Browse Canadian Investment Marketplace

1. Canadian Securities Industry

This introduction provides an overview of the Canadian securities industry, covering the roles and interrelationships of various participants.

In this chapter, we describe the interrelationships between the various participants in the Canadian securities industry. We discuss the crucial roles that investment dealers and other financial intermediaries play in channeling funds between lenders and borrowers.

Learning Objectives

Here are the learning objectives for this chapter:

  1. Describe the relationships between the major participants in the Canadian securities industry.
  2. Distinguish among the three categories of investment dealers and understand how they are organized.
  3. Explain the difference between principal and agency transactions.
  4. Understand the roles of various financial institutions.
  5. Discuss the trends affecting the financial services industry in Canada and globally.

Below are detailed explanations of these learning objectives.

1. Overview of the Canadian Securities Industry

Canada’s securities industry is robust and diverse, comprising investment dealers, financial intermediaries, primary and secondary markets, and regulatory frameworks. The effective operations of these components drive the efficiencies and stability of Canada’s financial markets.

2. The Investment Dealer’s Role as a Financial Intermediary

Investment dealers act as intermediaries, facilitating trading activities and providing advice on financial strategies. They operate in three main categories:

  1. Retail Firms: Serve individual investors.
  2. Institutional Firms: Serve large organizations and institutional investors.
  3. Integrated Firms: Provide a broad range of services to both retail and institutional clients.

3. Principal vs. Agency Transactions

Investment dealers engage in both principal and agency transactions.

  • Principal Transactions: When dealers buy and sell securities for their own inventory.
  • Agency Transactions: When dealers act as intermediaries, executing orders on behalf of clients.

Understanding the implications and benefits of each transaction type is crucial for market participants.

4. Financial Intermediaries Other Than Investment Dealers

Various financial institutions play pivotal roles in the functioning of financial markets:

  • Banks: Schedule I, II, and III banks based on their ownership.
  • Mutual Funds: Investment funds pooling resources from many investors to invest in a diversified collection of securities.
  • Robo-Advisors: Automated platforms providing financial planning and investment advice.
  • Pension Funds: Managed funds that accumulate contributions to provide retirement benefits.

The financial services industry is experiencing significant transformations driven by:

  • Fintech Innovations: Emerging technologies improving financial services accessibility and efficiency.
  • Regulatory Changes: Evolving regulatory standards to foster transparency and market integrity.
  • Globalization: Financial markets’ increasing interconnectedness influencing domestic policies and frameworks.

Key Terms

Key terms defined in the glossary will appear in bold text within the chapter. Understanding these terms is essential for grasping the nuances of the Canadian securities industry.

  • Agent: An individual or firm authorized to act on behalf of another party.
  • Mutual Fund: A pooled investment fund managed by professionals.
  • Broker: A person or firm that arranges transactions between a buyer and a seller for a commission when the deal is executed.
  • Open-End Fund: A type of mutual fund where investors buy into the fund at its net asset value.
  • CDS Clearing and Depository Services Inc.: A subsidiary of TMX Group that provides clearing and settlement services.
  • Pension Fund: A fund set up to pay the retirement benefits of employees.
  • Clearing: The process of validating and finalizing transactions between buyers and sellers.
  • Primary Market Distribution: The issuance of new securities, as opposed to trading existing ones.
  • Closed-End Fund: A pooled investment fund with a fixed number of shares that do not redeem back into the fund.

Glossary and Definitions

  • Financial Intermediary: Any institution acting as a middleman between investors and firms raising funds, including banks, investment dealers, and fund managers.
  • Robo-Advisor: An online service providing automated, algorithm-driven financial planning with minimal human supervision.
  • Schedule I, II, III Banks: Classification of Canadian banks based on ownership structure.
  • Fintech: Technology innovations in financial services improving delivery and usage.

Key Takeaways

  • Investment dealers and other financial intermediaries are pivotal to the smooth operations of Canada’s financial markets.
  • Understanding the roles and differences among various financial institutions is crucial for discerning the market dynamics.
  • Keeping abreast of financial markets trends and regulatory changes is essential for professionals in the industry.

This comprehensive overview lays the foundation for understanding the intricacies of the Canadian securities market. In subsequent chapters, you will delve deeper into each of these content areas, equipping you with the knowledge required to excel in the Canadian Securities Course (CSC).

## What are the two primary roles played by investment dealers in the Canadian securities industry? - [ ] Retail and institutional trading - [ ] Market making and underwriting - [x] Principal and agency transactions - [ ] Asset management and advisory > **Explanation:** Investment dealers facilitate funds between lenders and borrowers, acting as principals by trading securities for their own account and as agents by trading on behalf of clients. ## Which financial intermediary is responsible for clearing and settling trades in the Canadian securities market? - [ ] Investment Industry Association of Canada (IIAC) - [ ] Bank of Canada - [ ] Schedule I banks - [x] CDS Clearing and Depository Services Inc. > **Explanation:** CDS Clearing and Depository Services Inc. handles the clearing, settlement, and depository services for securities traded in Canadian markets. ## What is the primary distinction between retail firms and institutional firms in the Canadian securities industry? - [ ] Retail firms focus on high-net-worth individuals, while institutional firms serve corporate clients. - [x] Retail firms cater to individual investors, whereas institutional firms serve large entities such as corporations and pension funds. - [ ] Retail firms are only permitted to trade on primary markets, while institutional firms trade on secondary markets. - [ ] Retail firms offer lower brokerage fees compared to institutional firms. > **Explanation:** Retail firms target individual investors while institutional firms handle the investment needs of large organizations. ## Which category of investment dealer is primarily engaged in market making and proprietary trading? - [x] Integrated firms - [ ] Retail firms - [ ] Institutional firms - [ ] Schedule II banks > **Explanation:** Integrated firms are involved in both market making and proprietary trading, leveraging synergies from engaging across multiple financial services. ## What is the role of a principal in a principal transaction? - [ ] Acting as an intermediary between a buyer and a seller - [x] Trading securities for their own account - [ ] Providing investment advice to clients - [ ] Managing investment funds for clients > **Explanation:** In a principal transaction, the principal buys and sells securities for its own account rather than on behalf of clients. ## What key trend is transforming the financial services industry by providing automated, algorithm-based investment advice? - [ ] Primary market distribution - [ ] Principal transactions - [ ] Clearing and settlement - [x] Robo-advisors > **Explanation:** Robo-advisors are evolving the financial services industry by using algorithms to offer automated investment advice. ## Which type of fund allows investors to redeem shares at their net asset value (NAV) directly from the fund? - [x] Open-end fund - [ ] Closed-end fund - [ ] Pension fund - [ ] Sales finance company > **Explanation:** Open-end funds allow investors to buy and redeem shares based on the net asset value (NAV) of the fund. ## Which type of financial institution focuses mainly on providing centralized banking services to retail customers? - [ ] Schedule III banks - [ ] Savings banks - [x] Schedule I banks - [ ] Institutional firms > **Explanation:** Schedule I banks are domestic banks in Canada that provide a wide range of retail banking services to the public. ## What is a mutual fund? - [ ] A type of pension fund focusing on retirement savings - [ ] A pooled investment vehicle that only focuses on fixed-income securities - [x] An investment fund that pools money from many investors to purchase a diverse portfolio of stocks, bonds, or other securities - [ ] A fund managed by a discount broker offering self-directed portfolios > **Explanation:** A mutual fund pools resources from multiple investors to buy a diversified portfolio of securities, managed by professional investment managers. ## What term is used to describe the use of financial technology to provide innovative financial products and services? - [ ] Clearing - [ ] Schedule I banks - [ ] Sales finance company - [x] Fintech > **Explanation:** Fintech refers to the use of technology to enhance and automate financial services and processes.

In this section

  • 1.1 Introduction
    Canadian Securities Industry Overview: notes, key concepts, and practice questions on financial intermediary, capital, and investment for CSC exam prep.
  • 1.2 Overview Of Canadian Securities Industry
    Canadian Securities Industry Overview: notes, key concepts, and practice questions on Investment, Capital Markets, CIRO, and Securities Regulation for CSC exam prep.
  • 1.3 Investment Dealer’s Role As Financial Intermediary
    Understand the role of investment dealers as financial intermediaries, categorization of investment dealers, differences between principal and agency transactions, and their formal activities in financial markets such as primary market distributions and secondary market operations.
    • 1.3.1 Types Of Investment Dealers
      Types Of Investment Dealers: notes, key concepts, and practice questions on retail firms, institutional firms, and integrated firms for CSC exam prep.
    • 1.3.2 Organization Within Firms
      Organization Within Firms: notes, key concepts, and practice questions on investment dealers, organizational structure, and front office for CSC exam prep.
    • 1.3.3 Principal And Agency Functions Of Investment Dealer
      Principal And Agency Functions Of Investment Dealer: notes, key concepts, and practice questions on Principal Transactions and Agency Transactions for CSC exam prep.
    • 1.3.4 Clearing System
      Clearing System: notes, key concepts, and practice questions on CDS, netting, investment dealer, and settlement process with examples for CSC exam prep.
  • 1.4 Financial Intermediaries Other Than Investment Dealers
    Explore the roles and functions of various financial institutions in Canada including chartered banks, credit unions, trust companies, and insurance firms.
    • 1.4.1 Chartered Banks
      Chartered Banks: notes, key concepts, and practice questions on Schedule I Banks, Schedule II Banks, Schedule III Banks, and Bank Act for CSC exam prep.
    • 1.4.2 Credit Unions And Caisses Populaires
      Credit Unions And Caisses Populaires: notes, key concepts, and practice questions on Cooperative Credit Associations Act and CCAA for CSC exam prep.
    • 1.4.3 Trust And Loan Companies
      Trust And Loan Companies: notes, key concepts, and practice questions on Trust Companies, Financial Services, Canada, Estate Planning, and RRSP for CSC exam prep.
    • 1.4.4 Insurance Companies
      Insurance Companies: notes, key concepts, and practice questions on Life Insurance, Property and Casualty Insurance, Underwriting, and Reinsurance for CSC exam prep.
    • 1.4.5 Other Financial Intermediaries
      Other Financial Intermediaries: notes, key concepts, and practice questions on Canadian Financial Services, Investment Funds, and ATB Financial for CSC exam prep.
  • 1.5 Financial Market Trends
    Explore the latest financial market trends impacting the financial services industry in Canada and globally. Understand the factors driving these trends and how they influence financial markets.
    • 1.5.1 Financial Technology
      Financial Technology: notes, key concepts, and practice questions on Fintech, Banking, Financial Services, Online Loans, and Electronic Wallets for CSC exam prep.
    • 1.5.2 Robo-advisors
      Robo-advisors: notes, key concepts, and practice questions on online investment service, financial technology, portfolio management, and Canada for CSC exam prep.
    • 1.5.3 Social And Economic Shifts
      Social And Economic Shifts: notes, key concepts, and practice questions on social trends, demographics, pension plans, and savings rates for CSC exam prep.
    • 1.5.4 Cryptocurrency
      Cryptocurrency: notes, key concepts, and practice questions on blockchain, Bitcoin, investment, cryptoassets, ETFs, and peer-to-peer for CSC exam prep.
  • 1.6 Summary
    Canadian Securities Industry Summary: notes, key concepts, and practice questions on capital markets, investment dealer firms, and Bitcoin for CSC exam prep.
2. Capital Market