CCM Equity Securities flashcards

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

Common share

An equity security representing residual ownership in a company, typically carrying voting rights, a claim on declared dividends, and a subordinate claim on assets in liquidation.

Preferred share

A class of equity with priority over common shares for dividends and liquidation proceeds, usually paying a fixed dividend, often without voting rights, and may be callable, retractable, or convertible.

Market order

An order to buy or sell a security immediately at the best available current price; execution is assured but the price is not, and in thin markets it can move the price.

Limit order

An order to buy at or below a specified price, or sell at or above it; it controls price but not execution, and may remain on the order book unfilled.

Stop order

An order that becomes a market order once a specified trigger price trades; it is used to limit losses or protect gains, but gaps can cause execution away from the stop.

Short sale

The sale of borrowed securities with an obligation to buy them back later; the seller profits if the price falls, owes dividends to the lender, and faces recall risk.

Total return

The return on an equity investment including capital appreciation and dividends received, usually calculated as ending price minus beginning price plus dividends, divided by beginning price.

Initial public offering

The first sale of a company's shares to the public, typically accompanied by a prospectus, underwriter due diligence, a marketing roadshow, and a listing on an exchange.

Firm commitment underwriting

An underwriting arrangement in which the underwriter buys the entire issue from the issuer and resells it to investors, bearing the risk of any unsold shares.

Best efforts underwriting

An underwriting arrangement in which the underwriter acts as agent and uses reasonable efforts to sell the issue but does not guarantee the issuer a fixed amount of proceeds.

Over-allotment option

A greenshoe provision allowing underwriters to sell up to an additional 15% of an offering to stabilize the aftermarket, usually exercisable for 30 days.

Rights offering

An issuance of subscription rights to existing shareholders, usually at a discount to market, allowing them to buy new shares pro rata and avoid dilution.

Stock split

A corporate action that increases the number of shares outstanding and reduces the share price proportionally, such as a 2-for-1 split, without changing market capitalization.

Ex-dividend date

The date on or after which a buyer of shares does not receive the next declared dividend; it is set relative to the record date under the applicable settlement cycle.

T+2 settlement

The standard settlement cycle for Canadian equities, meaning the trade settles two business days after the trade date; US equities moved to T+1 on May 28, 2024.

Clearing house

An entity that interposes itself between trade counterparties, nets obligations, and manages settlement risk, often through novation and margin requirements.

CDS

The Canadian Depository for Securities, which provides clearing, settlement, depository, and related post-trade services for Canadian securities through its CDSX system.

Custodian

A financial institution that safekeeps securities for clients, processes income and corporate actions, and may provide reporting and foreign-exchange services.

Best execution

A dealer's obligation to seek the most advantageous execution terms for client orders, considering price, speed, likelihood of execution, size, and other relevant factors.

Buy-in

A post-trade process in which a failed delivery is closed by purchasing the securities in the market, with the defaulting party bearing the cost.

Gordon growth model

A dividend discount model valuing a stock as D1 divided by (r minus g), where D1 is next year's dividend, r the required return, and g the constant growth rate.

Price-earnings ratio

Market price per share divided by earnings per share; a relative valuation multiple showing how much investors pay for each dollar of earnings.

Dividend payout ratio

Annual dividends per share divided by earnings per share, showing the proportion of earnings distributed; the retention ratio is one minus the payout ratio.

Return on equity

Net income divided by average shareholders' equity; it measures profitability generated on owners' capital and can be decomposed through DuPont analysis.

EV/EBITDA

Enterprise value divided by EBITDA; a capital-structure-neutral multiple used to compare companies, where enterprise value equals market capitalization plus net debt and other claims.

CAPM

Capital Asset Pricing Model: required return equals the risk-free rate plus beta multiplied by the market risk premium; beta measures sensitivity to systematic market risk.

Know your client

The suitability obligation requiring a registrant to collect and update information about a client's financial situation, investment knowledge, objectives, risk tolerance, and time horizon.

Insider trading

Trading or tipping material, non-public information about an issuer; prohibited by securities law because it undermines market fairness and investor confidence.

Market manipulation

Conduct intended to distort the market price or volume of a security, such as wash trades, spoofing, or painting the tape; a serious regulatory offence.

CIRO

The Canadian Investment Regulatory Organization, formed by the 2023 merger of IIROC and the MFDA; it regulates investment dealers and mutual fund dealers in Canada.

OBSI

The Ombudsman for Banking Services and Investments, an independent dispute-resolution service for eligible clients; investment dealer membership is mandatory in many Canadian jurisdictions.

Suspicious transaction report

A report filed with FINTRAC when a financial entity has reasonable grounds to suspect that a transaction is related to money laundering or terrorist financing.