CHARTERED INSTITUTE FOR

SECURITIES & INVESTMENT

(Formerly Securities & Investment Institute)

LEVEL 3
CERTIFICATE IN INVESTMENT ADMINISTRATION

UNIT 1
INTRODUCTION TO SECURITIES AND INVESTMENT

EFFECTIVE FROM 1 JULY 2009

© CHARTERED INSTITUTE FOR SECURITIES & INVESTMENT

 Unit 1 – Introduction to Securities and Investment

OBJECTIVE OF THE EXAMINATION

The objective of the examination is to provide candidates with a basic introduction to the financial services
industry with a focus on investments.

The examination will test candidates’ knowledge and understanding of the following elements:

• Introduction
• Economic Environment
• Financial Assets and Markets
• Equities
• Bonds
• Derivatives
• Investment Funds
• Financial Services Regulation
• Taxation, Investment Wrappers and Trusts
• Other Retail Financial Products

SYLLABUS STRUCTURE

The unit is divided into elements. These are broken down into a series of learning objectives.

Each learning objective begins with one of the following prefixes: know, understand, be able to
calculate or be able to apply. These words indicate the different levels of skill to be tested. Learning
objectives prefixed:

• know require the candidate to recall information such as facts, rules and principles

• understand require the candidate to demonstrate comprehension of an issue, fact, rule or

principle

• be able to calculate require the candidate to be able to use formulae to perform calculations

• be able to apply require the candidate to be able to apply their knowledge to a given set of
circumstances in order to present a clear and detailed explanation of a situation, rule or principle

CANDIDATE UPDATE

Candidates are reminded to check the ‘Candidate Update’ area of the Institute’s website (www.cisi.org)
on a regular basis for updates that could affect their examination as a result of industry change.

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EXAMINATION SPECIFICATION

Each examination paper is constructed from a specification that determines the weightings that will be
given to each element. The specification is given below.

It is important to note that the numbers quoted may vary slightly from examination to examination as there
is some flexibility to ensure that each examination has a consistent level of difficulty. However, the
number of questions tested in each element should not change by more than plus or minus 2.

Examination specification
50 multiple choice questions

Element number Element Questions

1 Introduction 2
2 Economic Environment 3
3 Financial Assets and Markets 7
4 Equities 6
5 Bonds 4
6 Derivatives 3
7 Investment Funds 8
8 Financial Services Regulation 6
9 Taxation, Investment Wrappers and Trusts 8
10 Other Retail Financial Products 3
Total 50

ASSESSMENT STRUCTURE

A 1 hour examination of 50 multiple choice questions.

Candidates sitting the examination by Computer Based Testing may have, in addition, up to 10% of
additional questions as trial questions that will not be separately identified and do not contribute to the
result. Candidates will be given proportionately more time to complete the test.

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SUMMARY SYLLABUS

ELEMENT 1 INTRODUCTION
1.1 The Financial Services Industry

ELEMENT 2 ECONOMIC ENVIRONMENT

2.1 Economic Environment

ELEMENT 3 FINANCIAL ASSETS AND MARKETS

3.1 Cash deposits
3.2 Money Market Instruments
3.3 Property
3.4 Foreign Exchange Market
3.5 Derivatives/Commodity Markets
3.6 World Stock Markets

ELEMENT 4 EQUITIES
4.1 Equities

ELEMENT 5 BONDS
5.1 Government Bonds
5.2 Corporate Bonds
5.3 Bonds

ELEMENT 6 DERIVATIVES
6.1 Introduction
6.2 Futures
6.3 Options
6.4 SWAPS
6.5 Derivatives Uses

ELEMENT 7 INVESTMENT FUNDS

7.1 Introduction
7.2 Unit Trusts
7.3 Open Ended Investment Companies (OEICs)
7.4 Pricing, Dealing and Settling
7.5 Investment Trusts
7.6 Real Estate Investment Trusts (REITs)
7.7 Exchange-Traded Funds
7.8 Hedge Funds

ELEMENT 8 FINANCIAL SERVICES REGULATION

8.1 Financial Services and Markets Act
8.2 Financial Crime
8.3 Insider Dealing and Market Abuse
8.4 Data Protection Act 1998
8.5 Breaches, Complaints and Compensation

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ELEMENT 9 TAXATION, INVESTMENT WRAPPERS AND TRUSTS

9.1 Tax
9.2 Individual Savings Accounts (ISAs)
9.3 Child Trust Funds
9.4 Pensions
9.5 Investment Bonds
9.6 Trusts

ELEMENT 10 OTHER RETAIL FINANCIAL PRODUCTS

10.1 Loans
10.2 Mortgages
10.3 Life Assurance

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ELEMENT 1 INTRODUCTION

1.1 The Financial Services Industry

On completion, the candidate should:

1.1.1 know the role of the following within the financial services industry:

• retail banks

• building societies

• investment banks

• pension funds

• insurance companies

• fund managers

• stockbrokers

• custodians

• third party administrators (TPAs)

• industry trade bodies

• stock exchanges

1.1.2 know the function of and differences between retail and professional business and
who the main customers are in each case:

• retail clients and professional clients

1.1.3 know the role of the following investment distribution channels:

• Independent Financial Adviser

• Tied Adviser

• Platforms

• Execution only

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ELEMENT 2 ECONOMIC ENVIRONMENT

2.1 Economic Environment

On completion, the candidate should:

2.1.1 know the factors which determine the level of economic activity:

• state-controlled economies

• market economies

• mixed economies

• open economies

2.1.2 know the functions of the Bank of England

2.1.3 know the functions of the Monetary Policy Committee

2.1.4 know how goods and services are paid for and how credit is created

2.1.5 understand the impact of inflation on economic behaviour

2.1.6 know the meaning of the following measures of inflation:

• Retail Price Index

• RPIX

• Consumer Prices Index

2.1.7 know the impact of the following economic data:

• Gross Domestic Product (GDP)

• Gross National Product (GNP)

• Balance of Payments

• Public Sector Net Cash Requirement (PSNCR)

• level of unemployment

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ELEMENT 3 FINANCIAL ASSETS AND MARKETS

3.1 Cash deposits

On completion, the candidate should:

3.1.1 know the features and characteristics of fixed term and instant access deposit
accounts

3.1.2 understand the distinction between gross and net interest payments

3.1.3 be able to calculate the net interest due given the gross interest rate, the deposited
sum, the period and tax rate

3.2 Money Market Instruments

On completion, the candidate should:

3.2.1 know the difference between a capital market instrument and a money market
instrument

3.2.2 know the definition and features of the following:

• Treasury Bill

• Commercial Paper

• Certificate of Deposit

3.2.3 know the advantages and disadvantages of investing in money market instruments

3.3 Property
On completion, the candidate should:

3.3.1 know the characteristics of the property market:

• commercial/residential property

• direct/indirect investment

3.3.2 know the advantages and disadvantages of investing in property

3.4 Foreign Exchange Market

On completion, the candidate should:

3.4.1 know the basic structure of the foreign exchange market including spot and forward
rates

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3.5 Derivatives/Commodity Markets

On completion, the candidate should:

3.5.1 know the role of the following markets:

• Euronext.liffe

• Eurex

• Intercontinental Exchange, ICE Futures

• London Metal Exchange (LME)

3.6 World Stock Markets

On completion, the candidate should:

3.6.1 know the characteristics of the following exchanges:

• London Stock Exchange

• New York Stock Exchange

• NASDAQ

• Euronext

• Tokyo Stock Exchange

• Deutsche Börse

3.6.2 know the types and uses of a stock exchange index

3.6.3 know the differences between the following London Stock Exchange indices:

• FTSE 100

• FTSE 250

• FTSE 350

• FTSE All Share

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3.6.4 know to which markets the following indices relate:

• Dow Jones Industrial Average

• S&P 500

• Nikkei 225

• CAC40

• XETRA Dax

• NASDAQ Composite

ELEMENT 4 EQUITIES

4.1 Equities
On completion, the candidate should:

4.1.1 know how a company is formed and the differences between private and public
companies

4.1.2 know the features and benefits of ordinary and preference shares:

• dividend

• capital gain

• trade perks

• right to subscribe for new shares

• right to vote

4.1.3 understand the risks associated with owning shares:

• price risk

• liquidity risk

• issuer risk

4.1.4 know the definition of a corporate action and the difference between mandatory,
voluntary and mandatory with options

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4.1.5 understand the following terms:

• bonus/scrip/capitalisation issues

• rights issues

• dividend payments

• takeover/merger

4.1.6 know the purpose and format of Annual General Meetings

4.1.7 know the difference between the primary market and secondary market

4.1.8 know the main requirements for listing on the London Stock Exchange

4.1.9 know the advantages and disadvantages of a company obtaining a listing of its
shares on the London Stock Exchange

4.1.10 know the role of the Alternative Investment Market (AIM)

4.1.11 know how shares are traded on the London Stock Exchange - SETS/SEAQ/SETSqx

4.1.12 know the method of holding title – registered v bearer

4.1.13 understand the role played by Euroclear UK & Ireland in the clearing and settlement
of equity trades:

• uncertificated transfers

• participants (members, payment banks, registrars)

ELEMENT 5 BONDS

5.1 Government Bonds

On completion, the candidate should:

5.1.1 know the definition and features of UK government bonds:

• DMO maturity classifications

• how they are issued

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5.2 Corporate Bonds

On completion, the candidate should:

5.2.1 know the definitions and features of the following types of bond:

• domestic

• foreign

• Eurobond

• asset-backed securities

• zero coupon

5.3 Bonds

5.3.1 know the advantages and disadvantages of investing in different types of bonds

5.3.2 be able to calculate the flat yield of a bond

5.3.3 understand the role of credit rating agencies and the differences between investment
and non-investment grades

ELEMENT 6 DERIVATIVES

6.1 Introduction
On completion, the candidate should:

6.1.1 know the differences between the major types of derivatives

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6.1.2 understand the following terms:

• long

• short

• open

• close

• holding

• writing

• premium

• covered

• naked

• OTC

• Exchange-Traded

6.2 Futures
On completion, the candidate should:

6.2.1 know the definition and function of a future

6.3 Options
On completion, the candidate should:

6.3.1 know the definition and function of an option

6.3.2 understand the following terms:

• calls

• puts

• covered warrant

6.4 SWAPS
On completion a candidate should:

6.4.1 know the definition and function of an interest rate swap

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6.5 Derivatives Uses

On completion, the candidate should:

6.5.1 understand the uses and application of derivatives

ELEMENT 7 INVESTMENT FUNDS

7.1 Introduction
On completion, the candidate should:

7.1.1 understand the benefits of collective investment

7.1.2 understand the scope and range of investment styles

7.1.3 know the differences between authorised and unauthorised funds

7.1.4 know the purpose and principal features of UCITS

7.1.5 know the differences between onshore and offshore funds

7.2 Unit Trusts

On completion, the candidate should:

7.2.1 know the definition of a unit trust

7.2.2 know the types of authorised unit trust available

7.2.3 know the roles of the Manager and the Trustee

7.3 Open Ended Investment Companies (OEICs)

On completion, the candidate should:

7.3.1 know the definition and legal structure of an OEIC

7.3.2 know the roles of the Authorised Corporate Director and the Depositary

7.3.3 know the terms ICVC, SICAV and the context in which they are used

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7.4 Pricing, Dealing and Settling

7.4.1 know how unit trusts and OEIC shares are priced

7.4.2 know the ways in which charges can be made by the fund manager

7.4.3 know how shares and units are bought and sold

7.4.4 know how collectives are settled

7.5 Investment Trusts

On completion, the candidate should:

7.5.1 know the characteristics of an investment trust:

• share classes

• gearing

7.5.2 understand the factors that affect the price of an investment trust

7.5.3 know the meaning of the discounts and premiums in relation to investment trusts

7.5.4 know how investment trust shares are traded

7.6 Real Estate Investment Trusts (REITs)

On completion, the candidate should:

7.6.1 know the basic characteristics of REITs:

• tax efficient

• property diversification

• liquidity

• risk

7.7 Exchange-Traded Funds

On completion, the candidate should:

7.7.1 know the main characteristics of Exchange-Traded Funds

7.7.2 know how Exchange-Traded Funds are traded

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7.8 Hedge Funds

On completion, the candidate should:

7.8.1 know the basic characteristics of Hedge Funds:

• what they are and what they are used for

• risk and risk types

• cost and liquidity

• investment style

ELEMENT 8 FINANCIAL SERVICES REGULATION

8.1 Financial Services and Markets Act

On completion, the candidate should:

8.1.1 know the function of the following in the financial services industry:

• Regulators (FSA/EC Commission/Committee of European Securities

Regulators)

8.1.2 understand the need for regulation and the purpose of the Financial Services and
Markets Act 2000

8.1.3 know the four statutory objectives of the Financial Services Authority

8.1.4 understand the reasons for authorisation of firms and approved persons

8.1.5 understand the purpose of the FSA’s move to more principles-based regulation

8.1.6 know the five groups of activity (controlled functions) requiring approved person
status

8.1.7 know the FSA’s six outcomes for treating customers fairly

8.1.8 know the role of the Financial Services and Markets Tribunal

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8.2 Financial Crime

On completion, the candidate should:

8.2.1 know what money laundering is and the related criminal offences

8.2.2 know the purpose and the main provisions of the Proceeds of Crime Act 2002 and
the Money Laundering Regulations 2007

8.2.3 be able to apply the terms that describe the three main stages of money laundering

8.2.4 know the action to be taken by those employed in financial services if money
laundering activity is suspected

8.2.5 know what constitutes satisfactory evidence of identity

8.3 Insider Dealing and Market Abuse

On completion, the candidate should:

8.3.1 know the offences that constitute insider dealing and the instruments covered

8.3.2 know the offences that constitute market abuse and the instruments covered

8.4 Data Protection Act 1998

On completion, the candidate should:

8.4.1 be able to apply the Data Protection Act 1998 to firms’ activities

8.5 Breaches, Complaints and Compensation

On completion, the candidate should:

8.5.1 know the difference between a breach and a complaint

8.5.2 know the responsibilities of the industry for handling customer complaints and
dealing with breaches

8.5.3 know the role of the Financial Ombudsman Service

8.5.4 know the circumstances under which the Financial Services Compensation Scheme
pays compensation and the compensation payable for investment claims

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ELEMENT 9 TAXATION, INVESTMENT WRAPPERS AND TRUSTS

9.1 Tax
On completion, the candidate should:

9.1.1 know the direct and indirect taxes as they apply to individuals:

• Income Tax

• Capital Gains Tax

• Inheritance Tax

• Stamp Duty and Stamp Duty Reserve Tax

• VAT

9.1.2 know the main exemptions in respect of the main personal taxes

9.2 Individual Savings Accounts (ISAs)

On completion, the candidate should:

9.2.1 know the tax incentives provided by ISAs

9.2.2 know the definition of and aim of ISAs

9.2.3 know the types of ISA available

9.2.4 know the eligibility conditions for investors

9.2.5 know the limitations of investing in ISAs:

• number of managers

• number of accounts

9.3 Child Trust Funds

On completion, the candidate should:

9.3.1 know the tax benefits to a child on the maturity of a child trust fund

9.3.2 know the main characteristics of child trust funds

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9.4 Pensions
On completion, the candidate should:

9.4.1 know the tax incentives provided by pensions

9.4.2 know the basic characteristics of the following:

• State Pension Scheme

• Occupational Pension Schemes

• Personal Pensions including Self Invested Personal Pensions (SIPPs)/Small

Self-Administered Schemes (SSAS)

• Stakeholder Pensions

9.5 Investment Bonds

On completion, the candidate should:

9.5.1 know the tax incentives provided by investment bonds

9.5.2 know the main characteristics of investment bonds

9.6 Trusts
On completion, the candidate should:

9.6.1 know the features of the main trusts:

• discretionary

• interest in possession

• bare

9.6.2 know the definition of the following terms:

• trustee

• settlor

• beneficiary

9.6.3 know the main reasons for creating trusts

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ELEMENT 10 OTHER RETAIL FINANCIAL PRODUCTS

10.1 Loans
On completion, the candidate should:

10.1.1 know the differences between bank loans, overdrafts and credit card borrowing

10.1.2 know the difference between the quoted interest rate on borrowing and the effective
annual rate of borrowing

10.1.3 be able to calculate the effective annual rate of borrowing, given the quoted interest
rate and frequency of payment

10.1.4 know the difference between secured and unsecured borrowing

10.2 Mortgages
On completion, the candidate should:

10.2.1 understand the characteristics of the mortgage market:

• interest rates

10.2.2 know the definition of and types of mortgage:

• repayment

• interest only

10.3 Life Assurance

On completion, the candidate should:

10.3.1 know the definition of the following types of life policy:

• term assurance

• non-profit

• with profits

• unit-linked policies

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