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SAMPLE PAPER
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REGULATIONS & MARKET PRACTICE

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(KENYA)
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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

© Chartered Institute for Securities & Investment

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 Pass with Merit

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35-45 Pass
0-34 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
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revise further.
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1 Which of the following is a key task that employees have regarding their firm`s risk management
processes?

A Integrating the processes into the day-to-day business

B Monitoring the effectiveness of the processes

C Actively supporting and contributing to the processes

D Designing and implementing the firm`s processes

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2 What mechanism is considered to be an internal corporate governance control?

A Legal duties imposed on company directors

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B Corporate governance regulations

C Appointment of independent non-executive directors

D Reporting of the company`s financial performance

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3 What function can be performed by a central depository agent?

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A Allocate trades to client securities accounts

B Promote investor education and public awareness

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C Regulate the issuance of capital market products

D Grant licences to act as a market participant

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4 The settlement cycle for trades at the Central Depository and Settlement Corporation is:

A T+0

B T+1

C T+2

D T+3

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5 Which of the following is a characteristic of exchange-traded funds?

A They have one daily set price

B They are more liquid than equities

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C They have higher exit charges than unit trusts

D Their holdings are fully transparent

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6 According to the Capital Markets Authority`s disclosure of fees rules, how are intermediaries allowed
to charge fees?
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A In line with their agreements with the client

B In line with the fees prescribed by the Nairobi Securities Exchange

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C At the levels set out by competitors

D At the levels set out in the firm`s marketing material

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7 Under the foreign investor rules, how often must a listed company provide reports of its share
ownership to the Capital Markets Authority and the exchange?

A Weekly

B Monthly

C Quarterly

D Annually

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8 The purpose of the client asset rules is to:

A minimise risk to clients PA

B maintain an efficient and orderly market

C facilitate an environment for transparent operations

D ensure trading decisions are in the client’s best interests

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9 What would be the situation if a board of directors had drawn up a code of conduct that was not
consistent with the model code?

A It wouldn`t matter as they are required for different purposes

B The model code would apply

C The company`s own code would apply

D The code with the strictest rules would apply

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10 Which of the following types of collective investment scheme should only be offered to professional
investors?

A An investment trust
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B A development real estate investment trust

C An exchange-traded fund
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D A mutual fund
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11 How long should the offer period be according to rules set out under the listing process?
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A No more than 10 working days

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B No less than 20 working days

C Between 10 and 20 working days

D Between 20 and 30 working days

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12 How long must a takeover bid remain open?

A 1 week

B 14 days

C 30 days

D 1 month

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13 What is the prime responsibility of the Capital Markets Authority?

A Regulating the development of orderly, fair and efficient capital markets

B
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Developing all aspects of the capital markets

C The protection of investor interests

D Licensing and supervising capital market intermediaries

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14 What is the standard time frame for resolving customer complaints in line with the complaint handling
rules?
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A Within one month

B Within three months

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C Within six months

D Within one year

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15 Depositing banknotes obtained from a robbery directly into a savings account is normally known as
which stage in the money laundering process?

A Integration

B Front running

C Placement

D Layering

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16 In order to gain Capital Markets Authority approval, a central securities depository must demonstrate
that it:

A holds less than 10% of any trading firm

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B can manage its agents

C has a minimum of Kshs 100 million in its guarantee fund

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D has at least three public interest directors

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17 Which of the following types of business is required to hold a licence from the Capital Markets
Authority as opposed to requiring approval?

A Credit reference bureaus

B Securities exchanges

C Investment banks

D Microfinance institutions

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18 What is the maximum period a good till day order will remain on the order book before it is
automatically deleted?

A 1 day
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B 5 days

C 14 days
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D 30 days
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19 During discussions with a new client, a market intermediary asked about the need for emergency
funds.

One of the main reasons why this is needed is because it will help to determine:

A whether independent or restricted advice is more appropriate

B whether a discretionary or non-discretionary service is more appropriate

C liquidity and time horizons

D the tax status of any investment

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20 The obligation for market intermediaries to disclose to clients any limitations on its capacity only
applies in cases where:
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A the intermediary is not subject to the East African Community Directives

B the intermediary claims to offer independent advice

C the client is classed as a professional client

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D the client is temporarily resident outside Kenya

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21 The Nairobi Securities Exchange allows continuous trading between:

A 9am to 3pm

B 9.30am to 3pm

C 9.30am to 3.30pm

D 9am to 3.30pm

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22 At what MINIMUM frequency are market intermediaries obliged to review their anti-money laundering
policies and procedures?

A Six months PA
B Twelve months

C Two years

D Five years
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23 Front running is deemed to be an unacceptable trading practice because it would result in:
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A firms benefitting at the expense of their customers

B clients making investments that are suitable for the firm rather than themselves
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C a false market

D fraudulently induced trading

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24 Which of the following pieces of information obtained from a client would normally be classed as a
subjective factor when used to determine risk attitude?

A He intends to make school fees provision for his son

B He recently remarried following the death of his first wife

C He is likely to inherit significant assets from his father who is currently in very poor health

D He had a bad investment experience recently which has significantly affected his decision-
making

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25 If there is a change in key personnel at a licensed firm, its list of key personnel must be updated
within what MAXIMUM time frame? PA
A Immediately

B Five days

C Ten days
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D One month
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26 Which of the following must be reported by a firm to the Capital Markets Authority within 24 hours?

A The appointment of a new chief executive

B Substantial changes to its capital structure

C Civil claims in excess of 25% of the minimum financial resource requirement

D The decision to surrender its licence

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27 The Capital Markets Authority Internal Control Standards have been designed to allow firms to:

A take the standards and amend them to fit their own internal standards

B
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see precisely which departments should be segregated and separated

C design and implement systems that will enable it to comply with the regulatory system

D organise the reporting structures and hierarchy of their firms to fit with the standards
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28 What must a firm do if it is unable to disclose the fees to be charged in a client agreement?

A It would be required to obtain an exemption from the regulator

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B It would have to set out how they are to be calculated

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C It would need to send details within seven days of completion

D It would have to disclose the fees in the first monthly statement

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29 Once the value of an investment adviser`s portfolio exceeds Kshs 10 million, what licence is the
intermediary required to have?

A Fund manager

B Stockbroker

C Dealer

D Collective investment scheme

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30 Which of the following duties would be expected to be performed by a firm`s internal auditor?

A Monitoring the firm`s compliance with its code of ethics

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B Reviewing the external auditor`s proposed scope and approach

C Submitting quarterly reports to the audit committee

D Reviewing the effectiveness of the documented risk management policy

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31 Internal Control Standards for compliance suggest that client complaints should ideally be:
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A dealt with by a member of the board of directors

B immediately reported to the Capital Markets Authority

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C investigated by staff who are not directly involved in the subject matter

D referred to an external third party

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32 How long should a firm retain transaction records in order to comply with money laundering
requirements?

A One year

B Three years

C Five years

D Seven years

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33 How frequently should an employee share ownership plan be audited?

A Every month PA
B Every quarter

C Every year

D Every 18 months
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34 How often must a participant at the Nairobi Securities Exchange provide evidence of complying with
the capital and financial requirements of the Capital Markets Authority?

A Monthly

B Quarterly

C Semi-annually

D Annually

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35 A participant of the Nairobi Securities Exchange produces market research reports that make stock
recommendations. How should they handle possible conflicts of interest for their clients?

A Make a full written disclosure to all clients of the research firm

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B Notify the Nairobi Securities Exchange of all potential conflicts

C Send a written disclosure to all clients with equity accounts

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D Notify clients to contact the firm if they want further information

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36 In respect of the Capital Markets Authority`s cold calling rules, calls must be made between which of
the following times?

A 7am and 6pm

B 8am and 6pm

C 7am and 5pm

D 8am and 5pm

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37 A person needs to make a claim from the Investor Compensation Fund. After the appointment of a
statutory manager, what is the maximum number of days they have to make a claim?

A 30
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B 60

C 90
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D 100
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38 The board of directors of a market intermediary should review its recruitment policy at least every:

A year

B three years

C five years

D ten years

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39 When carrying out a compliance review, the Capital Markets Authority will consider how a firm views
its own whistleblowing arrangements as part of its inspection of:

A corporate culture PA
B supervisory approach

C compliance risks

D business matters
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40 Who is responsible for reporting the performance of the Capital Markets Authority (CMA) to
Parliament each year?

A Cabinet Secretary of the National Treasury

B Chief Executive of the CMA

C Governor of the Central Bank of Kenya

D Senior officer nominated by the Chief Executive of the CMA

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41 The correct formula for calculating the value of each unit or share in a fund is:

A the net asset value divided by the total number of shares or units in issue
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B the net asset value multiplied by the total number of shares or units in issue

C the selling price minus the repurchase price

D the selling price plus the repurchase price

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42 If there are nine directors on the board of a market intermediary, what is the maximum number that
can be closely related?
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A One
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B Two

C Three

D Five
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43 With respect to fund documentation, the purpose of an information memorandum is to:

A identify fund participants

B satisfy customer due diligence requirements

C enable informed decision-making

D establish minimum subscription levels

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44 The Capital Markets Tribunal was created to hear appeals concerning decisions of the Capital
Markets Authority and which other body?

A Competition Authority of Kenya PA

B Central Depository and Settlement Corporation

C Nairobi Securities Exchange

D Investor Compensation Fund Board

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45 Company X operates as a bureau de change.

This means that, in relation to the anti-money laundering procedures, it is likely that:

A only the layering stage will need monitoring

B only the integration stage will need monitoring

C a higher than normal level of risk may exist

D a lower than normal level of risk may exist

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46 A market intermediary provided information to a third party about one of its clients despite failing to
obtain consent from the client to do so. PA
What key factor meant that this action complied with the regulations?

A The registration status of the intermediary

B The classification of the client

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C The size of the proposed transaction

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D There was a legal request by a court

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47 Which party is responsible for submitting an annual report to the Capital Markets Authority in relation
to investment administration where discretionary management of funds takes place?

A Compliance

B Internal audit

C Custodian

D External audit

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48 A market intermediary conducting business with the public must:

A limit the making of calls to between 9am and 6pm

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B offer independent advice

C provide customers with a recorded copy of all conversations

D maintain objectivity
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49 If a market intermediary has notified a client that a particular investment would be unsuitable but the
client wishes to continue with the investment, then the firm:

A must comply with the client`s request

B must refuse to act for the client under these circumstances

C can choose whether or not to proceed with the client`s instructions

D can opt for the Capital Markets Authority`s adjudication process to independently determine
suitability

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50 A key difference between omnibus and designated accounts is that only:

A a designated account allows assets to be held in a nominee’s name

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B a designated account lets investors retain beneficial ownership

C an omnibus account can result in an investor shortfall

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D an omnibus account makes the nominee the legal owner of the asset
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ANSWER SHEET
Regulations & Market Practice (Kenya)

Question Key Syllabus Unit Element

1 C 3 5 1
2 C 3 1 1
3 A 5 3 2
4 D 5 3 4
5 D 6 2 1
6 A 4 2 3
7 B 5 1 5

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8 A 4 6 1
9 B 3 2 2

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10 B 6 3 1
11 A 5 1 1
12 C 5 1 4
13 A 1 1 3
14 B 4 7 1
15 C 4 4
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1
16 B 2 2 3
17 C 2 1 1
18 B 5 2 5
19 C 4 3 2
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20 B 4 3 1
21 B 5 2 4
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22 C 4 4 2
23 A 4 5 2
24 D 4 3 4
25 B 2 1 3
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26 C 4 7 3
27 C 3 4 1
28 B 4 2 4
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29 A 2 3 1
30 C 3 6 1
31 C 3 4 2
32 D 4 4 7
33 C 6 5 1
34 B 5 2 1
35 A 5 2 3
36 D 4 2 2
37 B 1 1 5
38 B 3 3 1
39 C 3 7 2
40 A 1 1 1
41 A 6 1 5
ANSWER SHEET
Regulations & Market Practice (Kenya)

42 C 3 2 1
43 C 6 1 3
44 D 1 1 7
45 C 4 4 3
46 D 4 2 7
47 C 2 3 3
48 D 4 1 1
49 C 4 3 5
50 C 4 6 3

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ANSWER SHEET
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