Try 10 focused CISI Intro questions on Equities, with answers and explanations, then continue with Securities Prep.
| Field | Detail |
|---|---|
| Exam route | CISI Intro |
| Issuer | CISI |
| Topic area | Equities |
| Blueprint weight | 14% |
| Page purpose | Focused sample questions before returning to mixed practice |
Use this page to isolate Equities for CISI Intro. Work through the 10 questions first, then review the explanations and return to mixed practice in Securities Prep.
| Pass | What to do | What to record |
|---|---|---|
| First attempt | Answer without checking the explanation first. | The fact, rule, calculation, or judgment point that controlled your answer. |
| Review | Read the explanation even when you were correct. | Why the best answer is stronger than the closest distractor. |
| Repair | Repeat only missed or uncertain items after a short break. | The pattern behind misses, not the answer letter. |
| Transfer | Return to mixed practice once the topic feels stable. | Whether the same skill holds up when the topic is no longer obvious. |
Blueprint context: 14% of the practice outline. A focused topic score can overstate readiness if you recognize the pattern too quickly, so use it as repair work before timed mixed sets.
These questions are original Securities Prep practice items aligned to this topic area. They are designed for self-assessment and are not official exam questions.
Topic: Equities
Amira is considering an investment in a UK listed company through her stocks and shares ISA. She wants voting rights at the AGM and is willing to accept that, if the company is wound up, she will be paid only after creditors. She also wants returns to come mainly from variable dividends and capital growth. Which holding best fits her objectives?
Best answer: D
What this tests: Equities
Explanation: Ordinary shares best match an investor seeking ownership rights and returns linked to company performance. They usually carry voting rights, and investors may benefit from dividends and share price growth, while ranking behind creditors on a winding up.
The core concept is residual ownership. Ordinary shares represent ownership in a company, so the holder will usually have voting rights at general meetings, may receive dividends if declared, and can benefit from capital growth if the company performs well. Those features fit Amira’s objectives: direct ownership, variable returns linked to business success, and acceptance of lower priority if the company fails.
Preference shares are still shares, but they are more associated with dividend preference and often limited voting rights. Corporate bonds make the investor a lender to the company, not an owner, so returns come mainly from interest rather than growth in ownership value. Units in a UK equity OEIC provide pooled exposure to shares, but the investor does not directly own this company’s shares or vote at its AGM.
The key distinction is direct shareholder ownership versus lending or indirect pooled exposure.
Ordinary shares give direct ownership, usually carry voting rights, and offer returns through dividends and capital growth.
Topic: Equities
A bond issue still has a single paper certificate, but it is lodged in a central securities depository and investors transfer their interests electronically between accounts. Which broad holding pattern does this describe?
Best answer: D
What this tests: Equities
Explanation: Immobilised holding applies when a physical certificate still exists but is held centrally and investors trade through electronic book entries. Dematerialised holding would mean no paper certificate exists at all, while registered and bearer title describe ownership form rather than the holding method.
The key concept is the difference between how a security is evidenced and how ownership is recognised. In an immobilised holding system, a physical certificate still exists, but it is locked away with a central securities depository or custodian, and trades settle electronically between accounts. That matches the situation in the stem.
Dematerialised holding goes one step further: there is no paper certificate at all, only electronic records. By contrast, registered title and bearer title describe the legal form of ownership, not whether a certificate remains in existence.
The presence of a paper certificate held centrally is the clue that this is immobilisation, not dematerialisation.
A paper certificate still exists, but transfers take place by electronic book entry, which defines immobilised holding.
Topic: Equities
A UK retail client buys UK-listed shares through an online platform. After settlement, the confirmation shows the shares are held in the platform’s nominee account rather than in the client’s own name. She worries that this says something negative about the company. Which response best applies the relevant principle?
Best answer: C
What this tests: Equities
Explanation: This is a post-trade holding-title issue, not an investment-analysis issue. In a nominee arrangement, the platform or its nominee is usually the registered holder, while the client remains the beneficial owner of the shares.
The core concept is the difference between legal title and beneficial ownership in UK custody arrangements. When shares are held through a platform’s nominee account, the nominee’s name may appear on the company register, but the client still owns the economic interest in the shares and is normally entitled to benefits such as dividends and sale proceeds through the platform. That means the scenario is about how title is recorded and administered after the trade, not about the company’s quality, valuation, or risk. A nominee structure is a normal post-trade arrangement for many retail holdings. The key takeaway is that the custody method does not, by itself, say anything negative about the underlying company.
Nominee custody normally leaves legal title with the nominee while the client keeps beneficial ownership.
Topic: Equities
In the clearing of a UK equity trade, a central counterparty becomes the buyer to the seller and the seller to the buyer. Which broad principle does this illustrate?
Best answer: C
What this tests: Equities
Explanation: A central counterparty reduces counterparty risk by standing between the original buyer and seller in the trade. This clearing function helps support settlement even if one original party fails.
The core concept is clearing through interposition. Once a trade is matched, the central counterparty effectively becomes the buyer to every seller and the seller to every buyer, so each participant faces the CCP rather than the original counterparty. This reduces bilateral counterparty exposure and supports orderly settlement.
In practice, the CCP helps manage default risk by:
This is different from holding assets or recording ownership. The key pattern is risk reduction in clearing and settlement, not custody, registration, or price quotation.
A CCP interposes itself between the original parties, reducing each side’s exposure to the other party’s default.
Topic: Equities
A UK retail investor owns 900 shares in a company trading at 360p. The company announces a 1-for-3 rights issue at 300p, and she will take up her full entitlement to avoid dilution. Ignoring dealing costs and market movements, what is the theoretical ex-rights price per share?
Best answer: C
What this tests: Equities
Explanation: The theoretical ex-rights price is a weighted average of the old market price and the discounted rights price. Here, 900 shares at 360p plus 300 rights shares at 300p gives a total value of 414,000p over 1,200 shares, so the price is 345p.
A rights issue allows existing shareholders to buy extra shares, usually at a discount to the current market price. The theoretical ex-rights price is the blended price of the enlarged shareholding if the investor takes up the full entitlement.
So the theoretical ex-rights price is 414,000p / 1,200 = 345p per share. It is below 360p because the new shares are issued at a discount, but above 300p because most shares were already valued at the higher market price.
A 1-for-3 issue gives 300 new shares, and (900 x 360p + 300 x 300p) / 1,200 = 345p.
Topic: Equities
A UK technology firm plans to seek a London market listing next year. Its finance director says the aim is to attract a wider range of investors and improve liquidity for the shares once they are admitted. A trainee asks whether “listing” just means investors can start buying and selling the shares. What is the single best reply?
Best answer: B
What this tests: Equities
Explanation: The best answer distinguishes the two concepts correctly. Listing is the admission of a company’s shares to a recognised market or exchange, while trading is the ongoing buying and selling of those shares; companies often seek a listing to broaden investor access and support liquidity.
The core concept is that listing and trading are related but different. A listing is the formal admission of a company’s shares to a market, subject to that market’s requirements. Once listed and admitted, the shares can then be traded, meaning investors buy and sell them in the market.
Public companies seek listings for reasons such as wider access to capital, a broader investor base, enhanced profile, and improved liquidity in their shares. In the scenario, the finance director’s comments about attracting investors and improving liquidity point to those benefits of being listed, but they do not make listing and trading the same thing.
A common trap is to confuse market admission with the later secondary-market dealing that happens after admission.
A listing admits the shares to the market, while trading is the subsequent dealing in those shares and is one reason companies seek a listing.
Topic: Equities
A UK investor applies for shares in a company’s IPO. After listing, she buys more shares on the London Stock Exchange; the trade is matched, two business days later cash and securities are exchanged, and the holdings are kept in her broker’s nominee account. Which sequence best describes these events?
Best answer: B
What this tests: Equities
Explanation: The events follow the normal equity lifecycle. An IPO is a primary-market issue, buying listed shares on the exchange is secondary-market trading, clearing comes before settlement, and a broker’s nominee account provides custody.
The core concept is the sequence of equity issuance, trading, and post-trade administration. In an IPO, the company issues new shares to investors in the primary market. Once the shares are listed, any purchase on the London Stock Exchange between investors is a secondary-market trade. After execution, clearing comes first: the trade is matched and obligations are prepared. Settlement follows when cash and securities are actually exchanged. If the shares are then held in the broker’s nominee account on the investor’s behalf, that is custody.
The key trap is to confuse clearing with settlement, but clearing is the preparation stage and settlement is the completion stage.
An IPO is primary-market issuance, exchange dealing is secondary-market trading, matching is clearing, cash-for-securities exchange is settlement, and nominee holding is custody.
Topic: Equities
A UK broker is routing a retail client’s order in a liquid FTSE 100 share. The dealer wants the order to interact with other market participants’ buy and sell interests where possible, rather than depend on a dealer’s quoted price. Which statement best applies this principle?
Best answer: D
What this tests: Equities
Explanation: The broker wants a venue where the client’s order can meet other participants’ orders directly. That describes an order-driven market, and an MTF is also a multilateral venue, whereas a quote-driven market depends on dealers posting bid and offer prices.
The key distinction is how trades are arranged. In an order-driven market, participants’ buy and sell orders are brought together, often through a central order book, and trades occur when prices match. An MTF is also a multilateral system that brings together multiple third-party buying and selling interests under set rules, so it can suit the same objective. By contrast, a quote-driven market relies on dealers or market makers quoting bid and offer prices and standing ready to trade at those prices. For a liquid equity order where the goal is direct interaction with other market interest, the multilateral route is the better fit. The nearest trap is reversing the definitions of order-driven and quote-driven markets.
This matches the core distinction between multilateral order matching and dealer-made prices.
Topic: Equities
Amir plans to invest his entire £15,000 ISA in ordinary shares of one small UK company. He believes that, because shareholders can vote at the AGM, the investment risk is limited. Which response best applies a sound investment principle?
Best answer: B
What this tests: Equities
Explanation: Owning ordinary shares can give voting rights and possible dividends, but it does not protect an investor from loss. Putting all funds into one small company leaves exposure to issuer risk, share price falls, and possible difficulty selling if the shares are thinly traded.
The key principle is that shareholder rights are not the same as investment protection. An ordinary shareholder may vote at the AGM and may receive dividends, but neither the dividend nor the share price is guaranteed. If all the money is invested in one small company, risk is concentrated in that issuer: the business could perform badly, the share price could fall, or the company could fail. In addition, smaller-company shares may be less liquid, meaning there may be few buyers when the investor wants to sell.
Limited liability only means the shareholder cannot lose more than the amount invested in the shares. It does not make the investment low risk or easy to sell.
Voting rights are a shareholder benefit, but they do not reduce the underlying issuer, price, or liquidity risks of a concentrated shareholding.
Topic: Equities
An investor owns 600 ordinary shares. The company announces a 1-for-5 rights issue at £2 per new share. If the investor takes up the full entitlement, what will be the total shareholding and how much cash must be paid?
Best answer: A
What this tests: Equities
Explanation: A 1-for-5 rights issue means one new share for every five already held. On 600 shares, that gives 120 new shares, so the investor will hold 720 shares in total. The cash payable is 120 multiplied by £2, which is £240.
The key concept is that a rights issue gives existing shareholders the right to buy a stated number of new shares, based on their current holding, at the subscription price. Here, 600 shares with a 1-for-5 rights issue gives:
Only the new shares are paid for at the rights price. A common mistake is to apply the £2 price to all 600 existing shares, but the original shares are already owned.
A 1-for-5 rights issue gives 120 new shares on 600 existing shares, and 120 × £2 = £240.
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