CHARTERED INSTITUTE OF
STOCKBROKERS
ANSWERS
Examination Paper 1.4
Ethics and Professional Standards
Law relating to Securities and Investments
Regulations of Securities and Corporate Finance
Professional Examination
March 2011
Level 1
1
SECTION A: MULTI CHOICE QUESTIONS
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
D
D
D
D
D
A
C
D
B
D
D
A
D
D
D
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
B
A
D
D
D
C
D
D
C
B
C
D
C
D
C
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
B
B
C
D
C
D
A
B
C
D
A
D
A
C
A
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
B
A
C
A
B
A
B
C
D
D
A
D
A
C
C
(60 marks)
SECTION B: SHORT ANSWER QUESTIONS
Question 2 - Ethics and Professional Standards
2(a)
i.
Observance of high standards of honesty, integrity and fairness in dealing with
clients, employees, employers e.t.c.
ii.
Performance of professional activities with due and reasonable care, prudence
and diligence.
iii.
Acting in the best interest of the securities and investment profession, their
clients and prospective clients.
iv.
Maintenance of professional independence and objectivity.
v.
Practice and encouraging others to practice in a professional and ethical manner.
vi.
Continuously strive to maintain and improve their professional competence.
vii.
Promote the integrity of and uphold the rules governing the securities and
investment industry.
(½ mark for any four points)
= 2 marks
2(b)
Market manipulation refers to practices that distort prices or artificially inflate trading
volume with the intent to mislead market participants.
For example, a high net worth investor with more than one account trades large volumes of stocks
between two accounts with the sole intention of creating artificial volume and drawing attention to
the stock.
(1 mark)
Total = 3 marks
2
Question 3 – Law Relating to Securities and Investments
3(a) Holograph Will
A holograph Will is a Will written in the handwriting of the testator.
(1½ marks)
3(b) Duress in the law of contract
Physical or threat of physical harm to another person to force him to enter into a
contract.
(1½ marks)
Total = 3 marks
Question 4 – Regulations of Securities and Corporate Finance
4(a) Investors’ protection fund
This is a special fund established by the Nigerian Stock Exchange in line with the
provisions of section 197 Investment and Securities Act (2007) to compensate investors
who suffer pecuniary loss arising from the insolvency, bankruptcy or negligence of a
dealing member firm of a securities exchange, and defalcation committed by a dealing
member firm or any of its directors, officers or employees.
(2 marks)
4(b) Market makers
A market maker is a company registered as such by SEC which, with respect to a
security, holds itself out as being ready to buy and sell such security for its own account
on a regular and continuous basis.
Market makers are wholesale operators who stabilize the market by helping to create
liquidity through either buying shares when there is a glut or selling shares when there is
scarcity.
(2 marks)
Total = 4 marks
3
SECTION C: COMPLUSORY QUESTIONS
Question 5 - Ethics and Professional Standards
5(a)
Dealing with unidentified principals
CIS Code and Standards (section 15.1) provides that members and registered students
should not trade unless the identity of the client is known and disclosed to the
operations, credit and legal/compliance areas of the member firm.
(3 marks)
5(b) Gambling and betting
Members and registered students are prohibited from making personal bets on matters
occurring in the market (section 13.1).
(3 marks)
5(c) Duties to employer
CIS Code and Standards (section 5.2) gives the following guidelines:
• Members and registered students must comply with lawful directions, policies and
procedures of their employers.
• In addition, they must act for the benefit of their employers and not deprive them of
the advantage of their skills and abilities.
• They must also not divulge confidential information, or otherwise cause harm to their
employer.
(4½ marks)
Total = 10 ½ marks
Question 6 - Law Relating to Securities and Investments
6(a)
Contract “uberrimae fidei” simply means a contract of utmost good faith. Such contracts
require that all parties must deal in good faith, making a full declaration of all material
facts in the agreement.
(1 mark)
i. Contracts of insurance.
ii. Contracts to take shares in a company.
iii. Family arrangements.
iv. Contracts for sale of land.
v. Partnership and suretyship contracts.
(1 mark for each example = 3 marks)
= 4 marks
6(b)
This is a pre-incorporation contract. Under the Common Law, the contract is not binding
on the company after incorporation and cannot be ratified. However, under S.72 of the
CAMA it may be ratified. If the contract is not ratified by the company, it is binding on
only the person who entered into it. The Landlord therefore has a remedy for breach of
contract against John for damages.
(5 marks)
Total = 9 marks
4
Question 7 - Regulations of Securities and Corporate Finance
i.
If a Will was prepared by the deceased before his death, an executor would have
been appointed to administer the assets.
ii.
In case the deceased left no valid Will the children or family members would have
need to go to court and obtain a letter of administration.
iii.
The following documents are required for the transmission process:
• Death certificate of the deceased.
• Letter of administration or Will.
• The administrators’ bankers confirmation.
iv.
These would be presented to the registrar for necessary changes in the register of
shareholders.
v.
An account would be opened in the name of the administrators with any bank of
their choice to enable them pay in dividends.
vi.
After these procedures, the administrator can now approach any stock broking
firm for the verification of shares certificates or outright sales if in the CSCS
system.
vii.
Payment must be made into the account newly opened in the name of the
administrator(s).
Total = 10 ½ marks
5