Conduct and Practices Handbook Flashcards

Questions and Answers

What does All or None Order (AON) mean?

An order that must be executed in its entirety. (correct)

An order that can be canceled anytime.

An order that can be partially filled.

An order that expired after a day.

What is a Cancel/Change Former Order?

An order to change the market price.

An order to cancel all trades made.

An order that cannot be canceled.

A cancellation and amendment to a previously entered order. (correct)

What does Best Efforts Basis refer to?

A guarantee of selling a certain number of securities.

An attempt to fulfill a customer's order to the best of an investment dealer's abilities. (correct)

A basis for taking loans against securities.

The obligation to fulfill an entire security order.

What is the function of CDS Clearing and Depository Services Inc.?

To provide physical and electronic facilities for managing securities. Signup and view all the answers

What is a Contingent Order?

An order for the simultaneous purchase of one security and the sale of another. Signup and view all the answers

What is a Day Order?

An order that automatically expires if not executed on the same day. Signup and view all the answers

What is a Delayed Delivery Order?

A transaction that will not settle within the normal timeframe. Signup and view all the answers

What does Delivery Against Payment (DAP) refer to?

A transaction where payment is due at the time of delivery of securities. Signup and view all the answers

What are Fails in trading terms?

Securities that are not delivered by the settlement date. Signup and view all the answers

What is a Fill or Kill Order?

An order that must be filled quickly or will expire. Signup and view all the answers

What does Good Till Date mean?

An order that is valid until filled or canceled by a specified date. Signup and view all the answers

What is a Market Order?

An order to buy or sell securities at the prevailing market price. Signup and view all the answers

What does a Limit Order specify?

An order to buy or sell at a specific price or better. Signup and view all the answers

What is the Minimum Quotation Spread?

The minimum acceptable range between bid and ask prices. Signup and view all the answers

What does Pro/Emp/Non-Client Order (N-C) mean?

An order for the account of an employee of a dealer member. Signup and view all the answers

What is an Odd Lot?

A number of shares less than a standard trading unit. Signup and view all the answers

What is an Open Order?

An order that is valid until filled or canceled. Signup and view all the answers

What does a Responsible Designated Trader (RDT) do?

Carries out Market Making duties. Signup and view all the answers

What is a Settlement Date?

The date on which payment or delivery of securities must occur. Signup and view all the answers

What is a Short Sale?

The sale of a security not owned by the seller. Signup and view all the answers

What is a Standard Trading Unit?

The term for different sizes of board lots. Signup and view all the answers

What does a Stop Buy Order do?

Buys only after a certain price has been reached. Signup and view all the answers

What is a Stop Loss Order?

An order to sell securities at a predetermined price to limit losses. Signup and view all the answers

What is a Switch Order?

An order to sell a security and use the proceeds to buy another. Signup and view all the answers

What is a Trading Unit?

The unit of trading for stocks, usually a share. Signup and view all the answers

What is a Transfer Agent?

An agent responsible for maintaining shareholder records. Signup and view all the answers

What is a Capital Charge?

A charge to recognize risk for cash accounts not settling properly. Signup and view all the answers

What does the Cash Account Rule govern?

The settlement of securities in cash accounts. Signup and view all the answers

What does Free Credit Balance refer to?

Uninvested funds in client accounts payable on demand. Signup and view all the answers

What is meant by Equity Position?

The net credit in a client's account. Signup and view all the answers

What does Fully-Margined mean?

Margin in a client account equal to or greater than the required margin. Signup and view all the answers

What does Fully-Secured mean?

A condition where holdings exceed debit balance in an account. Signup and view all the answers

What is a Hedge?

An investment made to reduce the risk of price movements. Signup and view all the answers

What is a Formal Take-over Bid?

An offer made to purchase voting securities exceeding 20% ownership. Signup and view all the answers

What does Compliance mean in the context of securities regulation?

Following the rules, whether legal, regulatory, or internal policies. Signup and view all the answers

What is Confidentiality in the securities industry?

The ethical principle of keeping client information secret unless consented or legally required. Signup and view all the answers

Define Conflict of Interest.

A situation where personal or financial interests conflict with client interests. Signup and view all the answers

What is a Discretionary Account?

An account where a dealer member has the authority to make decisions on behalf of the client. Signup and view all the answers

What is Due Diligence?

Investigation and verification of details of a potential investment. Signup and view all the answers

Explain Duty of Care.

An IA's obligation to protect a client's assets through reasonable practices. Signup and view all the answers

What does Fiduciary Duty entail?

A high degree of duty of care towards clients, emphasizing reliance and vulnerability. Signup and view all the answers

What is the Know Your Client (KYC) Rule?

The principle that requires IAs to have thorough knowledge about clients. Signup and view all the answers

What is the purpose of the Personal Information Protection and Electronic Documents Act (PIPEDA)?

To regulate how personal information is gathered, used, and disclosed by firms. Signup and view all the answers

What are the Registrant Standards of Conduct?

Standards amplifying the Code of Ethics and detailing required behavior. Signup and view all the answers

Define Suitability in investment recommendations.

Assessing whether a particular investment is appropriate for a client. Signup and view all the answers

What is an Unsolicited Order?

An order made by a client without any recommendations from their IA or dealer. Signup and view all the answers

Explain the Autorité des marchés financiers (AMF).

The authority that regulates Quebec's financial sector. Signup and view all the answers

What is the Canadian Investor Protection Fund (CIPF)?

A fund that protects investors against dealer member insolvency. Signup and view all the answers

Describe Disclosure in securities regulation.

The principle of providing full, true, and plain material facts for investment decisions. Signup and view all the answers

What does FINTRAC do?

Receives and analyzes financial intelligence regarding money laundering and terrorist financing. Signup and view all the answers

What are Integrated Market Enforcement Teams (IMETs)?

A joint initiative to detect and deter capital markets fraud. Signup and view all the answers

What is the Joint Serious Offences Team (JSOTs)?

An enforcement partnership investigating violations of securities law. Signup and view all the answers

What is the Investment Industry Association of Canada (IIAC)?

A member-based advocacy association for the Canadian investment industry. Signup and view all the answers

What role does the Investment Industry Regulatory Organization of Canada (IIROC) play?

It oversees investment dealers and trading activities in Canada. Signup and view all the answers

What is the Mutual Fund Dealers Association (MFDA)?

A self-regulatory organization for the mutual fund industry in Canada. Signup and view all the answers

What does the Office of the Superintendent of Financial Institutions (OSFI) do?

Regulates federally chartered financial institutions and pension plans. Signup and view all the answers

What is a Regulator in the context of the securities industry?

An overarching term for Securities Administrators and Self-Regulatory Organizations. Signup and view all the answers

What is a Self-Regulatory Organization (SRO)?

An organization that enforces industry regulations and protects investors. Signup and view all the answers

Define Universal Market Integrity Rules (UMIR).

A set of rules ensuring fairness and maintaining investor confidence in trading. Signup and view all the answers

What is an Advisor in financial terms?

An individual licensed as a portfolio manager or restricted portfolio manager. Signup and view all the answers

What is a Carrying Broker?

Dealer members offering back-office services to other dealer members. Signup and view all the answers

Who is considered a Dealer in the securities industry?

A person or company conducting security trades as a principal or agent. Signup and view all the answers

What defines a Dealer Member?

A firm that trades in securities and is a member of the IIROC. Signup and view all the answers

What does Dual Licensing refer to?

A salesperson being licensed both as an Investment Advisor and a life insurance representative. Signup and view all the answers

Who is an Investment Advisor (IA)?

An individual licensed to transact and advise on securities. Signup and view all the answers

What is an Investment Fund Manager?

Individuals or companies managing pooled investment funds. Signup and view all the answers

What is the role of an Investment Representative (IR)?

An individual exclusively taking and submitting client orders for execution. Signup and view all the answers

Who are Mutual Fund Representatives?

Individuals who advise clients solely on mutual funds. Signup and view all the answers

What is the National Registration Database (NRD)?

A web-based system for electronic registration for dealers and advisors. Signup and view all the answers

What does a Registered Representative (RR) do?

Acts as an Investment Advisor within the securities industry. Signup and view all the answers

What is Registration in securities regulation?

The requirement for all securities dealers and advisors to be registered. Signup and view all the answers

Who are Unregistered Staff?

Individuals in a dealer member or financial services entity without registration. Signup and view all the answers

What does Beneficial Owner mean?

The real owner of an account or asset, despite registration in another name. Signup and view all the answers

Define Constrained Share Companies.

Entities with foreign ownership restrictions due to their economic importance. Signup and view all the answers

What is the Delivery Against Payment/Receipt Against Payment?

Accounts facilitating securities purchases or deliveries against payment. Signup and view all the answers

What are Electronic Delivery and Signatures?

Communication with clients using electronic methods, requiring their consent. Signup and view all the answers

What is Inside Information?

Material, non-public information pertaining to a company. Signup and view all the answers

Define Insiders in the corporate context.

Directors, senior officers, or anyone with significant voting share ownership. Signup and view all the answers

What is Margin in securities trading?

The amount a client pays when using credit to buy securities. Signup and view all the answers

What is a Managed Account?

An account where investment decisions are made on a continuous basis by a manager. Signup and view all the answers

Describe the New Account Application Form (NAAF).

Form completed before opening a new account, either on paper or electronically. Signup and view all the answers

What is a Nominee Account?

An account held in the name of an entity, not the beneficial owner. Signup and view all the answers

Who are Politically Exposed Persons (PEPs)?

Individuals holding specific positions in foreign or Canadian governments. Signup and view all the answers

What are Red Flags in financial context?

Indicators of potential improper activities that require further investigation. Signup and view all the answers

Define Tipping in relation to insider trading.

Conveying inside information with knowledge it may influence trades. Signup and view all the answers

What is an Agency Transaction?

A transaction where a dealer member acts on behalf of a client. Signup and view all the answers

Explain Churning in client accounts.

Excessive trading aimed solely at generating commissions. Signup and view all the answers

What does Control Position refer to?

Owning enough stock to significantly influence a company's decisions. Signup and view all the answers

What is Discretionary Trading?

Trading where the IA has discretion over quantity, security, price, or timing. Signup and view all the answers

What does DNCL stand for?

Do Not Call List, with regulations for telemarketers. Signup and view all the answers

What are Firewalls in financial terms?

Information barriers separating decision makers from sensitive information. Signup and view all the answers

What is the Gatekeeper Role in securities?

Ensuring compliance with laws and regulations by not facilitating client breaches. Signup and view all the answers

Define Illegal Representation.

Deliberately making false statements in any material way. Signup and view all the answers

What is Manipulative Trading?

Attempts to control or affect security prices through trading. Signup and view all the answers

What is Insider Trading (Illegal)?

Using non-public information to affect trades or trading without reporting. Signup and view all the answers

What does Principal refer to in trading?

A dealer member buying from or selling to clients from their own inventory. Signup and view all the answers

What does Priority of Client Orders entail?

Client orders take precedence over orders from partners or employees of the dealer. Signup and view all the answers

Define Soft Dollar Arrangements.

Non-cash payments for services such as research to assist in investment decisions. Signup and view all the answers

What is Suitability concerning investments?

Determining if an investment is appropriate for a client based on available information. Signup and view all the answers

What is the System for Electronic Disclosure by Insiders (SEDI)?

Facilitates electronic filing and dissemination of insider reports. Signup and view all the answers

Study Notes

Definitions and Key Concepts

Formal Take-over Bid: Offer to purchase voting securities exceeding 20% when combined with already-owned securities.
Compliance: Adherence to legal, regulatory requirements, and internal policies.
Confidentiality: Ethical obligation to keep client information private unless consented or required by regulators.
Conflict of Interest: Personal interests of registrant must not conflict with client's; priority given to client's interests.
Discretionary Account: Client authorizes the dealer to make trading decisions on their behalf.
Due Diligence: Verifying details relevant to a potential investment, including operations and management.
Duty of Care: IA’s responsibility to protect client assets and make informed decisions.
Fiduciary Duty: High level of care owed by IA to clients, determined by reliance and vulnerability.
KYC Rule: Requirement to know all relevant client information for suitable investment recommendations.
PIPEDA: Legislation governing how personal information is collected, used, and disclosed in Canada.

Regulatory Bodies and Standards

Autorité des marchés financiers (AMF): Regulatory body for Québec’s financial and securities sector.
Canadian Investor Protection Fund (CIPF): Protects investors from dealer insolvency, funded by IIROC and exchanges.
FINTRAC: Monitors financial intelligence for money laundering and terrorist financing.
IMETs: Joint RCMP initiative to investigate capital market fraud.
Joint Serious Offences Team (JSOTs): Collaboration between various agencies to investigate serious law violations.
IIAC: Advocacy body for the Canadian investment industry but not a regulator.
IIROC: National self-regulatory organization overseeing investment dealers and market practices.
MFDA: Self-Regulatory Organization for mutual fund distribution in Canada.

Regulations and Practices

Suitability: Major focus in investment recommendations; requires comprehensive client and security analysis.
Disclosure: Requirement for full, truthful disclosure of material facts for investment decisions.
Regulator: Term encompassing Securities Administrators and SROs.
Self-Regulatory Organization (SRO): Establishes industry regulations to protect investors and maintain ethics.
UMIR: Equities trading rules ensuring fairness and integrity in marketplace operations.

Various Account Types and Transactions

Discretionary Trading: IA has the discretion to make decisions regarding trades.
Agency Transaction: Involves a dealer executing trades on behalf of a client.
Churning: Excessive trading to generate commissions, detrimental to the client.
Control Position: Holding enough voting stock to influence company affairs, typically 20% or more.
Managed Account: Managed by a dealer member or third party on an ongoing basis.

Trading Orders and Client Interactions

Unsolicited Order: Client-initiated order without dealer or IA recommendation.
All or None Order: Must be executed in full; partial fills not permitted.
Fill or Kill Order: Immediate filling of as much as possible; remainder canceled.
Soft Dollar Arrangements: Non-cash payments for services like research.

Ethical Guidelines

Gatekeeper Role: RRs and IRs must prevent client breaches of securities laws.
Tipping: Sharing inside information with expectations that it will be used for trading.
Illegal Representation: Making materially false statements.

Client Information and Roles

Know Your Client (KYC): Essential rule ensuring advisers are informed about clients.
Beneficial Owner: True owner of an account or assets, despite ownership being listed under another entity.
Politically Exposed Persons (PEPs): Individuals with significant public office or position.

Additional Concepts

Margin: Difference between security's market value and borrowed amount for purchase.
Firewalls: Barriers separating decision-makers from insider information.
NAAF: New Account Application Form required to open new accounts.

These notes summarize key terms, regulatory bodies, ethical guidelines, account types, and trading practices relevant to securities regulation and the investment industry in Canada.### Trading Orders

Good Till Date: Order remains valid until filled, cancelled, or a specified expiry at the end of the business day.
Market Order: Instruction to buy/sell securities at current market price; defaults to market orders unless otherwise limited.
Limit Order: Order to buy/sell securities at a specified price; executes only if the market meets or exceeds that price.
Open Order: Valid until filled or cancelled; often referred to as good till cancelled (GTC).

Order Types and Trading Concepts

Minimum Quotation Spread: The least acceptable range between bid and ask prices as determined by exchanges.
Pro/Emp/Non-Client Order (N-C): Orders from dealer employee accounts, with client orders prioritized.
Odd Lot: An equity trade involving fewer than 100 shares, also known as a broken lot.
Responsible Designated Trader (RDT): Trader tasked with carrying out market-making duties.

Important Dates and Transactions

Settlement Date: The deadline for a securities buyer to pay or seller to deliver securities; typically within two business days of the transaction.
Short Sale: Selling a borrowed security with the expectation to buy it back at a lower price; must be declared at order entry.
Switch Order: Combines selling one security and using proceeds to purchase another.

Trading Units and Regulations

Standard Trading Unit: Term replacing "board lot," recognizing variable lot sizes across different marketplaces.
Stop Buy Order: Activates purchase only after reaching a set price, used to protect short positions or capitalize on rising prices.
Stop Loss Order: Triggers a sale after a price drop, aimed at minimizing losses or securing profits.

Financial Management and Accounts

Trading Unit: Refers to indivisible transaction amounts; shares for stocks, contracts for options.
Transfer Agent: Manages shareholder records for corporations or mutual funds, tracking transactions and account balances.
Capital Charge: Cost to dealer members for managing risks associated with unsettled cash accounts.
Cash Account Rule: Governs cash transaction settlements, outlining payment methods and restrictions for overdue accounts.

Client Account Balances

Free Credit Balance: Uninvested funds in client accounts available for dealer use but payable upon demand.
Equity Position: Reflects the net credit balance in a client's account, indicating overall financial health.
Fully-Margined: Client's margin equals or surpasses required margin in a margin account.
Fully-Secured: Positive net equity, meaning asset value exceeds any debit balance.

Investment Strategies

Hedge: Strategy adopted to mitigate the risk of price fluctuations in a security through offsetting positions, like options or short sales.

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Test your knowledge with these flashcards based on the Conduct and Practices Handbook (CPH). Each card presents key terms along with their definitions, focusing on important concepts in corporate governance and compliance. Perfect for students and professionals looking to reinforce their understanding of the subject.