Chartered Institute for Securities & Investment (CISI) Qualifications Securities, Asset Classes and Investment Products Syllabus

Securities, Asset Classes and Investment Products syllabus — full chapter and topic list

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

1. 1

   Cash and Money Market Instruments

   3 topics

   • Cash deposits, gilts-edged repos and the money market
   • Treasury bills, certificates of deposit and commercial paper
   • Risks: credit, inflation and interest rate risk on cash
2. 2

   Equities

   4 topics

   • Ordinary and preference shares
     • Shareholder rights and dividends
     • Voting, pre-emption and corporate actions
   • Equity markets and trading
     • London Stock Exchange Main Market and AIM
     • Indices: FTSE 100, FTSE 250 and global benchmarks
   • Depositary receipts (ADRs and GDRs)
   • Corporate actions
     • Rights issues and open offers
     • Bonus/scrip issues and stock splits
     • Takeovers, mergers and the Takeover Code
3. 3

   Bonds and Fixed Income

   4 topics

   • Government bonds (gilts)
     • Conventional and index-linked gilts
     • Gilt issuance via the DMO
   • Corporate bonds
     • Investment grade vs high yield
     • Secured, unsecured and convertible bonds
   • Bond pricing and yields
     • Coupon, clean and dirty price
     • Yield to maturity and running yield
     • Duration and interest rate sensitivity
   • Credit ratings and credit risk
     • Rating agencies and the rating scale
     • Default risk and the yield curve
4. 4

   Derivatives

   4 topics

   • Futures and forwards
     • Contract specification and margining
     • Hedging vs speculation
   • Options
     • Calls, puts, premiums and strike prices
     • Intrinsic and time value
   • Swaps: interest rate and credit default swaps
   • Clearing, central counterparties and EMIR
5. 5

   Collective Investments and Alternatives

   5 topics

   • Open-ended funds
     • OEICs/ICVCs and unit trusts
     • UCITS and the dealing/pricing mechanism
   • Closed-ended funds
     • Investment trusts, gearing and discounts/premiums
   • Exchange-traded funds (ETFs) and tracker funds
   • Alternative investments
     • Hedge funds and private equity
     • Property, commodities and infrastructure
   • Structured products

Securities, Asset Classes and Investment Products flashcards for Chartered Institute for Securities & Investment (CISI) Qualifications

20 of 49 cards from the Securities, Asset Classes and Investment Products deck — real questions with worked answers.

1. What is a cash deposit (money market deposit) and what return does it generate?

   A sum placed with a bank or building society that earns interest. The principal (capital) is repaid in full, and the depositor receives interest as income. Capital value does not fluctuate, so deposits carry no capital (market) risk, only credit, inflation and interest-rate risk.

2. In the money market, what is a 'repo' (sale and repurchase agreement)?

   A short-term secured loan in which one party sells securities (often gilts) to another and agrees to buy them back later at a higher price. The price difference represents the interest (repo rate). The securities act as collateral, making repos a low-risk way to borrow/lend cash.

3. What is a Treasury bill (T-bill) and how does it pay a return?

   A short-term (typically 1, 3 or 6 month) UK government debt instrument issued by the Debt Management Office at a discount to face value and redeemed at par (100). It pays no coupon; the investor's return is the difference between the discounted purchase price and the par value at maturity.

4. What is a certificate of deposit (CD)?

   A negotiable (tradeable) receipt issued by a bank for a time deposit. It states a fixed amount, a maturity date and an interest rate. Unlike an ordinary deposit, a CD can be sold in the secondary market before maturity, giving the holder liquidity.

5. What is commercial paper (CP)?

   Short-term, unsecured promissory notes issued by large, creditworthy companies to fund working capital. Usually issued at a discount, with maturities up to 270 days (often much shorter). Being unsecured, it relies on the issuer's credit standing.

6. Define credit risk as it applies to cash deposits.

   The risk that the deposit-taking institution (bank or building society) fails and is unable to return the depositor's capital or pay interest. In the UK this is mitigated up to a limit by the Financial Services Compensation Scheme (FSCS).

7. Explain inflation risk on cash holdings.

   The risk that the real (purchasing-power) value of cash and its interest is eroded by inflation. If the inflation rate exceeds the interest rate earned, the depositor suffers a negative real return even though the nominal capital is preserved.

8. Explain interest-rate risk on cash deposits.

   The risk that interest rates fall, reducing the income earned on variable-rate deposits, or that money is locked into a fixed rate that becomes uncompetitive if market rates rise. It affects the reinvestment income rather than the capital sum.

9. What rights do ordinary (equity) shareholders typically have?

   Ownership of part of the company, the right to vote at general meetings (usually one vote per share), the right to receive dividends if declared, and a residual claim on assets in a winding-up (after all creditors and preference shareholders are paid).

10. How do preference shares differ from ordinary shares?

    Preference shares pay a fixed dividend, rank ahead of ordinary shares for dividends and on a winding-up, but normally carry no voting rights. They behave more like fixed-income securities and do not usually share in extra profits.

11. What is a cumulative preference share?

    A preference share on which any dividend that is missed (passed) in one year is carried forward and must be paid in full before ordinary shareholders receive any dividend. This accumulation of arrears gives extra protection over non-cumulative preference shares.

12. In a company winding-up, state the order of priority of claims.

    1) Secured and preferential creditors; 2) unsecured creditors (including bondholders); 3) subordinated debt; 4) preference shareholders; 5) ordinary shareholders (the residual claimants). Equity ranks last, reflecting its higher risk.

13. What is the difference between a primary market and a secondary market for equities?

    The primary market is where new shares are issued and capital is raised by the company (e.g. an IPO/flotation). The secondary market is where existing shares are traded between investors; the company receives no new money from these trades.

14. What is the difference between an order-driven and a quote-driven trading system?

    Order-driven: buyers' and sellers' orders are matched automatically on an electronic order book (e.g. LSE SETS), prices set by the orders themselves. Quote-driven: market makers continuously quote firm bid and offer prices at which they will deal, and investors trade against those quotes.

15. What is a depositary receipt and why is it used?

    A negotiable certificate, issued by a depositary bank, representing ownership of a set number of shares in a foreign company held on deposit. It lets investors hold and trade foreign equity in their domestic market/currency, avoiding direct cross-border settlement and custody complications.

16. Distinguish an ADR from a GDR.

    An American Depositary Receipt (ADR) represents foreign shares and trades in the US market, denominated in US dollars. A Global Depositary Receipt (GDR) is marketed in two or more markets outside the issuer's home country (often listed in London or Luxembourg) and is used for broader international placement.

17. What is a bonus (scrip/capitalisation) issue?

    A corporate action in which a company issues additional free shares to existing shareholders in proportion to their holdings, funded by capitalising reserves. The number of shares rises and the price per share falls proportionately, leaving each shareholder's total value and percentage unchanged.

18. What is a rights issue?

    A way of raising new capital by offering existing shareholders the right to buy additional new shares, usually at a discount to the market price, in proportion to their current holding. Shareholders can take up, sell (the nil-paid rights), or let the rights lapse.

19. What is a stock (share) split, and how does it differ from a bonus issue?

    A stock split divides each existing share into a larger number of shares with a lower nominal (par) value, reducing the share price to improve marketability. Unlike a bonus issue, it does not capitalise reserves; it simply subdivides the existing share capital.

20. What is a gilt-edged security (gilt)?

    A bond issued by the UK government (via the Debt Management Office) to borrow money. Conventional gilts pay a fixed coupon (usually semi-annually) and repay the nominal value at maturity. They are regarded as effectively free of credit (default) risk.

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