CIS SEPTEMBER 2010 Exam Diet
Examination Paper 1.4:
Ethics and Professional Standards
Law relating to Securities and Investments
Regulations of Securities and Corporate Finance
Level 1
1
SECTION A
Ethics and Professional Standards
(Questions 1 to 21)
1.
Is it correct that ethics can be defined as the principles, values and ways of thinking that
guide a person to make a moral choice?
A.
It depends on the industry that the person is employed
B.
It depends on the situation that the person finds himself
C.
This definition is incorrect
D.
This definition is correct
2.
Which of the following is NOT a component of the CIS Code of ethics?
In dealing with clients, prospects, employers, employees, and fellow members, CIS
members shall act with:
A.
Diligence
B.
Competence
C.
Integrity
D.
Humility
3.
Emeka Okoh, a CIS Member, is a securities trader for a small stockbroking firm. Which of
the following are requirements of CIS Code and Standards with respect to maintaining his
competency?
I.
He should take reasonable action to ensure that he has sufficient knowledge of
securities and investment practice
II. He has a responsibility to be competent, conscientious, and effective in his work
III. He should maintain his competency through professional development
IV. He should only undertake work in which he is competent
A.
B.
C.
D.
I and II
II and III
I, II and III
All of the above
4.
What is conflict of interest?
A.
Not to worry about someone else’s interest if it competes with your own
B.
A tension between two employees of the same organization
C.
You have the same obligations and responsibilities as another party
D.
A tension between competing obligations and responsibilities
5.
According to the CIS Code of Ethics and Standards of Conduct, which of the following
statement 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 depends on the circumstance of the case
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6.
If a CIS Member and registered student gains access to material non-public information as
a result of a fiduciary, special or confidential relationship, which of these represents the
appropriate action he should take in line with the Code and Standards?
I.
II.
III.
7.
He should not communicate the information to other parties outside the relationship
He should not take investment action on the basis of such information
He should give a report on such information to his supervisor immediately
A.
I and II
B.
II and III
C.
I and III
D.
All of the above
Which of the following is most likely to conflict with the CIS Code and Standards?
A.
Analyst may change their investment recommendations without obtaining approval
from their supervisors
B.
The confidentiality of personal account transactions by brokers should always be
guaranteed
C.
A portfolio manager should conduct a fact-finding about a new customer before
undertaking investment action on the customer’s behalf
D.
An analyst shall not engage in any transaction with a client when acting as a
principal or agent for an associate without the knowledge and consent of the client
8.
Which of the following statements is least likely to be correct? A CIS Member or registered
student must:
A.
Cooperate to serve the objectives of the Code and Standards
B.
Ensure all information documents reports and returns required by the CIS are
produced accurately, honestly and timely
C.
Comply with the law in the event of conflict between the law and CIS Code and
Standards
D.
Not take adverse action against a person who discloses illegal conduct or a breach of
the code of ethics and Standards
9.
The CIS Code and Standards provides for the confidentiality of information entrusted to
members by a client. Members shall not disclose any information to a third party except
under the following conditions:
10.
I.
II.
III.
Disclosure is required by law
The client or prospective client permits disclosure of the information
The information concerns illegal activities on the part of the client or prospective
client
A.
B.
C.
D.
I only
I and II
II and III
All of the above
A stock broking firm which is a subsidiary of an investment bank whose shares are quoted
on the Nigerian Stock Exchange often receives non-public information considered to be
material and could have considerable value if used in advising the firm’s clients. You have
been asked to choose one of the following as the best options for the firm to conform to
CIS Code and standards?
A.
Ensure appropriate monitoring of the exchange of information between the Bank and
its stock broking subsidiary.
B.
Advise all clients of the firms to sell off their current holdings in the bank.
C.
The firm should never issue a sell or buy recommendation of the stocks of the bank.
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D.
Establish informational barriers within the group to prevent the exchange of such
information (non-public) between the Bank and its subsidiary stockbroking firm.
11.
Based on the CIS Code and Standards, a 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 their employers interest above clients’ interest
D.
None of the above
12.
According to the Standards of Professional Conduct, which of the following is a breach of
duty to a client?
A.
Having a reasonable basis for investment research and recommendation
B.
Exercising diligence and thoroughness in investment analysis
C.
Making reasonable effort to avoid material misrepresentation.
D.
Non-disclosure of basic principles and methods used for valuation of securities
13.
Julius is a portfolio manager. One of his firm’s clients has told Julius that he will
compensate him beyond that provided by his firm on the basis of the capital appreciation
of his portfolio each year. Julius should:
A.
Turn down the additional compensation because it will result in conflict of interest
with other clients accounts
B.
Receive permission from CIS to accept the compensation arrangement
C.
Obtain permission from his employer and clients prior to accepting the compensation
arrangement
D.
Turn down the additional compensation because it will create undue pressure on him
to achieve strong short-term performance
14.
The
A.
B.
C.
D.
15.
Which of the following is not applicable when Members and Registered Students are in an
advisory relationship with a client? They should:
A.
Take action on the appropriateness and suitability of an investment course of action
based purely on client’s instruction.
B.
Make a reasonable inquiry into a client’s investment experience, risk and return
objectives and financial constraints prior to making any investment recommendation.
C.
Determine that the recommendation or action is suitable to the client’s financial
situation, investment experience, risk and objectives.
D.
Assess the appropriateness and suitability of an investment in the context of the
client’s total portfolio.
16.
Mohammed is the Chief Executive of a large stock broking firm. He supervises many
brokers and analysts, some of whom are subject to the CIS Codes and Standards. He
frequently delegates some of his supervisory duties. Which statement best describes his
responsibility under the Code and Standards?
A.
CIS standards discourages delegation of supervisory responsibilities by Mohammed
B.
Mohammed’s supervisory responsibilities do not apply to those subordinates who are
not subject to the Codes and Standards
C.
Mohammed no longer has supervisory responsibilities for those duties delegated to
her subordinates
CIS Code of Ethics includes all of the following except:
Members and Registered Students shall act with integrity, competence, and dignity
Members and Registered Students shall practice their profession in an ethical manner
Members and Registered Students shall exercise independent judgment
Members and registered students shall not knowingly violate the securities acts and
laws.
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D.
Mohammed retains supervisory responsibility for all subordinates despite his
delegation of some duties
17.
Fatimah, a CIS Member had copied and used in substantially the same form as the
original, material that had been prepared by another person. Which of the following is
correct?
A.
Fatimah has violated the CIS Code and Standards for copying and using another
person’s material
B.
Fatimah would have violated the CIS Code and Standards if she did not acknowledge
and identify the name of the author, publisher or source of the material
C.
Fatimah had done nothing wrong as long as she did not make any commercial gain
from the material
D.
None of the above
18. Which of the following actions is not likely to affect the independence and objectivity of
Members and Registered Students in the performance of their duties?
A.
Offering, soliciting or accepting gifts
B.
Beneficial ownership of securities on which they make recommendations and take
investment actions
C.
Their relationship with issuers of securities and other interested parties
D.
Disclosure of basic principles and methods of valuation of securities.
19.
Which of these actions is inconsistent with the provisions of CIS Code and Standards with
respect to fiduciary duties of Members and Registered Students?
A.
Discharging their duties in the best interest of their clients
B.
Performing their professional duties with care, skill, prudence and diligence
C.
Seeking to maximize the gains of their employers at all times
D.
Not giving priority to their own interests over those of any third party
20.
Which of the following is critical to maintaining the public trust in financial markets and in
the investments profession?
A.
High ethical standards and professional conduct
B.
Effective regulatory monitoring and compliance
C.
Transparency and accountability
D.
All of the above
21.
Dammy, a CIS member took a bet with his colleague about the future direction of the
stock market in the foreseeable future. According to the CIS Code and Standards,
Dammy:
A. Had violated the Code and Standards by taking a bet on the market
B. Had done nothing wrong since he took a bet with a professional colleague
C. Had not violated the code because there was no monetary reward associated with the
bet
D. Had violated the code because his supervisor was not aware of the bet
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Law Relating to Securities and Investments (Questions 22 to 39)
22.
Which of the following are sources of Nigerian law?
I.
II.
III.
IV.
Received English law
Nigerian Statutes
Customary law
Nigerian Case laws
A.
B.
C.
D.
I and IV only
I, II and III only
I, II and IV only
All of the above
23.
An agency agreement may NOT be created by:
A.
Duress
B.
Statute
C.
Necessity
D.
Cohabitation
24.
To whom may an offer be made?
A.
Only a specified individual
B.
Only a single group of people specifically identified in the offer
C.
The entire world
D.
Only to persons over the age of 21
25.
A display in a shop window will generally be held to constitute:
A.
An offer
B.
It depends upon the perceived intention of the seller
C.
An invitation to treat
D.
It has no legal significance
26.
Mayowa contacts Yaro and asks him if he would be interested in purchasing his car for
N200,000. Yaro immediately takes N200,000 to Mayowa and says he wants to buy the
car. Mayowa subsequently does not wish to proceed. What is the consequence of the
above scenario?
A.
A contract was made when Yaro accepted Mayowa’s offer.
B.
Mayowa has the right to refuse before he takes possession of the cash.
C.
As the value of the car is only N200,000 the courts will not hear the case and no
enforcement can be ordered.
D.
There is no contract as Mayowa only requested information and did not make an
offer to sell.
27.
A vested legacy is a legacy:
A.
Which passes to the beneficiary immediately the testator dies
B.
Which will pass to the beneficiary when a future occurrence is satisfied
C.
Which will pass to another beneficiary if the original beneficiary dies
D.
Where the interest to be enjoyed by the beneficiary is limited
28.
Where the testator did not know or approve the content of a Will, even when the Will was
properly executed, we refer to the Will as:
A.
Voidable
B.
Void
C.
Fraudulent
D.
Codicil
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29.
According to the Trustees Investment Act (2004), a Trustee is permitted to invest only in
a company that has nominal value of its paid up share:
A.
Not less than N1 million
B.
Not less than N5 million
C.
Not less than N10 million
D.
Not less than N20 million
30.
A bill of exchange which on the face of it is drawn and payable within Nigeria or drawn
within Nigeria upon someone resident therein is called:
A.
B.
C.
D.
31.
In a contract of guarantee the primary liability rests upon the:
A.
B.
C.
D.
32.
A.
B.
C.
D.
Miscellaneous offences Act
Banks and Other Financial Institutions Act, 1991
Failed Banks (Recovery of Debt and Financial Malpractices in Banks) Act
The Advance Fee Fraud and Other Related Offences Act
I and II
II and III
II, III and IV
All of the above
Which of the following statements are correct as regards provisions of the Pension
Reforms Act (2004)?
I.
II.
III.
IV.
A.
B.
C.
D.
34.
Guarantor
Surety
Creditor
Debtor
The EFCC Act (2004) empowers the Commission to enforce any offence committed or
proceedings instituted under the provisions of:
I.
II.
III.
IV.
33.
Local Bill
Foreign Bill
Accommodation Bill
Inland Bill
The pension scheme in Nigeria is a contributory scheme
A holder of retirement savings account can utilize the balance in his account upon
attaining the age of 5o years or upon retirement
Only programmed monthly or quarterly withdrawals are allowed when the account
holder qualifies to withdraw
Any amount payable as a retirement benefit under the Act shall not be taxable
I, II and III
I, II and IV
II, III and IV
All of the above
A Manager’s cheque is a cheque:
A.
B.
C.
drawn against the bank cashier
drawn by a bank against that same bank
that requires, as a condition to payment, a countersignature by a person whose
specimen signature appears on the instrument
D. drawn by a bank on another bank
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35)
The investments and Securities Tribunal is empowered under ISA 2007 to adjudicate in
disputes:
A. between capital market operators
B. between capital market operators and their clients
C. between an investor and a securities exchange or capital trade point or clearing and
settlement agency
D. All of the above
36.
Which of the following is not a function if the Nigerian Investment Promotion Commission
as stipulate by the NIPC (Act 2004)?
A.
Initiate and support measures which shall enhance the investment climate in Nigeria
for both Nigerian and non-Nigerian investors
B. Promote investments in and outside Nigeria through effective promotional means
C. Provide long-term funds for viable enterprises to encourage entrepreneurial activities
D. Identify specific projects and invite interested investors for participation in those
projects
37) Nigerian Investment Promotion Commission Act 1995 provides that both foreign and
Nigerian Investors are prohibited from which of the following sectors?
I.
II.
III.
A.
B.
C.
D.
Production of arms and ammunition
Production and mining of rare metals
Production of military and para-military wears and accoutrement
I and II
I and III
II and III
All of the above
38) According to the Pension Reforms Act 2004, the following guidelines are applicable in
respect of investment of pension funds:
I.
II.
III.
A.
B.
C.
D.
All contributions shall be invested by the PFA with the objective of safety and
maintenance of fair returns on amount invested
Pension fund assets can be invested in Real Estate Investment
Pension fund assets can be invested in the ordinary shares of public limited
companies listed on the Stock Exchange, with good track record having declared and
paid dividend in the preceding two years.
I and II
I and III
II and III
All of the above
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39) The Investment and Securities Act 2007, empowers the Securities and Investment
Commission to:
I.
II.
III.
IV.
A.
B.
C.
D.
regulate investments and securities business in Nigeria
regulate all offers of securities by public companies and entities
register securities of both public and private companies
register and regulate corporate and individual capital market operators
I and II
I, II and III
I, II and IV
All of the above
Regulations of Securities and Corporate Finance (Questions 40 to 60)
40.
What is the settlement period for equities traded on the Nigerian Stock Exchange?
A. T + 3
B. T = 1
C. T + 5
D. T + 2
41.
A form of underwriting in which the underwriter keeps whatever shares remain unsold is
called:
A.
Best efforts
B.
All or none
C.
Mini-max
D.
Firm commitment
42.
Who attends the completion board meeting?
I.
II.
III.
IV.
Underwriter
Issuer
Issuing House
Stockbroker to the issue
A.
B.
C.
D.
I , II and III
I, II and IV
II, III and IV
All of the above
43.
When acting as an agent, what does the broker-dealer charge customers for executing
orders?
A.
Commission
B.
Mark-up and mark-downs
C.
Spread
D.
Underwriting fees
44.
Debt
A.
B.
C.
D.
securities offer all the following benefits except:
The issuer can deduct the interest payment thereby reducing its tax
The issuer raises money without relinquishing any ownership
The company can establish or enhance its credit history
The issuer’s equity stock increases in value
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45)
Where there is a firm underwriting of the whole issue in a public offer, and full payment
has been made and received by the lssuer, the underwritten securities shall be sold within
____________ from the date of allotment to the underwriter
A.
B.
C.
D.
Six months
Nine months
Twelve months
Eighteen months
46.
Which of the following is involved in dispute resolution in the Nigerian capital market?
A.
Investment and Securities Tribunal
B.
Administrative proceedings Committee
C.
Investigating and Disciplinary Tribunal of CIS
D.
All of the above
47.
A person shall not be an authorized clerk of the Stock exchange unless he:
I.
II.
III.
IV.
A.
B.
C.
D.
He has passed an appropriate professional examination as prescribed by law
He has qualifications and has undergone training recognized and prescribed by The
Exchange
He is registered with The Nigerian Stock Exchange.
He is not less than 21 years old and of good character and integrity
I, II, III
I, II, IV
I, III , IV
All of the above
48.
Which of the following is not required as part of the ‘Know Your Customer’ requirements
as stipulated in NSE article 102?
A.
The customer should provide his full address, occupation, date of birth, mother’s
maiden name, means of ID-driver’s licence, international passport etc
B.
For a corporate body, Certificate of Incorporation, Board Resolution, Particulars of
Directors, and Particulars of Shareholding should be provided
C.
A sworn affidavit that all the documents submitted are authentic
D.
All KYC requirements on money laundering should be observed
49.
When there is a minus (-) sign in front of a stock in the NSE Daily Official listing, what
does it mean?
A.
The stock is on bid
B.
The stock is on offer
C.
The stock is on technical suspension
D.
The stock is not available for sale
50.
What is an exemption certificate?
A.
A certificate issued by the Stock Exchange authorising the issuance of an abridged
prospectus
B.
A certificate issued by SEC that giving certain waivers to selected companies wishing
to raise funds in the market
C.
A certificate issued by NSE confirming that a company has satisfied all requirements
to get listed on the exchange
D.
None of the above
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51.
According to SEC rule 99, payment for the sale or purchase of shares should be:
I.
II.
III.
IV.
A.
B.
C.
D.
in cheque or bank draft
in cash, but not exceeding N50,000
in cash, but not exceeding N1 million
credited to the account of a third party only when duly authorised by the account
holder
I and II
I and III
I and IV
I, III and IV
52.
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 to exploit arbitrage opportunities
D.
Obviated the risks associated with loss of share certificate
53.
The NSE is gradually moving to a regime whereby share certificates will no longer be
issued to shareholders by companies. This is called:
A.
Demobilization
B.
Immobilization
C.
Dematerialization
D.
None of the above
54.
In line with relevant SEC rules, which of the following statements are correct with respect
to registered sub-brokers?
I.
II.
III.
A.
B.
C.
D.
55.
Public issue
Rights issue
Capitalization issue
None of the above
Which of this is not one of the stages of public offering?
A.
B.
C.
D.
57.
I and II
I and III
II and III
All of the above
Which of the following type of issue does not result in an increased cash flow to the
company?
A.
B.
C.
D.
56.
They cannot deal on their own on the floors of the exchange, but through affiliation
to a substantive broker/dealer
They are required to have minimum capital of N200 million
They are authorized to purchase and sell securities for themselves and on behalf of
clients
Discussion stage
Completion board meeting
Listing / quotation stage
CSCS approval stage
A sold contact note will not contain one of the following?
A.
B.
C.
D.
Brokers commission
NSE fees
CSCS fees
None of the above
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58.
NSE Article 68 stipulates that a dealing member shall remit the total transaction fee due
to the exchange within _____________from the beginning of the month.
A.
B.
C.
D.
59.
10
15
20
30
days
days
days
days
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
exchange
B. The member
C. The member
exchange
D. The member
60.
himself/itself is guilty of a breach of the rules and regulations of the
will be suspended from trading immediately
will be liable to pay a fine to be determined by the Council of the
will receive an official warning from the Council of the exchange
SEC rule 50 provides that the registration statement for the offer of securities shall be
filed by which of these parties?
A.
B.
C.
D.
The issuer
The issuing House
Stock broker to the Issue
NSE on behalf of the issuer
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SECTION B
Question 2 - Ethics and Professional Standards
2(a) Mention two duties of CIS Members and Registered Students to their employers.
(1 marks)
2(b) List 4 unethical practices in the Nigerian capital market.
(2 marks)
Question 3 – Law Relating to Securities and Investments
3(a) Explain the doctrine of privity of contract.
(1½ marks)
3(b) What is the law of torts?
(1½ marks)
Question 4 – Regulations of Securities and Corporate Finance
4(a) List 4 roles of SEC in the Nigerian capital market.
4(b) The Nigerian Stock Exchange is an SRO. What is the implication of this?
(2 marks)
(1mark)
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SECTION C
Question 5 - Ethics and Professional Standards
5(a) Outline briefly the importance of ethical practices in the investment profession. In
particular discuss the benefits to market participants and other stakeholders.
(4 marks)
5(b) Members and Registered Students of the Institute have responsibilities to the Institute
and the investment profession as a whole. Briefly discuss three of these responsibilities
specifically mentioned in the CIS Code and Standards.
(6½ marks)
Question 6 - Law Relating to Securities and Investments
6(a) Discuss four ways by which a contract could be discharged
(4 marks)
6(b) ‘‘The very important roles that the directors of a company play in a company’s success or
failure, are often not seriously appreciated, or understood by both the directors
themselves and or by the other parties related to a company.’’
Discuss the duties of a company director.
(5 marks)
Question 7 - Regulations of Securities and Corporate Finance
Explain the procedures and documentations a new client would require to undergo, to be able to
invest in the secondary market for the first time. In your discussion, mention the involvement of
the following parties in this process:
i. Stockbroker
ii. Registrar
iii. CSCS
(10½ marks)
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