Selling borrowed securities with the intent to repurchase them later at a lower price.
Permitted on Canadian exchanges subject to UMIR requirements, including marking the order as a short sale on entry. Short positions must be covered through borrowing arrangements before settlement. Short selling carries unlimited theoretical loss because the security's price has no upper bound.
UMIR
Two real CIRE-bank questions on this exact outcome. Click to reveal the answer and the rule citation.
A client is comparing two bonds: Bond A has a modified duration of 8 years and Bond B has a modified duration of 3 years. Both are investment-grade corporate bonds with the same credit rating. If interest rates rise by 100 basis points, which bond is expected to experience the larger price decline?
Outcome 7.5 · click for answer
Modified duration measures the approximate percentage price change in a bond for a 1% (100 basis point) parallel shift in interest rates. Bond A with a modified duration of 8 would fall approximately 8% in price for a 100 bps rate rise, while Bond B with a duration of 3 would fall approximately 3%. Credit rating determines the risk of default (credit risk) but does not affect price sensitivity to interest rate movements (interest rate risk, measured by duration). Higher duration implies longer maturity or lower coupon or both.
Under National Instrument 81-101, a mutual fund must provide a Fund Facts document to a retail investor purchasing the fund. When must the Fund Facts be delivered?
Outcome 7.5 · click for answer
Under NI 81-101, the Fund Facts must be delivered to the investor before or at the point of sale; that is, before the investor is bound by the purchase. This pre-sale delivery obligation replaced the simplified prospectus delivery requirement. The investor may waive pre-sale delivery and opt for delivery as soon as practicable after the trade, but the default is pre-sale. Annual delivery and post-purchase delivery within 10 business days are not the prescribed timing, and there is no rule limiting delivery to only when the investor asks for it.
UMIR
Universal Market Integrity Rules governing trading on Canadian marketplaces.
Best Execution
The obligation to take reasonable efforts to achieve the most advantageous execution for clients.
T+1 Settlement
Standard one-business-day settlement cycle for North American equity trades.
CDS (Canadian Depository for Securities)
Canada's central securities depository that clears and settles trades.
Alternative Trading System (ATS)
A non-exchange marketplace that matches orders in listed securities.
Short Sale Locate (UMIR)
Pre-borrow requirement: a dealer must have reasonable grounds to believe a short-sold security can be borrowed before entering the order.
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