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35 Cards in this Set
- Front
- Back
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What does the Middle Office Do? |
The Middle Office provides functions that are critical to the efficient operation of the entire firm. The types of duties middle-office staff perform have to do with compliance, accounting, audits and legalities. They are responsible for ensuring that the firm's products and services are designed and delivered in conformance with industry best practices and pertinent regulations. |
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What does the Back Office Do? |
The primary objective of the firm's back office is to settle the firm's security transactions in an efficient and effective manner; this activity is otherwise known as the trade settlement function. |
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What is the trade settlement function? |
Security trades are not complete until they are "settled". The trade settlement function fulfills the role of ensuring that all of the firm's security transactions, both purchases and sales, are settled in the correct amounts, in the correct accounts and at the agreed-upon time. |
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What is the role of the institutional salesteam? |
Institutional salespeople deal mainly with traders at major financial institutions and larger nonfinancial companies. Working with their firm's underwriting department, they help sell new securities to institutional accounts. In co-operation with the firm's trading department, they help generate day-to-day trading in outstanding securities with such accounts. |
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What does the retail salesteam do? |
The retail sales force serves individual investors and smaller business accounts and usually comprises the largest single group of a firm's employees. The activities of retail Investment Advisors (IAs) are extremely diverse, reflecting the spectrum of investor types and needs. |
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What is the role of a trader? What is the primary challenge of trading? |
The primary responsibility of a trader is to execute effectively and efficiently the firm's security trading activities. The primary challenge for security trading is to buy or sell the requisite amount of securities at a price that is as close as possible to the currently quoted bid or ask price. |
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What is the role of the portfolio management team? |
The primary objective of the portfolio management team is to earn a competitive rate of return on the investor's assets, with an amount of risk that is acceptable to the investor. |
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What is the Front Office of a firm? |
The front office usually includes all staff functions pertaining directly to portfolio management activities. All portfolio management, trading and sales and marketing staff would be part of the front office. |
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What are the functions of Institutional securities firms? |
They serve institutional clients exclusively. They primarily handle the trading activity of large clients such as pension funds and mutual funds. |
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What are the functions of the full-service retail securities firms? |
They offer a wide variety of products and services for the retail investor |
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What are the functions of discount brokers? |
They execute trades for clients at reduced rates but do not provide advice. Discount brokers are more popular with those investors who are willing to research individual companies themselves in exchange for lower commission rates. |
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What kind of ancillary services do integrated securities firms offer? |
Economic, industry, corporate and securities research and advice, portfolio evaluation and management, merger and acquisition advice, tax counselling, loans to investors with margin accounts and safekeeping of client's services. |
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What are the functions of integrated securities firms? |
Integrated firms offer products and services that cover all aspects of the industry, including full participation in both the institutional and the retail markets. Most underwrite all types of federal, provincial, municipal and corporate debt and corporate equity issues, actively trade in secondary markets, trade on all Canadian and some foreign stock exchanges, and provide many ancillary services to securities issuers and large and small investors. |
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What does it mean when an individual or institution acts as principal? |
When acting as principal, the securities firm owns securities as part of its own inventory at some stage in its buying and selling transactions with investors. The difference between buying and selling prices is the dealer's gross profit margin. |
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What does it mean when an individual or institution acts as an agent? |
When acting as an agent, the broker acts for or on behalf of a buyer or a seller but does not itself own title to the securities at any time during the transactions. The broker's profit is the agent's commission charged for each transaction. |
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Describe the process of underwriting |
Underwriting or financing means the purchase from a government body or a company of a new issue of securities on a given date at a specified price. The dealer acts as principals, using their own capital to buy the issue in anticipation of being able to make a profit when later selling it to others in the primary or new issue market. The dealers also accept a risk since market prices may fall during the time the securities remain in their inventory. The issuer normally incurs no liability or responsibility in the sale of its own securities since payment is guaranteed by the underwriter regardless of its success in selling the securities to investors. |
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Describe broker or agency transactions |
When acting as a broker, a securities firm is an agent in a secondary securities transaction. The broker's clients who buy and sell securities are, in fact, the principals or owners of the securities, and the broker acts only as an agent, never actually owning them itself. Both the broker acting for the buyer and the broker acting for the seller charge their respective clients a commission. |
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Describe the Clearing System and provide its benefits |
During a trading day, an exchange member will be both buyer and seller of many listed stocks. Instead of each member making a separate settlement with another member on each trade during the course of a trading day, a designated central clearing system handles the daily settlement process between members. By using a central clearing system, the number of securities and the amount of cash that has to change hands among the various members each day is substantially reduced through a process called netting. The clearing system establishes and confirms a credit or debit cash or security position balance for each member firm, compiles their clearing settlement sheets and informs each member of the securities or funds it must deliver to balance its account. |
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How do banks function? |
Banks concentrate on gathering funds through savings deposits and/or certificates of deposit (CDs) and transferring them to users in the form of mortgages and other forms of loans. Their primary source of income is the "spread", which is the difference between the rate they pay to depositors and the rate charged to lenders. They are governed by the Bank Act, which is revised every 10 years. |
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Describe Schedule I banks |
Schedule I banks are banks that are not subsidiaries of a foreign bank. They are domestic banks and can have foreign investors. They must be widely held, with no investor holding more than 20%. Schedule I banks dominate Canada's capital market, with the "Big Six" accounting for more than 90% of the $2.9 Trillion in bank assets. |
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How are banks funded? |
Banks are generally funded by savings deposits, retained earnings, periodic rights offerings to existing shareholders, debentures (since the 1967 Bank Act revision), and preferred share issues (since the 1980 Bank Act revision). |
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How do Canadian banks generally maintain their assets? |
Since most of their liabilities (ie savings deposits) are due on "demand", it is important that they maintain an adequate reserve of liquid assets. This used to be a legal requirement, but it has been removed in recent years. Canadian banks generally maintain about 10 to 15% of total assets in liquid assets, 40% in personal and business loans, and 30% in residential mortgages. |
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What are Schedule II banks? |
Schedule II banks are incorporated and operate in Canada but are subsidiaries of foreign banks or other financial institutions. They may accept deposits, which may be eligible to be insured by the Canada Deposit and Insurance Corporation (CDIC). |
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What are Schedule III banks? |
Schedule III banks are branches of foreign banks that are permitted to accept deposits and provide loans. They differ from Schedule II banks in that they are not subsidiaries, but merely "branches" |
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Describe Trust and Loan Companies |
Many of the services provided by trust and loan companies overlap with those offered by banks, including accepting savings, issuing term deposits, making personal and mortgage loans, and selling RRSPs. They remain distinct in that they are the only type of corporations in Canada permitted to act as trustees in charge of corporate or individual financial assets. |
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Describe Credit Unions and Caisses Populaires What legislation governs them? |
These are co-operative, member-owned businesses that provide basic financial services to their members. They must adhere to the "prudent portfolio approach" to investment. The legislation that governs credit unions is the Cooperative Credit Associations Act. |
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Describe Life Insurance Companies |
Life insurance companies act as trustees for funds they receive from policyholders. Safety of principal is a primary investment objective for these companies. Many of their contracts are long-term, and as a result, insurance companies tend to be active in both mortgage and long-term bond markets. |
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Define Demutualization |
Demutualization refers to the reorganization of the ownership structure of life insurance companies, from being owned by policyholders to being owned by shareholders. This is accomplished by providing the policyholders with the appropriate number of shares to compensate them for the value of their policy holdings. A number of insurance companies are now owned by banks. |
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Describe Property and Casualty Insurance Firms |
These types of insurance companies provide property, automobile, health and accident insurance. They are much smaller than life insurance companies; however, their investment decisions are also governed by the "prudent portfolio approach". Liquidity is obviously a primary investment objective, since they must be able to secure claims as they arise. |
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Describe Investment Funds |
Investment funds may be set up as a corporation or as a trust. The funds then sell their shares to the public and invest the proceeds in portfolios of securities. The objectives of investment funds vary significantly, which is reflected in their portfolio composition. |
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Describe Closed-end Funds |
Closed-end funds normally issue shares only at their initial start-up. Occasionally, they may issue shares at other points in time. They invest the proceeds from the issue in a portfolio of securities in order to earn income and capital gains. |
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Describe Open-end funds |
Open-end funds, or mutual funds, issue and redeem shares on a continuous basis, at the fund's net asset value per share. These funds account for 95% of aggregated funds invested. |
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Describe Savings Banks |
Savings banks take deposits but do not offer lending services. Currently, there are two relatively small savings banks operating, one in Ontario and one in Alberta. Their deposits are 100% guaranteed by the province in which they operate. |
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Describe Sales Finance and Consumer Loans |
These companies make direct cash loans to consumers and/or purchase installment sales contracts from retailers and dealers at a discount. |
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What does the Cooperative Credit Associations Act govern? What does it do? |
It governs credit unions; limiting their activities to providing financial services to their members, entities in which they have a substantial investment and certain types of co-operative institutions, and to providing administrative, educational and other services to cooperative credit societies. |
