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Glossary

The following is a glossary of investment terms that will help you study for
the CSC examination and increase your overall knowledge of the investment
industry. Some of the terms also have a general meaning, but only their specialized
investment industry meaning is given here. Words in bold face type within
definitions have their own glossary definitions. Note that this list is not complete:
it should be used in conjunction with your own definitions of terms compiled
during your studies.

CANADIAN SECURITIES INSTITUTE (2015) G1


GLOSSARY G3

Glossary
Accredited Investor Agent Annual Information Form (AIF)
An individual or institutional investor who An investment dealer operates as an agent A document in which an issuer is required
meets certain minimum requirement when it acts on behalf of a buyer or a seller to disclose information about presently
relating to income, net worth, or investment of a security and does not itself own title to known trends, commitments, events or
knowledge. Also referred to as a the securities at any time during the uncertainties that are reasonably expected
sophisticated investor. transactions. See also Principal. to have a material impact on the issuers
business, financial condition or results of
Accrued Interest Algorithmic Trading operations. Although investors are typically
Interest accumulated on a bond or The use of sophisticated mathematical not provided with the AIF, the prospectus
debenture since the last interest payment algorithms to execute equity trades over must state that it is available on request.
date. electronic trading systems.
Annual Report
Adjusted Cost Base All or None Order (AON) The formal financial statements and report
The deemed cost of an asset representing An order that must be executed in its on operations issued by a company to its
the sum of the amount originally paid plus entirety partial fills will not be accepted. shareholders after its fiscal year-end.
any additional costs, such as brokerage fees
and commissions. Allocation Annuitant
The administrative procedure by which Person on whose life the maturity and
Advance-Decline Line income generated by the segregated funds death benefit guarantees are based. It can be
A tool used in technical analysis to measure investment portfolio is flowed through to the contract holder or someone else
the breadth of the market. The analyst the individual contract holders of the fund. designated by the contract holder. In
takes difference between the number of registered plans, the annuitant and
stocks that increased in value each day less Alpha
A statistical measure of the value a fund contract holder must be the same person.
the number that have decreased.
manager adds to the performance of the Annuity
After Acquired Clause fund managed. If alpha is positive, the A contract usually sold by life insurance
A protective clause found in a bonds manager has added value to the portfolio. If companies that guarantees an income to
indenture or contract that binds the bond the alpha is negative, the manager has the beneficiary or annuitant at some time
issuer to pledging all subsequently purchased underperformed the market. in the future. The income stream can be
assets as part of the collateral for a bond very flexible. The original purchase price
issue. Alternative Trading Systems (ATS)
Privately-owned computerized networks may be either a lump sum or a stream of
After Market Stabilization that match orders for securities outside of payments. See Deferred Annuity and
A type of arrangement where the dealer recognized exchange facilities. Also referred Immediate Annuity.
supports the offer price of a newly issued to as Proprietary Electronic Trading Any Part Order
stock once it begins trading in the Systems (PETS). A type of order in which the client will
secondary market. accept all stock in odd, broken or standard
American-Style Option
Agency Traders An option that can be exercised at any time trading units up to the full amount of the
Manage trades for institutional clients. during the options lifetime. See also order.
They do not trade the dealer members European-Style Option. Arbitrage
capital, and they trade only when acting on The simultaneous purchase of a security on
behalf of clients. Agency traders do not Amortization
Gradually writing off the value of an one stock exchange and the sale of the same
merely take orders; they must manage security on another exchange at prices which
institutional orders with minimal market intangible asset over a period of time.
Commonly applied to items such as yield a profit to the arbitrageur.
impact and act as the clients eyes and ears
for relevant market intelligence. goodwill, improvements to leased Arbitration
premises, or expenses of a new stock or A method of dispute resolution in which an
bond issue. See also Depreciation. independent arbitrator is chosen to assist
aggrieved parties recover damages.

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G4 CANADIAN SECURITIES COURSE

Arrears Auction Market borrower for payment on a specified date.


Interest or dividends that were not paid Market in which securities are bought and A BA is guaranteed at maturity by the
when due but are still owed. For example, sold by brokers acting as agents for their borrowers bank. As with T-bills, BAs are
dividends owed but not paid to cumulative clients, in contrast to a dealer market sold at a discount and mature at their face
preferred shareholders accumulate in a where trades are conducted over-the- value, with the difference representing the
separate account (arrears). When payments counter. For example, the Toronto Stock return to the investor. BAs may be sold
resume, dividends in arrears must be paid Exchange is an auction market. before maturity at prevailing market rates,
to the preferred shareholders before the generally offering a higher yield than
common shareholders. Audit
Canada T-bills.
A professional review and examination of a
Ask companys financial statements required Banking Group
The lowest price a seller will accept for the under corporate law for the purpose of A group of investment firms, each of which
financial instrument being quoted. See also ensuring that the statements are fair, individually assumes financial responsibility
Bid. consistent and conform with International for part of an underwriting.
Financial Reporting Standards (IFRS).
Asset Bankrupt
Everything a company or a person owns or Authorized Shares The legal status of an individual or company
has owed to it. A statement of financial The maximum number of common (or that is unable to pay its creditors and whose
position category. preferred) shares that a corporation may assets are therefore administered for its
issue under the terms of its charter. creditors by a Trustee in Bankruptcy.
Asset Allocation
Apportioning investment funds among Autorit des marchs financiers Basis Point
different categories of assets, such as cash, (Financial Services Authority) One-hundredth of a percentage point of
fixed income securities and equities. The (AMF) bond yields. Thus, 1% represents 100 basis
allocation of assets is built around an The body that administers the regulatory points.
investors risk tolerance. framework surrounding Qubecs financial
sector: securities sector, the distribution of Bear
Asset-backed commercial paper financial products and services sector, the One who expects that the market generally,
(ABCP) financial institutions sector and the or the market price of a particular security,
A type of security that has a maturity date compensation sector. will decline. See also Bull.
of less than one year, typically in the range
of 90 to 180 days, with a legal and design Averages Bear Market
structure of an asset-backed security. A statistical tool used to measure the A sustained decline in equity prices. Bear
direction of the market. The most common markets are usually associated with a
Asset Mix average is the Dow Jones Industrial downturn (recession or contraction) in the
The percentage distribution of assets in a Average. business cycle.
portfolio among the three major asset
classes: cash and equivalents, fixed income Back-End Load Bearer Security
and equities. A sales charge applied on the redemption of A security (stock or bond) which does not
a mutual fund. have the owners name recorded in the books
Assuris of the issuing company nor on the security
A not for profit company whose member Balance of Payments itself and which is payable to the holder,
firms are issuers of life-insurance contracts Canadas interactions with the rest of the i.e., the holder is the deemed owner of the
and whose mandate is to provide world which are captured here in the current security. See also Registered Security.
protection to contract holders against the account and capital account.
insolvency of a member company, Beneficial Owner
Bank of Canada The real (underlying) owner of an account,
At-the-Money Canadas central bank which exercises its securities or other assets. An investor may
An option with a strike price equal to (or influence on the economy by raising and own shares which are registered in the
almost equal to) the market price of the lowering short-term interest rates. name of an investment dealer, trustee or
underlying security. See also Out-of-the- bank to facilitate transfer or to preserve
money and In-the-money. Bank Rate
anonymity, but the investor would be the
The minimum rate at which the Bank of
beneficial owner.
Attribution Rules Canada makes short-term advances to the
A Canada Revenue Agency rule stating that chartered banks, other members of the Beneficiary
an investor cannot avoid paying taxes at Canadian Payments Association and The individual or individuals who have
their marginal rate by transferring assets to investment dealers who trade in the money been designated to receive the death benefit.
other family members who have lower market. Beneficiaries may be either revocable or
personal tax rates. irrevocable.
Bankers Acceptance
A commercial draft (i.e., a written
instruction to make payment) drawn by a

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GLOSSARY G5

Best Efforts Underwriting Bond Contract securities in the capacity of an agent or


The attempt by an investment dealer The actual legal agreement between the principal and is a member of a Self-
(underwriter) to sell an issue of securities, issuer and the bondholder. The contract Regulatory Organization.
to the best of their abilities, but does not outlines the terms and conditions the
guarantee that any or all of the issue will be coupon rate, timing of coupon payments, Broker of Record
sold. The investment dealer is not held maturity date and any other terms. The The broker named as the official advisor to
liable to fulfill the order or to sell all of the bond contract is usually administered by a a corporation on financial matters; has the
securities. The underwriter acts as an agent trust company on behalf of all the right of first refusal on any new issues.
for the issuer in distributing the issue. bondholders. Also called a Bond Bucketing
Indenture or Trust Deed. Confirming a transaction where no trade
Beta
A measure of the sensitivity (i.e., volatility) Bond Indenture has been executed.
of a stock or a mutual fund to movements See Bond Contract. Budget Deficit
in the overall stock market. The beta for Occurs when total spending by the
the market is considered to be 1. A fund Book Value
The amount of net assets belonging to the government for the year is higher than
that mirrors the market, such as an index revenue collected.
fund, would also have a beta of 1. Funds or owners of a business (or shareholders of a
stocks with a beta greater than 1 are more company) based on statement of financial Budget Surplus
volatile than the market and are therefore position values. It represents the total value Occurs when government revenue for the
riskier. A beta less than 1 is not as volatile of the companys assets that shareholders year exceeds expenditures.
and can be expected to rise and fall by less would theoretically receive if a company
than the overall market. were liquidated. Also represents the original Bull
cost of the units allocated to a segregated One who expects that the market generally
Bid fund contract. or the market price of a particular security
The highest price a buyer is willing to pay will rise. See also Bear.
for the financial instrument being quoted. Bottom-Up Analysis
See also Ask. An investment approach that seeks out Bull Market
undervalued companies. A fund manager A general and prolonged rising trend in
Blue Chip may find companies whose low share prices security prices. Bull markets are usually
An active, leading, nationally known are not justified. They would buy these associated with an expansionary phase of
common stock with a record of continuous securities and when the market finally the business cycle. As a memory aid, it is
dividend payments and other strong realizes that they are undervalued, the share said that a bull walks with his head up
investment qualities. The implication is price rises giving the astute bottom up while a bear walks with his head down.
that the company is of good investment manager a profit. See also Top-Down
value. Analysis. Business Cycle
The recurrence of periods of expansion
Blue Sky Bought Deal and recession in economic activity. Each
A slang term for laws that various Canadian A new issue of stocks or bonds bought cycle is expected to move through five
provinces and American states have enacted from the issuer by an investment dealer, phases the trough, recovery, expansion,
to protect the public against securities frequently acting alone, for resale to its peak, contraction (recession). Given an
frauds. The term blue skyed is used to clients, usually by way of a private understanding of the relationship between
indicate that a new issue has been cleared placement or short form prospectus. The the business cycle and security prices an
by a securities commission and may be dealer risks its own capital in the bought investor or fund manager would select an
distributed. deal. In the event that the price has to be asset mix to maximize returns.
lowered to sell out the issue, the dealer
Bond absorbs the loss. Business Risk
A certificate evidencing a debt on which The risk inherent in a companys operations,
the issuer promises to pay the holder a Bourse de Montral reflected in the variability in earnings. A
specified amount of interest based on the A stock exchange (also referred to as the weakening in consumer interest or
coupon rate, for a specified length of time, Montral Exchange) that deals exclusively technological obsolescence usually causes
and to repay the loan on its maturity. with non-agricultural options and futures the decline. Examples include manufacturers
Strictly speaking, assets are pledged as in Canada, including all options that of vinyl records, eight track recording tapes
security for a bond issue, except in the case previously traded on the Toronto Stock and beta video machines.
of government bonds, but the term is Exchange and all futures products that
often loosely used to describe any funded previously traded on the Toronto Futures Buy-Back
debt issue. Exchange. A companys purchase of its common shares
either by tender or in the open market for
Broker cancellation, subsequent resale or for
An investment dealer or a duly registered dividend reinvestment plans.
individual that is registered to trade in

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Buy-Ins Canada Education Savings Grant Canadian Life and Health


The obligation to buy back the stock after (CESG) Insurance Association Inc.
selling it short if adequate margin cannot be An incentive program for those investing in (CLHIA)
maintained by the client and/or if the a Registered Education Savings Plan The national trade group of the life
originally borrowed stock is called by its (RESP) whereby the federal government insurance industry, which is actively
owner and no other stock can be borrowed will make a matching grant of a maximum involved in overseeing applications and
to replace it. of $500 to $600 per year of the first $2,500 setting industry standards.
contributed each year to the RESP of a
Buy Side child under age 18. Canadian Originated Preferred
The term applied to retail and institutional Securities (COPrS)
investors, since they are the buyers of Canada Pension Plan (CPP) Introduced to the Canadian market in
securities and services provided by the A mandatory contributory pension plan March 1999, as long-term junior
sell-side of the market. designed to provide monthly retirement, subordinated debt instruments. This type
disability and survivor benefits for all of security offers features that resemble
Call Feature Canadians. Employers and employees make both long-term corporate bonds and
A clause in a bond or preferred share equal contributions. Qubec has its own preferred shares.
agreement that allows the issuer the right to parallel pension plan Qubec Pension Plan
call back the securities prior to maturity. (QPP). Canadian Payments Association
The company would usually do this if they (CPA)
could refinance the debt at a lower rate Canada Premium Bonds (CPBs) Established in the 1980 revision of the
(similar to refinancing a mortgage at a lower A relatively new type of savings product Bank Act, this association operates a highly
rate). Calling back a security prior to that offers a higher interest rate compared automated national clearing system for
maturity may involve the payment of a to the Canada Savings Bond and is interbank payments. Members include
penalty known as a call premium. redeemable at any time throughout the year chartered banks, trust and loan companies
with the bondholder receiving the face and some credit unions and caisses.
Call Option value plus interest earned up to the last
The right to buy a specific number of anniversary date of issue at the time of Canadian Securities
shares at a specified price (the strike price) redemption. Administrators (CSA)
by a fixed date. The buyer pays a premium The CSA is a forum for the 13 securities
to the seller of the call option contract. An Canada Savings Bonds (CSBs) regulators of Canadas provinces and
investor would buy a call option if the A type of savings product that pays a territories to co-ordinate and harmonize
underlying stocks price is expected to rise. competitive rate of interest and that is the regulation of the Canadian capital
See also Put Option. guaranteed for one or more years. They markets.
may be cashed at any time and, after the
Call Price first three months, pay interest up to the Canadian Securities Exchange
The price at which a bond or preferred end of the month prior to being cashed. (CSE)
share with a call feature is redeemed by the Launched in 2003 as an alternative
issuer. This is the amount the holder of the Canada Yield Call marketplace for trading equity securities
security would receive if the security was A callable bond with a call price based on and emerging companies.
redeemed prior to maturity. The call price the greater of (a) par or (b) the price based
is equal to par (or a stated value for on the yield of an equivalent-term Canadian Unlisted Board (CUB)
preferred shares) plus any call premium. Government of Canada bond plus a An Internet web-based system for
See also Redemption Price. specified yield spread. Also known as a investment dealers to report completed
Doomsday call. See also Call Price and trades in unlisted and unquoted equity
Call Protection Period Callable Bond. securities in Ontario.
For callable bonds, the period before the
first possible call date. Canadian Derivatives Clearing CanDeal
Corporation (CDCC) Provides institutional investors with
Callable The CDCC is a service organization that electronic access to federal bond bid and
May be redeemed (called in) upon due clears, issues, settles, and guarantees options, offer prices and yields from its six
notice by the securitys issuer. futures, and futures options traded on the bank-owned dealers.

Canada Deposit Insurance Bourse de Montral (the Bourse). CanPx


Corporation (CDIC) Canadian Investor Protection Fund A joint venture of several IIROC member
A federal Crown Corporation providing (CIPF) firms and operates as an electronic trading
deposit insurance against loss (up to A fund that protects eligible customers in system for fixed income securities providing
$100,000 per depositor) when a member the event of the insolvency of an IIROC investors with real-time bid and offer prices
institution fails. dealer member. It is sponsored solely by and hourly trade data.
IIROC and funded by quarterly
assessments on dealer members.

CANADIAN SECURITIES INSTITUTE (2015)


GLOSSARY G7

Capital Carry Forward Chart Analysis


Has two distinct but related meanings. To The amount of RRSP contributions that The use of charts and patterns to forecast
an economist, it means machinery, factories can be carried forward from previous years. buy and sell decisions. See also Technical
and inventory required to produce other For example, if a client was entitled to place Analysis.
products. To an investor, it may mean the $13,500 in an RRSP and only contributed
$10,000, the difference of $3,500 would be Class A and B Stock
total of financial assets invested in
the unused contribution room and can be Shares that have different classes sometimes
securities, a home and other fixed assets,
carried forward indefinitely. have different rights. Some may have
plus cash.
superior claims over other classes or may
Capital and Financial Account Cash Account have different voting rights. Class A stock is
Account which reflects the transactions A type of brokerage account where the often similar to a participating preferred
occurring between Canada and foreign investor is expected to have either cash in share with a prior claim over Class B for a
countries with respect to the acquisition of the account to cover their purchases or stated amount of dividends or assets or both,
assets, such as land or currency. Along with where an investor will deliver the required but without voting rights; the Class B may
the current account a component of the amount of cash before the settlement date have voting rights but no priority as to
balance of payments. of the purchase. dividends or assets. Note that these
distinctions do not always apply.
Capital Gain Cash Flow
Selling a security for more than its purchase A companys profit for a stated period plus Clearing
price. For non-registered securities, 50% of any deductions that are not paid out in The process of confirming and matching
the gain would be added to income and actual cash, such as depreciation. For an security trade details.
taxed at the investors marginal rate. investor, any source of income from an
investment including dividends, interest Clearing Corporations
Capital Loss income, rental income, etc. A not-for-profit service organization owned
Selling a security for less than its purchase by the exchanges and their members for the
price. Capital losses can only be applied Cash-Secured Put Write clearance, settlement and issuance of
against capital gains. Surplus losses can be Involves writing a put option and setting options and futures. A clearing corporation
carried forward indefinitely and used aside an amount of cash equal to the strike provides a guarantee for all options and
against future capital gains. Only 50% of price. If the cash-secured put writer is futures contracts it clears, by becoming the
the loss can be used to offset any taxable assigned, the cash is used to buy the stock buyer to every seller and the seller to every
capital loss. from the exercising put buyer. buyer.

Capital Market Cash Value Closed-End Fund


Financial markets where debt and equity The current market value of a segregated Shares in closed-end investment companies
securities trade. Capital markets include fund contract, less any applicable deferred are readily transferable in the open market
organized exchanges as well as private sales charges or other withdrawal fees and are bought and sold like other shares.
placement sources of debt and equity. Capitalization is fixed. See also Investment
CBID Company.
Capital Stock An electronic trading system for fixed-
All shares representing ownership of a income securities operating in both retail Closet Indexing
company, including preferred as well as and institutional markets. A portfolio strategy whereby the fund
common. Also referred to as equity manager does not replicate the market
CDS Clearing and Depository exactly but sticks fairly close to the market
capital.
Services Inc. (CDS) weightings by industry sector, country or
Capitalization or Capital Structure CDS provides customers with physical and region or by the average market
Total dollar amount of all debt, preferred electronic facilities to deposit and withdraw capitalization.
and common stock, and retained earnings depository-eligible securities and manage
of a company. Can also be expressed in their related ledger positions (securities Coincident Indicators
percentage terms. accounts). CDS also provides electronic Statistical data that, on average, change at
clearing services both domestically and approximately the same time and in the
Capitalizing internationally, allowing customers to same direction as the economy as a whole.
Recording an expenditure initially as an report, confirm and settle securities trade
asset on the statement of financial transactions. Collateral Trust Bond
position rather than as an expense on the A bond secured by stocks or bonds of
statement of comprehensive income, and Central Bank companies controlled by the issuing
then writing it off or amortizing it (as an A body established by a national company, or other securities, which are
expense on the statement of Government to regulate currency and deposited with a trustee.
comprehensive income) over a period of monetary policy on a national/
international level. In Canada, it is the Commercial Paper
years. Examples include interest, and
Bank of Canada; in the United States, the An unsecured promissory note issued by a
research and development.
Federal Reserve Board; in the U.K., the corporation or an asset-backed security
Bank of England. backed by a pool of underlying financial

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assets. Issue terms range from less than Consumer Price Index (CPI) negative than it will fall in price if the yield
three months to one year. Most corporate Price index which measures the cost of change is positive.
paper trades in $1,000 multiples, with a living by measuring the prices of a given
minimum initial investment of $25,000. basket of goods. The CPI is often used as Corporate Note
Commercial paper may be bought and sold an indicator of inflation. An unsecured promise made by the
in a secondary market before maturity at borrower to pay interest and repay the
Continuation Pattern principal at a specific date.
prevailing market rates.
A chart formation indicating that the
Commission current trend will continue. Corporation or Company
The fee charged by a stockbroker for buying A form of business organization created
Continuous Disclosure under provincial or federal statutes which
or selling securities as agent on behalf of a
In Ontario, a reporting issuer must issue a has a legal identity separate from its
client.
press release as soon as a material change owners. The corporations owners
Commodity occurs in its affairs and, in any event, (shareholders) have no personal liability for
A product used for commerce that is traded within ten days. See also Timely its debts. See also Limited Liability.
on an organized exchange. A commodity Disclosure.
could be an agricultural product such as Correction
Contract Holder A price reversal that typically occurs when a
canola or wheat, or a natural resource such
The owner of a segregated fund contract. security has been overbought or oversold in
as oil or gold. A commodity can be the
basis for a futures contract. the market.
Contraction
Represents a downturn in the economy and Correlation
Common Stock
can lead to a recession if prolonged. A measure of the relationship between two
Securities representing ownership in a
company. They carry voting privileges and or more securities. If two securities mirror
Contributions in Kind
are entitled to the receipt of dividends, if each others movements perfectly, they are
Transferring securities into an RRSP. The
declared. Also called common shares. said to have a positive one (+1) correlation.
general rules are that when an asset is
Combining securities with high positive
transferred there is a deemed disposition.
Competitive Tender correlations does not reduce the risk of a
Any capital gain would be reported and
A distribution method used in particular by portfolio. Combining securities that move
taxes paid. Any capital losses that result
the Bank of Canada in distributing new in the exact opposite direction from each
cannot be claimed.
issues of government marketable bonds. other are said to have perfect negative one
Bids are requested from primary Conversion Price (-1) correlation. Combining two securities
distributors and the higher bids are The dollar value at which a convertible with perfect negative correlation reduces
awarded the securities for distribution. See bond or security can be converted into risk. Very few, if any, securities have a
also Non-Competitive Tender. common stock. perfect negative correlation. However, risk
in a portfolio can be reduced if the
Compound Interest Conversion Privilege combined securities have low positive
Interest earned on an investment at periodic The right to exchange a bond for common correlations.
intervals and added to the amount of the shares on specifically determined terms.
investment; future interest payments are Cost Accounting Method
then calculated and paid at the original rate Convertible Used when a company owns less than 20%
but on the increased total of the investment. A bond, debenture or preferred share of a subsidiary.
In simple terms, interest paid on interest. which may be exchanged by the owner,
usually for the common stock of the same Cost of Sales
Confirmation company, in accordance with the terms of A statement of comprehensive income
A printed acknowledgement giving details the conversion privilege. A company can account representing the cost of buying raw
of a purchase or sale of a security which is force conversion by calling in such shares materials that go directly into producing
normally mailed to a client by the broker or for redemption if the redemption price is finished goods.
investment dealer within 24 hours of an below the market price.
order being executed. Also called a Cost-Push Inflation
contract. Convertible Arbitrage A type of inflation that develops due to an
A strategy that looks for mispricing increase in the costs of production. For
Consolidated Financial Statements between a convertible security and the example, an increase in the price of oil may
A combination of the financial statements underlying stock. A typical convertible contribute to higher input costs for a
of a parent company and its subsidiaries, arbitrage position is to be long the company and could lead to higher
presenting the financial position of the convertible bond and short the common inflation.
group as a whole. stock of the same company.
Coupon Rate
Consolidation Convexity The rate of interest that appears on the
See Reverse Split. A measure of the rate of change in duration certificate of a bond. Multiplying the
over changes in yields. Typically, a bond coupon rate times the principal tells the
will rise in price more if the yield change is holder the dollar amount of interest to be

CANADIAN SECURITIES INSTITUTE (2015)


GLOSSARY G9

paid by the issuer until maturity. For and must be paid before any dividends may off workers in response to lower sales. It
example, a bond with a principal of be paid on the companys common shares. drops when the economy strengthens again.
$1,000 and a coupon of 10% would pay
$100 in interest each year. Coupon rates Current Account Dark Pool
remain fixed throughout the term of the Account that reflects all payments between An equity marketplace that does not offer
bond. See also Yield. Canadians and foreigners for goods, services, pre-trade transparency on trader orders.
interest and dividends. Along with the
Covenant capital and financial account it is a Day Order
A pledge in a bond indenture indicating component of the balance of payments. A buy or sell order that automatically expires
the fulfilment of a promise or agreement by if it is not executed on the day it is entered.
the company issuing the debt. An example Current Assets All orders are day orders unless otherwise
of a covenant may include the promise not Cash and assets which in the normal course specified.
to issue any more debt. of business would be converted into cash,
usually within a year, e.g. accounts Dealer Market
Cover receivable, inventories. A statement of A market in which securities are bought
Buying a security previously sold short. See financial position category. and sold over-the-counter in which dealers
also Short Sale. acts as principals when buying and selling
Current Liabilities securities for clients. Also referred to as the
Coverage Trader Money owed and due to be paid within a unlisted market.
Manages trades on behalf of institutional year, e.g. accounts payable. A statement of
clients and does not trade the dealer financial position category. Dealer Member
members capital. Also known as an agency A stock brokerage firm or investment dealer
trader. Current Ratio which is a member of a stock exchange or
A liquidity ratio that shows a companys the Investment Industry Regulatory
Covered Writer ability to pay its current obligations from Organization of Canada.
The writer of an option who also holds a current assets. A current ratio of 2:1 is the
position that is equivalent to, but on the generally accepted standard. See also Quick Dealers Spread
opposite side of the market from the short Ratio. The difference between the bid and ask
option position. In some circumstances, the prices on a security.
equivalent position may be in cash, a Current Yield
The annual income from an investment Death Benefit
convertible security or the underlying The amount that a segregated fund policy
security itself. See also Naked Writer. expressed as a percentage of the
investments current value. On stock, pays to the beneficiary or the estate when
Creation Unit calculated by dividing yearly dividend by the market value of the segregated fund is
The block of ETF shares provided by an market price; on bonds, by dividing the lower than the guaranteed amount on the
ETF issuer to the market maker. coupon by market price. See also Yield. death of the annuitant.

CUB Custodian Debenture


Canadian Unlisted Board a web-based A firm that holds the securities belonging A certificate of indebtedness of a
trade reporting system for unlisted securities. to a mutual fund or a segregated fund for government or company backed only by the
safekeeping. The custodian can be either general credit of the issuer and unsecured
Cum Dividend the insurance company itself, or a qualified by mortgage or lien on any specific asset. In
With dividend. If you buy shares quoted outside firm based in Canada. other words, no specific assets have been
cum dividend, i.e., before the ex dividend pledged as collateral.
date, you will receive an upcoming Cyclical Stock
already-declared dividend. If shares are A stock in an industry that is particularly Debt
quoted ex-dividend (without dividend) sensitive to swings in economic conditions. Money borrowed from lenders for a variety
you are not entitled to the declared Cyclical Stocks tend to rise quickly when of purposes. The borrower typically pays
dividend. the economy does well and fall quickly interest for the use of the money and is
when the economy contracts. In this way, obligated to repay it at a set date.
Cum Rights cyclicals move in conjunction with the
With rights. Buyers of shares quoted cum Debt/Equity Ratio
business cycle. For example, during A ratio that shows whether a companys
rights, i.e., before the ex-rights date, are periods of expansion auto stocks do well as
entitled to forthcoming already-declared borrowing is excessive. The higher the ratio,
individuals replace their older vehicles. the higher the financial risk.
rights. If shares are quoted ex rights During recessions, auto sales and auto
(without rights) the buyer is not entitled to company share values decline. Declining Industry
receive the declared rights. An industry moving from the maturity
Cyclical Unemployment stage. It tends to grow at rates slower than
Cumulative Preferred The amount of unemployment that rises
A preferred stock having a provision that if the overall economy, or the growth rate
when the economy softens, firms demand actually begins to decline.
one or more of its dividends are not paid, for labour moderates, and some firms lay
the unpaid dividends accumulate in arrears

CANADIAN SECURITIES INSTITUTE (2015)


G10 CANADIAN SECURITIES COURSE

Deemed Disposition amount attributed to that asset or liability For example, a call option on IBM is a
Under certain circumstances, taxation rules for income tax purposes. derivative because the value of the call
state that a transfer of property has occurred, varies in relation to the performance of
even without a purchase or sale, e.g., there Defined Benefit Plan IBM stock. See also Options.
is a deemed disposition on death or A type of registered pension plan in which
emigration from Canada. the annual payout is based on a formula. Direct Bonds
The plan pays a specific dollar amount at This term is used to describe bonds issued
Default retirement using a predetermined formula. by governments that are firsthand
A bond is in default when the borrower has obligations of the government itself. See
failed to live up to its obligations under the Defined Contribution Plan also Guaranteed Bonds.
trust deed with regard to interest, sinking A type of registered pension plan where the
fund payments or has failed to redeem the amount contributed is known but the dollar Direct Electronic Access (DEA)
bonds at maturity. amount of the pension to be received is The process of some institutional clients
unknown. Also known as a money directly accessing the exchanges
Default Risk purchase plan. electronically via their investment dealers
The risk that a debt security issuer will be rather than placing orders (usually verbally)
unable to pay interest on the prescribed Delayed Floater with their investment dealer who would in
date or the principal at maturity. Default A type of variable rate preferred share turn execute the transaction.
risk applies to debt securities not equities that entitles the holder to a fixed dividend
since equity dividend payments are not for a predetermined period of time after Directional Hedge Funds
contractual. which the dividend becomes variable. Also A type of hedge fund that places a bet on
known as a fixed-reset or fixed floater. the anticipated movements in the market
Defensive Stock prices of equities, fixed-income securities,
A stock of a company with a record of Delayed Opening foreign currencies and commodities.
stable earnings and continuous dividend Postponement in the opening of trading of
payments and which has demonstrated a security the result of a heavy influx of buy Director
relative stability in poor economic and/or sell orders. Person elected by voting common
conditions. For example, utility stock shareholders at the annual meeting to
Delisting direct company policies.
values do not usually change from periods Removal of a securitys listing on a stock
of expansion to periods of recession since exchange. Directors Circular
most individuals use a constant amount of Information sent to shareholders by the
electricity. Demand Pull Inflation directors of a company that are the target
A type of inflation that develops when of a takeover bid. A recommendation to
Deferred Annuity continued consumer demand pushes prices
This type of contract, usually sold by life accept or reject the bid, and reasons for this
higher. recommendation, must be included.
insurance companies, pays a regular stream
of income to the beneficiary or annuitant Depletion Disclosure
at some agreed-upon start date in the future. Refers to consumption of natural resources One of the principles of securities regulation
The original payment is usually a stream of that are part of a companys assets. in Canada. This principle entails full, true
payments made over time, ending prior to Producing oil, mining and gas companies and plain disclosure of all material facts
the beginning of the annuity payments. See deal in products that cannot be replenished necessary to make reasoned investment
also Annuity. and as such are known as wasting assets. decisions.
The recording of depletion is a
Deferred Preferred Shares bookkeeping entry similar to depreciation Discount
A type of preferred share that pays no and does not involve the expenditure of The amount by which a preferred stock or
dividend until a future maturity date. cash. bond sells below its par value.
Deferred Sales Charge Depreciation Discount Brokers
The fee charged by a mutual fund or Systematic charges against earnings to write Brokerage house that buys and sells
insurance company for redeeming units. It off the cost of an asset over its estimated securities for clients at a greater commission
is otherwise known as a redemption fee or useful life because of wear and tear through discount than full-service firms.
back-end load. These fees decline over use, action of the elements, or obsolescence.
time and are eventually reduced to zero if It is a bookkeeping entry and does not Discount Rate
the fund is held long enough. involve the expenditure of cash. In computing the value of a bond, the
discount rate is the interest rate used in
Deferred Tax Liabilities Derivative calculating the present value of future cash
The income tax payable in future periods. A type of financial instrument whose value flows.
These liabilities commonly result from is based on the performance of an
temporary differences between the book underlying financial asset, commodity, or
value of assets and liabilities as reported on other investment. Derivatives are available
the statement of financial position and the on interest rates, currency, stock indexes.

CANADIAN SECURITIES INSTITUTE (2015)


GLOSSARY G11

Discouraged Workers taxable, dividend-paying Canadian Dynamic Asset Allocation


Individuals that are available and willing to corporations. The taxpayer pays tax based An asset allocation strategy that refers to
work but cannot find jobs and have not on grossing up the dividend and obtains a the systematic rebalancing, either by time
made specific efforts to find a job within credit against federal and provincial tax period or weight, of the securities in the
the previous month. based on the grossed up amount. The portfolio, so that they match the long-term
federal government may adjust the gross up benchmark asset mix among the various
Discretionary Account asset classes.
rate and tax credit from year to year.
A securities account where the client has
given specific written authorization to a Dividend Yield Earned Income
partner, director or qualified portfolio A value ratio that shows the annual Income that is designated by Canada
manager to select securities and execute dividend rate expressed as a percentage of Revenue Agency for RRSP calculations.
trades for him. See also Managed Account the current market price of a stock. Most types of revenues are included with
and Wrap Account. Dividend yield represents the investors the exception of any form of investment
percentage return on investment at its income and pension income.
Disinflation
prevailing market price.
A decline in the rate at which prices rise Earnings Per Share (EPS)
i.e., a decrease in the rate of inflation. Dollar Cost Averaging A value ratio that shows the portion of net
Prices are still rising, but at a slower rate. Investing a fixed amount of dollars in a income for a period attributable to a single
specific security at regular set intervals over common share of a company. For example,
Disposable Income a company with $100 million in earnings
a period of time, thereby reducing the
Personal income minus income taxes and and with 100 million common
average cost paid per unit.
any other transfers to government. shareholders would report an EPS of $1 per
Domestic Bonds share.
Diversification
Bonds issued in the currency and country
Spreading investment risk by buying Economic Indicators
of the issuer. For example, a Canadian
different types of securities in different Statistics or data series that are used to
dollar-denominated bond, issued by a
companies in different kinds of businesses analyze business conditions and current
Canadian company, in the Canadian market
and/or locations. economic activity. See also leading,
would be considered a domestic bond.
Dividend lagging, and coincident indicators.
Dow Jones Industrial Average
An amount distributed out of a companys Economies of Scale
(DJIA)
profits to its shareholders in proportion to An economic principle whereby the per
A price-weighted average that uses 30
the number of shares they hold. Over the unit cost of producing each unit of output
actively traded blue chip companies as a
years a preferred dividend will remain at a falls as the volume of production increases.
measure of the direction of the New York
fixed annual amount. The amount of Typically, a company that achieves
Stock Exchange.
common dividends may fluctuate with the economies of scale lowers the average cost
companys profits. A company is under no Drawdown per unit through increased production
legal obligation to pay preferred or common A cash management open-market operation since fixed costs are shared over an
dividends. pursued by the Bank of Canada to influence increased number of goods.
interest rates. A drawdown refers to the
Dividend Discount Model Efficient Market Hypothesis
transfer of deposits to the Bank of Canada
The relationship between a stocks current The theory that a stocks price reflects all
from the direct clearers, effectively draining
price and the present value of all future available information and reflects its true
the supply of available cash balances. See
dividend payments. It is used to determine value.
also Redeposit.
the price at which a stock should be selling
based on projected future dividend Due Diligence Report Election Period
payments. When negotiations for a new issue of When an investor purchases an extendible
securities begin between a dealer and or retractable bond, they have a time
Dividend Payout Ratio period in which to notify the company if
corporate issuer, the dealer normally
A ratio that measures the amount or they want to exercise the option.
prepares a due diligence report examining
percentage of the companys profit that are
the financial structure of the company.
paid out to shareholders in the form of Elliot Wave Theory
dividends. Duration A theory used in technical analysis based
A measure of bond price volatility. The on the rhythms found in nature. The theory
Dividend Reinvestment Plan states that there are repetitive, predictable
approximate percentage change in the price
The automatic reinvestment of shareholder sequences of numbers and cycles found in
or value of a bond or bond portfolio for a
dividends in more shares of the companys nature similar to patterns of stock
1% point change in interest rates. The
stock. movements.
higher the duration of a bond the greater
Dividend Tax Credit its risk.
A procedure to encourage Canadians to
invest in preferred and common shares of

CANADIAN SECURITIES INSTITUTE (2015)


G12 CANADIAN SECURITIES COURSE

Emerging Industries Event-Driven Hedge Funds of the option who exercises his or her
Brand new industries in the early stages of A type of hedge fund that seeks to profit rights. See also Assignment.
growth. Often considered as speculative from unique events such as mergers,
because they are introducing new products acquisitions, stock splits or buybacks. Exercise Price
that may or may not be accepted and may The price at which a derivative can be
face strong competition from other new Ex-Ante exchanged for a share of the underlying
entrants. A projection of expected returns what security (also known as subscription price).
investors expect to realize as a return. For an option, it is the price at which the
Equilibrium Price underlying security can be purchased, in
The price at which the quantity demanded Exchange Fund Account
the case of a call, or sold, in the case of a
equals the quantity supplied. A special federal government account
put, by the option holder. Synonymous
operated by the Bank of Canada to hold
with strike price.
Equipment Trust Certificate and conduct transactions in Canadas
A type of debt security that was historically foreign exchange reserves on instructions Expansion
used to finance rolling stock or railway from the Minister of Finance. A phase of the business cycle characterized
boxcars. The cars were the collateral behind by increasing corporate profits and hence
the issue and when the issue was paid down Exchange Rate
increasing share prices, an increase in the
the cars reverted to the issuer. In recent The price at which one currency exchanges
demand for capital for business expansion,
times, equipment trusts are used as a for another.
and hence an increase in interest rates.
method of financing containers for the Exchange-Traded Funds (ETFs)
offshore industry. A security, more Expectations Theory
Open-ended mutual fund trusts that hold
common in the U.S. than in Canada. A theory stating that the yield curve is
the same stocks in the same proportion as
shaped by a market consensus about future
Equity those included in a specific stock index.
interest rates.
Ownership interest in a corporations stock Shares of an exchange-traded fund trade on
that represents a claim on its revenue and major stock exchanges. Like index mutual Expiration Date
assets. See also Stock. funds, ETFs are designed to mimic the The date on which certain rights or option
performance of a specified index by contracts cease to exist. For equity options,
Equity Accounting Method investing in the constituent companies this date is usually the Saturday following
An accounting method used to determine included in that index. Like the stocks in the third Friday of the month listed in the
income derived from a companys which they invest, shares can be traded contract. This term can also be used to
investment in another company over which throughout the trading day. describe the day on which warrants and
it exerts significant influence. rights cease to exist.
Exchange-Traded Notes (ETNs)
Escrowed Shares Exchange-traded debt obligations issued by Ex-Post
Outstanding shares of a company which, a bank that promises to pay investors a The rate of return that was actually
while entitled to vote and receive dividends, return on their investment based on the received. This historic data is used to
may not be bought or sold unless special performance of a specific reference asset measure actual performance.
approval is obtained. Mining and oil such as an index or another benchmark.
companies commonly use this technique Ex-Rights
when treasury shares are issued for new Ex-Dividend A term that denotes that the purchaser of a
properties. Shares can be released from A term that denotes that when a person common share would not be entitled to a
escrow (i.e., freed to be bought and sold) purchases a common or preferred share, rights offering. Common shares go
only with the permission of applicable they are not entitled to the dividend ex-rights two business days prior to the
authorities such as a stock exchange and/or payment. Shares go ex-dividend two shareholder of record date.
securities commission. business days prior to the shareholder
record date. See also Cum Dividend. Extendible Bond or Debenture
Eurobonds A bond or debenture with terms granting
Bonds that are issued and sold outside a Exempt List the holder the option to extend the maturity
domestic market and typically Large professional buyers of securities, date by a specified number of years.
denominated in a currency other than that mostly financial institutions, that are
offered a portion of a new issue by one Extension Date
of the domestic market. For example, a For extendible bonds the maturity date of
bond denominated in Canadian dollars member of the banking group on behalf of
the whole syndicate. The term exempt the bond can be extended so that the bond
and issued in Germany would be classified changes from a short-term bond to a
as a Eurobond. indicates that this group of investors is
exempt from receiving a prospectus on a long- term bond.
European-Style Option new issue as they are considered to be Face Value
An option that can only be exercised on a sophisticated and knowledgeable. The value of a bond or debenture that
specified date normally the business day appears on the face of the certificate. Face
prior to expiration. Exercise
The process of invoking the rights of the value is ordinarily the amount the issuer
option or warrant contract. It is the holder

CANADIAN SECURITIES INSTITUTE (2015)


GLOSSARY G13

will pay at maturity. Face value is no First Mortgage Bonds Floating Exchange Rate
indication of market value. The senior securities of a company as they A country whose central bank allows market
constitute a first charge on the companys forces alone to determine the value of its
Fee-Based Accounts assets, earnings and undertakings before currency, but will intervene if it thinks the
A type of account that bundles various unsecured current liabilities are paid. move in the exchange rate is excessive or
services into a fee based on the clients disorderly.
assets under management, for example, 1% Fiscal Agent
to 3% of client assets. An investment dealer appointed by a Floating Rate
company or government to advise it in A term used to describe the interest
Fiduciary Responsibility financial matters and to manage the payments negotiated in a particular contract.
The responsibility of an investment advisor, underwriting of its securities. In this case, a floating rate is one that is
mutual fund salesperson or financial based on an administered rate, such as the
planner to always put the clients interests Fiscal Policy Prime Rate. For example, the rate for a
first. The fiduciary is in a position of trust The policy pursued by the federal particular note may be 2% over Prime. See
and must act accordingly. government to influence economic growth also Fixed Rate.
through the use of taxation and
Final Good government spending to smooth out the Floating-Rate Debentures
A finished product, one that is purchased fluctuations of the business cycle. A type of debenture that offers protection
by the ultimate end user. to investors during periods of very volatile
Fiscal Year interest rates. For example, when interest
Final Prospectus A companys accounting year. Due to the
The prospectus which supersedes the rates are rising, the interest paid on floating
nature of particular businesses, some rate debentures is adjusted upwards every
preliminary prospectus and is accepted companies do not use the calendar year for
for filing by applicable provincial securities six months.
their bookkeeping. A typical example is the
commissions. The final prospectus shows department store that finds December 31 Floor Trader
all required information pertinent to the too early a date to close its books after the Employee of a member of a stock exchange,
new issue and a copy must be given to each Christmas rush and so ends its fiscal year who executes buy and sell orders on the
first-time buyer of the new issue. on January 31. floor (trading area) of the exchange for the
Financial Intermediary firm and its clients.
Fixed Asset
An institution such as a bank, life insurance A tangible long-term asset such as land, Forced Conversion
company, credit union or mutual fund building or machinery, held for use rather When a companys stock rises in value above
which receives cash, which it invests, from than for processing or resale. A statement the conversion price a company may force
suppliers of capital. of financial position category. the convertible security holder to exchange
Financial Risk the security for stock by calling back the
Fixed Exchange Rate Regime security. Faced with receiving a lower call
The additional risk placed on the common A country whose central bank maintains
shareholders from a companys decision to price (par plus a call premium) or higher
the domestic currency at a fixed level against valued shares the investor is forced to
use debt to finance its operations. another currency or a composite of other convert into common shares.
Financing currencies.
The purchase for resale of a security issue Foreign Bonds
Fixed-Floater Preferred If a Canadian company issues debt securities
by one or more investment dealers. The See Delayed Floater.
formal agreement between the investment in another country, denominated in that
dealer and the corporation issuing the Fixed-Income Securities foreign countrys currency, the bond is
securities is called the underwriting Securities that generate a predictable stream known as a foreign bond. A bond issued in
agreement. A term synonymous with of interest or dividend income, such as the U.S. payable in U.S. dollars is known as
underwriting. bonds, debentures and preferred shares a foreign bond or a Yankee Bond. See
also Eurobond.
Firewall Fixed-Reset Preferred
Policies implemented to separate and See Delayed Floater. Foreign Exchange Rate Risk
isolate persons within a firm who make The risk associated with an investment in a
Flat foreign security or any investment that pays
investment decisions from persons within a
Means that the quoted market price of a in a denomination other than Canadian
firm who are privy to undisclosed material
bond or debenture is its total cost (as dollars, the investor is subject to the risk
information which may influence those
opposed to an accrued interest transaction). that the foreign currency may depreciate in
decisions. For example, there should be
Bonds and debentures in default of interest value.
separate fax machines for research
trade flat.
departments and sales departments.

First-In-First-Out (FIFO)
Inventory items acquired earliest are sold
first.

CANADIAN SECURITIES INSTITUTE (2015)


G14 CANADIAN SECURITIES COURSE

Foreign Pay Fund Facts asset on the statement of financial


A Canadian debt security issued in Canada A disclosure document designed to give position.
but pays interest and principle in a foreign mutual fund investors key information
currency is known as a foreign pay bond. about a fund. The document is limited to Government Securities
This type of security allows Canadians to two double-side pages in length and Distributors
take advantage of possible shifts in currency provides timely information that would be Typically an investment dealer or bank that
values. material to an investment decision. is authorized to bid at Government of
Canada debt auctions.
Forward Futures
A forward contract is similar to a futures A contract in which the seller agrees to Greensheet
contract but trades on an OTC basis. The deliver a specified commodity or financial Highlights for the firms sales
seller agrees to deliver a specified commodity instrument at a specified price sometime in representatives the salient features of a new
or financial instrument at a specified price the future. A futures contract is traded on a issue, both pro and con in order to
sometime in the future. The terms of a recognized exchange. Unlike a forward successfully solicit interest to the general
forward contract are not standardized but contract, the terms of the futures contract public. Dealers prepare this information
are negotiated at the time of the trade. are standardized by the exchange and there circular for in-house use only.
There may be no secondary market. is a secondary market. See also Forwards. Gross Domestic Product (GDP)
Frictional Unemployment Gatekeeper The value of all goods and services
Unemployment that results from normal Refers to dealers and all of their employees produced in a country in a year.
labour turnover, from people entering and who are responsible for protecting the Gross Profit Margin
leaving the workforce and from the markets from potentially illegal client A profitability ratio that shows the
ongoing creation and destruction of jobs. activities. Universal Market Integrity Rules companys rate of profit after allowing for
set out specific rules that identify the cost of sales.
Front-End Load gatekeeper function and formal reporting
A sales charge applied to the purchase price procedures. Growth Stock
of a mutual fund when the fund is Common stock of a company with excellent
originally purchased. Good Delivery Form prospects for above-average growth; a
When a security is sold it must be delivered company which over a period of time
Front Running to the broker properly endorsed, not
Making a practice, directly or indirectly, of seems destined for above-average
mutilated and with (if any) coupons expansion.
taking the opposite side of the market to attached. To avoid these difficulties and as a
clients, or effecting a trade for the advisors general practice most securities are held in Guaranteed Amount
own account prior to effecting a trade for a street form with the broker. The minimum amount payable under
client. death benefits or maturity guarantees
Good Faith Deposit provided for under the terms of the
Full Employment A deposit of money by the buyer or seller
The level of unemployment due solely to segregate fund contract.
of a futures product which acts as a
both frictional and structural factors, or financial guarantee as to the fulfilment of Guaranteed Bonds
when cyclical unemployment is zero. the contractual obligations of the futures Bonds issued by a crown corporation but
Fully Diluted Earnings Per Share contract. Also called a performance bond guaranteed by the applicable government as
Earnings per common share calculated on or margin. to interest and principal payments.
the assumption that all convertible Good Through Order Guaranteed Income Supplement
securities are converted into common An order to buy or sell that is good for a (GIS)
shares and all outstanding rights, warrants, specified number of days and then is A pension payable to OAS recipients with
options and contingent issues are exercised. automatically cancelled if it has not been no other or limited income.
Fundamental Analysis filled.
Guaranteed Investment
Security analysis based on fundamental Good Till Cancelled Order Certificate (GIC)
facts about a company as revealed through An order that is valid from the date entered A deposit instrument most commonly
its financial statements and an analysis of until the close of business on the date available from trust companies, requiring a
economic conditions that affect the specified in the order. If the order has not minimum investment at a predetermined
companys business. See also Technical been filled by the close of the market on rate of interest for a stated term. Generally
Analysis. that date, it is cancelled. This type of order nonredeemable prior to maturity but there
Funded Debt can be cancelled or changed at any time. can be exceptions.
All outstanding bonds, debentures, notes Goodwill Guaranteed Minimum Withdrawal
and similar debt instruments of a company Generally understood to represent the value Benefit Plans (GMWB)
not due for at least one year. of a well-respected business its name, A GMWB plan is similar to a variable
customer relations, employee relations, annuity. With a GMWB, the client
among others. Considered an intangible purchases the plan, and the GMWB option

CANADIAN SECURITIES INSTITUTE (2015)


GLOSSARY G15

gives the planholder the right to withdraw a the lower-earning spouse to reduce taxable the real returns produced by those financial
certain fixed percentage (7% is typical) of income. assets.
the initial deposit every year until the entire
principal is returned, no matter how the Income Tax Act (ITA) Information Circular
fund performs. The legislation dictating the process and Document sent to shareholders with a
collection of federal tax in Canada, proxy, providing details of matters to come
Halt in Trading administered by Canada Revenue Agency. before a shareholders meeting.
A temporary halt in the trading of a
security to allow significant news to be Income Trusts Initial Public Offering (IPO)
reported and widely disseminated. Usually A type of investment trust that holds A new issue of securities offered to the
the result of a pending merger or a investments in the operating assets of a public for investment for the very first
substantial change in dividends or earnings. company. Income from these operating time. IPOs must adhere to strict
assets flows through to the trust, which in government regulations as to how the
Hedge Funds turn passes on the income to the trust investments are sold to the public.
Lightly regulated pools of capital in which unitholders.
the hedge fund manager invests a Initial Sales Charge
significant amount of his or her own capital Index A commission paid to the financial adviser
into the fund and whose offering A measure of the market as measured by a at the time that the policy is purchased.
memorandum allows for the fund to basket of securities. An example would be This type of sales charge is also known as
execute aggressive strategies that are the S&P/TSX Composite Index or the an acquisition fee or a front-end load.
unavailable to mutual funds such as short S&P 500. Fund managers and investors use
a stock index to measure the overall Insider
selling. All directors and senior officers of a
direction and performance of the market.
Hedging corporation and those who may also be
A protective manoeuvre; a transaction Index-Linked GICs presumed to have access to nonpublic or
intended to reduce the risk of loss from A hybrid investment product that inside information concerning the company;
price fluctuations. combines the safety of a deposit instrument also anyone owning more than 10% of the
with some of the growth potential of an voting shares in a corporation. Insiders are
High Frequency Trading (HFT) equity investment. They have grown in prohibited from trading on this information.
A sub-set of algorithmic trading. High popularity, particularly among conservative
frequency trading is characterized by a very investors who are concerned with safety of Insider Report
large number of orders for individual trades capital but want yields greater than the A report of all transactions in the shares of
of very small size done at extremely high interest on standard interest bearing GICs a company by those considered to be
speed. or other term deposits. insiders of the company and submitted
each month to securities commissions.
High Water Mark Indexing
Used in the context of how a hedge fund A portfolio management style that involves Instalment Debentures
manager is compensated. The high water buying and holding a portfolio of securities A bond or debenture issue in which a
mark sets the bar above which the fund that matches, closely or exactly, the predetermined amount of principal
manager is paid a portion of the profits composition of a benchmark index. matures each year.
earned for the fund. Instalment Receipts
Individual variable insurance
Holding Period Return contract (IVIC) A new issue of stock sold with the obligation
A transactional rate of return measure that The term used in the IVIC Guidelines to that buyers will pay the issue price in a
takes into account all cash flows and describe a segregated fund contract. specified series of instalment payments
increases or decreases in a securitys value instead of one lump sum payment. Also
for any time frame. Time frames can be Inflation known as Partially Paid Shares.
greater or less than a year. A generalized, sustained trend of rising
prices. Institutional Client
Hypothecate A legal entity that represents the collective
To pledge securities as collateral for a loan. Inflation Rate financial interests of a large group. A
Referred to as collateral assignment or The rate of change in prices. See also mutual fund, insurance company, pension
hypotec in Qubec for segregated funds. Consumer Price Index. fund and corporate treasury are just a few
examples.
ICE Futures Canada (formerly the Inflation Rate Risk
Winnipeg Commodity Exchange) The risk that the value of financial assets Intangible Asset
An exchange that trades agricultural futures and the purchasing power of income will An asset having no physical substance (e.g.,
and options exclusively. decline due to the impact of inflation on goodwill, patents, franchises, copyrights).

Income Splitting Integrated Asset Allocation


A tax planning strategy whereby the An asset allocation strategy that refers to
higher-earning spouse transfers income to an all-encompassing strategy that includes

CANADIAN SECURITIES INSTITUTE (2015)


G16 CANADIAN SECURITIES COURSE

consideration of capital market Inventory enforcing rules regarding the proficiency,


expectations and client risk tolerance. The goods and supplies that a company business and financial conduct of dealer
keeps in stock. A statement of financial firms and their registered employees and
Inter-Dealer Broker position item. through setting and enforcing market
Participants in the wholesale bond market integrity rules regarding trading activity on
(i.e., the bond market between the Inventory Turnover Ratio
Canadian equity marketplaces.
institutional buy side and the sell side). Cost of sales divided by inventory. The
Inter-dealer brokers act solely as agents ratio may also be expressed as the number Investment Policy Statement
bringing together institutional buyers and of days required to sell current inventory by The agreement between a portfolio
sellers in matching trades. dividing the ratio into 365. manager and a client that provides the
guidelines for the manager.
Interest Investment
Money charged by a lender to a borrower The use of money to make more money, to Investments in Associates
for the use of his or her money. gain income or increase capital or both. The ownership a company has in another
company. As a general rule, significant
Interest Coverage Ratio Investment Advisor (IA)
influence is presumed to exist when a
A debt ratio that tests the ability of a An individual licensed to transact in the
company owns 20% or more of the voting
company to pay the interest charges on its full range of securities. IAs must be
rights of the other company.
debt and indicates how many times these registered in by the securities commission of
charges are covered based upon earnings the province in which he or she works. The Investor
available to pay them. term refers to employees of SRO member One whose principal concern is the
firms only. Also known as a Registrant or minimization of risk, in contrast to the
Interest Rate Risk Registered Representative (RR). speculator, who is prepared to accept
The risk that changes in interest rates will calculated risk in the hope of making
adversely affect the value of an investors Investment Company, or Fund
better-than-average profits, or the gambler,
portfolio. For example, a portfolio with a A company which uses its capital to invest
who is prepared to take even greater risks.
large holding of long-term bonds is in other companies. There are two principal
vulnerable to significant loss from changes types: closed-end and open-end or mutual Irrevocable Beneficiary
in interest rates. fund. Shares in closed-end investment A beneficiary whose entitlements under the
companies are readily transferable in the segregated fund contract cannot be
International Financial Reporting open market and are bought and sold like terminated or changed without his or her
Standards (IFRS) other shares. Capitalization is fixed. consent.
A globally accepted high-quality Open-end funds sell their own new shares
accounting standard already used by public to investors, buy back their old shares, and Issue
companies in over 100 countries around are not listed. Open-end funds are so-called Any of a companys securities; the act of
the world. because their capitalization is not fixed; distributing such securities.

Interval Funds they normally issue more shares or units as Issued Shares
A type of mutual fund that has the people want them. That part of authorized shares that have
flexibility to buy back its outstanding Investment Counsellor been sold by the corporation and held by
shares periodically. Also known as A professional engaged to give investment the shareholders of the company.
closed-end discretionary funds. advice on securities for a fee. Junior Bond Issue
In-the-Money Investment Dealer A corporate bond issue, the collateral for
A call option is in-the-money if its strike A person or company that engages in the which has been pledged as security for
price is below the current market price of business of trading in securities in the other more senior debt issues and is
the underlying security. A put option is capacity of an agent or principal and is a therefore subject to these prior claims.
in-the-money if its strike price is above the member of IIROC.
current market price of the underlying Junior Debt
security. The in-the-money amount is the Investment Industry Association of One or more junior bond issues.
options intrinsic value. Canada (IIAC) Keynesian Economics
A member-based professional association Economic policy developed by British
Intrinsic Value that represents the interests of market
That portion of a warrant or call options economist John Maynard Keynes who
participants. proposed that active government
price that represents the amount by which
the market price of a security exceeds the Investment Industry Regulatory intervention in the market was the only
price at which the warrant or call option Organization of Canada (IIROC) method of ensuring economic growth and
may be exercised (exercise price). Considered The Canadian investment industrys prosperity. See also Monetarism.
the theoretical value of a security (i.e., what national self-regulatory organization. Know Your Client Rule (KYC)
a security should be worth or priced at in IIROC carries out its regulatory The cardinal rule in making investment
the market). responsibilities through setting and recommendations. All relevant information

CANADIAN SECURITIES INSTITUTE (2015)


GLOSSARY G17

about a client must be known in order to Liabilities they are risk averse. Borrowers, however,
ensure that the registrants recommendations Debts or obligations of a company, usually want long-term money. In order to entice
are suitable. divided into current liabilitiesthose due investors to invest long-term, borrowers
and payable within one yearand must offer higher rates for longer-term
Labour Force long-term liabilitiesthose payable after money. This being the case, the yield curve
The sum of the population aged 15 years one year. A statement of financial should slope upwards reflecting the higher
and over who are either employed or position category. rates for longer borrowing periods.
unemployed.
Liability Traders Liquidity Ratios
Labour Sponsored Venture Capital Have the responsibility to manage a dealers Financial ratios that are used to judge the
Corporations (LSVCC) trading capital to encourage market flows companys ability to meet its short-term
LSVCCs are investment funds, sponsored and facilitate the client orders that go into commitments. See Current Ratio.
by labour organizations, that have a specific the market, while aiming to lose as little of
mandate to invest in small to medium-sized that capital as possible. Liability traders can Liquidity Risk
businesses. To encourage this mandate, be considered those who set the direction The risk that an investor will not be able to
governments offer generous tax credits to for agency traders. Whereas agency traders buy or sell a security quickly enough
investors in LSVCCs. have formal client responsibilities, liability because buying or selling opportunities are
traders have lighter responsibilities or none limited.
Lagging Indicators
A selection of statistical data, that on at all. Listed Stock
average, indicate highs and lows in the Life Cycle The stock of a company which is traded on
business cycle behind the economy as a A model used in financial planning that a stock exchange.
whole. These relate to business tries to link age with investing. The
expenditures for new plant and equipment, Listing Agreement
underlying theory is that an individuals A stock exchange document published when
consumers instalment credit, short-term asset mix will change, as they grow older.
business loans, the overall value of a companys shares are accepted for listing.
However the life cycle is not a substitute It provides basic information on the
manufacturing and trade inventories. for the know your client rule. company, its business, management, assets,
Large Value Transfer System Limit Order capitalization and financial status.
(LVTS) A clients order to buy or sell securities at a
A Canadian Payments Association Load
specific price or better. The order will only The portion of the offering price of shares
electronic system for the transfer of large be executed if the market reaches or betters
value payments between participating of most open-end investment companies
that price. (mutual funds) which covers sales
financial institution.
Limited Liability commissions and all other costs of
Leading Indicators The word limited at the end of a Canadian distribution.
A selection of statistical data that, on companys name implies that liability of the
average, indicate highs and lows in the London InterBank Offered Rate
companys shareholders is limited to the (LIBOR)
business cycle ahead of the economy as a money they paid to buy the shares. By
whole. These relate to employment, capital The rate of interest charged by large
contrast, ownership by a sole proprietor or international banks dealing in Eurodollars
investment, business starts and failures, partnership carries unlimited personal
profits, stock prices, inventory adjustment, to other large international banks.
legal responsibility for debts incurred by
housing starts and certain commodity prices. the business. Long Position
LEAPS Signifies ownership of securities. I am long
Limited Partnership 100 BCE common means that the speaker
Long Term Equity Anticipation Securities A type of partnership whereby a limited
are long-term (2-3 year) option contracts. owns 100 common shares of BCE Inc.
partner cannot participate in the daily
Leverage business activity and liability is limited to Long-Term Bond
The effect of fixed charges (i.e., debt the partners investment. A bond with greater than 10 years
interest or preferred dividends, or both) on remaining to maturity.
Liquidity
per-share earnings of common stock. 1. The ability of the market in a particular Macroeconomics
Increases or decreases in income before security to absorb a reasonable amount of Macroeconomics focuses on the
fixed charges result in magnified percentage buying or selling at reasonable price performance of the economy as a whole. It
increases or decreases in earnings per changes. 2. A corporations current assets looks at the broader picture and to the
common share. Leverage also refers to relative to its current liabilities; its cash challenges facing society as a result of the
seeking magnified percentage returns on an position. limited amounts of natural resources,
investment by using borrowed funds, human effort and skills, and technology.
margin accounts or securities which Liquidity Preference Theory
require payment of only a fraction of the A theory that tries to explain the shape of
underlying securitys value (such as rights, the yield curve. It postulates that investors
warrants or options). want to invest for the short-term because

CANADIAN SECURITIES INSTITUTE (2015)


G18 CANADIAN SECURITIES COURSE

Major Trend Margin Call Marketable Bonds


Underlying price trend prevailing in a When an investor purchases an account on Bonds for which there is a ready market
market despite temporary declines or margin in the expectation that the share (i.e., clients will buy them because the
rallies. value will rise, or shorts a security on the prices and features are attractive).
expectation that share price will decline,
Managed Account and share prices go against the investor, the Marking-to-Market
An account whereby a licensed portfolio brokerage firm will send out a margin call The process in the futures market in which
manager has the discretion to decide and requiring that the investor add additional the daily price changes are paid by the
execute suitable investment decisions on funds or marketable securities to the parties incurring losses to the parties
behalf of clients. account to protect the brokers loan. earning profits.

Managed Product Marginal Tax Rate Married Put or a Put Hedge


A pool of capital gathered to buy securities The tax rate that would have to be paid on The purchase of an underlying asset and
according to a specific investment mandate. any additional dollars of taxable income the purchase of a put option on that
The pool seeds a fund managed by an earned underlying asset.
investment professional that is paid a
management fee to carry out the mandate. Market Material Change
Any arrangement whereby products and A change in the affairs of a company that is
Management Expense Ratio services are bought and sold, either directly expected to have a significant effect on the
The total expense of operating a mutual or through intermediaries. market value of its securities.
fund expressed as a percentage of the funds
net asset value. It includes the Market Capitalization Mature Industry
management fee as well as other expenses The dollar value of a company based on the An industry that experiences slower, more
charged directly to the fund such as market price of its issued and outstanding stable growth rates in profit and revenue
administrative, audit, legal fees etc., but common shares. It is calculated by than growth or emerging industries, for
excludes brokerage fees. Published rates of multiplying the number of outstanding example.
return are calculated after the management shares by the current market price of a Maturity
expense ratio has been deducted. share. The date on which a loan or a bond or
Management Fee Market Maker debenture comes due and is to be paid off.
The fee that the manager of a mutual fund A trader employed by a securities firm who Maturity Date
or a segregated fund charges the fund for is authorized and required, by applicable The date at which the contract expires, and
managing the portfolio and operating the self-regulatory organizations (SROs), to the time at which any maturity guarantees
fund. The fee is usually set as fixed maintain reasonable liquidity in securities are based. Segregated fund contracts
percentage of the funds net asset value. markets by making firm bids or offers for normally mature in 10 years, although
one or more designated securities. companies are allowed to set longer
Managers Discussion and Analysis
(MD&A) Market Order periods. Maturities of less than 10 years are
A document that requires management of An order placed to buy or sell a security permitted only for funds such as protected
an issuer to discuss the dynamics of its immediately at the best current price. mutual funds, which are regulated as
business and to analyze its financial securities and are not segregated funds.
statements with the focus being on Market Risk
The non-controllable or systematic risk Maturity Guarantee
information about the issuers financial The minimum dollar value of the contract
condition and operations with emphasis on associated with equities.
after the guarantee period, usually 10 years.
liquidity and capital resources. Market Segmentation Theory This amount is also known as the annuity
Margin A theory on the structure of the yield benefit.
The amount of money paid by a client curve. It is believed that large institutions
shape the yield curve. The banks prefer to Medium-Term Bond
when he or she uses credit to buy a security. A bond with 5 to 10 years remaining to
It is the difference between the market borrow short term while the insurance
industry, with a longer horizon, prefers maturity.
value of a security and the amount loaned
by an investment dealer. long-term money. The supply and demand Microeconomics
of the large institutions shapes the curve. Analyzes the market behaviour of
Margin Agreement individual consumers and firms, how prices
A contract that must be completed and Marketability
A measure of the ability to buy and sell a are determined, and how prices determine
signed by a client and approved by the firm the production, distribution, and use of
in order to open a margin account. This security. A security has good marketability
if there is an active secondary market in goods and services.
sets out the terms and conditions of the
account. which it can be easily bought and sold at a Monetarists
fair price. School of economic theory which states
that the level of prices as well as economic
output is determined by an economys

CANADIAN SECURITIES INSTITUTE (2015)


GLOSSARY G19

money supply. This school of thought holders receive a proportional share of the Mutual Fund Wraps
believes that control of the money supply is interest and principal payments associated Are established with a selection of
more vital to economic prosperity than the with those mortgages. individual funds managed within a clients
level of government spending, for example. account. Mutual fund wraps differ from
See also Keynesian Policy. Mortgage Bond funds of funds. The client holds the actual
A bond issue secured by a mortgage on the funds within their account, as opposed to a
Monetary Aggregates issuers property. fund that simply invests in other funds. In
An aggregate that measures the quantity of most cases, a separate account is established
money held by a countrys households, Moving Average
The average of security or commodity for the client and the selected funds are
firms and governments. It includes various held inside that dedicated account.
forms of money or payment instruments prices calculated by adding the closing
grouped according to their degree of prices for the underlying security over a Naked Writer
liquidity, such as M1, M2 or M3. pre-determined period and dividing the A seller of an option contract who does not
total by the time period selected. own an offsetting position in the underlying
Monetary Policy security or a suitable alternative.
Economic policy designed to improve the Moving Average Convergence-
performance of the economy by regulating Divergence (MACD) NASDAQ
money supply and credit. The Bank of A technical analysis tool that takes the An acronym for the National Association
Canada achieves this through its influence difference between two moving averages of Securities Dealers Automated Quotation
over short-term interest rates. and then generates a smoothed moving System. NASDAQ is a computerized
average on the difference (the divergence) system that provides brokers and dealers
Money Market between the two moving averages. with price quotations for securities traded
That part of the capital market in which OTC.
short-term financial obligations are bought Multi-Disciplinary Accounts
and sold. These include treasury bills and Fee-based accounts that are an evolution of National Debt
other federal government securities, and separately managed accounts. With The accumulation of total government
commercial paper, and bankers multi-disciplinary accounts, separate borrowing over time .It is the sum of past
acceptances and other instruments with models are combined into one overall deficits minus the sum of past surpluses.
one year or less left to maturity. Longer portfolio model in a single account.
National Policies
term securities, when their term shortens to Multi-Manager Accounts The Canadian Securities Administrators
the limits mentioned, are also traded in the A type of fee-based account that offers have developed a number of policies that
money market. clients and their advisors more choice in are applicable across Canada. These
Money Purchase Plan (MPP) terms of product and services. Often, coordinated efforts by the CSA are an
A type of Registered Pension Plan; also clients are aligned with two or more attempt to create a national securities
called a Defined Contribution Plan. In portfolio models and each portfolio model regulatory framework. Copies of policies
this type of plan, the annual payout is is a component of the clients greater are available from each provincial regulator.
based on the contributions to the plan and diversified holdings.
National Do Not Call List (DNCL)
the amounts those contributions have Multiple The Canadian Radio-television and
earned over the years preceding retirement. A colloquial term for the Price/Earnings Telecommunications Commission (CRTC)
In other words, the benefits are not known ratio of a companys common shares. has established Rules that telemarketers and
but the contributions are.
Mutual Fund organizations that hire telemarketers must
Montral Exchange (ME) An investment fund operated by a company follow. The DNCL Rules prohibit
See Bourse de Montral. that uses the proceeds from shares and telemarketers and clients of telemarketers
units sold to investors to invest in stocks, from calling telephone numbers that have
Mortgage been registered on the DNCL for more
A contract specifying that certain property bonds, derivatives and other financial
securities. Mutual funds offer investors the than 31 days.
is pledged as security for a loan.
advantages of diversification and National Registration Database
Mortgage-Backed Securities professional management and are sold on a (NRD)
Bonds that claim ownership to a portion of load or no load basis. Mutual fund shares/ A web-based system that permits mutual
the cash flows from a group or pool of units are redeemable on demand at the fund salespersons and investment advisors
mortgages. They are also known as funds current net asset value per share to file applications for registration
mortgage pass-through securities. A (NAVPS). electronically.
servicing intermediary collects the monthly
payments from the issuers and, after Mutual Fund Dealers Association Natural Unemployment Rate
deducting a fee, passes them through (i.e., (MFDA) Also called the full employment
remits them) to the holders of the security. The Self-Regulatory Organization (SRO) unemployment rate. At this level of
The MBS provides liquidity in an that regulates the distribution (dealer) side unemployment, the economy is thought to
otherwise illiquid market. Every month, of the mutual fund industry in Canada. be operating at close to its full potential or
capacity.

CANADIAN SECURITIES INSTITUTE (2015)


G20 CANADIAN SECURITIES COURSE

Negative Pledge Provision gives relevant information to make suitable Non-Competitive Tender
A protective provision written into the trust investment recommendations. The NAAF A method of distribution used in particular
indenture of a companys debenture issue must be completed and approved before by the Bank of Canada for Government of
providing that no subsequent mortgage any trades are put through on an account. Canada marketable bonds. Primary
bond issue may be secured by all or part of distributors are allowed to request bonds at
the companys assets, unless at the same New Issue the average price of the accepted
time the companys debentures are similarly An offering of stocks or bonds sold by a competitive tenders. There is no guarantee
secured. company for the first time. Proceeds may as to the amount, if any, received in
be used to retire outstanding securities of response to this request.
Negotiable the company, to purchase fixed assets or for
A certificate that is transferable by delivery additional working capital. New debt issues Non-Controlling Interest
and which, in the case of a registered are also offered by government bodies. 1. The equity of the shareholders who do
certificate, has been duly endorsed and not hold controlling interest in a controlled
guaranteed. New York Stock Exchange (NYSE) company; 2. In consolidated financial
Oldest and largest stock exchange in North statements (i) the item in the statement of
Negotiated Offer America with more than 1,600 companies financial position of the parent company
A term describing a particular type of listed on the exchange. representing that portion of the assets of a
financing in which the investment dealer consolidated subsidiary considered as
negotiates with the corporation on the NEX
A new and separate board of the TSX accruing to the shares of the subsidiary not
issuance of securities. The details would owned by the parent; and (ii) the item
include the type of security to be issued, Venture Exchange that provides a trading
forum for companies that have fallen below deducted in the statement of
the price, coupon or dividend rate, special comprehensive income of the parent and
features and protective provisions. the Venture Exchanges listing standards.
Companies that have low levels of business representing that portion of the subsidiarys
Net Asset Value activity or who do not carry on active earnings considered as accruing to the
For a mutual fund, net asset value business will trade on the NEX board, subsidiarys shares not owned by the parent.
represents the market value of the funds while companies that are actively carrying Non-Cumulative
share and is calculated as total assets of a on business will remain with the main TSX A preferred dividend that does not accrue
corporation less its liabilities. Net asset Venture Exchange stock list. or accumulate if unpaid.
value is typically calculated at the close of
each trading day. Also referred to as the No Par Value (n.p.v.) Odd Lot
book value of a companys different classes Indicates a common stock has no stated A number of shares which is less than a
of securities. face value. standard trading unit. Usually refers to a
Nominal GDP securities trade for less than 100 shares,
Net Change sometimes called a broken lot. Trading in
The change in the price of a security from Gross domestic product based on prices
prevailing in the same year not corrected less than 100 shares typically incurs a
the closing price on one day to the closing higher per share commission.
price on the following trading day. In the for inflation. Also referred to as current
case of a stock which is entitled to a dollar or chained dollar GDP. Of Record
dividend one day, but is traded ex- Nominal Rate On the companys books or records. If, for
dividend the next, the dividend is not The quoted or stated rate on an investment example, a company announces that it will
considered in computing the change. The or a loan. This rate allows for comparisons pay a dividend on January 15 to
same applies to stock splits. A stock selling but does not take into account the effects shareholders of record, every shareholder
at $100 the day before a two-for-one split of inflation. whose name appears on the companys
and trading the next day at $50 would be books on that date will be sent a dividend
considered unchanged. The net change is Nominee cheque from the company.
ordinarily the last figure in a stock price A person or firm (bank, investment dealer,
list. The mark +1.10 means up $1.10 a CDS) in whose name securities are Offer
share from the last sale on the previous day registered. The shareholder, however, The lowest price at which a person is
the stock traded. retains the true ownership of the securities. willing to sell; as opposed to bid which is
the highest price at which one is willing to
Net Profit Margin Non-Client and Professional buy.
A profitability ratio that indicates how Orders
efficiently the company is managed after A type of order for the account of partners, Offering Memorandum
taking into account both expenses and directors, officers, major shareholders, IAs This document is prepared by the dealer
taxes. and employees of member firms that must involved in a new issue outlining some of
be marked PRO , N-C or Emp, in the salient features of the new issue, but
New Account Application Form order to ensure that client orders are given not the price or other issue-specific details.
(NAAF) priority for the same securities. It is used as a pre-marketing tool in
A form that is filled out by the client and assessing the market for the issue as well as
the IA at the opening of an account. It for obtaining expressions of interest.

CANADIAN SECURITIES INSTITUTE (2015)


GLOSSARY G21

Offering Price financial institutions. The bottom of the Over-Allotment Option


The price that an investor pays to purchase band is the rate paid by the Bank on any An activity used to stabilize the aftermarket
shares in a mutual fund. The offering price LVTS balances held overnight by those price of a recently issued security. If the
includes the charge or load that is levied institutions. The middle of the operating price increases above the offer price, dealers
when the purchase is made. band is the target for the overnight rate. can cover their short position by exercising
an overallotment option (also referred to as
Offsetting Transaction Operating Income a green shoe option) by either increasing
A futures or option transaction that is the The income that a company records from demand in the case of covering a short
exact opposite of a previously established its main ongoing operations. position or increasing supply in the case of
long or short position. over-allotment option exercise.
Operating Performance Ratios
Office of the Superintendent of A type of ratio that illustrates how well Overcontribution
Financial Institutions (OSFI) management is making use of company An amount made in excess to the annual
The federal regulatory agency whose main resources. limit made to an RRSP. An
responsibilities regarding insurance overcontribution in excess of$2,000 is
companies and segregated funds are to Option
A right to buy or sell specific securities or penalized at a rate of 1% per month.
ensure that the companies issuing the funds
are financially solvent. properties at a specified price within a Overlay Manager
specified time. See Put Options and Call The overlay manager works with advisors
Officers Options. in servicing clients. This is not a referral
Corporate employees responsible for the but a partnership, in which the advisor
day-to-day operation of the business. Option Premium
The amount paid to enter into an option retains the clients assets. The service
Old Age Security (OAS) contract, paid by the buyer to the seller or incorporates the existing trusted
A government pension plan payable at age writer of the contract. relationship of the advisor, whom the client
65 to all Canadian citizens and legal has become comfortable dealing with.
residents. Option Writer
The seller of the option who may be Override
Ombudsman for Banking Services obligated to buy (put writer) or sell (call In an underwriting, the additional
and Investments (OBSI) writer) the underlying interest if assigned payment the Financing Group receives
An independent organization that by the option buyer. over and above their original entitlement
investigates customer complaints against for their services as financial advisors and
financial services providers. Order Flow syndicate managers or leads.
The total amount of equity trades shown to
Open-End Fund a dealers traders by its institutional clients. Over-the-Counter (OTC)
See Mutual Fund. A market for securities made up of
Oscillator securities dealers who may or may not be
Open Interest A technical analysis indicator used when a members of a recognized stock exchange.
The total number of outstanding option stocks chart is not showing a definite trend Over-the-counter is mainly a market
contracts for a particular option series. An in either direction. When the oscillator conducted over the telephone. Also called
opening transaction would increase open reading reaches an extreme value in either the unlisted, inter-dealer or street market.
interest, while a closing transaction would the upper or lower band, this suggest that NASDAQ is an example of an over-the-
decrease open interest. It is used as one the current price move has gone too far. counter market.
measure of an option classs liquidity. This may indicate that the price move is
overextended and vulnerable. Paper Profit
Open Market Operations An unrealized profit on a security still held.
Method through which the Bank of Out-of-the-Money Paper profits become realized profits only
Canada influences interest rates by trading A call option is out-of-the-money if the when the security is sold. A paper loss is the
securities with participants in the money market price of the underlying security is opposite to this.
market. below its strike price. A put option is
out-of-the-money if the market price of the Par Value
Opening Transaction The stated face value of a bond or stock
underlying security is above the strike price.
An option transaction that is considered (as assigned by the companys charter)
the initial or primary transaction. An Output Gap expressed as a dollar amount per share. Par
opening transaction creates new rights for The difference between the actual level of value of a common stock usually has little
the buyer of an option, or new obligations output and the potential level of output relationship to the current market value
for a seller. See also Closing Transaction. when the economy is using all available and so no par value stock is now more
resources of capital and labour. common. Par value of a preferred stock is
Operating Band
significant as it indicates the dollar amount
The Bank of Canadas 50-basis-point range Outstanding Shares of assets each preferred share would be
for the overnight lending rate. The top of That part of issued shares which remains entitled to should the company be
the band, the Bank Rate, is the rate outstanding in the hands of investors. liquidated.
charged by the Bank on LVTS advances to

CANADIAN SECURITIES INSTITUTE (2015)


G22 CANADIAN SECURITIES COURSE

Pari Passu honoured. The performance bond is often Preferred Dividend Coverage
A legal term meaning that all securities referred to as margin. Ratio
within a series have equal rank or claim on A type of profitability ratio that measures
earnings and assets. Usually refers to Personal Disposable Income the amount of money a firm has available
equally ranking issues of a companys The amount of personal income an to pay dividends to their preferred
preferred shares. individual has after taxes. The income that shareholders.
can be spent on necessities, nonessential
Participating Preferred goods and services, or that can be saved. Preferred Shares
Preferred shares which, in addition to their A class of share capital that entitles the
fixed rate of prior dividend, share with the Phillips Curve owners to a fixed dividend ahead of the
common in further dividend distributions A graph showing the relationship between companys common shares and to a stated
and in capital distributions above their par inflation and unemployment. The theory dollar value per share in the event of
value in liquidation. states that unemployment can be reduced liquidation. Usually do not have voting
in the short run by increasing the price rights unless a stated number of dividends
Participation Rate level (inflation) at a faster rate. Conversely, have been omitted. Also referred to as
The share of the working-age population inflation can be lowered at the cost of preference shares.
(15 and older) that is in the labour market, possibly increased unemployment and
either working or looking for work. slower economic growth. Preliminary Prospectus
The initial document released by an
Partnership Point underwriter of a new securities issue to
A form of business organization that Refers to security prices. In the case of prospective investors.
involves two or more people contributing shares, it means $1 per share. In the case of
to the business and legislated under the bonds and debentures, it means 1% of the Premium
federal Partnership Act. issues par value, which is almost universally The amount by which a preferred stock or
100. On a $1,000 bond, one point debt security may sell above its par value.
Past Service Pension Adjusted In the case of a new issue of bonds or
represents 1% of the face value of the bond
(PSPA) stocks, the amount the market price rises
or $10. See Basic point
An employer may increase a members over the original selling price. Also refers to
pension by the granting of additional past Political Risk that part of the redemption price of a
service benefits to an employee in a defined The risk associated with a government bond or preferred share in excess of face
benefit plan. Plan members who incur a introducing unfavourable policies making value, par value or market price. In the case
PSPA will have their RRSP contribution investment in the country less attractive. of options, the price paid by the buyer of
room reduced by the amount of this Political risk also refers to the general an option contract to the seller.
adjustment. instability associated with investing in a
particular country. Prepaid Expenses
Payback Period Payments made by the company for
The time that it takes for a convertible Pooled Account services to be received in the near future.
security to recoup its premium through its A type of managed product structure For example, rents, insurance premiums
higher yield, compared with the dividend whereby by investors funds are gathered and taxes are sometimes paid in advance. A
that is paid on the stock. into a legal structure, usually a trust or statement of financial position item.
corporation. An investors claim to the
Peer Group Prepayment Risk
pools returns is proportional to the
A group of managed products (particularly The risk that the issuer of a bond might
number of shares or units the investor
mutual funds) with a similar investment prepay or redeem early some or all principal
owns. The pools are often open-ended,
mandate. outstanding on the loan or mortgage.
which means units are issued when there
Pension Adjustment (PA) are net cash inflows to the fund, or units
Prescribed Rate
The amount of contributions made or the are redeemed when there are net cash
A quarterly interest rate set out, or
value of benefits accrued to a member of an outflows.
prescribed by Canada Revenue Agency
employer-sponsored retirement plan for a under attribution rules. The rate is based
Portfolio
calendar year. The PA enables the individual on the Bank of Canada rate.
Holdings of securities by an individual or
to determine the amount that may be
institution. A portfolio may contain debt
contributed to an RRSP that would be in Present Value
securities, preferred and common stocks of
addition to contributions into a Registered The current worth of a sum of money that
various types of enterprises and other types
Pension Plan. will be received sometime in the future.
of securities.
Performance Bonds Price-Earnings (P/E) Ratio
Potential Output
What is often required upon entry into a A value ratio that gives investors an idea of
The maximum amount of output the
futures contract giving the parties to a how much they are paying for a companys
economy is capable of producing during a
contract a higher level of assurance that the earnings. Calculated as the current price of
given period when all of its available
terms of the contract will eventually be the stock divided current earnings per
resources are employed to their most
share.
efficient use.

CANADIAN SECURITIES INSTITUTE (2015)


GLOSSARY G23

Price Spread Pro Rata Proxy


The difference between the bid and ask In proportion to. For example, a dividend Written authorization given by a shareholder
price. Also known as the dealers spread. is a pro rata payment because the amount to someone else, who need not be a
of dividend each shareholder receives is in shareholder, to represent him or her and
Primary Distribution or Primary proportion to the number of shares he or vote his or her shares at a shareholders
Offering of a New Issue she owns. meeting.
The original sale of any issue of a
companys securities. Probate Prudent Portfolio Approach
A provincial fee charged for authenticating An investment standard. In some
Primary Market a will. The fee charged is usually based on provinces, the law requires that a fiduciary,
The market for new issues of securities. the value of the assets in an estate rather such as a trustee, may invest funds only in a
The proceeds of the sale of securities in a than the effort to process the will. list of securities designated by the province
primary market go directly to the company or the federal government. In other
issuing the securities. See also Secondary Productivity provinces, the trustee may invest in a
Market. The amount of output per worker used as a security if it is one that an ordinary prudent
measure of efficiency with which people person would buy if he were investing for
Prime Brokerage and capital are combined in the output of
A bundling of equity trading-related the benefit of other people for whom he
the economy. Productivity gains lead to felt morally bound to provide. Most
services used primarily by hedge funds. improvements in the standard of living, provinces apply the two standards.
Prime Rate because as labour, capital, etc. produce
The interest rate chartered banks charge to more, they generate greater income. Public Float
their most credit-worthy borrowers. That part of the issued shares that are
Profit outstanding and available for trading by the
Principal That part of a companys revenue public, and not held by company officers,
The person for whom a broker executes an remaining after all expenses and taxes have directors, or investors who hold a
order, or a dealer buying or selling for its been paid and out of which dividends may controlling interest in the company. A
own account. The term may also refer to a be paid. companys public float is different from its
persons capital or to the face amount of a Profitability Ratios outstanding shares as it also excludes those
bond. Financial ratios that illustrate how well shares owned in large blocks by
management has made use of the institutions.
Principal Protected Note
A debt-like instrument with a maturity companys resources. Purchase Fund
date whereby the issuer agrees to repay Program Trading A fund set up by a company to retire
investors the amount originally invested A sophisticated computerized trading through purchases in the market a specified
(the principal) plus interest. The interest strategy whereby a portfolio manager amount of its outstanding preferred shares
rate is tied to the performance of an attempts to earn a profit from the price or debt if purchases can be made at or
underlying asset, such as a portfolio of spreads between a portfolio of equities below a stipulated price. See also Sinking
mutual funds or common stocks, a market similar or identical to those underlying a Fund.
index, a hedge fund or a portfolio of hedge designated stock index, e.g., the Standard
funds. PPNs guarantee only the return of Put Option
& Poor 500 Index, and the price at which A right to sell the stock at a stated price
the principal. futures contracts (or their options) on the within a given time period. Those who
Private Equity index trade in financial futures markets. think a stock may go down generally
The financing of firms unwilling or unable Also refers to switching or trading blocks of purchase puts. See also Call Option.
to find capital using public meansfor securities in order to change the asset mix
example, via the stock or bond markets. of a portfolio. Quick Ratio
A more stringent measure of liquidity
Private Family Office Proprietary Trader compared with the current ratio.
An extension of the advisors client Proprietary traders have the responsibility Calculated as current assets less inventory
servicing approach. In this approach, to manage the dealers trading capital to divided by current liabilities. By excluding
instead of having only one advisor, a team encourage market flows and facilitate the inventory, the ratio focuses on the
of professionals handles all of an affluent client orders that go into the market. Also companys more liquid assets.
clients financial affairs within one central known as a liability trader.
location. Quotation or Quote
Prospectus The highest bid to buy and the lowest offer
Private Placement A legal document that describes securities to sell a security at a given time. Example:
The underwriting of a security and its sale being offered for sale to the public. Must be A quote of 45.4045.50 means that 45.40
to a few buyers, usually institutional, in prepared in conformity with requirements is the highest price a buyer will pay and
large amounts. of applicable securities commissions. See 45.50 the lowest price a seller will accept.
also Red Herring and Final Prospectus.

CANADIAN SECURITIES INSTITUTE (2015)


G24 CANADIAN SECURITIES COURSE

Quotation and Trade Reporting Redemption debt securities may be registered as to


Systems (QTRS) The purchase of securities by the issuer at a principal only or fully registered. In the
Recognized stock markets that operate in a time and price stipulated in the terms of latter case, interest is paid by cheque rather
similar manner to exchanges and provide the securities. See also Call Feature. than by coupons attached to the certificate.
facilities to users to post quotations and See also Bearer Security.
report trades. Redemption Price
The price at which debt securities or Registrar
Rally preferred shares may be redeemed, at the Usually a trust company appointed by a
A brisk rise in the general price level of the option of the issuing company. company to monitor the issuing of
market or in an individual stock. common or preferred shares. When a
Redeposit
transaction occurs, the registrar receives
Random Walk Theory An open-market cash management policy
both the old cancelled certificate and the
The theory that stock price movements are pursued by the Bank of Canada. A
new certificate from the transfer agent and
random and bear no relationship to past redeposit refers to the transfer of funds
records and signs the new certificate. The
movements. from the Bank to the direct clearers (an
registrar is, in effect, an auditor checking
injection of balances) that will increase
Rate of Return on the accuracy of the work of the transfer
available funds. See also Drawdown.
See Yield. agent, although in most cases the registrar
Registered Education Savings and transfer agent are the same trust
Rational Expectations Plans (RESPs) company.
School of economic theory which argues A type of government sponsored savings
that investors are rational thinkers and can Regular Delivery
plan used to finance a childs post-
make intelligent economic decisions after The date a securities trade settles i.e., the
secondary education.
evaluating all available information. date the seller must deliver the securities.
Registered Pension Plan (RPP) See also Settlement Date.
Real Estate Investment Trust A trust registered with Canada Revenue
(REIT) Regular Dividends
Agency and established by an employer to
An investment trust that specializes in real A term that indicates the amount a
provide pension benefits for employees
estate related investments including company usually pays on an annual basis.
when they retire. Both employer and
mortgages, construction loans, land and employee may contribute to the plan and Reinvestment Risk
real estate securities in varying contributions are tax-deductible. See also The risk that interest rates will fall causing
combinations. A REIT invests in and Defined Contribution Plan and Defined the cash flows on an investment, assuming
manages a diversified portfolio of real Benefit Plan. that the cash flows are reinvested, to earn
estate.
less than the original investment. For
Registered Retirement Income
Real GDP example, yield to maturity assumes that all
Fund (RRIF)
Gross Domestic Product adjusted for interest payments received can be
A tax deferral vehicle available to RRSP
changes in the price level. Also referred to reinvested at the yield to maturity rate.
holders. The planholder invests the funds
as constant dollar GDP. This is not necessarily true. If interest rates
in the RRIF and must withdraw a certain
in the market fall the interest would be
Real Interest Rate amount each year. Income tax would be
reinvested at a lower rate. Reinvestment
The nominal rate of interest minus the due on the funds when withdrawn.
risk recognizes this risk.
percentage change in the Consumer Price Registered Retirement Savings
Index (i.e., the rate of inflation). Relative Value Hedge Funds
Plan (RRSP)
A type of hedge fund that attempts to
Record Date An investment vehicle available to
profit by exploiting irregularities or
The date on which a shareholder must individuals to defer tax on a specified
discrepancies in the pricing of related
officially own shares in a company to be amount of money to be used for
stocks, bonds or derivatives.
entitled to a declared dividend. Also retirement. The holder invests money in
referred to as the date of record. one or more of a variety of investment Reporting Issuer
vehicles which are held in trust under the Usually, a corporation that has issued or has
Red Herring Prospectus plan. Income tax on contributions and outstanding securities that are held by the
A preliminary prospectus so called because earnings within the plan is deferred until public and is subject to continuous
certain information is printed in red ink the money is withdrawn at retirement. disclosure requirements of securities
around the border of the front page. It does RRSPs can be transferred into Registered administrators.
not contain all the information found in Retirement Income Funds upon
the final prospectus. Its purpose: to retirement. Research Associate
ascertain the extent of public interest in an Reports to a senior analyst, mainly builds
issue while it is being reviewed by a Registered Security financial or pricing models, conducts
securities commission. A security recorded on the books of a industry or company research and helps
company in the name of the owner. It can write reports and commentary.
be transferred only when the certificate is
endorsed by the registered owner. Registered

CANADIAN SECURITIES INSTITUTE (2015)


GLOSSARY G25

Reset Reverse Split Risk-Averse


A contract provision which allows the A process of retiring old shares with fewer Descriptive term used for an investor
segregated fund contract holder to lock in shares. For example, an investor owns unable or unwilling to accept the
the current market value of the fund and 1,000 shares of ABC Inc. pre split. A 10 for probability or chance of losing capital. See
set a new maturity date 10 years after the 1 reverse split or consolidation reduces the also Risk-Tolerant.
reset date. Depending on the contract, the number held to 100. Results in a higher
reset dates may be chosen by the contract share price and fewer shares outstanding. Risk-Free Rate
holder or be triggered automatically. The rate of return an investor would receive
Revocable Beneficiary if he or she invested in a risk free
Resistance Level A beneficiary whose entitlements under the investment, such as a treasury bill.
The opposite of a support level. A price segregated fund contract can be
level at which the security begins to fall as terminated or changed without his or her Risk Premium
the number of sellers exceeds the number consent. A rate that has to be paid in addition to the
of buyers of the security. risk free rate (T-bill rate) to compensate
Right investors for choosing securities that have
Responsible Designated Trader A short-term privilege granted to a more risk than T-Bills.
(RDT) companys common shareholders to
Individual assigned by the dealer to carry purchase additional common shares, Risk-Tolerant
out market making duties on a stock. usually at a discount, from the company Descriptive term used for an investor
itself, at a stated price and within a willing and able to accept the probability of
Restricted Shares specified time period. Rights of listed losing capital. See also Risk-Averse.
Shares that participate in a companys companies trade on stock exchanges from
earnings and assets (in liquidation), as Sacrifice Ratio
the ex-rights date until their expiry. Describes the extent to which Gross
common shares do, but generally have
restrictions on voting rights or else no Right of Action for Damages Domestic Product must be reduced with
voting rights. Most securities legislation provides that increased unemployment to achieve a 1%
those who sign a prospectus may be liable decrease in the inflation rate.
Retail Investor for damages if the prospectus contains a
Individual investors who buy and sell Sale and Repurchase Agreements
misrepresentation. This right extends to (SRAs)
securities for their own personal accounts, experts e.g., lawyers, auditors, geologists,
and not for another company or An open-market operation by the Bank of
etc., who report or give opinions within the Canada to offset undesired downward
organization. They generally buy in smaller text of the document.
quantities than larger institutional pressure on overnight financing costs.
investors. Right of Redemption Sampling
A mutual funds shareholders have a The process by which the portfolio
Retained Earnings continuing right to withdraw their
The cumulative total of annual earnings manager selects a smaller sample of
investment in the fund simply by securities and their weighting to best match
retained by a company after payment of all submitting their shares to the fund itself
expenses and dividends. The earnings the performance of the overall index.
and receiving in return the dollar amount
retained each year are reinvested in the of their net asset value. This characteristic SEC
business. is the hallmark of mutual funds. Payment The Securities and Exchange Commission,
Retractable for the securities that have been redeemed a federal body established by the United
A feature which can be included in a new must be made by the fund within three States Congress, to protect investors in the
debt or preferred issue, granting the holder business days from the determination of U.S. In Canada there is no national
the option under specified conditions to the net asset value. regulatory authority; instead, securities
redeem the security on a stated date prior legislation is provincially administered.
Right of Rescission
to maturity in the case of a bond. The right of a purchaser of a new issue to Secondary Issue
Return on Equity rescind the purchase contract within the Refers to the redistribution or resale of
A profitability ratio expressed as a applicable time limits if the prospectus previously issued securities to the public by
percentage representing the amount earned contained an untrue statement or omitted a a dealer or investment dealer syndicate.
on a companys common shares. Return material fact. Usually a large block of shares is involved
on equity tells the investor how effectively (e.g., from the settlement of an estate) and
Right of Withdrawal these are offered to the public at a fixed
their money is being put to use. The right of a purchaser of a new issue to price, set in relationship to the stocks
Reversal Patterns withdraw from the purchase agreement market price.
Formations that usually precede a sizeable within two business days after receiving the
advance or decline in stock prices. prospectus. Secondary Market
The market where securities are traded
Risk Analysis Ratios through an exchange or over-the-counter
Financial ratios that show how well the subsequent to a primary offering. The
company can deal with its debt obligations.

CANADIAN SECURITIES INSTITUTE (2015)


G26 CANADIAN SECURITIES COURSE

proceeds from trades in a secondary market Self-Regulatory Organization contains by reference the material filed by
go to the selling dealers and investors, (SRO) the corporation in the Annual
rather than to the companies that originally An organization recognized by the Information Form.
issued the shares in the primary market. Securities Administrators as having powers
to establish and enforce industry Short Position
Securities regulations to protect investors and to Created when an investor sells a security
Paper certificates or electronic records that maintain fair, equitable, and ethical that he or she does not own. See also short
evidence ownership of equity (stocks) or practices in the industry and ensure sale.
debt obligations (bonds). conformity with securities legislation. Short Sale
Securities Acts Canadian SROs include the Investment The sale of a security which the seller does
Provincial Acts administered by the Industry Regulatory Organization of not own. This is a speculative practice done
securities commission in each province, Canada and, the Mutual Fund Dealers in the belief that the price of a stock is
which set down the rules under which Association. going to fall and the seller will then be able
securities may be issued and traded. Selling Group to cover the sale by buying it back later at a
Investment dealers or others who assist a lower price, thereby making a profit on the
Securities Administrator transactions. It is illegal for a seller not to
A general term referring to the provincial banking group in marketing a new issue of
securities without assuming financial declare a short sale at the time of placing
regulatory authority (e.g., Securities the order. See also Margin.
Commission or Provincial Registrar) liability if the issue is not entirely sold. The
responsible for administering a provincial use of a selling group widens the Short-Term Bond
Securities Act. distribution of a new issue. A bond with greater than one year but less
Sell Side than five years to maturity.
Securities Eligible for Reduced
Margin Refers to dealers. The term stems from the Short-Term Debt
Securities which demonstrate sufficiently role broker/dealers play in the underwriting Company borrowings repayable within one
high liquidity and low price volatility based and distribution of new issue securities. year that appear in the current liabilities
on meeting specific price risk and liquidity Sentiment Indicators section of the statement of financial
risk measures. Measure investor expectations or the mood position. The most common short-term
of the market. These indicators measure debt items are: bank advances or loans,
Securitization notes payable and the portion of funded
Refers in a narrow sense to the process of how bullish or bearish investors are.
debt due within one year.
converting loans of various sorts into Separately Managed Account
marketable securities by packaging the A managed product structure whereby Single-Manager Account
loans into pools. In a broader sense, refers individual accounts are created for each A type of fee-based account that is directed
to the development of markets for a variety investor. In either case, an investment by a single portfolio manager who focuses
of debt instruments that permit the manager is guided by an investment considerable time and attention on the
ultimate borrower to bypass the banks and mandate. selection of securities, the sectors to invest
other deposit-taking institutions and to in and the optimal asset allocation.
borrow directly from lenders. Serial Bond or Debenture
See Instalment Debenture. Simplified Prospectus
Segregated Funds A condensed prospectus distributed by
Insurance companies sell these funds as an Settlement Date mutual fund companies upon request to
alternative to conventional mutual funds. The date on which a securities buyer must purchasers and potential purchasers of fund
Like mutual funds, segregated funds offer a pay for a purchase or a seller must deliver units or shares.
range of investment objectives and the securities sold. For most securities,
categories of securities e.g. equity funds, settlement must be made on or before the Sinking Fund
bond funds, balanced funds etc. These third business day following the transaction A fund set up to retire most or all of a debt
funds have the unique feature of date. or preferred share issue over a period of
guaranteeing that, regardless of how poorly time. See also Purchase Fund.
Share of Profit of Associates
the fund performs, at least a minimum Small Cap
A companys share of an unconsolidated
percentage (usually 75% or more) of the Reference to smaller growth companies.
subsidiarys revenue. The equity accounting
investors payments into the fund will be Small cap refers to the size of the
method is used when a company owns
returned when the fund matures. capitalization or investments made in the
20% to 50% of a subsidiary.
Self-Directed RRSP company. A small cap company has been
Short-Form Prospectus defined as a company with an outstanding
A type of RRSP whereby the holder invests
Distribution System stock value of under $500 million. Small
funds or contributes certain acceptable
This system allows reporting issuers to issue cap companies are considered more volatile
assets such as securities directly into a
a short-form prospectus that contains only than large cap companies.
registered plan which is usually
information not previously disclosed to
administered for a fee by a Canadian
regulators. The short form prospectus
financial services company.

CANADIAN SECURITIES INSTITUTE (2015)


GLOSSARY G27

Soft-Dollar Arrangement Spot Price Statement of Financial Position


An arrangement where an investment firm The current cash market price of a A financial statement showing a companys
purchases services via commission dollars commodity or financial instrument that is assets, liabilities and equity on a given
rather than an invoice for the goods or available for immediate delivery. date.
services provided.
Spousal RRSP Statement of Material Facts
Soft Landing A special type of RRSP to which one A document presenting the relevant facts
Describes a business cycle phase when spouse contributes to a plan registered in about a company and compiled in
economic growth slows sharply but does the beneficiary spouses name. The connection with an underwriting or
not turn negative, while inflation falls or contributed funds belong to the beneficiary secondary distribution of its shares. It is
remains low. but the contributor receives the tax used only when the shares underwritten or
deduction. If the beneficiary removes funds distributed are listed on a recognized stock
Soft Retractable Preferred Shares from the spousal plan in the year of the exchange and takes the place of a
A type of retractable preferred share where contribution or in the subsequent two prospectus in such cases.
the redemption value may be paid in cash calendar years, the contributor must pay
or in common shares, generally at the taxes on the withdrawn amount. Stock
election of the issuer. Ownership interest in a corporations that
Spread represents a claim on its earnings and
Sole Proprietorship The gap between bid and ask prices in the assets.
A form of business organization that quotation for a security. Also a term used in
involves one person running a business option trading. Stock Dividend
whereby the individual is taxed on earnings A pro rata payment to common
at their personal income tax rate. SRO shareholders of additional common stock.
Short for self-regulatory organization such Such payment increases the number of
SPDRs as the Investment Industry Regulatory shares each holder owns but does not alter a
An acronym for the Standard & Poor Organization of Canada. shareholders proportional ownership of the
Depository Receipts (a type of derivative). company.
These mirror the S&P 500 Index. They are Standard Deviation
referred to as Spiders. A statistical measure of risk. The larger the Stock Exchange
standard deviation, the greater the volatility A marketplace where buyers and sellers of
Special Purchase and Resale of returns and therefore the greater the risk. securities meet to trade with each other and
Agreements (SPRAs) where prices are established according to
An open-market operation used by the Standard Trading Unit laws of supply and demand.
Bank of Canada to relieve undesired A regular trading unit which has uniformly
upward pressure on overnight financing been decided upon by the stock exchanges, Stock Savings Plan
rates. in most cases it is 100 shares, but this can Some provinces allow individual residents
vary depending on the price of the stock. of the particular province a deduction or
Speculator tax credit for provincial income tax
One who is prepared to accept calculated Statement of Cash Flow purposes on investments made in certain
risks in the marketplace. Objectives are A financial statement which provides prescribed vehicles. The credit or deduction
usually short to medium-term capital gain, information as to how a company is a percentage figure based on the value of
as opposed to regular income and safety of generated and spent its cash during the investment.
principal, the prime objectives of the year. Assists users of financial statements in
conservative investor. evaluating the companys ability to generate Stock Split
cash internally, repay debts, reinvest and An increase in a corporations number of
S&P/TSX Composite Index pay dividends to shareholders. shares outstanding without any change in
A benchmark used to measure the the shareholders equity or market value.
performance of the broad Canadian equity Statement of Changes in Equity When a stock reaches a high price making
market. A financial statement that shows the total it illiquid or difficult to trade, management
comprehensive income kept in the business may split the stock to get the price into a
Split Shares year after year.
A security that has been created to divide more marketable trading range. For
(or split) the investment attributes of an Statement of Comprehensive example, an investor owns one standard
underlying portfolio of common shares Income trading unit of a stock that now trades at
into separate components that satisfy A financial statement which shows a $70 each (portfolio value is $7,000).
different investment objectives. The companys revenues and expenditures Management splits the stock 2:1. The
preferred shares receive the majority of the resulting in either a profit or a loss during a investor would now own 200 new shares at
dividends from the common shares held by financial period. a market value, all things being equal, of
the split share corporation. The capital $35 each, for a portfolio value of $7,000.
shares receive the majority of any capital Stop Buy Orders
gains on the common shares. An order to buy a security only after it has
reached a certain price. This may be used to

CANADIAN SECURITIES INSTITUTE (2015)


G28 CANADIAN SECURITIES COURSE

protect a short position or to ensure that a Structured Preferreds redeemed. This amount is equal to the
stock is purchased while its price is rising. See Equity Dividend Shares. market value of the segregated fund, less
According to TSX rules these orders any applicable sales charges or
Structured Product
become market orders when the stop price administrative fees.
A passive investment vehicle financially
is reached.
engineered to provide a specific risk and Suspension in Trading
Stop Loss Orders return characteristic. The value of a An interruption in trading imposed on a
The opposite of a stop buy order. An structured product tracks the returns of company if their financial condition does
order to sell a security after its price falls to reference security known as an underlying not meet an exchanges requirements for
a certain amount, thus limiting the loss or asset. Underlying assets can consist of a continued trading or if the company fails
protecting a paper profit. According to single security, a basket of securities, foreign to comply with the terms of its listing
TSX rules these orders become market currencies, commodities or an index. agreement.
orders when the stop price is reached.
Subordinated Debenture Swap
Stop Orders A type of junior debenture. Subordinate An over-the-counter forward agreement
Orders that are used to buy or sell after a indicates that another debenture ranks involving a series of cash flows exchanged
stock has reached a certain price. See Stop ahead in terms of a claim on assets and between two parties on specified future
Buy Orders, Stop Loss Orders. profits. dates.

Straight-Through Processing Subscription or Exercise Price Sweetener


A continuous, real-time investment The price at which a right or warrant A feature included in the terms of a new
management database that tracks all holder would pay for a new share from the issue of debt or preferred shares to make
security transactions and investments, and company. With options the equivalent the issue more attractive to initial investors.
links the various operating departments of would be the strike price. Examples include warrants and/or common
a firm. shares sold with the issue as a unit or a
Subsidiary
convertible or extendible or retractable
Strategic Asset Allocation Company which is controlled by another
feature.
An asset allocation strategy that rebalances company usually through its ownership of
investment portfolios regularly to maintain the majority of shares. Syndicate
a consistent long-term mix. A group of investment dealers who together
Suitability
underwrite and distribute a new issue of
Street Name A registrants major concern in making
securities or a large block of an outstanding
Securities registered in the name of an investment recommendations. All
issue.
investment dealer or its nominee, instead of information about a client and a security
the name of the real or beneficial owner, are must be analyzed to determine if an System for Electronic Document
said to be in street name. Certificates so investment is suitable for the client in Analysis and Retrieval (SEDAR)
registered are known as street certificates. accounts where a suitability exemption SEDAR facilitates the electronic filing of
does not apply. securities information as required by the
Strike Price securities regulatory agencies in Canada
The price, as specified in an option Superficial Losses
and allows for the public dissemination of
contract, at which the underlying security Occur when an investment is sold and then
information collected in the filing process
will be purchased in the case of a call or repurchased at any time in a period that is
sold in the case of a put. See also Exercise 30 days before or after the sale. Systematic Risk
Price. A non-controllable, non-diversifiable risk
Supply-Side Economics
that is common to all investments within a
Strip Bonds or Zero Coupon An economic theory whereby changes in
given asset class. With equities it is called
Bonds tax rates exert important effects over supply
market risk, with fixed income securities it
Usually high quality federal or provincial and spending decisions in the economy.
would be interest rate risk.
government bonds originally issued in According to this theory, reducing both
bearer form, where some or all of the government spending and taxes provides Systematic Withdrawal Plan
interest coupons have been detached. The the stimulus for economic expansion. A plan that enables set amounts to be
bond principal and any remaining coupons withdrawn from a mutual fund or a
Support Level
(the residue) then trade separately from the segregated fund on a regular basis.
A price level at which a security stops
strip of detached coupons, both at
falling because the number of investors T3 Form
substantial discounts from par.
willing to buy the security is greater than Referred to as a Statement of Trust Income
Structural Unemployment the number of investors wishing to sell the Allocations and Designations. When a
Amount of unemployment that remains in security. mutual fund is held outside a registered
an economy even when the economy is plan, unitholders of an unincorporated
Surrender Value
strong. Also known as the natural fund is sent a T3 form by the respective
The cash value of an insurance contract as
unemployment rate, the full employment fund.
of the date that the policy is being
unemployment rate.

CANADIAN SECURITIES INSTITUTE (2015)


GLOSSARY G29

T4 Form Term to Maturity Top-Down Approach


Referred to as a Statement of Remuneration The length of time that a segregated fund A type of fundamental analysis. First,
Paid. A T4 form is issued annually by policy must be held in order to be eligible general trends in the economy are analyzed.
employers to employees reporting total for the maturity guarantee. Normally, This information is then combined with
compensation for the calendar year. except in the event of the death of the industries and companies within those
Employers have until the end of February annuitant, the term to maturity of a industries that should benefit from the
to submit T4 forms to employees for the segregated-fund policy is 10 years. general trends identified.
previous calendar year.
Thin Market Toronto Stock Exchange (TSX)
T5 Form A market in which there are comparatively The largest stock exchange in Canada with
Referred to as a Statement of Investment few bids to buy or offers to sell or both. over 1,700 companies listed on the
Income. When a mutual fund is held The phrase may apply to a single security exchange.
outside a registered plan, shareholders are or to the entire stock market. In a thin
sent a T3 form by the respective fund. market, price fluctuations between Tracking Error
transactions are usually larger than when The simple difference between the return
Tactical Asset Allocation the market is liquid. A thin market in a on an underlying index or reference asset
An asset allocation strategy that involves particular stock may reflect lack of interest and the return on the ETF that tracks the
adjusting a portfolio to take advantage of in that issue, or a limited supply of the index or reference asset.
perceived inefficiencies in the prices of stock.
securities in different asset classes or within Trade-Matching Elements
sectors. Tilting of the Yield Curve Details that all parties to a trade must
The yield curve that results from a decline confirm before an institutional trade can be
Takeover Bid in long-term bond yields while short-term cleared and settled.
An offer made to security holders of a rates are rising.
company to purchase voting securities of Trade Payables
the company which, with the offerors Time to Expiry Money owed by a company for goods or
already owned securities, will in total The number of days or months or years services purchased, payable within one year.
exceed 20% of the outstanding voting until expiry of an option or other derivative A current liability on the statement of
securities of the company. For federally instrument. financial position.
incorporated companies, the equivalent Trade Receivables
requirement is more than 10% of the Time Value
The amount, if any, by which the current Money owed to a company for goods or
outstanding voting shares of the target services it has sold, for which payment is
company. market price of a right, warrant or option
exceeds its intrinsic value. expected within one year. A current asset
Tax Free Savings Account (TFSA) on the statement of financial position.
A savings vehicle whereby income earned Time-Weighted Rate of Return
(TWRR) Trade Ticket
within a TFSA will not be taxed in any way An electronic trade confirmation sent
throughout an individuals lifetime. In A measure of return calculated by averaging
the return for each subperiod in which a through secure, proprietary systems that
addition, there are no restrictions on the contain all the necessary specifics to a
timing or amount of withdrawals from a cash flow occurs into a return for a
reporting period. transaction.
TFSA, and the money withdrawn can be
used for any purpose. Timely Disclosure Trading Unit
An obligation imposed by securities Describes the size or the amount of the
Tax Loss Selling underlying asset represented by one option
Selling a security for the sole purpose of administrators on companies, their officers
and directors to release promptly to the contract. In North America, all exchange-
generating a loss for tax purposes. There traded options have a trading unit of 100
may be times when this strategy is news media any favourable or unfavourable
corporate information which is of a shares.
advantageous but investment principles
should not be ignored. material nature. Broad dissemination of Trailer Fee
this news allows non-insiders to trade the Fee that a mutual fund manager may pay
T-Bills companys securities with the same to the individual or organization that sold
See Treasury bills. knowledge about the company as insiders the fund for providing services such as
themselves. See also Continuous investment advice, tax guidance and
Technical Analysis Disclosure.
A method of market and security analysis financial statements to investors. The fee is
that studies investor attitudes and Tombstone Advertisements paid annually and continues for as long as
psychology as revealed in charts of stock A written advertisement placed by the the investor holds shares in the fund.
price movements and trading volumes to investment bankers in a public offering of
predict future price action. securities as a matter of record once the
deal has been completed.

CANADIAN SECURITIES INSTITUTE (2015)


G30 CANADIAN SECURITIES COURSE

Transaction Date TSX Venture Exchange Unlisted


The date on which the purchase or sale of a Canadas public venture marketplace, the A security not listed on a stock exchange
security takes place. result of the merger of the Vancouver and but traded on the over-the-counter
Alberta Stock Exchanges in 1999. market.
Transfer Agent
An agent, usually a trust company, Two-Way Security Unlisted Market
appointed by a corporation to maintain A security, usually a debenture or See also dealer market.
shareholder records, including purchases, preferred share, which is convertible into
sales, and account balances. The transfer or exchangeable for another security Valuation Day
agent may also be responsible for (usually common shares) of the same The day on which the assets of a
distributing dividend cheques. company. Also indirectly refers to the segregated fund are valued, based on its
possibility of profiting in the future from total assets less liabilities. Most funds are
Treasury Bills upward movements in the underlying valued at the end of every business day.
Short-term government debt issued in common shares as well as receiving in the
denominations ranging from $1,000 to Value Manager
interim interest or dividend payments. A manager that takes a research intensive
$1,000,000. Treasury bills do not pay
interest, but are sold at a discount and Underlying Security approach to finding undervalued securities.
mature at par (100% of face value). The The security upon which a derivative Value Ratios
difference between the purchase price and contract, such as an option, is based. For Financial ratios that show the investor the
par at maturity represents the lenders example, the ABC June 35 call options are worth of the companys shares or the return
(purchasers) income in lieu of interest. In based on the underlying security ABC. on owning them.
Canada, such gain is taxed as interest
income in the purchasers hands. Underwriting Variable Rate Preferreds
The purchase for resale of a security issue A type of preferred share that pays
Treasury Shares by one or more investment dealers or dividends in amounts that fluctuate to
Authorized but unissued stock of a underwriters. The formal agreements reflect changes in interest rates. If interest
company or previously issued shares that pertaining to such a transaction are called rates rise, so will dividend payments, and
have been re-acquired by the corporation. underwriting agreements. vice versa.
The amount still represents part of those
issued but is not included in the number of Unemployment Rate Variance
shares outstanding. These shares may be The percentage of the work force that is Another measure of risk often used
resold or used as part of the option package looking for work but unable to find jobs. interchangeably with volatility. The greater
for management. Treasury shares do not Unified Managed Account the variance of possible outcomes the
have voting rights nor are they entitled to A type of fee-based account that includes greater the risk.
dividends. the same benefits as multi-disciplinary Vested
Trend accounts. Enhancements include The employees right to the employer
Shows the general movement or direction performance reports from the respective contributions made on his or her behalf
of securities prices. The long-term price or sub-advisors, outlining distinct models during the employees period of enrollment.
trading volume of a particular security is contained within the single custody
account. Volatility
either up, down or sideways.
A measure of the amount of change in the
Trust Deed (Bond Contract) Unit daily price of a security over a specified
This is the formal document that outlines Two or more corporate securities (such as period of time. Usually given as the
the agreement between the bond issuer and preferred shares and warrants) offered for standard deviation of the daily price
the bondholders. It outlines such things as sale to the public at a single, combined changes of that security on an annual basis.
the coupon rate, if interest is paid price.
Voting Right
semi-annually and when, and any other Unit Value The stockholders right to vote in the affairs
terms and conditions between both parties. The value of one unit of a segregated of the company. Most common shares have
Trustee fund. The units have no legal status, and one vote each. Preferred stock usually has
For bondholders, usually a trust company are simply an administrative convenience the right to vote only when its dividends
appointed by the company to protect the used to determine the income attributable are in arrears. The right to vote may be
security behind the bonds and to make to contract holders and the level of benefits delegated by the shareholder to another
certain that all covenants of the trust deed payable to beneficiaries. person. See also Proxy.
relating to the bonds are honoured. For a Universal Market Integrity Rules Voting Trust
segregated fund, the trustee administers (UMIR) An arrangement to place the control of a
the assets of a mutual fund on behalf of A common set of trading rules that are company in the hands of certain managers
the investors. applied in all markets in Canada. UMIR for a given period of time, or until certain
are designed to promote fair and orderly
markets.

CANADIAN SECURITIES INSTITUTE (2015)


GLOSSARY G31

results have been achieved, by shareholders Wrap Account Yield Curve


surrendering their voting rights to a trustee Also known as a wrap fee program. A type A graph showing the relationship between
for a specified period of time. of fully discretionary account where a yields of bonds of the same quality but
single annual fee, based on the accounts different maturities. A normal yield curve
Waiting Period total assets, is charged, instead of is upward sloping depicting the fact that
The period of time between the issuance of commissions and advice and service charges short-term money usually has a lower yield
a receipt for a preliminary prospectus and being levied separately for each transaction. than longer-term funds. When short-term
receipt for a final prospectus from the The account is then managed separately funds are more expensive than longer term
securities administrators. from all other wrap accounts, but is kept funds the yield curve is said to be inverted.
Warrant consistent with a model portfolio suitable
to clients with similar objectives. Yield to Maturity
A certificate giving the holder the right to The rate of return investors would receive if
purchase securities at a stipulated price Writer they purchased a bond today and held it to
within a specified time limit. Warrants are The seller of either a call or put option. maturity. Yield to maturity is considered a
usually issued with a new issue of securities The option writer receives payment, called long term bond yield expressed as an
as an inducement or sweetener to investors a premium. The writer in then obligated to annual rate.
to buy the new issue. buy (in the case of a put) or sell (in the case
of a call) the underlying security at a Yield Spread
Working Capital The difference between the yields on two
Current assets minus current liabilities. specified price, within a certain period of
time, if called upon to do so. debt securities, normally expressed in basis
This figure is an indication of the points. In general, the greater the difference
companys ability to meet its short-term Yield Bond & Stock in the risk of the two securities, the larger
debts. Return on an investment. A stock yield is the spread.
Working Capital Ratio calculated by expressing the annual
dividend as a percentage of the stocks Zero Coupon Bonds
Current assets of a company divided by its See Strip Bonds.
current liabilities. current market price. A bond yield is more
complicated, involving annual interest
payments plus amortizing the difference
between its current market price and par
value over the bonds life. See also Current
Yield.

CANADIAN SECURITIES INSTITUTE (2015)