Chapter 2

self regulatory organizations (SRO)

self regulatory organizations (SRO)

provide oversight and enforcement for some rules

trade settlement

cash from the buyer’s brokerage account is transferred to the seller’s brokerage account

share ownership in a trade settlement

transferred from seller to buyer

underwriting

distributing shares

ETF

exchange traded funds

who is responsible for securities regulation

provincial

examples of SRO

CDS, CIPF, CSI

examples of investment dealers

small number of national scope, small “boutique”, multiple departments within

2 types of brokers

full service/discount

what do full service brokers offer

service/advice, high fees

what do discount brokers offer

limited services, no advice, low fees

risks with the borrow short and lend long strategy

if short term investment rates > long term, leads to recession

effects on evolution of tech/globalization to financial industry

increased market connections

what do principal investment dealers do in primary markets

agrees to price with issuer, buys all shares, sells shares to investors

what do agent investment dealers do in primary markets

markets the share to investors on best effort bases, does not repurchase

does investment dealer face more risk as an agent or principal?

principal because they use their own money

what do principal investment dealers do in secondary markets

invest their own capital, earn a spread between purchase and sale prices, proprietary/liability trading

what do agent investment dealers do in secondary markets

invest client’s capital, commission, brokerage

what happens after a trade is executed

CDS settles the trade, Registered owners have their name on the electronic share certificate, Shares in street form are registered in the name of the brokerage, Broker keeps track of individual client ownership

how do banks earn money

money from depositors - money lent to borrowers, revenue from lending, interest

the bank act

Schedule I: Domestic Banks

Schedule II: Subsidiaries of Foreign Banks

Schedule III: Branches of Foreign Banks

life insurance companies

match liabilities with assets, invest in long term fixed income products, insurers can own trusts and offer banking & investment products

property and casualty (P&C) insurance companies

covers liabilities that occur more frequently in a customers life

examples of investment funds

mutual/hedge funds, ETFs

closed end funds

listed on an exchange, fixed number of units outstanding, investors trade in a similar way as shares

open ended funds

not listed on an exchange, no fixed number of units outstanding, investors can only buy & redeem units from investment fund

what do pension plans do

match expected payoff of investments with the expected liabilities

what does the central repository do?

keeps track of who owns each share of a company