Principal vs Agent in Securities Transactions

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Questions and Answers

What is the primary difference between closed-end and open-end funds?

Closed-end funds are larger than open-end funds.

Open-end funds only issue shares at start-up.

Closed-end funds redeem shares on demand.

Open-end funds can issue shares continually. (correct)

What percentage of aggregate funds invested do open-end funds represent?

90%

85%

95% (correct)

75%

What significant development occurred to ATB Financial in 2002?

It was privatized.

It started offering investment funds.

It became a provincial crown corporation.

It was renamed ATB Financial. (correct)

What type of companies typically charge higher interest rates than banks?

Consumer finance companies Signup and view all the answers

What type of contracts do sales finance companies purchase?

Instalment sales contracts from retailers Signup and view all the answers

What has led to the institutionalization of savings in Canada over the past 60 years?

Growth of pension plans Signup and view all the answers

What main concern is highlighted regarding the Canada Pension Plan?

The system's sustainability Signup and view all the answers

Which type of banks were formed in response to chartered banks pulling out of smaller towns?

Savings banks Signup and view all the answers

Which financial service is NOT typically provided by ATB Financial?

Insurance services Signup and view all the answers

What is a key characteristic of consumer finance companies?

They primarily deal with individuals unable to secure bank loans. Signup and view all the answers

What is one of the specific services that contributes to competitive positioning in client experience?

Ease of online navigation Signup and view all the answers

Which demographic group is primarily influencing the Canadian economy due to their increasing numbers?

Baby boomers Signup and view all the answers

How many Canadians are older than the baby boomers, generally being in their retirement years?

4.5 million Signup and view all the answers

What aspect of portfolio management is mentioned as being optimized through specific tools?

Tax-efficient rebalancing Signup and view all the answers

What is one expected service adjustment for advisors as the population aged 65 and older increases?

Reflecting the needs of retired Canadians Signup and view all the answers

What type of investment dealer firms encompasses firms that provide a wide range of industry services?

Integrated firms Signup and view all the answers

What is the main role of an agent in securities transactions?

To act on behalf of a client, often as a broker Signup and view all the answers

Which statement accurately describes the role of investment dealers in the securities market?

They sometimes take positions in stocks to enhance market liquidity. Signup and view all the answers

In securities transactions, when does an investment dealer primarily act as a principal?

During most secondary trading of debt securities Signup and view all the answers

What is one way investment dealers add liquidity to the market?

By conducting transactions from their inventory Signup and view all the answers

What distinguishes a broker from a dealer in the context of securities transactions?

Brokers do not take inventory positions in securities. Signup and view all the answers

What is a market-making duty that investment dealers may undertake?

Taking positions in assigned listed stocks to smooth price distortions Signup and view all the answers

How do investment dealers advise clients about new issues?

Offering advice grounded in knowledge of secondary market conditions Signup and view all the answers

What is a characteristic of agency trades in securities?

They can occur in limited instances alongside principal transactions. Signup and view all the answers

What role does an investment dealer fulfill when taking securities into inventory?

They assume the role of a principal for future resale. Signup and view all the answers

What is a primary characteristic of robo-advisors?

They create portfolios based on algorithms and client questionnaires. Signup and view all the answers

When did robo-advisors begin to gain significant traction in the United States?

2012 Signup and view all the answers

What role do fintech companies play in the financial industry?

They enable a variety of banking and financial products and services. Signup and view all the answers

What was the amount of assets under management for robo-advisors by 2015?

$45 billion Signup and view all the answers

What is a common feature of portfolios managed by robo-advisors?

They are composed primarily of exchange-traded funds. Signup and view all the answers

What notable change in service provision occurred with the emergence of robo-advisors?

Introduced goal-based online investment management. Signup and view all the answers

Which of the following services may not typically be provided by robo-advisors?

Traditional checking account services. Signup and view all the answers

In which year did multiple robo-advisor service providers register in several provinces in Canada?

2014 Signup and view all the answers

What is an attribute that varies among robo-advisors?

The level of advisor support offered. Signup and view all the answers

What impact does the fintech industry have on traditional financial services?

It supports and challenges traditional financial institutions. Signup and view all the answers

What is the primary focus of Schedule III banks in Canada?

Corporate and institutional finance Signup and view all the answers

Which of the following statements is true regarding the operations of foreign banks in Canada?

They help Canadian banks operate internationally. Signup and view all the answers

What legislation governs the operations of credit unions in Canada?

Cooperative Credit Associations Act Signup and view all the answers

Which of the following best describes the clientele of credit unions?

Membership-based groups with shared characteristics Signup and view all the answers

Examples of which type of bank in Canada include Citibank Canada and AMEX Bank of Canada?

Schedule II banks Signup and view all the answers

What kind of services do credit unions NOT typically provide?

Corporate loans Signup and view all the answers

What characterizes the relationship between Canadian banks and foreign banks operating in Canada?

Foreign banks enhance funding sources for Canadian corporates. Signup and view all the answers

What type of financial services do Schedule II banks primarily focus on?

Retail banking and electronic financial services Signup and view all the answers

Which of the following is not a characteristic of Schedule I banks?

Limited business activities Signup and view all the answers

What may limit the activities of credit unions in Canada?

The Cooperative Credit Associations Act Signup and view all the answers

Study Notes

Principal and Agent Roles in Securities Transactions

An agent acting on behalf of a client is typically referred to as a broker.
Brokers can function in multiple capacities as investment dealers.
In most secondary trading of debt securities, investment dealers operate as principals; however, some agency transactions do occur.
Dealers may sell new money market issues as agents or hold them as principals for future resale.

Services Provided by Investment Dealers

Investment dealers facilitate secondary market trading and maintain securities inventories.
They offer informed advice on new issues grounded in secondary market conditions.
They enhance market liquidity by executing transactions directly from inventory.
Some investment dealers act as market makers to stabilize prices in assigned listed stocks.
They accumulate large blocks of shares as principals to better serve institutional clients.

Banking Categories in Canada

Schedule I Banks: Engage in all types of business; example: major Canadian banks.
Schedule II Banks: Generate revenue primarily from retail banking; examples include AMEX Bank of Canada and Citibank Canada.
Schedule III Banks: Foreign bank branches focusing on corporate and institutional finance; examples include Barclays Bank and Comerica Bank.
Foreign banks operate in Canada, aiding Canadian banks in international transactions and providing access to foreign investment.

Credit Unions and Caisses Populaires

Offer various banking services such as deposits, loans, mortgages, and insurance.
Typically serve members from cohesive groups sharing similar interests or locales.
Governed by the Cooperative Credit Associations Act (CCAA), limiting activities to specific groups.

Types of Investment Funds

Closed-end funds issue shares minimally and are typically less common than open-end funds.
Open-end funds, or mutual funds, continuously issue and redeem shares, representing approximately 95% of total funds invested.

Financial Institutions and Consumer Finance

ATB Financial: Originated in 1938 to fill the gap left by chartered banks in smaller towns, providing comprehensive financial services.
Consumer Finance Companies: Offer direct loans to consumers often with higher interest rates compared to traditional banks.
Sales finance companies acquire installment sales contracts from retailers for consumer goods.

Pension Plans and Demographics

Pension plans have led to significant growth in institutional savings over the last six decades.
Aging demographics are influencing economic trends, particularly concerning the Canada Pension Plan and Quèbec Pension Plan.

Financial Technology Trends

The fintech industry utilizes technology to enhance banking and financial services, challenging traditional institutions.
Services include online loans, electronic wallets, and automated financial planning tools.

Robo-Advisors

An emerging online investment service providing algorithm-based advice instead of traditional brokerage models.
Gained traction in Canada after 2014, offering personalized portfolio management and financial planning.
Portfolios are primarily built with exchange-traded funds and are regularly rebalanced.

Shifting Demographics

Canada’s population is aging, with roughly 9.5 million baby boomers and 4.5 million older Canadians.
Advisors must adapt their services to cater to an increasingly retired client base, particularly those over 65.

Summary of the Canadian Securities Industry

Canadian capital markets are advanced, showing a rich variety in new issues and robust secondary market trading.
Investment dealers are categorized into integrated, institutional, and retail, with integrated firms covering all industry service aspects.

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Description

This quiz explores the roles of principal and agent in securities transactions, highlighting the distinction between the two. Understanding these roles is crucial for comprehending financial markets and their operations. Test your knowledge on the dynamics of buyer and seller interactions within this context.