canadian securities course

Imagine a world a world in which either all investors have costless access to currently available access about the future , all investors are good analysts , all investors pay close attention to market prices and adjust their holdings appropriately and that all investors pay close attention to market prices and adjust their holdings appropriately.

Do you believe in the Tooth Fairy?

In such a market a security’s price would be a good estimate of its investment value, where investment value would be a good estimate of its investment value, where investment value is the present value is the present value of the security’s future estimated by well informed and capable expert analysts.

An efficient market could be defined as a (perfectly) efficient market would be one in which every security’s price equals its investment value at all times.

In an efficient market, a set of information if fully and immediately reflected in market information. But what information?

For example, a market would be described as having weak-form efficiency if it were impossible to make abnormal profits by using past prices to make to make decisions about when to make abnormal profits to buy and sell securities. This evidence suggests that major security market is weak-form efficient.

In an efficient market, any new information would be immediately and fully reflected in prices. New information is just that: new, meaning a surprise. Since happy surprises are almost as likely as unhappy ones, price changes in an efficient market are about as likely to be positive as well as negative. Whereas a security’s price might be expected to move upward by an amount that provides a reasonable return on capital (when considered in conjunction with dividend payments), anything above or below this would, in such a market, be unpredictable. In a perfectly efficient market, price changes would be random?

Now consider a crazy market, in which the prices never bear any particular relationship to investment value. In such a world, price changes might also appear to be random. However major securities markets throughout the world are certainly not irrational. They might not attain proper efficiency, but they are certainly much closer to it than irrationality. To understand financial markets m it is important to understand perfectly efficient markets.

In an efficient market a securities price will be a good estimate of its investment value where investment value is the present value of the security’s future prospects as estimated by well informed and capable analysts. Any substantial disparity between price and value would reflect market infancy. In a well developed and free market, major inefficiencies are rare. The reason is not hard to find. Major disparities between price and investment value will be noted by alert analysts, who will take advantage of their discoveries. Securities priced below (which are known as under priced or undervalued securities) _ will be purchased, creating pressure of price increases die to the increased demand to buy.

Securities purchased above value (known as overpriced or overvalued securities) will be sold, creating pressure for price decreases due to the increased supply to sell. As investors to sell.

As investors seek to take advantage of opportunities created by temporary inefficiencies, they will cause the inefficiencies, they will cause the inefficiencies to be reduced, denying the less alert and less informed the chance to obtain large abnormal profits.

In the world securities markets there are hundreds of thousands of professional security analysts and even more amateurs and want to bees.

Not surprisingly, due to their actions the major worldwide securities markets appear to be closer to efficiency than to irrationality.

Therefore as a result it is extremely difficult to make abnormal profits by trading securities in these markets.

One should strive for regular consistent growth – “the tortoise rather than the hare “in one’s careful and insightful investment strategy and implementation …

What is the Securities Investor Protection Corporation (SIPC)?

The Securities Investor Protection Corporation was created by the U.S. Congress in 1970. The primary purpose of the SIPC is to help individuals who have lost money, stocks and other securities stolen by brokers or when their investments are at risk because a brokerage firm fails. Protection is provided sometimes through a request to a federal court to appoint trustees to liquidate the firm and protect its customer’s assets however, in the case of smaller brokerage firms, the SIPC may deal directly with customers. The goal is to quickly and efficiently mitigate the losses to customers that have made investments in firms that are members of the SIPC and that are experiencing bankruptcy or financial difficulty and now are in danger of going out of business. By 2007, the SIPC had made possible the recovery of assets totaling over 15 billion dollars for approximately 625,000 investors. This service estimates that approximately 99% of eligible persons have their funds returned by SIPC. Without the SIPC, investors at bankrupt or financially troubled firms could lose their money and securities forever or at best their assets may be tied up in court for years. So it is very important to know that when you invest, you are investing with a member of the SIPC. No protection is available to consumers who invest in firms that are not members of this protection corporation, and membership is not mandatory.

How can you know if your brokerage/investment firm is a SIPC member?

Investment and brokerage firms that are members of the SIPC will have the language of “Member Securities Investor Protection Corporation” or “Member SIPC” on all signs and advertisements. However, consumers should not rely on that information alone as some firms may not truly be members, or their membership may have lapsed. Confirmation of current memberships of a firm may be made by calling the membership department at 202-371-8300 or you can visit www.sipc.org. Only customers who have invested in institutions that are legitimate members of the SIPC are eligible for assistance and recovery of assets.

In some cases, SIPC members may have affiliated companies or individuals that work contractually for them. The "parent" company membership does not transmit to the affiliate or contracted individual. Those firms must obtain their own membership in the program. It is also not unusual for the affiliates to have have similar names, share the same employees or even operate from the same office space, but even in those cases, membership is not shared nor transferable. Each consumer should receive confirm that their investment services provider is a member as well as carefully review written confirmation of any transaction in your securities account and double check that it is issued by the SIPC member and not an affiliate.

Consumers may also verify membership by reviewing their periodic statements to determine if your brokerage firm is still operating as a member of the SIPC. In some cases membership has lapsed, and consumers need to be aware of those changes to their investment firm’s status, as any claims made on a lapsed member can not be processed.

One scam used by some so-called investment or brokerage service providers may be to fraudulently present themselves as members of the SIPC in an effort to either obtain customers or to obtain customer information, setting the customer up for schemes which may steal their investment or their identity. Quite often this is done through the use of web sites, that use the name of a legitimate brokerage firm that is a member of SIPC but list a different address. In other instances, the frauds may use the name or name and address of a broker registered with the SIPC and then sets up a fictional entity. Sometimes these fraudulent providers even issue a statement directing potential clients to verify the firm’s membership in the SPIC website as proof of the firm’s legitimacy. These scams result not only in the identity theft of the consumer, but of the legitimate member of the SIPC.

According to SIPC President Stephen Harbeck, "SIPC has recently received information from more than a dozen U.S. and non-U.S. victims of this type of fraud. Experience tells us that most investors who lose money never follow up with a regulatory authority. So, we believe that the complaints we are seeing are just the tip of an iceberg. In addition to issuing this warning, we have sent our files to state and federal securities regulators in the hopes of identifying and shutting down these ‘brokerage ID theft rings."

Connecticut Securities Director and NASAA President Ralph A. Lambiase shares that: “Brokerage identity theft joins a long list of scams that rely on the Internet to stalk millions of potential victims at minimal cost. Identity theft is inherently difficult to detect. For that reason alone, investors should refuse any unsolicited on line contact from anyone seeking personal information or money by simply hitting the delete key. I urge investors to contact their state securities regulator if they suspect they have been defrauded by this scheme.”

The warnings for potential investor’s is two-fold, first be sure that you are using a legitimate member of the Securities Investor Protection Corporation for your investment opportunities. Only by using a member is your investment that much safer. Secondly, be careful especially of on-line investment firms, brokers and other invitations or opportunities. Quite often they are scams, and every effort should be made to not only verify the authenticity of the firm, but of the firms participating in the SIPC program.

Each day a great number of securities are transferred fluidly from one owner to the next so quickly and frequently that that in some cases it can be difficult to keep track of who actually owns them. Sure, ownership is typically recognized with a physical certificate or other form of registration, but what if a security has street name registration and is book-entry only? How can ownership be proven?

Securities Ownership Options

In the past, proving ownership of securities was as simple as flashing a certificate, but in 1968 book-entry securities first became available allowing for certificate-less trades. In1996, the Depository Trust and Clearing Corporation or DTC implemented the Direct Registration System, which allowed securities to be transferred electronically and certificate-less.

Now there are three securities ownership options: physical certificates, street name registration, and direct registration profile. Physical certificates are pretty much what their name would suggest, engraved papers that prove ownership of securities.

Street name registration is a bit more complex, because it involves securities being owned by an individual but registered in the street name of his or her broker or dealer. The real owner or beneficiary, the investor, will receive no paper certificates, but will be kept up to date on his or her securities through account statements issued by the broker or dealer. The account statements are not evidence of ownership. The shares in street name continue to be owned by the brokerage firm and/or DTC and are only “assigned” to the individual shareholder.

Direct registration profile (not to be confused with direct registration) is similar to street name registration, but an investor’s name will be directly registered on the books of a transfer agent. He or she will also receive a statement of position and account statements.

Why use street name registration?

Typically, brokerage firms and other dealers will automatically put securities in street name unless otherwise requested by an investor. The broker or dealer will then be responsible for keeping records of who is actually assigned the securities. The brokerage firm will not list the shareholder name onto the issuer’s books, but will instead list their company name since they continue to be the real owner, by law.

There are many advantages to registering securities in street name, such as the broker or dealer can easily sell the securities when they reach an agreed upon price. They will also be responsible for tracking the securities, keeping them safe, and keeping the investor informed about their status and any important developments.

There are of course drawbacks to street name registration as well. Dividend and interest payments will oftentimes be paid to the assigned shareholder at the convenience of the brokerage firm and not necessarily when earned. Also, because the actual investor’s name is not the books of the issuer, he or she may not be updated about the company whose securities they have invested in. In addition, the shares can be loaned to other entities without the knowledge of the assigned holder.

So, what happens if the brokerage firm that an investor is using goes belly up? Luckily most brokers and dealers are members of the SIPC, which will protect the securities held by their investors in the Securities Investor Protection Corporation brokerage firm’s name for up to $500,000 with a $100,000 cash limit.

This protection is great news…that is if an investor can prove that he or she is the one who actually owns the securities.