Canadian Securities Industry Chapter 1

Questions and Answers

Which type of market involves the buying and selling of new issues such as initial public offerings?

Secondary market

Dealer market

Bond market

Primary market (correct)

What is the main function of auction markets within financial markets?

To enable price negotiation between dealers

To provide liquidity through institutional trading

To regulate unethical trading practices

To facilitate competition among client bids and asks (correct)

What are the two main classifications of financial markets as described in the content?

Public markets and private markets

Debt markets and derivative markets

Equity markets and commodity markets

Auction markets and dealer markets (correct)

Which of the following best describes principles-based regulation in the context of the Canadian regulatory environment?

Adopting a flexible approach focused on overall outcomes Signup and view all the answers

What is a potential remediation option for clients who feel inadequately served by their dealer members?

Accessing a formal complaint resolution process Signup and view all the answers

Which of the following roles do regulatory bodies NOT typically perform in the Canadian securities industry?

Providing investment advice to consumers Signup and view all the answers

What is the primary federal legislation governing credit unions in Canada?

Cooperative Credit Associations Act Signup and view all the answers

What type of investments are prohibited for credit unions under the CCAA?

Substantial investments in non-authorized entities Signup and view all the answers

Which of the following services do credit unions and caisses populaires NOT typically provide?

Estate planning Signup and view all the answers

What distinguishes trust companies from other financial institutions in Canada?

They are authorized to conduct trust business. Signup and view all the answers

What unique feature do foreign-owned banks provide in Canada?

They act as a conduit for foreign capital investment. Signup and view all the answers

Which of the following groups does not typically have membership in credit unions?

People with no common interest Signup and view all the answers

Under the CCAA, which type of financial exposure is limited for credit unions?

Exposure to real property and equity securities Signup and view all the answers

Which of the following statements about trust companies is incorrect?

They are exclusively owned by the government. Signup and view all the answers

How does the CCAA influence credit unions' investment strategies?

It requires a conservative portfolio approach. Signup and view all the answers

What characterizes retail investors in the context of capital sources?

They buy and sell securities for their personal accounts. Signup and view all the answers

What is a key feature of institutional investors?

They trade in large quantities of shares or amounts. Signup and view all the answers

What is one primary reason individuals seek capital?

To finance large purchases, such as homes. Signup and view all the answers

How do businesses primarily generate capital?

Through profits retained within the business. Signup and view all the answers

Why do governments issue securities?

To borrow when revenues fail to meet expenditures. Signup and view all the answers

Which of the following describes a common characteristic of foreign investors in Canada?

They focus on manufacturing and natural resources. Signup and view all the answers

What distinguishes users of capital from suppliers of capital?

Users of capital need funds for operations or large purchases. Signup and view all the answers

What type of financial documents outline the rights of capital suppliers and users?

Securities as legal financial instruments. Signup and view all the answers

What is a significant responsibility of institutional investors?

To manage large portfolios for organizations. Signup and view all the answers

Which reason drives businesses to seek external capital?

To sustain daily operations and expansions. Signup and view all the answers

What is the primary method that robo-advisors use to create investment portfolios?

Algorithms based on modern portfolio theory and client questionnaires Signup and view all the answers

Which of the following is a common feature of robo-advisors that affects client experience?

Ease of online navigation and transparency of fees Signup and view all the answers

Which statement about the emergence of robo-advisors in Canada is true?

They began to proliferate in Canada around 2014. Signup and view all the answers

By 2023, how much total assets had robo-advisors amassed in the U.S.?

More than $1 trillion Signup and view all the answers

What role do demographic shifts play in the financial industry?

They are reshaping the economy and the financial services landscape. Signup and view all the answers

Which service is NOT typically offered by robo-advisors?

Real-time trading on stock exchanges Signup and view all the answers

What is one of the major benefits of using tax-efficient rebalancing in portfolio management?

It helps minimize tax liabilities across account types. Signup and view all the answers

Which age group is primarily identified within Canada's baby boomer demographic?

Individuals born between 1946 and 1965 Signup and view all the answers

Regarding service integration, what aspect is emphasized by robo-advisors?

Seamless integration of service delivery across multiple devices Signup and view all the answers

What is a common misconception about the advisor support offered by robo-advisors?

Support is generally limited to online communications or telephone contacts. Signup and view all the answers

What is a key characteristic of dealer markets compared to auction markets?

Dealer markets operate through a network of banks and investment dealers. Signup and view all the answers

Which of the following statements about TMX Group Limited is true?

TMX Group Limited includes a variety of exchanges such as the TSX and TSX Venture Exchange. Signup and view all the answers

Why are dealer markets referred to as unlisted markets?

Because securities traded do not list on organized exchanges. Signup and view all the answers

What percentage of volume traded in Canadian-listed securities occurs through Cboe Canada?

15% Signup and view all the answers

What role do investment dealers typically fulfill in the OTC dealer market?

They usually act as principals in transactions. Signup and view all the answers

What is the primary asset traded in larger volumes in dealer markets compared to auction markets?

Bonds and debentures Signup and view all the answers

Which feature distinguishes the electronic trading services provided by ICE NGX Canada?

It offers services in natural gas and electricity markets. Signup and view all the answers

In terms of transaction visibility, how do dealer markets compare to auction markets?

Dealer markets have less visibility than auction markets. Signup and view all the answers

Which of the following types of companies does Cboe Canada facilitate trading for?

Public companies and exchange-traded funds. Signup and view all the answers

What is a significant advantage of the dealer market structure?

Ability to trade unlisted securities. Signup and view all the answers

Study Notes

Foreign-Owned Banks and Credit Unions

Foreign-owned banks facilitate foreign capital investment in Canada and offer alternative borrowing for Canadian corporations.
Credit unions and caisses populaires provide diverse banking services to businesses and consumers, including loans, mortgages, mutual funds, and insurance.
Membership in credit unions is often based on common interest groups, such as geographic location or ethnicity.
Governed by the Cooperative Credit Associations Act (CCAA), credit unions face restrictions on activities and investment options.

Trust and Loan Companies

Trust companies in Canada, which can be federally or provincially incorporated, are uniquely authorized to manage trust businesses.
Services provided include asset management, savings acceptance, mortgage loans, and estate planning.
Trust companies overlap with services offered by chartered banks, diversifying the financial service landscape.

Robo-Advisors

Robo-advisors emerged post-2008 financial crisis, gaining popularity in North America by 2012, managing over US$1 trillion by 2023.
Portfolios are constructed using algorithms based on modern portfolio theory and client-provided information.
They offer varying levels of advisor support, predominantly using exchange-traded funds for portfolio management.
Competitive advantages focus on user experience, online navigation, and transparency regarding fees and performance.

Demographic changes significantly impact Canada’s economy, particularly with the aging baby boomer population of about 9.5 million.
Key trends influencing the financial industry include shifts in pension plans, savings rates, and debt levels.

Sources of Capital

Retail investors trade securities for personal gain, while institutional investors, such as pension funds, invest in larger quantities.
Foreign direct investment often targets sectors like manufacturing and resources, with some industries having restrictions.
Individuals typically seek loans for substantial purchases, while businesses leverage retained profits, borrowings, and securities markets for capital needs.
Governments issue securities to manage funding shortfalls or undertake large projects.

Financial Instruments and Markets

Financial instruments are legal documents outlining the rights and obligations between capital suppliers and users.
ICE NGX Canada operates within the natural gas and electricity sectors, while Cboe Canada provides trading and listing services for public securities.
TMX Group Limited consolidates several exchanges, trading across various asset classes and markets.

Dealer Markets

Over-the-counter (OTC) markets consist of a network of dealers rather than a centralized auction market.
Bonds and debentures predominantly trade in dealer markets, which are less visible than stock exchanges.
Dealer markets facilitate trades through inter-dealer brokers using computerized systems.

Canadian Regulatory Environment

Understanding the regulatory framework is crucial for ensuring fair capital markets, involving various regulatory bodies and self-regulatory organizations.
Principles-based regulation underpins securities legislation, aiming for a transparent and efficient market.
Investors have remediation options for concerns regarding dealer services, emphasizing ethical standards within the financial services sector.

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Description

Explore the evolving landscape of the Canadian securities industry with a focus on the rise of fintech and robo-advisors. This chapter highlights how these innovative services are transforming traditional financial institutions and investment practices. Understand the implications of these changes for clients and the financial market as a whole.