Clearing and Settlements in Finance

Clearing and Settlements

• Trades and transactions are cleared through organizations like CDS Clearing and banks.
• Clearing involves confirming and matching security trade details, while settlement refers to the actual exchange of cash and securities.
• Self-Regulatory Organizations (SROs) enforce rules governing market activities to ensure fairness and transparency.

Investor Protection

• The Canadian Investor Protection Fund insures against insolvency of investment dealers and mutual fund dealers.
• Provincial regulators oversee market operations alongside SROs.
• The Canadian Securities Institute offers education for industry participants.

Investment Industry Associations

• The Investment Industry Association of Canada (IIAC) represents investment firms, including dealers and portfolio managers.

Financial Intermediaries Overview

• Financial intermediaries facilitate the movement of capital and include investment dealers, banks, credit unions, and insurance companies.
• Investment dealers act as financial intermediaries, aiding in trading and movement of financial instruments.

Central Clearing System

• Central clearing utilizes netting to establish credit or debit positions for dealer members.
• This process simplifies settlement by reducing the number of securities and cash transactions needed each day.

Chartered Banks

• Chartered banks accept deposits and provide loans for mortgages, car purchases, and businesses.
• Operate under the Bank Act, which designates banks as Schedule I, II, or III based on operational rules.
• Schedule I banks are domestic, while foreign banks fall under Schedule II or III.

Credit Unions and Caisses Populaires

• Provide services such as deposit-taking, loans, and investment options, predominantly to members.
• Governed by the Cooperative Credit Associations Act (CCAA), which limits their activities.

Trust and Loan Companies

• Federally or provincially incorporated trust companies manage trust businesses and various financial services.
• Overlap services with chartered banks, including loans and asset management.

Insurance Companies

• Two main types: life insurance and property/casualty insurance.
• Life insurance includes health, disability, annuities, and pensions, requiring cautious investment management.
• Property and casualty insurance covers losses from home, automobile, and commercial accidents.

Insurance Industry Regulations

• The Insurance Companies Act governs the industry, allowing consumer and corporate loans but restricting certain activities.
• Major insurance premiums come from automobile, property, and liability insurance segments.

Other Financial Intermediaries

• Various intermediaries, including cryptocurrency platforms like Bitcoin, play roles in the financial landscape.
• Bitcoin's supply is limited to 21 million, with approximately 19.6 million currently in circulation, contributing to its high market capitalization.

Summary of Canadian Securities Industry

• Canadian capital markets rank among the most sophisticated globally, characterized by diverse issuances and robust liquidity.
• Investment dealers are classified into integrated, institutional, and retail categories, each serving distinct client needs.
• Investment dealers facilitate new security issuances and trade in both primary and secondary markets, operating as principals or agents.