Summary
In this chapter, we discussed the following key aspects of the Canadian Securities Industry:
Canadian Capital Markets
- Canadian capital markets are among the most sophisticated and efficient in the world, as indicated by the variety and size of new issues brought to the markets and the depth and liquidity of secondary market trading.
Investment Dealer Firms
- The three categories of investment dealer firms are: integrated, institutional, and retail.
- Integrated firms offer products and services that cover all aspects of the industry.
- Institutional firms primarily handle the trading activity of large clients such as pension funds and mutual funds.
- At the retail level, full-service firms offer a wide variety of products and services, and self-directed brokers offer reduced trading rates but do not provide advice.
Role of Investment Dealers
- One main role of investment dealers is to bring new issues of securities to the primary markets.
- They also facilitate trading in the secondary markets.
- These firms can act as principals or agents in either market.
Canadian Chartered Banks
- The Canadian chartered banks are the largest financial intermediaries in the country.
- They are designated as Schedule I, Schedule II, or Schedule III banks. Each designation has different rules and regulations regarding ownership levels and the types of services they are allowed to offer.
- Financial intermediaries offer a broad range of financial services often overlapping with those provided by chartered banks.
- Services include deposit taking and lending, debit and credit cards, mortgages, and mutual funds.
Investment Funds & Loan Companies
- Investment funds sell their shares to the public, most often in the form of closed-end or open-end funds, and invest the proceeds in diverse portfolios of securities.
- Loan companies make direct cash loans to consumers, who typically repay principal and interest in instalments.
- Pension plans represent a type of institutionalized savings, offered to the employees of many companies, institutions, and other organizations.
Robo-Advisors
- In contrast to the execution-only model of self-directed brokerage, a new online investment service known as robo-advisors has emerged in Canada.
- Robo-advisors offer goal-based online investment management, portfolios created using algorithms based on modern portfolio theory, and advisor support.
Bitcoin
- Bitcoin is slowly making its way into the traditional investing world.
- Its value is derived from both its use as a medium of exchange and as a store of value.
- Bitcoin investment or trading vehicles include trusts, mutual funds, hedge funds, futures, and options.
Review Questions
Now that you have completed this chapter, you should be ready to answer the Chapter 1 Review Questions.
Frequently Asked Questions (FAQs)
If you have any questions about this chapter, you may find answers in the online Chapter 1 FAQs.
Key Takeaways
- Canadian capital markets are both sophisticated and efficient.
- Investment dealer firms are classified into integrated, institutional, and retail categories.
- Investment dealers play apt roles in primary and secondary market activities.
- Canadian chartered banks, classified under Schedules I, II, and III, are substantial financial intermediaries.
- Financial intermediaries offer services overlapping with those provided by chartered banks.
- Investment funds, loan companies, and pension plans are integral parts of the financial ecosystem.
- Robo-advisors provide advisory services through modern portfolio theory-driven algorithms.
- Bitcoin is evolving as a significant investment vehicle.
📚✨ Quiz Time! ✨📚
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## What are the key characteristics of the Canadian capital markets?
- [ ] They are small and limited in scope.
- [ ] They are primarily focused on international trading.
- [x] They are among the most sophisticated and efficient in the world.
- [ ] They rarely see new issues.
> **Explanation:** Canadian capital markets are known for their sophistication and efficiency, highlighted by the variety and size of new issues and the depth and liquidity of secondary market trading.
## What are the three categories of investment dealer firms?
- [ ] Commercial, retail, and international.
- [ ] Self-directed, institutional, and banking.
- [x] Integrated, institutional, and retail.
- [ ] Private, public, and government.
> **Explanation:** The three categories of investment dealer firms are integrated, institutional, and retail.
## What is the primary role of investment dealers in the markets?
- [ ] To provide only advisory services.
- [ ] To manage only pension funds.
- [ ] To offer insurance products.
- [x] To bring new issues of securities to the primary market and facilitate trading in the secondary markets.
> **Explanation:** Investment dealers bring new issues of securities to the primary markets and facilitate trading in secondary markets.
## What designation do the largest financial intermediaries in Canada hold?
- [ ] Schedule IV banks.
- [ ] Schedule V banks.
- [x] Schedule I, II, or III banks.
- [ ] Schedule IV, V, or VI banks.
> **Explanation:** The largest financial intermediaries in Canada are chartered banks designated as Schedule I, II, or III.
## What types of services do financial intermediaries offer?
- [ ] Only banking services.
- [ ] Only loan services.
- [x] A broad range of services such as deposit taking, lending, debit and credit cards, mortgages, and mutual funds.
- [ ] Only insurance services.
> **Explanation:** Financial intermediaries offer a broad range of services including deposit taking, lending, debit and credit cards, mortgages, and mutual funds.
## How do investment funds typically sell their shares to the public?
- [ ] Only as bonds.
- [ ] Only as employee stocks.
- [ ] Only as single stock options.
- [x] As closed-end or open-end funds.
> **Explanation:** Investment funds often sell shares to the public as closed-end or open-end funds.
## How do loan companies typically operate?
- [ ] By investing solely in real estate.
- [ ] By trading only in the stock market.
- [ ] By focusing on corporate loans.
- [x] By making direct cash loans to consumers who repay in installments.
> **Explanation:** Loan companies make direct cash loans to consumers who typically repay principal and interest in installments.
## What differentiates robo-advisors from traditional self-directed brokerage?
- [ ] Robo-advisors only offer manual trading options.
- [ ] Robo-advisors function similarly to traditional banking.
- [ ] Robo-advisors require in-person consultations.
- [x] Robo-advisors provide goal-based online investment management with advisor support and use algorithms.
> **Explanation:** Robo-advisors offer goal-based online investment management. They use algorithms and provide advisor support unlike traditional self-directed brokerage.
## What role does bitcoin increasingly play in the traditional investing world?
- [ ] It is only used for illicit trading.
- [ ] It is banned in most markets.
- [x] Its value as a medium of exchange and store of value is recognized, and it can be part of investment vehicles like trusts, mutual funds, and futures.
- [ ] It is not considered for investment at all.
> **Explanation:** Bitcoin's value is recognized both as a medium of exchange and a store of value. It can be invested in through trusts, mutual funds, hedge funds, futures, and options.
## What products and services do full-service firms typically offer in the retail investment dealer category?
- [ ] Only insurance.
- [ ] Only stock trading.
- [x] A wide variety of products and services.
- [ ] Only mutual funds.
> **Explanation:** Full-service firms in the retail category offer a wide variety of products and services to clients.