CIS March 2011 Exam Diet
Examination Paper 1.4:
Ethics and Professional Standards
Law relating to Securities and Investments
Regulations of Securities and Corporate Finance
Level 1
Ethics and Professional Standards (1 - 21)
1.
Which of the following statements about the CIS Code of Ethics and Standards of
Professional Conduct for Stockbrokers is correct?
A. It applies only to CIS associates and fellows.
B. It applies to all members who voluntarily subscribe to it.
C. It applies in its entirety to all CIS members irrespective of their location.
D. It applies to all CIS members, except where a member is practicing outside
Nigeria.
2.
Which of the following is incorrect in respect of ‘‘fiduciary duty’’ as defined in the
CIS Code and Standards?
A. It is the duty which is owed by a party who has a relationship of trust and
confidence to another party.
B. A person who has a fiduciary duty to another must act in the other’s best
interest.
C. A fiduciary is held to a higher standard of care and higher degree of knowledge
than an average person.
D. A fiduciary must always take responsibility if an inventor’s portfolio incurs losses
in the capital market.
3.
In the event of conflict of provisions, CIS members must comply with which of the
following laws, rules, regulation, code or standards?
A. SEC Rules.
B. NSE Trading Rules.
C. CIS Codes of Ethics and Standards of Professional Conduct.
D. The strictest of the above regulations.
4.
A CIS member gets to know that his bosses, in collaboration with the top
management of some companies, are involved in stock price manipulation on the
Nigerian Stock Exchange. What action should he take?
A. He should report to any of his supervisors who is not involved in the illegal
conduct.
B. He should document his findings in writing, and distance himself from such
illegal conduct.
C. He should discuss with a legal practitioner and follow whatever legal counsel he
gets.
D. He should report the illegal conduct to an appropriate authority in accordance
with the law where the disclosure is protected by law and to CIS.
5.
The CIS Code of Ethics specifically addresses all of the following except:
A. Competence.
B. Integrity.
C. Independent judgment.
D. Efficiency.
6.
CIS
A.
B.
C.
D.
7.
Dan Musa, a stockbroker, is a General Manager of Danmus Securities Ltd. He assures
a prospective client who has just inherited N10 million that “we can perform all the
financial and stockbroking services you need”. Danmus is well-equipped to provide
stockbroking services, but cannot provide other financial services. Dan Musa has
violated regulation on:
A. Objectivity.
B. Integrity.
C. Misrepresentation.
D. Manipulation.
Code and Standards is designed to achieve the following except:
To participate in global markets.
To promote capital market integrity.
To improve professional competence.
To exercise independent professional judgement.
8.
Mr Pius Edomah, a CIS graduate who recently passed the final stage of CIS
examination and is undergoing his 40 days training on the floor of Nigerian Stock
Exchange may use which of these designation after his name?
A. FCS.
B. ACS.
C. GCS.
D. None of the above.
9.
Baba Alli, ACS, is a research analyst at a brokerage firm. Just after buying 500
shares of GT Plc for his personal account, Alli learns that his firm is preparing an
investment report with a buy recommendation on the GT Plc stock. According to
CIS Code and Standards, Alli must:
A. Take no action in respect of his beneficial ownership in the GT stock.
B. Request that his firm disclose his beneficial ownership in the investment report.
C. Sell his stock immediately and disclose this action to his firm.
D. Sell his stock within 30 days and disclose this action to his firm.
10.
A CIS member and his employer may discharge their obligation to comply with CIS
Code and Standards, and maintain knowledge of, and compliance with the law by:
A. Learning the laws and rules that govern their conduct.
B. Consulting legal counsel when in doubt concerning the requirements of the law.
C. Establishing and implementing internal procedures designed to prevent legal
violations.
D. All of the above.
11.
The confidentiality of information entrusted on a CIS member by a client may not
always apply. Which of the following situations qualifies for this exemption?
A. When the client is known to have been involved in an illegal activity.
B. When the client permits disclosure of the information.
C. When disclosure is required by law.
D. All of the above.
12.
What is the most appropriate action as recommended by CIS Codes and Standards,
when a CIS registered student faces pressure, in the course of his professional duties
to act in a way that is inconsistent with any law, rule, regulation or CIS Codes and
Standards? He should:
A. Inform his supervisor.
B. Document the issue in writing and report to the Chief Executive of his firm.
C. Report to the EFCC.
D. None of the above.
13.
A financial analyst employed by Sunny Investments wants to perform for
compensation, independent services similar to the services provided by her employer.
What must the analyst do? He should:
A. Give the employer a written statement identifying the client, the duration, and
nature of the services, and receive verbal approval from the client.
B. Provide, in writing to the client, a statement that the services are being
performed independently from the employer and the employer’s charge for
services.
C. Receive written approval from her employer to provide these services, but not
from the client.
D. Receive written approval from both the client and his employer.
14.
Which of the following statements about an investment supervisor’s responsibilities
is incorrect as provided by the CIS Code and Standards? A supervisor:
A. Shall strive to maintain and improve the competence of other investment
professionals under his authority.
B. Shall exercise reasonable supervision over those subject to his supervision or
authority, to detect and prevent any violation of applicable laws, rules, and
regulations or provision of the CIS Code and Standards.
C. Shall encourage the training of young practitioners and employees who are
under his authority and give proper supervision.
D. Only needs to report employee violation of the Code and Standards to senior
management and provide a written warning to the employee.
15.
According to the CIS Code and Standards, which of these actions is not appropriate
for a CIS member in maintaining professional competency?
A. He should take reasonable action to ensure that he has sufficient knowledge of
securities and investment practice.
B. He should keep updating himself on legal requirements, market rules and other
relevant regulations.
C. He should maintain competence through continuing professional development.
D. He should seek to gain more experience by undertaking work in which he is
currently incompetent, but engage in on-the-job training.
16.
Which of the following is expected of a CIS member who is involved in preparing
investment reports?
A. When using materials prepared by others, he should write and obtain approval
from the Nigerian Copyright Commission.
B. He may use, without acknowledgement, factual information published by
recognized financial and statistical reporting services or similar services.
C. He is not allowed to use materials prepared by others, otherwise he will be guilty
of plagiarism.
D. He can only use materials prepared by others after getting written permission
from the author, publisher or source of the material.
17.
According to the CIS Code and Standards, which of the following statements is
correct?
A. A stockbroker should always act in the best interest of his client irrespective of
the circumstance.
B. A stockbroker should act in the best interest of his client if it does not conflict
with the interest of his employer.
C. A stockbroker should act in the best interest of his client if it does not conflict
with his own interest.
D. A stockbroker’s action would depend on the circumstance of the case.
18.
Based on the CIS Code and Standards, a CIS member is not expected to:
A. Report to his employer the receipt of gifts and additional compensation from
clients.
B. Disclose to clients his beneficial ownership of securities for which he makes
recommendation or takes investment action.
C. Put client’s interest above employer’s interest.
D. None of the above.
19.
Which of the following is not likely to be a factor that would enable a board of
directors to exercise its duty to act in the best long-term interest of stakeholders?
A. Ensuring the independence of the board.
B. Getting people with sufficient experience on the board.
C. Ensuring adequate disclosure and transparency.
D. Sufficiently empowering the Chairman/CEO to take major decisions.
20.
According to the CIS Code and Standards, a broker should update his knowledge
about a client’s circumstances at least:
A. Monthly.
B. Quarterly.
C. Half–yearly.
D. Annually.
21.
Which of the following actions is likely to affect the independence and objectivity of
members and registered students of CIS in the performance of their duties?
A. Maintaining a personal policy of not accepting gifts from clients.
B. A decision not to beneficially own securities on which they make
recommendations and take investment actions.
C. Personal, intimate relationship with representatives of issuers of securities and
other interested parties.
D. Disclosure of basic principles and methods of valuation of securities.
Law Relating to Securities and Investments (22 - 39)
22.
Which of the following is not a court of record in Nigeria?
A. Federal High Court.
B. National Industrial Court.
C. Supreme Court.
D. Chief Magistrates Court.
23.
As
A.
B.
C.
D.
24.
What arises where a third party relies on a representation made by a principal to the
effect that he holds out someone as his agent?
A. Agency by ratification.
B. Agency of necessity.
C. Agency by estoppel.
D. Agency by cohabitation.
25.
What type of mortgage is created when only the documents covering a property are
deposited with the creditor?
A. Statutory mortgage.
B. Equitable mortgage.
C. Possesory mortgage.
D. Legal mortgage.
26.
With respect to floating charges, which of these statements is incorrect?
A. Crystallization occurs when the company defaults on the debenture agreement.
B. Crystallization occurs when winding up commences.
C. Crystallization occurs only when winding up is ordered by a court.
D. Crystallization occurs when the company ceases to carry on business.
27.
The equitable order of rescission will:
A. Order the parties to terminate their action under the contract.
B. Force the parties to continue with their contractual obligations.
C. Remunerate the parties for any reasonable act they have undertaken.
D. Order that the parties be placed in their exact pre-contractual position.
a rule, consideration must be:
Simple.
Adequate.
Past.
Sufficient.
28.
Part of the capital of a company which has been allotted to the members is called:
A. Called up capital.
B. Nominal capital.
C. Issued capital.
D. Reserved capital.
29.
The tort of negligence will be established if there is the following except?
A. Duty of care.
B. Breach of duty.
C. Consequential injury.
D. Assumption of the risk.
30.
A bill which is incomplete is called:
A. Bearer bills.
B. Accommodation bills.
C. Inchoate bills.
D. Order bills.
31.
What happens to the properties of a person convicted of an offence under the
Economic and Financial Crimes Commission Act, 2004 where it is shown that the
properties are derived from illegal transactions?
A. They are sold by auction to the public.
B. They are forfeited to the Federal Government.
C. They are held in trust.
D. They are forfeited to the state government where the offence was committed.
32.
A will becomes revoked in the following circumstances except:
A. The making of a latter will.
B. Subsequent birth of a child by the testator.
C. Subsequent marriage by the testator.
D. The tearing of the will.
33.
A gift of an item specifically identified in a will by the testator is called?
A. General legacy.
B. Demonstrative legacy.
C. Specific legacy.
D. Vested legacy.
34.
The Investment and Securities Act 2007 recognises which of the following as
collective investment scheme:
I. Unit trust scheme.
II. Open-ended investment company.
III. Real estate investment trust.
A.
B.
C.
D.
I and II only
I and III only
II and III only
I, II and III
35.
A person who concerns himself with the establishment of a company and its
registration is called?
A. Consultant.
B. Director.
C. Promoter.
D. Registrar.
36.
The tenure of the chairman of the National Pension Commission is:
A. 10 years.
B. 6 years.
C. 5 years.
D. 4 years.
37.
The Economic and Financial Crimes Commission Act 2004, empowers the
Commission to appoint the following units for the Commission except:
A. Civil liability unit.
B. Legal and prosecution unit.
C. Training unit.
D. Research unit.
38.
Which of the following documents is not required to accompany the application to the
Governor of Central Bank of Nigeria for the purpose of registering a banking
business?
A. A draft of the memorandum and articles of association of the proposed bank.
B. A sworn affidavit of asset declaration of the promoters.
C. The prescribed application fee.
D. A feasibility report of the proposed bank.
39.
The Court which has exclusive jurisdiction to try offences under the Money
Laundering (Prohibition) Act 2004 is:
A. The Supreme Court.
B. The High Court of any state.
C. The Federal High Court.
D. The High Court of Federal Capital Territory, Abuja.
Regulations of Securities and Corporate Finance (40 - 60)
40.
SEC Rule 40(a) provides that securities offered through which of the following media
must be registered?
I.
II.
III.
IV.
Offer-for-sale.
Rights issue.
Private placement by public companies.
Offer by introduction.
A.
B.
C.
D.
I and IV only
II and III only
III and IV only
I, II, III and IV
41.
According to SEC Rule 56, which of the following information is not required to be
disclosed in a prospectus?
A. Succession plan.
B. Directors and parties to the prospectus.
C. Principal shareholders.
D. Litigation and related matters.
42.
Which of the following is not a function of the Securities and Exchange Commission?
A. Approve and regulate collective investments including schemes such as unit
trusts, esusu schemes, pension funds and other such schemes.
B. Approve and regulate mergers, acquisitions, take-over and other forms of
business combinations under the Act.
C. Keep and maintain separate registers of foreign direct investment and foreign
portfolio investments.
D. None of the above.
43.
Which of the following statements is incorrect?
A. The Nigerian Stock Exchange is the apex regulator of the capital market.
B. The primary responsibility of the Central Securities Clearing System is clearing
and settlement of trades for the Nigerian Stock Exchange.
C. Among the functions of the NSE is responsibility, among others, to provide
opportunities for raising new and fresh capital in the market.
D. One of the primary objectives of the Securities and Exchange Commission is to
protect the interest of all investors in the capital market.
44.
Which of the following statements is true about unclaimed dividends?
A. Dividends due to a shareholder thirty months after initial payment are referred
to as unclaimed dividends.
B. A shareholder can always reclaim his unclaimed dividend without any restriction.
C. A company may invest unclaimed dividend for its own benefit in an investment
outside the company after following approved procedures.
D. After 6 years, unclaimed dividends become statute- barred.
45.
Which of the following statements are correct in respect of the code of conduct for
employees of capital market institutions (operators)”?
I.
An employee must disclose to his employer transactions in securities by himself,
spouse, dependant children and relatives.
II. All new employees must at the time of assumption of duty lodge details of their
holding in long-term securities of government and public companies with their
employers.
III. Employees are prohibited from investing in securities of private companies.
IV. Information on client accounts can be disclosed to all other employees of the
firm.
A.
B.
C.
D.
I and II only.
I and IV only.
III and IV only.
I, II, III and IV
46.
Which of the following is correct in respect of provisions of SEC Rule 52(b) on
guidelines for advertisement on the issue of securities?
A. The issuing house could use its discretion to publish advertisements relating to a
public offer as long as the information presented is factual.
B. An advertisement shall not contain statements which promise or guarantee rapid
increase in profit.
C. Advertisement shall contain only approved slogan or brand name.
D. Models, celebrities, fictional characters, landmarks, and so on could form part of
the advertisement.
47.
The Securities and Exchange Commission is empowered to suspend or cancel the
registration granted to a market operator, according to SEC Rule 20(b), for the
following reasons except:
A. If the company fails to meet projected profit figures as stated in the prospectus.
B. If the company furnishes false and misleading information.
C. If the company fails to submit periodic returns or reports as required by the
Commission.
D. If the company fails to update its system and procedures as recommended by
SEC.
48.
Which of the following persons is not mandated by SEC Rule 106 to register its
securities with the Commission?
A. Public quoted companies.
B. Public unquoted companies.
C. Private companies.
D. Governments and government agencies.
49.
SEC Rule 111 provides that directors and other insiders of public companies shall
notify the Commission of the sale of their shares in the company within what period?
A. 48 hours.
B. 5 days.
C. 7 days.
D. 14 days.
50.
SEC Rule 138 requires every exchange member, broker or dealer to preserve daily
records of purchases and sales of securities, all receipts/disbursement of cash and
other related records for what minimum period?
A. 3 years.
B. 6 years.
C. 10 years.
D. 12 years.
51.
SEC Rule 192 detailed the authorized functions of registered investment advisers.
Which of the following functions is excluded from the list?
A. Maintenance or management of investors’ funds.
B. Provision of financial advisory services.
C. Making recommendations as to types of securities to buy and sell.
D. Publication of financial market periodicals.
52.
Which of the following is not a function of a registrar/share transfer agent?
A. Keeping of the register of members of a company and effecting appropriate
changes in the register.
B. Giving final approval on the issuance of shares, debentures or bonds.
C. Returning surplus monies and monies for all rejected applications.
D. None of the above.
53.
According to SEC Rule 200, every Registrar shall issue securities certificates in the
case of public issues to allottees of securities within:
A. 15 days of the allotment of securities.
B. One month of the allotment of securities.
C. Two months of the allotment of securities.
D. Three months of the allotment of securities.
54.
Which of the following is not a function of the Reporting Accountant to an issue
according to SEC Rule 206?
A. To discuss with the company’s management and auditors, all significant issues
e.g. changes in profit trend, company or group structure, subsidiaries and
general organization.
B. To consider and investigate post balance sheet events such as major contracts
and litigations so that the significant ones are properly reflected in the financial
information reported on.
C. To review the offer document to ensure internal consistency of financial
information.
D. To review and report on the effectiveness of the business model of the company.
55.
Which of the following documents is not required for the completion board meeting
when a company is in the process of issuing shares?
A.
Vending agreement.
B.
Copies of prospectus.
C.
Specimen share certificate.
D.
Memorandum and articles of association.
56.
NSE Article 15 states that a dealing member shall at all times maintain a liquidity
margin of:
A. Not less that 10% of shareholders’ fund.
B. Not less than 15 % of shareholders’ fund.
C. Not less than 10% of total capital.
D. Not less than 15% of total capital.
57.
According to NSE Article 102, which of the following is not an acceptable means by
which a customer’s order may be entered?
A. By fax pursuant to the written agreement between the dealing member and the
customer.
B. By telephone (voice or text) in line with the procedure agreed between the
dealing member and the customer.
C. By e-mail.
D. None of the above.
58.
According to NSE Article 2, a dealing member has a responsibility to report any
breach of the Articles by another member. Which of the following is the implication
of failure to report such a breach?
A. The member himself/itself is guilty of a breach of the rules and regulations of the
exchange.
B. The member will be suspended from trading immediately.
C. The member will be liable to pay a fine to be determined by the Council of the
exchange.
D. The member will receive an official warning from the Council of the exchange.
59.
Which of these is not a benefit of the Automated Trading System and CSCS?
A. Increased opportunity for price discovery.
B. Enhanced transparency and efficiency of the market.
C. Increased opportunity for margin trading.
D. Obviated the risks associated with loss of share certificate.
60.
Currently in Nigeria, what is the rate of withholding tax applicable on dividends
received by an investor from ownership of shares in a manufacturing company (not
enjoying pioneer status)?
A. 0%
B. 5%
C. 10%
D. 15%
Total = 60 marks
Question 2 - Ethics and Professional Standards
2(a) Mention four components of CIS code of ethics, as contained in the CIS Code and
Standards.
(2 marks)
2(b) What does market manipulation mean?
(1 mark)
Question 3 – Law Relating to Securities and Investments
3(a) What is a holograph Will?
(1½ marks)
3(b) What is duress in the law of contract?
(1½ marks)
Question 4 – Regulations of Securities and Corporate Finance
4(a) What do you understand by ‘‘investors’ protection fund’’?
(2 marks)
4(b) Who are market makers, and what is their role in the Nigerian capital market?
(2 marks)
Question 5 - Ethics and Professional Standards
Briefly discuss the provisions of CIS Code of Ethics and Standards of Professional
Conduct in respect of the following issues:
5(a) Dealing with unidentified principals.
(3 marks)
5(b) Gaming and betting.
(3 marks)
5(c) Duties to employer.
(4½ marks)
Question 6 - Law Relating to Securities and Investments
6(a) Define contract “uberrimae fidei” and state three examples of such contracts.
(4 marks)
6(b) On 2nd January 2011, John entered into a contract with Udoh for the rent of his
house for a company. The company was incorporated on 15th January, 2011. At the
first general meeting of the company, the shareholders decided that they did not
want the house. Advise the landlord in respect of the principle of law involved and
any remedy which may be available to him.
(5 marks)
Question 7 - Regulations of Securities and Corporate Finance
Outline clearly the steps and procedures involved in processing the certificates of a
deceased person on behalf of the beneficiaries before sales can be effected?
(10½ marks)