Glossary of Canadian Securities Institute (PDF)

Glossary Associate Portfolio Manager Canadian Investment Regulatory A Organization (CIRO) A person or c...

Glossary Associate Portfolio Manager Canadian Investment Regulatory A Organization (CIRO) A person or company that manages the investment portfolios of clients The Canadian Investment Regulatory Account Application through discretionary authority Organization (CIRO) is the national A form that is filled out by a client and granted by the clients. self-regulatory organization that an RR at the opening of an account. It oversees all investment dealers, provides personal information about mutual fund dealers and trading the client, their financial position, risk activity on Canada’s debt and equity tolerance, investment objectives, etc. B marketplaces. which assists the RR in handling the account and (where applicable) making Canadian Investor Protection Fund suitable investment recommendations. Beneficial Owner (CIPF) The account application (formerly The real (underlying) owner of an account, securities or other assets. A fund that protects investors against the NAAF) must be completed the insolvency of any dealer member. and approved before (or promptly An investor may own shares which are registered in the name of an It is financed by CIRO through thereafter) any trades are executed in quarterly assessments on dealer an account. investment dealer, trustee or bank to facilitate transfer or to preserve members. Accredited Investor anonymity, but the investor would be the beneficial owner. Canadian Securities Administrators An individual or institutional investor (CSA) who meets certain minimum The CSA is a forum for the 13 securities requirement relating to income, net Best Efforts Basis The attempt by an investment dealer regulators of Canada’s provinces worth, or investment knowledge. and territories to coordinate and to fulfill a customer’s order or to sell an issue of securities, to the best of their harmonize the regulation of the Acts Canadian capital markets. abilities. The investment dealer is not The Securities Acts of the provinces or held liable to fulfill the order or to sell territories. Cash Account all of the securities. A type of account where an investor is Administrator required to pay for purchases or deliver Bid Price The securities regulatory authority securities sold by the settlement date The highest price a buyer is willing to in each province. Also see Canadian of the transaction. pay for the financial instrument being Securities Administrators. quoted. Cash Account Rule All or None Order (AON) Rule governing settlement of securities Bought Deal An order that must be executed in transactions in cash accounts. It An offering in which an underwriter its entirety – partial fills will not be prescribes settlement dates, payment (or syndicate) buys all of the shares accepted. methods and restrictions on trading if for resale to its clients, usually by way of a private placement or short form accounts are overdue. Arbitration prospectus offering. In a bought deal A method of dispute resolution in the dealer risks its own capital. Churning which an independent arbitrator is Excessive trading in a client’s account chosen to assist aggrieved parties solely to generate commissions and recover damages. It is an alternative to resulting in no benefit to the client. costly and lengthy litigation. C Client Discovery Ask Price The period during which you and your Canada’s Anti-Spam Legislation The lowest price a seller will accept for client ask questions and get to know (CASL) the financial instrument being quoted. each other. Federal legislation that establishes rules for the sending of commercial electronic messages (CEMs). © CANADIAN SECURITIES INSTITUTE G 2 CONDUCT AND PRACTICES HANDBOOK COURSE Client Priority Dealer Member Do Not Call List (DNCL) A type of order for the account of A firm that trades in securities in the The “Unsolicited Telecommunications partners, directors, officers, major capacity of an agent or principal and is Rules and the National Do Not shareholders, IAs and employees of a member of the Canadian Investment Call List” (National DNCL) member firms that must be marked Regulatory Organization (CIRO). creates a regulatory framework “PRO”, “N-C” or “Emp”, in order to for telemarketing calls and other ensure that client orders are given Delivery Against Payment (DAP) unsolicited telecommunications priority for the same securities. A transaction in which the buyer’s received by consumers. Their intent payment for securities is due at the is to prevent undue inconvenience Complaints and Settlement time of delivery (usually to a bank and nuisance of unsolicited Reporting System (ComSet) acting as agent for the buyer) upon telecommunications, while still A web-based system that allows dealer receipt of the securities. The payment allowing legitimate uses of such members to relay information to CIRO may be made by bank wire, cheque, or communications. on matters such as client complaints, direct credit to an account. securities-related civil claims and Duty of Care arbitration notices, internal disciplinary Designated Stock Exchange The duty an RR has to a client to actions and criminal offences. A stock exchange that has been ensure that everything ‘reasonably designated (by the Minister of Finance) practicable’ is done to protect the Confirmation as qualified for investments in various client’s assets. This involves devoting A written statement acknowledging a registered plans. the necessary time and attention to be securities transaction and confirming able to make informed decisions. the details of the trade. Disclosure One of the principles of securities Conflict of Interest regulation in Canada. This principle A situation in which the personal entails full, true and plain disclosure E or financial interests of a registrant of all material facts necessary to make conflict with the interests of a client reasoned investment decisions. Early Warning or the registrant’s dealer member. In An initial threshold prior to a take- cases of potential or actual conflict of Discretionary Account over bid. A person or company interest, a client’s interests must be A securities account where the client accumulating beneficial ownership or given priority and the conflict should has given specific written authorization control over 10% or more of voting or be disclosed. to an investment dealer to make equity securities of a class of securities decisions regarding the security, price, must issue a press release and report Crowdfunding quantity or timing of orders in the to the Administrator immediately. The process of raising start-up capital account. by soliciting contributions from the Ethics public at large, usually aided by online Discount Brokers Defined as a set of values, or morals or Internet-based systems. Dealer that buys and sells securities that guide individual behaviour. for clients at a greater commission Cybersecurity discount than full-service firms. Also Ethical Dilemma Security relating to computers, known as Order Execution Only or The need to make an ethical decision software, communications systems online brokers. in the face of two or more choices. and services used to access and interact with the Internet. Distribution Ethical Relativism An offering of securities, generally The philosophical position that by the issuer from its treasury, which states there is no such thing as a requires the use of a prospectus or the universal moral principle to govern D availability of a prospectus exemption. our behaviour. Everything is relative, In some provinces this is formally situational, negotiable, and personal. Day Order referred to as a primary distribution. Each new situation requires us to A buy or sell order that automatically redefine our values and actions, with expires if it is not executed on the day each of us having an equal say on what it is entered. All orders are day orders is right or wrong. unless otherwise specified. © CANADIAN SECURITIES INSTITUTE  GLOSSARY G 3 End Values Financial Transactions Reports Analysis Centre of Canada G The values that help define our personal goals, which may be years (FINTRAC) away. These include accomplishment, FINTRAC receives, analyzes, assesses Gatekeeper security, and social recognition. and discloses financial intelligence on Refers to dealers and all of their suspected money laundering, terrorist employees who are responsible Excess Margin financing, and threats to the security for protecting the markets from The client margin in an account of Canada. potentially illegal client activities. exceeding what is required by the Universal Market Integrity Rules dealer member. Fit and Proper Test set out specific rules that identify An evaluation conducted by CIRO the gatekeeper function and formal of an applicant’s integrity, financial reporting procedures. Exchange-traded Funds (ETFs) Open-ended mutual fund trusts solvency, and competence. Grey (or Watch) List that hold the same stocks in the same proportion as those included Firewall A limited-circulation list of issuers in a specific stock index. Shares of an Procedures and policies that ensure on which a dealer member (including exchange-traded fund trade on major a dealer member restricts access any of its staff) has confidential stock exchanges. between departments to non-public, information, distributed for the material information, to avoid the purpose of watching for any illegal use of inside information. trading activity suggesting that the Exempt Market information has been leaked or has The portion of the capital markets been used inappropriately. where participation is restricted to Front Page Test certain individuals and entities who A test to determine whether you are meet certain requirements specified in dealing with a right-versus-wrong securities legislation. issue. H Frontrunning Entering an order with the prior Hedge F knowledge of a pending trade that will An investment made to reduce the likely affect the market price of the risk of adverse price movements in security. a security, by taking an offsetting Fails position in a related security, (e.g., an Securities that are not delivered by Fully Margined option or a short sale). settlement date. A situation in which the client margin Fiduciary Duty in a margin account is equal to or A legal term that describes a high greater than the margin required. I degree of duty of care. Criteria that may be used to determine whether Fully-Secured a fiduciary duty is present in an A positive net equity position in an Information Barrier (see Firewall) RR-client relationship include a high account. In other words, the value of Procedures and policies that ensure degree of reliance by the client on the holdings exceeds any debit balance. a dealer member restricts access RR’s advice and the vulnerability of between departments to non-public, the client. In Quebec, this concept is Fund Facts material information, to avoid the referred to as a “Contract of Mandate”. A disclosure document designed illegal use of inside information. to give mutual fund investors key Final Prospectus information about a fund. The Initial Public Offering (IPO) A document that contains complete document is limited to two doubleside A company’s first sale of stock to the details of securities being offered for pages in length and provides timely public. sale. It provides full, true and plain information that would be material to disclosure of all material facts relating an investment decision. Inside Information to the distribution. The final prospectus Material non-public information about contains all of the information a company. omitted in the preliminary prospectus (e.g., offering price, proceeds to the issuer, etc.). A copy must be mailed or delivered to all purchasers of the securities by no later than midnight on the second business day after an agreement of purchase or sale had been entered into. © CANADIAN SECURITIES INSTITUTE G 4 CONDUCT AND PRACTICES HANDBOOK COURSE Insider Investment Representative (IR) Loan Value All directors and senior officers of a An individual licensed as an order The dollar amount of credit that the corporation and those who may also taker or sales assistant and strictly dealer member will extend to a client be presumed to have access to non- prohibited from providing investment for a purchase on margin. public or inside information concerning advice to the public. the company; also anyone owning more than 10% of the voting shares in Issuer Bid a corporation. An offer by an issuer to security M holders to buy back any of its own Insider Trading (Illegal) shares or other securities convertible Managed Account Using material non-public information into its shares. An account whereby a licensed about a company to effect trades in portfolio manager has the discretion that company’s securities or trading to decide and execute suitable in securities as an insider without investment decisions on behalf of reporting the trades to the regulators. J clients. Institutional Client Joint Serious Offences Team (JSOT) Margin A legal entity (i.e. a non-individual) An enforcement partnership between Margin is the amount of money paid that represents the collective financial the OSC, the RCMP Financial Crime by a client when he or she uses credit interests of a large group. A mutual program and the Ontario Provincial to buy a security. It is the difference fund, insurance company, pension fund Police Anti-Rackets Branch. between the market value of a and corporate treasury are just a few security and the amount loaned by an examples. investment dealer. Integrated Market Enforcement Teams (IMETs) K Margin Account An account that requires only partial An initiative of the RCMP and the payment from a client for certain federal government to detect, Know Your Client (KYC) Rule The cardinal rule in making investment purchases. The dealer member loans investigate and deter capital markets the client the unpaid portion. Margin fraud. The teams comprise police, recommendations. All relevant information about every client and accounts can be long or short. lawyers and other investigative experts through branches in Toronto, every order must be known to ensure that all recommendations made by an Margin Agreement Vancouver, Montreal and Calgary. They are jointly managed by the RCMP IA to clients are suitable. A contract that must be completed and Justice Canada and work closely and signed by a client and approved with securities regulators, such as Know Your Product (KYP) Rule by the dealer member in order to open CIRO, and other federal and provincial A companion obligation of KYC. Before a margin account. This sets out the authorities. recommending an investment product terms and conditions of the account. to a client you must understand how Investment Industry Association of a product is constructed and how it is Margin Call Canada (IIAC) likely to perform. When an investor purchases securities, The association that advances the or sells securities short, on margin and position of the Canadian investment share prices go against the investor, industry on regulatory and public policy the investment dealer will demand issues. As the professional association L the deposit of additional cash or for the industry, IIAC’s mandate is to marginable securities to the account to promote efficient, fair and competitive protect the broker’s loan. Legal Test capital markets in Canada. A test to determine whether you are Margin Deficiency dealing with a right-versus-wrong Investment Industry Regulatory A situation in which a client’s margin issue. Organization of Canada (IIROC) in an account falls below the level Formerly the national Self-Regulatory required by the dealer member. This Limit Order results in a margin call. Organization overseeing all investment A client’s order to buy or sell securities dealer members and trading activity at a specific price or better. The order Margin Rate on equity and debt marketplaces in will only be executed if the market Canada. IIROC merged with the MFDA The percentage of a security’s value reaches or betters that price. and became the Canadian Investment that a client must put up in order Regulatory Organization (CIRO). to make a purchase or short sale on margin. The reciprocal of loan value. © CANADIAN SECURITIES INSTITUTE  GLOSSARY G 5 Market Order New Issue Power of Attorney An order to buy or sell securities at the An offering of stocks or bonds sold by A legal document giving authority prevailing market price. All orders are a company for the first time. to an individual to direct the affairs market orders unless a price limit is of another (usually in the case of an specified. absence). Material Information O Preliminary Prospectus Information about a material change The initial document published by an that either has occurred or is likely to Odd Lot underwriter of a new issue of securities occur. A number of shares that is less than that is given to prospective investors to a standard trading unit. This usually ascertain the extent of public interest Means Values refers to an equity trade for less than in the issue while it is being reviewed The actions we take today to achieve 100 shares, and is sometimes called a by a securities commission. our goals. Means values include broken lot. ambition, openness, or competence. Primary Distribution A distribution of securities, generally Minimum Quotation Spread by the issuer from its treasury. All The minimum acceptable range P primary offerings are distributions between bid and ask prices when which requires the use of a prospectus quotations are given for securities. This or the availability of a prospectus Passport System exemption. range is determined by each individual The Passport System gives issuers exchange. a streamlined access to the capital Principal-protected Note (PPN) markets in multiple jurisdictions by Mom Test A debt-like instrument with a maturity dealing (and filing documents) with A test to determine whether you are date whereby the issuer agrees to only its Principal Regulator (PR) and dealing with a right-versus-wrong repay investors the amount originally meeting the requirements of one set of issue. invested (the principal) plus interest. harmonized laws. What this means is that where an issuer files a prospectus Money Laundering Private Placement in its principal jurisdiction with its PR, The process in which the proceeds of if the PR issues a receipt and the issuer The underwriting of a security and crime are converted into legitimate gave notice to the local jurisdictions its sale to a few buyers, usually funds using complex transactions, in which it otherwise would have institutional, in large amounts. usually through financial institutions. filed the prospectus as well, the other jurisdictions will automatically issue a Proceeds of Crime (Money Morals deemed receipt. Laundering) and Terrorist Financing The rules and habits of conduct of Act a society established according to Personal Information Protection and The Act that legislates specific perceived standards of right and Electronic Documents Act (PIPEDA) measures aimed at assisting in the wrong. The Act that governs each firm’s detection and deterrence of money information gathering processes and laundering and facilitating the Mutual Fund Dealers Association regulates what firms can do with the investigation and prosecution of (MFDA) personal information that is collected, money laundering offences. Formerly the Self-Regulatory used and disclosed in the course of Organization that regulated the doing business. Prospectus distribution (dealer) side of the mutual A legal document that describes fund industry in Canada. The MFDA Politically Exposed Persons (PEPs) securities being offered for sale to the merged with IIROC and became the A person who holds or has held a public. Must be prepared in conformity Canadian Investment Regulatory specific office or position in or on with requirements of applicable Organization (CIRO). behalf of a foreign state (i.e., foreign securities commissions. PEPs) or a Canadian government (i.e., domestic PEPs). N Portfolio Manager R A person or company that manages National Instruments the investment portfolios of clients Red Flags These are policies that apply in all through discretionary authority Warning signals and indicators of Canadian jurisdictions and have the granted by the clients. possible improper activities that may force of a binding rule. provide a basis for further actions. © CANADIAN SECURITIES INSTITUTE G 6 CONDUCT AND PRACTICES HANDBOOK COURSE Red Herring Prospectus Short Form Prospectus System S Another term for a preliminary This system allows certain reporting prospectus so called because certain issuers quicker access to the capital information is printed in red ink on the Secondary Distribution markets via a short form prospectus front page. Refers to the redistribution or resale that basically only provides details of of previously issued securities to the the offering. The short form prospectus Registered Account public by a dealer or investment dealer contains by reference the material An investment vehicle (such as an syndicate. filed in the issuer’s Annual Information RRSP or RRIF) available to individuals Form. to defer tax on a specified amount of Secondary Trading money to be used for retirement. The trading of securities through Short Sale an exchange or over-the-counter The sale of a security which the seller Registered Representative (RR) subsequent to a primary offering. The does not own but which is loaned to Individuals licensed to provide proceeds from trades in a secondary the seller by the investment dealer. investment advice. Often referred to as market go to the selling dealers and This is done when an investor believes Investment Advisors. investors, rather than to the companies that the price of a stock is going to fall that originally issued the shares in the and he or she intends to cover the sale primary market. by buying the stock back at a lower Registrant price. Short sales must be declared at This refers to individuals registered Securities Acts the time the order is entered. with the Securities Administrators or Self-Regulatory Organizations. Provincial Acts that are administered by the securities commission in each Standard Trading Unit province, which set the rules under The replacement term for a “board Regulator which securities may be issued and lot” under UMIR, which recognizes A general term referring to the traded in that province. that different marketplaces may use Securities Administrators and Self- different sizes for board lots. Regulatory Organization (SRO) Securities Administrator collectively. A general term referring to the Stop Buy Order provincial regulatory authority (e.g., An order to buy a security only after it Reporting Issuer securities commission or provincial has reached a certain price. This may A corporation that has issued securities registrar) responsible for administering be used to protect a short position or to the public and is subject, among a provincial Securities Act. to ensure that a stock is purchased other things, to continuous disclosure while its price is rising. According to requirements. Self-Regulatory Organization (SRO) TSX rules these orders become limit An organization recognized by the orders when the stop price is reached. Restricted List Securities Administrators as having A list of issuers with whom a dealer Stop Loss Order powers to establish and enforce member has a current, publicly industry regulations. Its main functions The opposite of a stop buy order. An disclosed involvement requiring are to protect investors, maintain order to sell a security after its price restrictions on the dealer member’s fair, equitable and ethical practices in falls to a certain amount, thus limiting trading or advising activities. the industry and ensure conformity the loss or protecting a paper profit. with securities legislation. In Canada, According to TSX rules these orders Right of Rescission the SRO is the Canadian Investment become limit orders when the stop The right of a purchaser of a new Regulatory Organization (CIRO). price is reached. issue to withdraw from the purchase agreement within the specific Settlement Suitability province’s applicable time limits if The moment of irrevocable exchange An RR’s major concern in making the prospectus contains an untrue of cash and securities. investment recommendations. statement or omitted a material fact. All information about a client and Settlement Date a security must be analyzed to Right of Withdrawal The date on which a securities buyer determine if an investment is suitable The right of a purchaser of a new for the client in accounts where a must pay for a purchase or a seller issue to withdraw from the purchase suitability exemption does not apply. must deliver the securities sold. For agreement within two business days stock transactions, settlement must after receiving the prospectus. be made on or before the first business day following the transaction date. © CANADIAN SECURITIES INSTITUTE  GLOSSARY G 7 Suspicious Transaction Unified Value System U A transaction, or an attempted A value system in which end values transaction, that raises reasonable and means values mutually reinforce grounds to suspect a money laundering Undermargined and support each other. offence. Suspicious transactions must A margin account that has a margin be reported to FINTRAC. deficiency (i.e., insufficient funds). Underwriting V The purchase for resale of a security T issue by one or more investment Values dealers or underwriters. The formal The individual or cultural measures of Take-over Bid agreements pertaining to such a the worth we place certain ideas and transaction are called underwriting An offer made to the security holders behaviour. They are generally of two agreements. of a company to purchase the voting types: end and means values. securities of a company which, with Universal Market Integrity Rules the offeror’s already owned securities, (UMIR) will in total exceed 20% of the A common set of equities trading rules outstanding voting securities of the enforced by CIRO and designed to W company. For federally incorporated companies, the equivalent requirement ensure fairness and maintain investor confidence. These rules create the Waiting Period is more than 10% of the outstanding voting shares of the target company. framework for the integrity of trading The period of time between the activity on marketplaces and allow issuance of a receipt for a preliminary for the competitive operation of prospectus and receipt for a final Tipping exchanges and alternative trading prospectus from the securities When someone possessing inside administrators. systems (ATSs) in Canada. information knowingly conveys that information, while also knowing that Unsolicited Order Wash Trade there is a risk that the recipient will use the information to buy or sell, directly An order entered for a client where A trade in which there is no change of or indirectly, a security to which the there was no recommendation made beneficial ownership of a security. This information relates or convey the by the client’s RR or his/her dealer may be done to give an impression of information to someone else who may member. false trading activity in a security. do so. © CANADIAN SECURITIES INSTITUTE