CMA Securities & Investment flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Material change report

A reporting issuer must file a material change report promptly, generally within 10 days, when a change in business, operations, or capital materially affects the issuer.

Accredited investor exemption

A prospectus exemption allowing distribution to investors meeting prescribed financial thresholds, such as income, net worth, or investment limits, subject to documentation.

Registrant categories

Registration categories in Canada include dealing, advising, and investment fund management; each category defines the activities a firm or individual may legally perform.

Conflict of interest control

Firms must identify conflicts, avoid or control them, and disclose material conflicts to clients so that advice remains objective and client interests come first.

Know your client

The process of collecting and updating information about a client's objectives, risk tolerance, time horizon, and financial circumstances to support suitable recommendations.

Misleading performance claims

Presenting returns without disclosing the calculation basis, time period, fees, or risks is prohibited; performance must be fair, balanced, and not misleading.

Fiduciary duty

A duty to act in the client's best interest, avoiding conflicts and disclosing those that cannot be avoided, with loyalty and care above personal interest.

Market capitalization

The market value of a company's equity, calculated as the share price multiplied by the number of shares outstanding; used to size and weight companies.

Limit order

An order to buy or sell at a specified price or better; it offers price certainty but may remain unfilled if the market does not reach the limit.

Cap-weighted index

An index in which each constituent's weight is proportional to its market capitalization, so larger companies have greater influence on index performance.

Preferred shares

Equity securities that typically pay fixed dividends and rank ahead of common shares for dividends and liquidation, usually without voting rights.

Modified duration

A measure of a bond's price sensitivity to yield changes, approximately equal to Macaulay duration divided by one plus the yield per period.

Yield to maturity

The single discount rate that equates a bond's future cash flows to its current price, assuming coupons are reinvested at that same rate.

Credit spread

The difference between a bond's yield and a benchmark government yield of similar maturity; wider spreads indicate greater perceived credit risk.

Convexity

A measure of how a bond's duration changes as yields change; it improves price estimates for larger yield movements beyond duration alone.

Put-call parity

For European options, the relationship C − P = S − K × e^(−rT) links call and put prices to the underlying, strike, and time to expiry.

Option delta

The change in an option's price for a one-dollar change in the underlying asset; it also approximates the hedge ratio for replication.

Interest rate swap

A contract exchanging fixed-rate payments for floating-rate payments on a notional principal, used to manage or take interest rate exposure.

Structured note

A debt security combining a bond with a derivative overlay; returns depend on an underlying reference, and principal protection may be conditional.

Beta

A measure of an asset's sensitivity to market movements, calculated as covariance with the market divided by market variance; market beta equals one.

Sharpe ratio

A risk-adjusted performance measure equal to excess return over the risk-free rate divided by the standard deviation of returns.

Efficient frontier

The set of portfolios offering the highest expected return for each level of risk; investors select a point based on risk tolerance.

Free cash flow

Cash generated after capital expenditures, calculated as cash flow from operations minus capital expenditures; available for debt repayment, dividends, or reinvestment.

DuPont analysis

A decomposition of return on equity into net profit margin, asset turnover, and equity multiplier, showing the drivers of profitability and leverage.

Discounted cash flow

A valuation method estimating an asset's value as the present value of expected future cash flows discounted at a rate reflecting their risk.

Current ratio

A liquidity measure equal to current assets divided by current liabilities; a ratio above one indicates short-term obligations are covered.

T+1 settlement

Settlement convention in which a trade is settled one business day after the trade date, requiring timely confirmation, clearing, and funding.

Clearing house novation

The process by which a central counterparty becomes the buyer to every seller and seller to every buyer, reducing bilateral counterparty risk.

Best execution

The obligation to seek the most favorable terms for client orders, considering price, speed, likelihood of execution, size, and total cost.

Churning

Excessive trading in a client account to generate commissions rather than to serve the client's investment objectives; a prohibited sales practice.

Suitability obligation

The requirement that a recommendation match the client's objectives, risk tolerance, time horizon, and financial circumstances, with the basis documented.

Unauthorized trading

Executing transactions in a client account without the required authorization or documented instruction; a serious conduct breach requiring escalation.