Conduct and Practices Handbook (CPH) PDF

Conduct and Practices Handbook (CPH) Study online at https://quizlet.com/_9tknhx 1. Duty of care: This refers to obligation #3 of registered representative (RR) about acting honestly, in good faith, and in a professional manner. This is a requirement to provide advice to clients with those at...

Conduct and Practices Handbook (CPH) Study online at https://quizlet.com/_9tknhx 1. Duty of care: This refers to obligation #3 of registered representative (RR) about acting honestly, in good faith, and in a professional manner. This is a requirement to provide advice to clients with those attributes in mind along with the proper skills and knowledge to do so. It is important to note that the standard of care provided is not a standard of perfection. RRs are usually held to this standard much more often than the standard of fiduciary duty. The two aspects of this are suitability and fiduciary duty. 2. Ethics: These are a set of values or morals that guide individual behaviour. They are rules and habits of conduct established according to society's perceived standards of right and wrong. In terms of the CPH course, these are a continuous process of examining our choices and making decisions within the context of moral principles. These are important because rules cannot encompass every possible situation that might occur in a day to day business, therefore we need these to help keep everyone held to another standard. 3. Fiduciary duty: This is a concept related to the duty of care. It is a higher standard imposed by common law. It exists in circumstances where one person must place trust in the honest intentions of another person who holds greater authority or expertise. This is not as common as the standard of duty of care. Disputes in regard to this are sometimes resolved through civil litigation where a client was owed a fiduciary duty based on how much they relied on the RR's investment advice/product recommendations. 4. Investment Industry Regulatory Organization of Canada (IIROC): This is the national self regulatory organization that oversees the securities industry. It regu- lates the actions and behaviour of its Registered Representatives (RRs). It has a strict compliance of rules and regulations and requires that the RR observe high standards of ethics and conduct when transacting business. This is the national SRO overseeing all investment dealers and trading activity on equity and debt marketplaces in Canada. 5. IIROC rule 1402 Standards of Conduct: Every IIROC dealer has a set of these rules that ultimately comply with IIROC. This is a rule in IIROC that summarizes IIROC's expectations regarding it's Registered Representative (RR). It states that the RR must be a regulated person (observes high standards of ethics/acts fairly and does not engage in business that is detrimental to public interest) and they must be foregoing any business conduct that is negligent, fails to comply with legal/regulator/contractual obligations/interanal rules and policies, that displays an unreasonable departure from standards, or is likely to diminish investor confidence in the integrity of securities/futures/derivatives. 6. Know Your Client (KYC): This refers to obligation #1 of a registered represen- tative (RR) about understanding your client's situation before making investment 1 / 16  Conduct and Practices Handbook (CPH) Study online at https://quizlet.com/_9tknhx recommendations. This rule implemented by IIROC states that forces you to have an understanding of your client's circumstances and that you must have an under- standing their suitability before you can do any business. The dealer member must keep a record of every single client's circumstances and takes notes on the situation. This is the companion obligation of the KYP. 7. Know Your Product (KYP): This refers to obligation #2 of a registered repre- sentative (RR) about understanding the products you recommend. Every registered representative (RR) must have this knowledge before recommending the purchase of any investment product to a client. You must understand how it is constructed and how it is likely to perform in various market conditions, as well as how new/non-tra- dition/complex/structured products function. This is the companion obligation of the KYC. 8. Registered Representative (RR): These people are permitted to provide advice on the full range of equity and fixed income securities. This is you. The person that is must do all the work with regards to the client and must have all of the certifications and must pass all the tests. These people must observe high standards of ethics and conduct, must understand the client's situation before making investment recom- mendations (KYC), must understand the products to recommend (KYP), and must act honestly, in good faith, and in a professional manner (duty of care). You must also avoid entering into situations where you interests conflict with those of your client, and you should strive to maintain and improve your professional knowledge in the profession. Finally you must hold all your client's information in the strictest confidence. 9. Suitability: This is a term that is mentioned throughout several sections such as KYC and KYP and is directly related to the duty of care. It refers to a client's current financial situation, investment knowledge, investment objectives, time horizon, and risk tolerance. Essentially it is the quality of something being right or appropriate for a particular person, administered by IIROC. 10. End values: This is one of two main types of values; They are values that help define our personal goals for which we strive for, which may be years away. These values include a sense of accomplishment, service to people, security, a world at peace, and social recognition. 11. Ethical Dilemma: These situations arise when we are faced with two or more choices and we must make an ethical decision. There are two main categories that these situations fall into; right vs. wrong issues & right vs. right dilemmas. Right vs. right issues are the difficult ones to analyze because there are 2 right answers and it is when our core values conflict. 12. Front Page Test: This is part of step 4 of the ethical decision making process (testing right vs wrong issues); This test deals with reputation. It tests whether the 2 / 16  Conduct and Practices Handbook (CPH) Study online at https://quizlet.com/_9tknhx person's reputation would suffer if their behaviour in the situation became public knowledge. 13. Legal Test: This is part of step 4 of the ethical decision making process (testing right vs wrong issues); This is a test that is used to test a person's case is illegal or goes against industry rules/terms 14. Means Values: This is one of two main types of values; These are the actions that we take every single day to achieve our goals and they directly influence our de- cisions on a daily basis. These values include ambition, openness, or competence. 15. Mom Test: This is part of step 4 of the ethical decision making process (testing right vs wrong issues); This is a test that considers how comfortable the person would feel if he was revealing his decision to the people whose opinions really matter to him. 16. Morals: These are the rules and habits of a society's conduct that are estab- lished according to perceived standards of right and wrong. They are principles that are based on reason, not established, nor can be changed by authoritative bodies. They do however, underpin decisions made by those authorities 17. Unified Value System: This is something in which end values and means values (2 main types of values) mutually reinforce and support each other. People and corporations get into trouble when their means values do not align with their end values, which is why it is very important to conduct a values clarification to ensure our values are in order. 18. Values: These are the individual or cultural measures of the worth we place in certain ideas and behaviour. They may be based on knowledge, education, and life experience, however they are beliefs, not facts. They inform our life goals and influence the decisions we make to achieve those goals. They reflect the importance we attach to other people/money/work/leisure/family, and the importance we place on others vs. ourselves. As we grow older, these may shift, but rarely do they change drastically. A set of these usually forms our ethics. A failure to develop an understanding of these may lead to influences in our decisions from unconscious drives. 19. Laws: these are not synonymous with ethics, but they can be seen as being contained within, and growing out of society's overall ethical sensibility. Similar to ethics, these are based on values held by society. Adherence to these allow people to live together creatively rather than destructively. 20. Tone at the top: This is an ideal that most firms strive for where there is a climate of ethical behaviour that allows trust to flourish. It should filter down through the organization and every employee must communicate the firm's guiding beliefs to other members or clients of the firm. 3 / 16  Conduct and Practices Handbook (CPH) Study online at https://quizlet.com/_9tknhx 21. Ethical relativism: This is the idea that states that there is no such thing as a universal moral principle that governs our behaviour. It's the notion that everything is relative, situational, negotiable, and personal, and every new situation requires us to redefine our values and actions where everyone has an equal say on what is right and wrong. (This is not the ideal ethics that you want humans to have because it leads to personal needs being greater than needs of the community or at the expense of others) 22. Types of ethical dilemmas: Truth vs. loyalty dilemmas (honesty vs integrity), individual vs. group dilemmas (rights of few vs many), short term vs. long term dilemmas, justice vs. mercy dilemmas (fairness vs love). 23. Ethical decision making process: Steps of a process; 1. Recognize that there is a moral issue. 2. Determine whose moral issue it is. 3. Gather the facts. 4. Test for right-versus-wrong issues. 5. Test for right-versus-right paradigms. 6. Apply the resolution principles. 7. Make the decision. 8. Reflect on the process. 24. Ethical dilemma solutions: These are often some of the results of an ethical dilemma; end based ethical thinking (greatest good to greatest number of people), rule based ethical thinking (results in a rule to follow for future situations), social con- tract based ethical thinking (results in most harmonious relationships), personalistic based ethical thinking (best solution for self) 25. Administrator: This is a term used by the Canadian Regulatory Framework to describe the securities regulatory authority of each province (The person who has authority of primary and secondary distributions of securities). These people work alongside other regulators to harmonize the regulation of the markets through the Canadian Securities Administrators (CSA). These people are also responsible for registering persons/companies that engage in anything to do with securities (buying/selling/advising) and ensure the people that are registering appropriate. 26. Canadian Investor Protection Fraud (CIPF): This is a fund established in 1969 that covers the accounts of clients of dealer members. It covers the losses of securities and cash balances that result from the insolvency of a dealer member of IIROC, but not due to poor investment performance. 27. Canadian Securities Administrators (CSA): This is an umbrella organization whose objective is to improve, coordinate, and harmonize the regulation of the Canadian capital markets. It aims to achieve consensus on policy decisions that affect the capital markets and their participants. It's main 3 missions are; protecting investors from unfair practices, foster fair and efficient capital markets, and to reduce risks to market's integrity/investor confidence. To achieve those missions they use 3 primary tools; the passport system, the super memorandum of understanding 4 / 16  Conduct and Practices Handbook (CPH) Study online at https://quizlet.com/_9tknhx (Super MOU, provides oversight of marketplaces), and various electronic databases (SEDAR, SEDI, NRD, CTO). 28. Dealer member: This is the broker that buys and sells the securities to the investor 29. Designated Stock Exchange: These can be domestic or foreign based. Only securities that are listed on this/these are eligible to be held in RRSPs, TFSAs, or other registered accounts. These must carry out normal business in listing securities, facilitating trading, and offering information to the public. It must have acceptable standards for new and maintenance listings, must operate within a regulatory framework (IOSCO) and must have an experienced management team, and finally must have a range of listings/adequate liquidity for investors to buy and sell securities. There are several different rules if these are foreign; host country must have commercial, legal, and tax relations with Canada, must be in good standing in the international financial community, and must be at low risk of imposing capital restrictions on liquidation of investments. 30. Disclosure: This is the underlying principle of securities regulation in Canada. Every person/corporation that offers for public sale securities that have not yet been publicly distributed must follow these specific rules/principle. This includes filing with an administrator an delivering a prospectus to the purchaser that contains a full and true representation of all material facts relating to the securities offered for sale. Until this is done to the satisfaction of the administrator concerned, it is illegal to sell the securities. This is normally made in a prospectus or is linked to a contract between the issuer and the person buying the securities. 31. Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)- : This is an organization that enforces security dealers to comply with the Proceeds of Crime (money laundering) and Terrorism Financing Act (PCMLTFA). Canada does not have anything like the SEC (securities and act commission) in the United States, but this is the closest governing body/federally legislated act that regulates security dealers in Canada along with the Personal Information Protection and Electronic Documents Act (PIPEDA). 32. Integrated Market Enforcement Teams (IMETs): These teams were launched in 2003 with the goal of strengthening the law enforcement community's ability to detect, investigate, and deter capital markets fraud. It is a joint initiative of the RCMP and the federal government and they work closely with regulators, SROs, the exchanges, and other federal/provincial authorities with relation to fraud. 33. Joint Serious Offences Team (JSOT): This was a team launched in 2013 by the OSC to elevate efforts to target fraud and other serious misconduct. It is an enforcement partnership between the OSC, the RCMP, and the OPP. This team is 5 / 16  Conduct and Practices Handbook (CPH) Study online at https://quizlet.com/_9tknhx responsible for investigating and prosecuting serious violations of the law using the securities act and the criminal code. 34. Money Laundering: This is a process in which the proceeds of crime are converted into seemingly legitimate funds through complex transactions. Criminals use this to obscure the origin of the funds without raising suspicion about legitimacy. There are 3 stages to this; Placement (physical disposal of cash derived from illegal activity), Layering (separating illicit proceeds from source by layering financial transactions), Integration (placing laundered proceeds back into economy) 35. Mutual Fund Dealers Association (MFDA): This is 1 of 200+ organizations in the IOSCO. It is the SRO responsible for regulating the distribution of mutual funds by its members in Canada, however it does not regulate the mutual funds themselves as that is the job of the securities commissions in the respective province. 36. National Instrument (NI): This is an instrument that has been adopted by all CSA jurisdictions. There now exists a large harmonized group of these instruments that govern the securities markets. Some of these include; the Alberta securities commission (ASC), Ontario Securities commission (OSC).. etc 37. Passport system: This is a tool used by the CSA; This system is designed to reduce unnecessary duplication in the review of filings made in multiple jurisdictions and is based on the principles of mutual reliance 38. Primary Distribution: This is the sale of a new issue of stocks or bonds, as distinguished from a secondary distribution, which involves previously issued stock (like an IPO). This is a direct source of funds for the company issuing the securities to raise capital 39. Registrant: This is the person that must maintain the requirements necessary to justify initial and ongoing registration. This is you and me and the people that write tests to get their registration and licensing. 40. Secondary Distribution: This is the public sale of previously issued securities held by large investors. The sale is handled by a securities firm and is not conducted through a stock exchange. The proceeds go to the investors holding to the stock not the issuing entity. 41. Secondary Trading: This is when a security moves beyond primary distribution where the security in question may be further bought and sold by investors through a stock exchange. Securities that are traded this way are said to be freely trading (sold from prospectus directly on the secondary market) 42. Self Regulatory Organization (SRO): This is an industry organization that regulate their own members. They have been granted regulatory powers by the Administrators and the CSA. They enforce their member's conformity with securities legislation. They have the power to investigate possible violations of their rules and take disciplinary action against the members of the firm 6 / 16  Conduct and Practices Handbook (CPH) Study online at https://quizlet.com/_9tknhx 43. Universal Market Integrity Rules (UMIR):: A common set of trading rules that are applied in all markets in Canada. This is a set of rules that are designed to promote fair and orderly markets. IIROC uses these rules to asses trade desk procedures are complying. 44. International Organization of Securities Commissions (IOSCO): This is the governing body of more than 200 members including the OSC, AMF, ASC, BCSC, IIROC, and the MFDA 45. Financial Stability Board (FSB): This is the successor organization to the financial stability forum (FSF) which assesses and addresses vulnerabilities affect- ing the financial system. It also promotes information exchange, monitors market developments/policies, manages contingency plans, and collaborates with the in- ternational money fund (IMF) 46. Financial Industry Regulator Authority (FINRA): This is the US counterpart to IIROC. It works with IIROC to enhance the effectiveness of both organizations through the exchange of information and other cross border assistance, as well as firm oversight and examinations. It is the largest independent regulator for all securities firms doing business in the US. 47. Canada Deposit Insurance Corporation (CDIC): A federal Crown Corporation providing deposit insurance against loss (up to $100,000 per depositor) when a member institution fails. 48. Canada's Anti-Spam Legislation (CASL): This is enforced by the CRTC that establishes similar rules as the NDNCL for the sending of commercial electronic messages (CEMs). It requires businesses to obtain consent to send CEMs such as emails, social media messages etc. 49. conflict of interest: This occurs when you are dealing with clients. It arises in any circumstance where the interests of a client and a registrant are inconsistent or divergent to each other. If these are not resolved then they may cause major issues/loss of client. 50. cybersecurity: This is a growing concern in the area of financial and operational compliance. These are issues that represent challenges similar to money laundering issues. This is a way to protect against cyber attacks to avoid significant damage to reputation and ability to operate. 51. discount broker: This is one of the two roles that can be played by investment representatives. They may either be a sales assistant or this. 52. National Do Not Call List (NDNCL): In accordance with the CRTC, this is a list that was established regarding allowable times of day to call clients/nonclients for telemarketing. 53. fit and proper test: This is a test that is conducted for suitability reviews, for individuals seeking IIROC approval or registration under securities legislation. It is 7 / 16  Conduct and Practices Handbook (CPH) Study online at https://quizlet.com/_9tknhx an evaluation by registration staff of the applicant's integrity, financial solvency, and competence. 54. fund facts: This is something that every sales communication about a mutual fund must contain. It is a plain language document containing key information about each class or series of a mutual fund and must be made available on the mutual fund's website. This document must be delivered to investors before they purchase the fund in question. It provides investors with the information they need to make a knowledgeable decision before investing. 55. Investment Representative: This is one of the two most common IIROC reg- istration categories for individuals employed at a dealer member, alongside Regis- tered Representatives. Both types of representatives must be registered to operate in the geographic location of their clients. They must state the number of hours they work per week and if it is less than 30 they must explain why. These representatives must adhere to IIROC rules as well as applicable provincial securities law. They also must disclose all outside activities that they participate in. These representatives can only take orders from clients from where they are licensed in. (if only licensed in Ontario can only take orders from clients in Ontario). 56. Personal Information Protection and Electronic Documents Act (PIPEDA)- : This is a set of rules for the collection, use, or disclosure of personal information in the course of commercial activities in Canada. It applies to private sector businesses and public that collect use or disclose personal information. It governs what dealer members can do with personal information that is collected used and disclosed in the course of doing business. 57. Portfolio Manager: These are individuals who deal with or provide discretionary portfolio management for managed accounts. 58. Unsolicited order: These are orders that are directly given to registered repre- sentatives (RRs) or often to sales assistants to buy and sell securities. 59. Continuing education (CE): this is a fundamental need in most knowl- edge-based industries, and in the Canadian securities industry, it is a vitally impor- tant requirement for ongoing licensing. It ensures that you maintain proficiency in your chose area of expertise and is necessary to help you stay abreast of product develops, legal and compliance issues, emerging industry trends, and other capital market developments. Every two years, RRs must complete at least 20 hours of professional development courses and 10 hours of compliance. 60. IIROC Note 11-0349: This is a notice that was issued by IIROC regarding the use of social media in any form including but not limited to the use of facebook, twitter, linkedin, and youtube etc. IIROC just wants to ensure that dealer members are ensuring compliance and are following securities legislation while on these apps. 8 / 16  Conduct and Practices Handbook (CPH) Study online at https://quizlet.com/_9tknhx 61. beneficial owner: This is the owner of the account that is financially responsible for the account 62. cash account: This is a type of client account that require the client to deposit payment in full for each purchased transaction. These accounts are operated in accordance with the industry Cash Account Rule. 63. client discovery: During this process and throughout the client relationship, you must be in the best position to observe and evaluate client behaviour from a money laundering perspective. It is in this process that you might discover red flags that indicate money laundering or terrorist financing activities. 64. delivery against payment (DAP): this is a type of account that involves the purchase of securities and payment on a settlement date. There is usually a financial institution that acts as an agent to complete these transactions. These accounts are also subject to the Cash Account Rule. 65. discretionary account: this is a type of account where discretionary authority has not been solicited. The dealer member has authority to select securities and execute orders on behalf of the client (without their constant permission). This is usually done for clients that are ill or absent from the country and must be renewed every 12 months. 66. insider (insider trading): This is someone that works at a company that has information about that company or any other publicly traded companies. They are in a position to obtain information about companies that the public does not have access to. This information is any non public material information about the securities of an issuer. They use this non public information to benefit and it is illegal. 67. managed account: this is a type of account in which investment decisions are made on a continuing basis by the dealer member. They grant discretionary authority on an ongoing basis and is a permanent arrangement. In order for the dealer member to look after this account the client must sign a managed account agreement and must specify their objectives for the account. These accounts are reviewed on a quarterly basis by a designated supervisor. 68. margin account: This is a type of client account that only requires partial payment for purchases. The dealer member lends the client the unpaid portion of the market value of the securities at a certain interest rate (margin agreement). Client must make an initial deposit of specified portion of the securities purchased (client margin), which varies according to type of security bought. 69. politically exposed person (PEP): This is a client that is in a prominent position of public trust, or is an immediate family member, or close associates in relation to the client. These are a bigger concern when they are foreign. 70. power of attorney: This is a legal document giving one person the power to act for another person. The agent can have broad legal authority to make legal decisions 9 / 16  Conduct and Practices Handbook (CPH) Study online at https://quizlet.com/_9tknhx about principal's property, finances, or medical care. This is usually important to have for clients that are opening new accounts. 71. Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA): This is something that a registered representative (RR) must follow in regards to reporting responsibilities against money laundering and terrorist financ- ing. Those that do not follow can potentially face either or both a prison term of up to five years and a fine of up to $2,000,000. It is suggested to review accounts in intervals of 2 years for money laundering according to this act. In terms of corporate accounts, refer to the person who directly or indirectly owns 25% or more. 72. red flag: This is something that is usually discovered in the client discover and client relationship processes. It may indicate money laundering or terrorist financing activities or warning signals of possible improper activities that can provide an appropriate basis for further action. Some examples of this include; reluctance to provide information/documentation, altered documentation, attempt to open in other people's name, incorrect phone numbers.. etc 73. new account application form (NAAF): this is a critically important document that must be completed by the RR and the client before opening a new account. This is a contract for services between the dealer member and the client. It includes the clients name, address, SIN number, personal information, investment objectives, risk tolerance etc. There are 3 general categories of information required on this; client information, account information, and registrant information. 74. Receipt against payment (RAP): this is an account that operates similarly to delivery against payment (DAP) accounts, except the securities are sold by the client rather than the agent or financial institution. 75. Registered accounts: this is simply an account that is registered in an individ- ual's name with the CRA. It includes categories such as RRSPs, RRIFs, RESPs, TFSAs etc. 76. Pro account: this is the account that is opened for all employees or family members of a dealer member as they are considered to be non clients 77. Relationship disclosure document: this is a document that outlines the ac- count relationship and services to be provided to the client. It includes a description of or info relating to; the types of products offered, processes, suitability, fees related to the account, how to make a complaint etc. Disclosure to clients can also relate to IPOs, mutual funds, bonds/coupons, insurance products, leverage, and derivatives etc 78. portfolio record: this is a document that shows each client's current holdings and provides a quick reference when you are speaking to the client 79. security cross reference: this is an alphabetical list of all securities held by the firm's clients, showing each client's name under the securities they hold. It enables 10 / 16  Conduct and Practices Handbook (CPH) Study online at https://quizlet.com/_9tknhx you to contact all clients concerned should something important develop in regards to security. 80. accredited investors: these are financial institutions, governments, regulated pension funds, trust companies, certain investment funds, and wealthy individuals who purchase securities 81. best efforts deal: This is regarding distribution of new securities in which the dealer may act as an agent to sell the securities with no guarantee of sales or price 82. bought deal: This is when you are regarding the actual distribution of new securities in which the dealer may purchase the whole or partial block of new securities and distribute it to institutional or individual investors. This is an offering in which an underwriter (syndicate) buys all of an issuance for resale to its clients usually by way of a short form prospectus offering. The dealer is risking their own capital in these deals. 83. crowdfunding: this is a way for companies to raise capital 84. early warning: this is usually issued as an initial threshold prior to a take over bid 85. exchange-traded funds (ETFs): This is a product that is similar to mutual funds. Some of them have complex structured products that use leverage and other sophisticated investment strategies. It is a type of security that tracks an index. People usually buy these because they have low fees or they don't believe that mutual funds will beat the market over time. 86. exempt market: this is the portion of capital markets where participation is re- stricted to certain individuals and entities who meet certain requirements specified in securities legislation in the province where they reside. It refers to certain securities that are generally considered to be of low risk in terms of loss of capital 87. final prospectus: This is the final version of the prospectus and contains a com- plete disclosure of all facts pertaining to the offering with regards to the securities being distributed 88. initial public offering (IPO): This is the first issuing of securities from a compa- ny into the market 89. institutional customer: This is a customer that is defined by IIROC as be- ing/having; acceptable counterparties/institutions, regulated entities, registrants un- der securities law, and a non individual with total securities under administra- tion/management exceeding 10 million. 90. issuer bid: this is when an issuer buys back their own shares 91. principal-protected notes (PPNs): This is a fixed income security that guar- antees a minimum return equal tot he investors initial investment, regardless of the performance of the underlying assets. Sale of these come through registered dealers, including IIROC dealer members. 11 / 16  Conduct and Practices Handbook (CPH) Study online at https://quizlet.com/_9tknhx 92. private placements: This is a way in which dealer members must communicate with their clients in the general availability through a statement message, general mailing, or other communications 93. prospectus: This is the new issues of securities through an IPO or reporting issuer. This is the investment contract between the purchaser and the company. It outlines certain facts upon which potential purchasers base their decision to buy securities 94. red herring prospectus: this is also known as the preliminary prospectus, it must have in red ink on its front cover a state to the effect that the preliminary prospectus has been filed, not in its final form, and is subject to completion or amendment. It also states that securities may not be sold, nor may offers to buy them be accepted until a receipt for the final prospectus has been obtained from admin. 95. reporting issuer: This is usually a company that is issuing addition securities into the marketplace and a prospectus is normally still required 96. right of rescission: this is the right of the consumer to cancel certain types of loans or agreements 97. right of withdrawal: investors have this right within 48 hours of the purchase if they need 98. take-over bid: this is when an issuer purchases the securities of another issuer 99. underwriting: This is when you provide advice to the issuer regarding what type of securities to issue, pricing, helping to sell the new new securities. 100. due diligence: this is what dealer members/RRs must do in every part of business to ensure that their clients are getting the proper service that they deserve 101. All or none (AON): This is an order for which the entire amount of stock must be bought or sold, or no part of the order will be executed. The client will not accept partial fills. Such orders are filled on a bestefforts basis only. 102. Fill or kill order (FOK): this is an order in which as much as possible must be filled immediately, after which the balance of the order is cancelled. It makes no difference how much of the order remains unfilled. 103. Switch order: This is an order for which the sequential sale of one security and then use of the proceeds to purchase another. The second order cannot be activated until the first order is filled. 104. Contingent order: this is an order that takes second place to a primary order. A primary order and one or more of these orders are entered into the trading system simultaneously; however they only become effective only after the primary order is filled. These are mostly used as part of derivatives trading strategies. 12 / 16  Conduct and Practices Handbook (CPH) Study online at https://quizlet.com/_9tknhx 105. ask price: this is the lowest price at which any seller is willing to sell and usually what buyers pay when they buy a security on the market. It's also called the offer price. 106. bid price: this is the highest price any buyer is willing to pay for a security 107. client priority: This is a rule that is implemented to ensure that client orders are given priority over partners, directors, officers, RRs, and employees of a dealer member/pro accounts 108. day order: this is a type of order to buy or sell which expires at the end of the trading day on which it was entered. These are similar to good till cancelled (GTC) and good till date (GTD) orders. 109. firewall: This is an information barrier that separates persons who make invest- ment decisions from persons who are privy to undisclosed material information that may influence those decisions. This could include better education of employees, containment of insider information, restriction of transactions, and more surveil- lances 110. front-running: This is when a broker places personal orders ahead of a cus- tomer's large order to profit from the market effects of the trade 111. gatekeeper: This is a role that registrants such as RRs and IRs (investment representatives) must play to stop clients from breaching the securities law or regulations. This would be acting upon a red flag when seen. 112. grey (or watch) list: after information is publicly disclosed, securities are placed usually on restricted lists. This is a different type of list where there is very restricted dissemination because the addition of an issuer to this list would signal that something may be happening, whereas restricted lists have much broader dissemination 113. limit order: This is an order to buy or sell a security at a specified or better price. You use this to purchase shares at the limit price or lower or sell the shares at the limit price or higher 114. market order: this is an order to buy or sell securities at the prevailing market price. This can include any order that does not have a specific price limit. 115. material information: This refers to any documents, facts, figures, or data which a reasonable investor would consider significant to their decision to buy or sell a security. 116. minimum quotation spread: This is the minimum acceptable range between bid and ask prices when quotations are given for securities and has different ranges depending on the exchange being used. 117. odd lot: This is any order or portion of orders to buy or sell securities that are NOT in multiples of standard trading units. It is more difficult to fill orders for these lots and therefore they might be more expensive. 13 / 16  Conduct and Practices Handbook (CPH) Study online at https://quizlet.com/_9tknhx 118. short sale: this is an order to sell stock that the seller does not currently. This is when you borrow stock from a dealer member to sell it with the expectation of the price of the stock to go down. 119. standard trading unit: this is the standard amount/size of units that is consid- ered by the Universal Market Integrity Rules (UMIR) and anything outside of this standard amount is considered an odd lot. 120. stop loss: This is an on-stop sell order. This is specifically used in connection with a sell order where the limit price is below the existing market price. The order is triggered when the stock drops to the specified level. This is used to reduce the amount of loss that might be incurred from a drop in market price. 121. settlement: This is the process of transferring securities into the account of a buyer and cash into the seller's account following a trade of stocks, bonds, futures, or other financial assets. It is the time between the date of a securities transaction and the date on which ownership of the security is transferred. For tbills this is T + 0 (trade date + 0), for goc bonds and preferred/common shares it's t+2 122. tipping: this is something that is prohibited by the legislations about securities. It is when an insider passes on such information to someone who is not authorized to receive it. It's similar to insider trading, and is an illegal and unfair way to make money. 123. wash trade:: This is a type of trade that gives a false impression of trading activity with no real change in beneficial ownership. It is when a broker and a trader collude to make profits by feeding misleading information to the market. 124. churning: this is the act of carrying out multiple transactions in a client's account solely to increase the RR's remuneration (pay). It constitutes unfairness, honesty, and acting in good faith with a client. 125. Canadian Depository for Securities (CDS): This is a clearing system that operates for dealer members and participating banks with the purpose to provide participants with a central facility through which to make deliveries in the settlement of security transactions either physically or electronically. 126. arbitration: This is a form of compensation for clients with complaints (along with ombudsman programs and civil litigation). It is more flexible than civil litigation as there is an impartial 3rd party that listens to both respective cases and then imposes binding decisions based on the facts and arguments presented. This is favoured because the proceedings and decisions are confidential whereas civil litigation is public. 127. Cash Account Rule: this is specific to clients that do not use any form of financing from the dealer. This is a rule that governs the operation of cash accounts and it eliminates poor credit practices without restricting normal business relations and also ensure that all dealer members extend credit to clients on an equal basis 14 / 16  Conduct and Practices Handbook (CPH) Study online at https://quizlet.com/_9tknhx 128. complaints and settlement reporting system (ComSet): This is where com- plaints about RR and dealer members are sent and recorded as per IIROC. It is a web based reporting system that dealer members are required to use to report the following complaints/matters. 129. fully margined: This is when an account's loan value is equal to or greater than the amount borrowed. This is the opposite of being undermargined/less than the amount borrowed/having a margin deficiency (shortage of funds required for the margin) 130. fully secured: this signifies that a loan is in a positive equity position in the client's account. In other words it is a very strong loan margin account and if securities were liquidated, their market value would cover any debit balance owing. The other two equity positions are partly secured/negative position, or unsecured/no securities 131. hedge: this is an investment that is made with the intention of reducing the risk of adverse price movements in an asset. This consists of taking an offsetting or opposite position in a related security. (if you are making a risky investment its a good backup incase it goes wrong) 132. margin agreement: this is an agreement that is in place through IIROC that regulates the amount of credit that dealer members may extend to clients on the purchase of securities/the maximum amount that may be financed. It also states that clients must maintain adequate margin in the account (50% usually) and they must repay the amount loaned upon demand. 133. margin call: This is something that the broker or RR issues when the security falls to the point where the account becomes undermargined (less than 50% or whatever the required holding is). This is simply a request from the RR to bring the sufficient funds to bring the account up to full margin. 134. margin rate: This is a rate that is determined by IIROC for each listed security that reflects its market risk. For all securities 2$ and over it's 50% and it is the amount that a client must have in the account in order to borrow the funds/margin their account. 135. margin account: this is a type of account that allows clients to buy and sell securities on credit and initially pay only part of the full price of the transaction. The other part of the transaction price is lent out by the dealer member, charging interest on the loan and holding the securities as collateral. These accounts can be short or long term. Using borrowed securities involves a greater risk and they must pay interest on the principal even if the value decreases, however these are used to generate higher rates of return. Any accounts that are overdue for 6 or more business days after the settlement date are to be treated as these accounts. 15 / 16  Conduct and Practices Handbook (CPH) Study online at https://quizlet.com/_9tknhx Accounts overdue by 20 days or more after settlement are restricted from further transactions until handled. 136. settlement date: This is the date that securities must either be paid for or delivered by when purchasing or selling securities 16 / 16