compliance

registration

enforcement

MFDA

mutual fund dealers association.

sro

can admit members, audit, enforce rules and apply penalties

investor protection fund

offers investors protection against loss due to financial failure of any firm in the self-regulatory system

CIPF

CIPF role

-primary role is investor protection

-secondary is overseeing the self-regulatory system

general account

accounts of a customer such as cash, margin, short sale, options, futures and foreign currency

joint accounts

presumed to be equally divided in value among each owner of the account

-separate accounts are accounts disclosed in the records that are tread as if they belong to a separate customer

examples of separate accounts

RRIFs

LIFs

LIRAs

LISRPs

RESPs

partnerships

truest

days to file a claim with CIPF

180

MFDA coverage

coverage provided is limited to 1mm per customer account for losses related to securities, cash balances, segregated funds and certain other property held in the account of a MFDA member firm

role of arbitrator

-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.

Provincial securities acts are designed to regulate

-underwriting

-distribution and sale of securities

- protect buyers and sellers of securities.

act uses 3 basic methods to protect investors

1. registration of securities dealers and advisors

2. disclosure of facts necessary to make reasoned investment decisions

3. enforcement of the laws and policies.

registration categories for investment personnel

dealing representative

trader

supervisors

executive

director

ultimate designated person

CFO

Chief compliance officer

NRD

national registration database