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CSC CX Selection study materials
CSC CX Selection study resources

CSC CX Selection: Equities and Equity-Linked Securities

CSC CX Selection · Work through your exam, one topic at a time.

All guide sections

Equities and Equity-Linked Securities

What this domain tests

Equity features, corporate actions, order types and market mechanics. Questions test your ability to trace a transaction from order entry through settlement, and to adjust per-share metrics for splits, rights and dilution.

Core rules

  • Common shares carry residual claim, voting rights and dividends declared at the board's discretion. Preferred shares rank ahead for dividends and on liquidation, and may be cumulative, retractable, redeemable, floating-rate or participating.
  • Rights let existing holders buy new shares at a set price during a short window; warrants are longer-dated and typically attached to a debt or equity issue.
  • Splits and reverse splits change share count, not market capitalization, but they do change per-share figures such as EPS and dividends per share.
  • Order types: market, limit, stop (trigger becomes a market order), stop-limit, all-or-none, immediate-or-cancel.
  • Index weighting: price-weighted, capitalization-weighted (S&P/TSX Composite), equal-weighted.
  • An IPO requires a final prospectus; a secondary offering sells existing or newly issued shares into the market and dilutes existing holders only if new shares are issued.

Worked example

A company earns $8,000,000 and has 2,000,000 shares outstanding, giving EPS of $4.00. It announces a 2-for-1 split.

  • Shares outstanding become 4,000,000; net income is unchanged.
  • New EPS = 8,000,000 / 4,000,000 = $2.00
  • A share trading at $60 pre-split should trade near $30 post-split. Market capitalization is unchanged at $120,000,000. Any question that shows a market cap change after a split is testing whether you understand that splits are cosmetic.

Traps

  • Reporting a capital gain or loss from a split - there is none.
  • Forgetting that exercising rights or warrants increases the share count and dilutes EPS.
  • Confusing a stop order (becomes a market order) with a stop-limit order (becomes a limit order, may not fill).
  • Assuming all preferred dividends must be paid before common - only cumulative features create arrears.

Key points

  • Splits and reverse splits change share count and per-share metrics, not market capitalization.