Cph Notes

Front 1

what are cash accounts?

Back 1

areaccounts where customers do not utilize financing from the dealer. Cash Account Rule governs the operation of cashaccount.

Front 2

What is the cash account rule designed to do?

Back 2

o Eliminate poor credit practices withoutrestricting normal business relations with clients, o Ensure that all dealer members are on equalbasis in extending credit to clients.

Front 3

What are the credit practices the Cash Account Rule isdesigned to prevent are:

Back 3

o Acceptance of purchase orders from clients whohave no intention of making payment in full & may not have no intention of making payment in full or havethe resources to do

o The acceptance of sell orders from clients whohave no intention of delivering the security sold and who may in fact be makingan undisclosed short sale;

o The carrying of undermargined accounts under theguise of cash accounts

Front 4

What are the violations of the cash account rule?

Back 4

o Failure to adopt practices that ensure cashaccount compliance standards are achieved.

o Trading done to avoids or artificially delaysettlement.

Front 5

what happens if the client does not deliver the securities by settlement date?

Back 5

the dealer member will buy the securities tofulfill its obligations to deliver them to the purchaser.

Front 6

What will happen if there is a decline in securities?

Back 6

will reduce or eliminate a loss if the client doesnot deliver the securities.

Front 7

what will happen if a client does not deliver them?

Back 7

· the sale could be considered to be a shortsale. The registrant and the dealermember may be sanctioned for allowing the client to make a short sale withoutdeclaring it as such.

Front 8

What types of accounts are considered cash accounts?

Back 8

Registeredaccounts such as RRSPs and RRIFs

Front 9

what does legislation prohibit in cash accounts?

Back 9

· Legislation prohibits debit balances and shortpositions.

Front 10

what are acceptable forms of payment in a cash account?

Back 10

o Depositing cash

o Transfer of funds from the client’s marginaccount. Margin must be maintained inthe margin account immediately before and after the transfer.

Front 11

Name the types of isolated methods of settlements that is permitted by IIROC?

Back 11

o A client may buy and sell the same securitieswithout fully paying for them. Must nottake place regularly in cash account.

o Transfer of a purchase transaction in cashaccount to a margin in account prior to payment in full. Sales cannot be moved to a short margin.

Front 12

How are restrictions lifted in cash accounts?

Back 12

o Payment of any delinquent money balance is madein full

o All open & unsettled transactions I in anycash account have been transferred to a new margin account which is properlyestablished by the completion of all necessary documentation.

o The client has executed a liquidating transactionin the account with the effect that any balance owing is paid

Front 13

What is the cash account rule based on?

Back 13

aging of the transactions

Front 14

Define capital charges

Back 14

dealer member is to recognize and provide forrisk related to cash account which do not settle on the prescribed basis andwhich are not closed out.

Front 15

how is risk measured on capital accounts

Back 15

o The length of time the transaction is overdue, which involves two methods of calculating capital charges

o The quality of the securities in the account, which is reflected by the margin rates that are later imposed.

Front 16

When do capital charges start

Back 16

beforethe account is restricted.

Front 17

What is required to lift the restriction of an outstanding cash account?

Back 17

o Payment is made in full

o All open and unsettled transaction have beentransferred to a new margin account

o Liquidating transaction has been executed.

Front 18

What does materiality apply to

Back 18

overduedebt balances resulting from trading activity.

Front 19

What is the settlement of DAP/COD accounts

Back 19

· on or before settlement date for the receipt ofthe security by the dealer member against payment to the client.

Front 20

define Confirmationand commitment letters

Back 20

· capital charges don’t apply if a client hasprovided dealer member an irrevocable and unconditional confirmation from arecognized clearing organization letter of commitment from an financialinstitution .

Front 21

What is the Settlementdate on cash account

Back 21

3business days after the trade date

Front 22

DAPCash Account settlement

Back 22

· when dealer gives notices to the client or laterof normal settlement date.

Front 23

Define Longmargin

Back 23

· allows the client to partially finance securitiesportfolio by borrowing money from the dealer.

Front 24

Define Shortmargin

Back 24

allowsthe client to sell securities short by arranging for the dealer member toborrow securities to cover the short position.

Front 25

What do SROsregulate

Back 25

· the amount of credit dealer members may extendto clients on the purchase of securities.

Front 26

What happens when anyunsettled securities 6 business days or longer

Back 26

· dealer will cover the margin shortage with theirown capital or with the margin excess.

Front 27

When do Capitalcharges start?

Back 27

· before the account is restricted.

Front 28

What happens to unsettled securities 6 days or longer?

Back 28

· dealer will cover the margin shortage with theirown capital or with the margin excess.

Front 29

when is a margin call issued?

Back 29

theprices of a security falls to the point where the account becomes undermargined

Front 30

Define Selling out

Back 30

sellingthe securities in a long margin accountto cover a margin deficit.

Front 31

Define Buying in

Back 31

in a short margin; buying the shorted securities.

Front 32

What are the requirements for operating a long margin?

Back 32

o Loan value – maximum amount of financing thatthe dealer member will supply.

o Margin position – status of an account withrespect to margin requirements & margin deposited

o Equity position – whether or not the dealer loanis fully securities by client equity in the account.

Front 33

Define fully-margined?

Back 33

· loan value is equal to or greater than theamount financed in the account (debit balance). Excess margin is used.

Front 34

Define Undermargined?

Back 34

· the loan value is less than the margin required.Aka margin deficiency or margin call.

Front 35

Define equity position?

Back 35

· the account balance must be combined with the totalmarket value of all securities in the account.

Front 36

What is the SRO mandate?

Back 36

· to promote integrity of financial markets andensure investor protection.

Front 37

What is the principle of securities regulation

Back 37

full,true and plain disclosure.

Front 38

Define secondary trading?

Back 38

Tradesare bought and sold through the stock exchanges

Front 39

what is required to sell securities?

Back 39

· Every dealer member that underwrites or sellssecurities must be registered with the administrator in the province in whichthe se securities are sold.

Front 40

what powers do administrators have?

Back 40

1. to suspendor cancel registrations

2. tocommence investigations to undertake prosecutions for violations against theirrespective Acts

3. toensure that the laws are obeyed and to take administrative action with respectto conduct that is contrary to the public interest

4. tocompel the attendance of witnesses at a hearing, the evidence under oath, seizedocuments for examination, freeze funds or securities on deposit with or underthe control of any person and have many of the powers of court

Front 41

What is the maximum penalty under Ontario Securities Act?

Back 41

· fine of $5,000,000 and imprisonment for a termof not more than five years less a day.

Front 42

What is the maximum penalty under the OSC?

Back 42

· up to $1,000,000 and to order the disgorgementof monies obtained as a result of non-compliance if a person or company failsto comply with Ontario securities law.

Front 43

What does the act prohibits?

Back 43

pr prohibits engaging in acts that a person orcompany knows, or reasonably ought to have known, perpetrates a fraud orresults in a misleading appearance of trading activity in, or an artificialprice for, a security

Front 44

In which provinces does the Act contain secondary market liability provinces that investors don't need to prove they relied on misleading disclosures

Back 44

ON, BC, SK, MB, AB, QC, NB, NS

Front 45

define DisciplinedPersons List

Back 45

· an alphabetically organized list of individualswho have been sanctioned for trading bans or monetary penalties by theCommission for securities market misconduct.

Front 46

What is the PublicDisclosure Program

Back 46

· available on the Financial Industry RegulatoryAuthority (FINRA) website for investors in the United States.

Front 47

How is regulation of the securities industry occur?

Back 47

· the federal, provincial and industry levels.

Front 48

Is there a federal securities regulatory body in Canada?

Back 48

NO

Front 49

What does the CanadaBusiness Corporations Act (CBCA) regulates?

Back 49

· proxy solicitations and insider trading forfederally incorporated companies.

Front 50

Who is IMET?

Back 50

· an initiative of the Royal Canadian MountedPolice (RCMP) and the federal government goal of strengthening the lawenforcement community’s ability to detect, investigate and deter capitalmarkets fraud.

Front 51

JointSerious Offences Team (JSOT)

Back 51

totarget fraud and other serious misconduct and is a partnership between the OSC,the RCMP Financial Crime program and the Ontario Provincial Police Anti-RacketsBranch. investigates and prosecutesserious violations of the law using provisions of the Securities Act (Ontario)and Criminal Code. Staff work with police agencies and the Ministry of theAttorney General to bring more cases before the courts and to send a strongmessage to those who might harm the public.

Front 52

Who does National Policies and National Instruments apply to?

Back 52

allCanadian jurisdictions

Front 53

What is the difference between National policy and National Instrument?

Back 53

NationalInstrument has the force of a binding rule, whereas a National Policy does not.

Front 54

Who does the uniform act policy?

Back 54

applyin Ontario and the four Western Provinces

Front 55

Who do provincial policies applies to?

Back 55

· reflect local differences in legislation,regulation and procedure, even within this latter group of policies there issubstantial agreement between the jurisdictions in many areas.

Front 56

who does the AMF regulate?

Back 56

· administers the regulatory framework surroundingthe following areas of Quebec’s financial sector: the securities sector, thedistribution of financial products and services sector, the financialinstitutions sector and the compensation sector.

Front 57

Define AMF

Back 57

is a single window for consumer information andcomplaint processing. Furthermore, it streamlines the regulatory frameworkgoverning the financial sector and thus simplifies the administrativeprocedures of individuals and businesses practicing in the sector.

Front 58

define CSA

Back 58

· a voluntary umbrella organization whoseobjective is to improve, coordinate and harmonize regulation of the Canadiancapital markets. It aims to achieveconsensus on policy decisions for the securities regulators

Front 59

What is CSAs mission?

Back 59

o formulating policy;

o making rules;

o sitting on administrative tribunals in hearingson securities-related matters; and

o hearing appeals from decisions made by staff orthe SROs.

Front 60

define super MOU

Back 60

· the oversight of the exchanges and quotation andtrade reporting systems. It provides for the oversight functions to be based onmutual reliance principles whereby each recognized exchange and recognizedquotation and trade reporting system has a principal regulator responsible forits oversight.

Front 61

Who is the principle regulator for TSX and IIROC?

Back 61

OSC

Front 62

Who is the principal regulators for TSXV

Back 62

BCSC and ASC

Front 63

Who is the principal regulator for ICE

Back 63

MSC

Front 64

Who is the principal regulator for MFDA?

Back 64

BCSC

Front 65

What are the four databases that CSA has developed?

Back 65

SEDAR, SEDI, NRD, CTO (Cease Trade Order)

Front 66

Define SEDAR

Back 66

electronicfiling system and a depository for mandatory regulatory fi lings, includingstock exchange filings

Front 67

Define Cease Trade Order?

Back 67

anorder issued by a provincial or territorial securities commission or similarregulatory body against a company for failing to meet disclosure requirements,such as fi ling a quarterly or annual financial statement, or as a result of anenforcement action that involves an investigation of wrongdoing.

Front 68

Define COSRA (COUNCIL OF SECURITIES REGULATORS OF THE AMERICAS)

Back 68

forumfor securities regulators in North, South and Central America, as well as theCaribbean. It focuses on subjects such as investor protection, the maintenanceof market integrity, regulatory cooperation and information-sharing

Front 69

Define NASAA (North American Securities Administrators Association)

Back 69

· the maintenance of market integrity, and

o promoting the enforcement of securities laws. Italso places significant emphasis on:

o educating current and potential investors;

o educating NASAA members and law enforcementagencies; and

o promoting uniform securities legislation,policies, forms and exams.

Front 70

Define INTERNATIONALORGANIZATION OF SECURITIES COMMISSIONS (IOSCO)

Back 70

· an international association of securitiesregulators, and regulates more than 95% of the world’s securities markets.

Front 71

What is the financial stability boards (FSB) mandate?

Back 71

o assess and address vulnerabilities affecting thefinancial system;

o promote information exchange among authoritiesresponsible for financial stability;

o monitor and advise on market developments andtheir implications for regulatory policy;

o advise on and monitor best practices in meetingregulatory standards;

o undertake joint strategic reviews of the policydevelopment work of the international

o standard set-ting bodies to ensure their work istimely, coordinated, focused on priorities, and addressing gaps;

o set guidelines for and support the establishmentof supervisory colleges;

o manage contingency planning for cross-bordercrisis management, particularly with respect to systemically important firms;and

o collaborate with the IMF to conduct EarlyWarning Exercises.

o Bank of Canada and OSFI are members.

Front 72

Define IIAC (Investment Industry Association of Canada)?

Back 72

amember-based, advocacy association that advances the growth and development ofthe Canadian investment industry represent the interests of the investmentindustry for all market participants

Front 73

What is the IIAC mandate?

Back 73

o Advocacy: To be the voice of investment dealersand brokerage industry, advocating on regulatory and public policy issues foran investment environment that is efficient for its members and that fosterssavings and investment by Canadians;

o Industry profile: To build a better appreciationof the contribution that the securities industry makes to Canadians, toCanada’s capital markets and to the Canadian economy;

o Member support: To offer operational supportthat contributes to the ongoing success of its members and to their ability tocost-effectively serve investors and issuers; and

o Market advancement: To promote globallycompetitive capital markets for Canada.

Front 74

What is the role of financial & Operations (FinOps) compliance?

Back 74

· monitor the financial status of its dealermembers and enforce compliance with IIROC rules.

Front 75

Define Chambrede la sécurité financière (CHAMBRE)

Back 75

the SRO of Quebec's mutual fund and Insurance industry. Responsible for monitoring & setting up CE and enforcing code of ethics of licensed representatives.

Front 76

Define Aequitas Neo Exchange?

Back 76

provideslisting services and facilitates trading in securities listed on Aequitas NEOExchange, TSX and TSXV. operates two separate trading books, the NEOBook and the Lit Book, and a crossing facility which for the purposes of UMIRare considered separate marketplaces

Front 77

Define Neo and Lit Book?

Back 77

· provides trading in securities listed onAequitas NEO Exchange, TSX and TSXV.

Front 78

Define Bloomberg tradebook?

Back 78

· an ATS that operates an order routing systemthat allows institutional investors to trade in equity and fixed incomesecurities listed domestically and internationally.

Front 79

Define CSE (Canadian Securities Exchange)?

Back 79

anexchange that provides listing services and facilitates trading on securitieslisted on CSE, TSX and TSXV.

Front 80

Define Chi-X and CX2?

Back 80

· an ATS that provides trading in securitieslisted on TSX and TSXV. Order price and volume information is publiclyavailable.

Front 81

Define Instinet Canada Cross Limited (ICX)

Back 81

anATS that provides trading in securities listed on the TSX through twofacilities: VWAP Cross (for volume-weighted average price trading) and BLXCross (a hybrid of continuous and point-in-time matching).

Front 82

Define Liquidnet?

Back 82

· an ATS that provides trading in securities forParticipants and Access Persons. Liquidnet enables Access Persons to tradesecurities directly and anonymously with other Access Persons

Front 83

Define OMega?

Back 83

anATS that provides trading in securities listed on TSX, TSXV and CSE. Orderprice and volume information is publicly available.

Front 84

Define Lynx?

Back 84

· an ATS that provides trading in securitieslisted on TSX, TSXV and CSE. Order price and volume information is publiclyavailable.

Front 85

What is the Alpha Exchange?

Back 85

· an exchange that provides trading in securitieslisted on TSX and TSXV. Order price and volume information is publiclyavailable.

Front 86

What occurs on the TSX venture exchange?

Back 86

·

o Administer TSXV’s timely disclosure requirements

o Monitor compliance with TSXV policies relatingto normal course issuer bids

o Conduct certain post-trade analysis in respectof the Canadian Unlisted Board market

Front 87

Define TMX?

Back 87

anATS that provides trading in securities listed on TSX and TSXV. Order price andvolume information is publicly available.

Front 88

Define TriAct Canada Marketplace (Match Now)?

Back 88

anATS that provides trading in securities listed on TSX and TSXV. No pre-tradeinformation on Participants, order size or pricing is publicly available

Front 89

What does the Montreal Exchange deals with?

Back 89

· exclusively in all “non-agricultural” optionsand futures in Canada, including all options that previously traded on the TSXand all futures products that previously traded on the Toronto Futures Exchange (TFE).

Front 90

What does the ICE Futures deals with?

Back 90

· a commodity futures exchange and aself-regulatory organization under The Commodity Futures Act, MSC is primarilyregulatory.

Front 91

What products does the TMX offer?

Back 91

· o “Consolidated Data Feed”, which provides accessto pre- and post-trade market data from each contributing marketplace;

o “Consolidated Last Sale”, which providesconsolidated, real-time last sale data from all contributing marketplaces; and

o “Canadian Best Bid and Offer”, which provides aconsolidated best bid and offer for all equity securities, electricity markets.

Front 92

What does the Natural Gas Exchange (NGX) provide?

Back 92

electronictrading, central counterparty clearing and data services to the North Americannatural gas

Front 93

Define Inter-dealer bond brokers (IDBs)?

Back 93

· required to provide trade information forcorporate debt securities to an information processor, if one is in place, asrequired by the information processor.

Front 94

define company formation agents

Back 94

rein the business of setting up and operating such companies.

Front 95

What does FINTRAC do?

Back 95

· collects, analyzes, assesses and disclosesinformation to assist in the detection, prevention, and deterrence of moneylaundering and terrorist financing. Alsohas the primary responsibility of monitoring the compliance of financialintermediaries with recordkeeping, Know Your Client and mandatory suspicioustransaction reporting requirements.

Front 96

Define securities Delaing?

Back 96

· includes “other financial instruments”, makingit clear that dealer members dealing solely in financial instruments that mayfall outside the definition of securities, such as commodity futures, and notonly those authorized under provincial legislation to deal in securities.

Front 97

define Willful blindness?

Back 97

· a situation that arises when people are awarethat a situation should be investigated but fail to follow through usuallybecause they do not want to jeopardize a business deal or businessrelationship.

Front 98

What are the penalties for failure report on Fintrac?

Back 98

· an offence punishable by up to five yearsimprisonment, a maximum fine of $2 million, or both.

Front 99

How many days to verify funds for PEP situations?

Back 99

14 days

Front 100

What are the 4 components to electronic delivery?

Back 100

·

1. The recipient of the documentreceives notice that the document has been, or will be, delivered electronically.

2. The recipient of the documenthas easy access to the document.

3. The document that is receivedby the recipient is the same as the document delivered by the deliverer.

4. The deliverer of the documenthas evidence that the document has been delivered.

Front 101

What are dealer members not required to report on monthly statements?

Back 101

regulardividend or interest payments.

Front 102

Define strip bonds and strip coupons?

Back 102

· All first-time buyers of strip bonds must begiven an information document outlining the special investment characteristicsof these securities

Front 103

Define segregation?

Back 103

· securities that have been fully paid for by theclient and separated from the dealer member’s own inventory and cannot be usedin the conduct of its own business.

Front 104

Define safekeeping?

Back 104

· requires not only that the securities be held inthe client’s name, but that a “safekeeping agreement” exists.

Front 105

Define free credit balance?

Back 105

· represents funds due to the client and can arisefrom a number of circumstances, such as a deposit made into the account by theclient, trading proceeds, and interest and/or dividend payments credited to theaccount.

Front 106

Define time-weighted rate of return?

Back 106

· used to measure performance. It eliminates theimpact of contributions and withdrawals by clients

Front 107

Define money weighted rate of return?

Back 107

· includes all cash flows into an account,including contributions and withdrawals.

Front 108

What are the 4 types of complaints?

Back 108

service, administrative, advisor misconduct, performance and trading disputes

Front 109

Define administrative error complaints

Back 109

· involve an error in client records, and shouldgenerally be

passed on to business location or head officeadministrative staff for resolution.

Front 110

Define performance related complaints?

Back 110

· can vary widely in nature. In their simplestform, performance related complaints may be solved by a meeting between theSupervisor, the IA and the client. A more serious complaint may evolveinto litigation and is then passed on the dealer

member’s compliance and/or legal departments

Front 111

Define trading dispute related complaints?

Back 111

· are usually related to a specific transactionand a difference of opinion as to what instructions were given.The Supervisor will determine the appropriate resolution to a dispute of this nature,often in conjunction with trading staff and sales management.

Front 112

What is the maximum claim for OBSI disputes?

Back 112

$350K

Front 113

Define scalping?

Back 113

undisclosedselling of a security by a person or entity such as an IA, securities researchanalyst, or financial newsletter who simultaneously recommends that you buy thesecurity

Front 114

Define agent?

Back 114

a dealer member is buying or selling on behalf of its clients from or to athird party, which may be another dealer member or individual.

Front 115

Define wash trade?

Back 115

· there is no real change in beneficial ownership,but a false impression of trading activity is given.

Front 116

how many days are insiders required to report on SEDI?

Back 116

5

Front 117

What are standard trading units represented?

Back 117

·

o 1,000 units of a security trading at less than$0.10 per unit;

o 500 units of a security trading at $0.10 or moreper unit and less than $1.00 per unit;

o 100 units of a security trading at $1.00 or moreper unit.

Front 118

Define high frequency trading "HFT"?

Back 118

· involves moving in and out of extremely shortterm positions each day, using technology and algorithms to assist in executingthe trades.

Front 119

Define Minimumquotation spreads

Back 119

theminimum acceptable range between bid and ask prices when quotations are givenfor securities. This range is determined by the exchanges.

Front 120

Define ask?

Back 120

Whena client buys the security, they pay the ask price which is the price at which a prospectiveseller is willing to sell.

Front 121

Define bid?

Back 121

Whena client sells a security at the market, he or she will receive the “bid”price, which is the price a prospective buyer is willing to pay.

Front 122

CDSClearing and Depository Services Inc

Back 122

· operates for SRO dealer members andparticipating banks and trust companies. Its purpose is to provide participants with a central facility throughwhich to make deliveries in settlement of security transactions.

Front 123

Define transfer agent?

Back 123

· trust company, then makes the necessary changesto the company’s bondholder or shareholder records and produces a newcertificate reflecting the change in ownership.

Front 124

Define ReceiptAgainst Payment (RAP)

Back 124

· dealer member receives the securities from theclient (or its agent) and pays the client (or its agent) in full.

Front 125

Define DeliveryAgainst Payment (DAP)

Back 125

· these accounts involve the purchase ofsecurities and payment on settlement date.

Front 126

Define seasoning period?

Back 126

· the first four months after a company has ceasedto be a private company, the first trade is considered to be a distribution.

Front 127

Define accredited investor?

Back 127

· Individuals can also be considered accredited investors if they, eitheralone or together with a spouse, beneficially own financial assets in excess ofCDN $1 million before taxes, or their net income before taxes exceeds $200,000in each of the past two years, or their net income with that of a spouseexceeds $300,000 in each of those years. Accredited investors are alsocorporations, trusts, estates and limited partnerships that have net assets ofat least CDN $5 million.

Front 128

Define market clause?

Back 128

· permits the underwriter to cancel the offeringwithout penalty under certain conditions.