SAMPLE PAPER

LEVEL 3 CERTIFICATE IN INVESTMENT OPERATIONS

TIME ALLOWED: 1 HOUR

No copying of any part of this paper is permitted without the prior written authority of the Chartered Institute for Securities & Investment

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Chartered Institute for Securities & Investment

GLOBAL SECURITIES OPERATIONS

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How to use this sample paper These 50 questions should be answered in an hour in the real exam, so make sure you time yourself accurately. Record your answer for each question by circling your selected answer. When you have finished the test, you may check your answers against the Answer Sheet at the back of this paper. The exam is scored as follows: 46-50 35-45 30-34 0-29 Pass with Merit Pass Marginal Fail Fail

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For those questions you answered incorrectly, the answer sheet will show you the corresponding syllabus element, sub element and learning objective against which the questions were written, so you can identify any syllabus areas where you may need to revise further.

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Global Securities Operations 1 Some financial services participants conduct their trade reporting by telephone and fax. This requires them to re-key information, which leads to errors, reporting and confirmation delays and increased potential for settlement failure. Which of the following would be the BEST course of action for these firms to mitigate these risks? A B C D Implement straight-through processing systems Set up service level agreements between departments Invoke an internal audit of processes Employ more senior staff to supervise vital processes

A B C D

dematerialised bearer immobilised

in Global Note form

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In the US, shares held within the DTC system can be transferred by book entry. The securities are:

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Global Securities Operations 3 Which of the following is a feature of designated nominee accounts? A B All holdings are in the names of underlying clients All holdings are in the name of the nominee company with an additional identification marker The broker maintains one registration for each company The nominee company is the beneficial owner of all underlying securities

C D

A B C D

the election of new Board Directors the proposed payment of a dividend

the issuance of equity capital for cash other than to existing equity shareholders

What is a common method used by some large institutional investors to help choose and appoint a stock borrowing and lending intermediary (SBLI) to manage their lending activity alongside the normal custodian services? A B C D Self certification Tender SBLI auction Disintermediation

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the proposed opening of an overseas office

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Proxy voting enables an investor to vote, via a third party, at a meeting of a company`s shareholders on ALL of the following EXCEPT:

Global Securities Operations 6 Which of the following is principally designed to protect the holder against a fall in the market? A B C D A hedge fund A unit trust An ISA An index tracker fund

A B C D

4,932 1,250 3,699 3,750

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A payment of $10,000,000 is due from Bank X to Bank Y. The payment arrives at Bank Y 3 days late due to an error at Bank X. Bank Y therefore is overdrawn by $10,000,000 in its USD account and incurs overdraft costs at 6%. Bank X manages to obtain `use of funds` of 1.5% from its USD correspondent on the $10,000,000 which had remained in its USD account for the 3 days. What is the loss incurred by Bank X (to the nearest $)?

Global Securities Operations 8 Which of the following is one of the three main risk areas that are addressed in the International Securities Services Association report? A B C D Communication risk Broker risk Cash risk Processing risk

A B C D

Clearstream Euroclear Xetra CASCADE

10 Which of the following is the MOST likely reason for on-loan securities to be recalled? A B C D The borrower has been short selling the securities The lender wants to exercise voting rights The securities have become illiquid in the market The margin revaluation has peaked for the lender

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Settlement of transactions through the Deutsche Brse takes place through which of the following entities?

Global Securities Operations 11 Which of the following is NOT a client category under MiFID? A B C D Retail Individual Professional Eligible counterparty

A B C D

Delayed settlement Payment of any additional costs Breach of LSE rules Receipt of unwanted securities

A B C D

a marking name

the buyer`s name

the depositary`s name the broker`s nominee name

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13 When an American Depositary Receipt is created, the underlying stock is registered in:

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12 What risk does the original purchaser bear when `selling out` occurs as a result of a failed settlement?

Global Securities Operations 14 An investor was required to provide tax registration and investment licence details in order to complete the purchase of shares in Company X. This is likely to be because: A B C D the investor is a discharged bankrupt the company operates under a charitable status the investor is resident in another country the company is in receivership

A B C D

Stock lending is not available

Settlement does not take place on a delivery versus payment basis Trade confirmations may take longer than for individual trades Problems with dealing in different time zones

A B C D

30p 42p 75p

262.5p

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16 ABC plc makes a 2 for 5 scrip issue. The cum price of ABC`s shares is 105p. The theoretical ex price is:

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15 Which of the following is a disadvantage in the settlement of programme trades?

Global Securities Operations 17 Which of the following would NOT normally be a topic of interest in a request for proposal for a custody provider? A B C D Cash management Client reporting Economic research Pricing structure

A B C D

None 25% 50% 100%

19 Which of the following benefits does contractual settlement date accounting normally give to an investor? A B C Cash proceeds from a sale will be credited on the expected settlement date Securities sold will be debited on the expected settlement date Cash proceeds from a sale will be credited even if the seller is unable to deliver securities Securities purchased will be credited on the expected settlement date

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18 Where securities lending is involved, what proportion of a dividend does the issuing company or its agent/registrar pay to the borrower?

Global Securities Operations 20 The use of Actual Settlement Date Accounting is an advantage to which of the following? A B C D A purchaser who has use of fail float An investor who can anticipate assured cash flows A seller who has use of fail float An investor who can be certain of the settlement date

A B

It is generally cheaper than borrowing on an unsecured basis

C D

The lender always achieves a better return on their cash

22 A capitalisation issue is usually referred to as : A B C D a rights issue a redemption a merger a bonus issue

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The borrower does not have the obligation to buy back the lent stock

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It can reduce the value volatility of the borrower`s portfolio over the agreement term

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21 Which of the following is a key feature of a repo transaction for the cash borrower?

Global Securities Operations 23 Which of the following is a risk management best practice recommendation for an agent bank? A B C D Solid infrastructure with a minimum credit rating of `A` All securities trades to settle by T + 5 Agent must provide a security lending service Agent bank to operate in same time zone as global clients

A B C D

The Debt Management Office The Bank of England The Treasury

25 Which of the following would NOT be part of a service level agreement between a client and global custodian? A B C D Trade processing deadlines Reporting availability Overnight sweeping of cash balances Fees charged by a sub-custodian

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The gilt-edged market makers who placed bids

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24 In the event of an issue of gilts by auction not being fully taken up, who has responsibility for taking the remaining stock?

Global Securities Operations 26 Which of the following is commonly used to avoid the risk that a firm may borrow securities to meet shortfalls that do not actually exist? A B C D Stock reconciliation Internal audit Regular review of counterparty risk Open trade reconciliations

A B C D

A US issuer issuing a dollar bond in Europe

A non-US issuer issuing a dollar bond in Europe A US issuer issuing a dollar bond in the US

A non-US issuer issuing a dollar bond in the US

A B C D

$152.28

$1,522.83 $15,228.25 $152,282.50

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28 An investment manager has Canadian assets worth $600,000 and Brazilian assets worth $2,250,500 in his portfolio. His custodian charges 10 basis points for Canadian assets and 65 basis points for Brazilian. What is the annual custody fee?

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27 Which of the following best describes a yankee bond?

Global Securities Operations 29 Which of the following statements about warrants is FALSE? A B C D They carry an intrinsic value which varies with the value of the underlying security They may be issued independently or in conjunction with a loan They constitute part of the company`s ordinary share capital They have a time value which falls as the maturity date approaches

30 Communications with Clearstream can be made via all of the following EXCEPT: A B C D EUCLID CreationConnect SWIFT Tested telex

A B C D

The company will not pay a dividend to the buyer or the seller The company will automatically reinvest the dividend The investor is not entitled to the current dividend payment The company will delay the payment until the investor is recorded

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31 An investor purchases a security after the ex-dividend and record dates. How does this affect the investor on the payment date?

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Global Securities Operations 32 Two trading partners have agreed to offset their positions through the process of netting. Which particular risk are they seeking to minimise? A B C D Market Legal Settlement Operational

A B C D

gross coupon size country of origin term of the bond

coupon payment frequency

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33 Two bonds are held and the coupon under one is paid as a gross payment whereas the coupon under the other is paid as a net payment. The approach differs between the two bonds because of the different:

Global Securities Operations 34 Where is information recorded that is obtained under the Companies Act 2006 regarding a person`s interest in a public company`s shares? A B C D Company register Financial Conduct Authority London Stock Exchange Takeover Panel

A B C D

The lender The borrower Neither party Both parties

A B C D

Long

Medium Short Repo

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36 Which of the following is a bond with five years until redemption?

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35 Who has legal ownership of a security following the settlement of a stock loan?

Global Securities Operations 37 What settlement basis is used for fixed income in the Brazilian market? A B C D Either T + 0 or T + 1 Either T + 1 or T + 2 T + 2 in all cases T + 3 in all cases

A B C D

A cut-off date Transmission request details Service level agreement Transmittal notice

39 Which of the following is TRUE of Fedwire? A B C D Fedwire was established in 1970 by the New York Clearing House Fedwire transfers are completed on the day initiated Payment is revocable Fedwire offers netted, real time payment

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38 What do custodians typically specify when asking their clients for corporate actions instructions, in order to allow them time to process any request prior to the event deadline?

Global Securities Operations 40 A bearer bond retained in safekeeping is in which of the following forms? A B C D Dematerialised Physical Registered Book entry

A B C D

The right to any dividends The right to vote

The right to apply for any rights issues on the stock The right of daily revaluations on the loaned stock

A B C D

Cash Memorandum Account Cash Member Account Client Money Account Member Cash Account

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42 What is the name given to the cash account held within CREST for members?

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41 When lending stock on a securities lending transaction, which of the following is lost by the lender?

Global Securities Operations 43 What is the name given to an income payment paid from the borrower to the lender in a securities lending transaction? A B C D Payment protection Income in principal Manufactured dividend Benefit retention

It enables the global custodian to demonstrate to overseas authorities that it is not behaving in an anti-competitive manner in the local market It achieves the most efficient use of regulatory capital and minimises reporting requirements under the `Consolidated Supervision` rules It allows the global custodian to choose the best available domestic expertise in each location by using the threat of change to achieve the best combination of service levels and cost It is favoured by the Securities and Exchange Commission and substantially reduces the internal auditing and reporting required to ensure that the needs of customers are put before the needs of the global custodian

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44 Why would a global custodian set up a network of sub-custodian banks outside its main domestic market rather than use its established branches in these jurisdictions?

Global Securities Operations 45 Which of the following effects will a capitalisation issue have on an investor`s shareholding? A B C D The company`s name will change The share price will change There will be a partial repayment of capital The investor will be able to apply for new additional shares

Trade date 7 November Settlement date 10 November

The trade failed owing to incorrect settlement details from the counterparty. If it was finally settled on the 17 November, on what value date would funds have been paid to the client`s cash account?

B C D

10 November 16 November 17 November

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7 November

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46 A global custodian offered the service of contractual settlement date accounting, received a trade as follows:

Global Securities Operations 47 How can a global custodian benefit clients by engaging in money market activity? A B C D Obtaining better rates for FX transactions Obtaining higher interest rates for cash deposits Ensuring that adequate liquidity levels are maintained Preventing failed trades in the underlying securities

A need to conduct a post-transaction risk reassessment will be triggered in both cases A custodian requirement will be triggered in both cases Both will suffer transaction-based taxes

B C D

49 The NSC electronic trading system is used on which of the following stock exchanges? A B C D Deutsche Brse Euronext Paris Tokyo Stock Exchange New York Stock Exchange

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Both will need to be registered with a regulated exchange

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48 Angus bought a block of UK shares and purchased a UK property. What factor have these two actions in common?

Global Securities Operations 50 Which of the following is the highest percentage an overseas investor can hold of the issued share capital of a company in Australia? A B C D 5% 15% 40% 50%

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ANSWER SHEET Global Securities Operations

Question 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39

Key A C B D B A D A A B B B C C C C C D A A A D A A D D D C C A C C B A B C A A B

Syllabus/Unit Element 2 2 4 4 4 1 3 6 2 4 2 3 1 6 1 4 2 4 3 3 4 4 6 1 2 6 1 4 1 2 4 6 5 4 4 1 1 4 3 3 2 1 2 4 1 3 1 2 4 1 3 1 1 2 2 1 4 2 2 4 2 1 1 1 2 1 1 1 3 2 1 1 1 4 1 2 2 2 1 2 3 2 8 6 4 3 5 9 1 2 3 6 5 5 4 6 5 5 5 1 2 8 5 1 5 5 4 4 4 1 2 2 2 5 7 3 2

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ANSWER SHEET Global Securities Operations

40 41 42 43 44 45 46 47 48 49 50

B B A C C B B B C B B

1 4 2 4 2 4 3 4 5 1 6

1 4 2 4 1 2 2 3 1 2 1

1 6 4 6 2 1 5 1 6 1 6

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