Professional Documents
Culture Documents
Intro:
- vital function served by financial markets is the transfer of wealth from those who have extra wealth to
those who need capital (financial markets drive economic growth by transforming savings into
investments)
capital is scarce, mobile and sensitive - efficient allocation promotes growth, poor allocation constrains it
- tends to flow towards attractive economic environments
- flows in and out of countries in response to:
-political - investment opportunities
- economic trends - fiscal and monetary policy
- risk-return opportunities - labor force characteristics
- availability is critical – crucial to promote economic output, improve productivity & competitive position
users of capital
- individuals - consumption
- businesses - finance operations, purchase assets, and to finance growth
- mostly financed internally, also from bank loans and issuing securities
- govt – t-bills, marketable debentures, canada savings bonds and premium bonds
I. Financial Instrument
- legal formal documents that set out rights and obligations of parties involved
debt - legal obligation to repay borrowed funds at a specified maturity date and provide
interim interest payments as specified
equity - represents part ownership (common shares)
investment funds – company that manages investments (mutual funds / open-end funds)
derivative products – derive value from price of another underlying asset
others – income trust funds, exchange-traded funds, etc
- alternative trading systems – computerized systems executing orders outside exchange facilities matching
orders from own inventory or buy/sell orders – often owned by brokerage firms or groups of firms
- most institutional investors – cut costs, globalize (operate then exchanges are closed)
- Chartered Banks
- gather funds (savings / certificates of deposit)
- give to users as mortgages and other forms of loans – income from spread
- governed by bank act
- Schedule I banks – 90% - widely held (less than 20% per investor, 25% foreign holdings)
- Schedule II banks – incorporated – subsidiaries of foreign banks or financial institutions
- Schedule III banks – branches of foreign banks (diff is not subsidiary)
- Chinese walls – controls put in place to restrict flow of information between bank divisions
- Other Intermediaries
- trusts and mortgage companies – trustees in charge of corporate or individual financial assets
- pension plans – focus on safety of principal and income (purchase govt debt)
- credit unions / caisses populaires – provide basic financial services
- sales finance and consumer loans companies
– direct cash loans and/or purchase sales contracts from retailers at a discount
- property and casualty insurance companies – provide insurance (much smaller scale)
- savings banks – take savings, but don’t lend
- business development bank of Canada – provide fixed term financing to small businesses
Regulatory Organizations:
provincial regulators
- regulation of securities industry in Canada is a provincial responsibility
- work closely with CIPF – Canadian Investor Protection Fund and Self-Regulatory Org
CIPF – canadian investor protection fund – includes all IDA and exchanges members
- designed to protect investors from loss due to insolvency of a SRO member
- role is to anticipate and solve financial difficulties of member firms to minimize risk of
insolvency (orderly wind-down the business if not savable)
- coverage up to $1mil in losses related to securities holdings and cash balances combined
Arbitration
- compensation from dealers through court, west side allows investors to claim amounts below
$100k through arbitrations (direct solution)
- OBSI – Ombudsman for banking Services and Investments – investigates complaints against
financial service providers