CCM Equity Securities cheat sheet

Common shares carry a residual claim on earnings and assets, limited liability, and typically one vote per share; preferred shares rank ahead for dividends and liquidation but usually have no vote and fixed dividend terms.

Preferred share features to identify: cumulative vs non-cumulative dividends, callable/retractable, convertible, floating-rate, and participating; each feature changes the security's risk and valuation.

Equity instruments include common shares, preferred shares, warrants, rights, subscription receipts, ETFs, REITs, ADRs/GDRs, and convertible debentures as hybrid securities.

Market participants: issuers, retail and institutional investors, investment dealers regulated by CIRO, portfolio managers, transfer agents, registrars, custodians, exchanges, ATSs, and market makers.

Order types: market orders have price uncertainty; limit orders have execution uncertainty; stop orders become market orders at the trigger; stop-limit orders become limit orders at the trigger.

A short sale borrows securities and sells them; the seller profits if the price falls, must pay dividends to the lender, and bears recall and liquidity risk; a locate is required before execution.

Total return = (ending price - beginning price + dividends) / beginning price; dividend yield = annual dividend per share / beginning price; capital gain yield = (ending price - beginning price) / beginning price.

Diversification reduces unsystematic risk; systematic risk remains and is measured by beta; beta greater than 1 amplifies market moves, while beta less than 1 dampens them.

Public issuance paths include IPOs, secondary and treasury offerings, bought deals, marketed deals, best efforts offerings, private placements under prospectus exemptions, and shelf, PREP, or ATM programs.

A prospectus must provide full, true, and plain disclosure; the preliminary prospectus is filed, a receipt is obtained, a waiting period runs, and a final prospectus is filed before sales.

Firm commitment underwriting: the underwriter buys the issue and bears unsold inventory risk; best efforts underwriting: the underwriter acts as agent and does not guarantee proceeds.

A greenshoe or over-allotment option allows underwriters to sell up to 15% additional shares, typically exercisable for 30 days, to stabilize the aftermarket.

Bookbuilding sets the offering price from investor demand; IPO underpricing leaves money on the table; lock-up agreements commonly restrict insider sales for about 180 days.

A rights offering gives existing holders rights pro rata, usually at a discount to market; the subscription price, ratio, and expiry determine dilution and the value of the rights.

Corporate actions include cash, stock, and special dividends; splits, reverse splits, and consolidations; spin-offs, mergers, tender offers, issuer bids, and going-private transactions.

Dividend timeline: declaration date, record date, ex-dividend date, and payment date; a buyer on or after the ex-dividend date does not receive the declared dividend.

Dilution: new share issuance raises the share count and can reduce EPS and voting power; pre-emptive rights and anti-dilution provisions may protect existing holders.

Trade lifecycle: order entry, validation, routing, execution, trade confirmation, clearing, settlement, and custody or reconciliation.

Canadian equity trades settle T+2 (trade date plus two business days); US equities moved to T+1 on May 28, 2024. Settlement date drives entitlement to dividends and corporate actions.

Clearing: a central counterparty interposes itself through novation, nets trades, collects margin, and manages counterparty risk; CDS provides Canadian clearing and settlement through CDSX.

Custodians safekeep securities and process income and corporate actions; transfer agents maintain issuer registers; registrars assist with issuance and recordkeeping.

Best execution considers price, speed, certainty, size, and execution quality; order handling rules require timely and fair execution of client orders.

Short sales must be marked as short and a locate must be obtained; failed deliveries can trigger buy-ins, and persistent fails attract regulatory action.

Marketplace roles: exchanges and ATSs operate lit or dark books; dealers may internalize orders; UMIR and provincial rules govern trading conduct.

Post-trade corporate action processing: the record date establishes entitlement, the payable date moves funds or securities, and custodians or CDS allocate to participants.

Gordon growth model: P0 = D1 / (r - g); sustainable growth g = ROE x retention ratio; the model requires r greater than g and stable payout and growth assumptions.

P/E = price per share / earnings per share; earnings yield = EPS / price = 1 / P/E; forward P/E uses expected EPS rather than trailing EPS.

P/B = price / book value per share; ROE = net income / average equity; higher ROE and growth generally justify a higher P/B multiple.

Enterprise value = market capitalization + debt + preferred shares + minority interest - cash; EV/EBITDA is capital-structure neutral and lower multiples may indicate relative value.

Dividend yield = annual dividend per share / price; payout ratio = dividends per share / EPS; retention ratio = 1 - payout ratio; sustainable growth = ROE x retention ratio.

WACC = (D/V) x rd x (1 - tax rate) + (E/V) x re; CAPM: re = risk-free rate + beta x equity risk premium.

DuPont analysis: ROE = net profit margin x asset turnover x equity multiplier; it decomposes profitability, efficiency, and leverage.

FCFE = cash flow from operations - capital expenditures + net borrowing; FCFF = cash flow from operations + interest x (1 - tax rate) - capital expenditures; discount FCFE at cost of equity.

Relative valuation uses comparables such as P/E, EV/EBITDA, and P/B; absolute valuation uses DCF or DDM; numerator and denominator must be consistent.

Canadian securities regulation is primarily provincial and territorial through the CSA; each province has a Securities Act and regulator, such as the OSC, BCSC, or AMF.

CIRO, formed in 2023 from the merger of IIROC and the MFDA, regulates investment dealers and mutual fund dealers and enforces capital, conduct, and trading rules.

Registration categories include dealing, advising or portfolio management, and investment fund management; individuals must meet proficiency, capital, and conduct requirements.

KYC and KYP support suitability: collect the client's financial situation, objectives, risk tolerance, time horizon, and knowledge; understand the product's structure, risk, cost, and liquidity.

Prohibited conduct includes insider trading, tipping, market manipulation, front-running, wash trades, spoofing, misrepresentation, and unauthorized trading.

Conflicts of interest must be identified, disclosed, and managed; personal trading, outside activities, and compensation incentives are subject to controls.

AML and ATF: FINTRAC requires client identification, beneficial ownership information, ongoing monitoring, and suspicious transaction reports; large cash and wire rules also apply.

Complaint handling and dispute resolution: use the internal complaints process, then OBSI or the applicable ombudsman; privacy obligations arise under PIPEDA.

Ethical conduct: client interests first, integrity, objectivity, competence, confidentiality, and professionalism; disclose conflicts and avoid misleading communications.