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1.1 The Canadian Securities Industry & the Investment Dealer's Role

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Canadian Securities Course CSC

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1 Introduction & Exam Overview

About the CSC Exams

2 Chapter 1: The Canadian Investment Marketplace

1.1 The Canadian Securities Industry & the Investment Dealer's Role 1.2 Financial Intermediaries: Banks, Trusts, Credit Unions, Insurers & Pension Funds 1.3 Financial Market Trends 1.4 Investment Capital, Financial Instruments & Financial Markets 1.5 Canadian Exchanges, ATSs, Dark Pools & the Order Protection Rule 1.6 Canadian Securities Regulators, the CSA & CIRO 1.7 Investor Protection: OSFI, CIPF and CDIC 1.8 Ethics, Standards of Conduct & the Client Focused Reforms 1.9 Conflicts of Interest, Complaint Handling & Remediation

3 Chapter 2: The Economy

2.1 Economics Foundations & Measuring Economic Growth 2.2 The Business Cycle & Economic Indicators 2.3 Inflation & Interest Rates 2.4 The Labour Market & Unemployment 2.5 The Bank of Canada & the Inflation-Control Target 2.6 Implementing Monetary Policy: The Operating Band, Market Operations & Transmission 2.7 Fiscal Policy, Deficits & the Challenges of Government Policy 2.8 International Finance & Trade: The Balance of Payments and the Canadian Dollar

4 Chapter 3: Features and Types of Fixed-Income Securities

3.1 The Fixed-Income Marketplace, Bond Terminology & Security 3.2 Protective Covenants, Retirement Provisions & Extendible/Retractable Features 3.3 Government of Canada Securities: T-Bills, Marketable Bonds & RRBs 3.4 Provincial & Municipal Debt and Strip Bonds 3.5 Corporate Bonds, Credit Spreads & Bond Ratings 3.6 Money Market Instruments, Floating-Rate Notes & International Bonds 3.7 Other Fixed-Income Securities & Reading Bond Quotes

5 Chapter 4: Pricing and Trading of Fixed-Income Securities

4.1 Bond Pricing, Price–Yield Relationships & Accrued Interest 4.2 Yield Calculations & Return Measures 4.3 The Term Structure of Interest Rates & Yield Curve Theories 4.4 Fundamental Bond Pricing Properties: Volatility Rules, Duration & Convexity 4.5 Bond Market Trading & Bond Indexes

6 Chapter 5: Common and Preferred Shares

5.1 Common Shares: Ownership Rights, Voting & Restricted Shares 5.2 Dividends, DRIPs, Stock Splits & Consolidations 5.3 Preferred Shares: Features, Cumulative Dividends & Taxation 5.4 Preferred Share Variations: Convertible, Callable, Retractable, Floating & Rate-Reset 5.5 Fundamental Equity Metrics & Ratios 5.6 Stock Indexes & Averages

7 Chapter 6: Equity Transactions

6.1 Order Types, Execution & Market Mechanics 6.2 Margin Trading: Long Accounts & Borrowing 6.3 Short Selling & Short-Margin Requirements 6.4 Trading & Settlement Procedures: T+1, CDS & Confirmations

8 Chapter 7: Derivatives

7.1 Derivatives: Role, Underlying Assets & Users 7.2 Options Fundamentals: Calls, Puts & Moneyness 7.3 Option Strategies & Risk Management 7.4 Forward & Futures Contracts 7.5 Rights & Warrants

9 Chapter 8: Corporations and their Financial Statements

8.1 Corporate Structures & Corporate Governance 8.2 The Annual Report, Accounting Standards & the Auditor's Report 8.3 The Balance Sheet & Income Statement 8.4 The Cash Flow Statement & Earnings Quality 8.5 Public Company Disclosure, Investor Rights, Take-Over Bids & Insider Trading

10 Chapter 9: Financing and Listing Securities

9.1 Government & Corporate Financing: Underwriting and Syndicates 9.2 The Prospectus Process, Stabilization & Purchaser Rights 9.3 The Exempt Market & Private Placements 9.4 The Listing Process: TSX, TSXV & Capital Pool Companies 9.5 Continuous Disclosure, Material Changes & Insider Reporting

11 Chapter 10: Investment Analysis

10.1 Methods of Equity Analysis & Macroeconomic Analysis 10.2 Fundamental Industry Analysis 10.3 Company Analysis: Competitive Advantages, Governance & the Dividend Discount Model 10.4 Discounted Cash Flow & Relative Valuation Multiples 10.5 Financial Statement Ratio Analysis 10.6 Assessing Preferred Share Investment Quality 10.7 Technical Analysis: Charts, Trends & Patterns 10.8 Technical Indicators, Volume, Breadth & Sentiment

12 Chapter 11: Portfolio Analysis

11.1 Measuring Investment Return 11.2 Measuring Risk: Types of Risk, Standard Deviation & Downside Measures 11.3 Portfolio Risk & Return: Correlation and Diversification 11.4 Beta, the Capital Asset Pricing Model & the Security Market Line 11.5 Portfolio Manager Styles: Equity & Fixed Income 11.6 The Portfolio Management Process: Objectives, Constraints & the IPS 11.7 Asset Mix, Monitoring, Performance Evaluation & Rebalancing

13 Chapter 12: Alternative Investments, Other Managed, and Structured Products

12.1 Alternative Investments: Structures, Fees & Liquid Alternatives 12.2 Alternative Strategies, Performance Measurement & Due Diligence 12.3 Segregated Funds, Labour-Sponsored Funds & Listed Private Equity 12.4 Income Trusts, REITs & Closed-End Funds 12.5 Structured Products: PPNs & Market-Linked GICs 12.6 Split Shares & Asset-Backed Securities

14 Chapter 13: Mutual Funds

13.1 Managed Products & Mutual Fund Structure 13.2 Pricing Mutual Fund Units: NAVPS & Forward Pricing 13.3 Mutual Fund Fees, Sales Charges & Unit Series 13.4 Mutual Fund Regulation, Fund Facts & Account Opening 13.5 Types of Mutual Funds & Fund Management Styles 13.6 Redemptions, Withdrawal Plans & Measuring Fund Performance

15 Chapter 14: Exchange-Traded Funds (ETFs)

14.1 ETF Origins, Structure, Tax Efficiency & ETF Facts 14.2 ETF Creation, Redemption & Arbitrage 14.3 Types of ETFs & Advanced Strategies 14.4 Comparing ETFs, Mutual Funds & Individual Securities

16 Chapter 15: Working with the Institutional Client

15.1 The Institutional Marketplace & Institutional Clients 15.2 Institutional Investment Guidelines, Styles & Restrictions 15.3 Buy Side & Sell Side: Trading Desks, Revenue, Clearing & Best Execution 15.4 Block Trading, Dark Pools & Algorithmic Trading

17 Chapter 16: Fee-Based Accounts and Working with the Retail Client

16.1 Fee-Based Accounts: Managed & Non-Managed Models 16.2 Fee Transparency, CRM2 & Total Cost Reporting, and MWRR vs. TWRR 16.3 The Financial Planning Approach & the Life Cycle 16.4 Behavioral Finance, Sequence-of-Returns Risk & Client Coaching 16.5 Estate Planning Basics

18 Chapter 17: Canadian Taxation

17.1 The Canadian Taxation System 17.2 Taxation of Investment Income 17.3 Capital Gains, Losses & The Superficial Loss Rule 17.4 Registered vs Non-Registered Tax-Advantaged Accounts 17.5 Tax Planning Strategies, Pension Plans & the RDSP

1.1 The Canadian Securities Industry & the Investment Dealer's Role

Key Takeaways Explain This Topic AI

Capital flows from surplus units (mainly households) to deficit units (businesses and governments), either directly through securities or indirectly through intermediaries.

Canadian investment dealers are classified as integrated (full-service, mostly bank-owned), institutional, or retail firms.

A dealer acting as agent earns commissions without owning the securities; acting as principal it trades from inventory and earns a spread.

In a bought deal the dealer buys the whole issue and carries the inventory risk; in a best-efforts deal the issuer keeps the risk of unsold securities.

A banking syndicate shares underwriting liability, while a selling group distributes securities for a selling concession without underwriting risk.

Last updated: October 2026

Capital Mobilization in the Canadian Economy

A modern developed economy cannot expand without an efficient mechanism to collect savings and deploy them into productive capital investments. The Canadian financial system accomplishes this through capital mobilization—channeling funds from surplus spending units (those whose current income exceeds current expenditures) to deficit spending units (those whose expenditures exceed current receipts).

Primary Participants in Capital Allocation

Households and Individuals : Predominantly surplus spending units. Canadian households provide the foundational pool of domestic savings through deposits, mutual fund investments, pension contributions, and registered accounts (e.g., RRSPs, TFSAs, FHSAs).

Corporations : Typically deficit spending units. Businesses require capital to fund research and development, construct manufacturing plants, expand commercial real estate, upgrade technology infrastructure, and finance working capital.

Governments : Historically deficit spending units at federal, provincial, and municipal levels. Governments issue debt instruments to fund infrastructure projects (e.g., highways, transit, hospitals) and cover budgetary operational deficits.

Foreign Investors : Non-resident individuals, corporations, and sovereign wealth funds that supply international capital to Canadian public and private debt and equity markets, or borrow Canadian funds.

Investment Dealers and Underwriting

Investment dealers (broker-dealers) are the central facilitators of the direct capital market. They act as intermediaries between issuers seeking capital and investors seeking returns.

Classification of Investment Dealers

Integrated Dealers : Large, full-service firms that offer complete investment banking, research, institutional trading, and retail wealth management. Most integrated dealers in Canada are wholly owned subsidiaries of the Schedule I chartered banks (e.g., RBC Dominion Securities, TD Cowen/TD Wealth, Scotia Capital, BMO Nesbitt Burns, CIBC World Markets).

Institutional Dealers : Specialized boutique firms that cater exclusively to institutional investors (pension funds, hedge funds, sovereign wealth funds, mutual fund managers). They provide institutional block trading, prime brokerage, and corporate finance for specific industry sectors (e.g., mining, energy, technology).

Retail Dealers : Firms focused primarily on individual private clients. They range from full-service wealth advisory firms offering comprehensive financial planning to self-directed (discount) online brokerage platforms.

Underwriting and Corporate Financing Functions

When a corporation or government needs to raise long-term capital, it engages an investment dealer to underwrite the distribution of new securities in the primary market.

Firm Commitment (Bought Deal)

Mechanics : The dealer (or underwriting syndicate) commits to purchasing the entire issue of securities directly from the issuer at a specified price on a specific date, before reselling the securities to institutional and retail investors.

Risk Allocation : The dealer assumes 100% of the price and inventory risk. If market sentiment deteriorates or interest rates spike before the dealer resells the securities, the dealer must absorb the resulting trading loss.

Canadian Innovation : The bought deal is a hallmark of Canadian capital markets, allowing corporate issuers to lock in financing quickly without market exposure.

Best Efforts Underwriting

Mechanics : The dealer acts strictly as an agent for the issuing company. The dealer agrees to use its best efforts to sell as many securities as possible at the offering price, but assumes no legal or financial obligation to purchase any unsold portion.

Risk Allocation : The corporate issuer retains the inventory risk. If investor demand is insufficient, the issuer receives less capital than planned, or the offering may be cancelled if minimum subscription thresholds are not met.

Application : Frequently utilized for smaller, more speculative initial public offerings, emerging junior resource exploration companies, or high-risk corporate debt issues.

Banking Syndicates and Selling Groups

To manage the financial liability of multi-hundred-million-dollar offerings, a lead underwriter (syndicate manager) forms a banking syndicate —a group of investment dealers that pool financial capacity and share underwriting liability based on predetermined percentages. The syndicate may also recruit a broader selling group of dealers who act as agents to distribute securities to their retail networks, earning a selling concession without assuming principal underwriting liability. [Corporate Issuer]

  • │
  • │ Issues New Securities
  • ▼
  • [Lead Underwriter / Manager]
  • │
  • ┌───────────────────────┴───────────────────────┐
  • ▼ ▼
  • [Banking Syndicate Firm A] [Banking Syndicate Firm B]
  • (Assumes 40% Underwriting Risk) (Assumes 40% Underwriting Risk)
  • │ │
  • └───────────────────────┬───────────────────────┘
  • │ Allocates Shares
  • ▼
  • [Selling Group Dealers]
  • (Earn Concession, No Underwriting Risk)
  • │
  • ▼
  • [Public / Institutional Buyers]
  • Worked Scenario: Bought Deal vs. Best Efforts Allocation

Consider Northern Boreal Resources Ltd., a mid-tier mining exploration firm seeking to raise $30,000,000 to finance a new lithium extraction facility.

Scenario A: Bought Deal Agreement

Terms : An integrated dealer agrees to purchase 6,000,000 common shares at $5.00 per share.

Underwriting Spread : The dealer negotiates a 5.0% underwriting discount ($0.25 per share), agreeing to pay the issuer a net price of $4.75 per share.

Guaranteed Issuer Proceeds : Net Proceeds = 6 , 000 , 000 × $ 4.75 = $ 28 , 500 , 000 \text{Net Proceeds} = 6,000,000 \times \$4.75 = \$28,500,000 Net Proceeds = 6 , 000 , 000 × $4.75 = $28 , 500 , 000

Market Outcome : On the morning of distribution, global lithium commodity prices decline by 8%. Investor demand falters, and the dealer is only able to place 4,000,000 shares at the $5.00 public offering price. To liquidate the remaining 2,000,000 shares, the dealer must discount them in the secondary market at $4.40 per share.

Financial Result : Northern Boreal Resources receives its full $28,500,000 regardless of the market drop. The dealer absorbs the loss: Proceeds Realized = ( 4 , 000 , 000 × $ 5.00 ) + ( 2 , 000 , 000 × $ 4.40 ) = $ 20 , 000 , 000 + $ 8 , 800 , 000 = $ 28 , 800 , 000 \text{Proceeds Realized} = (4,000,000 \times \$5.00) + (2,000,000 \times \$4.40) = \$20,000,000 + \$8,800,000 = \$28,800,000 Proceeds Realized = ( 4 , 000 , 000 × $5.00 ) + ( 2 , 000 , 000 × $4.40 ) = $20 , 000 , 000 + $8 , 800 , 000 = $28 , 800 , 000 Dealer Gross Profit = $ 28 , 800 , 000 − $ 28 , 500 , 000 = $ 300 , 000 \text{Dealer Gross Profit} = \$28,800,000 - \$28,500,000 = \$300,000 Dealer Gross Profit = $28 , 800 , 000 − $28 , 500 , 000 = $300 , 000 (The dealer's anticipated gross profit of $1,500,000 collapsed to $300,000 due to inventory risk).

Scenario B: Best Efforts Agreement

Terms : The dealer agrees to offer 6,000,000 shares at $5.00 on an agency basis with a $0.25 selling commission per share sold.

Market Outcome : Under identical market conditions, only 4,000,000 shares are sold at $5.00.

Financial Result : Issuer Net Proceeds = 4 , 000 , 000 × ( $ 5.00 − $ 0.25 ) = $ 19 , 000 , 000 \text{Issuer Net Proceeds} = 4,000,000 \times (\$5.00 - \$0.25) = \$19,000,000 Issuer Net Proceeds = 4 , 000 , 000 × ( $5.00 − $0.25 ) = $19 , 000 , 000 Northern Boreal Resources suffers an $11,000,000 capital shortfall, leaving the project underfunded. The dealer bears zero inventory loss and collects $1,000,000 in selling commissions on the shares placed.

The Investment Dealer's Many Roles

Underwriting is only one of the services an investment dealer provides. A full-service dealer earns revenue from several business lines, and each one makes the dealer an intermediary in a different way:

  • Function What the dealer does How it earns money
  • Agency (brokerage) Buys or sells securities on behalf of a client, without owning them Commissions or fees

Principal (dealer) trading Buys securities into, or sells them out of, its own inventory The spread between buying and selling prices

Market making Posts continuous bids and offers so others can trade Spreads, exchange rebates

Corporate finance Underwrites new issues and advises on mergers, acquisitions and restructurings Underwriting spreads and advisory fees

  • Research Publishes analysis on companies, industries and the economy Supports trading and banking revenue
  • Wealth management Gives retail clients advice, portfolio management and planning Fees on assets or commissions

The same firm can act as agent for one client and principal for another on the same day, so it must disclose which capacity it acted in on the trade confirmation. A full-service firm offers advice across these lines; an order-execution-only (discount) firm executes trades that clients choose themselves and does not make recommendations.