1.2 Overview Of Canadian Securities Industry

Overview of the Canadian Securities Industry

1. Relationships Between Major Participants

Canada boasts one of the world’s most sophisticated and efficient capital markets, marked by the variety and size of new issues brought to market and the depth and liquidity of trading those issues. The Canadian securities industry is highly competitive and constantly evolving, requiring market participants to possess extensive, specialized, and up-to-date knowledge about securities issuers and investors.

An entrepreneurial spirit characterized by innovation and calculated risk-taking is a hallmark of this market, where change and volatility are frequent.

Regulatory Environment

The Canadian securities industry is mainly regulated at the provincial level. Each province enforces its own laws and regulations through securities commissions (or securities administrators in some provinces).

• Securities Commissions: Provincial bodies that create and enforce laws.
• Self-Regulatory Organizations (SROs): Organizations like the Investment Industry Regulatory Organization of Canada (IIROC) that are delegated powers by the securities commissions to set and enforce industry regulations.

SROs ensure that the industry maintains fair, equitable, and ethical practices. They cover various aspects of investment dealers’ operations, including sales, finance, and trading. The major participants in the industry and their interrelationships are illustrated below.

Structure of the Canadian Securities Industry

graph TD A[Suppliers of Capital (Investors)] –>|Money Flow| B[Dealers] B –> C[Users of Capital (Borrowers)] B –> D(SROs) D –>|Industry Support| E[Clearing & Settlement Organizations] E –> F[Markets] D –> G[Canadian Investor Protection Fund] G –>|Industry Insurance Fund| H D –> I[Canadian Securities Institute] A –>|Information Flow| D G –> H subgraph Provincial Regulators J[Securities Commissions] D end

In the diagram above, major participants and their interactions include:

• Suppliers and Users of Capital: Trade financial instruments via stock exchanges and money markets.
• Investment Dealers: Intermediaries matching investors (suppliers of capital) with borrowers (users of capital).
• Clearing and Settlement: Organizations such as CDS Clearing and Depository Services Inc. confirm and match securities trade details. Settlement solidifies the exchange of cash and securities.
• SROs: Enforce rules and ensure fairness and transparency in market activities.
• Investor Protection Funds: Insurance against dealer insolvency provided by organizations like the Canadian Investor Protection Fund.
• Provincial Regulators: Oversee markets and SROs.
• Educational Institutes: The Canadian Securities Institute and similar organizations provide essential training.

Industry Statistics

According to recent statistics from the Investment Industry Association of Canada (IIAC), there are 167 IIROC-regulated firms employing over 40,000 people in the securities industry. More detailed data is available on the IIAC website here.

Glossary

• Clearing: The process of confirming and matching trade details.
• Settlement: The final exchange of cash and securities, marking the completion of a transaction.
• SRO (Self-Regulatory Organization): An entity responsible for regulating its members through the establishment and enforcement of industry rules.
• Investment Dealer: A financial firm that acts as an intermediary to buy and sell securities on behalf of investors.

Key Takeaways

• The Canadian securities industry is sophisticated, competitive, and constantly evolving.
• Regulatory functions are primarily managed at the provincial level, with a significant role played by SROs such as IIROC.
• Investment dealers, clearing and settlement organizations, SROs, and investor protection funds all interact to ensure a fair and transparent market.

FAQs

1. What are the main regulatory bodies within the Canadian securities industry? The primary regulatory bodies include provincial securities commissions and SROs like the Investment Industry Regulatory Organization of Canada (IIROC).

2. How are trades cleared and settled? Organizations like CDS Clearing and Depository Services Inc. are responsible for confirming and matching security trade details, culminating in the settlement where cash and securities are exchanged.

For further details and continuous updates on the Canadian securities industry, ensure regular visits to the IIAC and CSI websites.