The Toronto Stock Exchange Versus the NYSE and NASDAQ
Stocks are all the stocks in which ownership of a company is divided ownership. In American English, “stock” is also referred to as “firm membership”. In common usage, however, the word “stock” means a share in a corporation that may be purchased by common stockholders. A single share of any company’s stock represents a fractional membership of that corporation in proportion to its number of outstanding shares.
Common stocks are issued by corporations either directly or through authorized third parties. The issue of common stocks is called “dividend Reinvestment Equity Transactions”. These investments result in capital gains on a tax-deferred basis to the shareholder. Dividend reinvestment equity transactions are the most widely used method of issuing senior notes and are generally exempt from estate tax.
Bonds are securities issued by corporations in exchange for payments made by the corporation. Bond yields are determined each year by the yield on the top fifty stocks of that corporation. Bonds are usually purchased by borrowers with the option to purchase additional bonds at a discount. The premium paid for a bond represents the return the corporation receives on its equity. The distribution of dividends on stocks and bonds is made at the discretion of the Board of Directors.
To raise capital through stocks and bonds, a corporation must first issue shares to be sold to investors. The price per share paid to the shareholders represents the value of their debt in fixed fees plus their dividend entitlement. When the Board of Directors determines the number, quality, and quantity of such shares, they will use an appraisal to determine the value of each security. Once such stock is listed on the Toronto Stock Exchange, all subsequent trading of such shares will be conducted on the Toronto Stock Exchange.
There are two types of stock exchanges in Canada: the Over the Counter (OTC) stock exchanges and the Over the Counter quotations (OTCQ) stock exchanges. Both types of exchanges allow limited trading by users with exchangeable certificates of deposit (CDs). Most investors choose to trade their shares in the OTC because the charges per trade are less than that associated with the larger NYSE and NASDAQ stock exchanges. New investors to the Canadian market should consider the pros and cons of trading in the OTC versus the larger exchanges.
Two main sources of information about shares offered on the Toronto Stock Exchange include the Canadian Company Market (CPM) and the Canadian Securities Exchange (CSX). Canadian companies issue stock through authorized brokers who represent the company. When new shares are issued by Canadian companies, these shares will be listed on the Canadian Securities Exchange. On the other hand, when US companies issue stock on the OTC, they will list their shares on the Over the Counter Bulletin Board (OTCBB). While there may be similarities between the two main sources of information, they still diverge in several ways.