Chartered Institute for Securities & Investment (CISI) Qualifications Operations, Settlement and Custody Syllabus

Operations, Settlement and Custody syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Operations, Settlement and Custody in Chartered Institute for Securities & Investment (CISI) Qualifications, not a summary of it.

1. 1

   The Trade Lifecycle

   3 topics

   • Order to execution
     • Order types and best execution
     • Pre-trade and post-trade transparency
   • Clearing and settlement
     • T+2 settlement cycle and CREST
     • Central counterparties and netting
   • Failed trades, buy-ins and settlement discipline (CSDR)
2. 2

   Custody and Safe Custody of Assets

   3 topics

   • Role of the custodian and global custody
   • Nominee accounts and beneficial ownership
   • Segregation of client assets under CASS
3. 3

   Corporate Actions and Income Processing

   3 topics

   • Mandatory, voluntary and mandatory-with-options events
   • Dividend and coupon processing
   • Proxy voting and entitlements
4. 4

   Operational Risk and Reconciliation

   3 topics

   • Reconciliation processes and breaks
   • Operational risk identification and controls
   • Business continuity and outsourcing risk

Operations, Settlement and Custody flashcards for Chartered Institute for Securities & Investment (CISI) Qualifications

23 of 50 cards from the Operations, Settlement and Custody deck — real questions with worked answers.

1. What are the three broad phases of the trade lifecycle from instruction to completion?

   Pre-trade/execution (order placement and matching), Clearing (post-trade processing: confirmation, novation, netting, obligation calculation), and Settlement (exchange of cash and securities resulting in change of ownership).

2. Define 'order to execution' in the securities trade lifecycle.

   The front-office process by which a client's order is received, validated, routed to a market or counterparty, and matched/filled to create an executed trade, after which it passes to back-office clearing and settlement.

3. What is the difference between clearing and settlement?

   Clearing is the post-trade process of confirming, matching and calculating the net obligations of each party (often via novation through a CCP). Settlement is the actual final exchange of securities for cash, transferring legal ownership.

4. What does the standard settlement cycle 'T+2' mean?

   Trade date plus two business days: settlement (delivery of securities against payment) occurs two business days after the trade is executed. Many markets (e.g. US, India) have moved to T+1.

5. What is Delivery versus Payment (DvP) and why is it used?

   DvP is a settlement mechanism that links the delivery of securities to the payment of cash so that one occurs if and only if the other occurs. It eliminates principal (Herstatt) risk — the risk of delivering without receiving value.

6. What is the role of a Central Counterparty (CCP) in clearing?

   A CCP interposes itself between buyer and seller via novation, becoming buyer to every seller and seller to every buyer. It guarantees performance, manages counterparty risk through margin and default funds, and enables netting.

7. Define 'novation' in the context of central clearing.

   The legal process by which the original contract between two trading counterparties is replaced by two new contracts, each with the CCP as counterparty, so the CCP assumes the counterparty credit risk.

8. What is the difference between a CCP and a CSD?

   A CCP (Central Counterparty) clears trades by novation and guarantees settlement, managing counterparty risk. A CSD (Central Securities Depository) holds securities in dematerialised/immobilised form and operates the book-entry settlement of those securities.

9. What is netting in the settlement process, and name the two main types?

   Netting offsets multiple obligations to produce a single net amount, reducing settlement volumes and risk. Types: bilateral netting (between two parties) and multilateral netting (across many parties, typically via a CCP).

10. What is a failed trade (settlement fail)?

    A trade that does not settle on its intended settlement date, usually because the seller fails to deliver securities or the buyer fails to deliver cash, leaving the obligation outstanding.

11. What is a buy-in?

    A remedy for a settlement fail where the receiving (buying) party purchases the undelivered securities in the market from a third party and charges the failing seller any cost difference, closing out the failed transaction.

12. What does CSDR stand for and what is its purpose?

    Central Securities Depositories Regulation (EU Regulation 909/2014). It harmonises securities settlement and authorises/supervises CSDs, including a settlement discipline regime to reduce fails (T+2, cash penalties, mandatory buy-in provisions).

13. Under the CSDR Settlement Discipline Regime, what are cash penalties?

    Daily financial penalties charged to the party causing a settlement fail, accruing each business day from intended settlement date until the trade settles. They are calculated on the value of the failing instruction and redistributed to the suffering party.

14. Under CSDR, what is the mandatory buy-in provision (and its status)?

    A provision requiring a buy-in to be initiated after a defined extension period when a trade fails. The mandatory buy-in element has been made voluntary/suspended (subject to review), while cash penalties and reporting remain mandatory.

15. Define the role of a custodian.

    A custodian is a financial institution that safekeeps clients' securities and assets, settles trades, and provides services such as income collection, corporate action processing, tax reclaim, proxy voting and reporting on the client's behalf.

16. What is a global custodian, and how does it differ from a sub-custodian?

    A global custodian provides safekeeping and asset servicing across multiple markets through a single relationship. It appoints local sub-custodians (agent banks) in each market who hold the assets and provide local market access and settlement.

17. List four core services a custodian typically provides beyond safekeeping.

    Trade settlement, income/dividend and coupon collection, corporate action processing, tax reclaim/relief, proxy voting, securities lending administration, cash management and reporting (any four).

18. What is a nominee account?

    An account in which a custodian or broker holds securities in the name of a nominee company on behalf of underlying clients. Legal title is held by the nominee while the client retains beneficial ownership.

19. Distinguish legal ownership from beneficial ownership.

    Legal owner holds title and is the registered holder (e.g. the nominee company); the beneficial owner is entitled to the economic benefits (dividends, capital gains, voting rights) and on whose behalf the legal owner holds the asset.

20. What is the difference between a pooled (omnibus) nominee account and a designated nominee account?

    A pooled/omnibus account holds the assets of many clients together in one account (cheaper, but co-mingled). A designated account is held in the name of, and identifiable to, a single specific client, providing clearer segregation.

21. What does CASS stand for and what does it govern?

    Client Assets Sourcebook — the FCA rulebook governing how firms hold and protect client money and client safe custody assets, ensuring segregation and return to clients if the firm fails.

22. What is the core principle of client asset segregation under CASS?

    Client assets and client money must be kept separate from the firm's own assets, so that on the firm's insolvency client assets are ring-fenced, identifiable and returnable to clients rather than available to the firm's creditors.

23. Under CASS, what is the purpose of the client money internal and external reconciliations?

    To verify that the amount of client money the firm should be holding (its records/resource) matches the amount actually held in client bank accounts (requirement), identifying and correcting any shortfall or excess promptly.

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