1. Chapter 5 How Securities Are Traded

2. Brokerage firms earn commissions on executed trades, sales loads on mutual funds, profits from securities sold from inventory, underwriting fees and administrative account fees Full-service brokers offer order execution, information on markets and firms, and investment advice Discount brokers offer order execution Brokerage Operations

3. Brokerage commissions differ by security, broker, and investor  Institutional investors have greatest negotiating power  On-line trading offers significantly lower commission rates to individual investors In 1992 E*TRADE became the first brokerage service to offer on-line trading Fees and Costs

4. The TSX introduced the world’s first computer- assisted trading system (CATS) in 1977 The NYSE continues to make use of the specialist system  Specialists maintain the limit order book  Specialists keep a fair and orderly market by providing liquidity Orders on Organized Exchanges

5. Dealers are ready to either buy or sell  Bid price is the highest offer price to buy  Ask price is the lowest price willing to sell Ask price - Bid price >0 (dealer spread)  Dealer “makes a market” in the security  More than one dealer for each security in over- the-counter markets Orders in OTC Markets

6. Market order: Authorizes immediate transaction at best available price Limit order: Specifies a particular market price before a transaction is authorized Stop order: Specifies a particular market price at which a market order is authorized Types of Orders

7. Settlement dates for stocks are three business days after the trade date  Legal ownership transferred and financial arrangements settled with brokerage firm Transfer of securities and funds between exchange members facilitated by a clearinghouse: The Canadian Depository for Securities (CDS) Clearing Procedures

8. Self-Regulatory Organizations (SROs) regulate their own activities Canadian Investor Protection Fund (CIPF) was established to protect investors Investment Dealers Association of Canada (IDA) is the national trade association for the investment industry Canadian Securities Institute (CSI) is the national education body of the Canadian securities industry Canadian Regulatory Environment