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85 Cards in this Set
- Front
- Back
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Regulation of Canadian Securities |
Regulated at at the Provincial level |
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Self-Regulatory Organizations |
1) Investment Industry Regulatory Organization of Canada (IIROC) 2) Stock Exchanges (i.e. TSX) |
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IIROC |
A national self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada |
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Cash |
Includes cash, CSBS, money market, T-Bills, commercial paper, money market mutual funds, term deposits, GICs, strip bonds, mortgages with maturities of less than 1 year |
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Fixed Income Securities |
Low risk, high quality, liquid, short-term investments with maturities of more than 1 year -Examples: T-Bills, commercial paper, bankers' acceptances, money market instruments, GICs, term deposits, index-linked GICs, mortgage-backed securities |
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T-Bills |
1) Short term debt instruments issued by the federal government 2) High liquid, short-term, low-risk investments 3) Face value is paid at the end of maturity date and reported as interest income--annual interest is not reported like bonds 4) Can be sold prior to maturity which results in interest income and potential capital gain |
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Commercial Paper |
1. Short-term debt security issued by corporations 2. Security of principal, highly liquid and income flow |
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Bankers' Acceptance |
1. Short-term promissory note issued by a corporation with a bank guarantee for its repayment 2. Safety of principal, highly liquid, income flow |
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Guaranteed Investment Certificate (GIC) |
1. A debt security issued by a bank or trust company for a fixed sum of money, maturing after a fixed length of time and paying a fixed rate of interest 2. Safety of principal and income flow |
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Term Deposits |
1. Same as GICs but can be redeemed at any time 2. Term deposits with maturities under a year are considered cash 3. Term deposits with maturities over a year are considered fixed income |
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Mortgage-backed securities (MBS) |
1. Certificates backed by a pool of home mortgages insured under the National Housing Act 2. Fairly liquid, regular income flow |
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Federal, Provincial Government and Crown Agency Securities |
Issue debt obligations backed by the full faith and credit of the Government of Canada (i.e. Provincial T-Bills and Provincial Bonds) |
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Canada Savings Bonds (CSBs) |
1. Non-marketable debt instrument issued by Government of Canada 2. Considered cash and not fixed income since they are highly liquid 3. Can be redeemed any time by the holder at any time |
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Corporate Bond |
A debt security issued by a corporation. The corporation promises to pay the holder a specific rate of interest over the life of the bond |
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Debenture |
Same as a bond but not secured by any specific assets are are backed only by the credit quality of the issuer (higher risk than regular bonds) |
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Retractable Bond |
The bond holder can redeem the bond at face value before the scheduled maturity date |
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Callable Bonds |
A bond that can be redeemed by the issuer before its maturity date |
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Convertible Bond |
Allows the bondholder to exchange the bond for a predetermined number of common shares of the bond issuer's corporation at certain times during the life of the bond |
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Conversion Premium/% of Conversion Premium |
1. Conversion Premium = Market Price of Bond - Conversion Value 2. Conversion Value of a Bond = Number of Common Shares * Market Price of Common Shares 2. (Conversion Premium / Conversion Value) * 100% |
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Call Risk |
When a bondholder or investor is faced to invest at a lower interest rate after the bond or share has been called upon |
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Bond Price/Yield Relationship |
If current market interest rates increase, bond prices fall (and vice versa) |
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Trading at Discount |
Bond priced below the par value |
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Trading at Premium |
Bond priced above par value |
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Convertible Securities |
A security in which the issuing company will, at the investor's option, convert for another security |
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Preferred Shares |
1. A class of ownership in a corporation that receives dividends before common shareholders2. Considered a fixed-income or equity investment
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Common Shares |
Securities that represent ownership in a corporation and have voting privileges |
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Open-End Investment Companies |
A mutual fund with unlimited number of shares issued in the primary market |
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Net Asset Value (NAV) |
NAV = (Fund Assets-Fund Expenses)/# of Units Issued |
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Closed-End Investment Companies |
Mutual funds that trade on the secondary exchange (i.e. TSX) and issue only a limited number of shares |
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Income Trust |
1. An investment that holds equities, debt instruments, royalty interests or real properties 2. The trust distributes 90-95% of available cash flow to unit holders => Good for an investor looking for consistent cash flow |
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Unit Investment Trusts (UIT) |
Pools of capital that invest in fixed income securities and have a limited number of units and trade on the secondary market |
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Labour-Sponsored Investment Fund (LSIF) |
-An investment fund that invests in small and medium-sized Canadian businesses and new start up businesses -Federal and provincial governments offer tax credits to LSIF investors, 15% -Annual $5000 contribution limit |
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Exchange Traded Funds (ETFs) |
1. An investment fund that invests in a pool of securities that mirror a stock index
2. No sales charges 3. Lower management costs than mutual funds and segregated funds |
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Pooled Funds |
Money from several large investors (i.e. pension funds) are combined for making investments with a fund manager 1. Exempt from many regulations that apply to mutual funds 2. Higher minimums to invest (i.e. $25K to $1M) 3. Lower management and trading costs than a regular mutual fund 4. Improved diversification 5. Lower sales fees |
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Phantom Tax |
If you purchase non-registered mutual funds towards the end of the year, you could pay tax for a year's worth of capital gains even though you did not own the units for a whole year |
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Phantom Tax and Segregated Funds |
Segregated funds pay distributions based on the length of time the investor owns the units and the Phantom Tax does not affect Segregated Fund policy owners |
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Flow-Through of Capital Losses |
1) Non-Registered Segregated Funds can claim capital losses and offset any capital gains made on other investments without selling the units 2) Mutual Funds can only claim losses through selling of the units 3) Investors can carry losses back 3 years or forward forever |
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Distributions and it's effect on the NAV
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Distributions do not reduce the NAV of a Segregated Fund but they do affect the NAV of a Mutual Fund |
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Annuities |
A contract purchased with a lump sum that provides a constant and guaranteed stream of payments over a chosen term 1) Life Annuity 2) Term Certain Annuity => Both can be registered/non-registered |
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Registered Annuities |
An annuity that is purchased with registered money (i.e. RRSP, LIRA/LRSP, DPSP, RPP, LIF/LRIF) 1) Life Annuity 2) Term Certain (To Age 90) => Both must be immediate annuities |
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Term Certain (To Age 90)
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1) Annuity payments that last until your 90th birthday 2) Can only be purchased with an RRSP or Non-Registered Investment |
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Registered Annuity Payments |
1) Fixed for the term and cannot be changed 2) Payment amount is determined by amount invested, the term chosen and interest rate for the term 3) Each payment is a mixture of principal and interest 4) Entire amount is fully taxable for the year of receipt |
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Non-Registered Annuities |
1) Non-Prescribed Annuity 2) Prescribed Annuity |
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Non-Prescribed Annuity |
1) Payments have more interest than principal in the earlier years but as you receive more payments this is reversed 2) Taxable income is higher in the earlier years => Good for an investor who prefers to have lower taxable income in later years |
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Prescribed Annuity |
1) Payment is mixes principal and interest equally 2) Taxable income is constant throughout the term of the annuity 3) Cannot extend past your 90th birthday => Good for an investor who prefers to have constant taxable income |
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Non-Registered Annuity Payments |
Same as registered annuities but only the interest portion of the payment is taxable in the year it is received |
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Features of Annuities |
1) Immediate Annuity 2) Deferred Annuity |
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Immediate Annuity |
Payments begin any time within one year of purchase |
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Deferred Annuity |
Annuity payments begin at some date later than 1 year in the future |
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Term Certain Annuity |
Provides guaranteed income for a specific period of time chosen at the time of purchase |
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Temporary/Bridge Annuity Annuities |
1. An annuity that provides additional income between early retirement age and when the person actually starts to receive CPP/OAS and his retirement penison 2. Can only be purchased with non-registered funds |
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Impaired Annuity |
Provides higher income payments than a regular annuity for an annuitant with an illness or disability that may reduce his life expectancy
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Fixed vs. Variable Annuity |
1. Fixed annuity provides a guaranteed amount of payments throughout the term of the annuity. The financial institution assumes all investment risk 2. Variable annuity does not provide a guaranteed amount of payments and the payments can increase/decrease depending on investment options chosen |
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Death and Annuities
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1. For a term certain annuity or annuities with guaranteed periods, if the annuitant dies before the end of the term or guarantee period, payments or commuted value can continue to the surviving beneficiary 2. For a straight life annuity, if the annuitant dies, payments stop |
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Who are Annuities Good For? |
1. A person who wants guaranteed income that he cannot outlive 2. A person not interested in making investment decisions 3. A person who wants something simple and is a low-risk investor |
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Derivatives |
-A security where the price is dependent on an underlying asset -Includes contracts, future contracts, forward contracts, interest rate agreements and SWAPs |
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Underlying Security |
A security in which a derivative security's payout is dependant on (i.e. stock, bond, currency) |
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Call Option |
1) The party that buys a call option has the right, but not the obligation, to buy the security at a specific price (strike price) anytime up to and including the expiration date 2) Investors buy call options when they believe the stock price will increase |
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Put Options |
1) The party that buys a put option has the right, but not the obligation, to sell the security at a specific price (strike price) anytime up to and including the expiration date 2) Investors buy put options when they believe the stock price will decrease |
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Bid Price |
The maximum price that a buyer is willing to pay for the security |
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Ask Price |
The minimum price that the seller is willing to receive |
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Covered Call |
Selling your stock to at anytime at the market price to someone else for cash paid today |
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Short Selling |
1) Investor borrows shares from the stock broker's firm 2 The shares are sold and the investor receives the proceeds 3) The investor must buy back the shares and return them to the brokerage firm => Investor sells short when he believes the price of a stock will fall |
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Futures/Forward Contracts |
A contract to buy or sell an asset for a price agreed upon today with the delivery payment occurring sometime in the future |
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The Spot Market |
1) Stock market transactions that occur 2) Settlements occur in T+3 days |
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Futures Market |
Work same way as spot market, except settlement takes 3-6 months or even 1 year |
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Swaps |
A derivative contract through which 2 parties exchange financial instruments |
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Mutual Funds and Segregated Funds Tax Implications |
1) Fund Distribution of Income 2) Redemption or sale of units by the Investor |
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Fund Distribution of Income |
1) Interest Income -> Fully taxable at MTR 2) Dividend Income -> Gross Up and Credit 3) Capital Gains -> 50% Inclusion Rate |
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Redemption or Sale of Units by the Investor |
50% Inclusion Rate |
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Special Tricks |
1) Stock dividends and DRIPs are taxed the same way as cash dividends even if they are not passed into the hands of the investor 2) Preferred shares and common shares are taxed the same way 3) Dividends by non-Canadian corporations are taxed as regular income 4) Interest on bonds are taxed annually even if not received |
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Declaration Date |
The date at which the board of directors authorize and announce the date and amount of the next dividend payment |
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Record Date |
The date set by the corporation at which an individual must own shares in order to receive a declared dividend |
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Cum Dividend |
When an investor buys a stock after a dividend is declared but before the ex dividend date, the new owner can receive a declared dividend |
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Ex Dividend |
Shares purchased after the date of record (after cum dividend) |
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Rights |
Provides the shareholder with the opportunity to purchase a prescribed number of newly authorized shares in order to maintain her proportional ownership of the existing corporation |
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Cum Rights |
A shareholder that qualifies for a rights offering declared by a company and allows existing shareholders to buy new shares typically at a lower price than the current market price (usually 3 business days before the record date) |
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Ex Rights |
Shares of a stock that are trading but no longer have rights (no longer have cum rights) attached because they have expired, transferred to another investor or have been exercised (usually 2 days before the record date) |
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Warrant |
1. A certificate issued by a corporation that entitles the holder to purchase a specified number of the corporation's common stock at a predetermined price for an extended period of time (i.e. similar to a call option) 2. Purchase price of a security is usually higher than current market price |
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Balanced Fund |
A mutual fund which invests in a mixture of stocks, cash and bonds |
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Speciality Fund |
A mutual fund which invests in a particular industry, sector or geographic region |
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Types of Funds and Their Risk |
1. My -> Money Market Fund 2. Mother -> Mortgage Fund 3. Buys -> Bond Fund 4. Dogs -> Dividend Fund 5. Right -> Real Estate Fund 6. Before -> Balanced Fund 7. Earth -> Equity Fund 8. I/Global -> International/Global Fund 9. Showers -> Speculative Fund |
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Types of Funds and Their Objectives |
1. Income - (money market, mortgage, bond and dividend funds) 2. Growth - (equity, global, speculative, real estate fund) 3. Growth + Income - (balanced, asset allocation fund) |
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KYC Investment Elements |
1. Net worth/Financial position - Does the client's current situation fit their risk profile 2. Investment Experience - Decisions made regarding investments, similar to investment knowledge 3. Investment Knowledge - Similar to investment experience, those with less knowledge should be in more conservative investments 4. Time Horizon - When the client needs the funds |
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Hedge Fund |
Speculative funds that use aggressive strategies including leveraging, short selling, swaps, and derivatives to generate returns 1. Very risky and suitable for high risk investors |
