Derivatives Exam

Blueprint

Element-by-element breakdown

Parsed directly from the official CIRO syllabus. Every learning outcome maps to a specific element and weighted question count.

1. Element 1

   Free

   The client relationship

   9%

   Client relationship requirements in the Derivatives exam build on the elements covered in other baseline exams, such as the Canadian Investment Regulatory Exam (CIRE), the Retail Securities Exam and the Institutional Securities Exam. Element 1 tests an ability to analyze the processes around product due diligence, know-your-product (KYP), know-your-client (KYC), suitability and account appropriateness within the context of derivatives.

   • 1.1the product’s due diligence obligation in relation to derivatives, including the:
   • 1.2situations involving know-your-product (KYP) obligation to understand the derivative investments purchased, sold or recommended for a client.
   • 1.3the account appropriateness obligation to specific situations relevant to a derivatives account.
   • 1.4the know-your-client (KYC) rules to situations involving clients seeking derivative trading services.
   • 1.5the client suitability determination requirements to situations involving clients seeking derivative trading services.
   • 1.6situations involving the importance of internal escalation or delegation procedures to appropriately registered persons for derivative trading services.
   • + 2 more outcomes

   8 outcomes · 216 practice Q

   Sign up free, no card

2. Element 2

   Regulatory documentation

   11%

   The second element of this examination provides an in-depth understanding of the specific regulatory documentation relating to client interactions, reporting and prohibited practices in the derivatives marketplace.

   • 2.1to specific situations the regulatory requirements relating to client interactions in derivative contracts.
   • 2.2the regulatory requirements governing reporting in derivative contracts.
   • 2.3the regulatory requirements governing prohibited derivative trading practices to specific situations.
   • 2.4the regulatory requirements governing client margin and treatment of different derivative product positions to specific situations.
   • 2.5the regulatory requirements governing opening, managing and monitoring derivative accounts.
   • 2.6the regulatory requirements governing client statement for derivatives trading.
   • + 1 more outcomes

   7 outcomes · 192 practice Q

3. Element 3

   Types and features of derivatives

   23%

   Element 3 of this exam takes an overview of derivative contracts. The ability to understand how different types of derivative contracts work, and an analysis of the risks and benefits of using derivative contracts, is tested in this element.

   • 3.1the types and features of futures, forwards and similar derivative contracts, including:
   • 3.2the types and features of options and similar derivative contracts, including:
   • 3.3the types and features of futures contract options contracts.
   • 3.4the types and features of contracts for difference (CFDs).
   • 3.5the types and features of swaps contracts.
   • 3.6characteristics of futures, forwards and similar derivative contracts.
   • + 3 more outcomes

   9 outcomes · 288 practice Q

4. Element 4

   Derivative pricing

   23%

   In Element 4, candidates will be assessed on the fundamental building blocks of valuing a future or forward and options. Questions will require candidates to define key concepts relating to the value of a derivative, as well as factors that affect these values. Candidates may be expected to show their understanding through calculation.

   • 4.1the impact of the underlying asset price on derivative pricing.
   • 4.10tax implications for investors in derivatives.
   • 4.2the fair-value pricing method of a future. This may include calculations.
   • 4.3option pricing terminology.
   • 4.4the concepts of option Greeks and their application.
   • 4.5the key differences between option pricing models.
   • + 4 more outcomes

   10 outcomes · 306 practice Q

5. Element 5

   Derivative trading, clearing and settlement

   21%

   Candidates must be able to analyze the differences between listed and over-the-counter (OTC) derivatives, as well as the rules and procedures of specific exchanges. Questions will assess different types of order and the processes that allow for trading of both listed and OTC derivatives. Element 5 also requires candidates to understand the function of a clearing house and the different types of margin that can be applied in the derivatives market.

   • 5.1differences between listed derivatives and over-the-counter (OTC) derivatives,
   • 5.10the requirements on managing client orders to specific situations relevant to derivative services.
   • 5.11the need to accurately document discussions with clients and have the client confirm the accuracy of the information.
   • 5.12rules and procedures for derivative-clearing corporations, such as Canadian Derivatives Clearing Corporation (CDCC), ICE Clearing System (ICE Clear Canada) and Options Clearing Corporation (US).
   • 5.13Canadian Depository for Securities (CDS) delivery procedures for underlying interests.
   • 5.14the characteristics of margin.
   • + 9 more outcomes

   15 outcomes · 405 practice Q

6. Element 6

   Speculating, hedging and other investment strategies

   Element 6 requires the candidate to apply specific derivative strategies in a range of situations. Candidates may have to suggest the correct strategy or calculate the profit or loss of a chosen strategy.

   • 6.1the use of derivatives and similar derivative products in specific situations.
   • 6.2the use of speculative strategies using futures, forwards and similar derivative contracts. This may include calculations of profit or loss.
   • 6.3the use of hedging strategies using futures, forwards and similar derivative contracts. This may include calculations of number of contracts to hedge.
   • 6.4arbitrage strategies using futures, forwards and similar derivative contracts. This may include calculations of potential arbitrage opportunities and profits.
   • 6.5the use of futures, forwards and similar derivative contracts to other strategies.
   • 6.6the use of speculative strategies using options and similar derivative contracts. This may include calculations of profit or loss.
   • + 3 more outcomes

   9 outcomes · 241 practice Q

7. Element 7

   Integrity in the derivative markets

   6%

   In Element 7, candidates are expected to apply the requirements under the Universal Market Integrity Rules (UMIR) regarding the recognition of abusive trading and the gatekeeping responsibilities of Investment Dealers and their representatives.

   • 7.1UMIR to specific situations relevant to derivative trading services.
   • 7.2the regulatory requirements in relation to gatekeeping responsibilities to specific situations relevant to derivative trading services.

   2 outcomes · 62 practice Q

8. Element 8

   Standards of conduct and conflicts of interest

   6%

   The ability to act ethically and professionally when servicing clients in derivatives markets is fundamental to any candidate’s role. This element requires candidates to apply the standards of conduct expected by CIRO and under National Instrument (NI) 93-101. This section also requires an ability to analyze situations that could cause conflicts of interest, and provide appropriate responses.

   • 8.1situations to appraise standards of conduct in specific situations relevant to derivative trading services.
   • 8.2the application of regulatory requirements governing the management of conflicts of interest in situations relevant to derivative trading services.
   • 8.3the application of regulatory requirements relating to outside activities in situations relevant to derivative trading services.
   • 8.4the application of regulatory requirements relating to personal financial dealings with clients in situations relevant to derivative trading services. Consider prohibition and action relating to:

   4 outcomes · 109 practice Q