Canadian Securities Course Level 1 Chapter 1

Front 1

Alternative trading systems (ATSs)

Back 1

Alternative Trading Systems (ATS)
Privately-owned computerized networks
that match orders for securities outside of
recognized exchange facilities. Also referred
to as Proprietary Electronic Trading Systems
(PETS).

Front 2

Approved Participants

Back 2

Participating Organizations
A fi rm entitled to trade through the Toronto
Stock Exchange or TSX Venture Exchange.
The equivalent term on the Bourse de
Montréal is Approved Participant.

Front 3

Auction market

Back 3

Auction Market
Market in which securities are bought and
sold by brokers acting as agents for their
clients, in contrast to a dealer market where
trades are conducted over-the-counter. For
example, the Toronto Stock Exchange is an
auction market.

Front 4

Budget

Back 4

Each year the Minister of Finance presents the government’s budget to Parliament. The budget
details the government’s estimate of its revenues and expenses, which in turn results in a
projection of a budget surplus or budget deficit.

Front 5

Canadian National Stock Exchange (CNSX)

Back 5

Canadian National Stock Exchange
(CNSX)
Launched in 2003 as an alternative
marketplace for trading equitsecurities
and emerging companies.

Front 6

CanDeal

Back 6

CanDeal
Provides institutional investors with
electronic access to federal bond bid and
offer prices and yields from its six
bank-owned dealers.

Front 7

Capital

Back 7

Capital
Has two distinct but related meanings. To
an economist, it means machinery, factories
and inventory required to produce other products. To an investor, it may mean the
total of fi nancial assets invested in
securities, a home and other fi xed assets,
plus cash.

Front 8

CBID

Back 8

CBID
An electronic trading system for fi xedincome
securities operating in both retail
and institutional markets.

Front 9

Common shares

Back 9

Common Stock
Securities representing ownership in a
company. They carry voting privileges and
are entitled to the receipt of dividends, if
declared. Also called common shares.

Front 10

Dealer markets

Back 10

Dealer Market
A market in which securities are bought
and sold over-the-counter in which dealers
acts as principals when buying and selling
securities for clients. Also referred to as the
unlisted market.

Front 11

Debt

Back 11

Debt
Money borrowed from lenders for a variety
of purposes. The borrower typically paysinterest for the use of the money and is
obligated to repay it at a set date.

Front 12

Derivative

Back 12

Derivative
A type of fi nancial instrument whose value
is based on the performance of an underlying
fi nancial asset, commodity, or other
investment. Derivatives are available on
interest rates, currency, stock indexes. For
example, a call option on IBM is a
derivative because the value of the call
varies in relation to the performance of
IBM stock. See also Options.

Front 13

Equity

Back 13

Equity
Ownership interest in a corporation’s stock
that represents a claim on its earnings and
assets. See also Stock.

Front 14

ICE Futures Canada

Back 14

ICE Futures Canada (formerly the
Winnipeg Commodity Exchange)
An exchange that trades agricultural futures
and options exclusively.

Front 15

Institutional Investors

Back 15

Institutional investors are organizations, such as a
pension fund or mutual fund company, that trade large volumes of securities and typically have
a steady flow of money to invest.

Front 16

Investment advisor

Back 16

Investment Advisor (IA)
An individual licensed to transact in the full
range of securities. IAs must be registered in
by the securities commission of the province
in which he or she works. The term refers
to employees of SRO member firms only.
Also known as a Registrant or Registered
Representative (RR).

Front 17

Investment fund

Back 17

An investment fund is a company or trust that manages investments for its clients

Front 18

Market capitalization

Back 18

Market Capitalization
The dollar value of a company based on the
market price of its issued and outstanding
common shares. It is calculated by
multiplying the number of outstanding
shares by the current market price of a
share.

Front 19

Market makers

Back 19

Market Maker
A trader employed by a securities fi rm who
is authorized and required, by applicable
self-regulatory organizations (SROs), to
maintain reasonable liquidity in securities
markets by making fi rm bids or offers for
one or more designated securities.

Front 20

Mutual fund

Back 20

Mutual Fund
An investment fund operated by a company
that uses the proceeds from shares and units
sold to investors to invest in stocks, bonds,
derivatives and other fi nancial securities.
Mutual funds offer investors the advantages
of diversifi cation and professional
management and are sold on a load or no
load basis. Mutual fund shares/units are
redeemable on demand at the fund’s current
net asset value per share (NAVPS).

Front 21

Montreal Exchange (ME)

Back 21

Bourse de Montréal
A stock exchange (also referred to as the
Montréal Exchange) that deals exclusively
with non-agricultural options and futures
in Canada, including all options that
previously traded on the Toronto StockExchange and all futures products that
previously traded on the Toronto Futures
Exchange.

Front 22

Open-end fund

Back 22

also known as a mutual fund. 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 fund’s investments.

Front 23

Option

Back 23

Option
A right to buy or sell specifi c securities or
properties at a specifi ed price within a
specifi ed time. See Put Options and Call
Options.

Front 24

Personal disposable income

Back 24

Personal Disposable Income
The amount of personal income an
individual has after taxes. The income that
can be spent on necessities, nonessential
goods and services, or that can be saved.

Front 25

Preferred shares

Back 25

Preferred Shares
A class of share capital that entitles the
owners to a fi xed dividend ahead of the
company’s common shares and to a stated
dollar value per share in the event of
liquidation. Usually do not have voting
rights unless a stated number of dividends
have been omitted. Also referred to as
preference shares.

Front 26

Primary market

Back 26

Primary Market
The market for new issues of securities. The
proceeds of the sale of securities in a primary
market go directly to the company issuing
the securities. See also Secondary Market.

Front 27

Quotation and trade reporting systems (QTRS)

Back 27

Quotation and Trade Reporting
Systems (QTRS)
Recognized stock markets that operate in a
similar manner to exchanges and provide
facilities to users to post quotations and
report trades.

Front 28

Retail Investor

Back 28

Retail Investor
Individual investors who buy and sell
securities for their own personal accounts,
and not for another company or
organization. They generally buy in smaller
quantities than larger institutional
investors.

Front 29

Secondary Market

Back 29

Secondary Market
The market where securities are traded
through an exchange or over-the-counter
subsequent to a primary offering. The
proceeds from trades in a secondary market
go to the selling dealers and investors,
rather than to the companies that originally
issued the shares in the primary market.

Front 30

Stock exchange

Back 30

Stock Exchange
A marketplace where buyers and sellers of
securities meet to trade with each other and
where prices are established according to
laws of supply and demand.

Front 31

Toronto Stock Exchange (TSX)

Back 31

Toronto Stock Exchange (TSX)
The largest stock exchange in Canada with
over 1,700 companies listed on the
exchange.

Front 32

TSX Venture Exchange

Back 32

TSX Venture Exchange
Canada’s public venture marketplace, the
result of the merger of the Vancouver and
Alberta Stock Exchanges in 1999.

Front 33

1. Define investment capital and describe its role in the economy.

Back 33

• Investment capital is available and investable wealth (e.g., real estate, stocks, bonds and
money) that is used to enhance the economic growth prospects of an economy.
• In direct investment, an individual or company invests directly in an item (e.g., house,
new plant or new road); indirect investment occurs when an individual buys a security
and the issuer invests the proceeds.
• Capital has three characteristics: it is mobile, it is sensitive, and it is in short supply.

Front 34

Describe how individuals, businesses, governments and foreign agencies supply and use
capital in the economy.

Back 34

2. Describe how individuals, businesses, governments and foreign agencies supply and use
capital in the economy.
• Individuals generate investment capital through savings and use capital to fi 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 fi 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 fi 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.

Front 35

3. Differentiate between the types of fi nancial instruments used in capital transactions.

Back 35

• Debt (bonds or debentures): the issuer promises to repay a loan at maturity, and in the
interim makes payments of interest or interest and principal at predetermined times.
The term to maturity of a debt instrument can be either short (less than fi ve years) or
long (more than ten years).
• Equity (stocks): the investor buys a share that represents a stake in the company.
• Investment funds (mutual funds, segregated funds): a company or trust that manages
investments for its clients.
• Derivatives (options, futures, rights): products derived from an underlying instrument
such as a stock, fi nancial instrument, commodity or index.
• Other investment products (income trusts, exchange-traded funds): investments that
are relatively new and do not fi t into any of the standard categories.

Front 36

4. Explain the role of fi nancial markets in the Canadian fi nancial services industry, distinguish
among the types of fi nancial markets, and describe how auction markets and dealer markets
work.

Back 36

The fi 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’ bids and offers for a stock are channelled to a single
central market (stock exchanges) and compete

Front 37

5. Explain what private equity is, how it has grown and the different ways of investing in this
market.

Back 37

Private equity is the fi nancing of fi rms unwilling or unable to fi nd capital using public
means – for example, via the stock or bond markets.
• It complements publicly traded equity by allowing businesses to obtain fi nancing when
issuing equity in the public markets may prove diffi cult or impossible.
• The growth of private equity has been remarkable over the last 25 years.
• Public and private pension plans, endowments, foundations, and wealthy individuals
are the main investors in the private equity market.