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Call Loan:

A loan which may be terminated or called at any time by the lender. The loan is then immediately payable, with any accrued interest, by the borrower to the lender. These loans are used to finance purchases of securities and exclude personal loans extended by banks to its customers.


Call Options:

An option which gives the holder the right, but not the obligation, to buy a fixed amount of a certain stock at a specified price within a specified time. Calls are purchased by investors who expect a price increase.



Securities which may be redeemed upon due notice by the security’s issuer. In the case of bonds, issuers of bonds may reserve the right to pay off the bond before maturity to take advantage of lower interest rates.


Canadian Investor Protection Fund (CIPF):

An industry sponsored fund that protects investors from losses resulting from the bankruptcy of a member firm. The maximum coverage is $500,000 per account, of which up to $60,000 can be cash. The CIPF is sponsored by the Investment Dealers Association of Canada, the Toronto Stock Exchange and Futures Exchange, and the Montreal, Vancouver and Alberta Stock Exchanges.


Canadian Payments Association:

This association operates a highly automated national clearing system for interbank payments which reduces costs and increases the efficiency of the clearing system in Canada. Members include chartered banks, trust and loan companies and some credit unions.


Cancel or Change Former Order (CFO):

An order that cancels or changes a customer’s current order.



To economists, capital means the machinery, factories and inventory required to produce other products. To investors, capital means their cash plus the financial assets they have invested in securities, their home and other fixed assets.


Capital Cost Allowance:

An amount allowed under the Income Tax Act to be deducted from the value of certain assets and treated as an expense in computing an individual’s or company’s income for a taxation year. It may differ from the amount charged for the period in depreciation accounting.


Capital Gain or Loss:

Profit or loss resulting from the sale of certain assets classified under the federal income tax legislation as capital assets. This includes stocks and other investments such as investment property.


Capital Market:

This market brings together all the providers and users of capital, all the financial products, like stocks and bonds which make the transfer of capital possible, and all the people and organizations which support the process.


Capital Stock:

All shares representing ownership of a company, including preferred as well as common shares.


Capitalization or Capital Structure:

Total dollar amount of all money invested in a company, such as debt, preferred and common shares, contributed surplus and retained earnings of a company. It can also be expressed as a percentage.


Cash Flow:

A company’s net income for a stated period plus any deductions that are not paid out in actual cash, such as depreciation, amortization, deferred income taxes and minority interest. Cash flow can provide a broader picture of a company’s earning power than net earnings alone. Cash flow is important to investors as it shows the company’s ability to pay dividends and finance expansion.


Central Bank:

A body established by a national government to regulate currency and monetary policy on a national and international level. In Canada it is the Bank of Canada. In the United States it is the Federal Reserve Board and in the United Kingdom it is the Bank of England.



An engraved document which shows ownership of a bond, stock or other security.


Certificate of Deposit (CD):

A fixed-income debt security issued by most chartered banks, usually in minimum denominations of $1000 with maturity terms of one to six years.


Class A and B Stock:

Names used by companies to distinguish between two classes of common stock. Class A stock may receive cash dividends while Class B may receive stock dividends. There also could be differences in voting rights or in priority of assets. The investor should review the terms of the class designation prior to purchase to understand the rights of that class of stock.


Clearing House:

An independent institution that ensures the payment and delivery of stocks and bonds between investment dealers in a timely, cost-efficient manner. For example, an investment dealer may execute 10 trades (buys and sells) in the same security on the same day. Through the clearing house the dealer just settles the difference in the number of shares and the difference in money owed or received.


Closed-end Investment Company:

This is a company which uses its capital to invest in other companies. Shares in a closed-end investment company are bought and sold on the stock market and the company’s capital remains relatively unchanged.



The last transaction price for a stock on a particular stock exchange at the end of the trading day. If there was not an actual transaction that day, the close can refer to the last posted bid and ask prices.



Securities or other property pledged by a borrower as a guarantee for repayment of a loan.


Collateral Trust Bond:

A bond secured by stocks or bonds of companies controlled by the issuing company, or other securities, which are deposited with a trustee.


Comfort Letter:

A letter filed with the applicable securities commissions by a company’s auditor when submitting unsigned financial statements for use in a prospectus. The letter says that the final format of the statements should not be materially different from those attached to the letter. The letter is required because the auditor does not sign the report until the final prospectus is prepared for distribution. The signing is done after the securities commissions have reviewed the prospectus and any required changes have been made.


Commercial Paper:

Short-term negotiable debt securities issued by non-financial corporations with terms of a few days to a year.



The fee charged by an investment advisor for buying or selling securities as an agent on behalf of a client.



Products used for commerce that are traded on a separate, authorized exchange, such as the Winnipeg Commodities Exchange or the Chicago Board of Trade. Commodities include agricultural products and natural resources such as timber, oil and metals, and are the basis for futures contracts traded on these exchanges.


Common Stock or Common Shares:

Securities which represent ownership in a company and carry voting privileges. Common shareholders may be paid dividends but only after preferred shareholders are paid. Common shareholders are last in line after creditors, debt holders and preferred shareholders to claim any of a company’s assets in the event of liquidation.


Compound Interest:

Interest earned on an investment at periodic intervals and added to the original amount of the investment. Future interest payments are then calculated and paid at the original rate but on the increased total of the investment. This is really interest paid on interest.


Computer Assisted Trading System (CATS):

An electronic trading system developed by the Toronto Stock Exchange that allows traders anywhere in the world to trade stocks listed on the exchange. This was the first electronic trading environment developed in Canada.



Also called a contract. This is a printed acknowledgement giving details of a sale or purchase of a security, which is normally mailed to a client by the investment dealer within 24 hours of an order being executed.



A company directly or indirectly operating in a variety of industries, usually unrelated to each other. Conglomerates often acquire outside companies through the exchange of their own shares for the shares of the majority owners of the outside companies.


Consolidated Financial Statements:

A combination of the financial statements of a parent company and its subsidiaries, presenting the financial position of the group as a whole.


Constrained Share Companies:

Canadian banks, trust, insurance, broadcasting and communication companies have limits on the number of shares or percentage of shares owned by people who are not Canadian citizens or residents. Foreign ownership is restricted since these companies or institutions are either culturally important or fundamentally important to the Canadian economy.


Consumer Price Index (CPI):

A major inflation measure computed by Statistics Canada. It measures the change in prices of a fixed basket of a variety of goods and services in the previous month. This basket of goods is supposed to reflect the average needs of a Canadian family.


Continuous Disclosure:

A securities issuer must issue a press release as soon as a material change occurs in its affairs and within ten days for any other changes in the company.


Contributed Surplus:

Part of shareholders’ equity which originates from sources other than earnings, such as the initial sale of stock above par value.


Convertible Security:

A bond, debenture or preferred share which may be exchanged by the owner, usually for the common stock of the same company. Convertibles are attractive to investors as they provide the security and income of a bond, debenture or preferred share, as well as the opportunity to participate in the growth of the company through converting to common shares.


Corporation or Company:

A form of business organization legally created under provincial or federal statutes which has a legal identity separate from its owners. The corporation’s owners – its shareholders – are liable for its debts only to the extent of their investment, which is called limited liability.


Country Banks:

A term for non-bank lenders such as corporations, insurance companies and other institutional short-term investors, none of which are under the jurisdiction of the Bank Act, who provide short-term sources of credit for investment dealers.



A mini-certificate actually attached to a bond certificate which represents an actual interest payment. The coupon becomes negotiable on the date the interest is due and usually represents the six month interest payment on the face value of the bond certificate. The term coupon is sometimes used as a slang reference to the interest rate paid on a debt instrument, i.e. the coupon of the new Government of Canada March 2015 is 8.75%. This means the interest rate is 8.75% per annum on the face value of the bond.



Buying a security that you had previously sold short.


Cross on the Board:

When an investment dealer has both an order to sell and an order to buy the same stock at the same price, the transaction is allowed without interfering with the limits of the prevailing market. This is also called a put-through or contra order.


Cum Dividend:

This means with dividend. Buyers of shares quoted cum dividend are entitled to an upcoming already-declared dividend.


Cum Rights:

This means with rights. Buyers of shares quoted cum rights are entitled to forthcoming rights.


Cumulative Preferred:

A preferred stock which has a provision that if one or more of its dividends are omitted, these unpaid dividends accumulate and must be paid before any dividends may be paid on the company’s common shares.


Current Assets:

Cash and assets such as accounts receivable and inventories, which in the normal course of business can be converted into cash within a year. Current assets are found on the company’s balance sheet.


Current Liabilities:

Money owed to the company and due to be paid within a year, such as accounts payable. Current liabilities are found on the company’s balance sheet.


Current Ratio or Working Capital Ratio:

Current assets of a business divided by current liabilities, thus measuring how much the value of current assets exceeds its liabilities. This is one of the tests to determine how much cash a company has on hand to cover its current liabilities.


Current Return or Yield:

The annual income from an investment expressed as a percentage of the investment’s current value. On stock, this is calculated by dividing yearly dividends by the market price of the security. On bonds, this is calculated by dividing yearly interest by current price. For example, if the income is $50 a year on an investment with a value of $1,000, the current yield is 5%.


Cyclical Stock:

Stock in an industry that is particularly sensitive to swings in economic conditions, such as mining or forestry.


Day Order:

An order to buy or sell a security valid only on the day the order is given.



A certificate of indebtedness of a government or company backed only by the general credit of the issuer

and unsecured by property or assets.



Money borrowed from lenders for a variety of corporate or personal purposes. The borrower pays interest for the use of the money and is obligated to repay the principal amount on a set date.


Deemed Disposition:

Under certain circumstances, taxation rules state that a transfer of property has occurred, even without a purchase or sale. For example, there is a deemed disposition on death or emigration from Canada.



A bond is in default when the borrower has failed to live up to the obligations under the terms of the agreement. Examples of this are declining to pay interest or sinking fund payments or failure to redeem the bonds at maturity.


Defensive Stock:

Stock of a company with continuous dividend payments, which has demonstrated relatively stable earnings despite poor economic conditions.


Deferred Income Taxes:

Income tax that would otherwise be payable currently, but which is not paid immediately. This is because larger allowable deductions are made when calculating taxable income than when calculating net income in the financial statements. An acceptable practice, it is usually the result of timing differences and represents differences in accounting reporting guidelines and tax reporting guidelines.


Deferred Profit Sharing Plan (DPSP):

In a DPSP an employer makes cash contributions for an employee’s retirement plans out of business profits. The contributions and earnings accumulate tax-free until withdrawn.


Deficiency Letter:

A securities commission letter sent to a company that has submitted a preliminary prospectus on a planned new issue of the company’s securities. The letter poses any questions the commission wants answered, and outlines any recommendations for changes to the prospectus. When all points raised in the letter are resolved, the issue’s final prospectus may be filed.



A financial situation for an individual, company or government where expenses exceed income.



The removal of a security’s listing on a stock exchange. This is done when the security no longer exists, the company is bankrupt, the public distribution of the security has dropped to an unacceptably low level, or the company has failed to comply with the terms of its listing agreement.



Securities sellers must deliver the certificates on or before the third business day after the sale. Delayed delivery refers to a transaction in which there is a clear understanding that delivery of the securities involved will be delayed beyond this three day period.



Refers to the consumption of natural resources which are part of a company’s assets. Since oil, mining and gas companies deal in products that cannot be replenished, depletion reduces the company’s natural assets over a specified time period. The recording of depletion is a bookkeeping entry similar to depreciation and does not involve the expenditure of cash.



Systematic charges made against earnings to write-off the cost of an asset over its estimated useful life because of wear and tear through use, action of the elements, or obsolescence. It is a bookkeeping entry and does not represent any cash outlay nor are any funds earmarked for the purpose. It reduces the company’s fixed assets to zero over a specified time period.



Reducing the actual or potential earnings per share by issuing more shares or giving options to obtain more.

Direct or Indirect Holdings:

These are the holdings of an individual or company in other companies. For example, company A owns 500,000 shares of company B’s 1,000,000 outstanding shares. Company A therefore has a 50% direct interest in company B. Company B, in turn, owns 300,000 of company C’s outstanding 500,000 shares. Company B therefore has a 60% direct interest in company C. Company A (by virtue of its 50% direct interest in company B) has a 30% indirect interest in company C.


Person elected by voting common shareholders at the annual meeting to direct company policies.


Disaster Out Clause:

A clause in an underwriting agreement allowing the underwriter to cancel the agreement, should a law, event or major financial occurrence transpire that adversely affects financial markets in general or the issuer in particular.


Disclaimer Clause:

Securities commissions require that all prospectuses carry a disclaimer on the front page stating that the securities commission itself has in no way approved the merits of the securities being offered for sale.



The amount by which a preferred share or bond sells below its par value.



When some anticipated event such as increased dividends or lower earnings has already been reflected in the market price of a stock, it is said to be already discounted by the market.


Discount Brokers:

Brokerage firms that offer lower commission rates than investment dealers, but do not offer the services that investment dealers do, such as advice, research and portfolio planning.


Discretionary Account:

A securities account where the client has given specific written authorization to a partner, director or qualified portfolio manager of an investment dealer to select securities and execute trades on behalf of that investor. These are opened up as a matter of convenience to clients who are unable to attend to their own accounts through illness or absence from the country.



Spreading investment to reduce risk by buying different securities from various companies, businesses, locations and governments.



An amount distributed out of a company’s profits to its shareholders in proportion to the number of shares they hold. A preferred dividend usually is for a fixed amount, while a common dividend may fluctuate with the profits of the company. A company is under no legal obligation to pay either preferred or common dividends.


Dividend Yield:

A stock’s annual percentage return from its dividend income. It’s calculated by dividing the stock’s total dividends for the year by the current stock price. If a stock paid annual dividends of $1 and has a market price of $10, its dividend yield is $1 divided by $10 X 100 = 10%. It does not count capital gains that result if you sell the stock for more than you paid.


Dollar Cost Averaging:

Investing a fixed amount of dollars in a specific security at regular set intervals over a period of time, thereby averaging the cost paid per share.


Dow Jones Industrial Average (DJIA):

An average made up of 30 blue chip stocks that trade daily on the New York Stock Exchange. The DJIA is used as an overall indicator of market performance although criticism is periodically raised over how it is calculated, as well as the fact that so few companies are included so that it may not be a truly representative indicator of market activity.


Dow Jones Transportation Average:

Similar to the Dow Jones Industrial Average, this average is made up of 20 transportation stocks that trade daily on the New York Stock Exchange.


Dow Theory:

A theory of market analysis based upon the performance of the Dow Jones Industrial and Transportation Averages. The theory is that the market is in a basic upward trend if one of these averages advances above a previous important high, accompanied or followed by a similar advance in the other. When both averages dip below previous important lows, this is regarded as confirmation of a basic downward trend.


Draft Prospectus:

A prospectus prepared for internal use and discussion by the company issuing securities and the underwriters. It is not for outside distribution and shows only basic data on the company with little final detail about the terms of the planned underwriting. It is not a legal document and does not have to be drawn up strictly to securities commission standards. It is an earlier version of a preliminary prospectus and cannot be used in offering the security.




Earnings or Income Statement:

A financial statement which shows a company’s revenues and expenditures resulting in either a profit or a loss during a financial period.


Earnings Per Common Share:

The portion of after-tax profits of a company attributable to a single common share.


Equipment Trust Certificate:

A security, more common in the U.S. than in Canada, that is generally issued by a railroad or airline to pay for new moveable equipment. It is secured by a first lien on the equipment.



The stock, or ownership of shareholders in a company.


Equity Earnings:

A company’s share of an unconsolidated subsidiary’s earnings. The equity accounting method is used when a company owns 20% to 50% of a subsidiary.


Escrowed or Pooled Shares:

Outstanding shares of a company which, while entitled to vote and receive dividends, may not be bought or sold unless special approval is obtained. This technique is commonly used by mining and oil companies when treasury shares (authorized but unissued shares) are issued for new properties. Shares can be released from escrow (freed to be bought and sold) only with the permission of applicable authorities such as the stock exchange and/or the provincial securities commission.


Estate Planning:

The process of planning the transfer of all personal assets at death to chosen beneficiaries.


Ex Dividend:

This means without dividend. If a share quoted ex dividend is purchased, the investor is not entitled to an upcoming already-declared dividend. The seller receives this dividend.


Ex Rights:

This means without rights. Buyers of shares quoted ex rights are not entitled to forthcoming rights.


Exchange Fund Account:

A special federal government account operated by the Bank of Canada to intervene in the world’s foreign exchange markets and affect Canada’s foreign exchange rate. Direct intervention to change the direction of exchange rate fluctuations is infrequent, and public economic policies are more significant in changing supply and demand for foreign exchange, and therefore the exchange rate.


Exempt List:

Large professional buyers of securities, mostly financial institutions, that are offered a portion of a new issue by one member of the banking group, on behalf of the whole syndicate.


Exempt Market:

An unregulated market for sophisticated participants in government bonds, corporate issues and commercial paper. A prospectus is not required to raise money privately from these private investors (largely institutions, but also individual investors) and registration of the issue with a securities commission is not needed.


Exempt Purchaser:

A category of institutional investors to which the sale of a new issue of securities does not require the issuer to file a prospectus with the applicable securities commission.



The action taken by the holder of a call option if he or she wishes to purchase the underlying security, or by the holder of a put option if he or she wishes to sell the underlying security. Also refers to the action taken by a rights or warrant holder.


Exercise Price:

The price at which the underlying stock of a call option can be purchased, or the price at which the underlying stock of a put option can be sold. Also referred to as the strike price.


Expiration Date:

The date when put and call options and rights and warrants expire, as well as other privileges or conversion features.


Extendible Bond or Debenture:

A bond or debenture issued with a specific maturity date, but granting the holder the option to extend the maturity date by a specified number of years.



Short for extra dividend. A dividend in the form of either stock or cash in addition to the regular common dividend the company usually pays to shareholders. Also referred to as a special dividend.



Face Value:

The value of a bond or debenture that appears on the face of the certificate. Face value is the amount the issuer promises to pay at maturity. Face value is no indication of market value. For example, a low grade bond may have a face value of $1000 but can trade at a market price of $130.



Short for failed deliveries. It is the failure to deliver a security on the settlement date, or the date agreed upon when the trade was done.


Fair Market Value:

The value of an asset, under the assumption it is sold to a willing purchaser by a willing seller, under normal conditions.


Fee-Based Accounts:

Client accounts in which the investment dealer does not charge commissions, but charges a fee based on the value of the investor’s account instead.



A client order that stipulates that as soon as a portion of the order which can be traded immediately is completed, any remaining portion of the order not filled is cancelled.


Final Prospectus:

The prospectus which supersedes the preliminary prospectus and is accepted for filing by the applicable provincial securities commissions. The final prospectus shows all required information pertinent to a new issue and a copy must be given to each buyer of the new issue.


Finance or Acceptance Company Paper:

Short-term negotiable debt securities similar to commercial paper, but issued by finance companies.


Financial Instruments:

The term used for debt instruments, which are loans with an agreement to pay back funds with interest, or equity securities, which are shares or stock in a company.


Financial Intermediary:

An institution such as a bank, life insurance company, credit union or mutual fund company which receives cash and invests it on behalf of the suppliers of the cash.


Firm Bid – Firm Offer:

A firm bid is an undertaking to buy a specified amount of securities at a specified price for a specified period of time, unless released from this obligation by the seller. A firm offer is an undertaking to sell a specified amount of securities at a specified price for a specified period of time, unless released from this obligation by the buyer.


First-In-First-Out (FIFO):

A method of valuing inventory which assumes that the first items bought are also the first items used or sold.


Fiscal Agent:

An investment dealer appointed by a corporation or government to advise in financial matters and to manage the underwriting of its securities.


Fiscal Policy:

The policy pursued by the federal government to direct the economy through taxation and the level and allocation of government spending.


Fiscal Year:

A company’s accounting year. Due to the nature of particular businesses, some companies do not use the calendar year for their bookkeeping. A typical example is the department store which finds December 31st too early a date to close its books after the holiday rush and has a January 31st fiscal year-end instead.


Fixed Asset:

A tangible long-term asset such as land, buildings or machinery, held for use rather than for processing or resale. Fixed assets are found on a company’s balance sheet.


Fixed Charge:

A company’s expenses, such as debt interest, which it must pay and which are deducted from income before income taxes are calculated.


Fixed Income Securities:

Securities that generate a predictable stream of interest or dividend income, such as bonds, debentures and preferred shares.



When the quoted market price of a bond or debenture is only the total cost of the bond or debenture, instead of the cost of the debt instrument plus accrued interest. Bonds and debentures in default of interest trade flat.


Floor Traders:

Employees of a member of a stock exchange who execute buy and sell orders on the floor (trading area) of the exchange for their firm and its clients.


Flow-Through Shares:

Tax deductions and credits, normally available only to a corporation, are given to the owners of the corporation’s flow-through shares. Canadian exploration and mining companies are able to issue such shares at a premium because investors are considered to be funding exploration and development costs and are therefore entitled to deduct these expenses from all other income.


Formula Investing:

These are investment strategies. One formula involves shifting funds from common shares to preferred shares or bonds as the stock market rises above a predetermined point – and returning funds to common shares as the stock market declines.


Fully Diluted Earnings Per Share:

Earnings per common share calculated on the assumption that all convertible securities are converted into common shares, such as convertible preferred shares, convertible debentures, stock options (under employee stock-option plans) and warrants.


Fundamental Analysis:

An analysis of securities based on the fundamental facts about a company, such as sales, earnings and dividend prospects. This is in contrast to technical analysis.


Funded Debt:

All outstanding bonds, debentures, notes and similar debt instruments of a company payable after one year.


Futures Contract:

An agreement to buy or sell a commodity sometime in the future.

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