Canadian Capital Markets and Instruments
| Author | Christopher C. Nicholls, Jeffrey G. Macintosh |
| Pages | 1-22 |
CHAPTER
1
CANADIAN
CAPITAL
MARKETS
AND
INSTRUMENTS
A.
INTRODUCTION
Securities
law
comprises
a
sophisticated body
of
statutory
and
policy
instruments that regulate
our
capital markets.
Before
embarking upon
a
detailed review
of the
legislation
and
related policy instruments,
it is
useful,
by way of
background,
to
provide
a
brief
sketch
of
some
funda-
mental
features
of the
Canadian capital markets
and the
financial
instruments used
for
fund
raising
and
investment purposes.
B.
THE
PURPOSE
OF
CAPITAL MARKETS
The
Canadian economy
is a
mixed economy that
consists
of
both
the
public
and the
private sectors. Capital markets perform
an
important
function
in
relation
to
both
of
these economic sectors.
1) The
Public Sector
The
term "public sector"
refers
to the
full
range
of
activities carried
on
by
governments. Governments, like private businesses, spend
and
raise
money.
Governments spend money
on a
wide range
of
public services,
including social assistance programs (such
as
unemployment
insur-
ance
and
welfare);
the
building
and
maintenance
of
roads, bridges,
and
\
2
SECURITIES
LAW
other
infrastructure;
the
building
and
operation
of
schools
and
hospi-
tals;
and the
operation
of
police
forces,
firefighting
services, national
parks,
and
national defence.
To
carry
out
these
activities, governments
raise money
in two
ways:
(1)
through
the
collection
of
taxes
or
other
revenues,
such
as
government licensing
fees
and
administrative
fees,
lottery proceeds,
and
profits resulting
from
investments
in
Crown cor-
porations;
and (2)
through
the
sale
of
government debt instruments,
such
as
bonds. Through
the
latter type
of
fund
raising, governments
have become
major
participants
in
modern capital markets.
Governments
sell both short-term bonds, where
the
principal must
be
repaid
in
less than
one
year,
and
long-term bonds, where
the
principal
must
be
repaid
one
year
or
more
into
the
future.
2)
The
Private
Sector
a)
Profit
and
Not-for-profit
Sectors
The
private sector
can be
divided into
the
"for-profit"
and the
"not-for-
profit"
sectors.
In the
latter, private
entities
supply goods
or
services
with
a
view
to
benefiting
specific
subgroups
of the
public, such
as
needy
children,
the
homeless,
and
religious causes
or
community inter-
ests, such
as the
environment
and
educational causes. Private
entities
in the
not-for-profit
sector turn
any
surplus
of
revenue over expenses
back
into
the
operations
of the
non-profit enterprise.
For-profit
entities,
by
contrast, supply
goods
or
services
with
a
view
to
generating
a
profit
for
the
owner(s)
of the
entities,
who may be
individuals, partners
in a
partnership,
or
shareholders
of a
corporation.
3) Net
Savers
and Net
Users
of
Capital:
Financial Investment
and
Real
Investment
This
book focuses mainly, although
not
exclusively,
on the
private for-
profit
sector, which
forms
the
backbone
of a
predominantly capitalist
economy
such
as
Canada's.
In
this sector, capital markets play
a
vital role
in
transferring
the
savings
of net
savers
of
capital
to net
users
of
capital,
and
ultimately
in
financing
various activities
in the
"real" economy.
By
"net users
of
capital"
we
mean those enterprises
—
public
or
private
—
that need
funds
to
carry
on
their
operations.
By
"net savers
of
capital"
we
mean individuals
or
aggregations
of
individuals, such
as
corporations
or
partnerships, with
a
surplus
of
funds.
Net
users
of
capital
are the
foundation
of the
real economy.
The
real
economy consists
of the
aggregate
of all the
goods
and
services
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