CHARTERED INSTITUTE OF STOCKBROKERS
March 2015 Examination Diet
Paper 2.4 Solution
Section “B” - Ethics and Professional Standards
Solution to Question 2(a):
“Integrity” stems from the Latin adjective integer (whole, complete). In this
context, integrity is the inner sense of “wholeness “deriving from qualities
such as honesty and consistency of character. In ethics, integrity is regarded
as the honesty and truthfulness or accuracy of one’s actions.
Solution to Question 2(b):
I.
II.
High standards of honesty.
Fairness.
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Section “C” – Ethics and Professional Standards
Solution to Question 5
5(a):
1) Apparently the proceeds of the private placement exercise was not
used for the purpose for which it was purportedly raised. Rather, it
appeared to have been used imprudently, including, for example to
make an unusual ‘severance pay’ to Directors.
2) The prospectus for the private placement apparently contained untrue/
misleading information in respect of the receivables figure of N5 billion.
3) The company did not protect the interest of relevant stakeholders in the
business by failure to pay staff salaries, owing sub-contractors, owing
VAT, income tax and withholding tax due to government.
4) Failure of the Directors to submit the financial result to the Nigerian
Stock Exchange is a breach of the covenant between the NSE and a
quoted company.
5) Overall, there is a fundamental breach of the principal objective of the
Board, which is to ensure that the company is properly managed, and
to oversee the effective performance of the Management in order to
protect and enhance shareholder value and to meet the company’s
obligations to its employees and other stakeholders.
5(b):
Civil Remedies
This is both under the common law and the CAMA 2004; and they are:
1) Action by the aggrieved subscriber in damages for fraud.
2) Under section 562 CAMA 2004, he may sue for compensation.
3) Action for rescission of the contract of allotment (section 571).
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Criminal Remedies
4) According to SEC Rule, where a prospectus includes any untrue
statement or mis-statement, any director or officer who authorized the
issue of the prospectus commits an offence and is liable:- (a) on
conviction to a fine of not less than N1,000,000,000 or to imprisonment
for a term not exceeding three years, or to both such fine and
imprisonment;
or (b) on summary conviction, to a fine of not less than N1,000,000,000
or to imprisonment for a term not exceeding three months or to both
such fine and imprisonment, unless he proves either that the untrue
statement or mis-statement was immaterial or that he had reasonable
ground to believe and did, up to the time of the issue of the prospectus,
believe that the statement was true.
5) By section 563 of CAMA, 2004, any officer of the company who
authorizes the issue of a prospectus, or statement in lieu of prospectus
which contains untrue statement shall be guilty of an offence and be
liable on conviction upon an indictment to imprisonment for a term not
exceeding 2 years or a fine not exceeding #5,000 or both; or on
summary conviction to a term of 3 months or a fine of #5,000 or both.
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Section “B” – Law relating to Securities and Investments
Solution to Question 3 (Section B):
The term “agency by necessity” is a type of agency which is created in a
situation where a person acts on behalf of another person in an emergency
situation without the opportunity to obtain instructions from that other person.
Action taken must be for the benefit of the principal.
Section “C” – Law relating to Securities and Investments
Solution to Question 6 (Section C):
6(a):
The differences between a share and a debenture as securities of a
company are noted below:i.
ii.
iii.
iv.
v.
vi.
A share denotes membership while a debenture denotes
indebtedness of the company. A shareholder is a part owner of a
company, while a debenture holder is a creditor.
A shareholder may vote at company meeting a debenture holder
is not entitled to vote.
Shares may not be issued of a discount to nominal value;
Debentures can be issued at a discount to nominal value.
Shares attract dividends while debentures attract interests.
(Dividends are only payable to shareholders, where the company
makes a distributable profit, but interest must be paid to
debenture holders, when it is due).
Shareholders are the last to be paid in a winding-up. Debenture
holders are given priority in repayment of debts.
There are statutory restrictions on redemption of shares, no
restriction on redemption of debentures.
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6(b):
A banker’s duty to honour the customers cheques are expected in the
following instances.
i.
Where the banker is in receipt of a countermand (stop order from
its customer).
ii.
Where the banker is notified of customers death.
iii.
Where the banker is notified or customer’s insanity.
iv.
Where the banker is notified of customers liquidation or
bankruptcy.
v.
Where there is a court order freezing the account of the customer
or a garnishee order.
vi.
Where a post dated cheque is presented before maturity date.
vii. Where there is no sufficient fund in the account to meet the
amount stated on the cheque.
Source:- Law relating to Sec. and Inv by C.I.S
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Section “B” – Regulations of Securities and Corporate Finance
Solution to Question 4 (Section B):
1) Sponsored individuals and Compliance Officers are required to have
any of the following qualifications and job experience:
(a) A first or higher degree or its equivalent in a relevant field including
banking, finance, accounting, business management, law, economic
and company secretarial studies with a minimum of 4 year relevant
post-qualification experience (excluding the National Youth Service
Corps year); or
(b) A first or higher degree or its equivalent in a non-relevant field
including science-oriented course, the Art, etc, with a minimum of 6
year relevant post-experience (excluding the National Youth Service
Corps year); or
(c) A west African School Certificate (W.A.S.C)/S.S.C.E, General
Certificate of Education (G.C.E) or Higher School Certificate or its
equivalent with a minimum of 15 year relevant post-qualification
experience
Section “C” – Regulations of Securities and Corporate Finance
Solution to Question 7 (Section C):
7(a):
1) The management of the firm decides:
 That rights issue is the most appropriate option to raise more funds.
 The exercise price (the price existing shareholders must pay for new
shares).
 How many rights will be required to purchase one new share.
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2) Management gets the approval of the Board of Directors.
3) Shareholders give approval at an AGM.
4) The firm prepares and files a registration statement with the SEC.
5) If everything is agreeable with the SEC, the rights issue is approved.
6) A price is set and a full-fledged selling effort gets underway.
7b:
1) Shareholder completes and signs the renunciation portion of right
circular.
2) Signs transfer form as transferor.
3) Signature is witnessed by stockbroker.
4) Transfer form and right circular sent to registrar for verification.
5) Rights are traded at NSE.
6) Transfer forms of both transferor and transferee are sent to NSE for
noting.
7) Noted transfer forms and right circular are lodged with the registrar
accompanied by the amount for the rights.
7c:
Contents of a Rights Issue Every right circular shall contain the
following information:
1) The front cover shall state the name of the issuer, the issuing house,
certificate of incorporation (RC number) of the issuer shall be printed
on the right circular, type of the offer, total amount / number of shares
to be offered, the basis for the rights issue, the price and amount
payable in full on application;
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2) A detailed table of contents in the fore part of the right circular showing
the subject matter of the various sections or subscriptions;
3) Summary of the offer stating the amount/number of shares on offer,
the offer price , purpose of the offer, the opening and closing date of
the offer, shareholding structure, authorized share capital, issued and
fully paid, indebtedness of the company stating details of bridging loan
if any;
4) The chairman’s letter / statement which should disclose ,working
capital adequacy and future developments of the company and any
other material information;
5) Five years historical financial information on balance sheets, profit and
loss account, cash flow and notes to the accounts;
6) Statutory and general information including the history and business of
the company, date of incorporation, registration number and
shareholding structure, claims and litigation, material contracts,
consents, documents available for inspection and any other material
information,
directors
interest,
related
party
transactions,
indebtedness, costs and expenses;
7) Procedure for application and allotment;
8) Receiving agents and receiving banks;
9) Application form.
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