Glossary

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absolute risk

Absolute risk represents the overall level of uncertainty or fluctuations in investment returns, encompassing all forms of risk associated with investment performance, including primary risks and additional risks. It does not differentiate between positive and negative fluctuations in value.

accredited investor

An accredited investor refers to both individuals and institutional investors who fulfill specific criteria related to their income, net worth, or investment expertise. This designation is crucial in securities law as it allows accredited investors to participate in certain investment opportunities that are not available to the general public. The accredited investor exemption permits these qualified investors to acquire securities without requiring a formal disclosure document, known as a prospectus.

accrued interest

Accrued interest refers to the interest that has been earned but not yet received on a bond or debenture between the most recent interest payment date and the present date. This accumulation of interest is accounted for by the issuer and is typically paid out to the bondholder in the next interest payment period.

active ETF

An active ETF is an exchange-traded fund in which the portfolio manager plays an active role in selecting investments. This means that the manager does not passively track a specific index but makes autonomous decisions based on research, expertise, and market conditions to achieve the fund’s objectives. Active ETFs aim to outperform the broader market or a specific benchmark by utilizing various investment strategies and adjusting the portfolio holdings accordingly.

active investment strategy

An active investment strategy is a method where the investor or fund manager makes specific investment decisions in an attempt to achieve better returns than a standard market index, considering the level of risk involved. This strategy involves ongoing monitoring and adjustments of the portfolio holdings to capitalize on potential market opportunities and to outperform the benchmark.

active management

Active management refers to the strategy of investment management where the fund manager actively makes decisions with the goal of outperforming a benchmark index. This approach involves constant research, analysis, and decision-making based on the manager’s market outlook and assessment of specific securities. Unlike passive management, which aims to replicate the performance of a benchmark, active management seeks to generate returns that surpass the benchmark’s performance.

adjusted cost base

Adjusted Cost Base (ACB) refers to the calculated cost of an asset, including the initial purchase price along with any additional expenses incurred, such as brokerage fees and commissions. It serves as the base value used for various tax and accounting purposes to determine capital gains or losses accurately.

after-acquired clause

An after-acquired clause is a safeguarding provision typically included in a bond’s indenture or contract. This clause obligates the bond issuer to use any assets acquired after the bond issuance as additional collateral for the bond issue, thus enhancing the security for bondholders.

after-market stabilization

After-market stabilization is a strategic practice in which the underwriter or dealer helps to maintain the trading price of a newly issued stock in the secondary market. This support is usually provided by bidding for or purchasing the stock to prevent excessive fluctuation and promote market confidence among investors.

agency traders

Agency traders are professionals who execute trades on behalf of institutional clients without using the dealer member’s own capital. Unlike proprietary traders, they only execute trades for clients and not for their firm’s profit. In addition to executing trades, agency traders have the responsibility of managing institutional orders with the least possible impact on the market. They also play a crucial role in providing clients with timely market insights and information.

agent

In finance, an agent refers to an investment dealer who acts on behalf of clients as a broker in buying or selling securities. The agent does not have ownership of the securities being traded at any point during the transaction. For further information, see also Principal.

algorithmic trading

Algorithmic trading refers to the practice of utilizing complex mathematical formulas and algorithms to automate and execute high-volume equity trades through electronic trading platforms. This method aims to optimize trading speed, efficiency, and accuracy by removing human influence and implementing predefined rules and instructions to generate buy or sell orders based on various market conditions and parameters.

allocation

Allocation is the administrative process through which the income generated by a segregated fund’s investment portfolio is distributed to the individual contract holders of the fund.

alpha

Alpha is a quantitative metric used to assess the performance of a fund manager in generating returns compared to the market’s performance. It indicates the manager’s ability to generate excess returns above or below the market benchmark. A positive alpha suggests the manager has outperformed the market, while a negative alpha indicates underperformance.

alternative asset

Alternative assets are non-traditional investment options that encompass tangible assets held by investors either through direct ownership or indirectly through specialized investment vehicles. These assets involve a diverse range of tangible goods such as commodities like precious metals, real estate properties, and collectible items with intrinsic value.

alternative investment

An alternative investment refers to an asset that falls outside the conventional investment categories of equities, bonds, and cash. These assets are typically categorized into three groups for portfolio management purposes: alternative strategy funds, alternative assets, and private equity investments.

alternative mutual fund

An alternative mutual fund is a type of mutual fund that has more flexibility in using derivatives, leverage, short selling, and investing in less liquid assets compared to traditional mutual funds. However, they are not as unrestricted as hedge funds. Alternative mutual funds are also referred to as liquid alternatives or liquid alts.

alternative trading systems (ATS)

Alternative trading systems (ATS) are private computerized networks that facilitate the trading of securities by matching buy and sell orders outside of traditional exchange platforms. These systems are also known as Proprietary Electronic Trading Systems (PETS). They provide an alternative to traditional stock exchanges by offering a venue for trading large blocks of securities, often with reduced costs and increased anonymity for participants.

American-style option

An American-style option is a type of financial derivative that grants the holder the right to exercise the option at any point before the option’s expiration date. This flexibility allows the option holder to optimize their investment based on market conditions. It contrasts with European-style options, which can only be exercised at the expiration date. Both types of options have their advantages and disadvantages, depending on the investor’s preferences and market predictions.

amortization

Amortization refers to the systematic allocation of the cost of intangible assets over their estimated useful life. It is a method used to expense intangible assets such as goodwill, leasehold improvements, and issuance costs of financial securities over a specific period. Amortization is different from depreciation, which is the allocation of the cost of tangible assets, like buildings or machinery, over time.

analyst

An analyst is a professional who specializes in evaluating and interpreting financial information about specific companies or industries. Analysts play a vital role in providing detailed and continuous analytical insights to support decision-making by other front office personnel within their particular field of expertise.

annual information form (AIF)

An annual information form (AIF) is a regulatory document that issuers are obligated to file. It includes detailed information about current trends, commitments, events, or uncertainties that could significantly affect the issuer’s business, financial state, or performance. While investors usually do not receive the AIF by default, the prospectus must indicate its availability upon request.

annual report

An annual report is a comprehensive report containing the financial statements and performance review of a company, which is distributed to its shareholders and other interested parties at the end of each fiscal year. It provides detailed insights into the company’s financial health, operational activities, and future outlook, serving as a crucial tool for stakeholders to assess the company’s performance and make informed decisions.

annuitant

An annuitant is an individual on whose life the guarantees related to the maturity and death benefits of a financial contract are established. The annuitant can be either the holder of the contract or another person chosen by the contract holder. In circumstances involving registered plans, it is required that the annuitant and the contract holder are the same individual.

annuity

An annuity is a financial product typically offered by life insurance companies that provides a guaranteed income to the recipient, known as the annuitant, at a specified future date. The income payments from an annuity can be structured in various ways to suit the individual’s needs. The initial investment in an annuity can be made either as a lump sum or a series of payments. Different types of annuities include deferred annuities, where payments begin at a later date, and immediate annuities, where payments start almost immediately.

arbitrage

Arbitrage refers to the practice of exploiting price discrepancies of the same financial instrument between two different markets. It involves simultaneously buying the asset at a lower price in one market and selling it at a higher price in another market, in order to profit from the price difference. Arbitrage opportunities arise due to inefficiencies in the market and are quickly captured by arbitrageurs to ensure prices align across markets.

arbitration

Arbitration is a formal method of resolving disputes outside of the court system. It involves appointing a neutral third party, known as an arbitrator, who reviews the arguments and evidence presented by the disputing parties and issues a binding decision. This process helps the aggrieved parties to seek compensation or resolve differences in a more efficient and cost-effective manner compared to traditional litigation.

arrears

Arrears refer to accrued interest or dividends that were scheduled for payment at an earlier date but have not been paid. This means that the payment is overdue but remains payable. For instance, in the case of cumulative preferred shareholders, dividends that were not paid when due accumulate in a separate account known as arrears. These dividends in arrears must be settled to the preferred shareholders before any payments can be made to common shareholders once the payment cycle resumes.

ask price

Ask price refers to the minimum price at which a seller is willing to sell a financial instrument in the market. It represents the price at which sellers are ready to part with their asset. This price is crucial as it helps in determining the cost at which an investor can purchase the asset. See also Bid, which is the highest price a buyer is willing to pay for the same financial instrument.

asset

An asset refers to all resources owned by a company or an individual, including items of value or amounts owed to them. Assets are classified as a category in a statement of financial position, reflecting the economic value they bring to the entity.

asset allocation

Asset allocation refers to the strategic distribution of investment funds across various asset classes, such as cash, fixed income securities, and equities. This investment strategy aims to optimize portfolio returns while considering an investor’s risk tolerance, investment goals, and time horizon. By diversifying investments across different asset classes, investors can potentially minimize risk and maximize returns in line with their financial objectives.

asset allocation fund

An asset allocation fund is a type of investment fund that shares similar objectives with balanced funds. However, it distinguishes itself by having the flexibility to not adhere to a specific minimum percentage requirement for any particular class of investment. Asset allocation funds aim to achieve diversification by investing in a mix of different asset classes, such as stocks, bonds, and cash equivalents, in order to manage risk and potentially enhance returns.

asset-backed commercial paper (ABCP)

Asset-backed commercial paper (ABCP) is a short-term financial instrument with a maturity of less than one year, usually between 90 to 180 days. It is structured as an asset-backed security, meaning that it is collateralized by a pool of underlying assets. ABCP provides liquidity to the issuer and is often used to fund activities such as lending and investing in various financial markets.

asset-backed securities (ABS)

Asset-backed securities (ABS) are financial instruments that represent ownership interests in a pool of assets, such as loans or receivables. Investors in ABS receive a proportional share of the principal and interest payments generated by the underlying assets. These securities typically have maturities ranging from short to medium-term. ABS provide a way for companies to raise capital by transforming illiquid assets into tradable securities, offering investors the opportunity to diversify their portfolios.

asset coverage ratio

The asset coverage ratio is a financial metric used to assess a company’s capacity to repay its debts using its assets, once all non-debt obligations have been settled. It reveals the extent to which a company’s assets can cover its outstanding debt, providing insight into its financial health and solvency.

asset mix

Asset mix refers to the allocation of investments in a portfolio across different asset classes, namely cash and equivalents, fixed income securities, and equities. It represents the relative proportion of each asset class within the portfolio, aiming to achieve a balance between risk and return based on the investor’s goals and risk tolerance.

assigned

When a writer of a call or put option is obligated to fulfill the terms of the option because the option buyer has decided to exercise it, the writer is said to be assigned.

Assuris

Assuris is a non-profit organization comprised of member firms that issue life insurance contracts. It is tasked with safeguarding policyholders by offering protection in the event of a member company’s insolvency. Assuris ensures that individuals who hold insurance contracts are covered and financially secure even if their insurance provider faces financial difficulties.

at-the-money

An ‘at-the-money’ option refers to a financial derivative where the strike price is approximately the same as the current market price of the underlying asset. This means that the option does not currently have intrinsic value, but only consists of time value. It plays a significant role in options trading strategies. For related concepts, see ‘Out-of-the-money’ and ‘In-the-money’.

attribution rules

Attribution rules, as per the regulations of the Canada Revenue Agency, prevent individuals from transferring income-generating assets to family members with lower tax rates in order to evade taxes payable at the investor’s marginal tax rate.

auction market

An auction market is a type of financial market where securities are bought and sold through a centralized trading venue, such as a stock exchange. In an auction market, brokers act as intermediaries representing the interests of their clients in the buying and selling process. This is different from a dealer market, where transactions occur directly between buyers and sellers over-the-counter, without a centralized exchange. For instance, the Toronto Stock Exchange is a well-known auction market where securities trading takes place through an organized auction process.

audit

An audit is a detailed and systematic examination of a company’s financial statements, which is mandated by corporate regulations. Its primary goal is to verify the accuracy, reliability, and adherence to International Financial Reporting Standards (IFRS) of the financial information presented in the statements. This process helps to provide assurance to investors, shareholders, and other stakeholders regarding the fairness, consistency, and transparency of the company’s financial performance.

authorized shares

Authorized shares refer to the total number of common or preferred shares that a company is legally allowed to issue as specified in its corporate charter. These shares can be issued to investors or stockholders as a way to raise capital or facilitate other financial transactions within the company.

Autorité des marchés financiers (Financial Services Authority) (AMF)

The Autorité des marchés financiers (AMF) is the regulatory body responsible for overseeing the financial sector in Québec. This includes regulating activities related to securities, the distribution of financial products and services, financial institutions, and compensation. Essentially, the AMF plays a crucial role in ensuring compliance with laws and regulations to maintain transparency, reliability, and stability in Québec’s financial markets.

averages

Averages are statistical measures used to analyze and assess the overall trend or direction of the market. One of the most widely recognized averages is the Dow Jones Industrial Average, which represents the performance of thirty large, publicly-owned companies trading on the New York Stock Exchange and the NASDAQ.

axe sheet

An ‘axe sheet’ is a document that outlines the list of securities or financial products that a trader intends to buy or sell swiftly due to market conditions or specific investment strategies. This list aids traders in managing their positions effectively and making informed decisions based on market dynamics.

back-end load

A back-end load, also known as a deferred sales charge, is a fee that is applied when an investor redeems (sells) shares of a mutual fund within a specific time frame. This fee is calculated based on a percentage of the initial investment amount or the current value of the shares being redeemed.

balanced budget

A balanced budget refers to a financial situation where total revenues are equal to total expenditures. It signifies that there is no budget deficit (expenditures exceeding revenues) or budget surplus (revenues exceeding expenditures). A balanced budget is essential for the financial stability of an entity, such as a government or an organization, as it helps to prevent excessive borrowing and build financial resilience.

balance of payments

The balance of payments represents a country’s economic transactions with other nations and is divided into two main accounts: the current account, which records a country’s trade in goods and services with the rest of the world, and the capital account, which measures the financial transactions such as investments and loans between a country and foreign entities.

Bank of Canada

The Bank of Canada is the central bank of Canada, responsible for the country’s monetary policy. It uses various tools, such as adjusting short-term interest rates, to influence the economy by controlling inflation, employment, and overall economic growth.

Bank Rate

Bank Rate refers to the minimum interest rate set by the Bank of Canada for providing short-term funding to chartered banks, other members of Payments Canada, and investment dealers involved in money market transactions.

bankers’ acceptance

A bankers’ acceptance refers to a financial instrument that involves a borrower issuing a commercial draft, which is a written order to pay a certain amount on a specified future date. The payment is guaranteed by the borrower’s bank when the draft matures. Similar to Treasury bills, bankers’ acceptances are sold at a discounted price and reach their face value at maturity. The variance between the discounted price and face value represents the investor’s return. Bankers’ acceptances can be sold before maturation at market rates, typically providing a higher yield compared to Canadian Treasury bills.

banking group

A banking group refers to a collection of investment firms that collectively participate in assuming financial responsibility for different portions of the underwriting process. Each firm within the group handles a specific part of the underwriting, leading to a shared financial commitment among the members.

bankrupt

Bankruptcy is a legal status that declares an individual or company unable to repay their debts to creditors. In this situation, the individual’s or company’s assets are managed and distributed to creditors by a court-appointed Trustee in Bankruptcy.

basis point

A basis point is a unit commonly used in finance to describe small percentage changes in interest rates or bond yields. Specifically, one basis point is equivalent to one one-hundredth of a percentage point. For example, if the interest rate increases by 1%, it means that it has gone up by 100 basis points. Basis points are essential in analyzing and comparing the relative changes in financial instruments with differing interest rates or yields.

bearer bonds

Bearer bonds are a type of security, typically a bond, where the owner’s name is not registered with the issuing company or on the bond certificate. Instead, these bonds are payable to whomever holds the physical certificate, making the holder the recognized owner of the bond. Bearer bonds are also known as unregistered bonds. For comparison, see Registered Security.

benchmark

A benchmark refers to a predetermined standard that is used to assess the performance of an investment or a portfolio. It serves as a reference point against which the returns and risk of the investment are compared. This benchmark can be based on various criteria, such as a specific interest rate like the treasury bill rate plus a fixed percentage, or it can be tied to a market index like the S&P/TSX Composite Index. By comparing the actual performance of an investment with its benchmark, investors can evaluate the effectiveness of their investment strategy.

beneficial owner

The beneficial owner is the individual or entity that enjoys the rights and benefits of ownership over an account, securities, or other assets, even if the legal title is held by another party such as an investment dealer, trustee, or bank. In other words, the beneficial owner is the true owner who has the power to control, manage, and dispose of the assets, regardless of their name. This arrangement is often used to facilitate transfers or to maintain privacy and confidentiality. Ultimately, the beneficial owner retains the economic interest and ownership privileges associated with the assets.

beneficiary

The beneficiary is the person or persons specified in a life insurance policy or retirement account to receive the proceeds or benefits upon the original account holder’s death. Beneficiaries can be categorized as either revocable, meaning they can be changed at any time by the account holder, or irrevocable, meaning they cannot be changed without the beneficiary’s consent.

best efforts underwriting

Best efforts underwriting is a process where an investment dealer, known as an underwriter, endeavors to sell a new issue of securities to potential investors using their best endeavors. However, in this method of underwriting, the underwriter does not commit to purchasing the entire issue themselves or ensuring that all securities will be sold. Under this arrangement, the underwriter acts as an agent for the issuer, assisting in the distribution of the securities to the market.

beta

Beta is a metric used to assess the volatility or sensitivity of a stock or a mutual fund in relation to fluctuations in the broader stock market. The market beta is typically assigned a value of 1. A fund that replicates the market’s performance, such as an index fund, would also have a beta of 1. Assets with a beta exceeding 1 are regarded as more volatile and hence riskier than the overall market. Conversely, assets with a beta below 1 are less volatile and are expected to experience smaller ups and downs than the market as a whole.

bid-ask spread

The bid-ask spread represents the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is asking for (ask) for a particular asset or security at a given point in time. It is a key indicator of market liquidity and transaction costs, with a wider spread typically indicating lower liquidity and higher transaction costs.

bid price

The bid price refers to the highest price that a potential buyer is willing to pay in order to acquire a particular financial instrument at a given point in time. It reflects the demand for the asset and is typically lower than the ask price, which is the price at which a seller is willing to sell the same financial instrument. The bid price is an essential component in determining the market price of securities and plays a crucial role in various financial transactions.

blue-chip

Blue-chip refers to a commonly traded stock of a well-established and financially stable company that has a history of consistently paying dividends and possesses other favorable investment attributes. This term typically suggests that the company is considered to be a solid investment choice due to its strong reputation and stability in the market.

blue sky

In finance, ‘blue sky’ is a colloquial term referring to state and provincial regulations put in place in Canada and the United States to safeguard the public from fraudulent activities related to securities. When an issue has successfully passed review by a securities commission and is approved for distribution, it is often said to have been ‘blue skyed.’

bond

A bond is a certificate representing a loan agreement between an investor and a borrower, typically a corporation or government entity. The issuer of the bond commits to paying the bondholder a predetermined amount of interest known as the coupon rate, for a specific period, and to repay the principal amount at the bond’s maturity date. Bonds are usually backed by collateral to secure the repayment, known as a bond issue. However, in the case of government bonds, the term ‘bonds’ is commonly used more broadly to refer to various types of debt securities, including those not backed by specific assets.

bond contract

The bond contract refers to the formal legal agreement established between the issuer of a bond and the bondholder. This document specifies the terms and conditions of the bond issuance, including details such as the coupon rate, schedule of coupon payments, maturity date, and other relevant provisions. The bond contract is typically administered by a trust company that acts on behalf of all bondholders. It is also known as a Bond Indenture or Trust Deed.

bond fund

A bond fund is a type of investment fund that mainly invests in a diversified portfolio of bonds. The fund generates income primarily through the interest payments received from bond issuers. A bond indenture refers to the legal agreement outlining the terms and conditions of a bond issuance, also known as a bond contract.

bond residue

The bond residue refers to the principal amount that is left over after the coupons (interest payments) have been separated or stripped from the original bond. It represents the remaining value of the bond that does not include the periodic interest payments.

book value

Book value refers to the net assets that belong to the owners or shareholders of a business, calculated based on the values stated in the financial position statement. It signifies the total value of a company’s assets that would be distributed to shareholders in the event of the company’s liquidation. Additionally, it signifies the initial cost of the units assigned to a distinct fund contract.

bottom-up analysis

Bottom-up analysis is an investment strategy that involves identifying individual companies that are considered undervalued based on their financial performance and fundamentals. Fund managers conducting bottom-up analysis focus on company-specific factors such as earnings, growth potential, and competitive advantages. By investing in these undervalued companies, fund managers aim to benefit from potential share price appreciation when the market reevaluates and recognizes the true value of these securities. Bottom-up analysis contrasts with top-down analysis, which emphasizes macroeconomic factors like interest rates and GDP to make investment decisions.

bought deal

A ‘bought deal’ refers to a financial arrangement where an investment dealer purchases a new issue of stocks or bonds directly from the issuer. The dealer takes on the risk by investing its own capital with the intention to resell the securities to its clients through private placement or short form prospectus. In cases where the market conditions require a reduction in the initial pricing to facilitate the sale of the securities, the dealer bears the financial loss.

Bourse de Montréal

The Bourse de Montréal, commonly known as the Montréal Exchange, is a financial market where non-agricultural options and futures are traded in Canada. It includes all options that were previously traded on the Toronto Stock Exchange and futures products that were previously traded on the Toronto Futures Exchange.

broker

A broker is an individual or firm registered to buy and sell securities on behalf of clients. They can act as an agent, matching buyers with sellers, or as a principal, trading securities for their own account. Brokers must be registered with a Self-Regulatory Organization to ensure compliance with regulations and ethical standards in the financial industry.

broker of record

A broker of record is a designated financial advisor appointed by a corporation to handle its financial affairs. The broker of record is granted the primary opportunity to handle any new securities issuances on behalf of the corporation. This designation gives the broker of record a strategic position in making decisions related to the corporation’s financial transactions.

bucketing

Bucketing is the practice of confirming a transaction without actually executing a trade. It refers to the falsification of trading activity to deceive investors or manipulate financial records. This fraudulent practice can distort market information and harm the integrity of financial systems.

budget deficit

A budget deficit happens when a government’s total expenditures exceed its total revenues during a specific period, usually a year. It represents the shortfall between what a government spends and what it collects in terms of taxes and other income.

budget surplus

Budget surplus refers to a situation in which a government’s income or revenue for a specific period surpasses its total spending or expenditures during the same period. It indicates that the government has accumulated more funds than it has spent, leading to a positive balance in its financial accounts.

business cycle

The business cycle refers to the regular pattern of growth and decline in economic activity over time. It typically consists of five main phases: trough, recovery, expansion, peak, and contraction (recession). Understanding the business cycle is crucial for investors and fund managers as it helps them adjust their asset allocation to optimize returns based on the relationship between the business cycle and security prices.

business risk

Business risk refers to the level of uncertainty associated with a company’s operations, often expressed through fluctuations in its earnings. This type of risk typically arises from factors such as changes in consumer demand, technological advancements, or competitive pressures. For example, businesses like manufacturers of vinyl records, eight-track recording tapes, and beta video machines faced significant business risk due to the decline in consumer interest and technological obsolescence.

business trust

A business trust acquires the assets of a company and distributes the profits and losses to investors in proportion to their ownership stake.

buy and hold

Buy and hold is an investment strategy in which an investor purchases a diversified portfolio of securities with the intention of holding onto them for an extended period, typically years or decades. The primary concept behind the buy and hold strategy is to benefit from the long-term growth of the stock market and minimize the impact of short-term market fluctuations.

buy-back

A buy-back refers to the act of a company repurchasing its own common shares, which may take place through a tender offer or on the open market. This repurchase can be done to cancel the shares, resell them later, or utilize them in dividend reinvestment plans, thereby affecting the company’s capital structure and offering various benefits to shareholders.

buy-ins

Buy-ins refer to the requirement to repurchase stocks that were previously sold short in case the client fails to maintain sufficient margin or if the initially borrowed stocks are reclaimed by their owner without the possibility of obtaining replacement stocks.

buy side

In the financial market, ‘buy side’ refers to the group of entities such as retail and institutional investors who engage in purchasing securities and financial services from the ‘sell side’, which includes entities offering and trading securities.

call feature

A call feature is a provision found in bond or preferred share agreements that grants the issuer the option to redeem the securities before their maturity date. This option is typically exercised by the company when it can secure a new financing arrangement at a more favorable interest rate, analogous to refinancing a mortgage to benefit from lower rates. The issuer may have to pay a call premium, a form of penalty, when calling back the security before its maturity.

call option

A call option is a financial contract that gives the holder the right, but not the obligation, to buy a predetermined quantity of shares at a predetermined price (known as the strike price) before a specified expiration date. The purchaser of a call option pays a premium to the seller in exchange for this right. Investors typically buy call options when they anticipate that the price of the underlying stock will increase. Compare with Put Option for the corresponding right to sell shares.

call price

The call price refers to the redemption price at which a bond or preferred share can be repurchased by the issuer before its maturity date. This price includes the par value or a predetermined value for preferred shares along with any call premium. The call price is the amount that the holder of the security would receive if the issuer were to exercise the call option. It is essential for investors to understand the call price as it influences investment strategies and potential returns. Also known as Redemption Price in certain contexts.

call protection period

The call protection period refers to the duration, typically stated in the terms of callable bonds, where the bond cannot be redeemed by the issuer. It is the timeframe before the initial opportunity for the issuer to call back the bond before its maturity date.

callable bond

A callable bond is a type of bond that gives the issuer the right to redeem the bond before its maturity date, typically after providing due notice to the bondholders. This feature allows the issuer to refinance the bond at a lower interest rate if market conditions become favorable, but it can expose bondholders to the risk of having their investment called in earlier than expected.

callable preferred

Callable preferred refers to a type of preferred stock that can be repurchased or redeemed by the issuer at a specified price after providing due notice to the shareholders. This feature gives the issuer the flexibility to redeem the stock under certain conditions or at specific times.

Canada Deposit Insurance Corporation (CDIC)

The Canada Deposit Insurance Corporation (CDIC) is a federal Crown Corporation established to safeguard depositors’ funds by providing insurance coverage in the event of a member institution’s failure. CDIC insures eligible deposits up to $100,000 per depositor per insured category, offering protection and promoting confidence in the stability of Canada’s financial system.

Canada Education Savings Grant (CESG)

The Canada Education Savings Grant (CESG) is a government incentive program designed to encourage contributions to a Registered Education Savings Plan (RESP). Under this program, the federal government provides a matching grant of up to a maximum of $500 to $600 per year, based on the amount of the contributed funds, to the RESP of a child who is under the age of 18. The CESG aims to help families save for their children’s post-secondary education by providing additional funds that can grow over time through investments in the RESP.

Canada Pension Plan (CPP)

The Canada Pension Plan (CPP) is a compulsory contributory pension plan established to offer monthly retirement, disability, and survivor benefits to residents of Canada. Both employers and employees are required to contribute equally to the plan. It is important to note that in the province of Québec, a separate and similar pension plan known as the Québec Pension Plan (QPP) exists alongside the CPP.

Canada Premium Bonds (CPBs)

Canada Premium Bonds (CPBs) were a financial instrument offered by the Government of Canada, providing a secure savings option that was fully backed by the Canadian government. In November 2017, the government decided to stop issuing new CPBs; however, it remains committed to honoring and guaranteeing all existing CPBs until investors choose to redeem them or until the bonds reach their maturity date, whichever occurs first.

Canada Savings Bonds (CSBs)

Canada Savings Bonds (CSBs) are a type of secure savings product backed by the full guarantee of the Government of Canada. The sale of CSBs was discontinued by the government in November 2017. However, the government remains committed to guaranteeing and fulfilling all existing CSBs until investors decide to redeem them or the bonds reach maturity, depending on which event occurs first.

Canadian Derivatives Clearing Corporation (CDCC)

The Canadian Derivatives Clearing Corporation (CDCC) is an essential service provider in the financial market that specializes in clearing, issuing, settling, and providing assurance for various financial instruments such as options, futures, and futures options that are traded on the Bourse de Montréal, also known as the Bourse. The CDCC plays a crucial role in minimizing counterparty risk and ensuring the smooth functioning and integrity of the derivatives market by acting as a middleman that guarantees the performance of these financial contracts.

Canadian Investor Protection Fund (CIPF)

The Canadian Investor Protection Fund (CIPF) is a regulatory insurance fund designed to safeguard eligible customers in case an Investment Industry Regulatory Organization of Canada (IIROC) dealer member becomes insolvent. The fund is exclusively backed by IIROC and financed through periodic assessments imposed on dealer members.

Canadian Life and Health Insurance Association Inc. (CLHIA)

The Canadian Life and Health Insurance Association Inc. (CLHIA) is the principal national trade association representing the interests of the life and health insurance industry in Canada. It plays a key role in regulating and supervising the operations of its member companies, ensuring compliance with industry standards, and advocating for policies that promote the sound functioning of the sector.

Canadian Securities Administrators (CSA)

The Canadian Securities Administrators (CSA) is a collaborative body consisting of 13 securities regulators from Canadian provinces and territories. It serves as a platform for these regulators to work together in synchronizing and standardizing the regulatory framework governing the Canadian capital markets, ensuring consistency and efficiency in the regulatory environment across the country.

Canadian Securities Exchange (CSE)

The Canadian Securities Exchange (CSE) was established in 2003 to provide a platform for trading equity securities, particularly for emerging companies that may not meet the listing requirements of traditional stock exchanges. It serves as an alternative marketplace that offers companies the opportunity to access the capital they need to grow and expand their business operations.

Canadian Unlisted Board (CUB)

The Canadian Unlisted Board (CUB) is an online platform utilized by investment dealers to record and report finalized transactions involving unlisted and unquoted equity securities within the province of Ontario, Canada.

CanDeal

CanDeal is a financial platform that offers institutional investors the capability to electronically access bid and offer prices as well as yields for federal bonds, providing information from six major bank-owned dealers. The platform serves as a marketplace for these investors to engage in trading bonds efficiently and transparently.

CanPx

CanPx is a collaborative effort of multiple IIROC member firms that functions as an electronic trading platform exclusively designed for fixed income securities. It enables investors to access up-to-the-minute bid and ask prices, as well as trade information updated on an hourly basis, enhancing transparency and facilitating trading decisions in the fixed income market.

capital

In the realm of economics, capital refers to the broad category of machinery, factories, and inventory that are essential for the production of other goods and services. On the other hand, from an investor’s perspective, capital represents the aggregate value of financial assets deployed in securities, real estate properties, and other durable assets, in addition to liquidity in the form of cash reserves.

capital and financial account

The capital and financial account is a fundamental component of the balance of payments, representing the transactions involving the acquisition and disposal of financial assets, such as stocks, bonds, currencies, and real estate, between a specific country, like Canada, and other foreign nations. In conjunction with the current account, it provides a comprehensive overview of a country’s economic interactions with the rest of the world.

capital gain

A capital gain occurs when an investor sells a security for a price that is higher than the price originally paid to acquire it. In the case of non-registered securities, half of the gain is included in the investor’s income and subject to taxation at the marginal tax rate.

capital loss

A capital loss occurs when an investor sells a security for a price that is less than the original purchase price. It is generally used to offset capital gains for tax purposes. If the capital loss exceeds the capital gains in a given tax year, the excess can be carried forward indefinitely to offset future capital gains. However, it’s important to note that only 50% of the capital loss can be used in any given tax year to offset taxable capital gains.

capital market

The capital market refers to the financial marketplace where individuals, companies, and governments can raise long-term funds through the trade of debt and equity securities. This market encompasses organized exchanges, such as stock markets, as well as private placement platforms where bonds, stocks, and other financial instruments are issued and traded.

Capital Pool Company (CPC)

A Capital Pool Company (CPC) is an entity authorized to raise funds through an Initial Public Offering (IPO) without possessing any assets or engaging in commercial activities. The primary purpose of a CPC is to utilize the capital obtained from the IPO to assess and potentially acquire an established business or substantial assets in what is known as a qualifying transaction.

capital shares

Capital shares are a type of split shares that are designed to receive the bulk of any capital gains generated by the underlying common shares. They are an integral part of split share structures and play a crucial role in allocating investment returns among different classes of shareholders.

capitalization or capital structure

Capitalization or capital structure refers to the aggregate value of all financial resources in a company, including debt, preferred and common stock, and retained earnings. It is a critical indicator of the firm’s financial health and stability. Capitalization can be represented as the total dollar amount or as a percentage of the company’s overall financial structure.

capitalizing

Capitalizing refers to the accounting practice of recording an expenditure as an asset on the statement of financial position instead of expensing it on the statement of comprehensive income. The capitalized amount is then gradually written off or amortized as an expense over a specific period of time. Common examples of capitalized expenses include interest costs and expenditures related to research and development projects.

carry forward

Carry forward refers to the practice of retaining unused contribution room from previous years for Registered Retirement Savings Plan (RRSP). For instance, if an individual was eligible to contribute $13,500 to an RRSP but only contributed $10,000, the remaining $3,500 can be carried forward and utilized in subsequent years. This unused contribution room does not expire and can be carried forward indefinitely, allowing individuals to catch up on their retirement savings over time.

carrying charges

Carrying charges refer to the deductible expenses incurred by an individual or business in the process of holding an investment, property, or asset. These expenses are eligible for tax deduction, thereby reducing the taxable income and potentially lowering the tax liability of the entity.

cash account

A cash account is a brokerage account that requires investors to have enough cash in the account to cover their purchases or to deliver the necessary amount of cash before the settlement date of the purchase. It differs from a margin account where investors can borrow funds from the broker to make trades.

cash flow

Cash flow refers to the total amount of money being transferred into and out of a company’s bank account over a specific period. It is a crucial financial metric that helps to assess a company’s liquidity, operational efficiency, and overall financial health. Cash flow includes not only the profits generated during a certain period but also adjustments for non-cash expenses like depreciation. For investors, cash flow can represent any form of income generated from an investment, such as dividends, interest, rental income, and more. Additionally, the term can describe the movement of funds into or out of an individual’s account, business, or investment portfolio.

cash flow-to-total debt outstanding ratio

A key financial ratio used to evaluate a company’s capacity to repay its outstanding debts by comparing its operating cash flow to the total amount of debt owed. It helps in assessing the company’s financial health and ability to meet its debt obligations. It is important to note that short-term borrowings typically require repayment within one year.

cash-secured put write

A strategy in options trading where an investor writes a put option and concurrently sets aside cash equal to the strike price. In the event of assignment, the cash reserved by the put writer is utilized to purchase the underlying stock from the option holder who is exercising the put option.

CBID

CBID stands for Central Broker-Dealer Automated Quotation System. It is an electronic platform designed for the trading of fixed-income securities within the retail market. The system provides a centralized marketplace where buyers and sellers can interact to trade a variety of fixed-income products. It helps in facilitating price discovery, enhancing market liquidity, and improving transparency in fixed-income securities trading.

CBID Institutional

CBID Institutional refers to an electronic trading system designed specifically for fixed-income securities, which are debt securities that pay regular interest until maturity. This system operates within the institutional market, which involves large financial institutions and corporations trading securities in high volume. It provides a platform for efficient buying and selling of fixed-income securities, facilitating transactions among institutional investors in a streamlined and automated manner.

CDS Clearing and Depository Services Inc. (CDS)

CDS Clearing and Depository Services Inc. (CDS) offers customers a range of physical and electronic infrastructure to deposit and withdraw securities that meet depository requirements and to oversee their associated ledger positions, known as securities accounts. Additionally, CDS offers electronic clearing services on both a domestic and international scale. These services enable customers to securely report, confirm, and finalize transactions involving securities trades.

central bank

A central bank is an official institution established by a national government to oversee the country’s monetary system and formulate and implement monetary policies. These policies are aimed at achieving specified economic goals such as controlling inflation, stabilizing the currency, and promoting economic growth. Examples of central banks include the Bank of Canada in Canada, the Federal Reserve Board in the United States, and the Bank of England in the United Kingdom.

chart analysis

Chart analysis, also known as technical analysis, is a method used by investors and traders to make decisions about buying and selling assets. It involves the examination of historical price movements and patterns depicted in charts to determine potential future price movements. By analyzing these patterns, market participants attempt to predict the future direction of asset prices and capitalize on potential opportunities for profit.

class A and B stock

Class A and B stocks refer to different categories of shares issued by a company, each with distinct rights and characteristics. Class A shares typically have priority over Class B shares in terms of dividends or assets distribution, but usually do not carry voting rights. On the other hand, Class B shares typically have voting rights but may not have the same priority regarding dividends or assets. It is important to note that the specific rights and features of each class of stock can vary widely among companies and may not always follow these general patterns.

clearing

Clearing is a vital financial process that involves validating and aligning the details of a securities trade between the parties involved, such as buyers and sellers, ensuring accuracy and completion of the transaction.

clearing corporations

Clearing corporations are non-profit service entities that are owned by exchanges and their members. They play a crucial role in facilitating the clearance, settlement, and issuance of options and futures contracts. One of the key functions of a clearing corporation is to act as an intermediary, providing a financial guarantee for all transactions it processes. This is achieved by effectively becoming the counterparty to each trade, assuming the role of the buyer for every seller and the seller for every buyer to ensure the completion and financial security of the transactions.

closed-end discretionary funds

Closed-end discretionary funds are investment funds that are granted the authority to repurchase their shares at specific intervals. These funds provide investors with the benefit of periodic liquidity by offering the option for share repurchases. They are also referred to as interval funds.

closed-end fund

Closed-end funds represent a type of investment company where shares are bought and sold in the open market similar to other shares. The capitalization of a closed-end fund is fixed, meaning that the number of shares outstanding remains stable once issued. For more information, refer to Investment Company for additional insights.

closet indexing

Closet indexing is an investment strategy where the fund manager maintains a portfolio that closely mimics the performance of a specific market index. This strategy involves aligning the portfolio’s weights to those of the market, either by industry sector, country or region, or by average market capitalization. The aim is to achieve returns comparable to the market while charging higher fees than passive index funds.

coincident indicators

Coincident indicators are statistical data that tend to change simultaneously and in alignment with the overall economy. These indicators move in sync with the business cycle and provide real-time information about the current state of the economy.

collateral trust bond

A collateral trust bond is a type of bond that is backed by securities such as stocks, bonds, or other assets that the issuer deposits with a trustee. These securities act as collateral to secure the bond, providing protection to investors in case the issuer defaults on the bond payments.

commercial paper

Commercial paper refers to an unsecured financial instrument issued by corporations or backed by a pool of financial assets. The maturity period of commercial paper typically ranges from less than three months to one year. It is commonly traded in $1,000 increments, requiring an initial investment of at least $25,000. Commercial paper can also be traded in the secondary market before it reaches maturity, with prices determined by prevailing market rates.

commission

A commission is a fee that a stockbroker charges for facilitating the purchase or sale of securities on behalf of a client. This fee is typically calculated as a percentage of the total transaction value and is an essential source of revenue for stockbrokers. Commissions vary among brokers and can impact the overall return on investment for clients.

commodity

A commodity refers to a raw material or primary agricultural product that can be bought and sold. These goods are standardized and interchangeable with other goods of the same type, enabling trade on organized exchanges. Commodities can include agricultural products like wheat or canola, or natural resources such as oil or gold. Commodity trading involves the buying and selling of these goods either physically or through futures contracts, where parties agree to buy or sell the commodity at a set price in the future.

commodity ETF

Commodity Exchange-Traded Funds (ETFs) are investment funds that focus on commodities or assets closely associated with commodities. They provide exposure to the commodity market through investments in physical commodities, commodity futures contracts, or shares of companies engaged in the production or distribution of commodities. There are three main types of commodity ETFs: physical-based ETFs that invest directly in physical commodities, futures-based ETFs that invest in commodity futures contracts, and equity-based ETFs that invest in the stocks of commodity-related companies.

commodity futures

Commodity futures refer to standardized agreements to buy or sell a specific quantity of a commodity at a predetermined price on a future delivery date. These contracts are traded on regulated exchanges and serve as a way for producers and consumers to hedge against price fluctuations in the commodities market.

common shares

Common shares are securities that represent ownership in a company, granting shareholders voting rights and the potential to receive dividends if the company chooses to distribute them. Common shares are also known as common stock.

competitive tender

A distribution method commonly employed by financial institutions like the Bank of Canada for the allocation of new government marketable bonds. Primary distributors are invited to submit bids, and the securities are allocated to the bidders offering the highest prices. It is essential to note Non-Competitive Tender as a related concept for a comprehensive understanding.

compound interest

Compound interest is the interest accumulated on an initial principal sum over multiple periods, whereby the interest amount is added to the principal after each compounding period. Subsequently, future interest calculations are based on the new total amount after each compounding period. Essentially, compound interest refers to earning interest on both the initial principal and the accumulated interest, allowing the investment to grow at an increasing rate over time.

confirmation

A confirmation is a formal document that provides a written record of a transaction involving the purchase or sale of a security. Typically, this document is generated by a broker or investment dealer and sent to the client within 24 hours of the transaction being completed. It serves as proof of the trade and includes important details such as the security’s name, quantity, price, and trade date. In essence, a confirmation acts as a contract between the parties involved, detailing the terms of the executed order.

consumer finance company

A consumer finance company is a financial institution that provides direct cash loans to individual consumers who might have difficulty obtaining a loan from traditional banks. These companies often charge higher interest rates compared to banks due to the increased risk involved in lending to individuals with less established credit histories or lower credit scores.

contrarian investors

Contrarian investors are a group of market participants who follow a strategy based on sentiment analysis. They analyze indicators to gauge the prevailing market sentiment and position themselves in a direction that is opposite to the majority of investors. This approach aims to capitalize on market movements that go against popular opinion, with the belief that such movements may lead to profitable opportunities.

Consumer Price Index (CPI)

The Consumer Price Index (CPI) is a statistical measure that evaluates changes in the prices of a representative basket of goods and services commonly purchased by households. It is a vital economic indicator used to gauge the average change over time in the prices paid by urban consumers for consumer goods and services, thus reflecting the cost of living. As such, the CPI is widely utilized to monitor inflation trends in an economy.

continuation pattern

In technical analysis, a continuation pattern is a specific formation on a price chart that suggests the current trend in a financial instrument is likely to persist. Traders interpret continuation patterns as a temporary pause in the prevailing trend before the price of the asset is expected to resume its previous direction. These patterns help traders make informed decisions about when to enter or exit trades based on the anticipated continuation of the existing market trend.

continuous public disclosure

Continuous public disclosure refers to the ongoing obligation of a publicly traded company to provide timely and transparent information to the public and regulatory authorities. This requirement is established by the securities regulations of the specific jurisdiction in which the company is listed. The company must disclose relevant financial and non-financial information on a regular basis to ensure that investors and the general public are well-informed about the company’s operations and financial performance.

contract holder

The individual or entity who is in possession of a segregated fund contract, which represents an investment product that combines features of mutual funds and insurance policies.

contraction

A contraction refers to a phase of the economic cycle characterized by a decline in economic activity, including decreases in production, income, employment, and trade. If this phase persists over an extended period, it can lead to a recession, which is typically marked by a significant contraction in the economy lasting for several months.

contribution in kind

Contribution in kind refers to the act of transferring securities or other assets directly into a Registered Retirement Savings Plan (RRSP) without converting them into cash first. According to the general rules, this transfer is considered as a deemed disposition, requiring the reporting of any capital gains for tax purposes. However, any resulting capital losses from this transfer are not eligible for tax deduction.

control position

A control position refers to the ownership of a significant amount of voting stock in a company, which enables an individual or entity to influence and make decisions that significantly impact the company’s operations and direction. In most Canadian provinces, except Manitoba, New Brunswick, and Quebec, holding at least 20% of the voting stock is considered to represent a controlling interest.

conversion price

The conversion price represents the predetermined price at which a convertible bond or security can be exchanged or converted into shares of common stock. This price is set when the bond is issued and plays a key role in determining the potential benefits for bondholders in converting their securities into equity.

conversion privilege

The conversion privilege refers to the right granted to a bondholder to convert the bond into a specified number of common shares of the issuing company, typically at predetermined terms and conditions. This privilege provides bondholders with the flexibility to participate in the company’s equity ownership in addition to receiving fixed income from the bond.

convertible

A convertible security, such as a bond, debenture, or preferred share, grants the holder the option to exchange it for a specified number of common shares of the issuing company. This exchange happens based on the terms outlined in the conversion privilege. The company also reserves the right to convert these securities by redeeming them at a predetermined price if it’s advantageous compared to the market price.

convertible arbitrage strategy

Convertible arbitrage strategy is an investment approach that aims to exploit pricing differences between a convertible security and its corresponding common stock. This strategy usually involves taking a long position in the convertible bond while simultaneously taking a short position in the common stock of the same company in order to benefit from the market inefficiencies and discrepancies in pricing between the two securities.

convexity

Convexity is a financial metric that quantifies the relationship between a bond’s price and changes in interest rates. It measures the rate at which the duration of a bond changes in response to fluctuations in yields. In simpler terms, convexity captures how the price of a bond is expected to change as interest rates move. Bonds with higher convexity will experience larger price increases when interest rates fall compared to the price decreases when interest rates rise.

core holdings

Core holdings, within the realm of Exchange-Traded Funds (ETFs), refer to the primary investments that aim to generate most of the returns in a portfolio. These investments are usually passive ETFs designed to provide stability and consistent growth. In contrast, satellite holdings are more concentrated on specific sectors or themes, which may carry higher risks and volatility.

corporate note

A corporate note refers to a type of debt instrument issued by a corporation. It represents an unsecured obligation undertaken by the borrower to make scheduled interest payments and return the principal amount at a predetermined future date. These notes are issued for a fixed term and carry a specified interest rate, which may be paid periodically or in a lump sum at maturity.

corporation or company

A corporation or company is a type of business entity established under provincial or federal laws, designed to have a distinct legal existence independent of its owners. Shareholders, who are the owners of a corporation, are not personally liable for the debts and obligations of the company. This limitation of liability is a core feature of corporations, providing a level of protection for the owners’ personal assets. For more information, refer to the concept of Limited Liability.

correction

A correction refers to a temporary reverse movement in the price of a security, which often happens after the security has experienced significant overvaluation or undervaluation in the market. Corrections help to restore balance by bringing the price back in line with the fundamental value of the security, representing a healthy adjustment in the market trend.

correlation

Correlation is a statistical measure that describes the degree to which the prices of two or more financial securities move in relation to each other. When two securities move in the same direction at the same time, they are considered to have a positive correlation, usually denoted by a value between 0 and +1. Conversely, if two securities move in opposite directions, they have a negative correlation, often denoted by a value between -1 and 0. It is rare to find securities with a perfect negative correlation. Combining securities with high positive correlations may not effectively reduce the overall risk of a portfolio. On the other hand, combining securities with low positive correlations can help diversify and potentially reduce risk in a portfolio.

cost method

The cost method is an accounting technique applied when a company holds an ownership interest of less than 20% in a subsidiary. Under this method, the investment in the subsidiary is initially recognized at cost and is adjusted periodically for any changes in the value of the investment.

cost of sales

Cost of sales is a financial statement item that reflects the direct cost incurred in producing goods sold by a company. It includes the cost of raw materials and direct labor used in manufacturing a product. Cost of sales does not include indirect expenses like distribution costs or administrative expenses.

cost-push inflation

Cost-push inflation is a phenomenon in which overall price levels rise as a result of increases in production costs, such as wages or raw materials. For instance, a rise in the price of oil can raise manufacturing costs for businesses, leading to an increase in prices of goods and services across the economy.

coupon bond

A coupon bond is a debt instrument that comes with detachable interest coupons. These coupons represent the periodic interest payments that the issuer is obligated to make to the bondholder. The bondholder can detach and redeem these coupons for payment on specific dates, typically semi-annually or annually, throughout the bond’s term.

coupon rate

The coupon rate refers to the fixed annual interest rate stated on a bond certificate, calculated as a percentage of the bond’s face value. Multiplying the coupon rate by the bond’s face value determines the annual interest payment that the bond issuer is obligated to pay the bondholder until the bond reaches maturity. For instance, a bond with a face value of $1,000 and a coupon rate of 10% would yield an annual interest payment of $100. Coupon rates stay constant over the lifespan of the bond. For further context, refer to ‘Yield’ in the financial context.

covenant

In finance, a covenant refers to a promise or agreement made by a company issuing debt, as outlined in a bond indenture. These covenants serve as safeguards for the bondholders, ensuring certain actions or restrictions are taken by the issuing company. For instance, a covenant may forbid the company from issuing additional debt, thereby protecting the interests of existing bondholders.

cover

The act of purchasing a security that was previously borrowed and sold short in order to close out the short position. This process involves buying back the same amount of shares that were initially borrowed and sold. It is an essential step in completing a short sale transaction. Also referred to as ‘covering a short position’.

covered call

A covered call refers to a financial strategy involving the sale of a call option by an investor who already owns the underlying asset. In this scenario, the seller (writer) of the call option has the corresponding amount of the underlying security to deliver if the option is exercised by the buyer. This strategy provides the seller with potential income from the option premium while still allowing for participation in any potential price appreciation of the underlying asset up to the option’s strike price.

covered call ETF

Covered call exchange-traded funds (ETFs) are financial instruments that utilize a strategy involving the writing of call options on an underlying security while simultaneously holding a position in the same security. This approach is designed to generate additional income through the premiums received from selling the call options, thus improving yield, while also providing a level of downside protection by offsetting potential losses in the underlying stock or portfolio. This strategy aims to enhance the overall returns of the ETF while potentially decreasing the overall volatility of the investment.

coverage trader

A coverage trader is a professional who executes trades for institutional clients without trading using the capital of the dealer member. This type of trader is also referred to as an agency trader. They act as intermediaries, facilitating transactions on behalf of their clients in financial markets.

covered writer

A covered writer refers to an individual who writes an option while also maintaining a position that can offset the risk associated with the short option position. This corresponding position can be in the form of cash, a convertible security, or the underlying security of the option. In essence, a covered writer has a backing asset that limits their potential losses. It is important to note that the concept of a covered writer is in contrast to a naked writer, where the writer does not hold any offsetting position to mitigate risk.

creation unit

A specific quantity of shares typically offered by an Exchange-Traded Fund (ETF) provider to authorized participants, such as designated brokers, in the creation or redemption process of ETF shares. Creation units are often exchanged in large blocks and play a vital role in maintaining the efficiency and liquidity of the ETF market.

creditor protection

Creditor protection refers to the safeguard provided by segregated funds in the case of bankruptcy. Segregated funds serve as insurance products, and in situations of bankruptcy, the insurance proceeds are typically shielded from the claims of creditors due to their distinct legal status, thus offering an added layer of protection to investors.

crowdfunding

Crowdfunding is a method of financing a project or venture by collecting small amounts of money from a large number of people, typically through online platforms. This approach allows entrepreneurs and businesses to access capital from a diverse group of individuals, expanding their reach beyond traditional financing sources such as banks or venture capitalists.

cum dividend

The term ‘cum dividend’ refers to a situation where shares are purchased along with the right to receive an upcoming dividend that has already been declared. Investors who acquire shares before the ex-dividend date are eligible to receive the dividend payment. Conversely, if shares are traded ex-dividend (without the dividend), the purchaser is not entitled to the recently announced dividend.

cum rights

Cum rights refers to the condition in which stocks are traded including the rights attached to them. Investors who purchase stocks while they are cum rights, meaning before the ex-rights date, have the privilege to receive any upcoming already-declared rights associated with those stocks. Conversely, if stocks are traded ex rights (without rights), the buyer does not have the entitlement to these declared rights.

cumulative preferred

Cumulative preferred stock is a type of preferred stock that contains a provision stating that if the company fails to pay one or more dividend payments, the unpaid dividends will accumulate over time and must be paid out before any dividends can be distributed to common shareholders of the company.

current account

A current account is a financial record that documents all transactions related to trade in goods, services, as well as income and transfers between a country and other nations. It is a crucial part of the balance of payments framework, along with the capital and financial account, providing insight into a country’s economic relationship with the rest of the world.

current assets

Current assets refer to cash and other assets that are expected to be converted into cash or consumed within a year as part of the regular business operations. Examples include accounts receivable and inventories. They are classified under the current assets category in a company’s financial statements.

current liabilities

Current liabilities are obligations that a company needs to settle within one year, including accounts payable. They are categorized on the statement of financial position, also known as the balance sheet.

current ratio

The current ratio is a financial metric used to evaluate a company’s ability to settle its short-term liabilities with its short-term assets. It is calculated by dividing current assets by current liabilities. A ratio of 2:1 is considered to be a healthy indication that the company is capable of meeting its current obligations. The current ratio is also referred to as the working capital ratio.

current yield

Current yield is a financial metric used to evaluate the annual income generated from an investment relative to its current market value. For stocks, it is determined by dividing the yearly dividend by the current market price of the stock. For bonds, it is calculated by dividing the annual interest payment (coupon) by the bond’s current market price. It serves as a crucial indicator for investors to assess the return generated by an investment in comparison to its current market price. Also refer to the term ‘Yield’ for further information.

custodian

A custodian is a financial entity responsible for safeguarding assets such as securities owned by a mutual fund or a segregated fund. The custodian may be the insurance company issuing the fund or a reputable external firm located in Canada. Their primary role is to ensure the safekeeping of the assets, maintain accurate records, and facilitate asset transfers as needed.

cycle analysis

Cycle analysis is a method employed in financial markets to predict the timing of market movements and identify potential peaks and troughs. The premise of cycle analysis rests on the idea that recurring patterns, known as cycles, influence price fluctuations in the market. By studying these cycles, analysts aim to anticipate future price trends and make informed investment decisions.

cyclical industry

A cyclical industry is characterized by high sensitivity to changes in economic conditions. When the overall economy is performing well, cyclical industries experience rapid growth, while they tend to decline rapidly during economic downturns. This volatility is a result of consumer demand fluctuations and the dependency of these industries on business cycles.

cyclical stock

A cyclical stock belongs to an industry that is highly impacted by changes in economic circumstances. These stocks are known to show rapid increases when the economy is thriving and experience sharp declines during economic downturns. Accordingly, cyclical stocks have a close correlation with the business cycle. For instance, in times of economic growth, companies in the automotive sector perform well due to increased demand as people replace their old vehicles. Conversely, during economic contractions, both auto sales and the stock prices of automotive companies tend to decrease.

cyclical unemployment

Cyclical unemployment refers to the type of unemployment that occurs due to fluctuations in the business cycle. It increases when the economy enters a downturn, leading to reduced demand for labor by companies, which results in them laying off workers in response to declining sales. Conversely, cyclical unemployment decreases as the economy recovers and strengthens, leading to increased demand for labor and lower unemployment rates.

daily valuation method

The daily valuation method is a technique used to determine the Net Asset Value Per Share (NAVPS) of a mutual fund. It involves measuring the incremental fluctuations in the fund’s value on a daily basis, which are then converted into an index to compute the fund’s return. This approach is particularly advantageous for mutual funds that typically calculate their NAVPS daily, as it streamlines the process of determining their monthly returns.

dark pool

A dark pool refers to an alternative trading system that enables participants to trade large blocks of securities without revealing their trading intentions to the wider market. Unlike traditional exchanges, dark pools do not display order book information to the public before trades are executed, offering increased confidentiality to participants.

day order

A day order is a type of buy or sell order in the financial markets that is valid only for the trading day it is placed. If the order is not executed by the end of the trading day, it will expire automatically. Unless explicitly specified as a different order type, all orders are initially considered as day orders in trading.

dealer market

A dealer market is a trading venue where securities are bought and sold directly between dealers and investors, typically over-the-counter. In this market, dealers serve as principals, undertaking transactions on their own account, to facilitate the buying and selling of securities on behalf of clients. The dealer market is also known as the unlisted market.

dealer member

A dealer member refers to a financial institution, particularly a stock brokerage firm or investment dealer, that holds membership in a recognized stock exchange or regulatory organization such as the Investment Industry Regulatory Organization of Canada (IIROC). Dealer members play a crucial role in facilitating trading activities for investors by executing buy and sell orders on various financial instruments within the guidelines and regulations established by the specific exchange or regulatory body to ensure market integrity and investor protection.

death benefit

The death benefit refers to the sum of money provided by a segregated fund policy to the designated beneficiary or the estate of the annuitant in the event of the annuitant’s death. It is paid out when the market value of the segregated fund is below the guaranteed amount upon the death of the annuitant.

debenture

A debenture is a financial instrument that represents a form of debt issued by a government or a corporation. The holder of a debenture is considered a creditor to the issuer, relying solely on the general creditworthiness of the borrower for repayment. Unlike secured bonds, debentures are not backed by specific collateral such as assets or property, meaning there is no specific asset pledged to secure the repayment of the debt.

debt

Debt refers to funds borrowed from financial institutions or individuals for various reasons such as investment, business operations, or personal needs. The borrower is required to pay interest on the borrowed amount and is obligated to repay the principal along with the interest at an agreed-upon maturity date.

debt-to-equity ratio

The debt-to-equity ratio is a financial metric used to evaluate the relationship between a company’s borrowed funds and its shareholders’ equity. It indicates the proportion of financing provided by creditors versus shareholders. A higher ratio suggests that the company relies more on borrowing, which may signal higher financial risk due to increased leverage and interest obligations.

debt securities

Debt securities are financial instruments, like bonds or debentures, that represent a contractual obligation for the issuer to repay borrowed funds at a specified future date. These instruments outline key terms such as the principal amount borrowed, interest rate, and maturity date. The repayment at maturity is guaranteed by the issuer. The duration of the loan can vary depending on the specific type of debt security.

declining-balance method

The declining-balance method is an approach used in accounting to calculate depreciation. It involves applying a constant percentage rate to the decreasing book value of an asset to determine the depreciation expense for each accounting period. This method results in higher depreciation expenses in the early years of an asset’s life, gradually decreasing over time.

declining industry

A declining industry refers to a sector that is experiencing a decrease in its growth rate compared to the overall economy. This typically occurs when an industry reaches the maturity stage and the demand for its products or services diminishes over time. As a result, the industry’s growth rate slows down or begins to decline, posing challenges for companies operating within it.

deemed disposition

A deemed disposition refers to a scenario where tax regulations consider a transfer of property to have taken place, irrespective of an actual purchase or sale. This concept is applied in situations like death or emigration from Canada, triggering tax consequences as if a real transfer had occurred.

default

Default occurs when a bond issuer fails to meet its obligations specified in the trust deed. This non-compliance can involve missing interest or sinking fund payments, or failing to redeem the bonds upon maturity. It signifies a breach of contract between the bond issuer and the bondholder.

default risk

Default risk refers to the possibility that an issuer of a debt security may fail to make interest payments on time or repay the principal amount when it matures. This risk is specific to debt securities, as opposed to equities, due to the contractual nature of debt instruments. In the event of default, investors may incur financial losses.

defensive industry

A defensive industry refers to a sector known for its consistent earnings and regular dividend distributions. These industries exhibit a tendency to maintain stability even during challenging economic periods, making them a reliable option for investors seeking a lower level of risk in their investment portfolio.

defensive stock

A defensive stock refers to shares of a company known for consistent earnings and regular dividend distributions. These stocks typically exhibit a high level of stability even during economic downturns. For instance, utility stocks are considered defensive because the demand for essential services like electricity remains constant, regardless of the overall economic situation, leading to relatively stable stock prices.

deferred annuity

A deferred annuity is a financial arrangement commonly offered by life insurance companies that provides a fixed income stream to the annuitant at a specified future date. Initially, the annuity holder makes periodic contributions, which accumulate over time. The payout phase begins at a predetermined future date. The annuitant will then receive regular payments for a set period, typically ending before the actual annuity payments commence. For further reference, compare with the term ‘Annuity’.

deferred preferred shares

Deferred preferred shares are a class of preferred shares that do not pay dividends until a specified future date, known as the maturity date. Unlike regular preferred shares, which typically pay dividends regularly, deferred preferred shares accumulate unpaid dividends until the maturity date is reached. At that point, the accumulated dividends are paid out to shareholders, along with any dividends that accrue going forward.

deferred sales charge

A deferred sales charge, also referred to as a redemption fee or back-end load, is a fee imposed by mutual funds or insurance companies when investors redeem their units. This fee typically decreases over time and may be eliminated entirely if the investment is held for a certain duration. It is intended to discourage short-term trading and promote long-term investment strategies.

deferred tax liabilities

Deferred tax liabilities represent the estimated income tax that a company will have to pay in future accounting periods. These liabilities arise due to temporary differences in how assets and liabilities are valued in the financial statements compared to their tax values as determined by tax laws. This typically occurs when assets or liabilities are recognized at different times for financial reporting and tax purposes.

defined benefit plan

A defined benefit plan is a type of retirement plan where an employer promises a specified monthly benefit upon retirement. The benefit is determined using a formula that typically includes factors such as the employee’s salary history and years of service. Unlike other pension plans, the employer bears the investment risk and must ensure there are enough funds to meet the promised benefits. This type of plan provides participants with a predictable income stream during retirement, offering financial security and stability.

defined contribution plan

A defined contribution plan is a specific type of pension plan in which the amount of money that is contributed by both the employer and the employee is predetermined and known. The eventual pension amount that the participant will receive upon retirement is not guaranteed and depends on factors such as the contributions made, investment performance, and other variables. This type of plan is also referred to as a money purchase plan within the financial industry.

deflation

Deflation is an economic phenomenon characterized by a consistent and prolonged decrease in the general price level of goods and services in an economy, leading to a negative inflation rate as indicated by the consumer price index.

delayed floater

A delayed floater is a specific type of variable rate preferred share that guarantees the holder a fixed dividend for an initial specified period. After this fixed period expires, the dividend rate then becomes variable. This type of security is also referred to as a fixed-reset or fixed floater.

delayed opening

A delayed opening refers to the temporary suspension of trading for a particular security due to an excessive number of buy and/or sell orders. This delay allows market operators to manage the overwhelming volume of orders effectively before allowing trading to commence, maintaining market orderliness and efficiency.

delisting

Delisting refers to the formal removal of a security from being listed on a particular stock exchange. It occurs when a company’s shares are no longer available for trading on the exchange. Delisting can happen due to various reasons such as violation of exchange regulations, bankruptcy, mergers, or acquisitions.

demand

Demand refers to the quantity of a good or service that consumers are willing and able to buy at a given price level within a specific time period. It is a fundamental concept in economics that exhibits an inverse relationship with price, meaning that as the price of a product decreases, the quantity demanded for that product tends to increase, and vice versa.

demand pull inflation

Demand-pull inflation is a macroeconomic phenomenon where the overall price level rises due to persistent and robust consumer demand outstripping the economy’s ability to supply goods and services. This imbalance leads to an upward pressure on prices as businesses increase their prices to match the heightened demand, resulting in a general increase in the price level across the economy.

denominations

Denominations refer to the specific face values at which a bond can be issued and traded. Bonds are typically available in various denominations, allowing investors to purchase bonds in different sizes to meet their investment needs. These denominations help create liquidity in the bond market by enabling bonds to be more easily bought and sold among investors with varying preferences and financial capabilities.

depletion

Depletion is an accounting method used to allocate the cost of natural resources utilized in business operations. Companies involved in activities such as oil production, mining, and gas extraction exploit resources that are finite and non-renewable, making them known as wasting assets. The process of depletion involves the gradual recognition of the reduction in the value of natural resources as they are extracted or consumed. Comparable to depreciation, depletion represents a non-cash expense recorded on financial statements to reflect the declining value of these natural resources over time.

depreciation

Depreciation refers to the systematic allocation of the cost of an asset over its estimated useful life. This allocation is necessary due to the wear and tear the asset experiences through regular use, exposure to the elements, or becoming obsolete over time. Depreciation is a non-cash expense recorded in financial statements to accurately reflect the decreasing value of the asset over its useful life.

derivative

A derivative is a financial instrument whose value is derived from the performance of an underlying asset such as a financial security, commodity, or investment index. This type of instrument helps investors manage risk or speculate on price movements without owning the asset itself. Derivatives can be based on various underlying assets including interest rates, currencies, stocks, or commodities. For instance, a call option on a specific stock like IBM is considered a derivative, as its value changes based on the movements of IBM’s stock price. To explore related derivative instruments, refer to the term Options.

designated broker

A designated broker is a professional individual or entity that enters into a formal agreement with an Exchange-Traded Fund (ETF) issuer to facilitate the process of creating and redeeming ETF units. This agreement authorizes the designated broker to participate in the primary market by buying creation units of the ETF from the issuer and selling them on the secondary market. The designated broker plays a crucial role in ensuring the efficiency and liquidity of the ETF market by balancing the supply of ETF units in response to investor demand.

direct bonds

Direct bonds are fixed-income securities issued by governments, representing a primary liability of the government issuer. These bonds are not backed by a third-party entity and are therefore considered to carry the full faith and credit of the government. Direct bonds differ from Guaranteed Bonds, as they do not have the additional guarantee of a separate entity.

direct electronic access (DEA)

Direct electronic access (DEA) refers to the mechanism through which institutional clients can interact with exchanges electronically using their investment dealers. Instead of relying on traditional verbal orders, clients can directly submit and execute transactions via electronic means, streamlining and expediting the trading process.

directional strategies

Directional strategies refer to a specific approach used by hedge funds to speculate on the future movements in the market prices of various financial instruments such as equities, fixed-income securities, foreign currencies, and commodities. In simple terms, hedge funds employing directional strategies place bets on whether the prices of these assets will go up or down, aiming to profit from their predictions.

director

A director is an individual who is elected by the voting common shareholders during the annual meeting to oversee and contribute to the establishment and implementation of company policies and strategic direction.

directors’ circular

A document distributed to shareholders by the board of directors of a company that is the subject of a takeover offer. This communication provides a recommendation on whether shareholders should accept or decline the bid, accompanied by a detailed rationale supporting the board’s decision.

disclosure

In the context of securities regulation in Canada, disclosure is a fundamental principle that requires providing comprehensive and accurate information about the relevant aspects of an investment. This includes disclosing all material facts that are essential for investors to make well-informed decisions regarding their investments.

discount

Discount refers to the variance between the selling price of a preferred stock or bond and its par value. It indicates the reduction in value at which the security is traded, usually because of prevailing market conditions, interest rates, or perceived risks associated with the investment.

discount brokers

Discount brokers are brokerage firms that execute buy and sell orders for clients at a reduced commission compared to full-service firms. They typically offer fewer personalized services and investment advice in exchange for lower fees. Discount brokers are also referred to as self-directed brokers as clients are largely responsible for making their own investment decisions.

discount rate

The discount rate refers to the interest rate utilized in determining the present value of future cash flows when evaluating the worth of a bond.

discouraged workers

Discouraged workers refer to individuals who are able and willing to work but have become discouraged due to unsuccessful job search activities, causing them to stop actively seeking employment. This usually occurs because they believe no suitable job opportunities are available or face other obstacles discouraging them from entering or re-entering the labor force.

discretionary account

A discretionary account refers to a type of securities account in which the account holder grants written permission to a partner, director, or qualified portfolio manager to make investment decisions and execute trades on their behalf without obtaining prior approval for each transaction. This arrangement allows the authorized individual to manage the account based on the client’s investment objectives and risk tolerance. It is a key feature of managed accounts and wrap accounts in the financial industry.

disinflation

Disinflation refers to a reduction in the pace at which prices increase, meaning a decrease in the inflation rate. It indicates that prices are still ascending, albeit at a less rapid speed than before, leading to a slower overall increase in the general price level.

distressed securities strategy

A distressed securities strategy involves investing in the equity or debt securities of companies experiencing financial distress, such as facing bankruptcy or undergoing reorganization. These securities are typically purchased at significant discounts due to the weakened credit quality of the issuing companies.

diversification

Diversification is an investment strategy that involves spreading risk by investing in a variety of securities across different companies, industries, and geographical regions. By diversifying their portfolio, investors aim to reduce the impact of any single investment’s performance on the overall portfolio. This strategy helps to potentially minimize losses during market fluctuations and promote long-term stability and growth.

dividend

A dividend is a distribution of a portion of a company’s earnings to its shareholders, based on the number of shares they own. Preferred dividends are fixed and paid to preferred shareholders regularly, while common dividends may vary depending on the company’s profitability. It is important to note that a company is not legally required to pay out dividends to either preferred or common shareholders.

dividend discount model

The dividend discount model (DDM) is a method used in financial analysis to estimate the value of a stock by calculating the present value of all future dividend payments. This model assumes that the intrinsic value of a stock is based on the cash flows it generates through dividends over time. By discounting expected future dividend payments back to their present value, investors can determine a fair market price for the stock. The dividend discount model plays a crucial role in fundamental analysis and helps investors evaluate whether a stock is undervalued or overvalued based on its expected future dividend income.

dividend fund

A type of mutual fund or investment fund that primarily focuses on investing in preferred shares and high-quality common shares. These funds specifically target companies with a track record of regularly distributing a portion of their profits to shareholders in the form of dividends.

dividend payout ratio

The dividend payout ratio is a financial metric used to evaluate the portion of a company’s earnings distributed to its shareholders in the form of dividends. It is calculated by dividing the total amount of dividends paid by the company by its net income. The ratio provides insight into how much of the company’s profits are being returned to shareholders rather than retained for future growth or other uses.

dividend record date

The dividend record date is the specific date chosen by a company to determine which shareholders are eligible to receive a declared dividend. Shareholders who own stock on this date will be the ones entitled to the dividend payment.

dividend reinvestment plan

A dividend reinvestment plan refers to a program offered by a company that allows shareholders to automatically use their cash dividends to purchase additional shares of the company’s stock. This enables shareholders to enhance their investment without receiving cash payments. The process is typically facilitated by the company’s transfer agent or a brokerage firm and can help investors benefit from compound growth over time.

dividend tax credit

A dividend tax credit is a mechanism aimed at incentivizing Canadian investors to invest in preferred and common shares of taxable, dividend-paying Canadian corporations. Under this procedure, the taxpayer calculates their tax liability by increasing the dividend amount received (grossing up) and then receives a credit against federal and provincial taxes based on this grossed-up amount. It is important to note that the federal government has the discretion to modify the gross up rate and tax credit on an annual basis in order to reflect changes in economic conditions.

dividend yield

Dividend yield is a financial metric that indicates the annual dividend payments made by a company as a percentage of its current stock price. It serves as a measure of the return on investment for shareholders based on the dividends they receive relative to the market value of the stock.

dollar cost averaging

Dollar cost averaging is an investment strategy where an investor consistently invests a fixed amount of money in a particular security at regular intervals over an extended period. This approach aims to reduce the impact of market volatility by spreading out the purchase of assets over time, which can potentially lower the average cost per unit of the investment.

domestic bonds

Domestic bonds refer to debt securities issued in the currency and legal jurisdiction of the issuer. For instance, if a Canadian company issues a bond denominated in Canadian dollars within the Canadian financial market, it is classified as a domestic bond.

Dow Jones Industrial Average (DJIA)

The Dow Jones Industrial Average (DJIA) is a stock market index comprised of 30 large, publicly traded companies considered to be leaders in their industries. It is calculated using a price-weighted methodology, where stocks with higher prices have a greater influence on the index’s value. The DJIA is widely used as an indicator of the overall performance of the stock market and the economy, providing valuable insights into the trends and direction of the New York Stock Exchange.

drawdown

Drawdown can refer to a strategy used by the Bank of Canada to manage cash flow in the open market, impacting interest rates. It involves moving funds from direct clearers to the Bank of Canada, reducing the amount of cash available. Drawdown can also represent the decrease in investment value from its peak to its lowest point over a specific period, often expressed as a percentage. Individual drawdowns help investors assess potential losses if an investment is made at its highest value and then sold at its lowest value.

due diligence report

A due diligence report is a detailed analysis and assessment conducted by a dealer when initiating negotiations for a new issue of securities with a corporate issuer. This report thoroughly examines and evaluates the financial and organizational structure of the company to ensure transparency, identify potential risks, and ascertain the accuracy of the information provided by the issuer. It plays a critical role in helping investors make informed decisions by providing them with a comprehensive understanding of the company’s financial health and performance.

duration

Duration is a financial metric used to measure the sensitivity of a bond’s price to changes in interest rates. It represents the approximate percentage change in the price or value of a bond or bond portfolio in response to a 1% point change in interest rates. Bonds with higher durations tend to have greater price volatility and thus are considered riskier investments.

duty of care

The duty of care is a legal obligation that requires individuals to exercise a certain level of caution when performing acts that could foreseeably harm others. In the context of financial services, it means the responsibility to thoroughly research and analyze relevant information before offering advice or suggesting financial products to clients, ensuring that the recommendations made are in the best interest of the clients and are suitable for their financial situation and objectives.

dynamic asset allocation

Dynamic asset allocation is an investment strategy that involves regularly adjusting the weights of different securities in a portfolio based on changing market conditions. The primary goal is to maintain the desired risk-return profile by aligning the asset mix with a predefined benchmark over time. This strategy aims to take advantage of market opportunities while managing risks effectively through active portfolio management.

early redemption fee

An early redemption fee is a charge imposed by mutual funds if an investor decides to redeem their investment within a specified period, usually within 90 days from the initial purchase. The purpose of this fee is to discourage short-term trading activities and protect long-term investors from the costs associated with frequent buying and selling of fund shares.

earned income

Earned income, in the context of RRSP calculations defined by the Canada Revenue Agency, refers to income derived from employment or self-employment activities. This type of income includes salaries, wages, bonuses, commissions, and other sources directly related to active work. Notably, earned income does not encompass investment income, pension income, or other passive sources of revenue.

earnings per common share

Earnings per common share is a fundamental financial metric calculated by dividing a company’s net income minus preferred dividends by the average number of outstanding common shares. It indicates the portion of a company’s profit that is allocated to each outstanding common share, providing insight into how profitable a company is on a per-share basis.

earnings per share (EPS)

Earnings per share (EPS) is a financial metric that indicates the portion of a company’s net income allocated to each outstanding common share. It is calculated by dividing the company’s total earnings by the number of outstanding shares. For instance, if a company has a net income of $100 million and 100 million common shares outstanding, the EPS would be $1 per share.

economic indicators

Economic indicators refer to statistics or data series that provide insight into the current state of business conditions and overall economic activity. These indicators are crucial for assessing and analyzing the performance of an economy. Economic indicators can be classified into leading, lagging, and coincident indicators, each providing valuable information about different aspects of the economy.

economics

Economics is a social science that studies how individuals, businesses, and governments make choices on allocating limited resources to fulfill their unlimited wants. It delves into the processes of production, distribution, and consumption of goods and services in society, aiming to explain patterns and trends that influence the economy.

economies of scale

Economies of scale refer to the phenomenon in economics, where the cost per unit of production decreases as the scale of output increases. This principle suggests that as a company produces more units of a product, the average cost per unit decreases. This decrease is mainly attributed to the spreading of fixed costs over a larger number of units, leading to higher efficiency and cost-effectiveness in production.

efficient frontier

The efficient frontier is a graphical representation of the optimal portfolios that offer the highest expected return for a given level of risk, or the lowest risk for a given level of return. It shows the combination of assets which provide the best possible trade-off between risk and return. In simpler terms, it helps investors to identify the portfolios that offer the best possible returns for a certain level of risk or the lowest risk for a certain expected return.

election period

The election period refers to a specific duration during which an investor who holds an extendible or retractable bond has the opportunity to notify the bond issuer about their decision to either exercise or waive the embedded option associated with the bond.

emerging growth industries

Emerging growth industries refer to recently established sectors that are at the initial stage of expansion. These sectors are characterized by the introduction of innovative products or services, which may be met with uncertainty regarding their acceptance in the market. Furthermore, these industries often encounter intense competition from other newly established players, making their growth prospects speculative in nature.

emerging markets alternative funds

Emerging markets alternative funds are investment vehicles that focus on acquiring equity and debt securities from companies based in emerging markets. These funds utilize various sophisticated investment strategies, such as derivatives and short selling, to achieve their investment objectives. However, due to restrictions on short selling and the limited availability of derivative markets in some emerging economies, these funds may face challenges in implementing hedging strategies. Consequently, the performance of emerging markets alternative funds can exhibit high levels of volatility.

equilibrium price

Equilibrium price refers to the situation in a market where the amount of goods or services that buyers are willing to purchase equals the quantity that sellers are willing to offer at a specific price level. This point indicates stability in the market, ensuring that there is neither excess demand nor excess supply of the product.

equipment trust certificate

An equipment trust certificate is a type of debt security primarily utilized historically to fund transportation equipment, such as railway boxcars, with the equipment itself serving as collateral for the financing. Once the debt is repaid, ownership of the equipment reverts to the issuer. The concept has evolved to include financing containers for the offshore industry in recent years. This financing mechanism is more prevalent in the United States compared to Canada.

equity

Equity refers to the ownership interest in a company’s stock, representing a proportional claim on the company’s assets and earnings. It reflects the residual interest in the company’s assets after deducting its liabilities. See also ‘Stock’ for related information.

equity accounting method

The equity accounting method is a technique applied in financial reporting to ascertain the income generated from a company’s investment in another entity in which it holds a significant stake, usually between 20% and 50% of the voting stock. This method is suitable when an investor has the power to influence the operating and financial policies of the investee but does not have control over it. The investor reports its share of the investee’s earnings on its own income statement, reflecting the economic reality of its ownership interest in the investee.

equity-based exchange-traded fund

An equity-based exchange-traded fund (ETF) is a type of investment fund that tracks a specific stock index and invests in publicly traded companies engaged in the exploration, development, processing, or refining of a particular commodity. It provides investors with exposure to the performance of these companies within a specific sector or industry.

equity fund

Equity funds are investment funds that are required to invest at least 90% of their noncash assets in equity securities, which represent ownership in companies. The primary goal of equity funds is to achieve long-term capital appreciation for investors by investing in a diversified portfolio of stocks. By focusing on stocks, equity funds aim to benefit from the potential growth and profitability of the underlying companies, thereby offering the potential for higher returns compared to other types of investments.

equity market-neutral strategy

Equity market-neutral strategy is a sophisticated investment approach aimed at capitalizing on inefficiencies and opportunities within the equity market. This strategy involves establishing two portfolios - one with long positions and the other with short positions - of similar value to neutralize overall market exposure, known as beta. The goal of this strategy is to generate returns that are independent of the general market direction, by profiting from relative price movements of individual securities.

equity securities

Equity securities represent ownership in a company and provide evidence of a shareholder’s proportional claim on the company’s assets and earnings. Shareholders of equity securities participate in the company’s success through capital appreciation and dividends, while also bearing the risks associated with ownership such as potential losses if the company performs poorly.

equity value per common share

Equity value per common share is a financial metric, sometimes referred to as book value per common share. It represents the portion of net assets attributable to each outstanding common share if all assets were liquidated and all debts were settled. It serves as an indicator of the underlying value that common shareholders would receive in the hypothetical scenario of a company’s complete liquidation.

escrowed shares

Escrowed shares refer to the outstanding shares of a company that have voting rights and are eligible to receive dividends but cannot be traded without specific authorization. This restriction typically occurs when a company issues treasury shares in exchange for new assets, commonly seen in the mining and oil industries. Releasing shares from escrow, meaning allowing them to be freely traded, is subject to approval from relevant authorities such as a stock exchange or securities commission.

ETF Facts

ETF Facts is a concise disclosure document that exchange-traded funds (ETFs) are obligated to create and submit to regulatory authorities. It offers key information about an ETF, including its investment objective, risks, performance, fees, and distributions, enabling investors to make informed decisions.

ethical decision-making

Ethical decision-making refers to the process of making choices and taking actions based on fundamental principles such as trustworthiness, integrity, justice, fairness, honesty, accountability, and dependability. It involves evaluating the potential consequences of an action on various stakeholders and choosing the morally right course of action in a given situation.

ethics

Ethics refer to a set of principles or standards that regulate the conduct of a specific group or profession. It encompasses fundamental moral principles and values that guide individuals in evaluating what is right or wrong. It involves the examination of the overall nature of morality and the ethical decisions that individuals make.

Eurobonds

Eurobonds refer to bonds that are issued and traded internationally, outside the country of the issuing entity, and are usually denominated in a currency other than that of the country where they are issued. For instance, if a bond denominated in Canadian dollars is issued in Germany, it will be considered a Eurobond.

European-style option

A European-style option is a type of financial derivative that gives the holder the right to buy or sell an underlying asset at a pre-set price, known as the strike price, on a specific date in the future. Unlike American-style options that can be exercised at any time prior to expiration, European-style options can only be exercised on the expiration date itself. This restriction can have implications for the pricing and trading strategies associated with European-style options.

event-driven strategies

Event-driven strategies are a type of hedge fund investment approach that aims to generate profits by capitalizing on specific events that can impact the market. These events often include mergers, acquisitions, stock splits, buybacks, or other corporate actions that have the potential to create market inefficiencies and mispricings. By carefully analyzing and predicting the outcomes of such events, event-driven strategies seek to exploit temporary discrepancies in asset prices to achieve above-average returns.

ex-ante

Ex-ante refers to the analysis or projection of expected returns that investors anticipate receiving on an investment before making the decision to invest. It represents the anticipated returns based on forecasts, estimates, or expectations.

exchange fund account

An account managed by the Bank of Canada on behalf of the federal government, specifically dedicated to the holding and management of Canada’s foreign exchange reserves. The operations within this account involve transactions related to these reserves and are carried out based on directives from the Minister of Finance.

exchange rate

Exchange rate refers to the value of one currency in terms of another currency. It represents the rate at which one currency can be exchanged or converted into another currency. Exchange rates are influenced by various economic factors such as interest rates, inflation, political stability, and market speculation. Fluctuations in exchange rates can impact international trade, investment, and the overall health of an economy.

exchange-traded funds (ETFs)

Exchange-traded funds (ETFs) are investment funds that mirror a specific stock index by holding the same stocks in the same proportions. ETF shares are traded on major stock exchanges and, akin to index mutual funds, aim to replicate the performance of the chosen index by investing in the companies listed in it. They offer flexibility as their shares can be bought and sold throughout the trading day.

exchange-traded fund wraps

Exchange-Traded Fund (ETF) wraps refer to a managed investment account that charges a single annual fee based on the total assets in the account. Typically overseen by a designated portfolio manager, this account holds a collection of ETFs for making investment decisions. The ETFs contained within this account generally follow a passive investment management strategy.

exchange-traded notes (ETNs)

Exchange-traded notes (ETNs) are debt securities issued by financial institutions. Investors who purchase ETNs receive a return based on the performance of a specific reference asset, such as an index or benchmark. The issuer, usually a bank, promises to pay the return to investors upon maturity of the ETN, reflecting the underlying asset’s performance.

ex-dividend

Ex-dividend is a term used in finance to indicate that when an investor buys a common or preferred stock, they are not eligible to receive the next dividend payment. Stocks typically go ex-dividend one business day before the record date for shareholders. For further reference, compare with Cum Dividend, which signifies that the buyer of the stock is entitled to the upcoming dividend.

ex-dividend date

The ex-dividend date is the date on which a security trades without a dividend. Investors who purchase shares on or after the ex-dividend date are not entitled to receive the next dividend payment. It is important to note that the ex-dividend date is set by the exchange on which the security is traded and plays a crucial role in determining which shareholders are eligible to receive dividends.

exempt investor

Exempt investors are individuals or entities who satisfy specific criteria allowing them to buy securities without needing to be provided with a detailed document known as a prospectus, which normally provides essential information about a security being offered to the public.

exempt list

The exempt list refers to a group of large professional buyers of securities, such as financial institutions, who are given the opportunity to purchase a portion of a new security issue by one member of the banking group acting on behalf of the entire syndicate. The term ’exempt’ signifies that these investors are not required to receive a prospectus for the new issue, as they are deemed to possess a high level of sophistication and expertise in financial matters.

exercise

Exercise refers to the act of using the rights granted by an option or warrant contract. In the context of financial markets, it is typically the holder of the option contract who chooses to exercise their right to buy or sell the underlying asset at the agreed price within a specified timeframe. This action is taken by the option holder before the contract expiration date. Exercise is a crucial decision that can impact the profitability of the option position. For further comparison, see also Assignment, which refers to the transfer of these rights to another party.

exercise price

The exercise price, also referred to as the strike price or subscription price, is the pre-determined price at which a derivative contract can be exercised to buy (in the case of a call option) or sell (in the case of a put option) the underlying asset. It determines the value at which the underlying security can be bought or sold when the option holder decides to exercise the contract.

expansion

An economic phase during the business cycle marked by rising corporate profits leading to higher share prices. It involves a surge in the demand for capital to fuel business growth, which in turn causes interest rates to rise.

expectations theory

The expectations theory posits that the shape of the yield curve is determined by the collective market expectations regarding future interest rates. It suggests that current long-term interest rates are determined by market participants’ predictions of future short-term interest rates.

expiration date

The expiration date is the date on which specific rights or option contracts come to an end. Typically, for equity options, this date falls on the Saturday following the third Friday of the contract month. It also refers to the day when warrants and rights stop being valid or lose their value.

ex-post

Ex-post refers to the historical rate of return that has already been realized on an investment. This metric is used to assess the actual performance of an investment after the fact, providing important insights into the success or failure of the investment strategy that was implemented.

ex-rights

Ex-rights is a term used in finance to indicate that the buyer of a common share is not eligible to participate in a rights offering. Common shares become ex-rights two business days before the shareholder of record date, meaning the buyer does not have the right to subscribe to new shares at a discounted price before other existing shareholders.

extendible bond or debenture

An extendible bond or debenture is a financial instrument that gives the holder the right to postpone the maturity date for a predetermined period of time. This option allows the bondholder to delay the repayment of the bond’s principal, providing flexibility and potential benefits in certain market conditions.

extension date

An extension date refers to the specific date on which the maturity date of an extendible bond can be prolonged, allowing the bond to transition from being classified as a short-term bond to a long-term bond. This extension feature provides flexibility to bondholders and issuers by allowing them to adjust the maturity date based on market conditions and financial needs.

extra dividend

An extra dividend, also known as a special dividend, is a one-time payment declared by a company to distribute excess profits or reserves to its shareholders, in addition to the regular dividend payments. It is typically paid when a company experiences unusually high profits, asset sales, or other extraordinary circumstances, and is separate from the routine distribution of profits to shareholders.

face value

Face value refers to the nominal value of a bond or debenture that is stated on the face of the certificate. It represents the amount that the issuer is obligated to repay to the bondholder at the bond’s maturity date. It is important to note that the face value of a bond does not necessarily reflect its current market value, as factors like interest rates and market conditions can cause the bond’s actual worth to fluctuate.

F-class fund

An F-class fund refers to a type of mutual fund created specifically for fee-based financial advisors that typically have a lower management expense ratio (MER). This class of funds was introduced by mutual fund companies to cater to fee-based advisors by eliminating trailer fees and other forms of embedded compensation. By offering these F-class funds, investors can avoid paying duplicate charges for financial advice and asset management services. This structure aims to provide more transparent and cost-effective investment options for clients working with fee-based advisors.

fee-based accounts

Fee-based accounts are a type of financial account that offers a range of services for a fee based on the total value of assets managed within the account. The fee typically ranges from 1% to 3% of the client’s assets under management. These accounts are designed to provide clients with a comprehensive financial management solution that is tailored to their individual needs and goals.

fiduciary responsibility

Fiduciary responsibility refers to the legal and ethical obligation of an individual or entity, such as an investment advisor, mutual fund salesperson, or financial planner, to always prioritize the best interests of their clients above all else. Acting in a fiduciary capacity involves being in a position of trust and confidence with the responsibility to make decisions that benefit the client. It requires the fiduciary to act prudently, with loyalty, and to avoid conflicts of interest that could interfere with their ability to act in the client’s best interests.

final good

A final good refers to a item that is ready for consumption and is ultimately purchased by the end consumer for their direct use or satisfaction. It represents the end of the production process and is not intended for further processing or resale.

final prospectus

The final prospectus is a document that replaces the preliminary prospectus once it has been approved for filing by the relevant provincial securities commissions. It contains all essential information related to a new securities offering, including details about the issuer, the securities being offered, and associated risks. A copy of the final prospectus must be provided to each investor purchasing the new securities for the first time.

financial asset

A financial asset is an intangible representation of value that provides a legal claim or ownership right. It includes a wide range of assets such as stocks, bonds, cash, and bank deposits. These assets are considered valuable and can be traded or used to generate income for the holder.

financial futures

Financial futures refer to standardized contracts that obligate the buyer to purchase or the seller to sell a financial instrument, such as currency or stock index, at a predetermined future date and price. These contracts enable investors to speculate on the future price movement of financial assets and manage risks associated with fluctuations in the market.

financial intermediary

A financial intermediary refers to an entity, such as a bank, life insurance company, credit union, or mutual fund, that acts as an intermediary between savers (suppliers of capital) and borrowers by channeling funds from the former to the latter. These institutions play a crucial role in facilitating the flow of funds in financial markets and are vital in the allocation of capital in an economy.

financial ratios

Financial ratios are quantitative metrics derived from a company’s financial statements, primarily used to assess and analyze the financial performance, solvency, efficiency, and profitability of a company. These ratios offer valuable insights into the company’s financial health and help stakeholders make informed decisions about the company’s operations and investment potential.

financial risk

Financial risk refers to the uncertainty and potential for financial loss that shareholders face due to a company’s choice to utilize debt as a means of funding its business activities. This type of risk arises from the possibility of not being able to meet debt obligations, which can affect the earnings and value of common shares.

financing

Financing refers to the process where one or more investment dealers purchase a security issue with the intention of reselling it. This transaction is formalized through an underwriting agreement between the investment dealer(s) and the issuing corporation. In the realm of finance, financing is a term often used interchangeably with underwriting.

financing group

The financing group refers to the main underwriter responsible for managing the process of bringing newly issued securities to the market on behalf of the issuing company. This role can also be referred to as the lead underwriter, managing underwriter, or syndicate manager. The financing group plays a crucial role in coordinating and overseeing various aspects of the issuance process, including pricing, distribution, and marketing, to ensure a successful offering.

fintech

Fintech refers to a sector composed of companies that leverage computer technology to revolutionize and optimize the delivery of financial services and products. These innovative firms employ cutting-edge technologies to enhance speed, convenience, and cost-effectiveness in financial transactions, ultimately reshaping the traditional financial industry landscape.

firewall

Firewall refers to a set of procedures designed to prevent the unauthorized flow of sensitive information within a financial firm. It separates individuals who are involved in making investment decisions from those who have access to undisclosed material information that could potentially impact these decisions. An example of firewall implementation includes maintaining different communication channels such as using separate fax machines for research departments and sales departments to avoid the improper sharing of confidential data.

firm commitment underwriting

Firm commitment underwriting is a process where an underwriter agrees to purchase a specific quantity of securities from an issuer at a predetermined price. The underwriter then sells these securities to the public. In this agreement, the underwriter is obligated to pay the full amount to the issuer irrespective of its ability to sell the securities in the market. Therefore, the underwriter takes on the risk of selling the securities and guarantees the issuer the agreed-upon funds.

first-in-first-out (FIFO)

FIFO is a method used to manage inventory where the items that were purchased or produced first are sold or used first. This approach helps companies maintain accurate inventory records and can have an impact on their financial statements, such as cost of goods sold and ending inventory.

first mortgage bonds

First mortgage bonds are the most secure type of bonds issued by a company. These bonds have priority over all other forms of debt in case of bankruptcy or liquidation. They are backed by the company’s assets, earnings, and undertakings, ensuring that holders of these bonds are the first to be repaid before other creditors or shareholders.

first-order risk

First-order risk refers to the inherent exposure to fluctuations in the overall performance of financial markets such as equity, fixed income, currency, and commodities. This type of risk is caused by market dynamics and cannot be mitigated through diversification, as it affects all investments in these markets uniformly.

fiscal agent

A fiscal agent is an investment dealer selected by a company or government to provide advice on financial issues and oversee the process of underwriting its securities. This entity acts as a financial intermediary, facilitating the issuance and management of financial instruments on behalf of its clients, ensuring compliance with regulations and optimizing financial strategy.

fiscal policy

Fiscal policy refers to the government’s strategy that aims to regulate the economy by adjusting its levels of spending and taxation. The primary objective of fiscal policy is to stabilize the economy by tackling fluctuations in the business cycle, such as booms and recessions. By increasing spending and reducing taxes during economic downturns, and decreasing spending and increasing taxes during periods of high economic growth, fiscal policy seeks to promote sustainable economic growth and maintain stability.

fiscal year

Fiscal year refers to the 12-month period used by a company for financial reporting and budgeting purposes. Unlike the regular calendar year, some businesses opt to use a fiscal year that aligns better with their operational patterns. For instance, a department store may choose to end its fiscal year on January 31 instead of December 31 to include the crucial holiday shopping season in its financial statements.

fixed asset

A fixed asset refers to a tangible long-term asset, such as land, buildings, or machinery, that a company owns and uses in its operations instead of selling for profit. Fixed assets are crucial components of a company’s financial health and are typically recorded on the balance sheet under the category of property, plant, and equipment.

fixed-dollar withdrawal plan

A fixed-dollar withdrawal plan is a structured method for withdrawing funds from an investment account. The plan allows the account holder to specify a set amount of money to be withdrawn at regular intervals, such as monthly or quarterly. This provides a predictable stream of income from the investment account, helping to budget and plan finances effectively.

fixed exchange rate regime

A fixed exchange rate regime refers to a monetary system used by a country where the central bank commits to pegging the value of its domestic currency to another currency or a basket of currencies. This commitment is aimed at ensuring stability and predictability in international trade and financial transactions by keeping the exchange rate at a constant level. In this regime, the central bank intervenes in the foreign exchange market to buy or sell its currency to maintain the fixed exchange rate, which may require the bank to hold significant foreign exchange reserves.

fixed-income arbitrage strategy

A fixed-income arbitrage strategy is an investment approach that seeks to capitalize on pricing discrepancies in various interest rate securities and their related derivative instruments. These securities may include government and non-government bonds, mortgage-backed securities, options, swaps, and forward rate agreements. The strategy involves identifying mispriced assets and exploiting these differences to generate profit by taking advantage of market inefficiencies.

fixed-income securities

Fixed-income securities are financial instruments that promise a regular and predictable income stream, typically through periodic interest or dividend payments. Examples of fixed-income securities include bonds, debentures, and preferred shares.

fixed-period withdrawal plan

A fixed-period withdrawal plan is a structured approach in finance where a designated amount of funds is withdrawn at regular intervals over a specific predetermined timeframe. The primary objective of this plan is to deplete the entire invested capital by the end of the predefined period. This strategy provides a systematic way to manage fund disbursement and ensure that the funds are utilized according to a predetermined schedule.

flat

In finance, the term ‘flat’ indicates that the quoted market price of a bond or debenture includes its total cost without factoring in any accrued interest. This term is typically used in situations where bonds or debentures are not paying interest as per their agreement, leading them to trade at a flat price.

float

The float refers to the portion of a company’s shares that are in circulation and available for trading on the open market, excluding those held by key company insiders such as officers, directors, or major shareholders who have a significant controlling stake in the business. This term is also commonly known as the public float.

floating exchange rate

A floating exchange rate is a system in which a country’s central bank permits the forces of supply and demand in the foreign exchange market to determine the value of its currency relative to other currencies. However, the central bank may intervene if it deems that fluctuations in the exchange rate are too extreme or chaotic. Such intervention aims to stabilize the currency’s value and prevent disruptive economic consequences.

floating rate

The term ‘floating rate’ refers to the interest payments that are determined based on an agreed-upon benchmark rate, such as the Prime Rate. In essence, a floating rate is not fixed and can vary over time in response to changes in the benchmark rate. For instance, a loan may have an interest rate set at 2% above the current Prime Rate.

floating rate preferred

Floating rate preferred refers to a type of preferred stock where dividend payments are not fixed but instead adjust periodically based on changes in prevailing interest rates. In essence, these dividends have a variable component that is linked to the current interest rate environment. When interest rates increase, the dividend payments on floating rate preferred shares also rise, offering investors a potential hedge against inflation and interest rate risk. Conversely, if interest rates decline, the dividend payments will decrease correspondingly, thereby reflecting the prevailing market conditions.

floating-rate securities

Floating-rate securities are a form of debt instrument designed to safeguard investors against fluctuations in interest rates. These securities have an interest rate that is not fixed, but rather adjusts periodically based on a benchmark rate. For instance, when market interest rates increase, the interest rate paid to the holder of floating-rate debentures also rises, typically every six months. As a result, investors in floating-rate securities are shielded from the risks posed by sudden and significant interest rate changes in the market.

floor trader

A floor trader is an individual employed by a stock exchange member to perform trading activities on the trading floor of the exchange. Their primary role involves executing buy and sell orders on behalf of the firm and its clients. Floor traders play a crucial role in maintaining market liquidity and efficiency during trading hours.

forced conversion

Forced conversion occurs when a company’s stock price surpasses the predetermined conversion price of a convertible security, prompting the company to exercise its right to compel the security holder to convert their investment into common shares. This action is usually initiated by the company calling back the security. The investor then faces a decision between receiving a predetermined lower call price (usually at par value plus a call premium) or converting the security into common shares, which are valued higher at the prevailing stock price.

foreign bonds

Foreign bonds are debt securities issued by a Canadian company in a foreign country, denominated in the currency of that particular country. For example, if a Canadian company issues bonds in the U.S. with payments made in U.S. dollars, it is considered a foreign bond, also known as a ‘Yankee Bond.’ Foreign bonds provide companies with an opportunity to raise capital in international markets and diversify their sources of funding. For more information, see also Eurobond.

foreign exchange rate risk

Foreign exchange rate risk refers to the potential financial loss that an investor faces when investing in assets denominated in a foreign currency. This risk arises when an investment is made in a security or any asset that is not valued in the investor’s home currency, such as Canadian dollars. The investor is exposed to the risk that the value of the foreign currency may decrease relative to their home currency, leading to a decrease in the overall investment value.

foreign pay bond

A foreign pay bond refers to a Canadian debt security that is issued in Canada but pays both interest and principle in a foreign currency. By investing in this type of security, Canadian investors can benefit from potential fluctuations in currency exchange rates which may lead to increased returns or risks.

foreign pay preferred

Foreign pay preferred shares refer to a type of preferred shares issued by a company or entity that pays dividends in a currency other than the one in which the shareholder is located or primarily operates. These shares provide investors with the opportunity to receive dividends in a foreign currency, which may introduce currency exchange rate risks and opportunities for investors.

forward

A forward contract is a bilateral agreement between two parties to buy or sell an underlying asset at a predetermined price on a specified future date. Unlike futures contracts that are exchange-traded, forward contracts are traded over-the-counter (OTC). The terms of a forward contract, including the quantity, price, and delivery date, are customized according to the needs of the contracting parties and are not standardized. Due to the tailor-made nature of forward contracts, they may lack a secondary market, making them less liquid than exchange-traded futures contracts.

forward agreement

A forward agreement refers to a tailored contract between two parties to buy or sell an asset at a predetermined price on a future date. This agreement, commonly traded over-the-counter, helps manage financial risks associated with price fluctuations by locking in prices in advance.

frictional unemployment

Frictional unemployment refers to the temporary period of joblessness that occurs when individuals are transitioning between jobs, entering or re-entering the workforce, or leaving their current positions voluntarily. This type of unemployment is caused by the natural dynamics of the labor market, including job search process inefficiencies, informational gaps, and skill mismatches. It is a usual and expected phenomenon in a functioning economy where jobs are created and eliminated continuously.

front-end load

A front-end load, also known as a sales charge, is a fee imposed on the initial investment amount of a mutual fund at the time of purchase. This fee is deducted upfront before the invested amount is actually used to buy fund shares. The purpose of a front-end load is to compensate the selling agent or financial advisor for their services and expertise in recommending and selling the fund to the investor. It is important for investors to be aware of front-end loads as they directly impact the total amount invested and can influence the overall return on investment.

front running

Front running refers to the practice of a financial advisor or trader taking advantage of advanced knowledge of a large pending transaction that will have a substantial market impact. This is done by (1) executing trades for their own account that anticipate the impact of the larger trade about to take place for a client, or (2) trading in advance of executing client trades, thereby benefiting from the anticipated price movement resulting from the client’s trade.

full employment

The state in the economy where all available labor resources are utilized efficiently. It occurs when there is only frictional and structural unemployment present, without any cyclical unemployment. Frictional unemployment refers to temporary unemployment as individuals move between jobs, while structural unemployment occurs due to mismatches in skills and job requirements.

full replication

Full replication is a strategy used by an exchange-traded fund (ETF) where all the securities in the fund mirror the same weight as the components of the underlying index. By replicating the index in its entirety, this approach aims to closely track the benchmark index, thereby minimizing any discrepancies or tracking errors between the performance of the ETF and the index.

full, true, and plain disclosure

A fundamental principle of Canadian securities laws requiring companies to provide complete, accurate, and clear information to the public when issuing securities. Companies must disclose all relevant details to potential investors in order to ensure transparency and protect the interests of investors.

fully diluted earnings per share

Fully diluted earnings per share refer to a metric used to calculate the earnings per common share by assuming that all convertible securities, such as bonds or preferred stock, are converted into common shares and all other potential dilutive securities, like rights, warrants, and options, are exercised. This measurement provides a more comprehensive view of a company’s earnings potential by considering the impact of all possible dilutive securities on the calculation of earnings per share.

fundamental analysis

Fundamental analysis is a method of evaluating a security by examining the inherent qualitative and quantitative factors related to a company, as disclosed in its financial statements, to assess its intrinsic value. This analysis also includes an evaluation of macroeconomic factors that could impact the company’s operations. Fundamental analysis aims to determine whether a security is overvalued, undervalued, or fairly priced in the market. Compare with Technical Analysis, which focuses on historical price and volume trends.

funded debt

Funded debt refers to the total amount of bonds, debentures, notes, and other debt instruments issued by a company that have a maturity period of one year or more. This type of debt represents the financial obligations of the company that are not due for repayment in the short term, typically within a year.

Fund Facts

Fund Facts is a regulatory document specifically created for mutual fund investors to offer essential information about a particular fund. This document is concise, typically consisting of only two double-sided pages, and aims to provide timely and material information that can help investors make informed decisions regarding their investments.

fund of hedge funds

A fund of hedge funds is a diversified investment portfolio managed by a professional manager. This manager decides upon the selection of various hedge funds to invest in and the allocation of investments across these funds. This structure aims to provide investors with broader exposure to different hedge fund strategies while potentially reducing risk through diversification.

futures-based exchange-traded fund

Futures-based exchange-traded funds (ETFs) are investment funds that primarily invest in futures contracts of various commodities. These funds also hold a portfolio of money market instruments to ensure there are enough funds to cover the total value of the contracts held. As the near-term futures contracts reach maturity, they are replaced or ‘rolled over’ into contracts with later expiration dates.

futures contract

A futures contract is a standardized legal agreement to buy or sell a specific asset at a predetermined price at a specified time in the future. It represents the obligation for the buyer to purchase and the seller to sell the underlying asset at the agreed-upon price, regardless of the current market price at the time of contract execution.

gatekeeper

In the financial context, gatekeepers refer to dealers and their staff tasked with safeguarding the integrity of the markets by preventing any potentially illegal activities by clients. The Universal Market Integrity Rules establish clear guidelines defining the role of gatekeepers and outlining formal protocols for reporting any suspicious activities.

glide path

Glide path refers to the gradual adjustment of the asset allocation mix in a target-date fund as it progresses towards its maturity date. Initially, the fund adopts a growth-oriented strategy by investing more heavily in high-risk assets. As the target date nears, the fund shifts towards a more conservative approach by reallocating the assets to lower-risk investments. This adjustment is managed by the fund manager without the need for any intervention from the fund holder, ensuring the alignment of the fund’s risk profile with the investor’s changing investment horizon.

global macro strategy

A global macro strategy is an investment approach that involves investing across various major markets, including equities, bonds, currencies, and commodities. This strategy is based on making predictions about significant events that can impact entire economies, such as changes in government policies that may lead to fluctuations in interest rates. As a result, these changes can affect currency values, stock prices, and bond markets on a global scale.

good delivery form

The ‘good delivery form’ refers to the requirement that a security being sold must be handed over to the broker in a proper condition, with the necessary endorsements, and without any damage. Additionally, if the security includes coupons, they should be attached. To streamline the process and ensure compliance with these requirements, securities are often held in street name with the broker as a common practice.

good faith deposit

A good faith deposit, also known as a performance bond or margin, is a sum of money provided by either the buyer or seller of a futures product. This deposit serves as a financial commitment to ensure the completion of the contractual responsibilities associated with the futures contract.

good through order

A type of order in the financial markets that remains active for a set period, typically a specified number of days. If the order is not executed within this timeframe, it is automatically canceled by the system. This order type allows traders to set specific time frames for their trades to be executed, providing them with control and flexibility over their trading strategies.

goodwill

Goodwill is commonly defined as the intangible asset that reflects the reputation, customer loyalty, favorable employee relations, and other non-physical attributes that contribute to the overall value of a respected business. It is recognized on the balance sheet as an intangible asset.

government securities distributors

Government securities distributors are usually investment dealers or banks permitted to participate in auctions for Government of Canada debt securities. They have the authority to place bids on behalf of their clients and facilitate transactions in government-issued securities.

greensheet

A greensheet is a document that outlines the key characteristics of a new financial offering. It presents a balanced view by detailing both the advantages and disadvantages of the new issue. This document is created by dealers exclusively for internal use within the firm and serves as a guide for sales representatives to effectively generate interest among potential investors.

Greenshoe option

A Greenshoe option, also known as an overallotment option, is a provision typically included in the underwriting agreement of an initial public offering (IPO) of securities. It allows underwriters to buy additional shares at the offering price from the issuer if demand exceeds expectations. By doing so, underwriters can stabilize the price of the security in the secondary market. If the market price rises above the offering price, the underwriters can exercise the Greenshoe option to purchase more shares from the issuer and then sell them to cover their short position, balancing the supply and demand in the market.

gross domestic product (GDP)

Gross Domestic Product (GDP) is a monetary measure that represents the market value of all final goods and services produced within a country’s borders during a specific period, usually a year. It provides a comprehensive overview of the overall economic performance of a country, serving as a key indicator of its economic health and standard of living.

gross profit

Gross profit represents the financial metric that is derived by subtracting the cost of goods sold (COGS) from total revenue. It reflects the profitability of a company’s core business operations before accounting for other expenses such as operating costs, interest, and taxes.

gross profit margin

Gross profit margin is a key profitability ratio used to evaluate a company’s financial performance. It represents the percentage of revenue that exceeds the cost of goods sold, indicating the efficiency of the company in managing production costs and pricing strategies.

growth industry

A growth industry refers to a sector where both sales and earnings show a consistent upward trend, expanding at a faster pace compared to the majority of other industries. This is often driven by factors such as high demand, technological advancements, and changing consumer preferences.

growth stock

Growth stock refers to common stock issued by a company that exhibits strong potential for significant growth, usually higher than the market average. These companies are perceived to have promising prospects for expanding their operations, revenues, and profits over time, outperforming other market players in terms of growth rate and profitability.

guaranteed amount

The guaranteed amount refers to the least sum of money that will be paid out under death benefits or maturity guarantees as specified in the terms of the segregated fund contract. It ensures a minimum level of financial protection for the policyholder or beneficiaries in case of death or when the contract reaches maturity.

guaranteed bonds

Guaranteed bonds are debt securities issued by a crown corporation and backed by the government, ensuring the repayment of both principal and interest to bondholders. This guarantee provides investors with an added layer of security by ensuring that even in the event of default by the issuing entity, the government will step in to fulfill the financial obligations of the bond.

guaranteed income supplement (GIS)

The guaranteed income supplement (GIS) is a government-funded program that provides additional financial support to retirees in Canada who receive the Old Age Security (OAS) pension and have little to no other sources of income. This supplementary payment is designed to help ensure a basic level of income for seniors with financial need.

guaranteed investment certificate (GIC)

A Guaranteed Investment Certificate (GIC) is a financial product offered by trust companies. It involves making a deposit for a specified term at an agreed-upon interest rate. Typically, GICs are non-redeemable until they reach maturity. However, in some cases, exceptions may apply.

halt in trading

A temporary suspension of trading for a specific security, initiated to ensure that significant information affecting the security’s value is properly disclosed and widely available to all market participants. Halt in trading typically occurs in response to major events such as pending mergers, significant changes in dividends, or earnings reports, aiming to maintain market integrity and protect investors from making uninformed decisions.

head-and-shoulders formation

The head-and-shoulders formation is a significant trend reversal pattern that can manifest at either a market peak, termed as a head-and-shoulders top formation, or at a market trough, termed as an inverse head-and-shoulders or head-and-shoulders bottom formation. This pattern typically comprises three main parts: a left shoulder, a head, and a right shoulder, with a neckline connecting the high points of the shoulders. The completion of this formation is signaled by the price breaking below the neckline level.

hedge funds

Hedge funds are investment funds that operate with limited regulatory oversight. They involve high-net-worth investors and institutions pooling capital, overseen by a fund manager who diligently invests their own money. In addition to investing in various assets, hedge funds utilize strategies that mutual funds are restricted from, such as short selling, as outlined in their offering memorandum.

hedging

Hedging is a financial strategy used to reduce the risk of adverse price movements in an asset. It involves taking an offsetting position in a related security to minimize potential losses. Hedging is a protective measure taken by investors to manage risks effectively and safeguard their investments from market uncertainties.

high frequency trading (HFT)

High-frequency trading (HFT) is a specific form of algorithmic trading where a significant volume of orders are placed for small trades, executed at incredibly high speeds. This strategy aims to capitalize on small price discrepancies in the market and take advantage of fleeting opportunities, often leveraging sophisticated technologies and complex algorithms to make split-second decisions.

high-water mark

The high-water mark is a common term used in the financial industry, particularly in the compensation structure of hedge fund managers. It signifies the highest peak that the value of an investment fund has reached. The high-water mark is essential because it determines the benchmark level that must be exceeded for the fund manager to receive a performance fee based on the profits generated for the fund. This mechanism ensures that the manager is incentivized to prioritize the fund’s success and aligns the interests of the manager with those of the investors.

high-yield bond strategy

The high-yield bond strategy involves making investments in high-yield debt securities, commonly referred to as junk bonds, issued by companies that are perceived to have the potential for a credit upgrade or could be a target for a corporate takeover. This investment approach typically involves minimal or no leverage and is implemented by fund managers seeking to generate attractive returns by taking calculated risks in the high-yield bond market.

holding period return

Holding period return is a financial metric used to evaluate the performance of an investment over a specific period, considering all cash inflows and outflows, as well as changes in the value of the asset. This measurement can be calculated for time periods that are either shorter or longer than one year.

household account

A household account is a form of separately managed account designed to unify and manage investments across multiple accounts owned by family members or a single household. The main objective is to establish a single investment strategy or portfolio model that can be applied consistently across all accounts to streamline investment management and enhance efficiency.

hurdle rate

Hurdle rate refers to the minimum rate of return that should be achieved by a hedge fund before the fund manager becomes eligible to receive an incentive fee. It protects the interests of investors by ensuring that the fund manager is incentivized to deliver returns above a specified benchmark before being compensated.

hypothecate

Hypothecation is the practice of using securities as collateral to secure a loan. This process is also known as collateral assignment or ‘hypotec’ in Québec specifically when referring to segregated funds.

ICE NGX Canada

ICE NGX Canada is a prominent natural gas exchange based in Calgary, Alberta. The exchange offers electronic trading, central counterparty clearing, and data services to facilitate transactions in the North American natural gas and electricity markets.

incentive fee

An incentive fee is a compensation structure in finance that rewards the fund manager based on the performance of the investment fund. Typically, this fee is calculated after deducting management fees and expenses from the fund’s returns, rather than being based solely on the gross return achieved by the manager.

income splitting

Income splitting is a tax planning strategy that involves redistributing income from a higher-earning individual to a lower-earning individual, typically within a family unit, in order to reduce the overall tax liability by taking advantage of lower tax brackets and deductions available to the lower-earning individual.

Income Tax Act (ITA)

The Income Tax Act (ITA) is a key legislation in Canada that outlines the rules and regulations governing the assessment and collection of federal income tax. It is administered and enforced by the Canada Revenue Agency (CRA), which ensures compliance with the tax laws and regulations established in the ITA.

income trusts

Income trusts are a specific type of investment trust that focuses on holding investments in the operational assets of a company. The income generated from these assets is distributed to the trust, which then distributes it to the trust unitholders, providing them with a regular income stream. This investment structure allows investors to benefit from the income generated by the underlying assets without directly owning them.

index

An index is a statistical measure of changes in a securities market, representing a specific portion of the market as a whole. It is usually composed of a diversified basket of selected securities, such as stocks or bonds. Common examples include the S&P/TSX Composite Index and the S&P 500. Indexes are used by fund managers and investors as a benchmark to evaluate the performance of their investments, track market trends, and make informed investment decisions.

index fund

An index fund is a type of investment fund that aims to replicate the performance of a specific market index, such as the S&P/TSX Composite Index or the FTSE Canada Universe Bond Index. These funds are classified according to the asset class they mirror, making them a popular choice for investors seeking diversified exposure to a particular segment of the financial markets.

index-linked notes

Index-linked notes are a type of investment product that blends the stability of a deposit instrument with the profit potential of an equity investment. These notes have gained popularity, especially among risk-averse investors seeking capital protection while aiming for higher returns than those offered by traditional interest-bearing GICs or term deposits.

indexing

Indexing is a strategy in portfolio management where an investor constructs a portfolio that replicates the holdings of a specific benchmark index. The primary goal of indexing is to mirror the performance of the chosen index rather than trying to outperform it through active management.

individual variable insurance contract (IVIC)

An individual variable insurance contract (IVIC) is a financial product regulated under IVIC Guidelines, designed as a segregated fund contract. It provides investors with a unique investment opportunity to participate in market movements and potentially achieve returns based on the performance of underlying assets. IVICs offer flexibility and personalized options to investors, allowing them to tailor their investment strategy according to their risk tolerance and financial goals.

inflation

Inflation refers to the persistent increase in the general price level of goods and services in an economy over a period of time. It is typically measured as an annual percentage rate, indicating the decrease in the purchasing power of a currency. Inflation can have various causes, including an increase in the money supply, rising production costs, or strong consumer demand. Central banks closely monitor and aim to control inflation to maintain price stability and support sustainable economic growth.

inflation rate

Inflation rate refers to the percentage increase in the general price level of goods and services in an economy over a certain period, typically a year. It is a key indicator of the overall economic conditions and is measured through metrics like the Consumer Price Index (CPI). A higher inflation rate signifies a decrease in the purchasing power of a currency, leading to a rise in the cost of living for consumers.

inflation rate risk

Inflation rate risk refers to the possibility of the erosion of the value of financial assets and the purchasing power of income caused by the effects of inflation on the actual returns generated by these financial assets.

information circular

An information circular is a document that is distributed to shareholders along with a proxy statement. The purpose of an information circular is to provide comprehensive details and explanations regarding the various matters that are scheduled to be discussed and voted on during an upcoming shareholders’ meeting. It serves as a means of informing shareholders about key agenda items such as election of board members, approval of financial statements, and other significant corporate decisions, allowing them to make well-informed decisions and participate effectively in the governance of the company.

initial public offering (IPO)

An initial public offering (IPO) refers to the process through which a company offers its shares to the public for the first time to raise capital. IPOs are regulated by governmental authorities to ensure transparency and fairness in how the securities are issued and traded to investors.

initial sales charge

An initial sales charge is a commission paid to the financial advisor at the time when the policy is bought. It is also referred to as an acquisition fee or a front-end load. This fee is deducted upfront from the amount invested and impacts the overall return on investment.

in-kind exchange

An in-kind exchange refers to the procedure in which a portfolio consisting of multiple individual stocks is swapped for units of an Exchange-Traded Fund (ETF), instead of receiving cash in return. This method of exchange allows investors to transfer their stock holdings directly into an ETF without liquidating them, offering a tax-efficient and cost-effective means of portfolio diversification.

insider

Insiders refer to individuals such as directors, senior officers, and significant shareholders within a corporation, who are likely to have access to confidential, nonpublic information about the company. This privileged information can potentially impact the stock price if it were to be disclosed to the public. As a result, insiders are restricted from trading securities based on this material information to prevent unfair advantages in the market.

insider report

An insider report entails a comprehensive record of all buying and selling activities involving a company’s shares, conducted by individuals deemed as insiders of the company. These reports are periodically submitted, usually on a monthly basis, to securities commissions for regulatory purposes.

insider trading

Insider trading refers to the buying or selling of a company’s stock or other securities by individuals who possess non-public, material information concerning that security. This practice is illegal and unethical as it gives certain individuals an unfair advantage over other investors in the market.

instalment debentures

Instalment debentures refer to a type of bond or debenture where the principal amount is repaid in predetermined installments over a specified period, typically on an annual basis.

instalment receipts

Instalment receipts refer to a method of issuing new stocks where the buyers are required to pay the total issue price in a series of specified instalment payments instead of making a single lump sum payment. This allows investors to spread out their investment over time. Instalment receipts are also known as Partially Paid Shares.

institutional client

An institutional client refers to a legal entity that manages and represents the combined financial interests of a sizable group of individuals or organizations. This can include entities such as mutual funds, insurance companies, pension funds, and corporate treasuries, among others.

institutional firm

An institutional firm refers to an investment dealer that caters only to institutional clients such as large corporations, pension funds, and government entities. These firms provide a wide range of financial services and products tailored to meet the specific needs of institutional investors.

institutional investor

Institutional investors are organizations, including pension funds and mutual fund companies, that trade securities in substantial quantities or high dollar amounts. By nature, institutional investors have significant financial resources at their disposal and often engage in the buying and selling of securities on a large scale. Due to their size and financial stability, institutional investors contribute to market liquidity and play a crucial role in shaping financial markets.

institutional salesperson

An institutional salesperson primarily acts as a key point of contact and relationship manager, facilitating communications and transactions between an institutional dealer and their clients. They play a crucial role in maintaining strong connections and meeting the needs of institutional clients within the financial market.

institutional trader

An institutional trader is a professional who is responsible for executing trades either for clients as an agency trader or on behalf of the firm as a liability trader. They play a crucial role in the financial market ecosystem by facilitating the buying and selling of securities in an efficient and orderly manner.

insurable interest

Insurable interest refers to a financial stake or relationship that an individual holds in another person’s life or health. This interest is established when the individual derives a tangible benefit, whether financial or otherwise, from the well-being of the insured person. It is a fundamental concept in insurance, ensuring that the policyholder has a valid reason to insure the life or health of the insured individual.

intangible asset

An intangible asset is a type of asset that lacks physical presence and is not easily liquidated. Examples of intangible assets include goodwill, patents, franchises, and copyrights. These assets are valuable to a company because they represent intellectual property and other non-physical resources that can contribute to its long-term success and competitive advantage.

integrated firm

An integrated firm, also known as a full-service investment dealer, provides a wide range of financial products and services across various sectors of the industry. These services include active involvement in both the institutional and retail markets, offering comprehensive solutions to meet the diverse needs of investors.

inter-dealer broker

An inter-dealer broker is a financial intermediary that facilitates transactions between investment dealers. They play a crucial role in providing liquidity to the financial markets by bringing together buyers and sellers from the dealer community, enabling efficient price discovery and trade execution.

interest

Interest is the cost of borrowing money, typically expressed as a percentage of the principal loan amount. It is the compensation that a lender receives for allowing a borrower to use their funds, and it is a key component of the overall cost of borrowing.

interest coverage ratio

The interest coverage ratio is a financial metric used to evaluate a company’s capability to meet its interest obligations on outstanding debt. It indicates the number of times a company’s earnings before interest and taxes (EBIT) can cover its interest expenses. A higher interest coverage ratio suggests a stronger ability to fulfill interest payments, while a lower ratio may indicate potential financial risk.

interest rate

The interest rate refers to the percentage of the principal amount that a borrower has to pay in addition to the borrowed sum. It represents the cost of borrowing funds or the cost of credit. Typically, it is expressed as an annual percentage of the total loan amount.

interest rate risk

Interest rate risk refers to the potential for changes in interest rates to impact the value of an investor’s portfolio. Specifically, when interest rates fluctuate, the value of fixed-income securities held in the portfolio can be negatively influenced. For instance, a portfolio heavily invested in long-term bonds faces a high risk of substantial losses due to variations in interest rates.

International Financial Reporting Standards (IFRS)

International Financial Reporting Standards (IFRS) are a set of globally recognized accounting standards established to ensure the quality, transparency, and comparability of financial information provided by public companies. These standards are adopted by over 100 countries worldwide to promote consistency and facilitate decision-making for investors, regulators, and other stakeholders in the international financial markets.

interval funds

Interval funds are a specific type of mutual fund that offers investors the ability to buy back their shares at specified intervals, providing liquidity at predetermined times. They are also referred to as closed-end discretionary funds, distinguishing them from traditional open-end mutual funds.

in-the-money

A financial term used to describe the situation where the current market price of an underlying security is favorable in relation to the strike price of an option. For a call option, it is considered in-the-money when the strike price is lower than the current market price of the underlying asset. On the other hand, a put option is in-the-money when the strike price is higher than the current market price of the underlying asset. The in-the-money amount represents the intrinsic value of the option at a given point in time.

intrinsic value

The intrinsic value of a warrant or call option is the difference between the market price of a security and the exercise price of the warrant or call option. It is widely regarded as the theoretical value of a security, indicating what the security should be valued at in the market.

inventory

Inventory refers to the complete list of goods and materials held by a company for the purpose of resale, production, or repair. It is an essential component of a company’s assets and is reported on the statement of financial position, providing valuable insight into the value of goods available for sale or use in the regular course of business operations.

inventory turnover ratio

The inventory turnover ratio is a financial metric that is calculated by dividing the cost of goods sold by the average inventory in a given period. It indicates how many times a company’s inventory is sold and replaced over a specific time frame. This ratio can also be used to measure the efficiency of a company’s inventory management by showing how quickly inventory is sold. Additionally, it can be expressed in terms of days by dividing the ratio into 365, which shows the average number of days it takes for a company to sell and replace its inventory.

inverse ETF

An inverse Exchange-Traded Fund (ETF) is a type of ETF that aims to achieve the opposite of the performance of a specific index, typically on a daily basis, by using various financial instruments and derivatives. It is designed to provide a return that is the inverse or opposite of the underlying index it tracks, before accounting for fees and expenses. Investors often use inverse ETFs to profit from, or hedge against, downward movements in the market or a particular sector.

investment

Investment refers to the allocation of capital with the expectation of generating future income or profit. Investors commit money or other resources to financial instruments, assets, or projects, aiming to achieve long-term growth of capital.

investment advisor (IA)

An Investment Advisor (IA) is a professional who is licensed to buy and sell a wide variety of securities on behalf of clients. To practice legally, Investment Advisors must be registered with the securities commission in the province where they operate. The term specifically applies to individuals employed by Self-Regulatory Organization (SRO) member firms. Investment Advisors are also known as Registrants or Registered Representatives (RR).

investment banker

An individual or entity who is tasked with fostering relationships with corporations and the public in order to provide financial services related to corporate finance, public finance, and mergers and acquisitions.

investment boutique

An investment boutique refers to a small financial firm that caters to retail or institutional clients and focuses on specific market segments, such as stock and bond trading, dealing with unlisted stocks, engaging in arbitrage, managing portfolios, conducting targeted industry research, underwriting junior mines, oils, and industrials, distributing mutual funds, and selling tax-shelter investments.

investment company

An investment company is a corporation or trust that uses the funds it receives from investors to invest in a diversified portfolio of securities. These securities can include stocks, bonds, and other financial instruments. Investment companies provide individuals with an opportunity to invest in a professionally managed and diversified investment portfolio, offering potential benefits such as economies of scale, diversification, and professional investment management. See also Investment Fund for more information.

investment counsellor

An investment counsellor is a knowledgeable professional who provides guidance and recommendations on investment opportunities in securities to clients in exchange for a fee. Their role involves analyzing market trends, evaluating risk profiles, and developing personalized investment strategies tailored to their clients’ financial goals and preferences.

investment dealer

An individual or firm involved in the buying and selling of securities as either an agent or principal. Investment dealers are regulated members of the Investment Industry Regulatory Organization of Canada (IIROC). They facilitate transactions on behalf of clients and provide advisory services on financial products and market opportunities.

investment fund

An investment fund refers to a fund or company that raises capital by selling units or shares to investors, which is then utilized to create a diversified portfolio of securities. There are two main types of investment funds: closed-end and open-end (mutual funds). Closed-end investment companies offer shares that are tradable on the open market like regular stocks with fixed capitalization. On the other hand, open-end funds issue new shares directly to investors and redeem existing shares without being listed on exchanges. Open-end funds have a variable capitalization, meaning they can issue more shares or units based on investor demand.

Investment Industry Association of Canada (IIAC)

The Investment Industry Association of Canada (IIAC) is a prestigious professional organization composed of industry members who work collectively to advocate for the interests and needs of participants in the financial market. It serves as a leading voice in representing and promoting the industry’s standards, best practices, and regulatory requirements.

Investment Industry Regulatory Organization of Canada (IIROC)

The Investment Industry Regulatory Organization of Canada (IIROC) is the national self-regulatory body overseeing the Canadian investment industry. It is responsible for regulating dealer firms and their registered employees by establishing and enforcing rules related to their proficiency, business practices, and financial conduct. In addition, IIROC is also tasked with safeguarding market integrity by setting and enforcing rules governing trading activities on Canadian equity marketplaces.

investment policy statement

An investment policy statement is a formal document that outlines the investment goals and objectives of a client, as well as the guidelines and strategies that a portfolio manager must follow in managing the client’s investment portfolio. It serves as a blueprint for the investment decision-making process, providing a clear roadmap for the manager to align the client’s investments with their financial objectives and risk tolerance.

investment representative

An individual who holds a license to sell securities and facilitate investment transactions, however, they are restricted from providing personalized investment recommendations or advice to clients. Their primary role is to execute trades and handle administrative tasks related to investments.

investments in associates

Investments in associates refer to the equity interests held by one company in another, generally representing ownership of 20% or more of the voting rights. This level of ownership signifies significant influence over the investee company’s financial and operating policies, allowing the investor to have a say in strategic decision-making and potentially impacting its financial results. Such investments are reported in the investor’s financial statements using the equity method accounting, where the initial investment is recorded at cost and adjusted over time to reflect the investor’s share of the associate’s profits or losses.

investor

An individual or entity whose primary objective is to reduce risk exposure in financial activities. This differs from a speculator, who is willing to undertake calculated risks to potentially achieve above-average returns, and a gambler, who is willing to take on even higher levels of risk.

irrevocable beneficiary

An irrevocable beneficiary is a designated recipient of the benefits from a segregated fund contract whose rights to receive those benefits cannot be altered or revoked without their explicit consent. Once named, the irrevocable beneficiary cannot be removed or modified by the policyholder unless the beneficiary gives permission. This provides a level of security and assurance to the beneficiary, ensuring their entitlements remain protected and cannot be taken away without their approval.

irrevocable designation

Irrevocable designation refers to a legal arrangement in a contract, typically in a segregated fund contract, where the rights of the beneficiary cannot be revoked, terminated, or altered without their explicit consent. This ensures that the beneficiary maintains a guaranteed entitlement to the funds or assets specified in the contract, providing them with a secure and unchangeable position within the agreement.

issue

The term ‘issue’ refers to any type of financial instrument or security offered by a company to investors, such as stocks or bonds. It encompasses the process of making these securities available to the public, known as distribution. Issuing securities is a crucial aspect of corporate finance and allows companies to raise capital for various purposes, such as funding operations, expansion, or debt repayment.

issued shares

Issued shares refer to the portion of authorized shares that a corporation has sold to shareholders, who now possess ownership in the company. These shares have been distributed to investors and are no longer held by the corporation for future issuance. Issued shares represent the total number of shares that are in the hands of investors and are being traded on the open market.

junior bond issue

A junior bond issue refers to a type of corporate bond that is backed by collateral already promised to secure higher-priority debts. This means that in the event of default, holders of senior debt are entitled to repayment before holders of junior bonds. Junior bonds carry a higher level of risk compared to senior debt due to their lower priority in the repayment hierarchy.

junior debt

Junior debt refers to debt obligations that have a lower priority of repayment compared to other debt in case of default. It can include junior bond issues, which are debt securities with a lower claim on the assets and earnings of a company in the event of liquidation. Investors in junior debt are considered to be at higher risk of not receiving full repayment if the company faces financial distress.

Know Your Client rule (KYC)

The Know Your Client (KYC) rule is a fundamental principle governing the process of providing investment advice. It mandates that financial institutions and advisors must gather and understand all pertinent information about a client to recommend investments that align with their needs and risk tolerance, ensuring the suitability of the advice provided.

kurtosis

Kurtosis is a statistical measure that indicates the distribution of returns in relation to its peak or tails compared to a normal distribution. It quantifies the sharpness of the peak and the fatness of the tails of a return distribution. A higher kurtosis implies that the distribution has fatter tails and a sharper peak than a normal distribution, while a lower kurtosis indicates the opposite.

labour force

The labour force consists of individuals aged 15 years and older who are currently employed or actively seeking employment. This includes both employed individuals and those who are unemployed but are willing and able to work. The labour force is a key metric used in evaluating the economic health of a country and is crucial for understanding the dynamics of the workforce.

labour-sponsored venture capital corporations (LSVCC)

Labour-sponsored venture capital corporations (LSVCCs) are investment funds established by labour organizations with a primary objective of investing in small to medium-sized businesses. These corporations are designed to foster economic growth by providing financial support and expertise to emerging enterprises. To incentivize investment in LSVCCs and stimulate economic development, governments provide substantial tax credits to individuals who invest in these funds.

lagging indicators

Lagging indicators are statistical metrics that typically reflect peaks and troughs in the economic cycle after they have occurred. These indicators include data on business investments in new facilities, consumer credit usage, short-term business borrowing, as well as the total worth of manufacturing and trade inventories. They provide insights into past economic performance and are used to confirm trends rather than predict future economic conditions.

Large Value Transfer System (LVTS)

The Large Value Transfer System (LVTS) is an electronic payment system facilitated by Payments Canada. It enables the seamless transfer of significant amounts of funds between different participating financial institutions. This system plays a crucial role in facilitating the efficient and secure settlement of high-value transactions in the financial markets.

last price

The ’last price’ refers to the most recent price at which a particular stock was traded in the market. It signifies the most recent transaction completed for a particular stock before the current moment. It is an important indicator for investors as it reflects the most recent valuation of the stock and can impact future trading decisions. It is also sometimes referred to as the ‘closing price’ or ’latest price’. Compare with ‘Market Price’, which is the current price at which a stock is being bought or sold in the market.

leading indicators

Leading indicators are statistical data that typically foreshadow peaks and troughs in the business cycle before the economy as a whole. These indicators encompass various aspects such as employment levels, capital investments, business formations and closures, profits, stock market performance, inventory changes, housing construction initiations, and specific commodity prices.

LEAPS

LEAPS, also known as Long Term Equity Anticipation Securities, refer to long-term option contracts with an extended maturity period typically ranging from 2 to 3 years. These financial instruments provide investors with the opportunity to speculate on the future price movements of an underlying asset over an extended time horizon.

leverage

Leverage is a financial concept that measures the impact of fixed financial obligations, such as debt interest or preferred dividends, on the earnings per share of common stock. It showcases how changes in income before these fixed charges lead to magnified percentage changes in earnings per common share. Additionally, leverage can describe the strategy of aiming for amplified percentage returns on an investment by utilizing borrowed funds, margin accounts, or securities that necessitate payment of only a portion of the underlying security’s total value, like rights, warrants, or options.

leveraged ETF

A leveraged Exchange-Traded Fund (ETF) is a type of investment fund that aims to achieve a return that is a multiple of the performance of the underlying index it tracks on a daily basis. It uses financial derivatives and debt to amplify the potential returns of the fund, which also increases the level of risk for investors.

liabilities

Liabilities refer to financial obligations or debts that a company owes to external parties. Liabilities are typically classified into two main categories: current liabilities, which are debts due and payable within one year, and long-term liabilities, which are debts payable after one year. Liabilities are an essential category in the statement of financial position, reflecting the company’s financial responsibilities and claims against its assets by creditors.

liability traders

Liability traders are professionals who handle a dealer’s trading capital to optimize market operations and execute client orders efficiently. Their main objective is to minimize capital loss while encouraging market liquidity. They are distinguished from agency traders who have direct client obligations, as liability traders typically have fewer or no specific client-related duties and focus on managing the overall trading capital and market direction.

life cycle hypothesis

The life cycle hypothesis is a financial planning model that associates individual’s age with their investment strategies. According to this theory, an individual’s portfolio composition evolves over time as they advance in age. It suggests that younger individuals are more likely to invest in riskier assets while older individuals tend to opt for safer investments. It is important to note that the life cycle hypothesis should not be viewed as a replacement for applying the ‘know your client rule’ in investment practices.

life expectancy-adjusted withdrawal plan

A life expectancy-adjusted withdrawal plan is a financial strategy where withdrawals aim to exhaust the total investment by the plan’s conclusion, while maximizing income for the plan holder throughout their anticipated lifespan. Withdrawal amounts are recalculated regularly based on updated life expectancy values, ensuring that the plan remains aligned with the plan holder’s expected longevity. These recalculations rely on mortality tables to estimate life expectancies accurately.

limit order

A limit order is a directive from a client to execute a trade to buy or sell securities at a specified price or a better one. This type of order ensures that the transaction will only be completed if the market price reaches or surpasses the designated level. By setting a limit, investors aim to control the price at which they are willing to trade, potentially securing a more favorable deal.

limited liability

Limited liability refers to a legal structure in which the liability of shareholders in a company is restricted to the extent of their investment in the business, as indicated by the term ’limited’ in the company’s name. This means that shareholders are not personally responsible for the company’s debts and obligations beyond the amount they have invested. In contrast, sole proprietors and partners in a business bear unlimited personal legal responsibility for the company’s debts and obligations.

limited partnership

A limited partnership is a form of business structure where there are two types of partners: general partners who manage the business and have unlimited liability, and limited partners who invest in the business but do not engage in its daily operations. Limited partners’ liability is restricted to the amount they have invested in the partnership, shielding them from excessive financial risk beyond their initial contribution.

linked notes

Linked notes are a type of debt instrument that ensures the protection of the original investment amount and ties the return on the investment to the performance of an underlying asset, such as an index. This means that the investment’s profitability is directly linked to the movements of the chosen benchmark, providing an opportunity for potential gains based on the performance of the underlying asset.

liquid bond

Liquid bonds are fixed-income securities that are actively traded in the market with high trading volumes, allowing investors to buy or sell them quickly and efficiently without causing substantial impact on their prices.

liquidity

Liquidity refers to the ease and speed at which a particular security can be bought or sold in the market without significantly impacting its price. It also refers to a corporation’s financial health, specifically the comparison between its current assets and current liabilities, including its cash reserves.

liquidity preference theory

The liquidity preference theory is a fundamental principle in finance that aims to elucidate the relationship between the maturity of investments and interest rates. According to this theory, investors typically prefer short-term investments due to their aversion to risk, while borrowers generally seek long-term financing. As a result of this disparity in preferences, borrowers offering long-term investments must provide higher interest rates to attract investors. Consequently, the yield curve is expected to slope upwards, reflecting the higher interest rates associated with longer borrowing periods.

liquidity ratios

Liquidity ratios are financial metrics used to evaluate a company’s capacity to fulfill its immediate obligations with available assets. They provide insight into the company’s short-term financial health by comparing its current assets to current liabilities. For further analysis, refer to Current Ratio, a specific liquidity ratio.

liquidity risk

Liquidity risk is the possibility that an investor might encounter difficulties when attempting to execute trades of a particular security due to a lack of market participants willing to buy or sell that security within a reasonable timeframe. This potential constraint arises when there is a limited availability of opportunities to trade a security at its current market price.

listed stock

Listed stock refers to the shares of a company that have been accepted for trading on a public stock exchange. When a company’s stock is listed, it allows investors to buy and sell the stock through the exchange, providing liquidity and price transparency for the company’s shares.

listing agreement

A listing agreement is a formal contract between a company and a stock exchange which is issued when the company’s shares are approved for trading on the exchange. This document contains essential details about the company, including its business operations, management structure, assets, capitalization, and financial position.

load

Load refers to the sales charges applied to investors when purchasing shares of open-end investment companies, such as mutual funds. The load amount includes sales commissions and various distribution costs associated with selling the shares to investors. It is a crucial component of the offering price that investors need to consider when investing in mutual funds.

lock-up period

The lock-up period refers to a specific duration following the initial investment in a hedge fund during which investors are not allowed to withdraw their capital. This restriction is put in place by the hedge fund managers to maintain stability and ensure that investment strategies can be executed effectively without being disrupted by constant inflow and outflow of funds.

London Interbank Offered Rate (LIBOR)

The London Interbank Offered Rate (LIBOR) is a benchmark interest rate commonly used in financial markets worldwide. It represents the average interest rate at which large internationally reputable banks can borrow unsecured funds from other banks in the London interbank market. It is used as a reference rate for various financial products, such as loans, derivatives, and bonds.

long position

A long position indicates that an investor owns a specific quantity of securities, such as stocks. For example, the statement ‘I am long 100 BCE common’ indicates that the speaker possesses 100 common shares of BCE Inc. This ownership implies a positive outlook on the securities held and a belief that their value will increase over time.

long/short equity strategy

A long/short equity strategy is an investment approach where managers aim to select and purchase stocks they anticipate will outperform the market in a bullish market environment, while also selling short stocks they believe will underperform. In a bear market, this strategy relies on short positions declining more than the overall market, while the long positions are expected to experience smaller declines in comparison.

Long-Term Equity Anticipation Security

Long-Term Equity Anticipation Securities (LEAPS) are long-term option contracts with an extended maturity period typically ranging from 2 to 3 years. LEAPS allow investors to potentially benefit from price movements of underlying assets over an extended duration. These securities provide an opportunity for investors to hedge against market risks and tailor their investment strategies to meet long-term financial goals. They are also known for their flexibility and versatility compared to short-term options.

long-term bond

A long-term bond refers to a debt instrument issued by corporations or governments with a maturity period exceeding 10 years. It allows the issuer to borrow funds for an extended period while providing investors with fixed interest payments at regular intervals until the bond reaches maturity.

low load

Low load refers to a fee structure in investment funds that is akin to a back-end load, which charges investors a fee when they redeem their shares. However, in the case of low load, this fee schedule lasts for a shorter period, typically around three years.

macroeconomics

Macroeconomics is a branch of economics that examines the behavior and performance of an entire economy. It analyzes the overall economic indicators such as national income, unemployment, inflation, and economic growth. Macroeconomics also investigates the relationships between different economic factors, such as the utilization of limited natural resources, labor, skills, and technological advancements, and their impact on society and policy decisions.

major trend

The major trend refers to the overall direction of the price movement in a specific market, which persists despite temporary fluctuations such as declines or rallies. It represents the dominant trajectory of market movement over an extended period, providing essential insight for investors and analysts to determine the primary direction in which an asset is heading.

managed account

A managed account is a financial investment account in which a licensed portfolio manager has the authority to make investment decisions on behalf of the account holder. The portfolio manager has the discretion to select and manage investments based on the client’s investment objectives, risk tolerance, and financial situation, with the goal of achieving optimal investment performance.

managed product

A managed product refers to a collective investment scheme where pooled funds are used to purchase securities based on a predefined investment strategy. These funds are typically managed by an investment professional who receives a management fee for executing the investment strategy outlined in the mandate. In essence, it is a way for investors to delegate the management of their assets to a professional in exchange for a fee.

management expense ratio

The management expense ratio (MER) represents the total cost associated with operating a mutual fund, expressed as a percentage of the fund’s net asset value. It comprises the management fee along with other expenses incurred by the fund, including administrative, audit, and legal fees among others. Notably, brokerage fees are excluded from this calculation. The MER is a critical metric as published rates of return on the fund are typically provided net of the management expense ratio deduction.

management fee

The management fee is a charge imposed by the manager of a mutual fund or a segregated fund for overseeing the portfolio and conducting the operations of the fund. Typically expressed as a fixed percentage of the fund’s net asset value, the management fee compensates the manager for their investment expertise and ongoing management of the fund’s assets.

managers’ discussion and analysis (MD&A)

Managers’ Discussion and Analysis (MD&A) is a regulatory document mandating that the management of a company provides a narrative overview of the organization’s business performance and financial results. This analysis delves into the dynamics of the company’s operations, discusses key financial metrics, and provides insight into the financial condition and performance of the company. Emphasis is placed on aspects such as liquidity, capital resources, and major financial trends impacting the company’s results.

margin

Margin refers to the initial amount of money that a client deposits when borrowing funds to purchase a financial security. It represents the discrepancy between the market value of the security being acquired and the sum lent by an investment broker.

margin account

A margin account is a type of brokerage account that allows investors to buy or sell securities with borrowed funds. This means that the investor only needs to pay a portion of the total purchase price, while the remaining amount is provided as a loan by the investment dealer. Margin accounts enable investors to leverage their investments and potentially increase their returns. Additionally, margin accounts are necessary for executing short sales, where an investor sells borrowed securities with the expectation of buying them back at a lower price in the future.

Margin Account Agreement Form

A Margin Account Agreement Form is a contractual document that a client needs to fill out and sign to request the opening of a margin account with a brokerage firm. This form outlines the terms, conditions, and risks associated with trading on margin, providing a legal framework for the use of borrowed funds to trade securities.

margin call

A margin call is a demand for additional funds or securities from an investor who has purchased securities on margin or shorted securities. It occurs when the value of the securities in the investor’s account falls below a certain threshold, set by the brokerage firm. The purpose of a margin call is to protect the broker from potential losses by ensuring that the investor has enough collateral to cover the borrowed funds. The investor must then either deposit more funds into the account or sell some of the securities to meet the margin requirement.

marginal tax rate

The marginal tax rate refers to the percentage of tax that applies to the next unit of currency earned once an individual surpasses a specific income threshold. It represents the tax rate applied to each additional dollar of taxable income earned over a certain period.

market

A market refers to a platform or system that facilitates the buying and selling of goods and services, both directly between buyers and sellers or indirectly through intermediaries. It is a place where potential buyers and sellers come together to engage in transactions, with the aim of determining prices and allocating resources efficiently.

market economy

A market economy is an economic system in which the allocation of resources, including decisions on what to produce, how to produce, and for whom to produce, is primarily determined by the interactions of buyers and sellers through price mechanisms. These price mechanisms are influenced by supply and demand forces in the market, shaping the overall economic activities and outcomes.

MarketAxess

MarketAxess is a financial technology company that operates an electronic trading platform providing market data and facilitating trading of various fixed-income instruments, particularly corporate bonds. Through its platform, MarketAxess offers access to competitive pricing from multiple dealers, enhancing market efficiency. Furthermore, MarketAxess is a member of the Investment Industry Regulatory Organization of Canada (IIROC), ensuring compliance with relevant regulations and standards in the financial industry.

market capitalization

Market capitalization refers to the total monetary value of a publicly traded company’s outstanding shares in the stock market. It is calculated by multiplying the current market price per share by the total number of outstanding shares. Market capitalization is used by investors and analysts to evaluate a company’s size and value in the market.

market-linked guaranteed

A market-linked guaranteed (MLG) investment certificate is a financial product that offers investors the opportunity to earn returns based on the performance of an underlying market, such as a stock index, mutual fund, or exchange-traded fund (ETF), while also providing a guarantee of the principal investment. This means that investors can benefit from potential market growth while having the security of their initial investment amount being protected.

market maker

A market maker is an individual employed by a securities firm who plays a crucial role in maintaining liquidity in financial markets. Market makers are authorized and mandated by self-regulatory organizations (SROs) to facilitate trading by providing firm bid and ask prices for specific securities. Their primary responsibility is to ensure there is a ready market for the securities they cover, which contributes to the smooth functioning of the market.

market order

A market order is an instruction given by an investor to buy or sell a financial instrument, such as a stock or bond, at the prevailing market price. It is executed quickly and at the best available price at the time the order reaches the market. Market orders are typically used when certainty of execution is more important than the price at which the trade is executed.

market price

Market price refers to the most recent price at which a particular stock was traded. It is an essential indicator in assessing market activity and is often used by investors to make informed decisions about buying or selling stocks. Market price is also commonly referred to as the Last Price in financial markets.

market risk

Market risk refers to the risk that the value of investments, particularly equities, will decrease due to factors affecting the overall performance of the financial markets. It is considered to be a non-diversifiable risk as it is inherent to the market as a whole and cannot be eliminated through diversification.

market segmentation theory

The market segmentation theory pertains to the concept of the yield curve structure. This theory posits that the behavior of large financial institutions significantly influences the shape of the yield curve. Specifically, banks tend to favor short-term borrowing, whereas the insurance industry, which operates with a longer investment horizon, prefers to access long-term funds. Consequently, the collective supply and demand dynamics of these large institutions play a pivotal role in shaping the overall yield curve model.

marketability

Marketability refers to the degree of ease and efficiency with which a security can be bought and sold in the secondary market. A security is considered to have high marketability if there is a robust secondary market where it can be readily purchased or sold without causing significant price fluctuations. Marketability is important for investors as it impacts the liquidity and tradability of a security.

marketable bonds

Marketable bonds are debt securities that are highly liquid and easily tradable in the secondary market due to their attractive pricing and features, making them appealing to investors. These bonds have a ready market, where potential buyers are readily available, facilitating quick and efficient buying and selling transactions.

marking to market

Marking to market is a practice commonly used in futures markets where the value of an asset is adjusted to reflect the current market price. This adjustment ensures that parties experiencing losses pay the corresponding amount to parties making profits, based on the difference between the initially agreed-upon price and the current market value of the asset.

married put or a put hedge

A ‘married put’ or ‘put hedge’ refers to an investment strategy that involves buying a put option and its underlying asset simultaneously. This strategy allows investors to protect against potential losses in the value of the asset by having the right to sell it at a predetermined price (the strike price) before the option’s expiration date. By employing this strategy, investors can limit their downside risk while still benefiting from potential price appreciation of the underlying asset.

material change

A material change refers to a significant alteration in the circumstances or operations of a company that is anticipated to have a noteworthy impact on the market value of its securities. Material changes are crucial events that can influence investors’ decisions and trading activities.

material fact

A material fact refers to information that could influence an investor’s decision to buy, sell, or hold a security. Such information, if disclosed, is likely to have a significant impact on the market price of the security in question.

mature industry

A mature industry is characterized by slower and more stable growth rates in terms of both profit and revenue when compared to growth or emerging industries. Mature industries have already reached a stable phase of development with established competitors and products.

maturity

Maturity refers to the date when the principal amount of a loan, bond, or debenture becomes due and is required to be repaid in full. It is the endpoint of the term of the financial instrument, at which point the borrower or issuer is obligated to settle the outstanding balance.

maturity date

The maturity date refers to the date on which a financial contract ends, marking the conclusion of the agreement as well as the timeframe for any maturity guarantees associated with it. In the case of segregated fund contracts, the standard maturity period is typically 10 years, although companies have the flexibility to establish longer durations. Exceptions to the 10-year maturity period are allowed for certain types of funds like protected mutual funds, which fall under securities regulations and differ from segregated funds.

maturity guarantee

The maturity guarantee refers to the minimum dollar value that a contract will reach after a specified guarantee period, typically around 10 years. This guaranteed amount is also known as the annuity benefit, providing assurance to the contract holder regarding the minimum value of the investment at the end of the predetermined period.

maximum drawdown

Maximum drawdown is a measure used in finance to assess the largest peak-to-trough decline in the value of an investment or a portfolio over a specific time frame, typically expressed as a percentage. It indicates the maximum loss an investor would have experienced from the peak value to the lowest point before a new peak is attained.

medium-term bond

A medium-term bond refers to a fixed-income security with a maturity period typically ranging from 5 to 10 years. Investors who are looking for investments with a moderate level of risk and potential return often consider medium-term bonds. These bonds offer a balance between short-term and long-term bonds, providing investors with a predictable stream of income over a defined period while typically offering higher interest rates compared to short-term bonds. The characteristics of medium-term bonds make them appealing to investors seeking a blend of income and capital appreciation within a specific time frame.

merger strategy

A merger strategy involves investing in both long and short positions of the common stock of companies participating in an anticipated merger or acquisition. This typically includes taking a long position in the target company that is being acquired and a short position in the acquiring company. This strategy is also referred to as risk arbitrage strategy.

microeconomics

Microeconomics is a branch of economics that focuses on studying the economic interactions of individual consumers and firms within markets. It examines how prices are established through the supply and demand relationship, and how these prices influence decision-making in the production, distribution, and consumption of goods and services.

minimum investment exemption

The minimum investment exemption is a provision that allows certain investors to be exempted from the requirement of receiving a prospectus before making an investment, contingent upon meeting a specified minimum investment amount. In Canada, this exemption is regulated under NI 45-106, which sets the minimum investment threshold at $150,000 for investors across the country.

Modified Dietz method

The Modified Dietz method is a technique used for evaluating the performance of a fund, which simplifies the calculations compared to the daily valuation method. It makes an approximation by assuming a constant rate of return over the evaluation period, eliminating the necessity to assess the portfolio on each cash flow date. In this method, the impact of cash flows is considered by weighing each cash flow based on the duration it remains invested in the portfolio.

monetarists

Monetarists are proponents of an economic theory that asserts the significance of an economy’s money supply in influencing the levels of prices and economic output. According to this school of thought, managing the money supply plays a crucial role in driving economic prosperity, placing greater emphasis on its regulation over factors such as government spending. Monetarists are often juxtaposed with followers of Keynesian Policy in economic discourse.

monetary aggregates

Monetary aggregates are metrics used to quantify the amount of money held within an economy by individuals, businesses, and the government. These aggregates encompass different types of money or financial assets classified based on their liquidity levels, such as M1, M2, or M3.

monetary policy

Monetary policy refers to the actions taken by a country’s central bank to control and regulate the money supply and credit in the economy to achieve specific economic objectives. The primary goal of monetary policy is to stabilize prices, control inflation, and promote economic growth. Central banks, such as the Bank of Canada, implement monetary policy through various tools, such as setting interest rates, open market operations, and reserve requirements, to influence the overall economic conditions.

money market

The money market refers to a segment of the capital market where short-term financial instruments such as treasury bills, federal government securities, commercial paper, bankers’ acceptances, and other instruments with a maturity period of one year or less are actively traded. Additionally, longer-term securities can also be traded in the money market if their maturity term shortens to meet the specified criteria.

money purchase plan (MPP)

A money purchase plan (MPP) is a type of Registered Pension Plan where a fixed amount is contributed regularly by the employer and/or employee, with the ultimate pension benefit depending on the total contributions and the investment performance of the plan. The pension amount is not predetermined and may vary based on the investment returns. Money purchase plans are also referred to as defined contribution plans.

Montréal Exchange (ME)

The Montréal Exchange (ME), also known as the Bourse de Montréal, refers to a financial marketplace where various types of financial instruments such as stocks, options, and futures are traded. It serves as a vital platform for investors and traders to buy and sell these securities under regulated conditions. The exchange plays a key role in facilitating price discovery, risk management, and liquidity provision in the Canadian financial markets.

mortgage

A mortgage is a legal agreement in which a borrower pledges real property as collateral to secure a loan. It is a financial instrument that facilitates the purchase of a home or property by providing the lender with a security interest in the property until the loan is repaid in full, including interest and other fees. In the event of default, the lender has the right to foreclose on the property to recover the outstanding balance of the loan.

mortgage-backed securities

Mortgage-backed securities are financial instruments representing ownership interests in a pool of mortgages. They are commonly referred to as mortgage pass-through securities. These securities enable investors to receive a portion of the monthly interest and principal payments made by borrowers on the underlying mortgage loans. An intermediary, known as a servicing agent, collects these payments from the mortgage borrowers, deducts a fee, and then distributes the remaining cash flows to the holders of the securities. Mortgage-backed securities play a pivotal role in enhancing liquidity in the housing market by creating a platform for investment in what would otherwise be illiquid mortgages.

mortgage bond

A mortgage bond refers to a type of bond that is secured by a mortgage on the property of the issuer. Investors who purchase mortgage bonds are essentially lending money to the issuer with the property serving as collateral. In the event of default, the investors have a claim on the property. Mortgage bonds are also known as mortgage pass-through securities and are closely related to Mortgage-Backed Securities (MBS), which are securities backed by pools of mortgages.

moving average

A moving average is a statistical indicator used in financial analysis to smooth out price trends by calculating the average of the underlying security’s closing prices over a specific time frame. This calculation helps to reduce the impact of short-term fluctuations and highlights the overall direction of the price movement. By applying a moving average, traders and investors can better identify patterns, trends, and potential reversals in the financial markets.

multi-disciplinary accounts

Multi-disciplinary accounts are fee-based investment accounts that represent an advancement from separately managed accounts. In multi-disciplinary accounts, distinct investment models are amalgamated into a unified portfolio model held within a single account, offering investors a more diversified and integrated approach to managing their assets across various investment strategies.

multi-manager accounts

Multi-manager accounts are fee-based investment accounts that provide clients and their advisors with a wider range of options in terms of products and services. In these accounts, clients are typically allocated across two or more portfolio models, with each model forming a part of the client’s overall diversified investment portfolio.

multiple

A commonly used term in finance to refer to the price-to-earnings ratio (P/E ratio), which is a metric used to evaluate the valuation of a company’s common shares in relation to its earnings per share. The multiple indicates how much investors are willing to pay per unit of the company’s earnings and is often used to assess the attractiveness of an investment opportunity.

mutual fund

A mutual fund is an investment vehicle managed by a company that pools money from investors to invest in a diversified portfolio of stocks, bonds, derivatives, and other financial instruments. These funds provide investors with the benefits of diversification and professional management. Mutual funds can be sold with sales charges (load) or without (no load). Investors can redeem their shares or units at any time at the current net asset value per share (NAVPS) of the fund.

Mutual Fund Dealers Association (MFDA)

A Self-Regulatory Organization (SRO) responsible for overseeing and regulating the distribution activities, specifically the dealer side, of the mutual fund industry in Canada.

Mutual Fund Dealers Association

The Mutual Fund Dealers Association (MFDA) is an organization that ensures investor protection by providing compensation to eligible customers in case a member firm becomes insolvent. The MFDA plays a crucial role in safeguarding the interests of investors by establishing and enforcing rules and regulations for mutual fund dealers.

mutual fund wraps

Mutual fund wraps are investment structures that consist of a selection of individual funds managed within a client’s account. This differs from funds of funds where the client directly holds the individual funds in their account instead of investing in a fund that further invests in other funds. Typically, a separate account is created for the client specifically for holding the chosen funds.

naked call

In options trading, a naked call refers to a situation where the seller of a call option does not hold any position in the underlying asset or any related security that could serve as a backup in case the call option is exercised. This strategy exposes the seller to potentially unlimited losses if the price of the underlying asset rises significantly.

naked writer

In options trading, a naked writer refers to a party who sells an options contract without possessing a corresponding position in the underlying asset or a suitable hedge to mitigate the risk associated with the potential obligation.

NASDAQ

NASDAQ stands for the National Association of Securities Dealers Automated Quotation System. It is an electronic marketplace where stocks are bought and sold over-the-counter (OTC). NASDAQ provides a platform for brokers and dealers to access real-time price quotations for securities, allowing for efficient trading outside of traditional stock exchanges.

national debt

The national debt represents the total amount of money that a government has borrowed and not yet repaid. It is the accumulation of deficits (shortfalls when expenses exceed revenue) and surpluses (excess when revenue exceeds expenses) over time. When a government runs a deficit, it borrows money by issuing debt securities to finance its activities. The national debt is a key indicator of a country’s financial health and its ability to meet its debt obligations.

national policies

National policies refer to regulations and principles established by the Canadian Securities Administrators (CSA) that are designed to be uniformly applied throughout Canada. These policies are part of a collective initiative by the CSA aimed at establishing a cohesive framework for securities regulation at the national level. Interested parties can access copies of these policies from their respective provincial regulatory authorities.

National Do Not Call List (DNCL)

The National Do Not Call List (DNCL) is a regulatory measure implemented by the Canadian Radio-television and Telecommunications Commission (CRTC) to govern the practices of telemarketers and organizations employing them. The DNCL Rules mandate that telemarketers and their clients are forbidden from contacting phone numbers listed on the DNCL for over 31 days. This initiative aims to protect consumer privacy and reduce unwanted telemarketing calls.

National Instrument 81-101

National Instrument 81-101 is a regulatory framework that focuses on the disclosure of information related to mutual funds through their prospectuses and Fund Facts documents. It is designed to provide guidelines and requirements for the distribution and advertising practices of mutual funds. This legislation works in tandem with its companion policy to ensure transparent and accurate reporting within the mutual fund industry.

National Registration Database (NRD)

The National Registration Database (NRD) is an online system designed to facilitate the electronic submission of registration applications by mutual fund salespersons and investment advisors. It streamlines the registration process by allowing individuals in the financial industry to submit their applications digitally, which enhances efficiency and accuracy in the registration process.

natural unemployment rate

The natural unemployment rate, also known as the full employment unemployment rate, refers to the level of unemployment that exists when the economy is operating at its potential output or capacity. It is the level of unemployment that occurs when the economy is in equilibrium, with no cyclical or temporary fluctuations in employment. This rate is considered the baseline level of unemployment that is consistent with a stable inflation rate and does not impact long-term economic growth.

neckline

The neckline refers to the line connecting the two recovery points within a head-and-shoulders formation in technical analysis. A breach of the neckline, whether through a downward or upward breakout, coupled with a surge in trading volume, is often regarded as a confirmation of a shift in market trend direction.

negative pledge provision

A negative pledge provision is a safeguard included in the trust agreement of a company’s debenture offering. It specifies that the company cannot secure any assets or properties in favor of another bond issue unless the existing debenture holders are equally protected. This provision aims to ensure that the rights and interests of the current debenture holders are not disadvantaged by any future secured borrowings of the company.

negotiable bond

A negotiable bond refers to a type of bond certificate that can be transferred by simply delivering it to another party. In the case of a registered certificate, the transfer process involves proper endorsement and guaranteeing to ensure legal validity and ownership rights.

negotiated offer

A negotiated offer refers to a financing arrangement where an investment dealer engages in discussions with a corporation regarding the issuance of securities. The negotiation process involves determining various details such as the specific type of security to be issued, pricing considerations, coupon or dividend rates, as well as any special features and protective provisions that may be included in the offering.

NEO Exchange

The NEO Exchange is a platform that offers services for companies looking to list their securities and supports the trading of securities listed on the NEO Exchange, the Toronto Stock Exchange (TSX), and the TSX Venture Exchange.

net asset value

Net Asset Value (NAV) in the context of a mutual fund indicates the per-share market value of the fund. It is derived by subtracting the total liabilities from the total assets of the fund. NAV is usually computed at the end of each trading day to determine the value of individual shares. It is also known as the book value, representing the worth of a company’s various classes of securities.

net asset value per share

Net Asset Value (NAV) per share is a metric used in the mutual fund industry to evaluate the market value of a fund’s shares on a per-unit basis. It is computed by subtracting the total liabilities from the total assets of a fund and then dividing this sum by the total number of outstanding units. NAV per share reflects the value that investors would receive for each unit held in the mutual fund if it were to be liquidated, providing insight into the fund’s underlying financial health and performance.

net change

Net change refers to the difference in the price of a security between the closing price at the end of one trading day and the closing price at the end of the following trading day. When calculating the net change, factors such as dividends and stock splits are excluded to provide a clear view of the actual price movement of the security. For example, if a stock is trading at $100 one day before a two-for-one stock split and then trades at $50 the next day, the net change is considered zero. This information is typically displayed as the final figure in a stock price list. Notably, a notation like +1.10 indicates an increase of $1.10 per share compared to the last traded price from the previous trading day.

net current assets

Net current assets refer to the total current assets of a company minus its total current liabilities. It shows how much an entity’s short-term assets exceed its short-term obligations and is a key indicator of its liquidity position. Net current assets can be calculated using the formula: Net Current Assets = Total Current Assets - Total Current Liabilities.

net profit margin

Net profit margin is a financial metric used to measure a company’s profitability by evaluating how effectively the management is running the company after considering all expenses, including taxes. It is calculated by dividing net profit by total revenue and is expressed as a percentage, reflecting the amount of profit generated from each dollar of revenue.

New Account Application Form (NAAF)

The New Account Application Form (NAAF) is a vital document that is completed by both the client and the Investment Advisor (IA) during the account opening process. It serves as a comprehensive record of necessary information that aids in making appropriate investment recommendations. The NAAF must be fully filled out and authorized before any trading activities can be initiated on the account.

new issue

A new issue refers to the initial offering of stocks or bonds by a company to the public. The purpose of a new issue is to raise capital, which can be utilized for various corporate activities such as retiring existing securities, acquiring new fixed assets, or increasing working capital. In addition to company offerings, new debt issues are also commonly issued by government entities for financing government projects or initiatives.

New York Stock Exchange (NYSE)

The New York Stock Exchange (NYSE) is the oldest and largest stock exchange in North America. It facilitates the trading of a wide range of securities such as stocks, bonds, and exchange-traded funds. The NYSE lists over 1,600 companies, making it one of the most renowned and established stock exchanges globally.

NEX

NEX is a distinct board of the TSX Venture Exchange established for companies that no longer meet the listing requirements of the main exchange due to factors such as low business activity or inactivity. Companies with minimal business operations or not actively conducting business are shifted to the NEX board for trading, whereas companies engaged in active business activities continue to be listed on the primary TSX Venture Exchange.

Nodal Exchange

Nodal Exchange is a specialized derivatives exchange that offers a range of contract products catering to participants operating in the energy markets of North America. These contracts are designed to facilitate risk management and price discovery for entities involved in trading energy commodities.

no-load fund

A no-load fund is a type of mutual fund that does not charge any fees when investors buy or sell shares, making it an attractive option for investors looking to avoid extra costs associated with traditional funds. By eliminating these front-end or back-end fees, investors can invest their full amount without any deductions, which can potentially lead to higher returns in the long run.

no par value (n.p.v.)

No par value (n.p.v.) refers to a type of common stock that does not have a predetermined face value assigned to it. This means that the stock does not have a minimum price at which it can be issued or traded. Instead, its value is determined by the market forces of supply and demand, and the intrinsic value of the company issuing the stock.

nominal gross domestic product

Nominal gross domestic product is the total value of goods and services produced in a country during a specific period, calculated without adjusting for inflation. It is sometimes known as current dollar GDP or chained dollar GDP, as it reflects the values based on prices at the time of production, without considering inflationary effects.

nominal interest rate

The nominal interest rate represents the pre-inflation rate of return on an investment or the cost of borrowing money. It is the rate that is specified by a financial institution or lender before considering the impact of inflation. The nominal interest rate provides a basis for comparing different financial products or investments, but it does not provide an accurate picture of the real purchasing power or true return on investment due to inflationary effects.

nominal rate

The nominal rate, also known as the quoted or stated rate, refers to the rate before adjusting for factors such as compounding, inflation, or fees. It is the initial interest rate specified in a financial product or contract, providing a base reference for further calculations and comparisons.

nominee

A nominee refers to an individual or entity, such as a bank, investment dealer, or central securities depository (CDS), in whose name securities are held or registered. Despite the securities being registered under the nominee’s name, the actual ownership and rights pertaining to the securities remain with the shareholder who has entrusted the nominee with holding the securities on their behalf.

non-callable preferred

Non-callable preferred shares refer to a type of preferred shares that contain a provision preventing the issuer from redeeming them before a specified date. This feature provides stability and security to investors, as it ensures that the shares will remain outstanding and continue to pay dividends for a certain period of time, typically until the maturity date.

non-client and professional orders

Non-client and professional orders are orders placed by individuals such as partners, directors, officers, major shareholders, investment advisors, and employees of member firms. These orders must be designated as either “PRO”, “N-C”, or “Emp” to indicate that they are not from external clients. This marking system is put in place to prioritize client orders for the same securities over orders placed by individuals within the firm.

non-competitive tender

Non-competitive tender is a distribution method commonly employed by institutions like the Bank of Canada for issuing Government of Canada marketable bonds. Under this method, primary distributors have the option to request bonds at the average price determined by the accepted competitive tenders. It is important to note that there is no assurance of receiving any specific amount of bonds in response to this request.

non-controlling interest

Non-controlling interest refers to the equity held by shareholders who lack a controlling stake in a company. In consolidated financial statements, it represents the share of a subsidiary’s assets or earnings attributed to its minority shareholders, which are not owned by the parent company. This ownership structure implies that the parent company holds less than 50% of the subsidiary’s voting rights and is not the ultimate decision-maker in the subsidiary’s operations.

non-cumulative

Non-cumulative refers to a type of preferred dividend that does not accrue or accumulate if it is not paid during a specific period. Unlike cumulative dividends, which carry forward any unpaid amounts to future periods, non-cumulative dividends do not have this provision, and any missed payments are not obligated to be paid in the future.

non-current assets

Non-current assets are long-term investments that a company does not expect to sell or convert into cash within a year. These assets typically include property, plant, and equipment, and are essential for the company’s operations and long-term growth.

non-current liabilities

Non-current liabilities represent the obligations of a company that are not expected to be settled within the next accounting year. These liabilities typically encompass long-term financial obligations such as long-term loans, bonds, and deferred tax liabilities. They are crucial indicators of a company’s long-term financial health and solvency.

non-systematic risk

Non-systematic risk, also referred to as specific risk, pertains to the variability in the price of an individual security or a particular set of securities that arises from factors specific to that company, industry, or asset. This risk is distinct from systematic risk and represents the fluctuations in price that are unique to the particular investment and may not be correlated with the overall market movements.

notional units

Notional units are hypothetical units that represent an underlying asset, value, or quantity. They do not have a physical existence but are used for calculation and reference purposes in financial contexts, such as derivatives trading. Notional units help in assessing the potential risk and return associated with the underlying asset or investment, providing a theoretical basis for financial transactions and analysis.

odd lot

An odd lot refers to a quantity of shares that is lower than the standard trading unit. In the context of securities trading, an odd lot usually involves trading less than 100 shares, which can also be referred to as a broken lot. Engaging in transactions involving less than 100 shares may result in a higher commission per share being charged.

of record

Refers to the status of an individual or entity whose name is officially listed in a company’s register of shareholders or investors at a specific date. For instance, when a company declares a dividend payment to be made on January 15 to shareholders of record, it means that only individuals or entities whose names are recorded in the company’s official documentation on that particular date will receive the dividend payment.

offer

The term ‘offer’ refers to the minimum price at which a seller is willing to sell a financial asset. This is distinct from the concept of ‘bid,’ which represents the maximum price that a buyer is willing to pay for the asset.

offering memorandum

An offering memorandum is a document created by the dealer responsible for a new securities issue. It provides an overview of key aspects of the offering, excluding the price and other specific details. It serves as a preliminary marketing tool to evaluate market interest in the offering and to solicit expressions of interest from potential investors.

offering memorandum exemption

The offering memorandum exemption is a provision that allows a fund to be distributed without the need for a comprehensive document known as a prospectus, which typically provides detailed information about the investment offering to potential investors, thus streamlining the distribution process for the fund.

offering price

The offering price refers to the cost at which an investor acquires shares in a mutual fund. It encompasses the purchase price along with any applicable charges or loads imposed at the time of acquisition.

offsetting transaction

An offsetting transaction in the context of futures or options refers to a trade that is executed to neutralize or close out an existing long or short position in the market. It involves taking an opposite position to the original one, hence canceling out the initial position and effectively exiting the market.

Office of the Superintendent of Financial Institutions (OSFI)

The Office of the Superintendent of Financial Institutions (OSFI) is a federal regulatory agency responsible for overseeing and regulating insurance companies and their segregated funds. Its primary objective is to monitor and enforce financial stability within these companies to ensure they have adequate financial resources to meet their obligations to policyholders.

officers

Individuals holding key positions within a corporation, entrusted with the management and decision-making responsibilities essential for the smooth functioning and strategic direction of the business on a daily basis.

Old Age Security (OAS)

Old Age Security (OAS) refers to a social welfare program implemented by the government of Canada that provides a pension income to individuals aged 65 and older who are Canadian citizens or legal residents. The program aims to support seniors financially during retirement, helping them meet their basic needs and maintain a certain standard of living.

Ombudsman for Banking Services and Investments (OBSI)

The Ombudsman for Banking Services and Investments (OBSI) is a neutral and independent body that is responsible for conducting formal investigations into complaints lodged by customers against financial services providers. OBSI serves as a regulatory watchdog, ensuring fair treatment and compliance with industry standards by financial institutions. It plays a crucial role in promoting transparency, accountability, and maintaining trust between consumers and financial service providers.

stop buy order

A stop buy order, also referred to as an on-stop buy order, is a type of trading order that involves purchasing a stock at a specified price level or higher. This order is typically placed to protect against losses in a short position as the stock’s price increases, or to secure the purchase of a stock during a price uptrend.

on-stop orders

On-stop orders are instructions given by investors to buy or sell a stock when it reaches a predetermined price level. There are different types of on-stop orders, including on-stop buy orders, on-stop sell orders, stop buy orders, and stop loss orders, which help investors manage their investments and execute trades automatically when specific conditions are met.

on-stop sell order

A non-stop sell order, commonly referred to as a stop loss order, is a specific type of order linked to a sell order, where the set limit price is lower than the current market price. When the stock’s price falls to the predetermined level, this order is activated. The primary objective is to minimize potential losses or safeguard a portion of the unrealized gains in the event of a decline in the stock’s price.

origination

Origination is the critical process of initiating, structuring, and facilitating new debt issues to be introduced and traded in the financial market. It involves the detailed activities of assessing creditworthiness, determining terms and conditions, and securing necessary documentation to enable the issuance of debt securities.

open-end fund

An open-end fund, also known as a mutual fund, is a type of investment fund that continuously issues and redeems shares based on investor demand. It pools money from many investors to invest in a diversified portfolio of securities such as stocks, bonds, or other assets. The fund’s value is calculated based on the net asset value (NAV) which is determined at the end of each trading day. Open-end funds are actively managed by professional portfolio managers to achieve specific investment objectives.

pen-end trust

A pen-end trust is a prevalent structure used for mutual funds. It is an unincorporated open-end trust that enables the trust to circumvent taxation by distributing capital gains and income, after deducting fees and expenses, to the unit holders.

open interest

Open interest refers to the total number of options contracts that have not been settled or closed by offsetting positions for a specific option series. When a new contract is opened, it increases the open interest, whereas closing a position reduces it. Monitoring open interest can provide insights into the liquidity or activity levels of a particular option class.

open market operations

Open market operations are the monetary policy tools used by the Bank of Canada to influence short-term interest rates by buying or selling government securities on the open market with commercial banks and other financial institutions. These transactions affect the level of reserves that commercial banks hold, which in turn impacts the supply of money in the economy, ultimately influencing interest rates and overall economic activity.

opening transaction

An opening transaction in options trading is the first trade of a particular options contract. It initiates a position for the buyer (holder) or seller (writer) of the option. The buyer acquires rights related to the option, while the seller incurs corresponding obligations. The terms of the option such as price, expiration date, and type are determined during the opening transaction. It is essentially the first step in establishing a position in the options market. Refer to Closing Transaction for the opposite transaction that terminates these rights or obligations.

operating band

The operating band refers to a range of 50 basis points determined by the Bank of Canada for the overnight lending rate. Within this band, the top rate, known as the Bank Rate, is the interest rate at which the Bank lends funds to financial institutions through the Large-Value Transfer System (LVTS). Conversely, the bottom rate in the band represents the interest rate paid by the Bank on any balances that financial institutions hold overnight in the LVTS. The midpoint of the operating band serves as the target rate for the overnight rate, guiding the Bank’s monetary policy actions.

operating income

Operating income represents the profit a company generates from its core business activities, excluding any income from secondary sources such as investments or asset sales. It is a key financial metric that indicates the efficiency of a company’s operations and reflects its ability to generate profits before taking into account interest and taxes.

operating performance ratios

Operating performance ratios are financial metrics that provide insight into how efficiently a company is utilizing its resources to generate profits. These ratios help investors and analysts evaluate the effectiveness of a company’s management in efficiently operating the business. By comparing various operating performance ratios, stakeholders can assess the overall operational efficiency and profitability of a company.

operational risk

Operational risk refers to the risk of loss resulting from inadequate or failed internal processes, systems, people, and external events. This includes potential system failures, errors in settlement processes, inaccurate reporting, and faulty accounting procedures. Operational risk is commonly associated with small, newly established businesses such as alternative strategy funds.

option

An option is a financial contract that gives the holder the right, but not the obligation, to buy or sell a specific asset, such as securities or properties, at a predetermined price within a set period. There are two main types of options: call options, which allow the holder to buy the asset, and put options, which allow the holder to sell the asset.

option premium

Option premium is the price paid by the buyer to the seller or writer of the option contract. It is the cost associated with obtaining the rights provided by the option, such as the right to buy or sell an underlying asset at a specified price within a specific timeframe.

option writer

An option writer refers to an individual or entity that sells options. When an investor writes an option, they are agreeing to be potentially obliged to buy (if a put option writer) or sell (if a call option writer) the underlying asset at a specified price (strike price), should the option holder decide to exercise the option.

order flow

Order flow refers to the process of orders being transmitted from investors to brokers or dealers, indicating the total number and size of trades involving equity securities that are presented to a dealer’s trading team by institutional clients. It provides valuable information on the buying and selling activities in the market, influencing pricing and market dynamics.

oscillator

An oscillator is a technical analysis tool utilized to analyze stock price movements in cases where the chart does not exhibit a clear trend. Oscillators measure the momentum and strength of price movements within a specified timeframe. When an oscillator reading reaches an extreme level in either the upper or lower band, it implies that the current price movement may be overextended and at risk of reversal. This signal can suggest potential opportunities for buying or selling based on the premise that price trends tend to revert to the mean after reaching such extreme levels.

out-of-the-money

An option is considered out-of-the-money when its strike price is not favorable for immediate exercise. In the case of a call option, it means the market price of the underlying security is lower than the option’s strike price. Conversely, for a put option, it indicates that the market price of the underlying asset is higher than the option’s strike price, making it less attractive for exercise at present.

output gap

The output gap refers to the difference between the actual level of production in an economy and its potential total output, assuming that all available resources such as capital and labor are fully utilized. It is a key indicator used in macroeconomics to assess the current state of the economy relative to its maximum capacity, helping policymakers make informed decisions about economic policies.

outstanding shares

Outstanding shares refer to the total number of shares that a company has issued and are currently held by investors, excluding shares that have been repurchased by the company. These shares are actively traded on the stock exchange and represent the ownership stake in the company.

over-allotment option

An over-allotment option, also known as a greenshoe option, is a technique utilized by underwriters to support the market price of a newly issued security. If the market price rises above the initial offering price, underwriters have the ability to stabilize the price by exercising the over-allotment option. This can be achieved by either increasing demand to cover a short position or increasing the supply of securities. In essence, the over-allotment option helps maintain stability in the market price by allowing underwriters to intervene as needed.

overcontribution

Overcontribution refers to the act of contributing an amount that surpasses the allowed annual limit to a Registered Retirement Savings Plan (RRSP). When an individual makes an overcontribution exceeding $2,000, they are subject to a penalty rate of 1% per month on the excess amount.

overlay manager

An overlay manager collaborates with financial advisors to support client service. This collaboration involves a partnership where the advisor maintains control over the client’s assets. The overlay manager’s role is to enhance the services provided by the advisor, leveraging the established trust and relationship that the client has developed with the advisor.

over-the-counter (OTC)

The over-the-counter (OTC) market is a decentralized market for securities, where trading is conducted directly between parties without the need for a central exchange. This market primarily consists of securities dealers who may operate independently or as members of a formal stock exchange. Transactions in the OTC market are commonly facilitated through telecommunications technologies, such as telephones and electronic trading platforms. The OTC market is also known as the unlisted market, inter-dealer market, or street market. NASDAQ is a prominent example of an over-the-counter market.

overnight rate

The overnight rate refers to the interest rate at which banks lend to and borrow from each other in the overnight market. It plays a crucial role in monetary policy implementation and influences the overall supply of money in the economy.

overnight repo

An financial transaction in which the Bank of Canada procures securities from financial institutions with the commitment to resell them the next business day at a previously agreed-upon price. This type of transaction is also referred to as a special purchase and resale agreement (SRA).

overnight reverse repo

An overnight reverse repurchase agreement is a financial transaction facilitated by the Bank of Canada in which the central bank sells securities to financial institutions with a commitment to repurchase them on the next business day at a pre-agreed amount. This arrangement is also referred to as a sale and repurchase agreement or SRA in financial markets.

paper profit

A paper profit refers to the unrealized gain on a security that is still being held by an investor. It represents the difference between the current market value of the security and its original purchase price. Paper profits only become realized profits when the security is sold. On the other hand, a paper loss refers to an unrealized decrease in the value of a security compared to its original purchase price.

par value

Par value is the nominal value assigned to a bond or stock as per the company’s charter, typically stated as a specific dollar amount per share. The par value of common stock does not necessarily reflect its current market value, leading to the increasing prevalence of no-par-value stocks. In the case of preferred stock, par value holds importance as it signifies the assets’ dollar value that each preferred share would claim in the event of the company’s liquidation.

pari passu

Pari passu is a legal concept indicating that securities in the same category share equal rights to claim on a company’s earnings and assets. It commonly pertains to preferred shares issued by a company, signifying that all shares within the series have the same level of priority and rank when it comes to receiving payments or distributions.

participating preferred

Participating preferred shares are a type of preferred shares that entitle their holders to receive a fixed dividend payment before any dividends are paid to common shareholders. In addition to this fixed dividend, participating preferred shares also have the right to receive additional dividends in proportion to the common shares after the common shareholders have received their designated dividends. Moreover, in the event of the company’s liquidation, participating preferred shareholders have the right to receive their par value as well as a share of any remaining assets after the common shareholders have been paid in full.

participation rate

The participation rate refers to the proportion of the working-age population, typically individuals aged 15 and older, who are either actively employed or actively seeking employment. In financial terms, the participation rate can also represent the ceiling on the yield that an issuer is willing to pay to an investor, also known as the participation rate.

partnership

A partnership is a type of business structure where two or more individuals come together to carry on a trade or business. This business structure is governed by specific legal regulations outlined in the federal Partnership Act. Each partner contributes resources such as money, skills, or assets to the partnership, and in return, they share in the profits, losses, and liabilities of the business.

passive investment strategy

A passive investment strategy is a strategy where an investor or manager aims to match the performance of a particular market index rather than outperform it. Instead of actively buying and selling securities to beat the market, passive investors typically invest in a diversified portfolio mirroring the composition of the chosen index. This approach aims to minimize costs and risks associated with frequent trading, offering a more stable and long-term focused investment option.

passive management

Passive management refers to an investment strategy where fund managers do not actively choose which securities to buy or sell. Instead, they aim to replicate the performance of a specific market index or asset class. This approach is based on the belief that markets are generally efficient and that over the long term, it is difficult to outperform the broader market consistently. Therefore, passive managers primarily focus on capturing the systematic or market risk associated with a particular asset class rather than trying to outperform it through active decision-making.

past service pension adjustment (PSPA)

A Past Service Pension Adjustment (PSPA) refers to when an employer decides to augment a member’s pension in a defined benefit plan by providing extra benefits for service rendered in previous years. This adjustment can impact the Registered Retirement Savings Plan (RRSP) contribution room of the plan members, leading to a reduction in the available contribution space equal to the amount of the past service pension adjustment.

Payments Canada

Payments Canada is an association established through the 1980 revision of the Bank Act. It operates a sophisticated national clearing system for interbank payments, facilitating the electronic transfer of funds between financial institutions. Members of Payments Canada include chartered banks, trust and loan companies, credit unions, and caisses populaires.

peer group

A peer group refers to a collection of managed financial products, such as mutual funds, that share similar investment objectives and strategies. The purpose of comparing a fund to its peer group is to evaluate its performance within a specific category or sector, providing investors with a benchmark for assessing its relative success or failure in achieving its investment goals.

pension adjustment (PA)

The pension adjustment (PA) refers to the calculation of the total value of contributions made or benefits earned by a participant in an employer-sponsored retirement plan during a specific calendar year. This assessment helps the individual plan and manage their retirement savings effectively by determining the maximum amount that can be contributed to a Registered Retirement Savings Plan (RRSP) in addition to the contributions made to a Registered Pension Plan.

pension fund

A pension fund is a financial vehicle that contains a pool of assets accumulated over time and is professionally managed with the primary objective of providing financial support and income to individuals upon their retirement, ensuring their economic security in their later years.

percentage change

Percentage change refers to the relative difference between an initial value and a final value over a specific period. It is calculated as the difference between the final and initial values, divided by the initial value, and then multiplied by 100 to express the result as a percentage.

performance bonds

Performance bonds are typically a financial guarantee required when entering into a futures contract. They provide a level of assurance to the parties involved that the contractual terms will be fulfilled in the future. Performance bonds can be thought of as a form of margin that helps mitigate the risk of default or non-compliance with the contract terms.

Phillips Curve

The Phillips Curve illustrates the inverse relationship between inflation and unemployment rates. According to this economic theory, as inflation rises, unemployment tends to fall, and vice versa. Policymakers can exploit this trade-off in the short term by stimulating the economy to increase inflation, thereby reducing unemployment. However, this can also lead to potential downsides such as higher unemployment and sluggish economic growth when inflation is later curbed.

physical-based ETF

A physical-based Exchange-Traded Fund (ETF) is a type of investment fund that holds physical commodities directly. These ETFs are restricted to investing in a small selection of storable and non-perishable commodities such as gold and silver.

point

In the context of financial markets, a point commonly represents a single unit of measurement. For stock market indices, a point generally denotes an increment equivalent to $1. However, when referring to bonds and debentures, a point signifies 1% of the security’s par value, usually set at 100. Therefore, on a bond with a face value of $1,000, one point signifies a 1% change relative to the bond’s par value, equivalent to $10.

point change

Point change, in the context of a stock market index, signifies the movement in the index value by a specific number of units. For instance, if the Dow Jones Industrial Average (DJIA) shifts from 10,000 to 10,100, it is described as a 100 point change, representing a quantified adjustment in the index’s numerical value.

political risk

Political risk is the possibility of financial, strategic, or operational losses resulting from government actions or policies that negatively impact investment conditions in a country. It encompasses not only specific unfavorable policies but also broader factors that create uncertainty and instability, affecting the attractiveness and security of investments in that country.

pooled account

A pooled account refers to a managed investment structure where investors’ funds are consolidated into a legal entity, typically a trust or corporation. Investors participate in the pooled account by owning shares or units, and their entitlement to the investment returns is in proportion to the number of shares or units they hold. Pooled accounts are commonly structured as open-ended funds, meaning that new units can be issued when there are net inflows of cash into the fund, and existing units can be redeemed when there are net outflows of cash.

pooled registered pension plan

A Pooled Registered Pension Plan (PRPP) is a retirement savings vehicle established by the federal government to help bridge the gap in pension coverage for employees. PRPPs offer Canadians a cost-effective, efficient, and accessible way to save for retirement by pooling contributions from multiple employers and employees into a single pension fund, managed by professional fund managers.

portfolio

A portfolio refers to the collection of investment assets, such as stocks, bonds, and other securities held by an individual or institution. It is a diversified selection of financial instruments that are carefully chosen to achieve specific investment objectives. Portfolios typically include a mix of debt securities, preferred stocks, common stocks from different industries, and other types of securities to spread risk and optimize returns.

potential output

Potential output refers to the highest level of production an economy can achieve when all its resources are utilized optimally over a specific period. It represents the capacity for maximum economic growth under ideal conditions.

pre-authorized contribution plan

A pre-authorized contribution plan is a systematic investment strategy that allows investors to make regular and periodic purchases of investments, typically in smaller amounts, at predetermined intervals. This method is designed to help investors build their portfolio gradually over time and benefit from dollar-cost averaging, which can potentially reduce the impact of market volatility on their overall investment returns.

preferred dividend coverage ratio

The preferred dividend coverage ratio is a financial metric used to assess a company’s ability to cover the dividend payments to its preferred shareholders. It is calculated by dividing the company’s net income available to preferred shareholders by the total amount of preferred dividends payable. A higher ratio indicates a greater ability of the company to fulfill its obligations towards its preferred shareholders.

preferred shares

Preferred shares represent a type of share capital that grants shareholders a fixed dividend payment before any dividends are distributed to holders of common shares. In the event of the company’s liquidation, preferred shareholders are entitled to a specified dollar amount per share. Typically, preferred shares do not include voting rights unless a certain number of dividend payments have been missed. They are also known as preference shares.

preliminary prospectus

The preliminary prospectus is the first official document issued by an underwriter when introducing a new securities offering to potential investors. It provides essential information about the offering and helps investors make informed decisions. The preliminary prospectus includes key details such as the purpose of the offering, the financial health of the issuer, and the risks associated with investing in the securities. It gives investors a glimpse into the terms of the investment before the final prospectus is released.

premium

Premium is the additional value by which a preferred stock or debt security can be sold above its face value. It typically represents the increase in market price from the initial selling price for new bond or stock issues. Additionally, it denotes the surplus amount over face value, par value, or market price that is included in the redemption price of a bond or preferred share. In the context of options, premium is the price paid by the option buyer to the option seller for the option contract.

prepaid expenses

Prepaid expenses refer to payments made by a company for services or goods that the company expects to receive in the future. These payments are recorded as assets on the company’s balance sheet because they represent future economic benefits. Examples of prepaid expenses include advance payments for rent, insurance premiums, or taxes. In financial accounting, prepaid expenses are classified as a line item on the statement of financial position, also known as the balance sheet, to reflect the company’s resources that have been paid for but not yet consumed.

prepayment risk

Prepayment risk refers to the possibility that the entity issuing a bond may decide to repay all or a portion of the principal amount before the scheduled maturity date. This decision to prepay could occur due to changes in interest rates, refinancing opportunities, or other financial considerations, and may impact the expected cash flow and return on investment for bondholders.

prescribed number of units

The prescribed number of units refers to specific increments of shares, usually set by an Exchange-Traded Fund (ETF) company. These increments commonly consist of 10,000, 25,000, or 50,000 shares. These predetermined unit sizes are established by the ETF company for trading and administrative purposes within the fund’s framework.

prescribed rate

The prescribed rate refers to the quarterly interest rate established by the Canada Revenue Agency (CRA) in accordance with attribution rules. This rate is determined based on the Bank of Canada rate and is significant for various tax-related calculations and transactions.

present value

Present value refers to the concept of determining the current monetary value of a future sum of money, taking into account factors such as the time value of money, interest rates, and the timing of receipt. It is a financial analysis tool used to assess the value of future cash flows in today’s terms, enabling comparison and evaluation of investment opportunities or cash flow streams.

price-to-earnings ratio or P/E ratio

The price-to-earnings ratio, commonly known as P/E ratio, is a financial metric used by investors to evaluate the potential investment value of a company. It indicates the amount an investor is willing to pay for each dollar of a company’s earnings. The P/E ratio is calculated by dividing the current market price of a company’s stock by its earnings per share (EPS). A high P/E ratio may suggest that the stock is overvalued, while a low P/E ratio may indicate that the stock is undervalued. Investors use the P/E ratio to compare the valuation of different companies in the same industry or to assess the historical valuation trends of a particular stock.

price spread

Price spread refers to the difference between the bid price (the price at which buyers are willing to purchase) and the ask price (the price at which sellers are willing to sell) of a financial instrument. It is also commonly known as the dealer’s spread, which represents the profit margin for the market maker or dealer facilitating the transaction.

primary dealer

A primary dealer refers to a financial institution that is authorized to participate in government securities auctions and has a close relationship with the central bank. These entities are expected to actively trade in the primary market, providing liquidity and stability. The designation as a primary dealer comes with certain obligations and responsibilities, such as maintaining a certain level of trading volume and adhering to regulatory requirements.

primary market

The primary market refers to the financial marketplace where newly issued securities are bought and sold for the first time. In this market, companies raise capital by issuing new securities, and the proceeds from these sales go directly to the issuing company. It contrasts with the secondary market where existing securities are traded among investors. Also known as the new issue market.

primary market distribution

Primary market distribution refers to the process of selling newly issued securities directly to investors through an initial public offering (IPO) or another form of offering. It is the initial sale of securities by companies, governments, or other entities to raise capital, and typically involves the underwriting of the securities by investment banks or financial institutions.

primary offering

A primary offering refers to the initial sale of a company’s securities to the public. This includes the first-time issuance of stocks or bonds by a company, allowing it to raise new capital to support its operations or other financial activities. Primary offerings are an essential part of the capital market ecosystem and provide companies with the opportunity to access funding from investors in exchange for ownership in the company.

prime brokerage

Prime brokerage is a comprehensive suite of services related to equity trading, typically utilized by hedge funds, offering services such as securities lending, cash management, trade execution, and other operational support to facilitate complex trading strategies and provide leverage.

prime rate

The prime rate is the benchmark interest rate that commercial banks offer to their most creditworthy customers, typically large corporations or individuals with excellent credit scores. It serves as a reference point for setting interest rates on various financial products, such as loans and mortgages. Changes in the prime rate can have a cascading effect on other interest rates throughout the economy, influencing borrowing costs and ultimately impacting consumer spending and investment decisions.

principal

In the realm of finance, the term ‘principal’ has different implications. It can pertain to the individual on whose behalf a broker carries out a transaction, or a dealer engaged in buying or selling securities for its own inventory. Additionally, ‘principal’ may signify an individual’s original investment or the nominal value of a bond.

principal-protected note

A principal-protected note is a financial instrument that combines elements of debt and equity. It has a maturity date, and the issuer of the note promises to repay the investors the original invested amount (principal) as well as any interest earned. The interest rate on the principal-protected note is linked to the performance of an underlying asset, which can include mutual funds, stocks, market indices, hedge funds, or a combination of these. It is important to note that while principal-protected notes provide a guarantee to return the principal amount, they do not guarantee any specific return on the investment beyond that.

private corporation

Private corporations are entities formed under legal charters that impose limitations on shareholders’ ability to transfer shares, usually by restricting the number of shareholders to a maximum of 50. Additionally, private corporations typically prohibit shareholders from making public invitations for the purchase of company securities.

private equity

Private equity refers to a form of investment that involves the purchase and ownership of shares in private companies that are not publicly traded. Private equity firms raise funds from institutional investors and high net worth individuals to acquire equity ownership in these companies. This form of investment is typically used to provide capital to companies that may not have access to traditional public markets, such as stock exchanges or bond markets, due to various reasons like size, stage of development, or industry sector.

private family office

A private family office is a specialized advisory service that caters to the comprehensive financial needs of high-net-worth individuals or families. Unlike traditional advisory models that rely on a single advisor, a private family office operates with a dedicated team of professionals who manage all aspects of a wealthy client’s financial matters from a centralized location.

private placement

Private placement is a method of raising capital where a company offers securities to a select group of investors, typically institutional investors, without the need for a public offering. It involves the direct sale of securities to a limited number of sophisticated investors, bypassing the traditional securities market. Private placements are often used by companies seeking to raise funds quickly and efficiently without the extensive regulatory requirements associated with public offerings.

pro rata

Pro rata is a Latin term that means ‘in proportion to.’ In the context of finance, it refers to the allocation of something based on a specific ratio or percentage. For instance, a dividend payment is considered pro rata because each shareholder receives a portion of the dividend that corresponds to the number of shares they own relative to the total shares outstanding.

probate

Probate is a legal process where the court oversees the authentication and execution of a will. It involves proving that a will is valid and authenticating it. The probate fee charged is a provincial tax based on the total value of the assets in an estate. This fee is not determined by the complexity or effort involved in processing the will but rather by the overall value of the deceased person’s property and assets.

product transparency

Product transparency refers to the extent of continuous disclosure of information related to investment products. It is typically evaluated based on the comprehensiveness of the information provided, the frequency of communication to investors, and the time gap between the fund reporting date and the date on which the information is conveyed to investors.

productivity

Productivity refers to the measure of output per worker, indicating the efficiency of combining labor and capital in the economy’s output. Enhancements in productivity result in advancements in the standard of living, as the increased production by labor and capital leads to higher income generation.

professional (PRO) order

A professional (PRO) order is a specific order type made on behalf of individuals closely associated with a financial institution, such as partners, directors, officers, major shareholders, and employees of member firms. These orders are required to be marked as “PRO”, “N-C”, or “Emp” to distinguish them from client orders and ensure that client orders take precedence when it comes to executing orders for the same securities.

profit

Profit is the financial gain achieved by a company after deducting all expenses, including taxes, from its total revenue. It represents the surplus amount that can be distributed to shareholders as dividends.

profitability ratios

Profitability ratios are financial metrics used to evaluate a company’s ability to generate profits relative to its resources and operating costs. These ratios provide insights into the efficiency and effectiveness of management in utilizing the company’s assets, equity, and resources to maximize returns for its stakeholders.

program trading

Program trading is an advanced automated trading technique used by portfolio managers to capitalize on price discrepancies between a collection of stocks mirroring a specific stock index, such as the Standard & Poor’s 500 Index, and the corresponding futures contracts or options linked to the index traded on financial futures markets. It also involves the manipulation of a portfolio’s composition by exchanging or trading large blocks of securities to alter the asset allocation.

proprietary trader

A proprietary trader is an individual tasked with managing a dealer’s own trading funds in order to stimulate market activity and execute client orders efficiently. This role is also referred to as a liability trader.

prospectus

A prospectus is a formal legal document that provides details about the securities being offered for sale to the public. It must adhere to the regulations set forth by relevant securities commissions. The prospectus offers essential information for potential investors to make informed decisions about purchasing the securities. It plays a crucial role in educating investors about the offered investment opportunity, including financial performance, potential risks, strategies, and other material information. Some related terms include Red Herring, which is a preliminary prospectus, and Final Prospectus, which is the complete and finalized version of the prospectus.

protective provision

Protective provisions are covenant clauses included in a bond agreement to safeguard the interests of bondholders. These clauses help ensure that bondholders have recourse or protection in case the issuer fails to meet their obligations. Protective provisions are designed to mitigate risks and enhance the security of bond investments.

proxy

A proxy is a formal written authorization granted by a shareholder to appoint another individual, who may not necessarily be a shareholder, to act on their behalf and cast votes in their place at a shareholders’ meeting.

prudent portfolio approach

The prudent portfolio approach is an investment guideline that is enforced by law in certain jurisdictions, specifically for fiduciaries like trustees. Depending on the province, trustees might be restricted to investing only in a pre-approved list of securities by the province or federal government. Alternatively, in other regions, trustees are allowed to invest in securities that align with the principles of an average prudent individual who would invest on behalf of others he is morally obligated to protect. The majority of provinces implement both standards in combination to ensure a prudent investment strategy.

public corporation

A public corporation, also known as a publicly traded company, is an organization that has issued securities, such as stocks and bonds, to the general public through an initial public offering (IPO) and is listed on a stock exchange or traded over-the-counter. Public corporations typically have a large number of shareholders and are subject to regulatory requirements and financial reporting standards to ensure transparency and accountability to their investors.

public float

Public float refers to the portion of a company’s shares that are in the hands of public investors and are available for trading on the open market. These shares are not held by company executives, directors, or institutional investors with a significant ownership stake in the company. Public float differs from total outstanding shares as it specifically excludes shares held in large quantities by institutions.

purchase fund

A purchase fund is established by a company to buy back a predetermined quantity of its outstanding preferred shares or debt from the market at or below a specified price. This is done with the goal of retiring the securities. The establishment of a purchase fund enables the company to efficiently manage its capital structure and potentially enhance shareholder value. It is similar to a Sinking Fund, which also involves the systematic repurchase of company securities.

put option

A put option is a financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a predetermined price within a specific time frame. Investors typically acquire put options if they anticipate a decline in the value of the underlying asset. For further comparison, refer to Call Option.

qualifying transaction

A qualifying transaction refers to a significant purchase of a business or asset by a capital pool company. This transaction is crucial as it enables the company to meet the criteria required for listing on the TSX Venture Exchange, a stock exchange in Canada that caters specifically to emerging companies.

quantitative analysis

Quantitative analysis is a methodology used in finance that involves the use of statistical and mathematical techniques to make predictions and inform investment decisions. It heavily relies on the processing of various data points and constructing complex indicators. With the advancement of computer technology, quantitative analysis has seen significant development and improvement in accuracy and efficiency.

quick ratio

The quick ratio is a financial metric that provides a more rigorous assessment of a company’s ability to meet its short-term obligations than the current ratio. It is calculated by subtracting inventory from current assets and then dividing the result by current liabilities. By not considering inventory, the ratio emphasizes the company’s most liquid assets, such as cash, marketable securities, and accounts receivable.

quotation or quote

A ‘quotation’ or ‘quote’ in financial markets refers to the highest price that a buyer is willing to pay (bid) and the lowest price that a seller is willing to accept (ask) for a security at a specific moment in time. For instance, a quote of 45.40–45.50 signifies that 45.40 is the maximum price a buyer is willing to pay, and 45.50 is the minimum price a seller is willing to sell the security for.

rally

A rally refers to a sudden and significant increase in the overall price level of a financial market or a specific stock. It indicates a period of positive investor sentiment and buying activity, leading to upward price movements. A rally can be driven by various factors such as positive economic data, corporate earnings reports, or market speculation, and it often reflects an optimistic outlook on the market’s future performance.

random walk theory

Random walk theory posits that in financial markets, the movement of stock prices is unpredictable and independent of past price movements. According to this theory, future price changes cannot be determined based on historical price patterns or trends, suggesting that stock prices follow a ‘random’ path.

rate of return

The rate of return, also known as yield, is a financial metric used to evaluate the profitability of an investment. It represents the gain or loss on an investment over a specific period, typically expressed as a percentage of the initial investment amount. The rate of return enables investors to assess the performance of their investments and compare different investment opportunities based on their potential returns.

ratio withdrawal plan

Ratio withdrawal plan involves a strategic approach where an investor annually receives a predetermined income from their investment fund by redeeming a specific percentage of their fund holdings. This method ensures a consistent stream of income for the investor while maintaining a balanced portfolio structure.

rational expectations

A concept in economic theory that posits individuals form expectations about the future based on all available information, including past events and current conditions. It suggests that people are rational decision-makers who use this information to make forecasts and decisions that are unbiased and reflect the most accurate prediction of the future state of the economy.

real estate investment trust (REIT)

A Real Estate Investment Trust (REIT) is a type of investment trust that focuses on investments related to real estate, such as mortgages, construction loans, land, and real estate securities. REITs typically invest in a diverse portfolio of real estate assets and are required to distribute most of their income to shareholders in the form of dividends. They provide investors with an opportunity to invest in real estate without directly owning physical properties.

real gross domestic product

Real Gross Domestic Product (GDP) is a measure of a country’s economic output that has been adjusted to account for changes in the overall price level. By adjusting for inflation or deflation, real GDP provides a more accurate representation of an economy’s size and growth over time. It is often referred to as constant dollar GDP due to the fact that it reflects the value of goods and services produced in a given period after removing the impact of inflation or deflation.

real interest rate

The real interest rate is the actual return on an investment after taking into account the impact of inflation. It is calculated by subtracting the inflation rate from the nominal interest rate. This rate helps investors and economists assess the true purchasing power gained or lost on an investment.

real rate of return

The real rate of return refers to the actual rate of return on an investment after accounting for the impact of inflation. It measures the profitability of an investment by considering the purchasing power of the returns, which is crucial for assessing the true growth or decline in value of the investment over time.

real return bond

A type of bond where the coupon payments and principal repayment are indexed to inflation in order to maintain a constant purchasing power, providing investors with a fixed real coupon rate that takes into account changes in the overall price level.

record date

The record date, also known as the date of record, is the specific date established by a company, on which an individual must be a registered shareholder in order to receive a declared dividend. Shareholders must officially own shares in the company as of the record date to be eligible for the dividend distribution.

red herring prospectus

A red herring prospectus is a preliminary document issued during the process of an initial public offering (IPO) of securities. The term ‘red herring’ is derived from the use of red ink in the border of the front page. This document provides essential information about the company and the offering to prospective investors, although it may lack some specific details found in the final prospectus. The main objective of a red herring prospectus is to gauge the level of interest from potential investors and market conditions while the offering is under review by the securities commission.

redeemable bond

A redeemable bond is a type of bond that includes a provision giving the issuer the option, but not the obligation, to repay the bond before its scheduled maturity date. This provision grants the issuer the flexibility to redeem the bond early under certain pre-defined conditions. A redeemable bond is also commonly referred to as a callable bond.

redemption

Redemption in finance refers to the process where the issuer of securities buys them back from investors at a predetermined price and time, as outlined in the terms of the securities. It is a common practice in the financial industry and can provide investors with a predetermined exit strategy. For related information, see Call Feature, which is a feature that allows the issuer to redeem securities before their maturity date.

redemption price

The redemption price refers to the price at which a company can repurchase its debt securities or preferred shares, providing an option for the issuing company to buy back these financial instruments. This price is predetermined and specified in the original security issuance agreement.

redeposit

A cash management strategy employed by the Bank of Canada in the open market. Redeposit involves transferring funds from the central bank to direct clearers, thereby injecting balances and boosting available funds. This practice aims to influence the overall liquidity in the financial system. For additional information, refer to Drawdown, a related term.

registered bond

A registered bond is a type of debt security where the issuer records the ownership details of the bondholder. This information is maintained by the issuer, ensuring that interest payments and principal repayments are made directly to the registered owner listed in the issuer’s records, providing increased security and a streamlined process for bond transactions.

registered education savings plans (RESPs)

Registered Education Savings Plans (RESPs) are tax-advantaged investment accounts designed to help individuals save for a child’s post-secondary education. These plans are sponsored by the government and offer various benefits to the accountholders, such as tax-deferred growth and access to government grants to supplement contributions.

registered pension plan (RPP)

A registered pension plan (RPP) is a trust formally registered with the Canada Revenue Agency. It is created by an employer to offer retirement benefits to employees once they reach retirement age. Contributions to the plan, made by both the employer and the employee, are eligible for tax deductions. For further reference, see Defined Contribution Plan and Defined Benefit Plan.

registered retirement income fund (RRIF)

A registered retirement income fund (RRIF) is a type of tax-deferred account that is accessible to individuals who hold Registered Retirement Savings Plans (RRSPs). Upon converting their RRSPs into a RRIF, the planholder is required to annually withdraw a minimum amount based on their age. Any funds withdrawn from the RRIF are subject to income tax at the individual’s applicable tax rate. RRIFs provide a stream of income during retirement years, offering a sustainable way to access retirement savings while deferring taxes until withdrawals are made.

registered retirement savings plan (RRSP)

A registered retirement savings plan (RRSP) is an investment tool designed for individuals to set aside a portion of their income to save for retirement while receiving tax benefits. The investor allocates funds into different investment options within the plan, which are then held in trust. Taxes on contributions and profits generated within the plan are postponed until funds are withdrawn during retirement. After retirement, RRSP funds can be converted into Registered Retirement Income Funds (RRIFs) to provide retirement income.

registered security

A registered security is a type of security that is officially recorded in the books of a company under the name of the owner. It can only be transferred when the certificate is signed by the registered owner. There are two types of registered debt securities: those registered only for the principal amount and those fully registered. In the case of fully registered securities, interest payments are made via cheque rather than through coupons attached to the certificate. For comparison, refer to Bearer Security.

registrar

A registrar is typically a trust company that is designated by an organization to oversee the issuance of common or preferred shares. In the event of a share transaction, the registrar is responsible for receiving the original canceled certificate as well as the new certificate from the transfer agent. The registrar then proceeds to document, authenticate, and sign the new certificate. Essentially, the registrar serves as an independent auditor ensuring the precision of the transfer agent’s operations. It is important to note that in many instances, the registrar and transfer agent function as the same trust company.

regular delivery

Regular delivery refers to the date on which a securities trade is settled, indicating the timeline by which the seller is obligated to deliver the securities to the buyer. This term is closely related to the Settlement Date, which is the specific day when the transaction is finalized.

regular dividends

Regular dividends are periodic payments made by a company to its shareholders, typically on a quarterly basis, as a portion of the company’s profits. These payments are usually set at a fixed amount per share and are considered a way for companies to distribute profits back to their shareholders.

reinvestment risk

Reinvestment risk refers to the possibility that the returns on an investment may decline due to a decrease in interest rates. This risk arises when the cash inflows generated by an investment, upon reinvestment, yield lower returns than the original investment. For instance, when calculating yield to maturity, it is assumed that all interest payments received will be reinvested at the same rate. However, in reality, if market interest rates decrease, the reinvested interest will earn a lower return. Thus, reinvestment risk highlights the uncertainty associated with reinvesting cash inflows at lower rates than initially anticipated.

relative value strategies

Relative value strategies are a category of hedge funds that seek to generate profits by identifying and capitalizing on the differences in prices between related financial instruments such as stocks, bonds, or derivatives. These strategies involve taking advantage of pricing inefficiencies, mispricing or temporary imbalances in the market. The goal is to achieve returns by simultaneously buying and selling related assets when their prices deviate from their expected relationship, aiming to capitalize on the convergence of their values over time.

reporting issuer

A reporting issuer refers to a corporation that has issued securities to the public and is obligated to comply with the ongoing disclosure obligations stipulated by securities regulators. These obligations are designed to ensure transparency and provide relevant information to the investing public about the company’s financial health and operations.

research associate

A research associate is a professional who works under the supervision of a senior analyst. Their primary responsibilities include constructing financial or pricing models, analyzing industry and company data, and contributing to the preparation of reports and commentary based on their research findings.

reset

Reset is a contractual provision that enables a segregated fund contract holder to fix the current market value of the fund and establish a new maturity date, typically 10 years after the reset date. The reset dates can either be selected by the contract holder or automated based on predetermined conditions within the contract.

resistance level

In financial markets, a resistance level refers to a specific price point at which the trading of a security encounters selling pressure, causing the price to either stall, reverse, or experience increased volatility. At this level, the supply of the security exceeds the demand, leading to a potential barrier that the price struggles to surpass. Traders and analysts often pay close attention to resistance levels as they may indicate a point of potential market reversal or a significant obstacle to further price appreciation.

responsible designated trader (RDT)

A responsible designated trader (RDT) refers to an individual appointed by a dealer or financial institution to fulfill the role of market maker for a particular stock. The RDT is responsible for actively quoting bid and ask prices, managing inventory, and facilitating trading activities in the assigned stock, with the goal of providing liquidity and price stability in the market.

restricted shares

Restricted shares are company shares that have the same rights to company earnings and assets as common shares. However, they come with limitations on voting rights or may even lack voting rights altogether.

retail firm

Retail firms in the financial industry cater exclusively to retail clients, providing a range of investment services. These firms can be categorized into full-service firms and discount brokers. Full-service firms offer a comprehensive suite of financial products and advisory services tailored to individual retail investors. On the other hand, discount brokers offer discounted trade execution services to retail clients but do not offer personalized investment advice.

retail investor

Retail investors are individuals who engage in the buying and selling of securities for personal investment purposes, rather than on behalf of a business entity. They typically trade securities in smaller volumes compared to institutional investors, such as banks or mutual funds.

retained earnings

Retained earnings refer to the accumulated net income that a company keeps after distribution of dividends and settling all expenses. This amount is reinvested back into the company for various purposes such as expansion, research and development, or debt repayment.

retractable

In finance, the term ‘retractable’ refers to a characteristic that may be associated with a newly issued debt or preferred stock. This feature allows the holder the right, under certain predefined conditions, to redeem the security on a specified date that comes before the security’s maturity date, particularly in the case of a bond.

retractable bond

A retractable bond refers to a type of bond which includes a provision that gives the bondholder the right, under specific predefined circumstances, to demand the issuer to redeem the bond before its maturity date. In essence, it provides the holder with the option to sell the bond back to the issuer at a predetermined price, offering a way to mitigate risks associated with holding the bond until maturity.

retractable preferred

Retractable preferred shares refer to a type of preferred shares that include a provision allowing the shareholder, in certain situations, to demand the company to buy back the shares at a predetermined price. This feature provides investors with the right to require the issuer to redeem the shares based on specified conditions, offering them a way to potentially liquidate their investment.

return on common equity

Return on common equity is a financial metric that measures the profitability of a company by assessing the percentage return generated on its common equity. It indicates how efficiently the company is generating profits from the shareholders’ investments in common shares.

revenue

Revenue refers to the total income generated by a company from its core business activities within a given period, typically a fiscal quarter or year. It is a key financial metric that demonstrates the company’s ability to sell its products or services. Revenue is crucial for evaluating the financial performance and growth potential of a business. It is distinct from reversal patterns which are formations observed in technical analysis that often signal potential shifts in stock prices.

reverse split

A reverse split is a corporate action where a company reduces the number of its outstanding shares, which in turn increases the price per share. For instance, if an investor holds 1,000 shares of ABC Inc. before a 10 for 1 reverse split, they will end up with only 100 shares after the reverse split. This strategic move aims to elevate the share price by condensing the total number of shares available in the market, without impacting the overall value of the investor’s holdings.

revocable beneficiary

A revocable beneficiary is an individual named in a segregated fund contract who can have their entitlements altered or revoked by the policy owner without requiring the beneficiary’s consent.

revocable designation

Revocable designation refers to the contractual arrangement in a segregated fund contract, allowing the policy owner to modify or revoke the beneficiary’s entitlements without requiring the beneficiary’s approval.

rights

Rights refer to a temporary privilege given to a company’s common shareholders. They allow shareholders to acquire extra common shares directly from the company, typically at a reduced price, at a predetermined rate and during a specific timeframe. Trading of rights for listed companies occurs on stock exchanges starting from the ex-rights date until their expiration.

right of action for damages

Under securities legislation, individuals who sign a prospectus may be held liable for damages in case the prospectus includes any false information. This liability also applies to professionals such as lawyers, auditors, geologists, and others who provide reports or opinions within the prospectus.

right of redemption

The right of redemption is a fundamental feature of mutual funds that grants shareholders the ongoing ability to request the withdrawal of their investments by surrendering their shares to the fund. In return, shareholders receive the current value of their investment, known as the net asset value. This provision ensures liquidity for investors and is a key aspect of mutual fund operations. The fund is required to process payment for redeemed securities within three business days of determining the net asset value.

right of rescission

The right of a buyer to cancel their purchase of a new security issue within a specific period if the prospectus provided false information or did not include important details that could impact the investment decision. This right serves to protect investors from misleading information and allows them to withdraw from the transaction without penalty.

right of withdrawal

The right of a buyer of a new financial security offering to cancel the purchase agreement within a specified period, typically two business days after receiving the offering document known as the prospectus. This right allows investors to reconsider their investment decision, promote transparency, and protect investors from making hasty investment choices.

risk-adjusted rate of return

The risk-adjusted rate of return is a metric used to evaluate an investment’s return in relation to the level of risk taken to achieve that return. This measure is crucial as it accounts for the inherent risks associated with an investment and provides a more accurate reflection of its performance. It can be employed to assess the performance of individual securities or investment portfolios, offering valuable insights into their risk-return profiles.

risk analysis ratios

Financial ratios used to evaluate a company’s ability to manage its debt and financial obligations effectively, providing insights into the level of risk associated with its financial structure and operations.

risk arbitrage strategy

A strategic investment approach involving the concurrent acquisition of long and short positions in the common stocks of companies engaged in a potential merger or acquisition. This typically includes taking a long position in the target company and a short position in the acquiring company. This strategy, also referred to as a merger strategy, aims to capitalize on the price differentials resulting from the deal announcement and the completion of the transaction.

risk-averse

The term ‘risk-averse’ refers to an investor who exhibits a preference for lower levels of risk when making investment decisions. This type of investor is typically hesitant or unwilling to accept the possibility of losing their invested capital. Investors who are risk-averse often prioritize the preservation of their capital over the potential for higher returns. This approach is in contrast to investors who are more comfortable with taking on higher levels of risk in pursuit of greater profits, known as ‘Risk-Tolerant’ investors.

risk-free rate of return

The risk-free rate of return is the theoretical rate of return an investor could expect from an investment with zero risk of financial loss. It represents the interest rate on an investment considered to have no default risk, such as a government-issued treasury bill. The risk-free rate serves as a benchmark for evaluating the potential returns of other investments after adjusting for their level of risk.

risk premium

The risk premium is an additional return that investors require for taking on higher risk when investing in assets other than risk-free securities such as Treasury bills. It represents the compensation for the increased uncertainty and potential losses associated with investing in riskier assets, reflecting the trade-off between risk and return in the financial markets.

risk-tolerant

The term ‘risk-tolerant’ is used to describe an investor who is not only willing but also financially capable of accepting the possibility of losing their investment capital. This investor typically has a higher tolerance for fluctuations in the value of their investments. Contrasting with this term, it is advisable to look up ‘Risk-Averse’ for comparison.

robo-advisor

A robo-advisor is a digital platform that offers automated, algorithm-driven financial planning and investment services. It provides clients with personalized investment advice and portfolio management with minimal human intervention. Robo-advisors use algorithms to allocate and manage assets based on the client’s financial goals, risk tolerance, and time horizon.

roll-over risk

Roll-over risk refers to the potential risk faced by an issuer when they may encounter difficulties in refinancing or renewing the underlying assets of an asset-backed security upon its maturity.

roll yield loss

Roll yield loss occurs when an investment in a near-term futures contract is rolled over into a more distant contract as the expiration date approaches. This strategy can result in financial loss due to changes in the price relationship between the two contracts over time.

rules-based ETF

Rules-based ETFs are exchange-traded funds that are designed to follow a specific set of pre-defined rules or criteria when selecting and weighting securities in the fund’s portfolio. Unlike traditional index funds that track a market index, rules-based ETFs aim to achieve specific investment objectives by focusing on factors such as higher returns, lower risks, or other financial metrics. These ETFs offer a goal-oriented approach to investing, deviating from the conventional market index tracking strategy.

sacrifice ratio

The term ‘sacrifice ratio’ refers to the relationship between the decrease in Gross Domestic Product and the rise in unemployment required to achieve a 1% reduction in the inflation rate within an economy.

Sale and Repurchase Agreements (SRAs)

Sale and Repurchase Agreements (SRAs) refer to financial transactions conducted by the Bank of Canada as part of open-market operations. These agreements are used to counteract any unwanted decreases in overnight financing costs in the financial market.

sales finance company

A sales finance company is an entity that engages in the practice of buying installment sales contracts from retailers and dealers at a discounted rate. These contracts are typically associated with the purchase of items like new cars and appliances through installment plans. By purchasing these contracts, sales finance companies provide liquidity to retailers and dealers, allowing them to access cash quickly instead of waiting for the full amount of the installment payments from customers.

sampling

Sampling is a technique used by portfolio managers to select a subset of securities from a larger universe in order to closely replicate the performance of a specific index. The selection of these securities and their respective weights is done strategically to mirror the overall characteristics and returns of the index in a cost-effective manner.

satellite holdings

Satellite holdings refer to investment positions that target sectors in the market known for their higher risk profile. They are strategically chosen to enhance the overall returns of a portfolio beyond those generated by its core assets.

savings bank

A savings bank is a financial institution primarily focused on collecting savings deposits from customers and providing interest payments on those deposits. Typically established by a government, it operates similarly to a credit union in terms of its core functions and services.

schedule I bank

Schedule I banks in Canada refer to Canadian-owned banks that hold a prominent position in the country’s banking sector. The top six Schedule I banks in Canada significantly exceed other Canadian-owned banks in terms of asset size. These banks operate within the regulatory framework set out by the Bank Act, which governs their operations, capital requirements, and overall functioning in the financial system.

schedule II bank

Schedule II banks are financial institutions that are incorporated and operate in Canada as subsidiaries of foreign banks under federal regulation. These banks are subject to the regulatory framework outlined in the Bank Act, which governs their operations and activities within the Canadian financial system.

schedule III bank

Schedule III banks are foreign bank branches of foreign institutions that are regulated by the federal government in Canada. These banks are authorized under the Bank Act to engage in banking activities within the country’s jurisdiction.

seasonal unemployment

Seasonal unemployment refers to a type of unemployment caused by fluctuations in demand for labor in certain industries or businesses that experience recurring seasonal patterns. These industries typically require more workers during peak seasons and fewer or no workers during off-peak seasons, leading to temporary unemployment for those affected workers.

secondary market

The secondary market is where previously issued securities are bought and sold among investors, either through a centralized exchange or in over-the-counter transactions. Unlike the primary market where securities are initially issued and sold, in the secondary market, the proceeds from the trades go to the selling investors or dealers rather than the issuing companies. This market provides liquidity to investors by allowing them to buy and sell existing securities after the initial offering.

secondary offering

A secondary offering is the process of distributing or reselling securities that were previously issued to the public by a dealer or group of dealers. Typically, a significant number of shares are involved, which may originate from various sources such as the settlement of an estate. These securities are made available to the public at a predetermined fixed price, which is typically related to the current market value of the stock.

second-order risk

Second-order risks refer to a specific category of risks in financial trading. These risks encompass various factors such as liquidity risk, leverage risk, deal break risk, default risk, counterparty risk, trading risk, concentration risk, pricing model risk, and trading model risk. Unlike first-order risks that are directly related to market fluctuations, second-order risks arise from aspects like trading implementation, arbitrage strategies, or pricing less commonly traded securities.

sector rotation

Sector rotation is an investment strategy that involves analyzing the macroeconomic landscape to identify sectors expected to perform well. Investors then allocate their funds to these sectors with the aim of achieving better returns.

securities

Securities refer to instruments, whether in physical paper form or electronic records, that represent ownership in a company’s equity (such as stocks) or the company’s debt obligations (like bonds). They serve as a proof of investment and carry certain rights and obligations for the holder.

securities acts

Securities acts refer to the set of provincial regulations overseen by the securities commission in each province. These acts establish the guidelines and regulations that govern the issuance and trading of securities within a specific jurisdiction.

securities administrator

The term ‘securities administrator’ generally refers to the regulatory body at the provincial level, such as the Securities Commission or Provincial Registrar, that is tasked with the implementation and enforcement of the provincial Securities Act. They oversee various aspects of securities regulations to ensure compliance and protect investors in the securities market.

Securities and Exchange Commission (SEC)

The Securities and Exchange Commission (SEC) is a regulatory body created by the United States Congress to oversee and enforce federal securities laws. Its primary mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. In Canada, unlike the U.S., there is no single national regulatory authority. Instead, securities regulation is the responsibility of individual provinces and territories.

securities eligible for reduced margin

Securities that qualify for a decrease in the required margin amount. These securities are selected based on their high level of liquidity and low price volatility. Criteria for qualification often include meeting specific measures related to price risk and liquidity risk.

securitization

Securitization involves the transformation of different types of loans into tradable securities by grouping them into pools. This process not only allows for the loans to be traded on the market but also contributes to the development of various debt markets, giving borrowers the opportunity to access funds directly from investors, bypassing traditional banking institutions.

segregated funds

Segregated funds, also known as seg funds, are investment funds offered by insurance companies as an alternative to traditional mutual funds. These funds provide investors with a variety of investment objectives and security categories, such as equity funds, bond funds, and balanced funds. One distinctive feature of segregated funds is the guarantee they offer, ensuring that a minimum percentage (typically 75% or more) of the investor’s contributions to the fund will be returned upon maturity, regardless of the fund’s performance.

self-directed broker

Self-directed brokers, also known as discount brokers, facilitate trading activities for investors at reduced transaction costs. Unlike traditional brokers, self-directed brokers do not offer personalized investment advice or recommendations to their clients, requiring investors to make their own decisions regarding buying or selling financial instruments.

self-directed registered retirement savings plan

A self-directed registered retirement savings plan is a specific type of RRSP in which the account holder has the flexibility to personally choose and manage the investments held within the plan. This means that the holder has the autonomy to invest funds or assets, such as securities, directly into the registered plan without relying on pre-selected investment options. Typically, these plans are administered for a fee by a Canadian financial services company.

self-regulatory organization (SRO)

A self-regulatory organization (SRO) is an entity acknowledged by the Securities Administrators with the authority to create and implement industry rules and regulations. The main objectives of an SRO are to safeguard investors, promote fair, transparent, and ethical conduct within the financial sector, and ensure compliance with securities laws. In Canada, examples of SROs are the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association (MFDA).

selling group

A selling group refers to investment dealers or other entities that collaborate with a banking group to promote a new offering of securities. Unlike the banking group, members of the selling group are not financially liable if the entire issue of securities is not sold. Engaging a selling group helps to broaden the reach and distribution of a new securities issue, increasing the likelihood of successful sales.

sell side

The term ‘sell side’ is used to refer to financial institutions that act as dealers in the securities market. It originated from the crucial role that broker/dealers play in the process of underwriting and distributing newly issued securities to investors.

sentiment indicators

Sentiment indicators are metrics used to gauge investor’s expectations or market sentiment. They provide insights into the collective mood of investors, indicating whether they are optimistic (bullish) or pessimistic (bearish) about the market direction. These indicators are essential in helping traders and analysts assess market sentiment and make informed decisions based on prevailing market mood.

separately managed account

A separately managed account refers to a personalized investment account managed by a professional investment manager on behalf of an individual investor. Each investor has a unique account tailored to their specific financial goals, risk tolerance, and investment objectives. The investment manager follows a specific investment mandate or strategy approved by the investor when making decisions about the assets within the account.

serial bond or debenture

A serial bond or debenture is a financial instrument that requires the issuer to make a series of payments to bondholders at specified intervals until the debt is fully repaid. It is structured in a way that the principal amount is repaid gradually over several payments, typically in equal installments. This type of bond provides a systematic approach to debt repayment and allows the issuer to manage their liabilities effectively over time.

settlement

Settlement refers to the final stage in a financial transaction process where the exchange of cash and securities becomes legally binding and irrevocable, completing the transfer of ownership. It involves the accurate and timely delivery of assets and funds between the parties involved in the transaction. The settlement date is crucial as it marks the point at which the parties fulfill their obligations, ensuring the smooth and secure completion of the trade.

settlement date

The ‘settlement date’ refers to the specific day when a buyer is obligated to make payment for a purchased security, or when a seller is required to deliver the securities that have been sold. In standard practice, the settlement for most securities transactions must be completed on or before the second business day following the initial transaction date. Adherence to this timeframe ensures efficient and timely completion of financial transactions in the securities market.

share capital

Share capital refers to the total amount of money that shareholders contribute to a company in exchange for shares issued by the company. This capital represents the ownership stake or equity of shareholders in the company and is an essential source of funding for the company’s operations and investments.

shareholder

A shareholder is an individual or entity that owns a portion of a corporation by holding shares of its stock, representing a claim on the company’s assets and earnings. Shareholders have the right to vote on corporate matters and receive dividends based on the number of shares they own.

share of profit of associates

The term ‘share of profit of associates’ refers to the portion of an entity’s income derived from investments in affiliated companies in which it holds significant influence, typically ranging from 20% to 50% ownership stake. This share of profit is recognized through the equity accounting method, reflecting the investor’s proportional interest in the associate’s financial performance, including revenues and expenses. It is important to note that this share of profit is recorded separately from the investor’s own operating activities and signifies the investor’s economic involvement in the performance of the associate.

Sharpe ratio

The Sharpe ratio is a financial metric that calculates the risk-adjusted return of an investment portfolio by considering its return in relation to its volatility, commonly measured by standard deviation. It provides investors with valuable insights into how well an investment has performed given the level of risk taken.

short bias

Short bias refers to a type of investment fund where the overall position maintained by the fund is predominantly short. While the fund may also have some long positions, the net position of the fund is consistently leaning towards short positions. This strategy allows investors to profit from price declines in the market, as the fund will benefit when the value of the assets it holds decreases.

short form prospectus distribution system

Short form prospectus distribution system is a mechanism that enables reporting issuers to issue a concise prospectus that includes new information not yet shared with regulators. This abbreviated prospectus refers to the documents submitted by the company in the Annual Information Form, thus streamlining the disclosure process for issuing securities.

short position

A short position is established when an investor sells a security that they do not currently possess, with the expectation that its price will decrease in the future. This strategy allows investors to profit from a decline in the security’s price by buying it back later at a lower price to cover the short position.

short selling

Short selling refers to the practice of selling a security that the seller does not currently own, with the intention of buying it back at a later time for a lower price. This strategy is typically employed in anticipation of a decline in the security’s price. The seller aims to profit from the price difference between the sale and the subsequent purchase. It is generally required by regulations for sellers to disclose their short positions when executing the trade. For further related information, see also ‘Margin’.

short-term bond

A short-term bond refers to a fixed-income security that matures in more than one year but less than five years from its issue date. It is typically considered a relatively low-risk investment option due to its shorter maturity timeline compared to long-term bonds.

short-term debt

Short-term debt refers to the obligations of a company that are expected to be repaid within a period of one year and are recorded under current liabilities on the financial statement. Common examples of short-term debt include bank loans, notes payable, and the portion of long-term debt that is due within the next year.

single-manager account

A single-manager account is a fee-based investment account managed by a single portfolio manager. The portfolio manager dedicates significant time and effort to selecting securities, determining which sectors to invest in, and establishing the most effective asset allocation strategy for the account.

simplified prospectus

A simplified prospectus is a concise version of a detailed prospectus provided by mutual fund companies to interested investors. It serves as a user-friendly document that offers essential information about the fund’s objectives, strategies, risks, fees, and performance. Investors can request the simplified prospectus to gain a quick overview of the fund before making investment decisions.

sinking fund

A sinking fund is a reserve of money set aside by a corporation or government to redeem or pay off a bond or preferred stock issue at maturity. The purpose of a sinking fund is to reduce the risk for bondholders or shareholders by ensuring that there are sufficient funds available to meet the future payment obligations. It is a strategic financial planning tool that helps to manage debt and provide a level of security to investors. A sinking fund may be managed internally by the issuing company or externally by a trustee. Also referred to as a Purchase Fund in some cases.

skew

Skew measures the asymmetry of a distribution by showing the extent to which it is tilted towards either negative or positive returns. A positive skew suggests a higher probability of extreme positive returns compared to a normal distribution, whereas a negative skew indicates a higher likelihood of extreme negative returns relative to a normal distribution.

small cap

A ‘small cap’ pertains to smaller growth companies characterized by a relatively lower market capitalization. Market capitalization refers to the total value of a company’s outstanding shares in the stock market. Specifically, a small cap company is one with a market capitalization typically below $500 million. Small cap companies are often seen as more volatile compared to large cap companies, reflecting a higher level of risk and potential for rapid price fluctuations.

soft-dollar arrangement

A soft-dollar arrangement is a practice in the finance industry where an investment firm pays for services it receives by directing a portion of its trading commissions to the provider of these services, instead of paying directly with cash. This arrangement allows the investment firm to acquire research, data, or other services without incurring additional costs beyond the trading commissions already paid. It is a method of using commission dollars to obtain services indirectly, rather than paying for them separately with cash.

soft landing

A term used in economics to describe a phase in the business cycle where the rate of economic growth decreases significantly but remains positive, while inflation either decreases or stays at a low level. This concept is often associated with a gradual cooling off of the economy, preventing a sudden and severe downturn.

soft retractable preferred shares

Soft retractable preferred shares refer to a specific class of retractable preferred shares that provide investors with the option to receive the redemption value either in cash or common shares. The decision on how the redemption value is paid is typically left to the issuer of the shares.

sole proprietorship

A sole proprietorship is a business structure owned and operated by a single individual, also known as a sole proprietor. In this type of business, the owner has complete control over the operations and decision-making processes. One key feature is that the profits and losses of the business are directly attributed to the individual’s personal income tax return. This means that the owner is personally responsible for any debts or obligations incurred by the business. The simplicity and ease of formation are some advantages of a sole proprietorship, but it also carries the risk of unlimited personal liability.

Special Purchase and Resale Agreements (SPRAs)

Special Purchase and Resale Agreements (SPRAs) refer to a type of open-market operation employed by the Bank of Canada. The primary purpose of SPRAs is to mitigate or alleviate any unwanted upward influence on overnight financing rates within the financial system. Essentially, SPRAs involve the temporary purchase and subsequent resale of securities by the central bank to adjust the level of liquidity in the market, thereby influencing short-term interest rates.

special purpose vehicle

A special purpose vehicle (SPV) is a separate legal entity established for a specific purpose, such as purchasing and managing assets in an asset-backed security issuance. The SPV is typically controlled by the issuer and is used to issue asset-backed securities (ABS) to investors. This structure helps to segregate the assets from the issuer’s balance sheet, providing investors with a degree of protection in case the issuer faces financial difficulties.

specific risk

Specific risk refers to the degree to which the price of an individual security or a particular group of securities may fluctuate either more or less compared to the overall market. It is also commonly referred to as non-systematic risk, which is the risk that is unique to a particular company or industry and can be diversified through portfolio management.

speculative industry

Speculative industries are characterized by elevated levels of risk and uncertainty resulting from a scarcity of conclusive information available to analysts. Companies operating in speculative industries are often associated with speculative shares, which are financial instruments carrying a higher risk due to the unpredictable nature of the industry.

speculator

A speculator is an individual who is willing to take calculated risks in the financial markets with the goal of achieving capital appreciation in the short to medium term. Unlike conservative investors who prioritize regular income and the safety of their investments, speculators focus on capital gains and are more open to risk-taking in pursuit of potential higher returns.

S&P/TSX 60 Index

The S&P/TSX 60 Index comprises the 60 largest and most actively traded companies listed on the Toronto Stock Exchange (TSX), based on their market capitalization. The index is segmented into 11 sectors, which collectively encompass all subgroups of the S&P/TSX Index, providing a comprehensive representation of the Canadian equity market.

S&P/TSX Composite Index

The S&P/TSX Composite Index is a widely followed benchmark that tracks the performance of a diversified range of Canadian equities listed on the Toronto Stock Exchange (TSX). It serves as a fundamental tool for investors and analysts to assess the overall health and trends of the Canadian stock market. Covering various industry sectors, the index provides a broad representation of the Canadian equity market, offering valuable insights into the country’s economic landscape and investment opportunities.

S&P/TSX Venture Composite Index

The S&P/TSX Venture Composite Index serves as a benchmark to track the performance of the public venture capital market. Administered by Standard & Poor’s, this index is constructed based on market capitalization and is designed to offer insight into the overall performance of companies that are listed on the TSX Venture Exchange.

split shares

Split shares refer to a type of security specifically designed to break down the investment characteristics of a common share portfolio into distinct parts to meet various investment goals. In this structure, preferred shares primarily receive dividends generated by the common shares held by the split share corporation, while capital shares mainly benefit from any capital gains realized on the common shares.

spot price

The spot price refers to the current price at which a particular asset, such as a commodity or financial instrument, can be bought or sold for immediate delivery and payment. It is the prevailing market price at a given moment in time based on supply and demand dynamics, without factoring in any future expectations or costs. The spot price is commonly used as a benchmark for pricing in various financial transactions and serves as a key reference point for traders and investors.

spousal registered retirement savings plan

A spousal registered retirement savings plan is a unique type of Registered Retirement Savings Plan (RRSP) where one spouse contributes funds to an RRSP account that is registered in the other spouse’s name. Even though the contributed funds legally belong to the beneficiary spouse, the contributing spouse receives the tax deduction for the contributions made. If the beneficiary spouse withdraws funds from the spousal RRSP in the year of the contribution or in the next two calendar years, the contributing spouse is required to pay taxes on the amount withdrawn.

SRO

SRO stands for Self-Regulatory Organization, which is an entity that sets and enforces rules and standards for the industry it represents. One example of an SRO is the Investment Industry Regulatory Organization of Canada (IIROC). SROs play a crucial role in maintaining market integrity, protecting investors, and promoting confidence in the financial markets.

Standard Deviation

Standard deviation is a statistical measure that helps to assess the level of risk associated with an investment. It indicates the extent of variation or dispersion of returns from the average return of an investment. A higher standard deviation implies that the returns fluctuate widely from the average, indicating higher volatility and, consequently, higher risk.

standard trading unit

A standard trading unit is a predefined quantity of securities that have been established uniformly by stock exchanges for trading purposes. Typically, this quantity is set at 100 shares, although it may differ based on the price of the stock being traded.

statement of cash flow

A statement of cash flow is a vital financial document that reveals the inflow and outflow of cash within a company over a specific period, typically a year. It showcases how cash was generated through operating activities, used for investments, and expended on financing activities. This statement aids stakeholders in analyzing the company’s capacity to generate cash from its core operations, settle debts, allocate funds for future growth, and distribute profits to shareholders.

statement of changes in equity

A financial statement that presents the changes in a company’s equity during a specific reporting period, resulting from transactions not involving owners, such as profits or losses, and transactions involving owners, such as additional investments or dividends. It provides a comprehensive view of how equity has evolved over time.

statement of comprehensive income

The statement of comprehensive income is a financial report that presents a company’s revenues, expenses, gains, and losses over a specific period, typically a fiscal quarter or year. It provides a comprehensive overview of the company’s financial performance by showing how much money the company brought in (revenues) and how much was spent (expenditures), resulting in either a profit or a loss. This statement helps stakeholders, such as investors and analysts, to evaluate the company’s profitability and financial health.

statement of financial position

The statement of financial position, also known as the balance sheet, is a key financial document that presents a snapshot of a company’s financial situation at a specific point in time. It provides detailed information about the organization’s assets (what it owns), liabilities (what it owes), and equity (the ownership interest in the company) as of the date mentioned in the statement. This statement is essential for stakeholders to assess the financial health, liquidity, and overall stability of the company.

statement of material facts

An official document that outlines the key details about a company, usually prepared in association with an underwriting or secondary distribution of its shares. This statement is specifically utilized when the aforementioned shares are traded on a recognized stock exchange and serves as a substitute for a prospectus in these particular circumstances.

stock

A stock refers to the ownership interest in a corporation. When an individual holds shares of a stock, they hold a proportional ownership in the company, representing a claim on its earnings and assets. Stocks are traded on stock exchanges and provide investors with the potential for capital appreciation and dividends.

stock average

Stock average refers to the calculation of the mean value of the current prices of a specific set of stocks, which are carefully selected to represent the broader financial market or a particular sector within it. This metric provides investors with an indication of the overall performance trends within the chosen stock group.

stock dividend

A stock dividend is a distribution of additional shares of the company’s stock to its existing common shareholders on a pro rata basis. The purpose of a stock dividend is to reward shareholders without affecting their proportional ownership in the company. This means that although the number of shares held by each shareholder increases, the ownership percentage remains the same.

stock exchange

A stock exchange refers to a regulated marketplace where buyers and sellers convene to facilitate the trading of securities such as stocks, bonds, and other financial instruments. Prices on a stock exchange are determined through the interaction of buyers and sellers based on the principles of supply and demand, creating a transparent and efficient environment for securities trading.

stock index

A stock index is a numerical representation of the performance of a specific group of stocks, which enables investors to track and compare the overall trend and volatility of the stock market. Stock indexes are usually weighted by the market value of the included stocks, reflecting the relative importance of each stock in the index. They are calculated based on the total market value (market capitalization) of the individual stocks in the index compared to a base period. This comparison helps in measuring the percentage change in the value of the stock index over different time periods, serving as a key benchmark for investors and market analysts.

stock savings plan

A stock savings plan is a provincial program that provides individual residents with a tax incentive in the form of a deduction or tax credit for provincial income tax purposes. This incentive is granted for investments made in specific investment vehicles approved by the province. The amount of the credit or deduction is calculated as a percentage of the value of the investment made by the individual.

stock split

A stock split is a corporate action that increases the number of shares outstanding without changing the shareholders’ equity. The main purpose of a stock split is to decrease the price per share, making it more affordable for investors and enhancing liquidity in the market. For example, in a 2:1 stock split, for every share held by an investor, they receive an additional share without any change in the total value of their holdings. This process effectively divides the market price by the split ratio, making the stock more attractive to a broader range of investors.

stop buy orders

Stop buy orders are instructions given by an investor to purchase a security once its price reaches a specified level. Such orders are commonly utilized to limit potential losses on a short position or to capitalize on upward price movements by buying the stock at a predetermined price point.

stop loss orders

A stop-loss order is a type of order placed with a broker to sell a security when it reaches a specified price. This order is designed to limit an investor’s loss or protect any potential profit by automatically triggering a sale once the stock price reaches a predetermined level. It serves as a risk management tool by helping investors minimize their losses in case the market moves against their position.

straight-line method

The straight-line method is an approach in accounting that allocates the cost of a tangible asset evenly over its useful life. This method ensures that the same amount is subtracted from the asset’s value as an expense in each accounting period until the asset’s book value reduces to its residual value.

straight preferred

Straight preferred is a type of preferred share that does not have any additional special features or characteristics. Essentially, it is a simple form of preferred stock that does not come with any extra benefits or rights beyond the standard features typically associated with preferred shares.

straight-through processing

Straight-through processing is a seamless and automated method used in the financial industry to facilitate the efficient handling of security transactions and investments with real-time accuracy. It involves the use of an integrated, continuous investment management database that tracks all transactions and investments across different departments within a firm, enabling immediate processing and linkage of these activities without the need for manual intervention.

strategic asset allocation

Strategic asset allocation is a methodical approach to distributing investments across different asset classes in a portfolio. This strategy involves periodically adjusting the proportions of assets to uphold a predetermined mix over an extended timeframe. The primary goal is to align the investment portfolio with the investor’s risk tolerance, financial goals, and time horizon, thereby optimizing the balance between potential returns and risk exposure.

street certificate

Street certificates are securities certificates held in the name of a securities firm instead of the actual owner, known as the beneficial owner. These certificates are typically used in brokerages or financial institutions to facilitate trading and ensure the security of the assets owned by investors. By holding securities in street name, brokers are able to simplify trading processes and provide additional services to clients, such as executing trades quickly and efficiently. Street certificates also offer a level of anonymity and protection for investors, as their personal information is kept confidential from the public record.

street form

Securities held in street name refer to securities registered in the name of a brokerage firm or other financial institution, rather than in the name of the individual beneficial owner. When securities are held in street form, the brokerage firm retains ownership of the securities on behalf of the investor, making it easier to facilitate transactions and handle administrative tasks. This arrangement also provides a layer of privacy and security for the investor, as their personal information is kept confidential in the brokerage firm’s records.

street name

The term ‘street name’ refers to securities that are registered under the name of a brokerage firm or its nominee, rather than being registered under the real or beneficial owner’s name. Securities held in street name are commonly used in modern securities trading. The securities held in this manner are referred to as street certificates.

strike price

The strike price refers to the pre-defined price at which the holder of an options contract can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset. It is a crucial element of an options contract as it determines the price at which the transaction will occur upon exercise. The strike price is also known as the exercise price and is set when the option is initially bought or sold.

strip bonds or zero coupon bonds

Strip bonds, also known as zero coupon bonds, are typically high-quality government bonds that were originally issued as bearer bonds. In strip bonds, the interest coupons are removed, and the bond principal and any remaining coupons, known as the residue, are traded separately at a significant discount from the face value.

structural unemployment

Structural unemployment is a type of unemployment caused by a mismatch between the skills possessed by the workers and the requirements of the available jobs, geographical mismatch where job opportunities are not in the same location as job seekers, or when individuals choose not to work due to the wage rates offered in the labor market.

structured product

A structured product is a type of passive investment vehicle that is carefully designed to offer a particular risk and return profile. It is constructed using financial engineering techniques. The value of a structured product is typically linked to the performance of a specific reference security, known as an underlying asset. These underlying assets can vary and may include a single security, a collection of securities, foreign currencies, commodities, or an index.

subordinated debenture

A subordinated debenture is a type of debt security that ranks lower in priority in terms of claiming assets and profits compared to other debentures. The term ‘subordinated’ implies that in the event of liquidation, holders of subordinated debentures will be paid only after the claims of holders of senior debentures have been satisfied.

subscription or exercise price

The subscription or exercise price refers to the pre-determined price at which the holder of a right or warrant can acquire a new share directly from the issuing company. In the context of options, this price is known as the strike price, and it represents the level at which the option holder can buy or sell the underlying asset.

subsidiary

A subsidiary refers to a company that is under the control of another company, typically through the ownership of more than half of its shares. This arrangement allows the parent company, also known as the holding company, to influence the subsidiary’s decisions and operations. Subsidiaries are considered separate legal entities, even though they are controlled by the parent company, and they typically operate independently to achieve their business objectives within the guidelines set by the parent company.

suitability

Suitability is a crucial consideration for registrants when providing investment recommendations. It involves conducting a comprehensive analysis of all available information pertaining to a client and a particular security to assess whether the investment aligns with the client’s financial objectives and risk tolerance. This evaluation is particularly important in accounts where specific exemptions related to suitability criteria do not apply.

superficial losses

Superficial losses refer to the situation where an investor sells a security and then repurchases the same or substantially identical security within a period of 30 days before or after the sale. These losses are not recognized for tax purposes and are considered a strategy to harvest tax losses without significantly changing the investor’s market exposure.

supply

Supply refers to the amount of a good or service that producers are willing to offer for sale at a specific price and during a defined time frame. Generally, as the price of a good or service increases, the quantity supplied by producers also increases, following the law of supply.

supply and demand

Supply and demand are fundamental economic concepts that describe the relationship between the availability of a product or service (supply) and the desire for that product or service (demand), which influence the price at which the product or service is bought and sold in the market.

supply-side economics

Supply-side economics is an economic theory that emphasizes the significance of tax rate adjustments in influencing the supply of goods and services, as well as the expenditure choices within an economy. Proponents of this theory argue that reducing government spending and lowering taxes can promote economic growth by incentivizing producers to increase supply and individuals to engage in more economic activities.

support level

In financial markets, a support level is a predetermined price level at which a security tends to stop decreasing in value. This occurs because the demand for the security increases, leading to more investors willing to purchase it than those looking to sell it, thereby providing a level of support against further declines in price.

suspension in trading

A suspension in trading refers to an enforced halt in the buying and selling of a company’s stock. This action is taken by an exchange when the company’s financial standing fails to meet the exchange’s specified criteria for ongoing trading. Reasons for suspension can include a company’s inability to comply with the terms of its listing agreement set forth by the exchange.

swap

A swap is a derivative contract between two parties, typically traded over-the-counter. It involves an agreement to exchange a series of cash flows based on specified terms and at predetermined dates in the future. Swaps can be used to manage risks, hedge against fluctuations in interest rates, or speculate on market movements.

sweetener

A sweetener is an incentive feature added to the terms of a new debt issue or preferred shares offering to enhance its attractiveness to initial investors. Common sweeteners may include warrants, common shares bundled with the issue, or features that allow conversion, extension, or retraction of the initial investment.

switching fee

A switching fee is a charge imposed by a mutual fund when an investor swaps units of one fund for another within the same fund family or company. This fee is meant to discourage excessive trading and helps compensate for the costs associated with executing the exchange.

syndicate

A syndicate refers to a consortium of investment dealers that collaboratively underwrite and distribute either a fresh offering of securities or a substantial portion of an already existing one.

synthetic ETF

A synthetic Exchange-Traded Fund (ETF) is a type of ETF that is created using financial derivatives like swaps to replicate the performance of an underlying index. Unlike traditional ETFs that hold actual securities, synthetic ETFs use derivative contracts to mimic the index’s return. This means that the exposure of synthetic ETFs is achieved through the use of these financial contracts and is considered notional or hypothetical, rather than based on physical ownership of assets.

System for Electronic Document Analysis and Retrieval (SEDAR)

SEDAR is a system designed to streamline the electronic submission of securities-related information in compliance with the regulations set forth by Canadian securities regulatory authorities. It enables companies to efficiently file and disclose their required documents electronically, ensuring transparency and accessibility of the information gathered during the submission process.

systematic risk

Systematic risk, also known as market risk, is an inherent risk that cannot be mitigated through diversification and affects all investments within a particular asset class. It is unrelated to any specific investment and is caused by external factors such as economic conditions, political events, and market fluctuations. In equities, systematic risk is referred to as market risk, while in fixed income securities, it is known as interest rate risk.

systematic withdrawal plan

A systematic withdrawal plan is a strategy that allows investors to automatically withdraw a fixed amount of money from their investment in a mutual fund or a segregated fund at regular intervals. This plan provides investors with a consistent income stream while also maintaining their investment balance. It is designed to help investors manage their cash flow efficiently and reduce the risk of emotional decision-making during market fluctuations.

T3 form

The T3 form, also known as the Statement of Trust Income Allocations and Designations, is a tax document provided to unitholders of an unincorporated mutual fund held outside a registered plan. This form reports the income allocations and designations related to trusts that the unitholders are involved in.

T4 form

The T4 form, also known as the Statement of Remuneration Paid, is a document provided by employers to employees on an annual basis. It outlines the total amount of compensation received by an employee during the calendar year, including salary, bonuses, and other taxable benefits. Employers are required to issue T4 forms to employees by the end of February for the preceding calendar year in order to comply with tax regulations.

T5 form

The T5 form, also known as the Statement of Investment Income, is a document provided to shareholders by an incorporated fund held outside a registered plan. It outlines the investment income earned by the fund during a specific period. The form is used by shareholders to report this income on their tax returns.

takeover bid

A takeover bid refers to an offer extended to the security holders of a company in order to acquire a significant amount of the company’s voting securities. Specifically, the offer involves purchasing voting securities that, when combined with any securities the offeror already owns, will total more than 20% of all the outstanding voting securities of the company. In the case of federally incorporated companies, this threshold is set at exceeding 10% of the outstanding voting shares of the target company.

target-date funds

Target-date funds are a type of mutual fund designed based on the concept that investors become less tolerant of risk as they age. These funds start with a growth-oriented strategy, investing in riskier assets during the initial years. As the target date approaches, the fund automatically adjusts its asset allocation to include more conservative investments. This process, known as a glide path, is managed by the fund’s manager and does not require active involvement from investors. Target-date funds are also referred to as target-based funds or life-cycle funds.

tax-free savings account (TFSA)

A tax-free savings account (TFSA) is a financial tool that allows individuals to invest and save money without being subject to tax on the income generated within the account. This tax advantage remains in effect for the lifetime of the account holder. One key benefit of a TFSA is the flexibility it offers, as there are no limitations on when or how much money can be withdrawn from the account. The withdrawn funds can be used for any purpose without facing tax consequences.

tax loss selling

Tax loss selling refers to the practice of selling an investment or security at a loss with the main objective of offsetting capital gains and reducing tax liability. It involves deliberate selling of underperforming assets to realize losses that can be used to offset capital gains in the same tax year or in future years. While this strategy can have tax benefits, it is crucial to not overlook fundamental investment principles and long-term financial goals when engaging in tax loss selling.

technical analysis

Technical analysis is a technique used in financial market analysis that involves evaluating historical price charts and trading volumes to forecast potential future price movements. It examines past market data, primarily focusing on price and volume patterns, to identify trends and patterns that may help predict future market behavior. The underlying principle of technical analysis is that historical price movements can provide insights into the psychological factors influencing market participants, allowing traders and analysts to make informed decisions based on the study of patterns and trends.

term deposit

A term deposit refers to a financial arrangement where an individual or entity invests a specific amount of money with a deposit-taking institution for a predetermined period of time at an agreed fixed rate of return. During the tenure of the term deposit, the funds are securely held by the institution, and at the end of the term, the principal amount along with the accrued interest is returned to the investor.

term to maturity

The term to maturity refers to the duration for which a segregated fund policy needs to be maintained to qualify for the maturity guarantee. Typically, the term to maturity for a segregated fund policy is 10 years, with the exception being in the case of the annuitant’s death.

thin market

A thin market refers to a market with limited buying and selling interest, resulting in few bids to buy or offers to sell assets. This phenomenon can occur in relation to a specific security or the overall stock market. In such markets, the scarcity of transactions can lead to significant price fluctuations between trades compared to more liquid markets. A thin market for a specific stock may indicate a lack of investor interest in the stock or a limited availability of that particular asset.

time horizon

Time horizon refers to the timeframe between the present moment and the occurrence of the next significant change in a client’s financial situation. Clients experience different life events, such as retirement or purchasing a home, each of which can signify a distinct time horizon requiring a full reassessment and adjustment of their investment portfolio.

tilting of the yield curve

The term ’tilting of the yield curve’ refers to a situation in the financial market where there is a change in the slope or shape of the yield curve. It occurs when the yields of long-term bonds decrease while the yields of short-term bonds increase simultaneously. This phenomenon reflects a shift in market expectations regarding future interest rates and economic conditions.

time to expiry

Time to expiry refers to the remaining duration until the expiration of an option or other derivative instrument, typically measured in days, months, or years. It denotes the period during which the contract can be exercised or traded before it lapses. Understanding the time to expiry is essential for evaluating the potential profitability and risk associated with holding or trading the derivative.

time to recovery

Time to recovery refers to the duration, typically measured in months, required for an economic indicator or investment to transition from reaching a low point (trough) to establishing a new high point (peak). In some cases, particularly in the context of alternative strategy fund managers and analysts, time to recovery may be defined as the duration from the previous peak through a trough and back to a new peak.

time value

Time value is the component of an option’s price that exceeds its intrinsic value, representing the potential for the option to gain value before expiration. It is the premium paid for the time left until the option expires, considering factors such as the underlying asset’s price volatility, time to expiration, and risk-free interest rate.

time-weighted rate of return (TWRR)

The time-weighted rate of return (TWRR) is a method used to measure the performance of an investment by taking into account the impact of external cash flows. It is calculated by geometrically linking the returns of each subperiod between cash flows, thereby eliminating the distorting effect of cash inflows and outflows. This provides a more accurate reflection of the investment manager’s performance over time, without being influenced by the timing or amount of external contributions or withdrawals.

timely disclosure

Timely disclosure refers to the responsibility placed by regulatory authorities on corporations, their executives, and directors to promptly share any significant corporate information with the public, whether positive or negative. This information, which must be material in nature, is typically released to the media. The goal of timely disclosure is to ensure that all investors, not just insiders, have access to the same essential company information. Timely disclosure enhances transparency and fairness in the financial markets. It is also known as immediate disclosure or timely reporting. For related concepts, see Continuous Disclosure.

top-down analysis

Top-down analysis is a method used in fundamental analysis that begins by evaluating broad economic factors. This analysis involves assessing overall economic trends and conditions to identify potential opportunities. The next step is to narrow down the focus to specific industries and the companies operating within them that are expected to perform well based on the identified economic trends.

Toronto Stock Exchange (TSX)

The Toronto Stock Exchange (TSX) is the primary stock exchange in Canada, where various securities such as stocks, bonds, and exchange-traded funds are publicly traded. It is the largest stock exchange in Canada, providing a platform for investors to buy and sell ownership in a wide range of over 1,700 companies listed on the exchange. The TSX plays a crucial role in the Canadian economy by facilitating capital formation, liquidity, and price discovery for the listed securities.

tracking error

Tracking error is a measure that indicates the variability in the performance of an Exchange Traded Fund (ETF) in comparison to the performance of its underlying index or reference asset. It represents the deviation between the returns of the ETF and the returns of the index it is designed to replicate.

trade-matching elements

Trade-matching elements consist of specific details that need to be agreed upon by all parties involved in a financial transaction before the trade can be processed for clearance and settlement in an institutional setting.

trade payables

Trade payables are amounts owed by a company to its suppliers for goods or services purchased on credit. These payables are typically short-term obligations that are expected to be settled within one year. Trade payables are classified as current liabilities on the company’s balance sheet, reflecting the company’s obligations that are due in the near future.

trade receivables

Trade receivables refer to the amounts of money that a company is owed by its customers for goods or services that have been provided. These amounts are expected to be collected within a year and are classified as a current asset on the company’s statement of financial position, reflecting the company’s expectation to receive payment in the near term.

trade ticket

A trade ticket refers to an electronic document used in financial transactions. It serves as a trade confirmation and is transmitted securely through proprietary systems. The document includes all essential details relevant to a transaction, providing a comprehensive record of the trade.

trading unit

The term ’trading unit’ refers to the quantity of the underlying asset that is associated with a single option contract. In the context of North American markets, all exchange-traded options typically have a standardized trading unit equivalent to 100 shares of the underlying asset.

trailer fee

A trailer fee is a compensation paid by a mutual fund manager to the intermediary, such as an individual or organization, who sold the fund to investors. This fee is intended to remunerate the intermediary for offering various services, including investment advice, tax guidance, and financial statements to investors. These fees are typically paid annually and are ongoing as long as the investor maintains their investment in the fund.

tranches

Tranches refer to a structured finance technique where an issue of securities is divided into multiple classes based on varying levels of credit risk and potentially different rates of return. These distinct tranches are then sold to investors based on their risk preferences and desired investment opportunities.

transaction date

The transaction date refers to the specific date on which a financial instrument, such as a stock or bond, is officially bought or sold. It is a crucial element in financial transactions as it marks the exact moment when ownership of the security is transferred from the seller to the buyer.

transfer agent

A transfer agent is a designated agent, often a trust company, appointed by a corporation to manage and maintain accurate records of its shareholders. These records encompass various transactions such as purchases, sales, and account balances. Additionally, the transfer agent undertakes the responsibility of distributing dividend payments to the shareholders.

transparency

Transparency refers to the quality of being easily understood and perceived by all stakeholders, often in the context of financial transactions or reporting. It involves providing clear, accurate, and accessible information that allows for informed decision-making and fosters trust among participants in the market or other relevant parties.

Treasury bills

Treasury bills are short-term government securities issued in specific denominations, typically ranging from $1,000 to $1,000,000. These financial instruments are unique as they are sold at a discount to their face value and do not accrue interest like traditional bonds. Upon maturity, which occurs at par (100% of face value), the difference between the purchase price and the face value is considered the investor’s return, serving as a form of income in lieu of interest. In Canada, this return is categorized as interest income and is subject to taxation in the hands of the purchaser. Treasury bills are commonly referred to as T-bills.

treasury shares

Treasury shares refer to the stock of a company that was once issued and has been repurchased by the corporation, or shares that were authorized but never issued. These shares are still part of the shares issued by the company but are no longer considered outstanding. Treasury shares can be reissued, sold, or used as part of executive compensation plans. Unlike outstanding shares, treasury shares do not carry voting rights and do not entitle their holders to receive dividends.

trend

A trend illustrates the overall direction in which the prices of securities are moving. It reflects the long-term trajectory of a specific security’s price or trading volume, indicating whether it is rising, falling, or moving sideways.

trend ratio

The trend ratio is a method used by analysts to identify and analyze patterns or tendencies in financial data. It involves selecting a specific time period as the base reference point. The figure or ratio for this base period is set as 100, and then compared to the figures or ratios for subsequent periods by dividing them. This comparison helps to reveal the direction and magnitude of changes over time, providing insights into potential future developments.

trust deed

A trust deed is a legally binding document that establishes the terms and conditions of an agreement between the entity issuing bonds and the bondholders. It includes important details such as the coupon rate, frequency of interest payments, and other specific terms and conditions governing the relationship between the issuer and the bondholders.

trust deed restriction

Trust deed restrictions refer to limitations outlined in a legal document known as a trust deed. These constraints are put in place to govern the actions and decisions of involved parties in relation to the trust. Trust deed restrictions are also commonly referred to as covenants.

trustee

A trustee, typically a trust company, is designated by a company to safeguard the collateral supporting bonds and ensure that all terms specified in the trust deed pertaining to the bonds are upheld for the benefit of bondholders. In the case of a segregated fund, the trustee manages the assets of a mutual fund on behalf of its investors.

TSX Alpha Exchange

TSX Alpha Exchange is a trading platform that facilitates the trading of securities listed on the Toronto Stock Exchange (TSX) and the TSX Venture Exchange (TSXV). It offers transparency by making order price and volume information publicly accessible. TSX Alpha Exchange operates as a subsidiary of TMX Group Inc., a leading financial services company in Canada.

TSX Venture Exchange

The TSX Venture Exchange is a public marketplace in Canada that provides a platform for trading in venture capital investments. It was established in 1999 through the amalgamation of the Vancouver and Alberta Stock Exchanges.

two-way security

A financial instrument, typically a debenture or preferred share, that can be converted into or exchanged for another security, often common shares, of the same company. This type of security provides investors with the flexibility to benefit from potential increases in the value of the underlying common shares in the future. Additionally, holders of two-way securities may receive interest or dividend payments during the holding period.

underemployed

Individuals classified as underemployed are those who are employed part-time, typically in positions that do not fully utilize their skill set or qualifications, while desiring full-time employment opportunities. This discrepancy between their actual employment status and desired work arrangement characterizes the state of underemployment.

underlying security or asset

The underlying security or asset refers to the primary financial instrument upon which a derivative contract, such as an option, is structured. It serves as the fundamental asset that the derivative’s value is derived from. For instance, when we mention the ABC June 35 call options, we are actually talking about a derivative contract whose value is determined by the performance of the underlying security ABC.

underwriting

Underwriting is the process in which one or more investment dealers or underwriters purchase a security issue with the intention of reselling it to investors. The formal contracts that govern this transaction are referred to as underwriting agreements. Underwriting plays a crucial role in the issuance of securities, ensuring that the issuer receives the necessary capital by guaranteeing the sale of the securities to investors.

unemployment rate

The unemployment rate refers to the percentage of the labor force that is actively seeking employment but is currently without a job. It is a key economic indicator used to assess the health of the economy and the labor market’s efficiency in matching job seekers with available job opportunities.

unified managed account

A unified managed account is a fee-based investment account that offers various advantages similar to multi-disciplinary accounts. It provides additional features such as receiving performance reports from different sub-advisors, detailing specific investment models held within a single custody account.

unit

A unit in finance refers to a combined offering of two or more corporate securities, which may include preferred shares and warrants, that are sold to the public at a bundled price. This enables investors to acquire a diversified portfolio of securities in a single transaction.

unit value

Unit value refers to the monetary worth assigned to each individual unit within a segregated fund. These units do not possess legal standing and primarily serve as a mechanism for administrative purposes, aiding in the calculation of earnings assigned to policyholders and the magnitude of benefits slated for recipients.

Universal Market Integrity Rules (UMIR)

Universal Market Integrity Rules (UMIR) consist of a standardized set of regulations governing trading activities across all Canadian markets. These rules are meticulously crafted to uphold the principles of fairness, transparency, and efficiency in the financial markets, thereby ensuring integrity and stability in trading practices.

unlisted security

An unlisted security refers to a financial instrument that is not traded on a public stock exchange but rather in the over-the-counter (OTC) market. The OTC market provides a platform for trading such securities directly between parties without the need for a centralized exchange. Unlisted securities are typically less liquid and may have limited information available to investors compared to those listed on formal exchanges.

unlisted market

A segment of the financial markets where securities are traded but are not listed on a formal stock exchange. This type of market is also known as the dealer market, where transactions are facilitated directly between buyers and sellers without a centralized exchange. Prices in the unlisted market are typically negotiated privately and may be less transparent compared to those in a public exchange.

unsolicited orders

Unsolicited orders refer to buy or sell orders placed by investors without seeking any guidance or recommendation from a financial advisor or broker. These orders are solely initiated by the investor’s own decision-making process, without being influenced by advice provided by a professional financial consultant.

valuation day

Valuation day refers to the specific day on which the assets of a segregated fund are assessed and valued. This valuation is calculated by determining the total value of the fund’s assets and deducting its liabilities. In the financial industry, most segregated funds undergo valuation at the conclusion of each business day to ensure an accurate representation of the fund’s worth.

value manager

A value manager is an investment manager who utilizes an in-depth research approach to identify securities that are currently trading at a price below their intrinsic value. These managers aim to capitalize on market inefficiencies by selecting securities that they believe have the potential for price appreciation once the market recognizes their true worth. Value managers often focus on fundamental analysis, such as studying financial statements, economic indicators, and industry trends, to identify investment opportunities in the market.

value ratios

Value ratios are financial metrics that provide investors with insights into a company’s valuation or the returns generated from holding its shares.

variable rate preferred

Variable rate preferred shares are a class of preferred shares that offer dividends which are adjusted periodically based on changes in prevailing interest rates. When interest rates increase, the dividend payments on these shares also rise accordingly, and conversely, decrease when interest rates decline.

variable rate securities

Variable rate securities are financial instruments that provide returns on investments which adjust according to changes in interest rates. When interest rates increase, the returns on these securities also go up, and conversely, when interest rates decrease, the returns decrease as well. For additional reference, see variable rate preferred securities.

vested

Vested refers to the portion of retirement or investment funds that an employee has a non-forfeitable right to, typically based on the duration of their employment or participation in a specific program. It represents the ownership interest of the employee in the contributions made by the employer on their behalf over a certain period of time.

volatility

Volatility is a statistical measure of the dispersion of returns for a security or market index. It quantifies the degree of variation of prices for a financial instrument over a specific time period. Typically expressed as the standard deviation of daily returns, volatility reflects the degree of risk or uncertainty associated with the price movement of the security. Higher volatility suggests that the security’s price can change dramatically in a short period, indicating greater risk, while lower volatility implies more stable and predictable price movements.

voting rights

Voting rights refer to the privilege granted to stockholders to participate in decision-making processes related to a company’s operation. Typically, each common share entitles the holder to one vote. However, preferred stockholders may only exercise their voting rights when the company fails to pay dividends. Shareholders can transfer their voting rights to another party, known as a proxy, to represent them in corporate decisions.

voting trust

A voting trust is a contractual arrangement where shareholders temporarily transfer their voting rights to a trustee. This empowers the trustee to vote on behalf of the shareholders for a predetermined period or until specific objectives are met. The purpose of a voting trust is to centralize decision-making control in the hands of designated individuals, ensuring a more cohesive and focused management approach for the company.

waiting period

The waiting period is the duration starting from when a preliminary prospectus receipt is issued by the securities administrators to when the final prospectus receipt is received. During this period, the securities cannot be offered or sold, ensuring that investors have enough time to review all relevant information before making an investment decision.

warrant

A warrant is a financial instrument that grants the holder the option to buy a specific number of securities at a predetermined price within a certain period. Warrants are typically included as part of a new securities issuance to attract investors by offering potential benefits beyond the standard security itself. They provide investors with the opportunity to purchase additional securities at a fixed price, thus serving as an incentive to participate in the primary offering.

weighted-average method

The weighted-average method is an inventory valuation technique used to allocate the cost of goods available for sale proportionally based on the number of units available for sale. It involves dividing the total cost of goods available for sale by the total number of units available for sale to calculate a cost per unit. This method provides a blended cost per unit and is commonly used in determining the cost of inventory for financial reporting and management decision-making purposes.

withholding tax

Withholding tax refers to the income tax deducted at the source by a financial institution from payments made to an individual or entity. This amount is mandated by law and is withheld by the payer before the income is received by the payee. Withholding tax is levied on various types of income, such as interest, dividends, and payments to non-residents, in order to ensure tax compliance and collection.

working capital

Working capital is calculated as the difference between a company’s current assets (such as cash, accounts receivable, and inventory) and its current liabilities (including accounts payable and short-term debts). It is a measure of a company’s operational liquidity and its ability to meet short-term financial obligations.

working capital ratio

The working capital ratio is a financial metric that reflects the ability of a company to cover its short-term financial obligations. It is calculated by dividing a company’s current assets by its current liabilities. The working capital ratio is also referred to as the current ratio in financial analysis.

wrap account

A wrap account, also referred to as a wrap fee program, is a type of fully discretionary investment account. It involves a single annual fee, calculated based on the total assets held in the account. Unlike traditional accounts where separate fees are charged for transactions, commissions, advice, and services, in a wrap account, all these costs are combined into one annual fee. This fee structure simplifies the fee schedule for investors. Each wrap account is managed independently from other accounts but follows a model portfolio that aligns with the investment objectives of clients who share similar goals.

writer

A writer in the context of financial markets refers to an individual or entity who is selling either a call option or a put option. When a writer sells an option, they receive a payment known as a premium. This premium is the price paid by the buyer of the option for the right to buy (in the case of a call option) or sell (in the case of a put option) the underlying asset at a specified price within a set timeframe, if they choose to exercise the option. As the option writer, the seller is then obligated to fulfill the terms of the contract by either buying or selling the underlying security based on the terms agreed upon.

yield - bond & stock

Yield refers to the return on an investment, either a bond or a stock. Stock yield is determined by dividing the annual dividend by the current market price of the stock, expressing the result as a percentage. On the other hand, bond yield is a more intricate calculation that considers annual interest payments and the amortization of the variance between the current market price and the bond’s par value over the bond’s maturity period. For more details, refer to Current Yield.

yield curve

The yield curve is a graphical representation illustrating the fluctuating interest rates or yields of bonds with identical credit ratings but differing maturity dates. In a typical scenario, the yield curve slopes upwards, implying that long-term investments generally yield higher returns compared to short-term investments. Conversely, an inverted yield curve occurs when short-term investments offer greater returns than long-term ones.

yield to maturity

Yield to maturity is a financial metric that represents the total return an investor would earn on a bond if it is held until it matures. It factors in the bond’s current market price, its face value, the time remaining until maturity, and the interest payments received over the holding period. Yield to maturity is expressed as an annual percentage rate and helps investors assess and compare the attractiveness of different bond investment opportunities in the long term.

yield spread

Yield spread refers to the variance in the returns generated by two debt securities, usually measured in basis points. This spread is indicative of the risk disparity between the two securities; typically, a wider spread signifies a greater distinction in risk levels.

zero coupon bonds

Zero coupon bonds are fixed-income instruments that are issued at a discount to their face value and do not make periodic interest payments. They are also known as strip bonds, as they can be purchased at a discount and redeemed at face value, with the difference between the purchase price and face value serving as the return to the investor.

zero-coupon bonds plus option structure

When an issuer issues a Principal Protected Note (PPN) using the zero-coupon bond plus option structure, a significant portion of the raised funds is allocated to a zero-coupon bond matching the PPN’s maturity. This bond ensures the repayment of the principal amount upon maturity. The remaining funds are used to acquire an option linked to the underlying asset.

Thursday, July 4, 2024

CSC® Exams

Explore our comprehensive Canadian Securities Course (CSC®) preparation resources, featuring detailed textbooks and interactive quizzes. Enhance your CSC® exam readiness with expertly crafted study guides and practice questions.

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