Appendix A - The Competition Bureau's Letter to the CIBC and TD Bank

Assets under administration

Assets administered or managed by a financial institution which are beneficially owned by clients or investors.

Barriers to entry

Anything that makes effective entry into a market within two years less likely or more difficult. To be effective, entry must be of a sufficient scale to ensure that any material price increase or any reduction in service reverts to competitive levels. Entry barriers could include:

- switching costs incurred by customers,

- sunk costs incurred by an entrant,

- tariff and non-tariff barriers to international trade, and

- regulatory control over entry.

Census Agglomeration (CA)

An urban area of more than 10,000 persons with a high degree of social and economic integration.

Census Metropolitan Area (CMA)

A large urban area of more than 100,000 persons that has a high degree of social and economic integration.

Concentration ratio or four firm concentration ratio (CR4)

The share of the market accounted for by the four largest firms in the market, usually in terms of the percentage of sales.

Credit card acquiring

The services provided by credit card acquirers to merchants that enable merchants to accept credit card payment from their customers and to receive payment for credit card purchases. Financial institutions providing only the processing and payment settlements of credit card purchases are referred to as Visa or MasterCard Merchant Acquirers. Financial institutions that also provide the computer terminal and software along with the processing and payment settlements services are referred to as Primary Merchant Acquirers.

Credit card issuing

The provision of the plastic credit card to consumers. A credit card issuer typically refers to a financial institution that issues a card which can be used by a consumer to purchase goods or services on credit.

Credit card network services

The system that enables individual cardholders to have their cards widely accepted for the purchase of goods and services. The two major credit card networks in Canada are Visa and MasterCard.

Discount Brokerage

The execution of securities trades without advice. The discount broker buys and sells stock. Clients perform their own research or buy third party research, and therefore pay much less to execute trades.

Economies of scope

Savings from producing two or more products or services together rather than separately.

Economies of scale

Savings that arise when the average or unit cost of producing a product or service decreases as the volume produced increases.

Efficiency gains

Cost savings to the economy. These cost savings must represent real savings in economic resources, rather than private gains to the merging parties that result, for example, from an increase in bargaining power with suppliers. Efficiency gains fall into two broad classes: production efficiencies and dynamic efficiencies. Production efficiencies result from real long run savings in resources which permit firms to produce more output or better quality output from the same amount of input. Dynamic efficiencies include gains attained through the optimal introduction of new products, the development of more efficient productive processes, and the improvement of product quality and service.

Full Service Brokerage

The execution of securities trades bundled with advice custom tailored to the clients portfolio.

Interchange fee

A charge set by a credit card association that is paid to the issuer of a credit card by the merchant's credit card acquirer. The interchange fee is a component of the merchant discount rate (MDR) that is levied on the merchant for the processing and settlement of credit card transactions.

Interdependent behaviour

Explicit or implicit understandings among firms in the market to jointly exercise market power or limit competition on price, quality, service, or any other dimension. Interdependent behaviour refers to conduct by a group of firms that is profitable for each of them only because of the accommodating co-operative conduct of the others. Such behaviour is more likely in markets in which firms can recognize and reach a co-operative understanding, monitor one another's behaviour, and respond to any deviations from the co-operating behaviour by others. By reducing the number of competitors in a market, a merger can facilitate interdependent behaviour among firms, including those that are not party to the merger.

Investment adviser

An individual whose principal task is giving professional advice on investments and management of assets.

Large corporate businesses

Businesses with borrowing requirements in excess of $15 million. These firms generally have access to international equity and credit markets.

Line of credit

Commitment by a financial intermediary to lend up to a specified amount to a customer on request.

Market power

The ability of firms to profitably influence price, quality, variety, service, advertising, innovation or other dimensions of competition.

Merchant Discount Rate (MDR)

A fee levied on a merchant by a financial institution for the processing and settlement of credit card transactions. This fee, known as the merchant discount rate, is applied to the dollar volume of credit card purchases and is deducted from the merchant's transaction account.

Mid-market enterprises

Businesses with borrowing requirements in the $1 million to $15 million range. They are divided into two segments:

- $1 million to $5 million

- $5 million to $15 million.

Money market mutual funds

A fund that issues and buys back units or shares representing pro-rata ownership of a managed portfolio of short- term assets, usually less than one year. These assets are highly liquid.

Operating loans

Short term business credit or loans to businesses for working capital purposes.

Payments system

The Canadian payments system consists of a set of separate networks that include the cheque payments system, the credit card systems of Visa and MasterCard, the automatic banking machine (ABM) and debit card networks of Interac, and the separate clearing systems for debt and equities, and for mutual funds. At the centre of the system is the Canadian Payments Association (CPA), which has the mandate under the Canadian Payments Association Act (the CPA Act) to operate a national clearing and settlement system. Members use this system to settle claims arising from their customers' cheque payments and receipts, and to discharge their net claims from transactions in the other networks.

Personal loans

Loans generally obtained by consumers in small amounts and for non-business purposes. Examples include home improvement loans and loans to finance the purchase of consumer goods and services.

Personal short term savings

Savings which include guaranteed investment certificates, money market mutual funds, Canada and provincial savings bonds, and treasury bills.

Relevant market

The relevant or 'antitrust' market is the product area over which a firm could exercise market power. Technically, it is defined to include the smallest group of products and the smallest geographic area. If this product grouping were provided by a sole supplier, the supplier could profitably maintain a small but significant, non-transitory price increase. In this context, 'significant', usually means five percent, and 'non-transitory' means a price increase lasting at least one year.

Residential mortgages

A loan to buy a real estate property, typically a home, secured by the value of the property. It is the principal type of long term personal debt, with terms ranging up to10 years and amortization typically in the 20 to 25-year range.

Retail banking

Banking services offered to the general public, including consumers, commercial enterprises, and small and medium-sized enterprises. Banking associated mainly with personal banking services and small-scale operations.

Rural market

Bank branches, outside of urban areas, located within 20 kilometres of each other were considered to be within the same rural market.

Schedule I Banks

Banks subject to the ownership regime which, in the context of the current Bank Act, refers to the provision that no individual can acquire more than 10 percent of any class of shares in a federally incorporated financial institution without the approval of the Minister of Finance.

Schedule II Banks

The Bank Act classifies banks as Schedule I or Schedule II banks. Different ownership rules apply to each type of bank. Schedule II banks, which are permitted to be closely-held upon incorporation, are mostly subsidiaries of foreign banks and are restricted in size. Schedule II Banks with more than $750 million in shareholder's equity are required to have 35% of their voting common shares widely held and publicly traded.

Security dealers

Firms which handle securities transactions, either for individual clients, institutional clients or on their own behalf. Other services which are often provided include research and advice on securities trading, merger and acquisition advice and underwriting services.

Small and medium sized enterprises (SMEs)

Businesses with borrowing authorizations of less than $1 million. They are divided into two segments:

- up to $200,000

- $200,000 to $1 million.

Substantial lessening or prevention of competition

The price of the relevant product is likely to be materially greater, or quality and service materially reduced, in a substantial part of the relevant market than it would be in the absence of the merger. This price, quality or service would not likely be eliminated within two years by new or increased competition from existing or new competitors.

Sunk costs

The component of the purchase price of the a highly specialized asset, that is irrecoverable.

Switching costs

Costs which discourage consumers from switching to competing suppliers. An entrant must compensate consumers for their costs of switching by offering them higher quality or lower price.

Syndicate

A group of financial intermediaries that act jointly on a temporary basis to make loans or to underwrite a new issue of securities.

Ten percent (10%) rule

Ownership regime which, in the context of the Bank Act refers to the provision that no individual can acquire more than 10 percent of any class of shares in a federally incorporated financial institution without the approval of the Minister of Finance.

Term loan

Loans, including non-residential mortgages, which are generally intermediate to longer term in nature, and are typically secured by collateral to purchase equipment, buildings, and real estate.

Third party processor

A non-bank that processes credit card transactions, including the provision of transaction verification for merchants and other information-based services.

Transaction accounts

Services which enable an account holder to make deposits and withdrawals through savings or chequing accounts on short notice either at the local branch or some other channel such as an ABM, debit card, telephone or computer, and to receive reports on those activities.

Underwriting

An undertaking from a securities dealer to assume the risk of buying a new issue of securities from the issuing company or government entity and to sell the securities to the public or to institutional investors.

Urban market

A geographic area that has been defined as a Census Agglomeration (CA) or Census Metropolitan Area (CMA) by Statistics Canada.