Chapter 2 Flashcards
Canadian Securities Industry
how is the Canadian securities industry regulated?
regulated provincially through laws + securities commissions
how do self-regulatory organization arise from?
they arise from securities commissions delegating some of their powers to them for them to establish + enforce industry regulations
what are some characteristics of the Canadian security industry?
the industry is highly leveraged and short-term funding is obtained through a variety of arrangements
what are short-term funding that the industry is able to obtain
- day-to-day loans by chartered banks that are secured by the dealer’s inventory of T-bills and short-term Canada Bonds
- call loans by banks that are secured by a wide range of securities and must be liquidated within 24 hours after notice has been given
- purchase + resale agreements with the Bank of Canada
- free credit balances from customer accounts, which represent another source of borrowed funds on which interest must be paid
why is competition in the securities industry fierce?
growth of electronic communication + computerized trading + increased globalization of world financial markets
why is there an increase in teh globalization of markets
- increase in # of “interlisted” securities
- linking of most major stock exchanges around the world electronically through exchange trading links
- extension of trading hours that many exchanges around the world offer
- growth of unregulated markets
- large increase in investment mobility
how do investment dealers act in teh primary/new issue market?
IDs may act as principals or agents
define underwriting or financing
the purchase of new securities from the issuer on a given date at a specified price, which is then to be sold to others - IDs serve as principals under this arrangement + their compensation = the “spread” between the purchase price and resale price - under this arrangements, dealers assume the risk of the security not selling at adequate prices - however, they take a lot of precaution to minimize the risk.
IDs may perform this function by being an agent who market the newly issued securities on the “best efforts” basis. - they receive compensation in the form of a commission - it’s the issuer that assumes the risk of the issue not selling - typical for arrangements of smaller or more speculative companies
why are underwriting syndicates formed?
to spread the financing risk + enhance marketability of the issue
What roles do IDs play in secondary markets?
they act as principals or agents
principal - trade securities with client from their own inventory + when they trade for their own account - they earn income in the form of a “spread” and assume the majority of the risk
agent - execute transaction for customers + charge them commissions (negotiated by client + ID)
characteristic of trust + mortgage companies
only type of corporation in canada permitted to act as trustees in charge of corporate or individuals finanical assets
define credit union + caisse populaires
cop-operative, member-owned businesses that provide basic financial services to their members
define life insurance copmanies
they act as trustee for funds they receive from policy holders - safety of principal is a primary investment objective for these companies
deifne demutualization
the reorganization of the ownership structure of life insurance companies form being owned by policy holders to being owned by shareholders
what’s the prudent portfolio approach
ensures liquidity on assets?
