Arbitrage Magaine - Fall 2009 by Arbitrage Magazine

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Fall 2009

Economic Bubbles What are they? Why do they happen? And what to do about them? Elegant Destruction The Formula that Humbled the World

NFSA Career Planner

Plan Your Financial Future

Ahead of the Pack Landing that First Job Anxious Index High Frequency Trading And more ..

D.T.

You offer employers unmatched energy and enthusiasm and in return you're offered entry-level positions. You can put your time in somewhere else before realizing the benefits of running a business, OR you can get a head start on your peers and begin building a business today! Edward Jones Financial Advisors specialize in helping individual investors and small business owners achieve their long-term financial objectives. The firm's financial advisors do this from single broker offices located in the communities where their clients live and work. These convenient locations enable financial advisors to meet and work with their clients face-to-face and build lasting relationships with them. The firm believes that only by knowing clients on a local, personal level can its brokers effectively provide the appropriate investments and services to help their investors achieve their financial goals. Career Opportunities Available for You: Financial Advisor: Who are we looking for? Select recent university/college graduates with financial services or sales experience or who possess top-level abilities and proven track record for success. Apprentice Program: Who are we looking for? This program is for recent university/college graduates who want to work in their local market with an experienced Financial Advisor mentor. Ideal candidates are those who have shown demonstrated abilities and a proven track record for success, but lack financial services or sales experience. There are three opportunities to start this program in 2010: January, June, and September. Visit www.careers.edwardjones.com OR, contact our Recruiting Department at 1.800.380.4517 for more information Edward Jones ranked No. 4 on the 2009 list of the â&#x20AC;&#x153;50 Best Employers in Canadaâ&#x20AC;? by the Globe and Mail's Report on Business magazine and La Presse. The firm has appeared on the list seven consecutive years.

ECONOMIC BUBBLES

NFSA

Career Planner Learn what the financial industry is, learn the different departments that make up this industry, learn which department is best for you and learn what designations and certificates you will need to acquire over the course of your financial career!

THE BASICS

SELF-REFLECTION

JOB PROFILES -Management -Sales -Research -Trading -Underwriting

36 37 40 44 47 50

SELECTION

TRAINING DIRECTORY

They Brought Down Our House of Cards So as Future Leaders of the Financial Industry, How About we Learn What They Really Are?

20 The Anxious Index

Elegant Destruction

Is there a way to Predict the next Recession?

The Formula that Bloodied the Financial System

Two FREE seminars have been scheduled for 2010 CFA Level I & II Candidates: LEVEL I: Saturday January 30th, 2010: Quantitative Methods Saturday February 6th, 2010: Derivatives LEVEL II: Sunday January 31st, 2010: Equities (Part 1) Sunday February 7th, 2010: Equities (Part 2) Location: University of Toronto – OISE Building, 252 Bloor Street West (atop the St. George subway) Room: TBA Time: 9:30am – 4:30pm, with 1-hour lunch break. Sponsor: PASSMAX, an independent exam preparation entity with one of the highest CFA® Exam pass rates in the industry. The sessions will be lead by Krikor Ghanaghounian, CFA, finance instructor at one the nation’s top-ranked MBA schools. Seating will be limited. To register, email your name with: info@nfsa.ca or info@passmax.org

Be Part Of The EMPLOYMENT: At present, we are ACTIVELY searching for new writers, illustrators and designers to work for the NFSA ARBITRAGE, Canada’s first student-run finance magazine. If interested, please ADVERTISING!!! send a cover letter, résumé (and sample of your work) to: HR@nfsa.ca SUBMISSIONS: The NFSA ARBITRAGE welcomes submissions from writers and photographers. Please first send a query to the ARBITRAGE's editors at: Arbitrage.Submission@nfsa.ca LETTERS TO THE EDITOR: Suggestions for future issues? Kudos? Criticisms? The NFSA ARBITRAGE welcomes letters to the editor. They must be signed by the writer and include city of origin. Email: Arbitrage.LettersToTheEditor@nfsa.ca

David Alexander Editor-In-Chief

Do not trust people. They are capable of greatness. Stanislaw Lem

EVENTS: If you are an NFSA affiliate or sponsor interested in promoting your finance related event for free in our upcoming issue, please contact: Arbitrage.Query@nfsa.ca INTERVIEW: If you are a finance student of merit, or a professor or industry professional related to the finance industry, and you are willing to graciously lend your time to be interviewed for one of the ARBITRAGE’s future columns, please contact: Arbitrage.Interview@nfsa.ca OTHER QUERIES, contact: Arbitrage.Query@nfsa.ca LEGAL NOTE: All letters or pictures submitted may be published by the NFSA ARBITRAGE, unless expressly forbidden by the sender. Names will be withheld on request. ARBITRAGE cannot be held responsible for the return of unsolicited material. All submissions may be edited for punctuation, grammar, style and length. Not all may be published.

E D I TO R ’ s N O T E EDITOR-IN-CHIEF David Alexander

Dear NFSA Community,

t has been a long time in coming, but the NFSA Arbitrage magazine is back, fatter with content and snazzier with eye-popping designs. In all, 2008 has been a banner year for the dark side of Finance. The public got an eyeful and the titans of Wall Street got an earful. That’s why we devoted this issue to delve into some the underlying reasons behind the economic meltdown, so that you can gain a better understanding about how everything went bust, what can be done about it and how to protect yourselves in the future. For at the end of the day, you—the readership of this magazine— are the future leaders of the financial world and accordingly, the world will be relying on you to shield it from yet another collapse. To help you meet this task, we’ve interviewed a number of knowledgeable professors and finance professionals to learn more about economic bubbles, what they are, how they occur and what can be done about them. We also researched a few, little known formulas and indexes. We know what you’re thinking. Exciting! But when you take into consideration how the latter may have contributed to the grand collapse and how the former could have foretold it, we’re sure you’ll find some interesting reading. And finally, the NFSA Career Planner. Whether you’re just interested in learning more about Finance or want to explore what your options are upon graduating, we’ve worked long and hard to provide you with one source of information that we hope will help you discover what the financial industry is; what are the different fields that compose it; which field is best for you and what designations and certificates you will need to acquire over the course of your financial career! All together, we at the NFSA and the NFSA Arbitrage magazine, hope you find within these pages content that amuses, informs and guides your knowledge of Finance and how you can be a part of this exciting field in the future. Regards, David Alexander NFSA Editor-In-Chief

ARTS DIRECTOR David Tal ASSOCIATE David Fung EDITORS Pawan J. Shamdasani STAFF WRITERS David Tal David Fung Pawan J. Shamdasani PROOFREADER Bruce Wayne PRODUCTION David Alexander COORDINATOR GRAPHICS David Tal DESIGNERS Rustem Safin ILLUSTRATOR David Tal PHOTOGRAPHERS David Tal CONTRIBUTORS Wallie Seto Jorge Ramos Kedar Rindani Zach Blume Rustem Safin Patrick Dydynski MEDIA PARTNERS Career Insider Magazines (http://careerinsider.ca/) SPECIAL THANKS Lois King Xiaofei Li Jury Kopach

SALES & MARKETING David Alexander DIRECTOR CONTACT Arbitrage.Advert.Promo@nfsa .ca

Founded October 31, 2008 The NFSA ARBITRAGE is a publication of the NFSA, published every quarter. Entire contents are property of the NFSA © 2009. Electronic versions of the NFSA ARBITRAGE are available free of charge at www.nfsa.ca, but can be purchased as a subscription by contacting: Arbitrage.Sales@nfsa.ca

LETTERS TO THE EDITOR: The NFSA ARBITRAGE welcomes letters to the editor. They must be signed by the writer and include contact info. Names will be withheld on request. All letters submitted may be published by the NFSA, unless expressly forbidden by the sender. These letters may be edited for length and not all will be published. Email: Arbitrage.LettersToTheEditor@nfsa.ca SUBMISSIONS: The NFSA ARBITRAGE welcomes submissions from writers and photographers. If interested, please refer to our submissions ad in the following page. Other queries, contact: Arbitrage.Query@nfsa.ca

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06 The NFSA Arbitrage Fall 2009 NFSA.ca

THE REGULARS

COLUMNS AHEAD OF THE PACK: Finding Your Dream Job

CFE CORNER

FOR YOUR INFORMATION: Largest Bankruptcies In History

EMERGING MARKETS: INDIA

TREND WATCHING: THE HIGH FREQUENCY FUTURE

NFSA EVENTS

FAVE 5

OPINION Cycle-Proofing The 29 Market Upon The Power Of Threes What Insurance Do Insurance Companies Really Give?

ET CETERA Letter From The Editor Sponsors Affiliates Directory Crossword

06 59 60 61 68

NFSA Information NFSA CONTACT INFO: -Address: NFSA Office Office of the Master 140D Atkinson York University 4700 Keele Street Toronto, Ontario, M3J 1P3 -416.736.2100 xt.33572 -www.nfsa.ca -info@nfsa.ca -Facebook group at: http://www.facebook.com/ho me.php?#/group.php?gid=3 8798185613&ref=ts

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CFE Corner The Science of Saving

efore you borrow from your credit card to set up your margin account and leverage yourself to the max to buy shares in CITI, let’s go over some of the basics about money.

If you are reading this magazine, you are probably enrolled in a financial program, maybe taking your CFA and/or are looking to move into the financial industry. However, how many of you are struggling with debt? How many of you find that you run out of money before you run out of month? How many of you have ever learned basic money management skills? No matter how sophisticated or knowledgeable you are about investments or how successful you have been with investing, very few people have really good money management skills. There are lawyers, doctors, accountants, teachers and even financial planners going bankrupt because they spend more than they earn. In this ongoing series, we are going to be addressing knowledge that may seem basic but unfortunately is not commonly known. We will be talking about saving strategies, credit cards, credit score, mortgages vs. lines of credit, how to save money at school and much more. I encourage you to send in your questions or to suggest a topic for future issues. This month we will start with the Science of Saving. In order to be a successful investor, you first have to be a successful saver. Step one: track your expenses. A coffee a day, a few nights out a week, a couple of magazines a month—before you know it, you are out of money and have nothing to show for it. Keeping a written log is a critical first step to improving your financial future. Track every expense, every penny you earn and spend. It doesn’t have to be tedious or take a lot of time. It can be as simple as keeping all your receipts and then logging them on a spreadsheet every evening. Another strategy is to only use your debit cards so that you have a written record. Most smartphones also have apps available that can help you track your expenses. It doesn’t matter how you track it, just make sure you track every dollar you spend. Be honest with yourself. Step two: categorize your expenses. Do this for at least the next month so that you can identify where your money is going. Then summarize your

08 The NFSA Arbitrage Fall 2009 NFSA.ca

expenses into major categories and classify them as either a need or a want. Needs are rent, food, medicine, transportation, and anything else essential to life. Wants are everything else. Your cell phone is not essential to life, you will not die if you don’t have your morning coffee, make-up is not as important as water. Be clear on what is a need or a want. The goal here is not to eliminate wants (at least not yet) but rather identify the long term financial impact of this morning’s latté. Step three: try different scenarios. Now multiply those expenses times 12 to see how much you are actually spending in a year. Review each expense and see how much you can save each year by eliminating or reducing some of those wants. Even something as simple as a switching from a daily $5 coffee to a $2 coffee can save you over $600 in a school year (200 days). Your coffee just paid for a new laptop! Even the “needs” should be reviewed to ensure that you are not living like a king on a pauper’s income. Consider how you spend every dollar and what else that dollar could have been used for. Every dollar has the possibility for greatness – not just instant gratification. As Warren Buffet once said: “Someone is sitting in the shade today because someone planted a tree a long time ago.” How will you choose to plant the seeds of loose change rattling in your pocket? In the next issue, we will discuss how to automate your savings using a proven system used by millions Jorge Ramos – CFP, CLU, CFE With 19 years of experience in the retail financial services industry, Mr. Ramos is an advocate of financial literacy, a partner with Weigh House Financial and the founder of ‘Camp Millionaire’ in Canada. www.financialiq.ca www.secondopinions.ca jramos@financialiq.ca

Pr [TA<1,TB<1] = Φ2 (Φ-1(FA (1)), Φ-1(FB (1)),y)

Elegant Destruction The Formula that Bloodied the Financial System by Pawan J. Shamdasani

n 1998, David X. Li invented the Gaussian Copula Function, a complex formula used to measure and model risk with greater ease and accuracy. A Canadian financial economist and mathematician by trade, Li previously worked in companies like CIBC, Barclays and JPMorgan Chase, but with all this experience, he did not see the impact his formula would have on the financial industry. For over the past few years, it has been heavily used by some of America's biggest financial institutions, making it possible for them to sell a substantial range of new securities. Additionally, it was widely used by bond investors, Wall Street banks, rating agencies and financial regulators, which allowed them to make a lot of money—that is, as long as the warnings about the formula’s limitations were ignored.

so there is a high chance that your neighbours will default too. This concept is known as correlation, the measure of the degree to which one variable moves in relation to the other variable. In particular, bond investors and mortgage lenders desire to know how to measure, model and price correlation so that they can determine how risky mortgage bonds and their corresponding tranches are. How can this be done when the correlations vary so much? The solution was provided by Li in his paper “On Default Correlation: A Copula Function Approach,” published in the Journal of Fixed Income, where he explained a way to model default Unfortunately, those limita- Wall Street (or better known as correlation without using historiinvented mortgage cal default data. He chose to rely tions couldn’t be ignored forever, quants) especially when the financial mar- tranches as a solution to the risk on the prices of credit default kets began to deteriorate rapidly factors of investing in mortgage swaps (CDS) instead; these swaps in 2008, swallowing trillions of dol- pools by diversifying the risk. being a credit derivative contract lars and causing one of the biggest Tranches are composed of hun- where “the buyer of a credit swap recessions since the Great Depres- dreds of mortgages and classified receives credit protection, sion. How did one formula help to as tranche A, B, C and so on. whereas the seller of the swap humble the giant financial sector? Tranche A are composed of first guarantees the credit worthiness The answer remains with the bond lien assets and are given a rating of the product of AAA, AA or A. This implies an (investopedia.com).” Li’s idea market. safe investment. was that he would use historical There are various types of extremely bonds, including government Tranche B are composed of sec- prices from the CDS market inbonds, municipal bonds and cor- ond lien assets and given a rating stead of waiting to gather enough porate bonds. Bond investors of BBB, BB or B. This signals a safe historical data about actual dedeem these as relatively safe be- investment but with a slightly faults, which rarely happen, insincause historical data shows a low higher risk of default than tranche uating that prices of credit default default risk upon maturation. How- A, and so on. Investors who pos- swaps and the probability of deever, a more complicated element sess investments of tranche B can faults were positively correlated. of the bond market is mortgage thus charge a higher interest rate In other words, when the price of pools, consisting of hundreds or than those who have tranche A, as a credit default swap increases, even thousands of mortgages, all they bear the slightly higher de- default risk rises as well. carrying different interest rates, fault risk. The issue with mort“Li wrote a model that maturity dates and default risks. gage tranches and their ratings is used price rather than real-world Therefore, investing in mortgage that they don’t take into account default data as a shortcut (making pools is different from investing in that millions of homeowners an implicit assumption that finanthe aforesaid bonds for several could default on their loans at the cial markets in general, and CDS reasons: (1) there is no guaranteed same time. markets in particular, can price For example, if housing default risk correctly),” said Felix interest rate, (2) there is no fixed maturity date and (3) there’s no prices fall in your area, you lose Salmon, writer of Recipe for Disway to assign a single probability some of your equity. You choose aster: The Formula that Killed Wall to default on your mortgage and to the chance of default. Street in Wired Magazine. Quantitative analysts at The formula opened a new 10 The NFSA Arbitrage Fall 2009 NFSA.ca

door of opportunities for many large financial firms helping them to market the complex financial instruments known as credit derivatives, including what risk they faced, what strategies they needed to minimize the risk and what return they should demand. Using Li’s formula, rating agencies (such as Moody’s) could determine how safe or risky a tranche was based on a single correlation number. Bankers were able to bundle anything and create a triple A-rated bond from car loans, bank loans and corporate bonds, to mortgage-backed securities. These pools were better known as collateralized debt obligations (CDOs). “The CDS and CDO markets grew together, feeding on each other. At the end of 2001, there was $920 billion in credit default swaps outstanding. By the end of 2007, that number had skyrocketed to more than $62 trillion. The CDO market, which stood at $275 billion in 2000, grew to $4.7 trillion by 2006,” said Salmon. However, cautionary advice against using the Gaussian copula function and against using correlation as a deciding factor for investment or as a tool for risk management were clearly voiced by many in the finance industry. The main argument against the formula was that it made no allowance for unpredictability and assumed correlation was a constant rather than a variable,

resulting in a lot of uncertainty in the end-result. This also suggests that the implications of using the formula were well understood before the financial crisis began, yet managers continued to misuse the formula because it mainly allowed them to capitalize on huge returns. Another flaw with the copula formula was that it used CDS prices to calculate correlation in a time, when house prices were rising and thus where default correlations were at their lowest.

But, when the housing bubble popped, house prices began to drop across the country and default correlations started to escalate. This meant that the formula was highly sensitive to changes in house prices. Bankers took advantage of the formula’s sensitivity to house-price appreciations by continuing to create more CDOs. Many bankers were unaware that large changes in the correlation number were a result of small changes in their underlying assumptions. The results they

were seeing were not as volatile as they should have been, suggesting the risk shifted elsewhere. The main problem was that the managers were responsible for all asset-allocation decisions and lacked the quantitative skills to understand the models in terms of what they did and how they worked. They also made their decisions based on outputs from “black-box” computer models and not on common sense. "Very few people understand the essence of the model. The most dangerous part is when people believe everything coming out of it,” Li once said of his own model. In all, most in the finance industry fail to realise the reality, nor understand the impact, their figures can have on the markets. Worse, many bankers, especially managers, simply don’t grasp the mathematical workings of such financial models like the Gaussian Copula function. No model can perfectly represent reality. Therefore, common sense must come into play when making sound investment and asset-allocation decisions. The copula function was an elegant way to model risk, provided the underlying assumptions were met. A debate continues as to whether Li or those who misinterpreted his formula should be personally blamed for the Housing Meltdown. But in reality, this may be just the tip of the iceberg

NFSA.ca Fall 2009 The NFSA Arbitrage 11

Emerging Markets: Kedar Rindani Staff Accountant, Assurance Services with Ernst & Young LLP

The Sun has Already Risen

INDIA

ot until recently has the word “BRIC” become popular amongst the business community. Fuelled by their headline growth, the economies of Brazil, Russia, India and China have grabbed headlines all across the world and respectably so. Accordingly, North American investors have started taking interest in investing in these countries, either through direct investment in the equities markets or through western companies who have a strong presence there. In a recent Financial Times article, the foreign investment inflow into these countries has been tallied to over $3 trillion USD so far this year, the highest ever. So as an investor, there are some points to consider when hoping to be a part of this growing market. First, it’s all about the timing. It’s important to realize the potential investment opportunities within these countries early on, so that as an investor, you can realize the highest return on your investment possible. I strongly believe there’s a lag between the actual growth currently taking place in these countries and the time western investors actually come to realize this fact. Thus, as an intelligent investor, it’s important to be ahead of the curve and not to jump on the bandwagon—since, by then, only expensive investments will remain available. A good example would be the Standard Chartered bank, which has the most exposure to the Asian economies. Due to the financial crises, the North American financial institutions were surviving on lifelines offered by their governments. Standard Chartered, on the other hand, was profitable because of its exposure to the Asian consumer. Having an Indian background—and extensive experience dealing with the Indian business community—I am very impressed by what I see in India and the future potential of this country. Fundamentally speaking, is it very important to understand the difference between the nature of business in North

12 The NFSA Arbitrage Fall 2009 NFSA.ca

The average North American consumer purchases everything from electronics to even cup of coffee on credit, while the average Indian consumer purchases from their savings. Until recently, even homes and big-ticket items (such as cars) were purchased from savings; therefore, the growth is fuelled from the grass root level, rather than a bubble as the world has experienced from the recent financial crises. The implication is that Indian businesses have a solid consumer base, which is fuelling their growth, rather than growth fuelled by credit cards. The second major difference I have noted is the Indian entrepreneurial sprit, which is alive and flourishing amongst its people. I have never experienced such optimism and dedication toward a purpose, which I feel is surely going to be the driving force of India’s economic growth and sustainability in the long run. Since the population is working towards material well being—which they haven’t enjoyed in the past due to lower living standards—there is a hunger towards financial well being. Sure the Indian education system might be lacking as compared to western standards, but their business aptitude more than makes up this shortage. Moreover, the government is heavily investing in education and infrastructure and these benefits will be realized in the long run. These factors are strong drivers of growth for businesses in India, which is going to lead to a tremendous boom that the world has never seen before. Rather than realizing later on the potential for investment in India, I encourage you to do your own research and gain an understanding of the vision this economy is following. When the western media finally realizes and jumps onto the growth bandwagon per say, investment opportunities might have already become expensive. Economic power has already shifted eastwards on a scale and speed beyond our previous experience. Will you be ahead of the pack?

Ahead of the Pack

By J. K. Radomski Reprinted from Career Insider Finance 2009-2010, www.CareerInsiderBusiness.ca

ou’ve always dreamed about taking the business world by storm and believed your confidence and grades would be enough to take you there. But the economy is in a slump and that creates a whole new reality. While jobs are still available, you’re not just competing against your classmates for these coveted spots, but against experienced businesspeople who have been downsized and hungry for work. But fear not. There are many things you can do starting today that will get you noticed and help you get ahead of the pack. the industry sectors START EARLY you might be workIt’s never too early to ing in; whether a start thinking about company offers any your future career, support when it even if you’ve just comes to you purfinished high school. suing a designa“You should tion; and the kinds attend the fall reof benefits they cruiting events at offer. your school even if Employers you’re only a first can quickly tell the year-student bedifference between cause they give you a students who are chance to network keen and interwith the recruiters ested in joining who are always their organization, scouting for talent,” and those who are says Saima Kazi, a recent graduate of York Image sourced from David Yim’s Y.I.M.S Blog, http://yimsblog.com/ just looking for a job. They want to University’s Schulich make sure the students they hire School of Business who now works DO YOUR RESEARCH as a financial analyst at Kraft While things are definitely more will fit into their corporate enviCanada. “While you certainly competitive these days, you ronment and tend to hire the most won’t be offered a job when you’re should still focus your efforts on enthusiastic of the bunch. “On the surface, a lot of still in your first year, the recruiters the three or four places where you firms look the same, but there are who come back year after year will would like to work. Finding a full-time job is definitely things that distinguish take notice of you and your interest, and there’s a very good chance hard work, and you don’t want to them from each other, so you will they will offer you an interview for dilute your efforts by spending want to do your research,” says valuable time contacting too Cordie Wilson, GTA campus rea summer job.” Most recruiting events and many employers when you could cruitment coordinator for Pricecareer fairs happen in the fall, so be targeting the ones where you waterhouseCoopers. “Students you should also be on the look out can really see yourself launching should get to know the firms and figure out what they like specififor smaller events that take place your career. Doing so will require you cally about each one of them. in the winter semester and the summer. These tend to be less do some research to learn as When students tell me that we’re crowded, and often allow you to much as you can about the many their top choice, and give me spehave more one-on-one face time employers that are hiring. Specif- cific reasons why, it really makes with recruiters and potential em- ically, you will want to explore: an them stand out. We want to hire organization’s corporate culture; the people who know why they ployers. NFSA.ca Fall 2009 The NFSA Arbitrage 13

want to be here.” COMMUNICATION IS KEY Your résumé defines your experiences and who you are, and gives employers a chance to know something about you before actually meeting you. So make sure you’ve put some thought into properly preparing your résumé before you use it to apply for a job. A résumé should include your education, your work experience, and any relevant extra-curricular activities you may have. It also has to be absolutely perfect. It should be proofed again and again for typos. You don’t want to give an employer the impression that you do not pay attention to details. “A lot of career centres have excellent resources that teach students what makes a good résumé and cover letter. But the key is to include anything that is relevant to your target profession, such as any related volunteer experience or experience working in a corporate environment,” says Will Christensen, a campus recruitment manager for Deloitte in Calgary. “A good résumé should also include when you expect to graduate and your current GPA. I always tell students to include their GPA because it is a quick indication of their potential, but it is just one of the things we look at.” You should always make sure that your résumé is up to date, and always bring a few copies with you when attending a recruiting event.You never know if a potential employer will ask to see it. Also, make sure you include a cover letter when an employer asks you to send them your résumé. While a cover letter should explain why you are sending your résumé and the job you are applying for, highlights your background and work experience, and

states exactly what you’re sending them – your résumé, transcript, a letter of recommendation–it should be addressed to a specific person and tailored to the employer you are sending it to. “Employers like to hear from potential employees that share common interests. In my case, it was a fondness for technology,” says Mark Chesterman, a financial analyst for Research in Motion and recent graduate from the University of Western Ontario. “They don’t want to see a standardized, generic résumé or cover letter. So show them that you’ve done your research, and focus on any common goals you can think of when writing your cover letter.” You should also consider printing business cards that you can hand out during networking events, career fairs, and recruiting sessions. Aside from being a great networking tool and giving recruiters something else to remember you by, having a business card suggests that you understand the basics of networking and professional corporate behaviour. A good business card should include your name, phone number and email address. While a stack of 500 cards will only cost you between $30 and $50 at your local office supply store, you can also find some affordable deals online. However, investing in a high quality and memorable business card is an investment in your career. You should also be up to date on current events and trends within your chosen profession, as this shows potential employers that you are an informed individual, and may even give you an anecdote or two to use as an icebreaker.

14 The NFSA Arbitrage Fall 2009 NFSA.ca

ATTITUDE IS EVERYTING If you’ve never attended a recruiting event before, you might want to talk to students who have already met recruiters at past events so you know what to expect. Then, visualize yourself there and think about what you will do, how you will act, who you will approach, and what you will say. “There’s no need to be shy. Most recruiters are extremely approachable and easy to talk to,” says Richard Stuart, who recently graduated from the University of British Columbia’s Diploma in Accounting Program and now works as a staff accountant at Ernst & Young. “You should ask someone to play the part of the recruiter so you can practice asking and answering questions. This will make your conversations flow more naturally.” When going to an event, make sure to dress professionally and wear what you would wear to a job interview, as most recruiting events are really informal job interviews. Make sure to talk to everyone in attendance regardless of their rank within their organization, and hand out your business cards to everyone you meet. You should also note the name of whom you are talking to, as anyone you connect with can become a valuable ally later on. “If you feel you’re getting along well with a staff member that’s there, don’t feel the need to rush the conversation to talk to someone else,” says Nick Kaplan, a student at the University of Toronto’s Master of Management and Professional Accounting program who has completed a co-op term with KPMG. “ Recruiting coordinators typically ask for input from all staff at these events. Know

who you talked to because you might want to drop their name when you contact the lead recruiter in the future.” You will also want to make sure that you listen actively and attentively to everyone who is speaking with you, that you never interrupt someone when they are talking, that you always make eye contact with the person speaking, and that you comment on what they’ve said to show them that you’ve been listening. You should also feel free to speak about your accomplishments with a sense of pride, and project confidence while doing so, but you have to be careful to not come cross as too eager. “While it is important to be professional, you should also try to connect with a recruiter or interviewer on a personal level. You have to learn how to make appropriate small talk, so your personal-

ity and interests come through,” says Simon Fraser University student James Proctor who spent his summer interning at KPMG. “You want to make the people you meet feel comfortable with the idea of working with you each day.” These events also provide you with the opportunity to ask a lot of questions. While you will already have done your research and have an idea of where you might want to work, you should use these recruiting events to interview your potential employer so you can get a better idea about them. “Ask questions that are engaging and intelligent. Use these events to learn about the challenges people face in their roles, and what they like and dislike about their workplace,” says Chris Firka, a financial analyst for Manulife Financial and a recent

graduate from the University of Ontario Institute of Technology. FOLLOW-UP Recruiters will speak with hundreds of students each day, and visit several schools every week in the fall. So while they might have your résumé and business card on file, you don’t want to get lost in the shuffle. So follow up the next morning with a short one-paragraph email, or mail the recruiter a short note or “thank you” card. Make sure to mention some of the things you discussed and connected on, as you thank the recruiter for taking the time to meet with you. Good manners and etiquette still go a very long way, and will definitely put you ahead of the pack

The Anxious Index by Pawan J. Shamdasani

Sourced from the Federal

Over the past two decades, WallStreet economists have failed to predict any of the three recessions that have damaged the economy. Thus, one might ask—given the sheer amount of top talent the financial industry payrolls—is this failure due to incompetence or is it … by design? For an economist, forecasting a recession (what a Bloomberg poll describes as two back-to-back quarters of contraction) would mean diminishing profits for their companies and huge reductions in

their paycheck, as investor confidence and the likelihood to purchase stocks plummets. Thus, a trade-off exists between making accurate and upbeat forecasts for the simple fact that these economists have an incentive to predict more growth in a time when a recession is most imminent. So where can we turn to for a reasonably accurate predictor of an economic downturn? The answer may lie in something that sounds altogether sinister: the Anxious Index. The Anxious Index (first christened in 2002, by New York Times reporter, David Leonhardt) is a commonly

16 The NFSA Arbitrage Fall 2009 NFSA.ca

monly used economic tool to estimate the start and end of a recession. It is solely based on data from the Survey of Professional Forecasters: a quarterly survey of US economic forecasts conducted by the Federal Reserve Bank of Philadelphia (“Philadelphia Fed”) since 1990. From 1968 to 1989, the American Statistical Association and the National Bureau of Economic Research were held responsible for the survey. To create it, a variety of forecasters are surveyed, including Wall Street economists, corporate economists, independent economists and academics. Yet, what makes this survey most beneficial is that the forecasts are anonymous. Why is this diversity

ersity and anonymity crucial? It’s because of the conflict of interest mentioned earlier. The index takes this limitation into account, thus making it a reliable estimator. To be precise, the anxious index is a measure of “the probability of a decline in real GDP in the quarter after a survey is taken. For example, in the survey taken in the third quarter of 2009, the anxious index is 23.7 percent, which means that forecasters believe there is a 23.7

perc e n t chance that real GDP will decline in the fourth quarter of 2009â&#x20AC;? (phil.frb.org). Economists are specifically asked to Reserve Bank of Philadelphia

predict the chance that GDP will fall in the current quarter and in the four quarters subsequent to that period. An anxious index number of 30 or more is usually a clear indication that GDP will decline in the following quarter and continue to decline considerably further on, suggesting a high possibility of a recession. An index number of 10 implies a relatively stable economic environment but when comparing the forecasts over a few quarters, the index has

jumped quickly and even tripled in some cases, before most people realise that a recession has kicked in. ''When we're up in that range, it really means a recession could happen at any time,'' said Dean Croushore, an economist at the Philadelphia Fed. Since 1968, the anxious index has generally risen above 30 before every recession. However, the index is not perfect; after all, itâ&#x20AC;&#x2122;s still an estimate. There have been moments after recessions ended where the index has risen above 30. An example includes the 1987 stock market crash where the index was seen to be above 30 following it and did not precede into another recession. Studies by the Philadelphia Fed also suggest that the accuracy of the index diminishes significantly after one quarter when a survey is taken. This happens for two reasons: (1) inputs to the forecast are based on flawed assumptions since professional forecasters use yield curves in their forecasts and (2) the survey, which began in 1968, does not include forecasts during the Great Depression, which are more relevant tothe

curr e n t economy. I n spite of this, the anxious index is a more accurate and reliable warning for recessions than individual economistsâ&#x20AC;&#x2122; forecasts, which are deemed by most industry professionals to be poor estimators of future economic activity. The index has been accurate in forecasting recessions one quarter ahead and historically, a number of 40 and above has been a good indication that a recession has already started. The most recent case was in the first quarter of 2008 when the index was 42.9. During the first quarter of 2009, the anxious index was at its peak of 74. Since then, there has been a downward trend in the index from 46.5 in the second quarter to 23.7 in the third quarter. So, at present, the number is around 24. Based on the figures, can we conclude

whether the recession is over? Probably not! However, what can be said is that we are still facing a severe recession. How long will the economy take to recover? Only time can tell

NFSA.ca Fall 2009 The NFSA Arbitrage 17

TREND WATCHING As students graduate into the finance industry, what changes will greet them? What new trends will shape their professional lives? And more importantly, what do students need to know to prepare themselves for the realities of tomorrow? These are the questions that the Arbitrage hopes to answer in this new and ongoing section, as well as hope that you, the reader, will derive a great deal of benefit from.

The High Frequency Future By David Tal

his edition’s Trend Watching topic is, High Frequency Trading (HFT): a general term used to describe a different approach to stock trading that utilizes supercomputers, programmed with specialized algorithms, to execute transactions in milliseconds. To those in the know, this is seen as a game changer that can result in huge profits for investment firms. In fact, high frequency traders, such as Goldman Sachs, together generated about $21 Billion in profits last year, the Tabb Group, a research firm, estimates. However, there is a dark side to HFT. Ever since 1998, when the information age spurred the US Securities and Exchange Commission to open the trading floor to anyone who has Internet access, big trading companies have been looking for new ways to trying to maximize this innovation. And by utilizing supercomputers to gather market data, scanning multiple marketplaces for upcoming trends and then trade at a speed not humanly possible, the issue becomes whether HFT presents an unfair advantage to those who own these special supercomputers and algorithms. “It’s become a technological arms race, and what separates winners and losers is how fast they can move,” said Joseph M. Mecane, of NYSE Euronext (New York Times). One may rightly ask why this is unfair. These big financial corporations have invested millions of their own money to purchase these supercomputers and develop the complex algorithms and programs they use to navigate the market. Why should the government or society at large punish them for their innovation and ingenuity? Aren’t they simply trying to maximize the returns to their investors? To answer these questions, one must examine how specifically HFT affects the way trading is done in the stock mar18 The NFSA Arbitrage Fall 2009 NFSA.ca

ket, the advantages that it offers its users. Recently, electronic trading companies suchas Direct Edge and Nasdaq CEO, Robert Greifeld, rushed to the defence of flash trading (a process where some orders to buy and sell shares— using HFT—are held for a split second before publishing them publicly), after US Senator Charles Schumer proposed that the Securities and Exchange Commission ban the practice. A reason for this cover becomes clearer once you consider that NYSE Euronext, owner of NYSE, admitted that common investors may be getting worse prices because of flash trading (Bloomberg). How’s this possible? It’s because flash traders (again, using HFT) have the opportunity to gauge the supply and demand of certain stocks by holding orders for milliseconds. Specifically, by using these automated programs, traders can issue and cancel tiny orders within fractions of a second to see how much the slower traders were willing to pay. For example, once these supercomputers see that some investors’ upper limit is $34.26, seconds later they can buy and sell the market price up to $34.25. In a way, it is almost like these flash traders are equipped a crystal ball they can use to predict the market’s movements

seconds before it moves—and in this day and age, a few seconds is all the well-equipped need to rake inmillions off the lowly common traders. Even worse, this competitive advantage can become a chasm should those HFT companies rent server space within or close to the stock exchange’s servers in order to get market data and trading statistics faster—to an order of milliseconds—than other investors. The charge for such ‘co-location’ can be $50,000 annually, but is nothing when compared to the potential $500,000+ monthly revenues companies using HRT can pull in above the industry average. Hence, the argument surrounding HFT becomes: it is ethical? Sen. Schumer wrote, “This kind of unfair access seriously compromises the integrity of our markets and creates a two-tiered system, where a privileged group of insiders receives preferential treatment. If allowed to continue, these practices will undermine the confidence of ordinary investors, and drive them away from our capital markets (Bloomberg).” Andrew M.Brooks, head of United States equity trading at T.Rowe Price, adds, “People want to know they have a legitimate shot at getting a fair deal. Otherwise, the markets lose their integrity.” As of now, HFT and flash trading arguably accounts for up to 70 per cent of daily trading volume in th US.

So what does this all mean to soon-to-be finance graduates entering the workforce? As always, it means opportunities and drawbacks. As we’ve seen, computers have become the ultimate tool to gain that ultimate edge in getting the best stock prices and the most profit in trading. So for those who are technologically over-literate, this skill may be better able to land you an interview with one of these top financial, HFT-using firms, than just having a standard finance degree. At the very least, it would be a good idea to gain some basic knowledge of using advanced trading software systems. But of course, not everybody can be a computer genius and, chances are, most recent graduates have no chance at landing a job at a top financial firm straight out of university. So until the government or (less likely) the private sector on its own resolves the issue of HFT usage, students must bare in mind that their future carrier in financial trading will be (to some extent) affected by the HFT trend that has already raised the cost of trading for typical investors and has contributed to increased market volatility over the last couple of years. At the very least, upand-coming investors and finance professionals must learn to factor this element in before they make any trading decisions, or maybe even before becoming an average trader as their career

David Alexander Editor-In-Chief

Do not trust people. They are capable of greatness. Stanislaw Lem

ECONOMIC BUBBLES They Brought Down Our House of Cards So as Future Leaders of the Financial Industry, How About we Learn What They Really Are? By David Fung and David Tal

conomic bubble is a popular, though informal, term that is used by many. It describes how a significant portion of a trading market is dominated with securities that have inflated values. This phenomenon often occurs when too much money is chasing too few assets, causing both good and bad assets to be inflated in value excessively beyond their fundamentals to an unsustainable level. Economic bubbles are often identified in retrospect, when there is a sudden drop in prices of many securities. The bursting and the expansion of economic bubbles, mirror the peak and the trough of a typical business cycle; and in some cases, they occur in a more dramatic way. A classic example of this phenomena, that one may see as eerily similar to the events of today, occurred in the 17th century. Tulips were very popular flowers in the Ottoman Empire during the 13th and 14th centuries. In the 15h century, European diplomats sent tulips back to Germany and the Netherlands. Soon after, many Dutch farmers started to grow special types of tulips for trade, which helped lead to its increased popularity and demand and then, ultimately, to its being traded as a commodity at exchanges in the 1600s. Yet unexpectedly, in the 1640s, tulip prices fell incredibly, leading to an unprecedented situation in the European flower business. Many farmers and businessmen couldn’t sell any of their tulips and suffered huge losses. This economic bubble was later termed as Tulipmania. One can see now how long and storied the history of economic bubbles has become. But as we enter this new age of globalism, where the world’s markets are now more interconnected than ever before and, according, domestic markets become ever more vulnerable to economic seizures that occur from external markets, there’s now a new impetus to get a sense of what these bubbles really are in order to insulate ourselves against it. How do they work? Why are they allowed to happen? What can be done about them? Hopefully the following pages will help shed some light on those questions …

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The Panel Lois King is a finance lecturer with the School of Administrative Studies, a part of the new Faculty of Liberal Arts & Professional Studies (LA&PS). She worked in the finance industry for many years as a derivative securities analyst and as a hedge fund manager.

Xiaofei Li, PhD, MA (McGill University) Assistant Professor Xiaofei Li joined York in 2003. He received his M.A. (economics) and Ph.D. (finance) from McGill University after his undergraduate studies in economics at Nankai University in China. Dr. Li’s research interests include corporate finance and fixed-income securities and markets. Xiaofei has taught courses in corporate finance and derivatives and risk management.

Jury Kopach, B.Sc., M.H.R. Jury. Kopach has more than 35 years experience in the financial services industry, speciallizing in financial planning for retirement. He has held the positions of Senior Vice-President at T.E. Financial Consultants Ltd., as well as President of NBRS Ltd.. Currently, Prof. Kopach teaches third and fourth year courses in “Personal Financial Planning” at York University.

(NFSA) What are the possible factors that help fuel the development of economic bubbles? (Kopach) In simplest of terms, a bubble is caused by the rise of the value of an asset that continues to feed on itself without any relation to its fundamental value. At some point, investors holding the asset come to the realisation that they cannot expect a further increase in the price and so they begin selling, thus causing a bust. Economists have been trying to answer the question of what causes economic bubbles probably since the middle of the 17th century when the Dutch Tulip Bubble was created. It would be a mistake to suggest that economic bubbles are fuelled by one factor. Some will argue that economic bubbles are

caused by the illusion created by some operators (sales) in the market that something will continuously go up in value, such as real estate or gold. Others will contend that human nature is a major factor in the creation of economic bubbles. Greed and fear are very strong human motivators and when they are mixed with a lack of understanding, lack of knowledge, lack of discipline and a lack of logic, the combination can result in what is sometimes referred to as the herd mentality. Some have argued that it’s the “greater fool” concept that is behind the formation of some economic bubbles. In other words, you can always make money in a bubble environment because there will always be some one more gullible who will buy this overvalued asset. However, I believe that one of the largest factNFSA.ca Fall 2009 The NFSA Arbitrage 21

ors that has been instrumental in the creation and ultimate deflation of bubbles has been the economic policies followed by a great many central banks, the Fed in particular. In the last 20 years (since the beginning of Greenspan’s tenure as the chairman), The Fed has essentially produced an over supply of money. This has lead to inappropriate lending practices by the banks resulting in too much money in the hands of too many uninformed people, chasing after too few assets. This resulted in an overvaluation of assets to their true value. Ultimately, the banks had to reverse their practices, liquidity tightened and the “bust” began. Governments had to fuse money back into the system at low interest rates.

economic bubbles by judging which phase of the business cycle the market is experiencing, based on historical data? (Li) We all know about the old saying of "seven years of harvest followed by seven years of famine." The macro-economy seems to follow a similar path: expansion, recession and recovery etc. As to bubbles, although (historically speaking) many bubbles have built up during the boom and have burst in the subsequent recession, some bubbles indeed formed in recession. For example, in July 2008, the oil price was pushed to the highest level ever, more than US$140 per barrel, yet according to the NBER, at that time the U.S. had already been in the recession for more than six months (the NBER has determined that the current recession in the U.S. began in December 2007). As a second exa m p l e , lately we have witnessed a b u bbl e forming in real estate (especially in Asia) and commodity prices. But we aren’t out of the woods yet. So it may be hard to use the business cycle to predict the occurrence of bubbles. The two are undoubtedly related, but it is hard to be precise about the timing.

We aren’t out of the woods yet.

(NFSA) How do interest rates and monetary liquidity play a part in creating economic bubbles? Is there an interrelationship between the two? (Li) Yes. Think of what had happened after 2001. The American economy was in a recession (minor compared to the one that we are in right now). The then Fed Chairman Alan Greenspan in a drive to stimulate the economy had maintained a low interest rate over the subsequent four years in the U.S. The Result? There was an overly-abundant supply of liquidity (due to cheap borrowings) and the real estate markets in the U.S. became too hot. Then there was the subprime crisis that eventually brought us to the current financial crisis. (NFSA) When economic bubbles burst, do they always mean that there will be a sure-fire recession waiting in line? What is your view on this matter? (King) Almost by definition, an economic bubble will lead to severe consequences for the general economy. I think what you mean is, do technology or real estate bubbles always lead to recessions? It depends on how widespread the factors were that lead to the bubble. The tech bubble in the late 1990s did not lead to a deep economic recession as it was contained primarily to one sector of the economy and we had Greenspan who did not want the U.S. to go into a recession. The real estate/financial bubble of 2008 was more widespread. The low interest rates and the ability to use your house as an ATM machine allowed easy access to leverage. This encouraged many more guests to come to the party. (NFSA) Is there a way to predict the occurrence of 22 The NFSA Arbitrage Fall 2009 NFSA.ca

(NFSA) Some claim the irrationality of many investors would be the main direct cause of economic bubbles. Would you agree or disagree and why? (King) I would suggest that the direct cause of most bubbles is aggressive monetary easing and it’s not so much “irrationality” as it is simply “human nature” to behave in certain ways to take advantage of this easing. One of the consequences of aggressive monetary easing is that the value of financial and other

assets increase quickly. People want to participate in this growth or party. The same psychological factors cause people to line up for seven hours for a H1N1 shot. There is fear that they will be left out of an event or situation. (NFSA) It’s known that human emotions play a factor in contributing to the market risk premium that is part of the overall risk of any publicly traded securities. Can we simply state that there is a causal relationship between human emotions and economic bubbles? (Li) Yes. The area of finance that deals with this topic is called behavioural finance. Please keep in mind that people are not always rational. We are emotional and at times quite irrational. There is an old saying that only two things drive Wall S t re e t : greed and fear. However, our u n d e r standing of the relationship between emotions and bubbles is still very limited. I suggest you visit Professor Robert Shiller's web site at Yale University:

(Kopach) Sophisticated investors will take their gains and usually diversify within the limits of their original asset allocation. In some cases, it does make sense to purchase the same or a similar stock because the company (by which the stock is represented) is indeed worth owning. If the reinvestment is done prudently, this does not elevate the risk in an investor’s portfolio, as long as the asset allocation remains within the limits set by the objectives and the risk tolerance. Less sophisticated investors regard investing not as a disciplined process but as a gambling exercise, where money gained is “free money.” In this sense, they have “scored a hit” and will continue to buy the same stock until they lose. This is much like the gambler that sticks with a hot hand. My advice to students: become a sophisticated investor and learn to maintain discipline. (NFSA) What goes through trader’s minds when the prices of their over-valued securities are dropping? Does knowing that their own stocks are over-valued help the situation or the other way around? Or are their decisions just a matter of following the crowd? (King) Most traders act on a sixth sense. At least the ones that I have known - the ones who trade proprietary for brokerage dealers or banks. I’m not sure a lot of rational, processed thought goes through their minds. They never consider their own stocks overvalued or they would have sold them earlier. They are just aware that something has changed, a storm is coming and they need to take cover. You don’t want to be the last one out of the barn. What happened to Goldman and Morgan Stanley stocks after Lehman filed for Chapter 11 last September is a great example. These proprietary traders don’t want to follow the crowd. They want to be ahead of the crowd. They have the ability to read the changing wind direction and blow out positions much faster than the average retail investor.

http://www.econ.yale.edu/~shiller/ (NFSA) There are many investors who tend to take more risk with the capital they gain from stocks, either by re-investing on the same stock or investing in similar stocks to anticipate similar gains. Many blamed this psychological occurrence on stocks being over-valued during the expansion of the economy. Do you agree with this assessment? And if so, why do they behave like that and what should we learn from it?

(NFSA) During the expansion of economic bubbles, why is it so common that some investors become very reluctant to sell their stocks, even though they know they are over-valued or have experienced some slums along the way? Do people really develop a kind of ‘relationship’ with their stocks and are then at a loss when the situation gets worse? (King) Again, it goes back to basic human psychology. People don’t want to accept hard losses. They

There is an old saying that only two things drive Wall Street: greed and fear.

NFSA.ca Fall 2009 The NFSA Arbitrage 23

are hopeful that the party hasn’t ended and things will continue to along a merry way. Unfortunately for the average retail investor, he has a terrible timing issue and when capitulation hits or when he finally sells, it’s usually at the bottom of the cycle or the correction. That is, w h e n c a s h levels at mutual funds are at the highest levels, a rebound in usually underway. The hardest lesson for an investor is to go against the crowd.

(NFSA) Many economists and financial experts claim that institutional investors are abusing the concept of financial leverage, which have led to the economic bubbles have been experiencing in this past decades. Do you agree with their view? Would you suggest certain regulations should be introduced to put this issue under control? (Kopach) The institutional investor’s job is to amplify investment performance. Leverage has long been widely used as a tool to this end. Leveraging a portfolio’s returns by using debt carries with it a high element of risk, because the tangible asset that is purchased with the loan must have an earning power that will repay the loan, plus the interest, plus deliver a profit (cover the risk). Risk implies that there is a penalty if the investment decision is incorrect. The high degree of risk that institutional investors have been willing to take relates directly to the current governments’ practices that when an institutional investor makes a mistake, the government will cover it. So in the economic environment that we are dealing today, risk is nullified. The problem of course will be when the governments will not be able to cover the losses as is now being shown by countries like Greece, Dubai and soon to be others. This sense of being insulated from bankruptcy, insolvency, total liquidation and ruin because the government will come along and cover any losses, has resulted in institutional managers taking

Most traders act on a sixth sense. … They are just aware that something has changed, a storm is coming and they need to take cover.

(NFSA) Is there a correlation between emotionally driven decisions and the level of knowledge and tools that an investor possesses? Does more knowledge means less emotionally driven decisions? Any examples about people you know that supports your view? Also, does experience play a bigger factor than knowledge in the matter of controlling your emotions in regards to investment decisions? (Li) Both knowledge and experience play an important role when people make investment decisions. However, does a more knowledgeable and/or more experienced investor mean he/she is less emotional? Maybe. I can only say that with more experience an investor becomes more mature in investing and more capable to handle the pressure and anxiety that come with investing. But please keep in mind that investment is both an art and a science. Even a knowledgeable and experienced professional investor like Warren Buffett can miss. (NFSA) In general, should average investors just avoid small company stocks and growth stocks, since these are some of the main securities that have their value excessively inflated in economic bubbles? (King) I don’t think I agree that small stocks and growth stocks are usually excessively inflated. Small stocks have historically shown terrific long-term returns and growth stocks stop becoming growth stocks at some point just because of the math. For example, RIM cannot continue to grow at 30% indefinitely. At some point the math-compounding factor has to take effect. The most recent economic bubble hit established financial stocks the hardest. Leading bank and brokerage firms in the U.S. that had been around for almost 100 years were brought to their knees.

The hardest lesson for an investor is to go against the crowd.

24 The NFSA Arbitrage Fall 2009 NFSA.ca

much greater risk than is warranted. This is the moral hazard that has permeated our economic system. An institutional investor has to believe and understand that there are consequences to their investment decisions. Investor’s must return to the key element of risk, which is the balance between getting a return and ending up with a loss. The moral hazard here is that this balance has been interfered with by governments and central banks. This is the part that has to be “righted.” To answer the question: Yes, leverage has been abused by institutional investors, and by governments and by central banks. (NFSA) For the past decade, we witnessed the ever-

increasing expansion of financial engineering and the creation of many hybrid financial instruments. Some of these securities are excessively derived from a pool of assets from the original primary assets. Do you think this trend will have us experiencing economic bubbles at a higher frequency in the future? (King) Perhaps, but I think the new rules on leverage will lessen that possibility. For example, most hedge funds were operating at a 15-20x leverage factor until September 2008. New margin rules, both from the regulators and the banks’ internal compliance departments have reduced that factor significantly.

lio managers reviewed, each had (on average) 15 deficiencies per firm. Fewer that 40% of firms reviewed were found to be in full compliance of the current regulations. What does that do for investor confi-

Even ... experienced professional investor[s] like Warren Buffett can miss.

(NFSA) Do you believe that certain regulations should be introduced to put this issue under control? (Kopach) More regulations will not prevent the problem. In fact more regulations will mask the problem, and in some cases exacerbate it. In a free market economy the market should do the regulating not the government. Companies, banks, institutions that have made bets with others peoples money and have been wrong should not be propped up and allowed to continue to do business as if nothing has happened. Furthermore there is a fine line between regulation and overregulation. The Soviet Union was the most regulated economy and it failed dismally. The amount of black market activity that was practiced there was immense. China is a regulated economy and the black market thrives there.

dence? Before opening up an account with a broker or a dealer, an investor should ask to see their annual compliance report. I doubt this is ever done. (NFSA) What can the regulatory bodies and rating agencies, such as Moody’s and Standard & Poor’s, do about the increasing variation of new financial instruments? Should they hold responsibility to a certain degree for past economic bubbles, such as the recent credit crisis that we just experienced? (Li) The ongoing financial crisis was at least in part due to the lack of regulation and supervision of the governments. The rating agencies have played a role too since they had assigned excessively high ratings to e.g. collateralized debt obligations (CDOs) and collateralized mortgage obligations (CMOs). These financial securities are currently treated as "toxic assets" on banks' balance sheets and have helped brought down several financial heavyweights. (NFSA) What can recent graduates and soon-to-be graduates do to prepare themselves for the especially harsh job market they will be entering following the collapse on an economic bubble? (Kopach) Under the current economic system, we will continue to have bubbles, so students and investors should get used to them. If the question relates to the investment of money, then the answer is to anticipate the next bubble, recognize it for what it is, and not get caught up in the euphoria, because then you will have to play the timing game of when to get out. More often than not you will be wrong. My advice is to construct the asset allocations of your investment portfolio that is relevant to what your goals are and what your investment risk tolerance is. Understand fully the underlying securities that you have in your investments. Be confident in the selection of your investments (know what you are buying). Review the performance of your portfolio periodically, make sure that your tolerance limits are still maintained and have the discipline to stick to your plan

This is the moral hazard that has permeated our economic system.

L e t m e add one more thing to the discussion on regulations. There are three sides to regulations. One side is the regulatory side, the other is the enforcement side, and the third is the compliance side. Currently, governments do not have the ability to enforce the regulations that are on the books, how will they enforce additional regulations? I read recently in the “Investment Executive” that in 2008 at the height of the financial crisis dealers sold millions of dollars of investment product that they themselves didn’t understand. How do you regulate against that? Instead of making new rules, investors must insist that the company they are dealing with is fully compliant with the rules that exist. This year’s OSC’s annual compliance report showed that of the portfo-

NFSA.ca Fall 2009 The NFSA Arbitrage 25

FOR YOUR INFORMATION This visualization was first published by Good Magazine (in association with Always With Honor) on June 9, 2009. A purveyor of all things good, uplifting and informative, the NFSA recommends visiting Good's website, www.good.is, to learn about them and subscribe to their good works and Good Magazine.

26 The NFSA Arbitrage Fall 2009 NFSA.ca

NFSA

Events

Edward Jones Case Competition

dward Jones and the National Finance Students Association are both rapidly growing organizations. It only made sense that we would team up in an effort to bring the Edward Jones Case Competition to life. Edward Jones Financial Advisors specialize in helping individual investors and small business owners achieve their longterm financial objectives. The firm's financial advisors do this from single broker offices located in the communities where their clients live and work. The objective of this event was to provide 3rd and 4th year students with an opportunity to interact with financial advisors, as well as showcase their knowledge, skills and abilities during a presentation to a panel of Edward Jones executives. Overall 10 teams of 3-4 students from various schools seized this opportunity. 8:30 am – Registration started at the Edward Jones headquarters in Mississauga. An immense amount of small talk is made. 9:30 am – Commencement speech is given by Yong Kim to the delegates with a welcoming message of encouragement and competition. 10:00 am – The first round of presentations begin. Delegates deliver the recommendations they developed for the case competition. Presentations varied by style and content and no 2 answers were the same. Also, while the groups awaited their turn, or the next round, they were able to interact with Edward Jones representatives. 11:15 am – Edward Jones financial advisors held a question and answer period. This was fully utilized by the delegates. They showed a significant amount of interest in the profession of financial advising and asked a variety of practical questions. 1:00 pm – Four groups were selected to present their recommendations in front of the new panel of executives and the rest of the delegates. This new panel of executives in turn decided the winner and the runners up.

1st place: won the box tickets to share with the Edward Jones executives at ACC. The team consisted of Jingwen Liu, Molly (Peiyi) Zhao, Guanhua Wang and Becky (Xiang) Li. 2nd place: won the dinner with Edward Jones partner. The winning team consisted of Suraj K. Gupta, Edward Zhao and Micheal Moretto. 3rd place: also won a dinner with an Edward Jones partner. The team consisted of Michelle Moon, Florind Polo Zach Blumer and Katie Wang. 4rd place: won gift packs from Edward Jones. The team consisted of Vlad Visan, Tali Chernin and Richa Kumar. On behalf of the NFSA, we would like to congratulate the winners once again and thank everyone who was involved in this event.

NFSA.ca Fall 2009 The NFSA Arbitrage 27

hen looking to invest and add a position to my portfolio, I try to apply Peter Lynch’s mantra: “Invest in what you know.” Mr. Lynch, one of America’s greatest mutual fund managers, whose Fidelity Magellan mutual fund averaged a 29.2% return during his managerial tenure, regularly preached that average investors can pick winning stocks by doing a little research while at work or shopping at the mall. In light of this notion, here are five companies who we have all had a personal experience with in one way or another and are—in my humble opinion—great investments. 1. Diageo (DEO) – Smirnoff vodka, Guinness stout and Crown Royal whisky, are just some of the By Patrick Dydynski, premium brands that make up Diageo’s impressive portfolio of international brands. A strong York University presence in emerging markets, in which revenues enjoyed double digit growth in last few years, will continue to prop up earnings, while consumers in developed regions contemplate opting for cheaper alcoholic beverage alternatives. And for the present time, a 4.26% dividend yield keeps me quite satisfied. 2. GameStop Corp (GME) – GameStop is the largest U.S. video game and PC entertainment software specialty retailer and operates over 6,000 stores worldwide. During Q2 & Q3 2009, the company continued to add to its leading market share position. Approximately 400 stores are in plans to be opened in 2010 and, while the video game industry continues to grow, its shares look appealing with a forward earnings multiple of 10X. 3. Aeropostale Inc (ARO) - This specialty apparel retailer has achieved 11 consecutive years of same store sales gains. Furthermore, ARO continues to record same store sales gains while the market experienced declining mall traffic and reduced pricing; for FY09 same store sales grew by 8%. I expect improving operating performance from this company as the economy recovers and on scale economies. Sales growth experienced in the past will not persist indefinitely, but the trend in improved margins should continue. 4. Toronto-Dominion Bank (TD) – One of the world’s four non-sovereign banks to be AAA rated by Moody’s. YTD Q3 2009, 80% of the bank’s earnings came from retail operations; 54% from Canadian retail and 26% U.S. retail. The bank continues to add branches on both sides of the boarder, in part, by being recognized as being a leader in service and convenience. The decision to focus its operations on retail banking is very sound during these uncertain times in the banking industry, as this business provides stable and reliable earnings. 5. World Wrestling Entertainment Inc (WWE) – WWE is an integrated media and entertainment company that dominates the sports entertainment niche, devoid of any competition. The company has developed brand loyalty with their fans that continues to grow in emerging markets. Senior managers are large shareholders, which ensures the company is managed in the best interest of shareholders. Earnings continue to grow with successful cost cutting initiatives and, of course, I love the 8.95% dividend yield.

David Alexander Editor-In-Chief

Do not trust people. They are capable of greatness. Stanislaw Lem

NFSA

Opinion Op-Ed Contributer

Cycle-proofing the Market Upon the Power of Threes by David Tal Contributed by the York Excalibur A pattern’s emerging. The economy has failed often enough that its flaws have become more predictable after each passing cycle. Worse, no one is innocent. It starts, as always, with society’s individual consumers and institutions (the actors in the market), who all eventually fall prey to a collective shortsightedness—they believe the growth of the present will continue indefinitely into the future. In reality, not so much. Such thinking is how economic bubbles form, usually—as the mid-twentieth century economist, Hyman Minsky, explains—by three basic progressions. First, market actors take on a little debt to purchase investments and meet interest costs. Next, these actors increase their debt loads until they can only afford the interest, still confident that the economy will continue expanding. Then finally, they take on so much debt that it necessitates increasing prices to be safely financed. But of course, just like Ponzi schemes, this house of cards came tumbling down. Taking the recent Housing Meltdown as an example, house prices plummeted, borrowers defaulted, forcing them to sell their assets en mass, further pushing down prices. Then the inevitable happened: the government stepped in and covered private blunder with public savings. In most industries, the resulting chaos would result in ‘creative destruction,’ where capital would be redistributed in a more efficient manner. But the financial sector is different; when it plunges into chaos, capital is destroyed outright.

Isn’t there a way to avert all this? Some think so. And their suggestions come in threes—the first trinitarian set strengthens the market’s eyes; the other, its endurance. We begin with Daniel Roth’s Wired.com article, Road Map for Financial Recovery, where he posited that in order for the world financial actors to start playing by the rules and within their means, more eyes need to be squared upon them—essentially, the market needs more transparency. Of course, many would say that the government receives more than enough financial data in the form of tax filings, quarterly and annual reports, disclosures, etc, more so now than ever before, especially in the wake of such corporate collapses as Enron. The problem is however, this sheer quantity of financial transparency becomes opaque when the government turns its attention to actually sifting through all this data, something that becomes all but impossible for the its relatively small number of underpaid auditors. Add to this how each company prepares its financial documents using different templates, headings, accounting structures, etc, making analyzing multiple sets of documents against each other exceedingly tedious. However, here is where technology can come in to the rescue. As Roth points out, new software, such as XBRL, can be used to standardize all forms of financial information to be documented and forwarded to government auditors. If the government required that such software were used by all companies—including pension funds, insurance compa-

Let the seller beware as well as the buyer.

NFSA.ca Fall 2009 The NFSA Arbitrage 29

nies, hedge funds, investment banks and other such institutions that make up the ‘shadow’ banking system—government auditors would have a much easier time sifting through the mounds of financial data they receive. Moreover, they could then potentially create

in times of crisis and capital is scarce—thereby protecting the taxpayer. One version of this would be for banks to issue debt, “which would automatically convert to equity when … two conditions are met: first, the system is in crisis, either based on an assessment

Create an army of citizen regulators, to allow special interests to assist government auditors in weeding out dishonest public or private institutions. specialized algorisms and software to electronically scan through these standardized forms to find illegal irregularities. But to make this process even more effective, it must be decentralized—cue Roth’s three-tiered manifesto. First, comes ‘setting the data free’ whereby all these financial documents (preferably in a standardized form) is made public and easily accessible to the public. This leads to ‘empowerment of the investors,’ since once an investor receives access to a company’s fully standardized financial data, he or she can manipulate it in novel ways to discover information not normally found in your basic financial statement. And third, ‘create an army of citizen regulators;’ with all this data available to the public, company’s will then have to face the ire of special interests who will now have the power to quantitatively assist government auditors to weed out dishonest public or private institutions. Moving on to the second trinitarian solution, we look to Raghuram Rajan, a former chief economist of the IMF. In a recent, Economist.com, online discussion, Rajan outlined three principles for improved financial regulation that may complement the transparency efforts just outlined; these being: comprehensive, contingent and cost-effective. These principles extol that all new regulations passed to temper the market should be comprehensively applied to all leveraged financial firms, so as to avoid money being transferred from heavily regulated institutions to more lightly regulated ones—a practice that has recently burned the balance sheets of many banks globally through their investments in barely regulated subprime debt packages. Moreover, these regulations should be contingent on enforcing financial restrictions most at times of excess, then less in times of soberness—thereby both avoiding subterfuge and being cost effective. Regulations that meet these requirements, Rajan argues, include asking institutions to develop ‘contingent-capital’ arrangements where money is set aside when times are good and raising capital is cheap, then infusing that money back into the system 30 The NFSA Arbitrage Fall 2009 NFSA.ca

by regulators or … objective indicators; and second, the bank’s capital ratio falls below a certain value.” These two conditions ensure that banks that screw up by their own means don’t avoid the debt they’ve earned, while also ensuring that well-capitalized banks avoid the negative impact of forced debt conversion. It also provides an incentive for banks to quickly raise new capital when they foresee losses on their books, rather than depend on the public to bail them out. Other ideas that Rajan mentions, is a requirement for important and leveraged financial institutions to buy fully collateralised insurance policies that will protect them in times of crisis. As well, he believes that those financial institutions that are ‘too big to fail’ be required to develop a detailed plan so that should it ever go bankrupt, it can do so quickly and with as little damage as possible to the outside system—similar to a will left behind to the children of a deceased parent. Reading this far, it should be heartening to know that the ideas for plugging the holes in our collective market boat are out there—these proposals and many others not already covered above. Standardizing and decentralizing the auditing process, alongside introducing innovatively comprehensive, contingent and cost-effective regulations—even if a few of these measures were introduced, it’s possible that they would push back the date of the next market collapse by years. And in doing this, we can only hope that Theodore Roosevelt’s famous quote will at last be felt: “Let the seller beware as well as the buyer.”

Op-Ed Contributer

Insurance Companies: What insurance do insurance companies really give? by Zach Blume, YIC Analyst Contributed by the York Investment Club

Recently, the economy has been looking up and America’s big banks are starting to turn around. In fact, in mid-June, the Treasury Department gave permission to J.P. Morgan Chase, Goldman Sachs, Morgan Stanley and seven other banks to pay back $68 billion in bailout money. However, the government’s investments in insurance companies, particularly AIG, Fannie Mae and Freddie Mac, have not turned around as quickly. After investing $160 billion in equity into the three companies, there has not been nearly as favourable an outcome as with the government’s investment in the banks, and it is difficult to anticipate when their fortunes will improve. Because AIG, Fannie Mae and Freddie Mac were all affected by instability in the past, one might think they would have learned from their mistakes and be quick to recover, but this has not been the case. AIG, for example, through its insurance program, was so deeply knit into the financial system

Mae and Freddie Mac were liable to cover half of the country’s mortgages, with no accurate measure of what proportion would be written down as the economy spiralled downwards. When times are good, the three companies simply earn premiums, but the inherent risk ofdefault is always looming. For AIG, when one company defaults on its loans, it is more likely that another company will do the same and the risk grows exponentially. When the housing market takes a turn for the worse, people are paying a mortgage that is worth more than their house and defaults rise, again, exponentially. The Economist predicts the government’s equity investment in the three companies could reach $300 billion and a total bailout of $800 billion including loans. Although insurance is supposed to protect us when disaster strikes, it has only made things worse and the damage more widespread. There is much that needs to be done to reform these compa-

When times are good, [America’s insurance companies] take your money through premiums, but when times are bad, it’s taken through your taxes. that its failure could have brought the entire financial system down. Fannie Mae and Freddie Mac, together, own and guarantee approximately half of American mortgages. In doing so, they are insuring American mortgages when they securitize them and sell them globally as guaranteed investments. Although banks also have insurance arms, the most significant damage they had to sustain was through their ownership of toxic assets, or bad debt. Banks required bailout money because the leverage they employed was too high and because they had a shortage of cash to continue operating due to the frozen credit market and the fact that their assets’ market values were much lower than they had listed on their balance sheets (because of defaulted loans, fallen stock prices, etc.). AIG, Fanny, and Freddie were in a different boat; they needed money because their liabilities began to increase more and more as the economy steadily sunk. This led to AIG’s bailout being upwardly revised four times. Furthermore, while it is relatively easy to look at a bank’s balance sheet and determine that certain assets can be marked to zero, it was next to impossible to know what the liability was of each one of these three insurance companies. In fact, with respect to AIG’s sales of Credit Default Swaps, the company hit a point in September 2008 when they covered $440 billion worth of bonds and nobody knew how much of it was a liability. Fannie

nies and taxpayers will not easily forget what has happened, diminishing the validity of these three businesses in the foreseeable future. My conclusion is that America’s insurance companies are naturally flawed and need revision because when times are good, they take your money through premiums, but when times are bad, they take your money indirectly through the government. When your business is to protect and insure when disaster strikes, how can you not be prepared when the impending crash happens?

Be Part Of The

Interested in contributing your thoughts and opinions to the Arbitrage? The NFSA ARBITRAGE welcomes submissions from writers and professionals. Please first send a query to the ARBITRAGE's editors at: Arbitrage.Submission@nfsa.ca

NFSA.ca Fall 2009 The NFSA Arbitrage 31

NFSA

Career Planner By David Fung & David Tal

e all want success, to graduate from school with our options unhindered by obstacles, big or small. And for those interested in pursuing a career in finance, the potential for that success can be mind-boggling. Weâ&#x20AC;&#x2122;ve all read stories of those big names, those market tycoons we all hope to follow, with their sevenfigure plus salaries, generous stock options, private jets and exclusive parties. These things and more are all possible to you. But on this winding, yellow brick road of life, there are many forks in the roadâ&#x20AC;&#x201D; choices that if made poorly, may pull you away from your ultimate goals. To protect yourself, to ensure that the choices you make are the right ones for you and your dreams, we at the NFSA Arbitrage have developed the NFSA Career Planner. In this first edition, we will outline what the financial industry is, what are the various fields within it and what specific designations and other forms of education one should consider completing in order to pursue a career in whichever field of this industry you hope to pursue. In the following editions of this planner, we will hone and build upon the knowledge imparted in these pages, as well as go further in depth into each of the various fields of the finance industry to give you a better idea about what life is really like working in these areas. In all, it is our hope that by reviewing the information inside this NFSA Career Planner, planning out your financial career will become that much easier, helping you to make the right turns along lifeâ&#x20AC;&#x2122;s yellow brick road until you reach the point where the world will become yours for the taking ... .

The Basics

What is Finance and the Finance Industry?

Self Reflection

his is a doozie of a question. Depending on whom you ask, youâ&#x20AC;&#x2122;ll be sure to hear a variety of answers. But essentially, finance is the management of money or other assets. Exciting! Well, for those who donâ&#x20AC;&#x2122;t quite share our level of enthusiasm, bare in mind that money and how itâ&#x20AC;&#x2122;s managed is what determines much of how the world works. The better an understanding you have of money, and the rules that regulate it (finance and accounting), the more power you will have to determine your own future. Intrigued? We hope so. Because the next several pages will try to answer the second half of your question: what is the financial industry? To be clear, this is like asking what is food industry or the entertainment industry. The finance industry, just like these two examples, can be very ambiguous, as it covers so many different fields, from business consulting to money & wealth management to commercial banking and even insurance. For the purposes of this first edition of the NFSA Career Planner, we will be focusing only on the investment banking industry, since (from our experience) it tends to be the most popular amongst finance graduates. But not to worry, in later editions of the Arbitrage, the NFSA Career Planner will slowly expand to cover the many other fields within the financial industry and, in so doing, we hope to do our part in supporting our readership in their future career ambitions.

Job Profiles

The Canadian Finance Industry at a Glance:

Selection

The finance industry has enabled Canada to be one of the most attractive places to conduct business, as well as to invest. Canada possesses the following characteristics that have help create such a great environment: a relatively stable political environment, stable economic trends, skilled and productive labour force, moderate taxation, and not overly regulated trade barriers, fiscal and monetary policies. Consequently, the finance industry provided Canada with a capital market that is one of the most sophisticated and efficient in the world. This industry runs on the basis of the flow of capital and financial instruments. The following is an informal order, dictated by this flow of capital, which categorizes the affected parties of individuals in the Canadian society.

Training Directory

Users of Capital and Investors: *Non-financial corporations, such as retailers, food distributors, machinery and electronic manufacturers, raw material extractors, etc *All levels of the government, including municipalities *Retail Investors (known as private investors who trade and own financial instruments for their own personal accounts and not for another company or organization *Institutional Investors (companies that trade and own large volumes of financial instruments for business purposes) *Foreign and non-residential investors (including both retail and institutional types)

Financial Intermediaries: These organizations are the parties that offer all sorts of services to users of capital to help

33 The NFSA Arbitrage Fall 2009 NFSA.ca

The Basics

them manage and invest it. They act as a bridge between the investors and the capital markets. Some can also act as brokers for their clients or as investment dealers or both, in primary and secondary securities markets. *Schedule I, II, & III Chartered Banks *Investment Funds *Trust Companies *Credit Unions *Insurance Companies *Sales Finance and Consumer Loan Companies

The Clearing System:

Job Profiles

*Stock Exchanges. These are auction markets where buyers and sellers of securities trade with each other, they include: Toronto Stock Exchange (TSX), TSX Venture Exchange, Bourse de Montreal, Winnipeg Commodity Exchange (WCE), Canadian Trading and Quotation System (CNQ) *Over-the-counter (OTC) markets. They are the unlisted equity markets that are also dealer markets. They consist of a network of dealers who trade with each other, where these dealers act as market makers as only the dealersâ&#x20AC;&#x2122; bid and ask quotations are entered. Many of these markets are privately owned, computerized networks that match orders. These trading systems are mostly owned by private brokerage firms. Most bonds and money market securities trade in these OTC markets. Three of the most popular OTC electronic trading systems: Can Deal, CBID, CanPX.

Self Reflection

Capital Markets:

Selection

All financial intermediaries in Canada are required to clear their securities and financial instruments through the Canadian Depository for Securities (CDS). It is a central clearing system where it handles the daily settlements between the intermediaries. They help reduce the number of certificates and amount of cash that has to change hands among the members. CDS creates and confirms the cash balances for each firm, compiles the clearing settlement sheets and notify their members of the securities that they need to deliver in order to balance their accounts.

Government Regulation:

Training Directory

Securities Commissions (in Ontario, itâ&#x20AC;&#x2122;s the Ontario Securities Commission), are official government agencies that are responsible for overseeing and supervising the self-regulatory organizations, as well as regulating the Canadian securities industry. These activities fall under provincial jurisdiction; thus, the securities commissions are provincial government agencies. They delegate the authority to make procedures and regulations that governs the financial institutions and capital markets to these self-regulatory bodies. Office of the Superintendent of Financial Institutions (OSFI) is the regulatory body for all the federally regulated financial institutions. It does not oversee the Canadian securities industry.

NFSA.ca Fall 2009 The NFSA Arbitrage 34

The Basics

Canada Deposit Insurance Corporation (CDIC) is a federal crown corporation that insures eligible deposits up to $100,000 per depositor in each of its member institutions.

Selection

Job Profiles

Self Reflection

Self-Regulatory Organizations include: *Investment Dealers Association of Canada (IDA) *Mutual Fund Dealers Association (MFDA) *Listed Stock Exchanges, such as the TSX *Canadian Investor Protection Fund (CIPF) *Mutual Fund Dealers Association Investor Protection Corporation (MFDA IPC) *Ombudsman for Banking Services and Investments (OBSI)

he most important step in deciding upon a career path is self-reflection. Understanding both who you are and what you want when it comes to work, to life, it can seem trivialâ&#x20AC;&#x201D; but, for most, these can be the toughest questions to answer. Statistics show that most individuals in this current market place will likely switch jobs, and even whole careers, between four to ten times over the course of their lives. So take comfort, at least, in the knowledge that youâ&#x20AC;&#x2122;re not alone in your uncertainty about what you want to do with the rest of your life. But even if you are one of the lucky few who know exactly what career they want to strive for right at this very moment, there are a few things to consider: (1) you may start your favoured job and soon after find that you hate it, (2) an amazing job opportunity might arise that may pull you into a different field, (3) life may kick you in the butt and you may never reach that favoured career, (4) life may kick you in the butt really hard and yank you out of your favoured job, i.e. recession, downsizing, etc, and (5) you may work in your favoured job for a few years and then find that life has introduced you to completely new interests that you would like to pursue. These possibilities, and many more, are what career advisors call life. No matter what you plan for your future, your life will always take you in directions that you would never have imagined. Thus, while choosing a career may be difficult, or maybe even unrealistic in this day-and-age, you can at least gauge what underlying needs drive you and plan from there. Below are a number of categories we at the Arbitrage put together to help you in this self-reflectionary process. Ask yourself the questions below and compare them to the job descriptions that will follow. By doing this, we hope the fog in front of your career path might just clear up a bit.

Training Directory

Categories for Career Interests: *Skills: What kind of technical and/or occupational skills are you enthusiastic in utilizing on a daily basis? What kind of skills are you passionate about to attaining? *Knowledge and Expertise: What kind of knowledge do you most look forward to gain? What kind of knowledge and/or expertise are you most passionate about to working toward that will support career ambitions? *Experience: What are the types of challenges and on-the-job intrinsic rewards that will make your future career satisfying and fulfilling? *Abilities: What abilities do you have to contribute and which ones do you want to improve on? *Opportunities for growth: What future opportunities are you hoping to achieve? How high up the corporate ladder do you hope to climb over the course of your career?) *Prestige and Recognition: How much respect and popularity does your ego need [i.e. if a lot,

35 The NFSA Arbitrage Fall 2009 NFSA.ca

*SALES

(Pg 40)

*RESEARCH

(Pg 44)

*TRADING

(Pg 47)

*UNDERWRITING

(Pg 50)

JOB ASPECT LEGEND *Field Description *Common Job Titles *General Accountabilities & Duties *Key Skill Requirements *Estimated Range Of Salaries *Education, Certification & Licenses *Additional Information

Training Directory

(Pg 37)

Selection

*MANAGEMENT

Job Profiles

JOB PROFILE LEGEND

Self Reflection

he following are general descriptions of the five basic divisions within an average investment banking institution. Within each will be an outline of some of the main job positions that embody each said division, in addition to the general accountabilities & duties, key skill requirements, estimated range of salary, education, certification & licenses, and additional information that are generally necessitated by each position. When reading these overviews, please consider them as a kind of realistic job preview that will help prepare you for making the career choices of your future. These overviews are by no means definitive and will likely be out of date within another few months (as the financial industry tends to evolve quite regularly), thus while we recommend using this guide to aid in your career choices, we also recommend reviewing secondary sources before you make your final decision. Keeping this, as well as your self-reflection answers, in mind, we hope you find the following career planner section quite eye opening.

The Basics

lot, then chose an occupation that commands a great deal of respect and popularity from your peers, co-workers and the general public]? What level of authority do you envision your ideal position possessing in regards to your team, your division and your firm? *Work & Team Environment: What kind of surroundings are you most comfortable working within? *Characteristics of Personalities: Do you feel that the qualities of your personality allow you to meet and exceed the demands of your ideal job? *The Objective of the Job: Does the purpose of your desired career align with the core organizational goals of your ideal company, as well as your own career expectations and objectives? Will your desired career allow you to achieve a sense of accomplishment when reflecting on your job on a daily basis? *Responsibilities & Duties: Do you believe that you will be passionate and enthusiastic about the responsibilities and tasks you will likely carry out on a daily basis? *Salary Levels: What is your target salary range that you hope to aspire to over the course of your career?

NFSA.ca Fall 2009 The NFSA Arbitrage 36

The Basics Job Profiles

Self Reflection

MANAGEMENT This component consists of the all the firmâ&#x20AC;&#x2122;s decision makers who seize business opportunities, maximize available resources and capital, respond to market and competitor related changes and penetrate into new and existing markets. Firm size and the nature of business dictate the organizational structure of the management level(s). Senior managers are more involved with daily operations in small firms and probably manage more than one area of business, in contrast to those who work for the large firms. There is no typical career path in management, not only in the investment banking industry, but also in the broad field of business. Some managers change their job titles every few years, others start in roles such as CFO or Credit Risk Managers. Some work their way up in an organization for an entire career. However, the general consensus is that your experience and expertise holds a higher priority than your qualifications in determining the seniority of your management position. The role of management is necessary at each division/department of a firm. In general, there are 3 levels of management: Line managers, middle managers and executive managers.

Line Managers: Project Managers, Associate Managers, Team Leaders, Supervisors, Office Managers and Management Trainees.

Middle Managers: Selection

Program Managers, Senior Managers, Departmental Managers and Functional Managers. agers.

Training Directory

Line Managers: *Initiate the work assignments or projects by outlining costs, resources, timeframes and any other related requirements, such as technical and functional specifications. *Manage issues as they arise in the course of a project or within the team *Ensure solutions delivered achieve the project's stated objectives, analyze all potential solutions and recommend the optimal solution that will meet the project's goals *Provide consulting and guidance on project and team initiatives *Monitor progress against plans and initiate appropriate corrective action when necessary for both short term and long term goals & objectives *Provide support to Senior Director and Senior program managers

37 The NFSA Arbitrage Fall 2009 NFSA.ca

The Basics

Middle Managers:

Selection

*Strong organization and time management skills *Able to build effective relationships within the project team and supporting areas of the firm, customers and vendor groups *Ability to choose the most appropriate procedures and approaches to suit the circumstances of each problem *Able to plan for own responsibilities where the nature is non*routine and of moderate complexity *Knowledge of related industry common practices & procedures of project management to sufficiently apply and adapt appropriate standard practices *Strong negotiation and facilitation skills *Strong leadership skills

Job Profiles

Line Managers:

Self Reflection

*Review complex financial reports prepared by others with advanced financial skills and knowledge *Prepare/research/present policy recommendations that are reviewed by the executive managers *Conduct key analytics (data sourcing, analysis, testing) required to inform strategic recommendations (e.g., competitor benchmarking, market assessment and financial modeling) *Effectively communicate key messages/recommendations to all managerial levels *Make effective and persuasive presentations on complex topics to employees, clients, top management and/or public groups. *Provide a supporting role in committee or board reporting

Middle Managers:

Training Directory

*Working knowledge of several areas of external activities (financial and/or other industries, market and/or regulatory environment, or client business practices. Expert analytical, quantitative, and financial modeling skills *Exhibits a working knowledge of core enterprise competencies, including knowledge of the enterpriseâ&#x20AC;&#x2122;s business environment and products, understanding of the workings of the enterprises organization and procedures and proficiency in the use of standards, tools and methodologies *Ability to establish conducive working relationships with managers across different business groups *Ability to think strategically and to synthesize the business and financial data. *Able to develop creative solutions using innovation and initiative to assist in delivery and issue resolution *Expert skills in Excel and PowerPoint *Solid presentation and relationship building skills.

NFSA.ca Fall 2009 The NFSA Arbitrage 38

The Basics Self Reflection

*Outstanding analytical and conceptual skills and able to operate within a high level of ambiguity

Line Managers *$50,000 to $100,000 annually for most cases, dependent on experience, nature, of work, qualification and the size of the employer

Middle Managers

Job Profiles

*At least $80,000 to $100,000+ annually for most cases, dependent on experience, nature, of work, qualification, and the size of the employer

Line Managers:

Selection

*PMP Designation for specialist in project management *At least one of the following: Bachelors degree in Business Administration, Accounting, Finance and even Computer Science or Engineering for technology related work *Canadian Securities Course *Canadian Investment Manager (CIM), Fellow of CSI (FCSI), Financial Management Advisor (FMA) are recommended designations *Chartered Financial Analyst (CFA), Masters of Business and Administration (MBA, or Master of Finance are all valuable assets for positions related to corporate financing, portfolio & wealth management, and institutional sales related work

Training Directory

Middle Managers: In addition to all the qualifications mentioned in the Line Managers sections, the following requirements/recommendations are listed: *Program Management Professional designation (PgMP) for senior project management positions, such as program managers *Chartered Financial Analyst (CFA), Charters Investment Counsellor (CIC), Chartered Accountant (CA), Masters of Business and Administration (MBA), and/or Master of Finance are required in many cases

39 The NFSA Arbitrage Fall 2009 NFSA.ca

The Basics

Executive Managers:

Selection Training Directory

This division is where most of a firm’s profits are generated and is likely the company’s largest and most geographically dispersed division. Largely, firms have this department divided into institutional and retail divisions. The nature of their job as well as their job title is extremely diverse. The sales involved will depend on whether the company is geared towards more commercial banking, corporate financing, wealth management, or simply private banking and financial planning. The sales representatives that serve the institutional investors (either large non*financial companies or corporate size financial institutions) usually work at the head office or major branch offices. They work with other departments, such as the trading department, where they pull in day-to-day trade orders for outstanding securities in their inventories. They also work with the underwriting department to help sell new securities issues to other institutional investors. Large-scale firms would maintain a separate portfolio management division. They would advise their institutional clients on their investment portfolios on a fee basis with customized strategy plans, or manage in*house pooled funds, pension funds and mutual funds. The retail sales representatives are usually the largest group of a firm’s employees where they need to deal with individual and small business accounts. Their duties are extremely diverse, but many usually do most of the following: process orders of securities and financial instruments, develop a client list, meet their clients, design a customer’s portfolio and advise them on investment decisions based on their risk tolerance, financial position and goals.

Job Profiles

SALES DEPARTMENT

Self Reflection

Most firms, regardless of their size, are usually headed by an executive committee that is responsible for most decision and policy making. They include senior executives, such as a chairman, a president, vice*presidents of all functional departments and executive officers, among others. However, management functions can vary substantially among investment firms, but nonetheless, they represent and govern their functional areas of the company. For some firms, the chairman is also the chief executive officer who plays a critical role in the management, whereas a chairman in other firms may act as a consultant. Some of these executives belong to an elite group of individuals that earn the highest income in the North American society; thus, they have a wide range of different salary levels. It is safe to assume that they are making at least 6 digits yearly. Masters of Business and Administration (MBA) are very common among these individuals. All the financial designations mentioned in the Line Managers and Middle Managers sections are all required. Many pursue an International MBA (IMBA), Bachelors of Laws (LLB) and Executive MBA (EMBA). Some even hold PhD qualifications, as well as different Master degrees in their related field of work, along with multiple financial and accounting designations.

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The Basics

Retail Sales: Investment/Financial Advisors, Financial Planners, Life Insurance Sales Agent, Mutual Fund Sales Representatives

Institutional Sales: Self Reflection

Institutional Equity Sales representative, Fixed Income Institutional Executive, Institutional Investment Consultant, Inside Sales Representative, Corporate Business Development Manager

Portfolio Management: Associate Portfolio Manager, Portfolio Manager, Investment Counsellor

Job Profiles

Retail Sales:

Selection

*Develop new business through contact with internal company referral sources, including commercial, retail, private banking, financial advisory and other personnel *Incorporate cold-calling activities to further build pipeline and sales results. *Maintain widening network of outside referral sources in assigned territory, including individuals and organizations likely to produce wealth management referrals and meet them regularly *Assess and formulate financial solutions for clients that are monitored and review regularly *Provide information to answer prospects’ questions involving fiduciary law, estate, tax and retirement planning based on personal knowledge of financial advisory, portfolio management, retirement plan, tax and other areas. *Create and deliver sales presentations, including presentations to larger audiences and organizations *Represent one’s organization at organization functions, business groups and civic organizations to develop referral network and enhance sales performance *Join and participate in several outside associations and organizations likely to generate prospect leads serves on boards and committees as appropriate

Training Directory

Institutional Sales: *Consist of many accountabilities and duties listed in the retail sales section *Generate revenue from the sales of corporate retirement plans, institutional/corporate trust services, investment management products and services to medium and corporate size clients in a designated region. *Responsible for researching and understanding prospect’s key business drivers and market data needs *Prepare and present proposals, presentations, and online/web demonstrations to senior level decision makers of the institutional investors *Have heavy contact with your own firm’s portfolio managers, analysts and traders

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Portfolio Management:

Selection

*Strong consultative selling skills, as well as strong negotiation and closing skills *High level of organization and time management to follow up effectively on all sales and service related activity. *Sound knowledge of the local market where the individual can build their books of clients and contacts *Demonstrate strategic thinking and understanding of clientâ&#x20AC;&#x2122;s overall business goals and objectives *Knowledge of investment management and other company products and services *General overall knowledge of investment management industry practices and trends.

Job Profiles

Retail Sales:

Self Reflection

*Consist of many accountabilities and duties listed in the institutional sales section *Emphasis on managing portfolio of high net worth investors and institutions, such as mutual funds, pension funds, and pool of asset backed securities *Develop the right combination of securities to maximize the portfolioâ&#x20AC;&#x2122;s return for a given level of risk *Develop and implement investment policies and strategies with a variety of security research information and selection options following specific portfolio construction procedures *Regularly measure, monitor and evaluate portfolio performance and rebalance the portfolio as it changes to reflect original objectives *Meet with investors to review investment performance and forecast market changes based on economic and industry analysis, including objectives and asset allocation models *Maintain and manage business relationships with partnered firms and institutional investors *Prepare and present proposals, presentations, and online/web demonstrations to prospective clients on behalf of the organization

Institutional Sales:

Portfolio Management: *Consist of many key skills listed in the institutional sales section *Broad-based technical knowledge of investments, tax, legal and operations

Training Directory

*Consists of many key skills listed in the retail sales section *Well networked in the Institutional Channel, municipalities, mutual funds, insurance companies, corporate retirement plans, etc *Have established institutional contacts and a familiarity with institutional portfolio investing *Able to deal with and influence senior level and executive decision makers *Experienced in selling financial products in a business*to*business environment *Ability to sell ideas and win trade execution opportunities *Ability to build effective relationships with a team environment

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The Basics Self Reflection

*Knowledge of fiduciary standards, principles and applicable laws and regulations usually acquired through training or law school *Skilled in negotiation, delegation, leadership, client service and relationship management *Requires outstanding analytical, strategic and critical thinking *Experienced with portfolio statistics and fundamental analysis *Expert knowledge of the investment management industry, practices, trends and different industry sectors of the economy

Retail Sales: *$30,000 to over $100,000 annually with additional bonuses and commissions dependent on experience, type of expertise, establishment of book of clients and the size and business model of the firm

Job Profiles

Institutional Sales: *$70,000 to over $100,000 annually with additional bonuses and commissions dependent on experience, type of expertise, establishment of book of clients and the size and business model of the firm

Portfolio Management:

Selection

*$45,000 to $55,000 annually for analyst positions *$70,000 to $90,000 annually for associate positions *Over $100,000 annually for manager positions *The salary of portfolio management roles are coupled with additional bonus and commissions

Training Directory

Retail Sales: *Bachelors degree in Business Administration and other business related fields usually required *Canadian Securities Course *Canadian Insurance Course (to sell insurance products) *Conduct and Practices Handbook Course *Derivatives Fundamentals Course and Options Licensing Course with a Derivatives Market Specialist designation (DMS) for corresponding specialization *Certified Management Consultant (CMC), Chartered Financial Consultant (ChFC), Canadian Investment Manager (CIM), Financial Management Advisor (FMA), Professional Financial

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Planner (PFP) and Certified Financial Planner (CFP) designations are highly desirable and a requirement in some circumstances *A variety of investment and wealth management courses offered by CSI Global Education Inc. would assist in enhancing skills, knowledge, and credibility

Institutional Sales:

Portfolio Management:

Job Profiles

*Consist of many of the qualifications listed in the institutional sales section *U.S. licensing (FINRA Series 7,63, 66,24) are desirable, especially a majority of the clients are U.S based companies *Masters of Business and Administration (MBA) and/or Chartered Financial Analyst (CFA), Certified Investment Management Analyst (CIMA), and Chartered Investment Counsellor (CIC) are recommended or required by many investment banking firms

Self Reflection

*Consist of many of the qualifications listed in the retail sales section *U.S. licensing (FINRA Series 7, 63, 66, 24) are desirable, especially a majority of the clients are U.S based companies *Masters of Business and Administration (MBA) are recommended or required by many investment banking firms

RESEARCH DEPARTMENT Selection Training Directory

In many investment-banking firms, this department maybe divided into retail and institutional sections to serve each type of client better. The institutional side offers help to the institutional sales representatives to make investment proposals and strategic plans of managing portfolios. They also provide research information to the underwriting department involving new issues of securities, mergers and acquisitions. The retail side provides information and answers to questions about different companies and their securities from the retail sales department. They give detailed insights and advice to the retail sales representatives to evaluate and make proposals for their clients. This department usually consist of a handful of economists and technical analysts and several research analysts in a large investment-banking firm. Each research analyst will be assigned to a particular industry. Each will study the current operations and future prospects of the companies and perform comparative analysis with current and future economic and industry trends. The main duty of these analysts is to provide research reports with recommended investments, where they offer extensive analytical coverage for the institutional salespeople and short summaries for the retail sales side. This department overview will be divided into the two most common research disciplines: technical and fundamental research.

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The Basics

Technical/Quantitative Research: Technical Research Analyst, Quantitative Analyst

Fundamental Research:

Job Profiles

Self Reflection

Equity Research Analyst, Fundamental Research Analyst, Equity Researcher

General: The following are essential for research analyst in general: *Perform research and analyze company and industry information for prospective purchase, asset allocation, fee generation or other cash flow, using typically industry/company standard analytical tools or measures *Provide investment recommendations based on company and industry outlook and valuation modeling to the portfolio management division *Design and manage financial and valuation models to generate financial forecasts for revenue and income forecasts *Contribute analyses to report being prepared for other business units of the firm to aid in making financial, client, acquisition, or other business decision *Generate detailed research reports for specific companies and industry trends in the coverage sub-sectors *Assist with writing quarterly and annual portfolio performance commentaries

Technical/Quantitative Research: Selection

*Perform quantitative/statistical analysis of macroeconomic and microeconomic variables that impact the industry. *Conduct analysis of marketing and behavioural factors from both a univariate and multivariate prospective. *Utilize technical research data to build forecasting statistical models *Extract and process large quantities of data from various databases and other data sources in support of analytic assignments. *Assist in developing, implementing, and enhancing quantitative portfolio models and strategies.

Training Directory

Fundamental Research: *Conduct fundamental analysis of individual companies to evaluate quality of company management, financial performance and competitive position within an industry *Review business and trade publications, annual reports, financial filings and other sources in order to gather, synthesize and interpret data on companies *Determine the quality of financial statement information and analyze potential responses to scenarios of simulation from sensitivity analysis *Determine a company's future performance, with respect to: sales and profit, costs, profit

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margins, future cash flows, rates of return on capital and asset utilization; based on varying assumptions and projected market or economic conditions *Utilize financial statements analysis data to build forecasting financial models *Monitor and analyze economic and market data, industry trends, and security characteristics to support investment decisions.

Job Profiles

The following are essential for research analyst in general: *Strong analytical and quantitative skills along with advanced modeling experience, and a willingness to leverage technology and systems. *Ensure integrity of analyses through rigorous attention to detail and validation of data. *Capacity to quickly digest substantial volumes of information. *Identifying relationships to draw logical conclusions and interpret results for use in decision-making. *Demonstrate independent, creative, and strategic thought on investment issues and generate investment recommendations *Competency in dissecting and valuing both mature and hyper-growth business models *Understanding of corporate governance issues, corporate transactions and capital markets; *Experienced in access and use of public information and proficiency with multiple proprietary third-party tools and databases *Ability to write analytical commentary based on financial analysis and take a stance on buy/hold/sell positions *Proficient with the use of Bloomberg and Reuters market data information systems

Self Reflection

General:

Selection

Technical/Quantitative Research: *Expert level of understanding charting methods, technical and quantitative analysis *Solid understanding of time-series analysis and econometrics *Strong quantitative and programming abilities, such as: programming skills (C++, C#, VB), statistical packages (R, SAS, Matlab, S-Plus), optimization and risk modeling (APT, Barra, Northfield, Axioma), databases (database design, SQL), financial packages (Market QA, FactSet)

Fundamental Research: Training Directory

* Experienced and Skilled in rigorous financial statement analysis

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The Basics Self Reflection

Research analysts are paid a fixed salary ranging from $80,000 to over $100,000 annually with bonuses. Technical and Quantitative analysts generally receive notably higher salary levels than fundamental research analysts.

Fundamental Research: *A bachelors degree in Finance, Accounting, Economics or related field of studies is required *Designations of Chartered Accountant (CA) and Chartered Financial Analyst (CFA) are highly desirable and required in some cases *Master of Business Administration (MBA), or Master of Economics, Master of Finance, are highly desirable and required especially for senior positions

Technical/Quantitative Research:

Selection

Job Profiles

*The Chartered Market Technician (CMT) designation is highly preferred *Having the Chartered Financial Analyst (CFA) designation is an asset *A bachelors degree in quantitative fields such as statistics, engineering, mathematics, computer science, economics, or finance is a must. A Master degree in these disciplines is often required for senior positions.

Training Directory

TRADING DEPARTMENT Traders work closely with the firmâ&#x20AC;&#x2122;s sales and underwriting department and are usually divided into divisions represented by the particular product that they trade with. The type of securities traded and the nature of trading transactions are dictated by the certain type of business that the firm operates in. Trade order clerks, also called Order Trader or Approved Traders, link buy and sell orders from the sales department to the stock traders, so they can trade on the exchanges without any precious time wasted, as many of these orders are time sensitive. The bonds traders typically utilizes their firmâ&#x20AC;&#x2122;s inventory to buy and sell bonds and debentures, or their firm have some form of cooperation with other firms so that they can trade from these other inventories. In many cases, they also trade money market instruments. In contrast, the stock traders donâ&#x20AC;&#x2122;t trade from their own inventory unless they are dealing with OTC markets. Otherwise, the norm is to trade on exchanges.

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Firms also employ other different kinds of specialists for other financial instruments, such as options and futures and money market instruments and even specialists for a particular group of commodities or a certain sector of the economy. Some of the more exclusive trading environments in these firms may include high frequency statistical arbitrages, hedge funds, options & futures, foreign exchange and currencies.

Selection Training Directory

*Able to multi-task in a fast moving, stressful environment. For example: placing trades on the system while on the phone and approving orders.

Job Profiles

*Analyze and execute trading orders while employing systematic trading strategies *Track and monitor the availability of positions within the marketplace *Quantify fair market values within sectors and identify opportunities based on client needs *Quickly respond to requests, questions, or trading issues from clients, exchanges, regulators, internal compliance or other parties *Help identify client trading requirements, as well as provide market related data and news over the telephone. *Assist with post-trade ticketing and processing and with the resolution of clearing and settlement issues *Monitor electronic trading systems and order flow to ensure proper operation, regulatory and trading limit compliance and to identify any potential issues and take corrective action *Contribute to the design and implementation of new electronic trading products and services and development of systematic trading strategies *Junior level traders in brokerage firms assist Financial Advisors and their clients with placing trades on securities and advise the use of online trading systems *Hedge funds traders would hedge the companyâ&#x20AC;&#x2122;s current book and create new hedging strategies *High frequency traders work with a team of experienced traders and quantitative analysts who are responsible for linear risks, high turnover activities and correlation models

Self Reflection

Order and Approved traders, equity traders, fixed income traders, options & futures traders, Hedge Funds Trader, High frequency quantitative traders, statistical arbitrage traders

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The Basics Self Reflection Job Profiles

*Mental discipline with quick thinking and focus, as well as the ability to solve problems under pressure *Strong working and theoretical knowledge of the type of securities trading that they are being hired for *Knowledge of trading regulations, market structure changes, technical developments of trading platforms, industry rules & regulations *Ability to read and interpret documents, such as financial statements, financial market indices, rates, articles, contracts and reports. *Ability to calculate figures and amounts, such as discounts, interest rates, commissions, proportions, percentages and amortizations *Experience with trading platforms such as JP Morgan and Pershing's platforms is a plus *Proficient with the use of Bloomberg and Reuters market data information systems *Programming skills, including C++, Java, and familiarity with VBA and/or .NET frameworks are highly valued and required for high frequency quantitative traders, statistical arbitrage traders and traders utilizing sophisticated trading platforms *Requires a strong mathematical aptitude with exceptional analytical, strategic and critical thinking for options & futures, statistical arbitrage and high frequency quantitative traders

Training Directory

Selection

*Order and Approved traders earn in the range of $35,000 to $50,000. *Registered Security Traders (equities, bonds, options) can earn $50,000 to over $100,000 and entitled to bonuses *Fixed income and foreign exchange tradersâ&#x20AC;&#x2122; salary is dictated by bonuses that are tied to trading profits *High frequency quantitative traders and statistical arbitrage traders with advanced programming and mathematics skills earn at least $100,000 and may go up to $1 million or more, dependent on the success of past strategies and performance results.

*A Bachelors degree in Finance, Mathematics, Statistics and computer science is recommended, or a bachelors degree in related business fields. *A Bachelors degree in Computer Science or Mathematics with solid GPA for options, statistical arbitrage and high frequency quantitative traders. *U.S. trade licensing (FINRA Series 7, 55, 63 or 66 licenses) is highly desirable *Licensing and knowledge in other asset classes (i.e. Options and Futures) would be beneficial *Canadian trader licensing and registration (completion of CSC, CPH, Trader Training)

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The Basics

UNDERWRITING DEPARTMENT

Self Reflection Job Profiles

Underwriting, a broad term that can be simply known as financing, is a process where the issuer (client companies and governments) needs to raise debt or equity capital either publicly or privately. The larger the firm is, the more diversified the forms of underwriting that its underwriting division provides. This functional area of the investment bank often represents the business model that the firm operates on in most cases. They are in charge of negotiating with their clients on the type of financing that suits them the best. A close working relationship with the trading department is a common practice as the traders would be responsible for executing the trades of new issues of securities or secondary offering of securities on stock exchanges or OTC markets. Many investment banks offer underwriting for new issues of securities that can take the form of private offering or public offering. Security, price, interest or valuation multiple, special features and protective provisions are negotiated in order to market the new issues successfully. The final decision will be made on whether to assume the risk of temporarily possessing the ownership of the new securities of the issuing companies, dependent on the type of prospectus offering. Large-scale firms would employ financial engineers in this department to design and build complex structured risk management products for their clients to help mitigate their foreign exchange, equity, credit and general market risk. In addition, analysts and associates in this division are also in charge of services, such as providing advice on re*organization and restructuring of firms, taking companies public, buying public shares back, as well as assistance in the management of mergers and acquisitions. Due to the variety of different forms of underwriting/financing that the investment-banking field presents, the following comprehensive illustration of this department is necessary.

Selection

Corporate Financing: Corporate Finance Analyst, Corporate Finance Associate, Corporate Investment Analyst

Capital Markets: Equity Capital Market Analyst, Debt Capital Market Analyst

Merger & Acquisitions: Project Finance: Project Finance Analyst, Project Finance Associate

Structured Finance:

Training Directory

M&A analyst/consultant

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The Basics

Derivatives Financial Engineer, Financial Analyst (Structured Finance)

Public Finance:

Job Profiles

Self Reflection

Public Finance Analyst

Corporate Financing: *Managing directors, VPs, associates and analysts are assigned to their designated industry coverage group *A client team is usually established for specific client deals with assistance from the equity and debt capital market specialists within the same division *Engage with institutions to establish deals on raising capital through the securities market by providing them with an understanding of their issuerâ&#x20AC;&#x2122;s valuation, institutional investor targeting efforts and anticipating the reaction to a major corporate action, such as a merger, acquisition, spin-off, dividend policy change or IPO. *Help the institutional investors understand how their stock is viewed as an investment vehicle and how current market trends, changes in valuation and major corporate actions will impact their shareholder base and share price. *Extensive financial modeling including sensitivity analysis to support potential investment opportunities *Determine the amount and structure of fund needs of a client through equity, debt, convertibles, preferred, asset*backs, or derivative securities. *Prepare registration statements, quarterly financial report, and annual corporate appraisal for investor relation purposes

Training Directory

Selection

Capital Markets: *Receive orders from the corporate financing client teams who have clients who are interested in new issues of debt or equity *Examine market conditions and tracking swap spreads across the interest rate curve using a Bloomberg terminal and advise as to the right time and form of issuance. *Development and maintenance of sophisticated corporate projection models highlighting critical financial performance metrics including return on capital, projected leverage, cost of capital and income growth *Interact with the syndicate desk, which is the hub of a new issue. *The syndicate manages which investors get what portion of a new issue and builds up a "book" of orders. *The debt capital markets functional area is often broken down into high yield bonds and investment grade bonds segments.

Mergers & Acquisitions: *Acts as advisors to clients to value transactions, creatively structure deals and negotiates

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*Prepare analyses on client capital structure, debt capacity and credit profile to determine the appropriate form of participation. *Evaluate the due diligence process, debt documents, financial statements and negotiate an Operating Partnership Agreement through extensive financial modeling *Balance the objectives and needs between the internal stakeholders (investor due diligence, risk management, and loan administration) and the external stakeholders (legal counsel, developer clients, various third party professionals)

Job Profiles

*Provide initial investment review and screening of prospective investment opportunities for the firm *Work as a business partner with operational leaders to evaluate/improve business processes and arrive at mutual, cost-effective solutions to fund infrastructure and capital projects *Participate in negotiations on behalf of the firm for new investments dealing with partnership arrangements, financing arrangements and other project contacts which impact the project return *Evaluate and analyze ownership and governance structures including framework agreements, joint ventures, partnerships and acquisitions. *Execute project-financing structures using a variety of non-recourse project finance structures including term debt, subordinated debt, equity and contributed asset transactions. *Coordinate directly with business partners, banks, institutional investors, and government agencies, including underwriting and legal teams to manage the timely funding of project transactions. *Develop and maintain financial models required to analyze IRR, income statement, balance sheet, cash flow, debt service, equity returns and key financial ratios of the client

Self Reflection

Project Finance:

Structured Finance:

*Provide underwriting, advisory services, ongoing credit assessment of portfolios of governmental enterprises that issue debt for public infrastructure purposes, including state and local government agencies, higher education institutions, healthcare providers, housing and real estate issuers and other non-profit organizations. *Creating, managing and evaluating output of economic models to build tax advantaged vehicles in the form of debt securities

Training Directory

Public Finance:

Selection

*Creation of financing vehicles such as asset-backed securities: credit card receivables, auto loan receivables, collateralized mortgage obligations (CMOs), collateralized bond obligations (CBOs); to redirect cash flows to investors *Be involved with Cash Flow Modeling and Analysis, Data Management and Portfolio Analytics of structural risks associated with these derivatives transactions and to help both internal and external clients understand the underlying risks. *Assess the credit quality of the underlying assets, the adequacy of cash flow generated by the underlying assets, and the legal framework of the transaction by analyzing the operative documents and collateral data necessary for ratings. *Execute transactions including managing the underwriting risk, coordinating the marketing, book*building, pricing, and allocation process of these derivatives

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The Basics Job Profiles

Self Reflection

*Evaluate market trends for consumer financial products, government programs and regulation *Development of financial models to analyze and execute government based financial transactions, writing business proposals, conducting research and financial analysis.

General: *An ability to write clearly about complex business issues over a variety of industries and communicating accurately under tight deadlines. Writing assignments that range from strategy reports, board reports, press releases, and corporate profiles. *Adept at communication, particularly communication of complex information, and able to manage a complex and shifting environment. *Able to display a professional demeanour in fast-paced environment, have strong phone presence, and disciplined time management. *Must be able to combine strong research and analytical abilities to display a solid understanding of financial statements and securities analysis *Superior skills in financial modeling within Excel; strong skills in PowerPoint *Able to build and maintain strong business relationships with an array of financial market participants, including infrastructure and project finance debt issuers *Understanding and experience in securitization and commercial bank lending transactions, markets and practices is an asset

Additional required expertise and knowledge for these specific areas of underwriting:

Selection

Merger & Acquisitions: *Understanding of the dynamics of corporate merger and acquisitions transactions and strategies is highly desirable

Project Finance:

Training Directory

*Knowledge and expertise in project finance, tax equity, sale-leaseback, ownership flip, term debt, and sub debt structures *Knowledge of tax accounting and tax law *Knowledge of Percentage of Completion accounting and Revenue Recognition procedures

Public Finance: *Understanding of the basic provincial and municipal bond structures to develop and analyze long*term new money and refunding financings *Practical knowledge of fixed income securities markets and derivatives markets is a plus. *Understanding of the various structures and legal requirements of credits facilities for municipal and provincial entities *Familiarity and experience with public agency procedures and processes is a strong posi-

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The Basics

positive. *Ability to review, understand and analyze government fund accounting. Interest in Public Policy is preferred.

Structured Finance:

Job Profiles

An extremely diversified range of salary levels for this functional area of investment banks. A range of $50,000 to almost $1 million or more in some cases, including bonuses and commissions. *Experience and qualifications dictates salary levels and rises in the following ascending order: analyst, associate, manager or managing director *Expert financial modeling skills and quantitative analyzing skills with a strong mathematics educational background will generally be paid more. This is especially true for those who work in the capital markets and structured finance.

Self Reflection

*Strong understanding of derivatives models including market conventions, exotic options and market practices regarding bespoke valuation and hedging. *Experience performing quantitative analysis with a research team or in cash flow structuring group. *A passion for analyzing complex derivative transactions, such as CDOs and CMBSs *Portfolio risk analysis is imperative. *Experience using Bloomberg, Numerix and other derivative pricing platforms is a plus. *Experience in securitization or commercial, consumer or real estate lending is preferred *The desire to read & understand high volume legal documents is required *Knowledge of bankruptcy is preferred

Selection Training Directory

*A Bachelors degree in Finance, Accounting, and Business Administration is essential. *Individuals with a Bachelors degree in Mathematics, Statistics, Computer Science, and even Actuary Science, are favoured in structured finance and capital market underwriting *Masters degree in Business Administration, Finance, Economics, and Mathematics are required for senior positions *Public Finance: Bachelors degree in public administration is preferred. *Derivatives Fundamentals Course and Options Licensing Course with a Derivatives Market Specialist designation (DMS) in structured finance, and capital market underwriting in some cases *Accounting Designations: Certified General Accountant (CGA), Certified Management Accountant (CMA), Certified Public Accountant (CPA), Chartered Accountant (CA) are recom-

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The Basics Job Profiles

Self Reflection

mended *Finance Designations: Chartered Market Technician (CMT), Certified Investment Management Analyst (CIMA), Chartered Financial Analyst (CFA), are recommended or required by many investment banking firms

ow that you have a somewhat clearer understanding of the various divisions and career opportunities within finance (and investment banking in particular), we hope that you apply the self*knowledge that you developed in the Self*Reflection section to select a field in finance that best suits you. If one of those fields lies in the pages you just looked through, then you should now have at least a somewhat better idea as to what duties you may need to prepare for and what levels of education you may need to obtain to reach your career ambitions in that said field. To this end, the next and final section of this career planner will provide you with more information regarding the various designations that exist in the financial industry and the various processes to attain each designation. To learn what designation is best for you, refer to the Education, Certification & licences section of your chosen field to see which ones best suit your chosen career path. It is our hope that upon perusing the information below (alongside the information you just reviewed) you will have a more complete understanding about what your future holds in store and how you can claim it!

Selection

ote: Some of these designations are available in both Canada and the US, while others are only offered in the US. Who knows where your career will take you, so we figured we would stay safe and offer information on designations from both sides of the bor-

der.

Training Directory

Canadian Securities Institute Designations: The CSI offers a variety of respected designations that are highly prized in the Canadian market place; those include: Chartered Professional (Ch. P), Fellow of CSI (FCSI)™, Derivatives Market Specialist (DMS), Canadian Investment Manager (CIM)™ and Financial Management Advisor (FMA). Each designation has their own extensive requirements to obtain them, but to learn more, see: www.csi.ca/

Certified Financial Planner® (CFP®): Those with the CFP® designation have demonstrated competency in all areas of finance related to financial planning. Candidates complete studies on over 100 topics, including stocks,

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The Basics

bonds, taxes, insurance, retirement planning and estate planning. The program is administered by the Certified Financial Planner Board of Standards Inc. In addition to passing the CFP certification exam, candidates must also complete qualifying work experience and agree to adhere to the CFP Board's code of ethics and professional responsibility and financial planning standards. (Definition sourced from www.investopedia.com/) For more information, see: http://www.fpsc.ca/

Chartered Financial Analyst (CFA速):

Certified Fund Specialist (CFS):

Chartered Financial Consultant (ChFC): Individuals with the ChFC designation have demonstrated their vast and thorough knowledge of financial planning. The ChFC program is administered by the American College. In addition to successful completion of an exam on areas of financial planning, including income tax, insurance, investment and estate planning, candidates are required to have a minimum of three years experience in a financial industry position. (Definition sourced from www.investopedia.com/)

Job Profiles

As the name implies, an individual with this certification has demonstrated his or her expertise in mutual funds and the mutual fund industry. These individuals often advise clients on which funds to invest in and, depending on whether or not they have their license, they will buy and sell funds for clients. The Institute of Business & Finance (IBF), provides training for the CFS, and the course focuses on a variety of mutual fund topics, including portfolio theory, dollar*cost averaging and annuities. (Definition sourced from www.investopedia.com/)

Self Reflection

This designation is offered by the CFA Institute. To obtain the CFA charter, candidates must successfully complete three difficult exams and gain at least three years of qualifying work experience, among other requirements. In passing these exams, candidates demonstrate their competence, integrity and extensive knowledge in accounting, ethical and professional standards, economics, portfolio management and security analysis. (Definition sourced from www.investopedia.com/) For more information, see: http://www.cfainstitute.org/

Selection

Chartered Investment Counsellor (CIC): Given by the Investment Counsel Association, this is a designation which CFA charter holders who are currently registered investment advisors can study for. The focus of the CIC program is portfolio management. In addition to proving their high level expertise in portfolio management, these individuals must also adhere to a strict code of ethics and provide character reference letters. (Definition sourced from www.investopedia.com/)

Certified Investment Management Analyst (CIMA): Training Directory

This designation focuses on asset allocation, ethics, due diligence, risk measurement, investment policy and performance measurement. Only individuals who are investment consultants with at least three years of professional experience are eligible to try to obtain this certification, which signifies a high level of consulting expertise. The Investment Management Consultants Association offers the CIMA courses. (Definition sourced from www.investopedia.com/) For more information, see: http://www.imca.org/

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The Basics

Certified Public Accountant and Personal Financial Specialist:

Self Reflection

Those holding the CPA designation have passed examinations on accounting and tax preparation, but their title does not indicate training in other areas of finance. So, those CPA holders who are interested in gaining expertise in financial planning in order to supplement their accounting careers need to become certified as personal finance specialists (PFS). The PFS designation is awarded by the American Institute of Certified Public Accountants to those who have taken additional training and already have a CFP designation. (Definition sourced from www.investopedia.com/) For more information, see: http://www.aicpa.org/

Chartered Life Underwriter (CLU): This designation is issued by the American College and those who hold it work mostly as insurance agents. The CLU designation is awarded to persons who complete a 10*course program of study and 20 hours worth of exams. The course covers the fundamentals of life and health insurance, pension planning, insurance law, income taxation, investments, financial and estate planning, and group benefits. (Definition sourced from www.investopedia.com/)

Chartered Accountant (CA): Job Profiles

Being a Chartered Accountant is a valuable designation to put beside your name regardless of your career path, but by combing a Charter Accountant designation alongside your financial degree (and other financial designations and certifications) is a killer combination in the eyes of just about any employer in this competitive market place. To obtain this designation, you will have had to complete all the appropriate university courses (or equivalent training), before being admitted into the CA training program where you will take part in a kind of multiyear apprenticeship. Specifically, you will gain work experience in a CA Training Office under the supervision of experienced CAs. As well, during your training you will be continually assessed on your development by CA board representatives, before finally submitting to a three day Uniform Evaluation (UFE) to gauge your knowledge and place you on the next step to your CA designation. For more information, see: http://www.cica.ca/index.aspx

CMA (Certified Management Accountant):

Training Directory

Selection

Similar to a CA, a CMA is a valuable asset to place in your CV. CMAs focus primarily on managerial accounting and are usually often found in industry. Following university graduation, CMA candidates write a two*day CMA Entrance Examination that tests business knowledge, analytical thinking and written communication. If you pass, you enter through series of successive phases in the CMA Strategic Leadership Program that will take 24 months to complete and include substantial practical work experience in the field. A final examination and assessment take place at the end of this program before one attains their CMA designation. For more information, see: http://www.cma-canada.org/

CGA (Certified General Accountant): The CGA incorporates aspects from both the financial and management streams of accounting. While not as prestigious as the other accounting designations, the CGA offers practical tools for those interested in the accounting field. Attaining this designation is much more flexible than the other accounting designation and can be started while attending university. For more information, see: http://www.cga-ontario.org/

57 The NFSA Arbitrage Fall 2009 NFSA.ca

David Alexander Editor-In-Chief

Do not trust people. They are capable of greatness. Stanislaw Lem

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SEE YOUR LOGO HERE! If you or your organization is interested in sponsoring the NFSA, please contact: patrick.dydynski@nfsa.ca OR CorporateRelations@nfsa.ca

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If you or your organization is interested in sponsoring the NFSA, please contact: patrick.dydynski@nfsa.ca OR CorporateRelations@nfsa.ca

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59 The NFSA Arbitrage Fall 2009 NFSA.ca

THANK YOU TO OUR AFFILIATES

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Management and Economics Students Association

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If your organization is interested in affiliating with the NFSA, please contact: patrick.dydynski@nfsa.ca OR ClubRelations@nfsa.ca

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If your organization is interested in affiliating with the NFSA, please contact: patrick.dydynski@nfsa.ca OR ClubRelations@nfsa.ca

NFSA.ca Fall 2009 The NFSA Arbitrage 60

www.cga-nb.org

Advocis 390 Queens Quay West Suite 209 Toronto, Ontario, M5V 3A2 Tel: (416) 444-5251 or (800) 5635822 Fax: (416)444-8031 www.advocis.ca

CGA-Newfoundland E-mail: office@cganl.org www.cganl.org/cga

Association for Financial Professionals of Canada 4520 East West Highway, Suite 750 Bethesda, Maryland 20814 Tel: (301) 907-2862 Fax: (301) 907-2864 www.afponline.org CFA Institute 560 Ray C. Hunt Drive Charlottesville, Virginia 22903-2981 Tel: (800) 247-8132 Fax: (434) 951-5262 E-mail: info@cfainstitute.org www.cfainstitute.org CGA-Canada 4200 North Fraser Way, Suite 100 Burnaby, British Columbia, V5J 5K7 Tel: (604) 669-3555 or (800) 663-1529 Fax: (604) 689-5845 E-mail: public@cga-canada.org www.cga-canada.org CGA-Alberta E-mail: general@cga-alberta.org www.cga-alberta.org CGA-British Columbia E-mail: info@cga-bc.org www.cgabc.org CGA-Manitoba E-mail: info@cga-manitoba.org www.cga-manitoba.org CGA-New Brunswick E-mail: cganb@nbnet.nb.ca

CGA-Northwest Territories/ Nunavut E-mail: admin@cga-nwt-nu.org www.cga-nwt-nu.org CGA-Ontario 240 Eglinton Avenue East Toronto, Ontario, M4P1K8 Tel: (416) 322-6520 or (800) 668-1454 Fax: (416) 322-5594 E-mail: info@cga-ontario.org www.cga-ontario.org

Certified Management Accountants of British Columbia E-mail: cmabc@cmabc.com www.cmabc.com Certified Management Accountants of Manitoba E-mail: cmamb@cma-canada.org www.cma-manitoba.com Certified Management Accountants of New Brunswick E-mail: cmanb.admin@nb.aibn.com www.cmanb.com Certified Management Accountants of Newfoundland E-mail: atilley@cma-nl.com www.cma-nl.com

CGA-Prince Edward Island E-mail: contact@cga-pei.org www.cga-pei.org

Certified Management Accountants of Northwest Territories www.cma-canada.org/nwt.asp

Ordre des CGA du Quebec E-mail: ordre@cga-quebec.org www.cga-quebec.org

CMA Nova Scotia, Prince Edward Island, Bermuda, and the Caribbean E-mail: lmurphy@cma-ns.com www.cma-ns.com

CGA-Saskatchewan E-mail: general@cgasaskatchewan.org www.cga-saskatchewan.org CMA Canada Mississauga Executive Centre One Robert Speck Parkway, Suite 1400 Mississauga, Ontario L4Z 3M3 General Information: Tel: (905) 949-4200 or (800) 263-7622 E-mail: info@cma-canada.org www.cma-canada.org Certified Management Accountants of Alberta E-mail: info@cma-alberta.com www.cma-alberta.com

61 The NFSA Arbitrage Fall 2009 NFSA.ca

Certified Management Accountants of Ontario 70 University Avenue, Suite 300 Toronto, Ontario, M5J 2M4 Tel: (416) 977-7741 or (800) 387-2991 Certified Management Accountants of Quebec E-mail: admission@cma-quebec.org www.cma-quebec.org Certified Management Accountants of Saskatchewan E-mail: info@cma-sask.org www.cma-saskatchewan.com Financial Planners Standards Council 902 - 375 University Avenue

NFSA Directory Associations - Employers - Universities - Colleges - Student Clubs Government Sources - Hedge Funds - Insurance - Investment Org. Investor Services - Mutual Funds - Provincial Securities Stock Exchanges - Taxation Toronto, Ontario, M5G 2J5 Tel: (416) 593-8587 or (800) 305-9886 Fax: (416) 593-6903 E-mail: inform@fpsccanada.org www.fpsccanada.org EMPLOYERS Accenture www.accenture.com Bank of Canada 234 Wellington Street Ottawa, Ontario, K1AOG9 Tel: (613) 782-8111 www.bankofcanada.ca BearingPoint www.bearingpoint.com Barclays Global Investors Brookfield Place 161 Bay Street, Suite 2500 Toronto, Ontario, M5J 2S1 Tel: (416) 643-4000 www.barclaysglobal.com BMONesbitt Burns 1 First Canadian Place 100 King Street West, 49th Floor Toronto, Ontario M5X 1H3 Tel: (416) 359-4000 www.bmonb.com Boston Consulting Group Brookfield Place 181 Bay Street Suite 2400 Toronto, Ontario M5J 2T3 Tel: (416) 955-4200 Fax: (416) 9554201 www.bcg.com Capgemini www.capgemini.com CIBC Mellon www.cibcmellon.ca CIBC World Markets Brookfield Place, 161 Bay St. P.O. Box 500

Tel: (416) 868-8500 www.hsbc.ca

Toronto, Ontario, M5J 2S8 Tel: (416) 594-7000 www.cibcwm.com Citigroup 123 Front Street West Toronto, Ontario, M5J 2M3 Tel: (416) 947-5500 www.citigroup.com Credit Suisse 1 First Canadian Place 100 King Street West, Suite 2900 Toronto, Ontario, M5X 1C9 Tel: (416) 352-4500 www.credit-suisse.com Deloitte National Office 2 Queen Street East, Suite 1200 P.O. Box 8 Toronto, Ontario, M5C 3G7 Tel: (416) 874-3875 Fax:(416)874-3888 www.deloitte.ca Dundee Securities Corporation 1 Adelaide Street East, 27th Floor Toronto, Ontario, M5C 2V9 Tel: (416) 350-3250 www.dundeewealth.com Genuity Capital Markets Scotia Plaza, Suite 4900 40 King Street West P.O. Box 1007 Toronto, Ontario M5H 3Y2 Tel: (416) 603-6000 www.genuitycm.com Goldman Sachs Canada 77 King Street West Suite 3400, P.O. Box 38 Toronto, Ontario M5K 1B7 www2.goldmansachs.com HSBC Global Asset Management (Canada) 70 York Street, Suite 600 Toronto, Ontario, M5J 1S9

IBM Global Business Services Jarislowsky Fraser Limited 1010 Sherbrooke St. West Suite 2005 Montreal, Quebec H3A2R7 Tel: (514) 842-2727 Fax: (514) 842-1882 www.ibm.com/services Calgary 140 4th Avenue SW, Suite 1640 Calgary, Alberta T2P3N3 Tel: (403) 233-9117 Fax: (403) 233-9144 Toronto 20 Queen Street West, Suite 3100 Toronto, Ontario, M5H 3R3 Tel: (416)363-7417 Fax: (416) 363-8079 Vancouver 555 West Hastings Street, Suite 2080 P.O. Box 12129 Vancouver, British Columbia, V6B 4N6 Tel: (604) 676-3612 Fax: (604) 676-3616 www.jfl.ca J.P. Morgan www.jpmorgan.com McKinsey & Company 110 Charles Street West Toronto, Ontario, M5S 1K9 Tel: (416) 313-3700 Fax: (416) 313-2999 www.mckinsey.com Merrill Lynch Canada Brookfield Place 181 Bay Street, Suite 400 Toronto, Ontario, M5J 2V8 Tel: (416) 369-7400

NFSA.ca Fall 2009 The NFSA Arbitrage 62

NFSA Directory Associations - Employers - Universities - Colleges - Student Clubs Government Sources - Hedge Funds - Insurance - Investment Org. Investor Services - Mutual Funds - Provincial Securities Stock Exchanges - Taxation http://gmi.ml.com/canada Morgan Stanley Canada Brookfield Place 181 Bay Street, Suite 3700 Toronto, Ontario, M5J 2T3 Tel: (416) 943-8400 www.morganstanley.com Royal Sun Alliance 10 Wellington St. East Toronto, Ontario, M5E 1L5 Tel: (416) 366-7600 Fax: (416) 367-9869 E-mail: info@rsagroup.ca www.rsagroup.ca Scotia Capital Scotia Plaza 40 King St. West, 64th Floor P.O. Box 4085, Station A Toronto, Ontario, M5W 2X6 Tel: (416) 863-7411 www.scotiacapital.com State Street Canada www.statestreet.ca TD Bank Financial Group 100 Wellington Street West, 3rd Floor Toronto, Ontario, M5K 1A2 www.td .com/experience UBS Securities Canada www.ubs.com UNIVERSITIES Acadia University www.acadiau.ca University of Alberta www.bus.ualberta.ca University of British Columbia Sauder School of Business 2053 Main Mall Vancouver, British Columbia

V6T 1Z2 Tel: (604) 822-8500 Fax: (604) 822-8521 E-mail: bcom@sauder.ubc.ca www.sauder.ubc.ca

Nipissing University www.nipissingu.ca/business

Brock University www.bus.brocku.ca

Queen's University http://business.queensu.ca

University of Calgary www.haskayne.ucalgary.ca

Ryerson University www.ryerson.ca

Carleton University www.sprott.carleton.ca

University of Saskatchewan www.commerce.usask.ca

Concordia University The John Molson School of Business 1455 de Maisonneuve Blvd. West Suite GM 403 Montreal, Quebec, H3G IMS Tel: (514) 848-2424 ext. 2779 Fax: (514) 848-4502 http://johnmolson.concordia.ca

St. Francis Xavier University www.stfx.ca

Dalhousie University www.dal.ca Laurentian University www.laurentian.ca University of Manitoba www.umanitoba.ca McGill University www.mcgill.ca/desautels McMaster University www.degroote.mcmaster.ca Memorial University of Newfoundland www.business.mun.ca Mount Allison University www.mta.ca University of New Brunswick www.unb.ca

63 The NFSA Arbitrage Fall 2009 NFSA.ca

University of Ottawa www.telfer.uottawa.ca

Simon Fraser University http://business.sfu.ca Master of Financial Risk Management Program http://business.sfu.ca/mfrm Global Asset and Wealth Management MBA http://business.sfu.ca/gawm University of Toronto Rotman Commerce E-mail: rotmancommerce.info@utoronto.ca www.rotmancommerce.utoronto.ca/ site3.aspx University of Toronto at Mississauga Department of Management E-mail: mgt.utm@utoronto.ca wwwl.utm.utoronto.ca/management Master of Management & Professional Accounting Program www.utoronto.ca/mmpa University of Toronto at Scarborough Department of Management E-mail: admissions@scar.utoronto.ca www.utsc.utoronto.ca/~mgmt University of Victoria www.business.uvic.ca

NFSA Directory Associations - Employers - Universities - Colleges - Student Clubs Government Sources - Hedge Funds - Insurance - Investment Org. Investor Services - Mutual Funds - Provincial Securities Stock Exchanges - Taxation York University http://www.yorku.ca/web/futurestudents/programs/template.asp?id=3 32 COLLEGES Algonquin College www.algonquincollege.com Canadore College www.canadorec.on.ca Centennial College www.centennialcollege.ca/business Conestoga College Institute of Technology and Advanced Learning www.conestogac.on.ca George Brown College www.georgebrown.ca Georgian College www.georgianc.on.ca Humber College www.humber.ca Loyalist College www.loyalistcollege.com Mohawk College of Applied Arts and Technology www.mohawkcollege.ca Seneca College www.senecac.on.ca Sheridan College wwwl.sheridaninstitute.ca STUDENT CLUBS Acadia University Business Society http://business.acadiau.ca/ BusLSchool/ home/ABS/index.htm University of Alberta

Business Students' Association School of Business Building Office 2-06 Tel: (780) 492-2454 Fax: (780) 492-7413 E-mail: bsa@ualberta.ca www.bsaonline.ca University of British Columbia Commerce Undergraduate Society www.cus.sauder.ubc.ca UBC Consulting Club E-mail: Consult! ngclub@club.ams.ubc.ca www.cus.sauder.ubc.ca/clubs/consulting UBC Finance Club E-mail: ubcfinanceclub@gmail.com www.ubcfinance.com Brock University Business Students' Association Email: admin@brockbsa.com www.brockbsa.com Finance & Investment Group (BFIG) president@brockfinance.com www.brockfinance.com University of Calgary Commerce Undergraduate Society E-mail: cus@ucalgary.ca www.ucalgary.ca/-cus Financial Management Group Tel: (403) 220-6777 E-mail: fmg@ucalgary.ca www.ucalgary.ca/~fmg/index.html MBA Consulting Alliance www.mbaca.com MBA Society www.ucalgary.ca/mbasociety Carleton University Sprott Business Students' Society 829 Dunton Tower 1125 Colonel By Drive Ottawa, Ontario, K1S 5B6

Tel: (613) 520-2600 ext. 2708 Fax: (613) 520-4427 E-mail: sbss@sprott.carleton.ca www.carleton.ca/sbss Concordia University Commerce & Administration Students' Association (CASA) www.casa-jmsb.ca Commerce Graduate Students' Association www.cgsa-concordia.com Finance & Investment Students' Association 1455 de Maisonneuve Blvd. W. Suite GM 211-06 Montreal, Quebec, H3G 1M8 Tel.: (514) 848-2424 ext. 7437 Fax: (514) 848-7436 E-mail: fisa@jmsb.concordia.ca http://fisaonline.ca Dalhousie University Commerce Society 6152 Coburg Road Halifax, Nova Scotia, B3H 3J5 Tel: (902) 494-2427 E-mail: commerce@dal.ca www.dalcommerce.com University of Manitoba Commerce Students' Association 181 Freedman Crescent, Room 144 Winnipeg, Manitoba, R3T 5V4 Tel: (204) 474-7363 Fax: (204) 269-0861 E-mail: admin@csaweb.ca www.csaweb.ca University of Manitoba Finance Organization www.umfo.com McGill University Management Undergraduate Society 1001 Sherbrooke St. West, Suite 016 Montreal, Quebec, H3A 1G5 Tel: (514) 398-7292 Fax: (514) 398-8362

NFSA.ca Fall 2009 The NFSA Arbitrage 64

NFSA Directory Associations - Employers - Universities - Colleges - Student Clubs Government Sources - Hedge Funds - Insurance - Investment Org. Investor Services - Mutual Funds - Provincial Securities Stock Exchanges - Taxation www.musonline.mcgill.ca McMaster University DeGroote Commerce Society Michael G. DeGroote, Room 133 1280 Main Street West Hamilton, ON, L8S 4M4 Tel: (905) 525-9140 ext. 23451 www.business.mcmaster.ca/ commsoc DeGroote Finance Association Email: degrootefinanceassociation .com MBA Association Tel: (905) 525-9140 ext. 24206 E-mail: mbaassn@mcmaster.ca www.business.mcmaster.ca/MBAA/ artman/ publish/index.shtml University of New Brunswick Business Society Tilley Hall, Room 308 Tel: (506) 453-3521 E-mail: bbasoc@unb.ca http://www.unbf.ca/clubs/ bizsociety Nipissing University Business Community www.nubc.ca University of Ottawa Finance Society www.financesociety.ca MBA Student Association (MBASA) www.management.uottawa.ca/ mbasa Ottawa Student Investment Club www.admin.uottawa.ca/osic Queen's University Commerce Society http://comsoc.queensu.ca Ryerson University Business Students Association (BSA) Tel: (416) 979-5000 ext. 7394 E-mail: bsa@ryerson.ca Ryerson Commerce Society

Tel: (416) 979-5000 ext. 4217 E-mail: rcs@ryerson.ca www.rcsonline.ca Finance Society 575 Bay St., RBB1-137 Toronto, Ontario, M5G 2C5 Tel: (416) 979-5000 ext. 7394 E-mail: rufs@ryerson.ca www.rufs.ca University of Saskatchewan Finance Students' Society www.edwards.usask.ca/studentclubs/finance Simon Fraser University Finance Club 8888 University Drive Burnaby, B.C., V5A 1S6 E-mail: finclub@sfu.ca www.financeclub.ca University of Toronto Rotman Commerce Finance Association E-mail: rcfa@utoronto.ca www.utoronto.ca/commercegroups/ufa/ Undergraduate Commerce Society www.utmucs.ca Management and Economics Students' Association www.mesa.ca University of Victoria UVic Commerce Students' Society Business and Economics Building Room 113 P.O. Box 1700, Station CSC Victoria, British Columbia, V8W 2Y2 Tel: (250) 721-6432 Fax: (250) 472-4509 www.uviccss.com University of Western Ontario HBA Association (HBAA) http://hbaa.ivey.ca Western Investment Club E-mail: wic.executive@gmail.com www.usc.uwo.ca/clubs/investment

65 The NFSA Arbitrage Fall 2009 NFSA.ca

Wilfrid Laurier University SBE Students' Council Tel: (519) 884-1970 ext. 3253 E-mail: 000sbesc@machl.wlu.ca University of Windsor Commerce Society Tel: (519) 253-3000 ext. 3487 http://web2.uwindsor.ca/clubs/ comsoc York University Schulich Finance Association http://sfa.schulich.yorku.ca/default.asp York Investment Club www.yorkinvestmentclub.com York University Finance & Industry Club (YUFIC) www.yufic.com York Business Network http://www.yorkbusinessnetwork.co m GOVERNMENT SOURCES Bank of Canada www.bankofcanada.ca or www. banqueducanada.ca Canada Customs and Revenue Agency www.ccra-adrc.gc.ca Canadian Investment and Savings www.cis-pec.gc.ca Government of Canada; intergovernmental links www.intergov.gc.ca NASD www.nasd.com Office of the Superintendent of Financial Institutions www.osfi-bsif.gc.ca Statistics Canada

www.cafp.org

www.nasaa.org

Strategis from Industry Canada www.strategis.ic.gc.ca

Canadian Deposit Insurance Corporation www.cdic.ca

System for Electronic Document Analysis and Retrieval www.sedar.com

Canadian Depository for Securities www.cds.ca

World Federation of Exchanges www.world-exchanges.org

Canadian Derivatives Clearing Corporation www.cdcc.ca

INVESTOR SERVICES

U.S. Securities and Exchange Commission www.sec.gov HEDGE FUNDS Canadian Hedge Fund Watch www.canadianhedgewatch.com EHedge.com www.e-hedge.com Hedge Fund Association www.thehfa.org Hedge Fund Centre www.hedgefundcenter.com Hedge Fund Intelligence www.hedgefundintelligence.com Hedge Index Tremont www.hedgeindex.com TASS Research www.tassresearch.com VAN Hedge Fund Advisors International www.vanhedge.com/definit.htm INSURANCE Financial Advisors Association of Canada (ADVOCIS) www.advocis.com Insurance Canada www.insurance-canada.ca

Canadian Investor Protection Fund (CIPF) www.cipf.ca Canadian Securities Institute www.csi.ca CSI Global Education Inc. 200 Wellington Street West, 15th Floor, Toronto, Ontario M5V 3C7 Phone: 416-364-9130 Toll-free: 1-866-866-2601 Fax: 416-359-0486 Toll-free fax: 1-866-866-2660

Advice for Investors www.adviceforinvestors.com BigCharts www.bigcharts.com Canadian Financial Network www.canadianfinance.com Globeinvestor www.globeinvestor.com Investorwords www.investorwords.com Investopedia www.investopedia.com

Canadian Society of Technical Analysts www.csta.org

Iunits www.iunits.com

EDGAR www.edgar-online.com

National Financial Services Network www.nfsn.com

International Organization of Securities Commissions www.iosco.org

Quicken Financial Network www.quicken.ca

Investment Dealers Association of Canada www.ida.ca

INVESTMENT ORGANIZATIONS

Mutual Fund Dealers Association of Canada www.mfda.ca

Canadian Association of Financial Planners

National Association of Securities Dealers Regulation

Stockhouse www.stockhouse.ca Yahoo Finance www.ca.finance.yahoo.com MUTUAL FUNDS Fund Library www.fundlibrary.com

NFSA.ca Fall 2009 The NFSA Arbitrage 66

Prince Edward Island www.gov.pe.ca/caag/ccaidinfo/index.php3 Saskatchewan www.sfsc.gov.sk.ca

Investment Funds Institute of Canada www.ific.ca

Territory of Nunavut www.gov.nu.ca/jusice

News Organizations and Publications

Yukon www.gov.yk.ca/depts/community

Canada Newswire www.newswire.ca

STOCK EXCHANGES

Canoe (Canadian Online Explorer) www.canoe.ca PROVINCIAL SECURITIES ADMINISTRATORS Alberta www.albertasecurities.com British Columbia www.bcsc.bc.ca Manitoba www.msc.gov.mb.ca Ontario www.osc.gov.on.ca Quebec www.cvmq.com New Brunswick www.gnb.ca/0062 Newfoundland and Labrador www.gov.nf.ca/gsl/cca

The American Stock Exchange www.amex.com CBOE www.cboe.com CNQ www.cnq.ca Bourse de Montreal www.m-x.ca Nasdaq www.nasdaq.com New York Stock Exchange www.nyse.com Toronto Stock Exchange www.tsx.ca TSX Venture Exchange www.tsx.ca Winnipeg Commodity Exchange www.wce.ca TAXATION

Northwest Territories www.gov.nt.ca/RWED/iea Nova Scotia www.gov.ns.ca/nscc

Canada Customs and Revenue Agency www.ccra-adrc.gc.ca Canadian Tax Foundation

67 The NFSA Arbitrage Fall 2009 NFSA.ca

www.ctf.ca Ernst & Young (Canada) www.ey.com KPMG www.kpmg.ca PricewaterhouseCoopers www.pwc.com

NFSA Crossword

ACROSS 1. Amounts due to the business from customers for merchandise or services purchased on credit. The business does not receive payment for these amounts immediately, and the delay before payment is measured by Days Sales Outstanding (DSO). 9. Current assets, excluding inventory and prepaid expenses, divided by current liabilities. Used as a measure of a company's liquidity. 10. A set of conditions agreed to in a formal debt agreement and designed to protect the lender's interests. They may include restrictions on debt/equity ratio, working capital, or dividend payments. 11. The accounting term for amounts paid for assets over and above their fair market value. It arises, for example, theoretically represents the value of the business's name, reputation, and customer relations, which increase the true value of the business beyond the value of its assets alone. 12.The total amount of indirect compensation that the business will provide to employees for each forecast year. It can be either statutory, such as payroll taxes and worker's compensation; or discretionary, such as health insurance, life insurance, and 401. 13. The relationship between debt and equity. A company is considered highly ********** if its levels of debt are high compared to its equity. 14. Securities that can readily be converted into cash, including government securities, bankers' acceptances and commercial paper.

DOWN 1. The amount actually paid to purchase an asset. This includes all costs associated with the purchase, such as installation, freight, and sales tax. 2. Convertible preferred stock plus convertible bonds, stock options, and warrants. 3. The expected annual return on an investment, including interest and dividends, expressed as a percentage. 4. A company's ability to generate cash in a timely manner in order to meet its obligations, often measured by the quick ratio or the current ratio. 5. The acquisition cost of an asset less any accumulated depreciation. 6. A bankruptcy predictor based on the formula derived by Dr. Edward Altman. According to the Altman model, a ********* of 3.0 or higher indicates that the company is most likely safe based on the financial data; a score below 1.8 means that the firm is probheaded for bankruptcy. 7. The four-digit code prescribed by the Standard Industrial Classification System to categorize businesses according to the types of activities they perform. 8. The price at which an asset would pass from an informed and willing seller to an informed and willing buyer.

Answers provided in the next edition of the Arbitrage. Keep your eyes out for it!

NFSA.ca Fall 2009 The NFSA Arbitrage 68