Explore the essential terms and concepts in the Canadian securities industry, including active markets, annuities, capital markets, and more.
Understanding the terminology used in the Canadian securities industry is crucial for anyone preparing for the CSC® exam or working in the financial sector. This glossary provides clear definitions and explanations of key terms, helping you build a solid foundation in financial concepts and practices.
An Active Market is characterized by a high level of trading activity and liquidity, meaning that securities can be bought and sold quickly without causing significant price changes. This is crucial for investors who need to enter or exit positions swiftly. For example, the Toronto Stock Exchange (TSX) is considered an active market due to its high volume of trades and the liquidity of its listed securities.
An Annuity is a financial product that provides a stream of payments over time, typically used for retirement income. Annuities can be structured in various ways, such as fixed or variable, and can be purchased through insurance companies. They offer a reliable income stream, which can be particularly beneficial in retirement planning.
An Asset is anything of value owned by an individual or organization. Assets can be tangible, like real estate and equipment, or intangible, like stocks and bonds. Understanding asset valuation is essential for financial analysis and investment decision-making.
A Broker is an individual or firm that facilitates the buying and selling of securities for clients. Brokers earn commissions for their services and play a critical role in connecting buyers and sellers in the market. In Canada, brokers must be registered with the Canadian Investment Regulatory Organization (CIRO).
The Capital Market is a financial market where long-term debt or equity-backed securities are bought and sold. It includes both primary and secondary markets. Capital markets are vital for raising capital for businesses and governments, facilitating economic growth.
The Chief Executive Officer (CEO) is the highest-ranking executive in a company, responsible for major decisions and overall operations. The CEO’s leadership and strategic direction are crucial for a company’s success and shareholder value.
A Client Portfolio is a collection of investments held by an individual investor or managed by a financial advisor. Portfolios are diversified to balance risk and return, tailored to the client’s financial goals and risk tolerance.
A Closed-End Fund is an investment fund with a fixed number of shares that are traded on stock exchanges. Unlike mutual funds, closed-end funds do not issue new shares or redeem existing ones. Their market price can differ from the net asset value (NAV) based on supply and demand.
A Commission is a fee charged by brokers for executing transactions on behalf of clients. Commissions can vary based on the type of security and the broker’s fee structure. Understanding commission costs is important for evaluating investment returns.
Consumer Debt refers to debt incurred by consumers through credit cards, personal loans, and other unsecured loans. Managing consumer debt is crucial for financial health, as high levels of debt can lead to financial distress.
A Credit Rating is an evaluation of the creditworthiness of a borrower, typically assigned by credit rating agencies. It affects the interest rates borrowers pay and their ability to access credit. In Canada, major agencies like DBRS Morningstar provide these ratings.
Equity represents the ownership interest in a company, typically in the form of shares of stock. Equity holders are entitled to a portion of the company’s profits and assets. Understanding equity is fundamental for investment analysis and corporate finance.
An Initial Public Offering (IPO) is the first sale of stock by a private company to the public. It allows companies to raise capital from public investors and provides liquidity for early investors. The IPO process involves underwriting and regulatory compliance.
Liquidity refers to the ability to quickly buy or sell an asset without causing significant price changes. High liquidity is desirable as it reduces transaction costs and allows for more efficient market operations.
A Mutual Fund is an investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities. Mutual funds offer diversification and professional management, making them popular among individual investors.
Netting is the process of offsetting mutual obligations to reduce the number of transactions needed for settlement. It is commonly used in derivatives and securities markets to minimize credit risk and operational costs.
Over-the-Counter (OTC) refers to securities traded outside of formal exchanges. OTC markets are decentralized and involve direct transactions between parties. They are often used for trading less liquid or smaller securities.
A Pension Plan is a retirement plan that provides regular income to employees after retirement. Pension plans can be defined benefit or defined contribution, with varying levels of employer and employee contributions.
The Primary Market is where new securities are issued and sold for the first time. It is crucial for companies and governments to raise capital. Investors purchase securities directly from the issuer, often through underwriting.
A Principal Transaction is a trade where the dealer is the buyer or seller of the securities from their own inventory. This contrasts with agency transactions, where the dealer acts as an intermediary.
A Robo-Advisor is an automated platform providing financial planning services with minimal human intervention. Robo-advisors use algorithms to create and manage investment portfolios, offering a cost-effective solution for investors.
The Secondary Market is where existing securities are traded among investors. It provides liquidity and price discovery for securities, allowing investors to buy and sell shares after the initial issuance.
A Self-Regulatory Organization (SRO) is an organization that has the power to create and enforce industry regulations. In Canada, the CIRO is an example of an SRO, overseeing the conduct of investment dealers and mutual fund dealers.
A Securities Commission is a provincial regulatory body overseeing securities trading and compliance. In Canada, each province has its own securities commission, such as the Ontario Securities Commission (OSC).
The Spread is the difference between the buying price and selling price of a security. It represents the dealer’s profit margin and is influenced by market liquidity and volatility.
Underwriting involves assessing and assuming the risk of issuing securities to the public. Underwriters, typically investment banks, play a critical role in the IPO process and other capital-raising activities.
Practice 10 Essential CSC Exam Questions to Master Your Certification