NI 21-101 (Marketplace Operation)

Test yourself

Two real CIRE-bank questions on this exact outcome. Click to reveal the answer and the rule citation.

1. 1

   A client submits a written complaint alleging that a registrant recommended an unsuitable investment that caused a $15,000 loss. Under CIRO's complaint-handling requirements, which of the following is the dealer member's obligation?

   Outcome 7.1 · click for answer

   A.The dealer member must refer the client immediately to OBSI without conducting any internal review.

   B.The dealer member must acknowledge receipt of the complaint, conduct an investigation, and provide the client with a substantive response within the prescribed time frame set out in CIRO rules.Correct

   C.The dealer member may decline to investigate because the client signed a risk disclosure document at account opening.

   D.The dealer member must only respond if the claimed loss exceeds a minimum dollar threshold established by CIRO.

   CIRO's complaint-handling rules require dealer members to have documented procedures for acknowledging, investigating, and responding to client complaints within prescribed time frames. The firm must provide a substantive response explaining its findings and, where applicable, inform the client of their right to escalate to an independent dispute resolution service such as OBSI. Signing a risk disclosure document does not waive complaint rights, and there is no minimum dollar threshold that exempts a firm from responding.

2. 2

   A client asks their RR to explain the difference between an asset's 'liquidity' and its 'credit risk.' The RR uses the example of a 90-day Government of Canada Treasury bill versus a 90-day commercial paper note issued by a mid-sized private company. Which statement correctly distinguishes the two risks?

   Outcome 7.1 · click for answer

   A.The Government of Canada T-bill has essentially no credit risk (backed by the federal government) and high liquidity (actively traded), while the private company commercial paper carries credit risk (the issuer may default) and typically lower liquidity because fewer market makers exist for private-issuer instruments.Correct

   B.Commercial paper is always safer than government T-bills because it offers a higher return.

   C.Liquidity risk and credit risk are the same thing; both reflect the probability of not recovering the full amount invested.

   D.Both instruments have identical risk profiles because they mature in the same period.

   Credit risk is the risk that the issuer will fail to repay principal or interest. Government of Canada T-bills carry negligible credit risk as obligations of a sovereign with taxing power. Private company commercial paper carries meaningful credit risk because the issuer could default. Liquidity risk is the risk of being unable to sell an instrument quickly at a fair price. T-bills trade in deep, liquid markets. Private commercial paper is less liquid because the market is thinner and fewer counterparties will readily bid. The two risks are distinct; an instrument can be liquid but risky (e.g., a junk bond traded on a liquid exchange) or illiquid but safe (e.g., a government GIC).

Related terms in Regulatory

• CIRO

  The Canadian Investment Regulatory Organization, formed January 1, 2023.

• CIRE

  Canadian Investment Regulatory Examination, the entry-level CIRO exam.

• CSA (Canadian Securities Administrators)

  Umbrella organisation of Canada's 13 provincial/territorial securities regulators.

• Canadian Investor Protection Fund (CIPF)

  Investor protection fund covering client assets at CIRO investment dealers up to $1 million per account category.

• NI 31-103

  National Instrument on Registration Requirements, Exemptions and Ongoing Registrant Obligations.

• Ontario Securities Commission (OSC)

  Ontario's provincial securities regulator and the largest CSA member by market participants.