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CSC VOLUME ONE: Chapters 1 – 3, Test #1. 1. Which of the following statements do you disagree with? a). Capital is mobile and sensitive. b). Canadian Securities Course (CSC)®. 1. 2. 1. 2. CURRENT CSC TEXTBOOK. Volume Chapter. Title. 1. Capital Markets and Financial Services. 2. The Canadian. Official Source of the Canadian Securities Course (CSC ®). Take the first step Online, interactive version with online textbook (PDF), $ NEW Canadian.


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1st volume of the official course textbook for the CSC from the Canadian Securities Institute. on the course records of CSI Global Education Inc. This edition of the Canadian Securities Course (CSC) textbook was prepared in the Fall of This edition of the Canadian Securities Course (CSC) textbook was prepared in the Fall of This edition retains all of the enhancements included in its. Does anyone know of where I can find the CSC textbook online? also I literally googled "csc textbook pdf" and it was like the first result.

Dealer markets are network of dealers that trade with each other directly on a negotiated market with market makers. These changes were part of a rebranding initiative as the TSX and its subsidiaries prepared to go public in the fall of To be eligible for arbitration, the dispute must meet the following criteria: These qualities are measured in terms of the variety and size of new issues brought to the market and the depth and liquidity of secondary market trading. Prot is earned on the commission charged for each transaction. The responsibilities include monitoring the opening of trading to ensure that orders are properly executed, maintaining a continuous two-sided market at an agreed upon maximum spread throughout the day e.

The date of the exam is not included in any notice period. You can view CSI extension fees here. Your enrolment period can be extended only one time. Students are responsible for and can be examined on content in the course textbook s provided when they enrol, unless stated otherwise in My CSI. Students are encouraged to check My CSI regularly throughout their enrolment period for updates.

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Click below to access CE accreditation information for this course. Please note: While CSI makes every effort to ensure that the information is up-to-date, we are unfortunately unable to fully guarantee its accuracy.

The information listed in the charts above may be subject to change. For details on the organizations and other information on CE Credits listed in the above charts, please click here. The CSC now comes in three alternative bundling options.

Please select one of the three options. Seminars do not qualify as study tools and are not inlcuded in the study tools discount. IIROC member firms, financial institutions and other corporate entities who have agreements with CSI may be eligible for discounts on some courses. Selecting the name of your employer at the time of enrolment will ensure that applicable discounts appear at checkout. Why Enrol in the CSC? Course leads to the following credentials: Here is what you'll cover: The Canadian securities industry and the regulatory environment Market and economic events impacting investment performance Understanding and analyzing corporate financial statements Financial instruments: Learning objectives and goals that keep you focused Interactive tools to help you evaluate and apply course material Post-chapter tests to assess your progress Course updates Customizable calendar Online discussion forums and assistance from CSI's academic support specialists Six online Audio podcasts Walk you through different scenarios and examples in an easy-to-understand format Topic-specific segments focus on basics, clarify terminology and reinforce concepts by regularly summarizing the material 10 15 minutes each, can be accessed through your computer or mobile device.

This course does not lead to licensing and registration requirements with regulatory authorities. Buying for a Team? Capital transfer at its simplest occurs when you deposit money into a bank account.

Once you make a deposit, the bank can lend it to a business that needs funds. For example, the business may use borrowed funds to expand their operations or to become a publicly-traded company on a stock exchange. In return, the business pays interest on the borrowed funds, and you receive a portion of that interest for the use of your money.

Of course, the capital transfer process is more sophisticated in our financial markets, especially as they become increasingly complex. In essence, the financial markets have evolved to work like this: Financial instruments, such as stocks and bonds, formalize the transfer of capital. Financial markets provide a forum where capital is transferred in the form of nancial instruments. Financial intermediaries, such as Investment Advisors, make the transfer process faster and easier.

In combination, they facilitate the efficient allocation of capital. For example, a company needs capital to expand its operations. The company raises capital by issuing financial instruments, such as stocks or bonds, into the market through an investment dealer.

Investors buy the securities through an intermediary such as a financial advisor. In the process, the investors temporarily transfer their money to the company. In return, they receive securities representing claims on the companys real assets. If the business does well, it earns a profit. Part of these earnings may be distributed to the investors in the form of dividends or interest, depending on the type of security that was purchased.

The price of the security also may rise, yielding a profit or capital gain for the investor when the security is sold in the marketplace. Investors arent the only ones to profit, however. Part of the money earned by the company may be reinvested in the business, spurring further economic development.

Consequently, securities investments benefit not only the investor and the user of capital, but also the country as a whole. Key Chapter Features Each chapter includes the following learning features: Chapter Outlines: The chapter outline lets you know what content will be covered in the chapter and will prepare you for the material you are about to read.

Learning Objectives: The learning objectives help to focus your studies on important topic areas. Be sure to read each objective before you begin a chapter; the objectives specify precisely what you are expected to know after reading the chapter and studying the material.

To highlight their importance, we have linked each objective directly to the chapters major headings. Chapter Openers: Each chapter begins with a short overview of the importance and relevance of the material to be covered.

The openers set the stage and help to increase your motivation by linking the chapter content to the real world. Key Terms: Understanding the terminology and jargon of the securities industry is an important part of your success in this course.

We provide a list of key terms at the start of each chapter. Each key term is boldfaced in the chapter and appears in the glossary included at the end of the textbook. Chapter Summaries: Each chapter closes with a concise summary of the material, organized by learning objective. The summaries will help to reinforce the relationship between the material and the chapter learning objectives.

They also help to suggest areas of weakness that require further study. Your registration includes access to online modules that can be used as study guides. They are designed to help reinforce the textbook content and assess your knowledge.

Before you read a chapter, we recommend that you log onto the online course and use the modules along with your text. We suggest the following approach: Read the Getting Started section and the learning objectives for the chapter. Read the chapter in your textbook or the online PDF. Use this rst reading to familiarize yourself with the material. Take notes where necessary, especially if there is a concept you dont understand. Complete the learning activities associated with each chapter.

If you have any questions related to the course material, review the online Frequently Asked Questions section. You may nd the answers there. Read the chapter slowly a second time. Pay particular attention to those areas you found challenging during your rst reading.

Pay attention to the tables, charts, and exhibits. These will help with the practical aspects of the material.

Work through all examples and calculations, making sure that you understand how the correct answers were arrived at. Complete the post-test for each chapter. Read the chapter summary and learning objectives once again to reinforce your learning. Dont forget to review the Glossary at the end of the textbook, where the Key Terms from each chapter are defined.

Understanding the terminology and jargon used within the industry is an essential part of this course. We particularly recommend a thorough reading of the Glossary for those who are new to the material. In fact, the Glossary provides an excellent means to review the material and prepare for the exam.

If you are still in doubt about any concept, use the Index to find a full discussion of that concept in the textbook. Our experience training over , global professionals makes us the preferred partner for individual and corporate financial services education internationally. Our expertise extends from securities to mutual funds, from banking and trust to insurance, from portfolio management to financial planning and wealth management. CSI is a thought leader whose real world training sets professionals apart in their field, by developing them into leaders who are able to excel in their chosen careers.

Our focus on leading educational and ethical standards means that our graduates have met the highest level of proficiency and certification. We develop course content based on industry trends and continuous involvement from our worldwide partners to ensure our graduates are the most current in every financial sector.

CSI is a partner that works collaboratively with practitioners and industry regulators. This leads to a higher educational standard in an evolving financial services marketplace.

By anticipating industry requirements, we are able to develop relevant curriculum and testing for real world application. CSI grants designations that have become a true measure of expertise. We focus on state of the art industry knowledge that is the recognized standard for regulatory authorities, financial organizations and associations in Canada and around the globe.

Our graduates come with highly endorsed credentials that are respected throughout the financial services industry. CSI is valued for its expertise in both course content and program delivery. CSI has established professional designations in growing specialties such as financial derivatives and wealth management. These are in addition to our respected and established courses and seminars.

Weve also pioneered the use of the Internet as a powerful tool for teaching and professional development through online courses and study aids.

CSI leads innovative, lifelong education for career-minded financial professionals. CSI courses are available on demand in a variety of formats that can be used anywhere and anytime. We are continually adapting to changing technology and to the changing needs of learners and their organizations.

Features and Types Pricing and Trading Common and Preferred Shares Stock Market Indexes Equity Transactions S1 Glossary G1 Selected Web Sites Web1 Index Structure and Regulation Types and Features Dene investment capital and describe its role in the economy.

Describe how individuals, businesses, governments and foreign agencies supply and use capital in the economy. Differentiate between the types of nancial instruments used in capital transactions. Explain the role of nancial markets in the Canadian nancial services industry, distinguish among the types of nancial markets, and describe how auction markets and dealer markets work. The industry grows and evolves to meet the ever-changing needs of Canadian investors, both from domestic and international perspectives.

In some way, we are all affected by the securities industry. The vital economic function the industry plays is based on a simple process: This capital transfer process is made possible through the use of a variety of nancial instruments: Financial intermediaries, such as banks, trust companies and investment dealers, have evolved to make the transfer process efcient.

The rst two chapters of this textbook focus on the three central elements of the securities industry: The emphasis throughout the course, however, is on securities. The text examines the main types of investment products, how to analyze them, how they are sold, and how they are used as part of a well-planned portfolio of investments.

For those new to this material, we offer a suggestion: There are countless sources of nancial market information, including newspapers, the Internet, books and magazines. The course material will be that much easier to grasp if you can relate it to the activity that unfolds each day in the nancial markets.

Ultimately, this will help you achieve your goal of becoming an informed and effective participant in the securities industry. In general terms, capital is wealth both real, material things such as land and buildings, and representational items such as money, stocks and bonds. All of these items have economic value. Capital represents the invested savings of individuals, corporations, governments and many other organizations and associations.

It is in short supply and is arguably the worlds most important commodity. Capital savings are useless by themselves. Only when they are harnessed productively do they gain economic significance.

Such utilization may take the form of either direct or indirect investment. Capital savings can be used directly by, for example, a couple investing their savings in a home; a government investing in a new highway or hospital; or a domestic or foreign company paying start-up costs for a plant to produce a new product. Capital savings can also be harnessed indirectly through the purchase of such representational items as stocks or bonds or through the deposit of savings in a financial institution.

The indirect investment process is the principal focus of this course. Indirect investment occurs when the saver buys the securities issued by governments and corporations, who in turn use the funds for direct productive investment equipment, supplies, etc.

Such investment is normally made with the assistance of the retail or institutional sales department of the investment advisors firm. Characteristics of Capital Capital has three important characteristics.

MODERATORS

It is mobile, sensitive to its environment and scarce. Therefore capital is extremely selective. It attempts to settle in countries or locations where government is stable, economic activity is not over-regulated, the investment climate is hospitable and profitable investment opportunities exist. The decision as to where capital will flow is guided by country risk evaluation, which analyzes such things as: The political environment: Fiscal policy: It moves to where the best use can be made of it and attempts to avoid areas where the above factors are not positive.

Thus, capital moves to uses and users that offer the highest risk-adjusted returns. Capital is scarce worldwide and is in great demand everywhere. Enough new and efficient plant and equipment must be put in place to ensure expanded output capability, improved productivity, increased competitiveness and the development of innovative, sought- after new products. If capital investment is inadequate, the result will be insufficient output, declining productivity, rising unemployment, decreasing competitiveness in domestic and international markets in short, lower living standards.

The securities industry attaches great importance to the savings and investment process. It is constantly in touch with governments with a view to improving the saving and investment process. The industry advocates changes, when appropriate, in both government policies and the tax system. These proposed changes are designed to encourage more saving and the investment of savings in productive plant and equipment. The only source of capital is savings.

When revenues of non-financial corporations, individuals, governments and non -residents exceed their expenditures, they have savings to invest. Non-financial corporations, such as steel makers, food distributors and machinery manufacturers, have historically generated the largest part of total savings mainly in the form of earnings, which they retain in their businesses.

These internally generated funds are usually available only for internal use by the corporation and are not normally invested in other companies stocks and bonds. Thus, corporations are not important providers of permanent funds to others in the capital market. Individuals may decide, especially if given incentives to do so, to postpone consumption now in order to save so that they can consume in the future. Governments that are able to operate at a surplus are savers and able to invest their surpluses.

Other governments are dis-savers and must borrow in capital markets to fund their deficits. Non-residents, both corporations and private investors, have long regarded Canada as a good place to invest. Canada has traditionally relied on savings for both direct plant and equipment investment in Canada and portfolio investment in Canadian securities. Retail investors: Retail investors are individual investors who buy and sell securities for their own personal accounts, and not for another company or organization.

Institutional investors: Institutional investors are organizations, such as a pension fund or mutual fund company, that trade large volumes of securities and typically have a steady ow of money to invest. Retail investors generally buy in smaller quantities than larger, institutional investors.

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Foreign investors: Foreign investors also are a signicant source of investment capital. Historically, Canada has depended upon large inows of foreign investment for continued growth. Foreign direct investment in Canada has tended to concentrate in particular industries: Some industries also have restrictions with respect to foreign investment.

Users of Capital Based on the simplest categorization, the users of capital are individuals, businesses and governments. These can be both Canadian and foreign users.

The ways in which these groups use capital are described below. They usually obtain it through incurring indebtedness in the form of personal loans, mortgage loans or charge accounts. Since individuals do not issue securities to the public and the focus of this text is on securities, individual capital users are not discussed further.

Just as foreign individuals, businesses or governments can supply capital to Canada, capital can flow in the other direction. Foreign users mainly businesses and governments may access Canadian capital by borrowing from Canadian banks or by making their securities available to the Canadian market. Foreign users will want Canadian capital if they feel that they can access this capital at a less expensive rate than their own currency. Access to foreign securities benefits Canadian investors, who are thus provided with more choice and an opportunity to further diversify their investments.

A substantial part of these requirements is generated internally e. The remainder is raised in securities markets through the issuance of short-term money market paper, medium- and long- term debt, and preferred and common shares.

The government makes use of four main instruments: Provincial Governments Like the federal government, the provinces issue debt directly themselves. Alternatively, a province may issue debt domestically through a syndicate of investment dealers who sell the issue to nancial institutions or to retail investors.

In addition to conventional debt issues, some provinces issue their own short-term treasury bills and, in some cases, their own savings bonds similar to CSBs issued by the federal government. Municipal Governments Municipalities are responsible for the provision of streets, sewers, waterworks, police and re protection, welfare, transportation, distribution of electricity and other services for individual communities.

Since many of the assets used to provide these services are expected to last for twenty or more years, municipalities attempt to spread their cost over a period of years through the issuance of instalment debentures or serial debentures. Assess your understanding of the Sources and Users of Capital. Sources and Users of Capital What is capital used for and where does it come from? Transferring money from one person to another may seem relatively straightforward.

Why then do we need formal financial instruments called securities? As a way of distributing capital in a large, sophisticated economy, securities have many advantages.

Securities are formal, legal documents, which set out the rights and obligations of the buyers and sellers. They tend to have standard features, which facilitates their trading. Furthermore, there are many types of securities, enabling both investors buyers and users sellers of capital to meet their particular needs.

Financial instruments Much of this text deals with the characteristics of different financial instruments. The following brief discussion of instruments is included here to remind the reader that financial instruments products are one of the three key components of the securities industry. Financial instruments, along with the other two components, financial markets and financial intermediaries, will be covered in subsequent chapters.

Debt Instruments: Debt instruments formalize a relationship in which the issuer promises to repay the loan at maturity and in the interim makes interest payments to the investor. The term of the loan ranges from very short to very long, depending on the type of instrument. Bonds, debentures, mortgages, treasury bills and commercial paper are all examples of debt instruments also referred to as xed-income securities. Equity Instruments: Equities are usually referred to as stocks or shares because the investor actually buys a share of the company, thus gaining an ownership stake in the company.

As an owner, the investor participates in the corporations fortunes. If the company does well, the value of the company may increase, giving the investor a capital gain when the shares are sold.

In addition, the company may distribute part of its prot to shareowners in the form of dividends. Unlike interest on a debt instrument, however, dividends are not obligatory. Different types of shares have different characteristics and confer different rights on the owners.

In general, there are two main types of stock: Investment Funds: An investment fund is a company or trust that manages investments for its clients. The most common form is the open-end fund, also known as a mutual fund.

Canadian Securities Course Volume 1

The fund raises capital by selling shares or units to investors, and then invests that capital. As unitholders, the investors receive part of the money made from the funds investments. Unlike stocks and bonds, derivatives are suited mainly for more sophisticated investors.

Derivatives are products based on or derived from an underlying instrument, such as a stock or an index. The most common derivatives are options and forwards. Other Financial Instruments: In the past few years, investment dealers have used the concept of nancial engineering to create structured products that have various combinations of characteristics of debt, equity and investment funds.

Two of the most popular are linked notes and exchange-traded funds ETFs. Private Equity Private equity is the financing of firms unwilling or unable to find capital using public means for example, via the stock or bond markets.

The term private equity is a bit of a misnomer as this asset class really encompasses debt and equity investment. Long term returns on private equity typically exceed most other asset classes. But in exchange for these returns, private equity also exposes investors to far higher risks. Private equity plays a specific role in financial markets, in Canada and in other markets worldwide. It complements publicly traded equity by allowing businesses to obtain financing when issuing equity in the public markets may prove difficult or impossible.

A good example is venture capital. Venture capital finances businesses at a time when they produce little or no cash flows, invest most or all revenue in more or less unproven technologies or production processes, and have little or no assets to offer as collateral.

In such situations, firms must typically turn to investors that are ready to take substantially more risk against significantly higher profit prospects if the venture is successful. There are several means by which private equity investors finance firms. Leveraged Buyout: This is the acquisition of companies nanced with equity and debt. Buyouts are one of the most commonly used forms of private equity. Growth Capital: The nancing of expanding rms for their acquisitions or high growth rates.

Investments in underperforming or out of favour industries that are in either nancial need or operating restructuring. Early Stage Venture Capital: Investments in rms that are in the infancy stages of developing products or services in high growth industries such as health care or technology. These rms usually have a limited number of customers. Late stage Venture Capital: The nancing of rms which are more established but still not protable enough to be self-sufcient.

Revenue growth is still very high. Distressed debt: This is the purchase of debt securities of private or public companies that are trading below par due to nancial troubles at the rm. Investment minimums in the private equity market tend to be relatively high compared to the general retail market. As a result, investments in private equity cater mostly to individuals and organizations with sizeable portfolios and resources.

For this reason, private equity investors are typically: Public pension plans Private pension plans Endowments Foundations High net worth investors Given the features of private equity and the differences it shows with other assets typically held in investor portfolios, its role is one of return enhancement and to a certain extent, of portfolio diversification. Return enhancement is the reward for accepting much lower liquidity typical of private equity, particularly when compared to investing in the common shares of highly liquid stocks like large banks or oil companies.

Securities are a key element in the efficient transfer of capital from savers to users, benefiting both. Many of the benefits of investment products, however, depend on the existence of efficient markets in which these securities can be bought and sold. A well-organized market provides speedy transactions and low transaction costs, along with a high degree of liquidity and effective regulation.

Like a farmers market, a securities market provides a forum in which buyers and sellers meet. But there are important differences. In the securities markets, buyers and sellers do not meet face to face. Instead, intermediaries, such as investment advisors IAs or bond dealers, act on their clients behalf. Unlike most markets, a securities market may not manifest itself in a physical location. This is possible because securities are intangible at best, pieces of paper, and often not even that.

Of course, some securities markets do have a physical component. Other securities markets, such as the bond market, exist in cyberspace as a computer- and telephone-based network of dealers who may never see their counterparts faces.

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In Canada, all exchanges are electronic. The capital market or securities market is made up of many individual markets. For example, there are stock markets, bond markets and money markets. In addition, securities are sold on primary and secondary markets.

In the primary market new securities are sold by companies and governments to investors for the rst time. Companies can raise capital by selling stocks or bonds to investors while governments raise capital by selling bonds. In this market, investors purchase securities directly from the issuing company or government. When a company issues stocks for the very rst time in the primary market, the sale is known as an initial public offering IPO.

In this market, buyers and sellers trade among each other at a price that is mutually benecial to both parties. The security is then transferred from the seller to the buyer. The issuing company does not receive any of the proceeds from transactions in the secondary market - the issuer received payment when the securities were rst issued in the primary market. Auction Markets in Canada Markets can also be divided into auction and dealer markets.

In an auction market, buyers enter bids and sellers enter offers for a stock. The price at which a stock is traded represents the highest price the buyer is willing to pay and the lowest price the seller is willing to accept.

These orders are than channelled to a single central market and compete against each other. There are a number of important terms you need to understand when talking about trading stocks.

The bid is the highest price a buyer is willing to pay for the security being quoted. The offer or ask is the lowest price a seller will accept. The spread is the difference between the bid and ask prices. The last price is the price at which the last trade on that stock took place. This price can uctuate back and forth between the bid price and the ask price as buying and selling orders are lled.

The last price is also referred to as the market price. It is important to understand that the last price may not reect the price for which you can currently buy or sell the stock, and only reects the latest price at which a purchase or sale occurred.

Lets see how this terminology is used on the Toronto Stock Exchange. On the other side of the trade, there are three investors that want to sell their share in ABC.

These sellers submit offers to sell their ABC stock at the following prices: The trade is executed and settles only when there is a match in the bid and offer prices. On some U. Liquidity is fundamental to the operation of an exchange. A liquid market is characterized by: Frequent sales Narrow price spread between bid and ask prices Small price uctuations from sale to sale Canadas stock exchanges are auction markets.

During trading hours, Canadas exchanges receive thousands of buy and sell orders from all parts of the country and abroad. Canada has five exchanges: Each exchange is responsible for the trading of certain products. CNSX trades securities of emerging companies. The Montreal Exchange trades all nancial and equity futures and options. ICE Futures Canada trades agricultural futures and options. Over the years there have been many changes.

The late s saw radical changes to securities trading in Canada. In March , Canadas four major stock exchanges announced that they had reached an agreement to restructure along lines of market specialization. The restructuring was intended to ensure a strong and globally competitive market system, and this resulted in three specialized exchanges: The Toronto Stock Exchange became Canadas senior equities market and gave up its participation in derivatives trading and the junior equity market.

The Montral Exchange became the exclusive exchange for nancial futures and options in Canada. These changes were part of a rebranding initiative as the TSX and its subsidiaries prepared to go public in the fall of This exchange trades options and futures of agricultural commodities such as Canola, Barley, and Wheat.

There are over 80 stock exchanges in over 60 countries around the world. Including the auction markets in Canada, North America has 10 exchanges, Europe has in excess of 35, Central and South America, around 10, and the balance are in Africa, Asia and Australia.

Canadian Securities Course (CSC) Textbook Vol. 1 | Securities (Finance) | Stocks

Dealer Markets Dealer markets are the second major type of market on which securities trade. They consist of a network of dealers who trade with each other, usually over the telephone or over a computer network. Unlike auction markets, where the individual buyers and sellers orders are entered, a dealer market is a negotiated market where only the dealers bid and ask quotations are entered by those dealers acting as market makers in a particular security.

Market makers work for investment dealers and must be approved by the exchange to carry out market making duties on assigned stocks. The responsibilities include monitoring the opening of trading to ensure that orders are properly executed, maintaining a continuous two-sided market at an agreed upon maximum spread throughout the day e.

By making a market, the market maker assists in creating fair and orderly markets and contributes to market liquidity for all parties who want to participate in the buying and selling of stocks. These dealer markets are less visible than the auction markets for equities, so many people are surprised to learn that the volume of trading in dollars on the dealer market for debt securities is significantly larger than the equity market.

Dealer markets are also referred to as over-the-counter OTC or as unlisted markets - securities on these markets are not listed on an organized exchange as they are on auction markets.

The exact size of Canadian OTC dealings cannot be measured because complete statistics are not available. Many junior issues trade OTC, but so too do the shares of a few conservative industrial companies whose boards of directors have for one reason or another decided not to seek stock exchange listing for one or more issues of their equities.

The unlisted market does not set listing requirements for the stocks traded on its system hence the term unlisted market nor does it attempt to regulate the companies.

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Many of the stocks sold on the unlisted market are more speculative, and in most cases offer lower liquidity, than listed securities. One veteran described the OTC market as a market without a market place. In the OTC market, individual investors orders are not entered into the market or displayed on the computer system. Instead, dealers, who are acting as market makers, enter their bid and ask quotations. These market makers hold an inventory of the securities in which they have agreed to make a market.

They sell from this inventory to buyers and add to the inventory when they acquire securities from sellers. The market makers post their individual bid the highest price the maker will pay and ask the lowest price the maker will accept quotations. The willingness of the market makers to quote bid and ask prices provides liquidity to the system although the market makers do have the right to refuse to trade at these prices. The broker charges a commission for this service.

The OTC derivative market is dominated by financial institutions, such as banks and brokerage houses, who trade with other corporate clients and other financial institutions. This market has no trading floor and no regular trading hours. Traders do not meet in person to negotiate transactions and the market stays open 24 hours a day.

One of the attractive features of OTC derivative products is that they can be custom designed by the buyer and seller. As a result, these products tend to be somewhat more complex, as special features are added to the basic properties of options and forwards.

Ontario is the exception. CUB was launched as an automated system after the reorganization of the equity markets in Canada. It offers an Internet web-based system for dealers to report completed trades in unlisted and unquoted equity securities in Ontario, as required under the Ontario Securities Act.

Other Trading Systems Over time, different trading systems emerged to meet changing investor needs. Examples include quotation and trade reporting systems and alternative trading systems ATSs.

A QTRS must be recognized by a provincial securities regulatory authority. ATSs can be owned by individual brokerage firms or by groups of brokerage firms.

These systems compete with the exchanges because a brokerage firm operating an ATS can match orders directly from its own inventory, or act as an agent in bringing buyers and sellers together, thus bypassing the stock exchange. Since there is one less intermediary, more of the commission charged to the client is kept by the dealer. Most client users of these systems are institutional investors who can reduce transaction costs considerably and avoid the market impact of their trades if the orders were instead traded through a regular exchange.

Some non-brokerage-owned ATSs even allow buyers and sellers to contact each other directly and negotiate a price. Alternative trading systems have the potential, however, to threaten market stability due to lessened market transparency, cross-border trading issues and technological glitches such as insufficient system capacity. Three fixed-income electronic trading systems launched in Canada include: It is recognized as both an ATS and an investment dealer. It offers institutional investors access to Government securities and to money market instruments.

The retail fixed-income marketplace is accessible by registered dealers on behalf of retail clients. The institutional fixed-income marketplace is accessible by registered dealers, institutional investors, governments and pension funds. The CanPX system is an information processor for government and corporate debt securities that provides investors with real-time bid and offer prices and hourly trade data.

The service covers Government of Canada bonds, treasury bills, and provincial bonds, and a select list of corporate bonds from major industrial issuers. Complete the following Online Learning Activity Auction and Dealer Markets You have read about the differences between dealer markets and auction markets.

Use this exercise to assess your understanding of the features of these markets. Complete the Auction and Dealer Markets activity that outlines the features of these markets. Trends in Financial Markets There have been many changes to global capital markets over the last several years: ATSs are taking market share away from traditional stock exchanges.

Exchanges are merging and taking over other exchanges to meet the challenge of globalization. Ten years ago, there were over exchanges in the world; today there are fewer than In addition to mergers and takeovers, exchanges are forming alliances, partnerships and electronic links with exchanges in other countries to foster global trading.

Most of these changes were driven by increased global trading, aggressive competition, the ease of electronic communication, improved computer technology and the increased mobility of capital.

The speed of innovative computer technology and the globalization and integration of financial marketplaces are likely to increase. Auction and Dealer Markets You have read about the differences between dealer markets and auction markets. After you have read the chapter, test whether you can differentiate between some common terms used in the securities industry.

Complete the Whats the Difference? Whats the Difference? Investment capital is available and investable wealth e.

In direct investment, an individual or company invests directly in an item e. Capital has three characteristics: Individuals generate investment capital through savings and use capital to nance major purchases or for consumption.

Retail investors are individuals who buy and sell securities for their personal accounts; institutional investors are companies and other organizations. Businesses use capital to nance day-to-day operations, to renew and maintain plant and equipment, and to expand and diversify activities.

Governments use capital when expenditures exceed revenue and to nance large projects. Foreign investors invest in Canada to access returns on investment not perceived to be available in other countries. Foreign investors will use Canadian capital if they can borrow at a more advantageous rate in Canada than elsewhere.

Debt bonds or debentures: The term to maturity of a debt instrument can be either short less than ve years or long more than ten years. Equity stocks: Investment funds mutual funds, segregated funds: Derivatives options, futures, rights: Other investment products linked notes, exchange-traded funds: Private equity complements publicly traded equity by allowing businesses to obtain nancing when issuing equity in the public markets may prove difcult or impossible.

Public and private pension plans, endowments, foundations, and wealthy individuals are the main investors in the private equity market. The nancial markets facilitate the transfer of capital between investors and users through the exchange of securities. The exchanges do not deal in physical movement of securities; they are simply the venue for agreeing to transfer ownership.

The primary market is the initial sale of securities to an investor. The secondary market is the transfer of already issued securities among investors. Dealer markets are network of dealers that trade with each other directly on a negotiated market with market makers. Most bonds and debentures trade on these markets. In an auction market, clients bid and ask quotations for a stock are channelled to a single central market stock exchanges and compete against each other.

Read through online Module 1 FAQs. CSI has answered many frequently asked questions about this Chapter. Once you have completed the chapter, take the Module 1 Post-Test.

Summarize the state of the Canadian securities industry today. Distinguish among the three categories of securities rms, explain how they are organized, and compare and contrast dealer, principal and agency transactions. Describe the roles of the chartered banks in the capital market. Describe the roles of trust companies, credit unions and insurance companies in the capital market. Describe the roles of investment funds, savings banks, loan companies and pension plans in the capital market.

A couple needs to borrow money to nance the purchase of a home. An entrepreneur needs to raise funds to help with nancing the development of a new product. An investor would like to set up a regular savings program to save for her childrens education. The common strand is that all of these individuals require some form of intermediary to help meet their goals.

Simply described, savers lenders give funds to a nancial intermediary such as a bank that in turn gives those funds to spenders borrowers in the form of loans or mortgages, among other products.

Alternatively, the intermediary can play a direct role in bringing a new issue of securities to nancial markets. More specically for our purposes, a typical example occurs when a company needs money to operate or expand its business. One way to generate the necessary capital is by issuing securities, such as stocks and bonds. A nancial intermediary, or investment dealer, can help the company issue the securities and sell them to investors.

By buying the securities, the investors temporarily transfer their money to the company and, in return, receive securities representing claims on the companys real assets. If the rm does well, it earns a prot. Its securities may rise in value, yielding a prot for the investor when the security is sold in the marketplace.

But investors are not the only ones to prot. Part of the money earned by the company may be reinvested in the rm, spurring further economic development. The focus here is the role played by the nancial intermediaries, the last piece of the capital transfer puzzle. Their role is important because they have established efcient and reliable methods of channelling funds between lenders and borrowers.

Provinces have the power to create and to enforce their own laws and regulations through securities commissions also called securities administrators in some provinces. Securities commissions delegate some of their powers to self-regulatory organizations SROs , which establish and enforce industry regulations to protect investors and to maintain fair, equitable, and ethical practices.

In that capacity, SROs are responsible for setting rules governing many aspects of investment dealers operations, including sales, finance, and trading. The major participants in the industry and their relationships are illustrated in Chart 2. The chart highlights the workings of the industry by showing the major participants and their relationships with one another.

Investors and users of capital trade financial instruments through the various financial markets stock exchanges, money markets, etc. Brokers and investment dealers act as intermediaries by matching investors with the users of capital and each side of a transaction will have its own broker or dealer who matches the trades through the markets.

The SROs monitor the markets to ensure fairness and transparency, and they set and enforce rules that govern market activity. Organizations like CSI provide education for industry participants. CHART 2. Together, these firms employed more than 40, people. Still, the industry is small compared to other segments of the financial services sector or even to some companies operating within competing segments.

The entire Canadian securities industry is likewise eclipsed in size by several individual U. In spite of its comparatively small size, the industry has provided Canada with a capital market that is one of the most sophisticated and efficient in the world. These qualities are measured in terms of the variety and size of new issues brought to the market and the depth and liquidity of secondary market trading.

Investment Industry Association of Canada website, September Today the industry is highly competitive and becoming increasingly so. It calls for a high degree of specialized knowledge about securities issuers, investors and constantly changing securities markets. An entrepreneurial spirit of innovation and calculated risk-taking are among its hallmarks. Change and volatility are frequently the norm. Complete the following Online Learning Activity Canadian Securities Industry Overview In this activity youll review the characteristics of intermediaries and learn about the structure of the Canadian securities industry.

Learn more about these intermediaries in the Canadian Securities Industry Overview activity. Intermediaries are a key component of the financial system. The term intermediary is used to describe any organization that facilitates the trading or movement of the financial instruments that transfer capital between suppliers and users. We will discuss intermediaries such as banks and trust companies, which concentrate on gathering funds from suppliers in the form of saving deposits or GICs and transferring them to users in the form of mortgages, car loans and other lending instruments.

Other intermediaries, such as insurance companies and pension funds, collect funds and then invest them in bonds, equities, real estate, etc. Canadian Securities Industry Overview In this activity youll review the characteristics of intermediaries and learn about the structure of the Canadian securities industry. Investment dealers sometimes are known by other names, such as brokerage firms or securities houses. Investment dealers play a significant role in the securities industrys two main functions.

First, investment dealers help to transfer capital from savers to users through the underwriting and distribution of new securities. This takes place in the primary market in the form of a primary distribution. Second, investment dealers maintain secondary markets in which previously issued or outstanding securities can be traded.