Questions and Answers
What does All or None Order (AON) mean?
What is a Cancel/Change Former Order?
What does Best Efforts Basis refer to?
What is the function of CDS Clearing and Depository Services Inc.?
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What is a Contingent Order?
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What is a Day Order?
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What is a Delayed Delivery Order?
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What does Delivery Against Payment (DAP) refer to?
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What are Fails in trading terms?
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What is a Fill or Kill Order?
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What does Good Till Date mean?
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What is a Market Order?
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What does a Limit Order specify?
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What is the Minimum Quotation Spread?
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What does Pro/Emp/Non-Client Order (N-C) mean?
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What is an Odd Lot?
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What is an Open Order?
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What does a Responsible Designated Trader (RDT) do?
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What is a Settlement Date?
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What is a Short Sale?
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What is a Standard Trading Unit?
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What does a Stop Buy Order do?
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What is a Stop Loss Order?
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What is a Switch Order?
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What is a Trading Unit?
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What is a Transfer Agent?
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What is a Capital Charge?
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What does the Cash Account Rule govern?
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What does Free Credit Balance refer to?
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What is meant by Equity Position?
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What does Fully-Margined mean?
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What does Fully-Secured mean?
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What is a Hedge?
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What is a Formal Take-over Bid?
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What does Compliance mean in the context of securities regulation?
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What is Confidentiality in the securities industry?
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Define Conflict of Interest.
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What is a Discretionary Account?
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What is Due Diligence?
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Explain Duty of Care.
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What does Fiduciary Duty entail?
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What is the Know Your Client (KYC) Rule?
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What is the purpose of the Personal Information Protection and Electronic Documents Act (PIPEDA)?
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What are the Registrant Standards of Conduct?
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Define Suitability in investment recommendations.
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What is an Unsolicited Order?
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Explain the Autorité des marchés financiers (AMF).
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What is the Canadian Investor Protection Fund (CIPF)?
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Describe Disclosure in securities regulation.
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What does FINTRAC do?
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What are Integrated Market Enforcement Teams (IMETs)?
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What is the Joint Serious Offences Team (JSOTs)?
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What is the Investment Industry Association of Canada (IIAC)?
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What role does the Investment Industry Regulatory Organization of Canada (IIROC) play?
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What is the Mutual Fund Dealers Association (MFDA)?
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What does the Office of the Superintendent of Financial Institutions (OSFI) do?
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What is a Regulator in the context of the securities industry?
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What is a Self-Regulatory Organization (SRO)?
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Define Universal Market Integrity Rules (UMIR).
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What is an Advisor in financial terms?
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What is a Carrying Broker?
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Who is considered a Dealer in the securities industry?
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What defines a Dealer Member?
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What does Dual Licensing refer to?
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Who is an Investment Advisor (IA)?
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What is an Investment Fund Manager?
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What is the role of an Investment Representative (IR)?
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Who are Mutual Fund Representatives?
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What is the National Registration Database (NRD)?
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What does a Registered Representative (RR) do?
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What is Registration in securities regulation?
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Who are Unregistered Staff?
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What does Beneficial Owner mean?
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Define Constrained Share Companies.
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What is the Delivery Against Payment/Receipt Against Payment?
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What are Electronic Delivery and Signatures?
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What is Inside Information?
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Define Insiders in the corporate context.
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What is Margin in securities trading?
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What is a Managed Account?
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Describe the New Account Application Form (NAAF).
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What is a Nominee Account?
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Who are Politically Exposed Persons (PEPs)?
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What are Red Flags in financial context?
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Define Tipping in relation to insider trading.
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What is an Agency Transaction?
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Explain Churning in client accounts.
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What does Control Position refer to?
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What is Discretionary Trading?
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What does DNCL stand for?
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What are Firewalls in financial terms?
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What is the Gatekeeper Role in securities?
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Define Illegal Representation.
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What is Manipulative Trading?
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What is Insider Trading (Illegal)?
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What does Principal refer to in trading?
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What does Priority of Client Orders entail?
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Define Soft Dollar Arrangements.
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What is Suitability concerning investments?
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What is the System for Electronic Disclosure by Insiders (SEDI)?
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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.