re: iiroc consultation paper on proficiency assurance and … · cfa institute appreciates the...

Andrew J. Kriegler

President and CEO

Investment Industry Regulatory Organization of Canada (IIROC)

121 King Street West, Suite 2000

Toronto, Ontario, M5H 3T9

Canada

Sonia Keshwar

Senior Counsel, Registration

Investment Industry Regulatory Organization of Canada (IIROC)

121 King Street West, Suite 2000

Toronto, Ontario, M5H 3T9

Canada

November 7, 2014

Re: IIROC Consultation Paper on Proficiency Assurance and Expiry of Canadian Securities

Institute (“CSI”) Contract.

Dear President Kriegler,

CFA Institute appreciates the opportunity to comment to the Investment Industry Regulatory

Organization of Canada (“IIROC”) with regard to consultation paper 14-081 (“the Notice”) pertaining to

the next phase of the evolution of the IIROC proficiency assurance model. CFA Institute represents the

views of investment professionals before standard setters, regulatory authorities, and legislative bodies

worldwide on issues that affect the practice of financial analysis and investment management, education

and licensing requirements for investment professionals, and on issues that affect the integrity and

accountability of global financial markets.

On July 16, 2014, IIROC published a consultation paper which requested comment on the Organization’s

intent to reevaluate its proficiency assurance model with respect to the licensing of IIROC Approved

Persons. In this paper, IIROC is seeking input from the investment industry and various other

stakeholders to help determine whether the existing licensing framework model is appropriate and serves

the interest of the public and the financial industry in Canada. CFA Institute believes this consultation is

timely, relevant, and in the best interests of investors, IIROC member firms and finance professionals. At

CFA Institute, we share IIROC’s view of the positive influence that high proficiency standards can have

on ensuring investor protection and the integrity and efficiency of capital markets. Consequently, we

applaud IIROC’s efforts in trying to optimize the proficiency of licensed professionals and ensure the

highest levels of professionalism in the industry.

Although CFA Institute is of the same opinion that IIROC maintains high proficiency standards and a

robust proficiency regime, we believe it would be beneficial for IIROC to consider possible other

alternative arrangements in line with those that have been adopted by other regulators around the world.

Whilst the model of only having the Canadian Securities Institute (CSI) provide the courses and licensing

examinations may have its advantages, we are of the opinion that, by opening up the licensing framework,

IIROC may be able to capitalize on the reputation, experience and global footprint of other providers, that

could lead to long term benefits with respect to lower costs and higher quality of content.

Background on CFA Institute and the CFA Charter

CFA Institute is the leading global association of investment professionals with more than 110,000

members in more than 135 countries. Our mission is to lead the investment profession globally by

promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit

of society. We aspire to serve all finance professionals seeking education, knowledge, and professional

development. CFA Institute also seeks to lead the investment profession’s thinking in the areas of ethics,

capital market integrity, and excellence of practice.

As part of its portfolio of educational programs, CFA Institute offers the Chartered Financial Analyst®

(CFA®) charter, which is the global investment industry’s most challenging and most widely respected

graduate-level investment credential. Earning the CFA charter requires passing its three challenging

levels. Successfully doing so demonstrates a commitment to professional ethics as well as a mastery of a

comprehensive range of advanced investment principles needed to successfully practice in the investment

industry.

The CFA program curriculum is grounded in the practice of the investment profession. CFA Institute,

through the oversight of the Educational Advisory Committee (EAC), regularly conducts a practice

analysis survey of investment professionals around the world to determine the knowledge, skills, and

abilities (competencies) that are relevant to the profession. The results of the practice analysis define

the Global Body of Investment Knowledge (GBIK) and the CFA Program Candidate Body of Knowledge

(CBOK). The topic areas covered by the CFA Program range from ethical and professional standards,

investment tools, all asset classes, and portfolio management.

In addition to the CFA charter, CFA Institute also offers the Claritas Investment Certificate and the

Certificate in Investment Performance Measurement (CIPM).

CFA Program Membership and Candidate Pool

Overall, CFA Institute has more than 127,000 members, and approximately 210,000 candidates sit for the

CFA exams each year. In Canada, CFA Institute has more than 15,000 members and about 17,500

candidates in the most recently completed exam cycle.

There are twelve CFA Societies in Canada: CFA Montreal, CFA Quebec, CFA Society Atlantic Canada,

CFA Society Calgary, CFA Society Edmonton, CFA Society Okanagan, CFA Society Ottawa, CFA

Society Saskatchewan, CFA Society Toronto, CFA Society Vancouver, CFA Society Victoria and CFA

Society Winnipeg. These societies in Canada, as any other CFA society around the world, serve an

important function in helping connect our members and CFA charterholders. Most societies also offer

ongoing professional education, volunteer opportunities, and networking events.

http://www.cfainstitute.org/about/Documents/final_revised_gbik.pdf

http://www.cfainstitute.org/programs/cfaprogram/courseofstudy/Pages/cbok.aspx

http://www.cfainstitute.org/programs/cfaprogram/courseofstudy/Pages/cbok.aspx

Question 1: Please comment on the benefits and drawbacks of the existing IIROC proficiency

education and testing model.

CFA Institute appreciates the opportunity to comment on the existing IIROC proficiency education and

testing model. As stated earlier, CFA Institute believes that IIROC proficiency standards are of high

quality, straightforward, and the regime has withstood the test of time. In our view we see a few benefits

and several drawbacks to the existing proficiency education and testing model that is currently in place.

Benefits:

First Benefit: The existing proficiency model is straightforward, less resource intensive, and manageable

The straightforward nature of the exclusive arrangement with CSI is an advantage to the current existing

proficiency model. IIROC has only had to deal with one service provider, which has allowed it to save on

resources needed to oversee the service and quality standards. Additionally, IIROC has been able to move

more swiftly when needed to implement new standards in the financial industry as it only needed to work

with one provider.

Second Benefit: The existing proficiency model has withstood the test of time.

Under the existing proficiency model, IIROC has maintained high proficiency standards and the regime

has withstood the test of time. Clearly, IIROC’s standards and the existing proficiency regime have

helped ensure investor protection and the integrity of the capital markets in Canada throughout the years.

Consequently, the model has served regulators’, members’, and investors’ interests alike to this point

quite well.

Drawbacks:

First Drawback: The Existing Proficiency Model only has one accredited educator-examiner (CSI) and

does not allow for competition.

Firstly, from our perspective, having only one approved provider in the Canadian proficiency model has

inherent risks for IIROC. Relying solely on CSI to develop, create and administer examinations for

licensed professionals represents significant “concentration risks” for the Canadian proficiency model.

IIROC would be better served by spreading the risks of providing, creating and administering licensing

exams amongst a few well-known qualified providers to ensure that the Canadian licensing framework is

not adversely affected by problems which may affect a single provider.

Secondly, since IIROC retains CSI as the exclusive provider for IIROC licensing courses and

examinations, IIROC loses out on the benefits that effective competition amongst providers in offering

qualifications that meet IIROC standards would permit.

In particular, in licensing frameworks where multiple providers co-exist, effective competition should

lead to lower prices and better quality of content. Competition creates strong incentives for providers to

invest in providing quality content, thereby helping raise the standards in the market. Competition also

encourages providers to compete in many other ways, such as design, delivery, and quality of content.

Additionally, in a competitive environment, providers are also forced to invest in the research and

development of adequate and innovative solutions to ensure learning. Finally, competition drives

providers to be more efficient, thereby keeping prices as low as possible.

Consequently, we believe it is best that financial regulators aim to protect and promote the competition of

providers in the licensing and training of professionals so that the benefits listed here are captured and the

interests of the public and the financial industry are served.

Second Drawback: The Existing Proficiency Model does not provide choices to finance professionals

Another drawback of the existing IIROC proficiency model is that it does not provide choices to finance

professionals in regards to attaining competency. The existing model does not allow finance professionals

to select the course that best prepares them for their role in the industry. Licensing frameworks that allow

for competition among multiple service providers also encourages a greater level of choice.

The ability to make choices in regards to training is most critical in our view, as it gives individuals not

only a sense of ownership, but also of empowerment as a result of this added level of flexibility. For these

reasons, we understand why most regulators have tended to avoid “monopolistic structures” when it

comes to licensing frameworks as there is evidence that investment professionals and the financial

industry itself can benefit from having additional choices and alternatives.

Third Drawback: The Existing Proficiency Model does not allow for sufficient “passporting” of

qualifications.

The term “passporting” refers to the ability of professionals to take their investment credentials across

borders without having to sit for additional exams, thereby reducing barriers to entry in order to practice.

In our view passporting works both ways, thus we break this drawback into two parts.

Drawback 3a: Although CSI’s courses have a certain level of recognition in some jurisdictions

outside Canada; they are not recognized in all countries and for all job functions.

CSI licensing exams enjoy some form of recognition outside of Canada. For example, in the case

of the Canadian Securities Course (CSC), the FCA in the United Kingdom recognizes it under the

Retail Distribution Review (RDR) requirements for two regulated activities: Advising on

Securities (activity number two) and Advising and Dealing on Securities (activity number

twelve)1. In Hong Kong, the SFC includes CSI’s licensing examinations in the list of recognized

industry qualifications for several regulated activities.

Even though this recognition is important, CSI’s courses are not recognized in many other

countries and cannot be used to cover requirements for all job functions. Hence, licensed

practitioners in Canada who wish to take their expertise to other markets have to sit and complete

additional exams, which represent a significant testing burden.

One example is the United States, where FINRA requires those licensed as General Securities

Representatives in Canada to complete the Series 37 Exam. As explained in FINRA’s website:

“The Series 37 examination is designed to address the duplication of certain qualification

requirements in the United States and Canada. Properly registered individuals in Canada may be

eligible to act as a General Securities Representative in the United States by obtaining the Canada

Securities Representative (CD) registration. The CD registration is obtained by passing the Series

37 examination and by meeting certain Canadian eligibility requirements that are recognized by

FINRA as an appropriate prerequisite to take the Series 37 examination.” As a result of this, firms

and individuals incur costs due to their inability to passport automatically. 1 According to our knowledge other CSI courses are also recognized by the FCA under RDR, such as the CSI’s Derivatives

Fundamentals Course or the Futures and Options Licensing Course.

There are, however, other qualifications such as the CFA charter that have significant recognition

around the world by regulatory authorities and that allow for the passporting process to be more

seamless. To further illustrate this, consider the steps that a hypothetical Canadian investment

advisory firm focused on retail clients would have to take to have its employees licensed in both

Canada and the United States. To be licensed as a Registered Representative – Retail (Investment

Advisor) in Canada, individuals must complete the following CSI courses:

Canadian Securities Course (CSC)

Conduct and Practices Handbook Course (CPH)

Wealth Management Essentials (WME)

In the United States, to become a Registered Investment Advisor, FINRA requires successful

completion of the Series 65 exam. Because none of the above listed courses in Canada are

recognized by FINRA as meeting the competency guidelines to practice as an Investment Advisor

(or providing an exemption for the Series 65 exam), Canadian licensed professionals cannot

passport automatically and end up having to take additional exams, which is a cost and testing

burden.

In conclusion, this aspect of not being able to passport CSI qualifications in other countries for

certain job functions is a barrier to entry and puts Canadian professionals at a disadvantage.

Clearly if IIROC adopted an alternative proficiency model where qualifications such as the CFA

program would be listed as comparable to the existing licensing courses in Canada, this would

provide alternatives to Canadian professionals and firms. In this alternative model where the CFA

program is recognized by IIROC, individuals could become licensed by studying the CFA

program in Canada and at the same time would be exempt from FINRA’s Series Exams for

certain job roles. Thus they could practice in both markets automatically without encountering

any further barriers to entry in the form of licensing exams.

https://www.csi.ca/student/en_ca/courses/csi/csc.xhtml

https://www.csi.ca/student/en_ca/courses/csi/cph.xhtml

https://www.csi.ca/student/en_ca/courses/csi/wme.xhtml

Drawback 3b: Individuals with globally recognized industry qualifications are not approved by

IIROC.

The other important factor under the current framework is that finance professionals who hold a

globally recognized industry qualification do not have any recognition in Canada. Consequently,

if they wish to come and practice in Canada, they face significant barriers to entry and an

additional testing burden. As mentioned earlier, we believe this is unnecessary and not cost

effective.

Consequently, reducing the exclusivity of CSI in the licensing of individuals by accepting other

qualifications, such as the CFA program, we believe would be beneficial to the Canadian capital

markets in that it would increase the attractiveness of practicing in this market for the most

qualified investment practitioners in the world.

If IIROC were to accept globally recognized industry qualifications as meeting minimum

competency requirements, there would be the obvious benefit to the holders of those

qualifications (i.e. CFA candidates and charterholders) who would be able to leverage their

participation in these programs and reduce the additional testing burden they would otherwise

face to become licensed professionals in Canada.

Therefore, the lack of recognition for global qualifications is an issue that we believe should be

addressed in the next phase of the evolution of IIROC’s proficiency model. Currently, of all the

licensing examinations that CSI offers for regulated positions, only one accommodates new

entrants from other foreign jurisdictions. This is the case of Registered Representatives in Retail

(Investment Advisors) and the course is called the New Entrants Course (NEC). This course may

be taken by individuals registered in a recognized foreign jurisdiction in lieu of the CSC and CPH

(in conjunction with completion of a recognized foreign registration examination). The

individuals need to have been registered in one of the following countries within the past three

years: United States, United Kingdom, Hong Kong, France.

All the other examinations for regulated functions do not offer the new entrants course as a

possible route. Such is the case of licensing examinations for Investment Representatives,

https://www.csi.ca/student/en_ca/courses/csi/nec.xhtml

Registered Representative –Institutional, Registered Representative – Portfolio Management,

Registered Representatives to sell additional products, etc…

At CFA Institute, we believe that the offering of new entrant courses should be expanded to other

regulated roles so that, when combined with globally recognized industry qualifications,

individuals can become licensed to practice. Ideally, in the next phase of evolution for its

proficiency model, IIROC would not only accept licenses from other countries but also globally

recognized industry qualifications. The combination of a globally recognized industry

qualification with a new entrants course (to fill the gap in local rules and regulations) could

increase the attractiveness of the Canadian capital markets for many industry practitioners. Only

qualifications with significant recognition in different markets and globally relevant should be

allowed to participate in the framework.

Question 2: Please provide IIROC with information regarding your experiences under the existing

proficiency education and testing system.

CFA Institute appreciates the opportunity to share with IIROC the experiences of its Canadian members

and candidates under the existing IIROC proficiency model. Canada represents a very important market

for CFA Institute because we have more than 15,000 members and 17,500 candidates sitting for the CFA

exams each year, in addition to twelve CFA societies.

Prior to sharing the feedback received from our members and candidates regarding the existing

proficiency model, we would like to stress that CFA Institute does not represent any particular business

interest and can only speak for the views of its investment professional members, including portfolio

managers, investment analysts, and advisors in Canada.

1. Our membership in Canada is disappointed that CFA Institute programs’ have no recognition under

IIROC’s proficiency model.

Our members and candidates in Canada have expressed their disappointment with the fact that CFA

Institute’s programs are not recognized by IIROC. Our members’ preference for recognition has been

expressed to us in a variety of ways, and in considerable numbers, at global CFA society events,

roundtables, forums, and in annual member surveys. Their inability to use CFA Institute credentials (i.e.

the CFA program or the Claritas Investment Certificate) to meet minimum competency requirements has

created some frustration on their part, since the programs have been accepted by other regulators around

the world. We must note, however, that not having recognition has not deterred Canadian professionals

from continuing to pursue our credentials as they see great value in having them.

Since our membership in Canada is large and growing, we believe it is appropriate to encourage IIROC to

consider revising its proficiency model to accommodate the growing number of Canadian professionals

pursuing CFA Institute credentials. Our candidates and members represent a large percentage of the total

number of investment professionals in Canada. According to our latest market intelligence data, there are

just over 101 thousand investment professionals2 in Canada. As a result, CFA Institute members and

candidates represent approximately 32% of all Canadian investment professionals.

2. Our membership in Canada believes that CFA Institute programs’ have more breadth and depth of

content than the licensing exams offered by CSI.

Our members feel that our programs possess the breadth and depth of content investment professionals

require. Additionally, our programs represent a body of knowledge that exemplifies what an investment

professional should be. Thus, they regard CFA Institute programs’ Candidate Body of Knowledge

(CBOK) as equipping them better to practice in the industry.

From our members’ standpoint, the success that our programs have had over the years has been a function

of active practitioner involvement and the use of Global Practice Analysis to develop the CBOK. These

two aspects have acted as quality control mechanisms to ensure our programs meet the investment

industry standards in regards to knowledge and excellence of practice.

In the development of CFA Institute’s programs, practitioners are involved at every stage of the process

for the development of the programs’ curricula and exams. Additionally, CFA Institute conducts global

practice analysis by organizing a series of panels and committees consisting of prominent investment

practitioners from around the world. These panels are selected to represent the diversity in the profession

2 CFA Institute defines investment professionals as those working as portfolio managers, research analysts, relationship

managers, financial adviser, risk managers, corporate analyst, traders, etc…

with respect to geography, work setting, and professional role. The objective of these panels is to create

an inventory of critical responsibility and knowledge areas to guide the curriculum development process

of our programs. The results of these panels are incorporated into the CBOK, which is the scope of

knowledge needed for basic competence in investment management.

Apart from practitioner involvement and global practice analysis, members have also cited that CFA

Institute has introduced significant curriculum innovations over the years which have increased the

quality of the content. Historically, the curriculum was drawn from existing professional and academic

publications. After reviews were conducted, several disadvantages were identified with this format, as

off-the-shelf products typically contained a significant amount of material outside the CBOK. As a result

of these disadvantages, the decision was made to begin developing curriculum readings specifically for

our programs. These readings are authored by investment practitioners and leading academics and balance

the conceptual rigor with the application perspective of financial analysts and portfolio managers.

In summary, our members are emphasizing the value of the principles established for the development of

the curriculum of our Programs. These principles are:

Faithful to the practice analysis and CBOK

Valuable to members, employers and investors

Globally relevant

Generalist (as opposed to specialist) in nature

Appropriate for professionals

Replete with examples and practice problems both within and at the end of the

readings

Pedagogically sound in a self-study framework; and

Testable

When it comes to CSI’s programs, although our members realize that CSI abides by the quality and

service standards under its agreement with IIROC, they still perceive that enhancements could be made to

the quality, breadth and depth of the materials by improving on certain aspects of practice analysis and the

curriculum development process.

In regards to the breadth/depth of coverage issue, we must refer to the mapping results explained on the

prior bullet point where we presented the results of the mapping of CSC against the CFA Level 1 exam

and the Claritas Investment Certificate. The mapping results confirmed that CSC covers less than 25% of

the CFA Level 1 exam while the CFA Level 1 exam covers 84% of the CSC learning outcome statements.

In the case of Claritas, the programs are more comparable, with Claritas covering 84% of CSC while on

the other hand CSC approximately covers 80% of the Claritas program.

3. Our membership in Canada considers that the costs of licensing exams are too high.

Our members view the costs paid to enroll in CSI licensing exams as too high. In their view, the fees paid

per unit of content for CSI exams are expensive in comparison to other industry qualifications such as the

CFA program or the Claritas Investment Certificate.

Let’s compare for example the CSC course, the CFA Level 1 Exam and the Claritas Investment

Certificate. The enrollment fee for the CSC exam is CAD$985 (CAD$775 for IIROC members). The

CSC exam has 124 learning outcome statements. In contrast, first time candidates for the CFA Level 1

exam pay a one-time enrolment fee of CAD$4893 plus an additional fee depending on the registration

date: CAD$685 early registration, CAD$897 standard registration or CAD$1,315 for the late registration.

Returning CFA Level 1 exam candidates and candidates for the CFA Level 2 and Level 3 only pay fees

according to the registration window. The CFA Level 1 exam has 539 learning outcome statements

(LOS). In the case of the Claritas Investment Certificate the fees are CAD$745 and the number of

learning outcome statements are 149.

These three courses are roughly comparable in terms of exam fees. But a more in depth look reveals that

CSC exam fees are far more expensive in relation to the depth and number of units of content. One way

of illustrating this fact is to calculate the ratio of total cost to number of learning outcome statements.

Please refer to the table on the next page.

3 Foreign Exchange Rate used for conversion of prices: 1CAD$ = US$0.92

Table 1 – Comparison Table

Cost in CAD$ # of LOS CAD$ Cost/LOS

CSC (Non-IIROC member US$ Price) 985 124 7.94

CSC (IIROC member US$ Price) 775 124 6.25

New4 CFA Level 1 Exam (Early Registr.) 1,174 539 2.18

New5 CFA Level 1 Exam (Standard Registr.) 1,386 539 2.57

New6 CFA Level 1 Exam (Late Registr.) 1,804 539 3.34

CFA returning Level 1 Exam (Early Registr.) 685 539 1.27

CFA returning Level 1 Exam (Standard Registr.) 897 539 1.66

CFA returning Level 1 Exam (Late Registr.) 1,315 539 2.43

Claritas Investment Certificate 745 149 5.00

For the CSC course, we calculated a ratio of CAD$7.94 per unit of content using the CAD$985 retail

price. In the case of the IIROC member price of CAD$775, the ratio equals CAD$6.25 per unit of

content. This clearly contrasts with the ratio we calculated for the fees paid by new or returning CFA

Level 1 exam candidates depending on the registration window. Even in the worst case scenario, a new

CFA Level 1 candidate registering late, the price paid per unit of content is CAD$3.34, which is

significantly less than the CSC cost per unit of content. We must also note that the comparison is even

less favorable when considering the fees paid by returning CFA Level 1 candidates. These types of

candidates do not have to pay a one-time enrollment of CAD$489 like new CFA Level 1 candidates. As

to the Claritas Investment Certificate, the ratio equals US$5.00 which also compares very favorably to the

CSC cost paid per learning outcome statement.

In order to confirm our thesis in regards to costs, we decided to conduct a mapping analysis7. First, to

compare the CFA Level 1 program and the CSC program on the basis of depth of content, the Regulator

and Program Recognition (RPR) division at CFA Institute conducted two mapping exercises: i) a direct

mapping and ii) a reverse mapping exercise. In the direct mapping exercise, RPR matched the learning

outcome statements of the CFA Level 1 program to those of the CSC. Doing so demonstrates that the

CFA Level 1 program covers more than 84% of the content of the CSC course. In the second “reverse”

4 First time CFA Level I Exam candidates pay a one-time enrollment fee of CAD$489.



7 The results of the mapping exercises are explained and presented in a separate document.

mapping exercise, RPR matched the learning outcome statements of the CSC course to those of the CFA

Level 1. This approach shows that the CSC course covers less than 25% of CFA Level 1.

The results of these two mappings demonstrate that the CFA Level 1 program covers more topics and in

greater depth than the CSC course. The results also reinforce our members’ notion that the price paid for

the CSC course is too high in relation to the knowledge acquired and the depth of coverage in the CFA

program. Accordingly, our members perceive that the CFA program is a better value both in terms of

price and depth of knowledge relative to the CSC licensing course.

As to how the Claritas Investment Certificate fares against the CSC course, a direct mapping showed that

the overlap is close to 84%, while a preliminary reverse mapping exercise indicated that the CSC covers

almost 80% of the Claritas Investment Certificate. Therefore, the mappings reveal the programs are quite

comparable in nature, but the fees are quite a bit more expensive in the case of the CSC.

Question 3: Please discuss if and how your view of the existing IIROC proficiency education and

testing model is influenced by the cost of CSI courses.

CFA Institute’s views on IIROC’s existing proficiency model are influenced by the cost of the CSI’s

licensing examinations. We feel cost is an important factor that must be examined carefully when

evaluating the adequacy of a licensing framework, but by no means does it constitute the only factor on

which we based our opinions. As we demonstrated in the last section, while the costs of the CSC, CFA

Level I exam and Claritas Investment Certificate are comparable in an absolute sense, in relative terms of

cost vs. breadth and depth of content, CSC is far more expensive.

According to the exclusivity agreement signed between IIROC and CSI, course pricing was subject to

several provisions that looked to effectively cap prices. Over the 2006-2013 period, the prices of CSI

courses subject to the agreement increased by an average 2.5% per year for IIROC members. Price

increases have always been under the 4% limit with the exception of 2006 (where the increase was 4.6%)

and under 2.3% limit during the renewal term (2011-2013). Please refer to chart 1 on the next page.

Chart 1 - Average Price Increases weighted by enrollments for CSI Basket

0

1

2

3

4

5

2006 2007 2008 2009 2010 2011 2012 2013 2014

% -

Perc

en

tag

e I

nc

rease

CSI Courses

From the chart, it can be seen that even though prices increases have been capped to a certain extent and

have been declining over the years under the exclusivity agreement, there have been price increases every

single year and the trend seems about to reverse after the 2013 period. In view of this, our membership

believes that this pricing mechanism has not been as effective as intended, as prices have continued to

steadily rise each year and the fees paid for the exams are quite expensive when compared to other

programs in relative terms. Specifically, our membership considers that CSI courses priced are

significantly above our programs when taking into account the knowledge that can be attained and the

depth of the content covered.

Fee Comparison in relative terms

As we explained in question two, when calculating the ratio of total cost to number of learning outcome

statements in each course, we find that for the CSC using the IIROC member price of CAD$775 the ratio

equals CAD$6.25 per unit of content. This contrasts with the ratios calculated for the CFA Level 1 exam

and the Claritas Investment Certificate (please refer to Table 1 on page 12). Our calculations suggest that

those enrolling in the CSC course are paying significantly higher fees per unit of content than those

enrolling in our programs. Nonetheless, we said that the ratio result is just indicative and in order to

corroborate our assessment regarding depth we needed to conduct a mapping analysis.

Consequently, to confirm our assessment regarding the differences in the depth of coverage we conducted

mapping exercises which reinforced our notion that the price paid for the CSC courses is too high in

relation to the knowledge that is acquired and the depth of coverage provided (direct mapping of CFA

Level 1 exam versus CSC showed 84% coverage while a reverse mapping of CSC versus CFA Level 1

Exam indicated 24% coverage; a direct mapping of CSC versus Claritas indicates 84% coverage, while a

reverse mapping indicated 80% coverage). It is because of the results seen in this analysis that our

membership perceives CSI licensing courses as being too expensive. It is their view, that they are able to

get a lot more value and knowledge from our programs in relation to CSI licensing courses both in terms

of price and depth of knowledge.

CFA Program pricing mechanism and Historical Price Increases

In this subsection we present the CFA Institute pricing policy for the CFA Program. CFA Program fees

can include a one-time enrollment fee (only for first time CFA Level 1 candidates) and a registration fee.

The study materials and tools are included in the exam registration fee. The one-time enrollment fee is

payable when the candidate first registers for the CFA Program. This enrollment fee is CAD$489. As to

the exam registration, candidates may choose to register early for a reduced fee, or if they miss the

standard registration deadline, there is a late registration fee.

Exam Registration Deadlines and fees

Example for June 2015 Exam (Levels I, II, and III)

Type Price Deadline

Early registration CAD$685 (ends 24 September 2014)

Standard registration CAD$897 (ends 18 February 2015)

Late registration CAD$1,315 (ends 18 March 2015)

As we mentioned in the prior section, there are three windows for registration with prices being

significantly higher for those waiting until the last minute to register. Under our pricing structure

candidates are encouraged to register early.

Historical Pricing Data

At CFA Institute over the years there have been price increases mostly to adjust for inflation and to reflect

curriculum innovations. Prior to 2008, the curriculum was drawn from existing professional and academic

publications and candidates were responsible for purchasing this off the shelf curriculum materials. This

however changed in 2008 in response to candidate demand and after the CFA Institute advisory

committee realized the disadvantages of requiring off-the-shelf sources.

Consequently, CFA Institute began providing that year the curriculum materials to candidates. The

Institute sequenced the learning outcome statements, assigned readings in conformity to the study

sessions and assembled those components into self-contained volumes distributing the materials to

candidates. To reflect this change CFA Institute increased its registrations fees (not the one-time fee) by

almost CAD$260 for all types of registration windows. Aside from this one time increase, CFA program

fees have typically increased to reflect inflation and other content development costs but these increases

have mainly impacted the late registration window. As cited in prior sections, CFA Institute offers lower

fees for those that register early and looks to discourage late registration by requiring much higher late

fees. In spite of these efforts CFA Institute still sees that a significant pool of candidates chooses to

register late.

To compare our historical pricing data to that of CSI, we calculated the price increases for the one-time

fee and all the registration windows and weighted them by the number of enrollments seen in each

calendar year. We consider that our historical pricing data can help shed some light as to the benefits that

IIROC and its membership could enjoy by relying on other service providers for providing courses and

administering exams. Please note that our historical pricing data starts in 2009 since that was the period in

which we started providing candidates with study materials. Using the data after 2009 allows for a fair

comparison with CSI’s data, as CSI charges candidates for providing them with study materials. As cited

earlier, prior to 2008 the CFA Institute required candidates to purchase the study materials off-the shelf.

Please refer to Chart 2 on the next page.

Chart 2 – Average Price Increases weighted by enrollments for the CFA Program

From chart 2, it can be seen that the CFA Program historical fee increases compare rather favorably with

CSI's. The increases have remained in check and after the year 2012 have begun an exhaustion/downward

phase resulting in negative increases for the early registration and standard windows, as well as the one-

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2006 2007 2008 2009 2010 2011 2012 2013 2014

% -

Per

cen

tag

e In

crea

se

CSI Course Basket

CFA One time Fee

CFA Early Registration

CFA Standard Registration

CFA Late Registration

time fee. The late registration line (yellow color) on the contrary has seen steady increases, which

confirms what we said earlier about discouraging late registrants by increasing fees.

Claritas pricing mechanism and Historical Price Increases

Claritas pricing does not vary by registration window as the course is offered all year round. The fees are

CAD$745. Unfortunately, we cannot provide IIROC with sufficient historical pricing data as the program

was launched in May 2013. Since the launch date, there have not been any cost increases.

Overall Conclusion

Therefore, our conclusion is that although CSI may be able to defend that an exclusive arrangement has

somewhat helped keep the rate of price increases in check, our analysis shows that prices set by free

markets tend to not increase in price at a greater rate than in a “monopolistic” arrangement.

Even though the provisions put in place in the exclusive arrangement looked to cap prices, price increases

were seen in all years for the basket of CSI’s products. A model that could be used, instead of setting

price controls, is to allow for supply and demand forces to determine a fair price. Such model would

consist of multiple providers where providers can determine a fair price for their products based on

demand. At CFA Institute, we believe regulators can defer and trust to providers the role of setting fair

and competitive prices so long as a competitive environment is promoted. Generally, in our experience

providers when put in competition can help ensure prices remain in check without seeing unreasonable

increases and maximizing value for individuals.

Question 4: Please comment on the benefits and drawbacks of the alternative models, or elements

of alternative models, discussed in this paper as well as their relevance and viability given the

existing IIROC approval scheme and enrolment statistics.

CFA Institute appreciates the opportunity to comment on alternative models. In this section we discuss

the benefits and drawbacks we identified for each of the benchmarked alternative models and examine

their relevance and viability given the existing IIROC approval scheme and enrollment statistics.

1. Financial Industry Regulatory Authority (FINRA).

Model Benefits:

Significant economies of scale: in the United States, there is a large pool of existing and prospective

licensees. As a result of this, per capita costs to members for the funding of the regulatory oversight

structure are much smaller on a comparative basis relative to other jurisdictions.

Open to providers for training purposes: under FINRA’s model, there is a market for training

providers to create study materials and develop courses for candidates seeking instruction and exam

preparation.

Practitioner involvement: FINRA engages and oversees industry committees that assist in the

development and updating of competency profiles, exam questions, and content outlines.

Open to other industry qualifications for certain job roles: FINRA accepts other industry

qualifications (such as the CFA program) as meeting the minimum competency requirements to

practice for certain job roles (i.e. Series 65, Series 86 and Series 16).

Model Drawbacks

Model places significant regulatory oversight responsibility on FINRA: the Authority is in charge of

overseeing the development and administration of exams.

Operational infrastructure needs: FINRA has large staff needs in order to oversee the creation,

updating of competency profiles, content outlines, and examinations.

Limited Continuing Education offering: FINRA continuing education requirements can only be met

through FINRA’s continuing education courses.

Relevance and Viability:

FINRA’s model is definitely relevant but in our view is not viable considering IIROC’s approval scheme

and enrollment statistics. Clearly, if IIROC were to implement this model it would require a much bigger

operational infrastructure and access to additional funding to support the hiring of new staff. Additionally,

IIROC members would have to be significantly more involved to support the industry committees. All

this could prove a substantial burden to IIROC’s members in terms of cost and level of engagement.

Since current enrollment statistics indicate that IIROC would not benefit from FINRA’s economies of

scale, we do not think it would be wise to try to replicate FINRA’s exact model without adjusting for the

potential increases in costs and the smaller pools of existing and prospective licensees. Moreover,

FINRA’s model also differs conceptually from IIROC’s current approval scheme in the sense that it only

focuses on examination requirements for licensed professionals while IIROC has a more integrated

approach focusing on both providing education and testing.

2. Financial Conduct Authority (FCA)

Benefits

Multiple provider system: the FCA accepts multiple providers within its licensing framework for

retail investment advisers. The providers offer qualifications that compare well to the examination

standards set by the FCA. The model is flexible and allows choices for investment professionals.

Focus on examination standards: the Authority does not have any involvement in the provision of

education. The FCA only focuses on examination standards.

Firm responsibility: in this model, the burden to ensure employees meet ongoing competency

requirements is placed on firms subject to FCA regulation. FCA reviews policies implemented by

firms. This is similar to IIROC’s model for ensuring compliance with ongoing continuing education

requirements.

Drawbacks

Only certain retail activities are subject to FCA requirements: Competency requirements are only

applicable to retail activities.

FCA in charge of reviewing provider applications and determining acceptance: This requires

staff/infrastructure to review all the providers’ applications.

Relevance and Viability

We see the FCA’s model as being relevant and viable for IIROC’s implementation. In our view, the FCA

model has worked very well in the United Kingdom and requires a significantly smaller regulatory

oversight structure. By adopting this model IIROC would only have to focus on providing a unified

minimum standard in terms of examination standards, and accredit only those providers that meet those

standards.

The FCA model is relevant to IIROC since both regulators have a similar number of licensed

professionals subject to their jurisdiction. Economies of scale will be similar since the FCA currently has

32,690 licensed advisers while IIROC has 27,976 approved persons.

In terms of viability, it is clear that a multiple provider system drives competition for costs and quality of

content. This benefits investment professionals the most as they have more flexibility and control over

their own education, thus allowing them to make choices that suit their career needs. The model also

benefits industry firms (the members) because they do not have to support a large regulatory oversight

infrastructure since the regulator is not in charge of providing both education and testing. Although it

seems IIROC is concerned that if it were to adopt a multiple provider system similar to that of the FCA, it

would be required to review applications of providers and qualifications covering all approved persons’

proficiencies, we do not believe this should be a deterrent. IIROC’s worry comes from the fact that the

FCA only requires competency requirements for certain retail activities, while IIROC oversees the

activities of all approved persons. The concern is justified in the sense that because IIROC oversees many

more activities the burden to accredit providers would be significant. However, one way to limit this

burden would be to set limits to the number of providers/qualifications allowed for each activity. The

providers/qualifications would be approved for a certain period and subject to review every two years.

Implementing the FCA model with a number of limited providers, we believe should not require

significant additional resources on the part of IIROC and would provide some flexibility especially in the

initial stages of implementation.

Another important factor to consider is that the FCA model would allow for further harmonization within

the Canadian regulatory model as it has a similar construct to that of the Canadian Securities

Administrators (CSA). The Canadian capital markets are quite fragmented in nature and so further

harmonization can help establish uniformity at the national and provincial level in the financial industry.

The CSA model accepts industry qualifications as meeting competency requirements in the industry.

In regards to concerns that foreign qualifications may not have sufficient content on Canadian local rules

and regulations, we believe this hurdle can also be overcome. In such a situation, gap-fill courses can be

designed to provide the missing local knowledge component. The gap-fill courses, when combined with

the chosen foreign qualification, will be designed to meet the minimum competency requirements. For

example, a new entrants course, such as the one CSI already offers to individuals who want to be licensed

Retail Investment Advisors in Canada, could be created for all types of approved persons so that licensing

requirements could be met.

Finally, the FCA model has been adopted by other regulators in very important financial centers, such as

the Monetary Authority of Singapore (MAS). The MAS, in partnership with the Institute of Banking and

Finance Singapore (IBF), implemented a multiple provider system to promote continuous learning and

the highest standards of workforce competency in Singapore. IBF is currently the national accreditation

and certification agency for financial industry competency in Singapore. The IBF Standards represent a

set of competency standards developed by the industry, for the industry. It provides a practice-oriented

development roadmap for financial sector practitioners to attain the necessary training to excel in their

respective job roles.

Covering thirteen industry segments spanning more than 50 specializations, the IBF Standards offer a

comprehensive suite of accredited training and assessment programmes to guide a financial sector

practitioner from licensing examinations on through to certification across three levels: IBF Qualified (for

new entrants); IBF Advanced (for senior practitioners and specialists); IBF Fellows (for industry

veterans). An IBF certified practitioner is one who epitomizes the values of professional excellence,

integrity, and a strong commitment to industry development.

The IBF Standards accreditation process comprises independent reviews of a training provider’s ability to

conduct programmes that meet industry standards. IBF accreditation serves as an industry endorsed mark

of quality for training and assessment for the financial industry.

3. Canadian Insurance Sales:

Benefits

Multiple accredited course providers: The Canadian Insurance Sales framework has the benefit of

multiple accredited course providers.

Not fully harmonized: The CIS licensing model is in the process of being harmonized across all

provinces, which will result in a common exam for all jurisdictions.

Drawbacks

Only one exam is accepted: To become licensed to sell insurance in Canada individuals must

successfully complete the Life License Qualification Program (LLQP).


The model is relevant, although the size of the market is much smaller than the size of IIROC’s number of

approved persons. In terms of viability, we think this model would be more difficult to implement as

course providers must prepare candidates for the same standardized test, but they are not accredited to

administer the test. In addition we feel that this model would be less compatible with some of the

practices that have been adopted by provincial regulators. The FCA or CSA models would have a better

chance of succeeding and fit right in with some of the models at the provincial level which may result in

further harmonization.

4. Canadian Securities Administrators:

Benefits

Recognition of certain examinations and designations: The CSA recognizes individuals upon

completion of specific industry exams or programs such as the Canadian Securities Course, the

Canadian Investment Funds Course and/or certain designations such as the CFA charter.

Drawbacks

Not all provinces subscribe to the proficiency model.


In terms of viability, we believe this model is viable and has the added advantage that it has already been

implemented in Canada, so provincial securities regulators are already familiar with it. However, we do

not think this model grants the same level of flexibility as the FCA’s and thus our recommendation to

IIROC to consider the better FCA model option. In addition the volume of registrants is above the

120,000 mark, which is significantly above IIROC’s.

Still, we cannot deny that the CSA model has some advantages. If IIROC were to implement such a

model, we believe it would be beneficial for the Canadian capital markets since it would be perceived as a

forward step towards further harmonization between provincial and national regulators. The Canadian

capital markets are quite fragmented with many different regulatory agencies across the country.

Harmonizing standards at both the provincial and national levels would simplify the regulatory

framework for firms and individuals. We also think this model has cost advantages since it does not

require a large oversight structure since it relies heavily on the provincial regulators.

Summary - CFA Institute Recommendation

Out of the four benchmarked models discussed in this consultation paper, we believe that the Financial

Conduct Authority (FCA) model is the most relevant and viable for IIROC. Our reasoning is that this

model would allow for further harmonization in Canada while providing a unified minimum standard

with a significantly smaller regulatory oversight structure. In addition, the model allows for a multiple

provider system which can drive competition for costs, quality of content and provide financial

professionals with choices in regards to their education.

It is worth noting, that the FCA model has been adopted by other regulators such as the Monetary

Authority of Singapore (MAS). The MAS, in partnership with the Institute of Banking and Finance

Singapore (IBF), implemented a multiple provider system to promote continuous learning and the highest

standards of workforce competency in Singapore.

Considering all of the above, we encourage IIROC to consider implementing the FCA model should it

decide to transform its proficiency model. We believe the FCA model serves the public interest, would

meet IIROC’s regulatory needs as well as the needs of its members and the industry, taking into account

cost, enrollment volumes, and other factors.

If IIROC were to adopt this model, CFA Institute would seek accreditation with IIROC for both the

Claritas Investment Certificate and the CFA program (CFA charter and CFA Level 1 program). CFA

Institute could combine its programs with a gap fill course that covers local Canadian rules and

regulations. CFA Institute has experienced in doing this as evidenced by the recognition it has obtained in

the United Kingdom with the FCA under the Retail Distribution Requirements. In this case the CFA

program in combination with the Investment Management Certificate (gap fill course) helps meet

competency requirements for those wishing to advise and deal in securities and derivatives. The IMC

course covers local rules and regulations in the United Kingdom.

Question 5: Please share your experiences with alternative models.

Our experiences as a service provider have been positive with alternative models, especially in the case of

FINRA, the FCA (or MAS in Singapore) and the Canadian Securities Administrators (CSA). All of their

proficiency models are flexible and permit more than one service provider/qualification to be part of the

licensing framework for certain job roles within the investment industry. As a result of this flexibility, the

CFA program enjoys significant recognition, and is considered an important industry qualification that

can help meet minimum competency requirements.

What are some of the common experiences within these proficiency models?

FINRA, the FCA and CSA maintain high proficiency standards and robust proficiency regimes. Under

these proficiency models, CFA Institute’s programs have gained broad acceptance and benefitted the local

capital markets.

The first common experience we can share is that our programs have achieved a great deal of acceptance

in these markets. When we contacted regulators to be part of their proficiency regimes, FINRA, FCA and

CSA already understood the value employers and individuals place on our programs, and the credibility

they have. Given the rigor and nature of our programs, regulators have seen fit to recognize our programs

as a means to assess competency.

Another shared experience has been seeing how granting recognition to CFA Institute programs has

benefitted the local capital markets. From our standpoint, capital markets in the United States, United

Kingdom and Canada (and many other countries) have benefitted by being able to attract the most

qualified investment practitioners in the world. We must note that a Chartered Financial Analyst has

successfully completed all three levels of the CFA program, completed a minimum of four years of

relevant professional experience and, most importantly, agreed to abide by the strict Code of Ethics and

Standards of Professional Conduct of CFA Institute.

In essence a charterholder has:

Breadth and depth of knowledge:

CFA charterholders have acquired solid theoretical and practical knowledge in risk management,

financial reporting and analysis, corporate finance, fixed income, equity investments, derivatives,

alternative investments, quantitative methods, economics, corporate governance, portfolio

management, wealth planning, and performance measurement.

A global perspective

Maintains a global perspective while understanding the unique characteristics of the local

marketplace.

Belongs to a large global organization with members in more than 134 countries. CFA Institute is

a leading global voice in policy debates on market integrity.

As a member of CFA Institute, benefits from a tight network of finance professionals

A well rounded professional

Going through a program as rigorous and demanding as the CFA Program should help

charterholders make more thoughtful and careful decisions for the benefit of his or her clients

As an experienced professional, has gained investment related and ethical skills

May fill a wide range of positions, from junior analyst to chief executive, in boutiques and large

financial institutions.

Another experience worth mentioning has been how CFA Institute has devised ways to fill the local

regulatory gaps within our programs following the request from regulators. Understandably, regulators

want individuals who practice within their jurisdiction to demonstrate both competence within the

investment field as well as appropriate knowledge about local laws, rules, and regulations. But because

our programs are global in nature, they do not address local laws, rules, and regulations. In order to

achieve recognition under various regulatory regimes, we have had to find ways to fill this gap. We have

addressed these gaps by creating “bridges”, or local regulatory papers. For example, in the United

Kingdom, the Investment Management Certificate (IMC) (awarded by the CFA Society of the United

Kingdom), when combined with the CFA Level 1 exam, meets the FCA’s Retail Distribution Review

requirements for advising and dealing in securities and derivatives.

Recognition under FINRA’s proficiency model

In the United States, for certain industry functions, FINRA considers the CFA program as being

equivalent to some of its series examinations:

FINRA exempts those who have passed CFA Level 1 and Part I of the NYSE Supervisory

Analysts Qualification Exam (Series 16) from Part II of this two part exam.

FINRA grants a waiver from the Series 86 exam for successful CFA Level 2 candidates who

function as research analysts; and

FINRA also grants a waiver from the Uniform Investment Adviser Examination (Series 65) for

CFA charterholders.

Recognition under the FCA’s proficiency model

In the United Kingdom, the FCA has approved Level 1 of the CFA program plus the full Investment

Management Certificate qualification as being RDR compliant for those advising and dealing in securities

and derivatives.

The combination of these two qualifications is listed by the FCA (on the Appropriate Qualifications table)

as fully meeting requirements of the Retail Distribution Review (RDR). Please note that this works in

combination. That is, IMC (level 4) or CFA Level I alone are not RDR compliant.

For those who hold the CFA charter, the FCA approved the CFA plus IMC Unit 1: The investment

environment, as RDR compliant for those advising and dealing in securities and derivatives.

The combination of these two qualifications is listed by the FCA (on the Appropriate Qualifications table)

as fully meeting requirements of the Retail Distribution Review (RDR). Once again, this works in

combination since neither IMC Unit 1 nor the CFA charter alone are RDR compliant.

The Investment Management Certificate (IMC) qualification consists of two units. Unit 1, entitled “The

Investment Environment”, covers ethics, regulation, legal concepts, taxation, and how these topics relate

to managing the advisor/client relationship. Unit 2, called “Investment Practice”, covers investment

management theory, economics, accounting, asset classes, and quantitative methods. The IMC is one of

the most widely recognised and established qualifications of its kind in the UK. The IMC has been used

by investment professionals for over 15 years, and is taken by staff in leading investment firms in the UK

and elsewhere. The IMC is the industry's benchmark entry level qualification.

Recognition under the Canadian Securities Administrators (CSA) proficiency model

Under the National Instrument 31-103 (Registration Requirements, Exemptions and Ongoing Registrant

Obligations), the CSA prescribes the minimum level of proficiency necessary for registration as a

representative or a chief compliance officer. The CSA recognizes successful completion of specific exams

and/or certain designations, such as the CFA charter.

Per NI 31-103, for the following industry roles, the CFA charter is recognized as meeting competency

requirements (please note all excerpts are taken from the NI 31-103):

i. Mutual Fund Dealer – Dealing Representative: “A dealing representative of a mutual fund

dealer must not act as a dealer in respect of the securities listed in section 7.1(2)(b) unless any of

the following apply”: (a) the individual has passed the Canadian Investment Funds Course Exam,

the Canadian Securities Course Exam or the Investment Funds in Canada Course Exam; (b) the

individual has met the requirements of section 3.11 [portfolio manager – advising representative];

(c) the individual has earned a CFA Charter and has gained 12 months of relevant securities

industry experience in the 36-month period before applying for registration” [….]

ii. Exempt Market Dealer – Dealing Representative: “A dealing representative of an exempt

market dealer must not perform an activity listed in section 7.1(2)(d) unless any of the following

apply: (a) the individual has passed the Canadian Securities Course Exam; (b) the individual has

passed the Exempt Market Products Exam; (c) the individual has earned a CFA Charter and has

gained 12 months of relevant securities industry experience in the 36-month period before

applying for registration” […]

iii. Portfolio Manager – Advising Representative: “An advising representative of a portfolio

manager must not act as an adviser on behalf of the portfolio manager unless any of the following

apply: (a) the individual has earned a CFA Charter and has gained 12 months of relevant

investment management experience in the 36-month period before applying for registration; (b)

the individual has received the Canadian Investment Manager designation and has gained 48

months of relevant investment management experience, 12 months of which was gained in the

36-month period before applying for registration.”[…]

iv. Portfolio Manager – Associate Advising Representative: “An associate advising representative

of a portfolio manager must not act as an adviser on behalf of the portfolio manager unless any of

the following apply: (a) the individual has completed Level 1 of the Chartered Financial Analyst

program and has gained 24 months of relevant investment management experience; (b) the

individual has received the Canadian Investment Manager designation and has gained 24 months

of relevant investment management experience.”[…]

v. Portfolio Manager – Chief Compliance Officer: “A portfolio manager must not designate an

individual as its chief compliance officer under subsection 11.3(1) [designating a chief

compliance officer] unless any of the following apply: (a) the individual has: (i) earned a CFA

Charter or a professional designation as a lawyer, Chartered Accountant, Certified General

Accountant or Certified Management Accountant in a jurisdiction of Canada, a notary in Québec,

or the equivalent in a foreign jurisdiction, (ii) passed the PDO Exam or the Chief Compliance

Officers Qualifying Exam and, unless the individual has earned the CFA Charter, the Canadian

Securities Course Exam, and (iii) either A) gained 36 months of relevant securities experience

while working at an investment dealer, a registered adviser or an investment fund manager, or B)

Provided professional services in the securities industry for 36 months and also worked at a

registered dealer, a registered adviser or an investment fund manager for 12 months”;[…]

vi. Investment Fund Manager – Chief Compliance Officer: An investment fund manager must

not designate an individual as its chief compliance officer under subsection 11.3(1) [designating a

chief compliance officer] unless any of the following apply: (a) the individual has(i) earned a

CFA Charter or a professional designation as a lawyer, Chartered Accountant, Certified General

Accountant or Certified Management Accountant in a jurisdiction of Canada, a notary in

Québec or the equivalent in a foreign jurisdiction (ii) passed the PDO Exam or the Chief

Compliance Officers Qualifying Exam and, unless the individual has earned the CFA

Charter, the Canadian Securities Course Exam, and iii) either A) gained 36 months of relevant

securities experience while working at a registered dealer, a registered adviser or an investment

fund manager, or B) provided professional services in the securities industry for 36 months and

also worked in a relevant capacity at an investment fund manager for 12 months.” […]

From the excerpts above it can be seen that the CFA program is well recognized under the CSA

proficiency model.

Question 6: Please discuss the criteria that you believe should be employed for education and

examination providers.

In its position paper under Section IV, IIROC outlines a set of evaluation criteria it expects service

providers to possess. CFA Institute agrees with the five criteria chosen by IIROC. Specifically, we believe

it is appropriate that providers should have:

Regulatory sensitivity: a high degree of regulatory sensitivity as well as an understanding of

regulatory trends and requirements.

Expertise: have educational and pedagogical expertise as well as robust processes to ensure fair

testing. Subject matter experts should be involved in preparing, and maintaining the course and

examination materials.

Accessibility: ability to offer and administer courses and examinations across Canada as well as

capacity to offer flexible examination scheduling.

Cost-value proposition: ability to offer courses and examination services at competitive prices.

Examination administration: have procedures to safeguard security of the bank of test questions

and implementation of ethical walls to avoid possible conflicts of interest as well as appropriate

infrastructure.

In addition to these five criteria, CFA Institute recommends that IIROC also considers incorporating six

additional criterions:

1. Act in the public interest: service providers should also be required to i) act in the best interests of

the public, ii) actively contribute to raising professional standards in the investment industry and

iii) support the development of the investment profession.

2. Practitioner focus: service providers’ courses should focus on the investment profession from

the standpoint of a practitioner. Allowing practitioners to be involved at every stage of the

process (i.e. curriculum, exam development, etc…) is a decisive factor in ensuring that the

qualifications offered are in line with industry standards and relevant to industry participants.

3. Employability: IIROC should make certain that qualifications offered by service providers have

broad industry support and lead to employability. It is preferable that qualifications that are

recognized by employers in the financial industry be allowed to participate in the licensing

framework.

4. Global Recognition: this criterion would ensure that only service providers that offer courses

recognized by regulators around the world enter the licensing framework. Recognition is

important because it adds credibility and allows for professionals to practice in different

jurisdictions. The ability to passport your qualifications is definitely “valuable currency”.

5. Code of Ethics: service providers should be required to have their own code of ethics and

standards and ensure that its code does not contain any provisions that would conflict with

IIROC’s standards.

6. Professional Conduct Program: to protect the integrity of the membership, designations, and

examination programs, providers must have in place a professional conduct program. The

program would administer the disciplinary process by monitoring compliance, investigating

allegations, conducting disciplinary proceedings and imposing sanctions if necessary.

7. Ongoing cooperation with IIROC: service providers must provide IIROC with documents and

information as IIROC reasonably requires in an open and transparent manner.

We would be pleased to discuss our comments in greater detail, or to provide any other assistance that

would be helpful. If you have any questions, please do not hesitate to contact us.

Yours sincerely,

On behalf of CFA Institute:

Thomas R. Robinson, Ph.D., CFA, CAIA, CFP®

Managing Director, Americas

CFA Institute 915 East High Street

Charlottesville, VA

22902-4868 USA

Phone +1 434 951 5360

Email: [email protected]

Kurt N. Schacht, JD, CFA

Managing Director, Standards and Financial Market Integrity Division

CFA Institute

477 Madison Avenue, 22nd

Floor

New York, NY 10022 USA

Phone +1 212 756 7728

Email: [email protected]

mailto:[email protected]

mailto:[email protected]

Appendix A

Historical Price Increases Weighted by Enrollments for all

CFA Program Registration Windows

I. Number of registrations by window and weights

Number of Registrations by Window Percentage of Total

Year Early Standard Late Total NLI* %NL1 %Early % Standard %Late 2006 48,624 59,343 8,168 116,135 65,000 55.97% 41.87% 51.10% 7.03% 2007 49,822 77,898 9,784 137,504 70,000 50.91% 36.23% 56.65% 7.12% 2008 56,928 101,686 18,127 176,741 77,892 44.07% 32.21% 57.53% 10.26% 2009 65,861 115,973 20,741 202,575 84,772 41.85% 32.51% 57.25% 10.24% 2010 68,446 117,684 16,125 202,255 75,120 37.14% 33.84% 58.19% 7.97% 2011 66,006 127,170 17,719 210,895 82,565 39.15% 31.30% 60.30% 8.40% 2012 66,026 138,621 16,060 220,707 87,002 39.42% 29.92% 62.81% 7.28% 2013 69,198 128,754 17,090 215,042 82,501 38.37% 32.18% 59.87% 7.95% 2014 75,706 120,847 16,207 212,760 80,716 37.94% 35.58% 56.80% 7.62%

* NLI: New CFA Level I Reg.

II. Historical Price Increases weighted by enrollments

Historical Prices in CAD$

Historical Price Increases Weighted by Enrollments

Year One-time

Early Standard Late %One-time %Early %Standard %Late

2006 407

0.00% 2007 424

1.76%

2008 424 652 748 1,010 0.00% 2009 424 652 750 1,010 0.00% 0.00% 0.17% 0.00%

2010 435 674 772 1,038 0.96% 1.13% 1.69% 0.21%

2011 440 685 783 970 0.49% 0.50% 0.85% 0.13%

2012 457 707 810 1,054 1.47% 0.95% 2.18% 0.26%

2013 478 739 848 1,147 1.90% 1.49% 2.81% 0.40%

2014 478 674 870 1,271 0.00% -3.14% 1.46% 0.83%

Summary Table - Direct Mapping (CFA Level I Mapped to CSC)

# of Matching CSC Modules # of CSC LOS CFA Level I LOS % Matching

Module 1: The Capital Market 4 4 100% Module 2: The Canadian Securities Industry 5 4 80% Module 3: The Canadian Regulatory Environment 5 3 60% Module 4: Economic Principles 7 7 100% Module 5: Economic Policy 5 5 100% Module 6: Fixed Income Securities: Features and Types 7 7 100% Module 7: Fixed Income Securities: Pricing and Trading 6 6 100% Module 8: Equity Securities: Common and Preferred Shares 3 3 100% Module 9: Equity Securities: Equity Transactions 5 5 100% Module 10: Derivatives 6 6 100% Module 11: Financing and Listing Securities 6 5 83% Module 12: Corporations and their Financial Statements 5 5 100% Module 13: Fundamental and Technical Analysis 5 5 100% Module 14: Company Analysis 4 4 100% Module 15: Introduction to the Portfolio Approach 5 5 100% Module 16: The Portfolio Management Process 5 5 100% Module 17: Evolution of Managed and Structured Products 3 2 67% Module 18: Mutual Funds: Structure and Regulation 4 2 50% Module 19: Mutual Funds: Types and Features 4 3 75% Module 20: Segregated Funds and Other Insurance Products 4 0 0%

1

Module 21: Hedge Funds 4 4 100% Module 22: Exchange Listed Managed Products 4 3 75% Module 23: Fee Based Accounts 2 2 100% Module 24: Structured Products 5 2 40% Module 25: Canadian Taxation 4 0 0% Module 26: Working with the Retail Client 3 3 100% Module 27: Working with the Institutional Client 3 3 100%

Total 123 103 84%

2

Summary Table - Reverse Mapping (CSC Mapped to CFA Level I)

# of Matching

CSC Modules

# of CFA LOS CSC LOS

% Matching

Reading 1 Code of Ethics and Standards of Professional Conduct 3 3 100% Reading 2 Guidance for Standards I-VII 3 3 100% Reading 3 Introduction to the Global Investment Performance Standards (GIPS) 3 0 0% Reading 4 Global Investment Performance Standards (GIPS) 4 0 0% Reading 5 The Time Value of Money 6 0 0% Reading 6 Discounted Cash Flow Applications 6 1 17% Reading 7 Statistical Concepts and Market Returns 13 0 0% Reading 8 Probability Concepts 15 0 0% Reading 9 Common Probability Distributions 18 0 0% Reading 10 Sampling and Estimation 11 0 0% Reading 11 Hypothesis Testing 11 0 0% Reading 12 Technical Analysis 8 5 63% Reading 13 Demand and Supply Analysis: Introduction 13 2 15% Reading 14 Demand and Supply Analysis: Consumer Demand 6 0 0% Reading 15 Demand and Supply Analysis: The Firm 12 0 0% Reading 16 The Firm and Market Structures 8 0 0% Reading 17 Aggregate Output, Prices, and Economic Growth 15 3 20% Reading 18 Understanding Business Cycles 9 8 89% Reading 19 Monetary and Fiscal Policy 20 13 65% Reading 20 International Trade and Capital Flows 10 2 20% Reading 21 Currency Exchange Rates 10 1 10%

3

Reading 22 Financial Statement Analysis: An Introduction 6 2 33% Reading 23 Financial Reporting Mechanics 7 1 14% Reading 24 Financial Reporting Standards 9 0 0% Reading 25 Understanding Income Statements 12 1 8% Reading 26 Understanding Balance Sheets 8 2 25% Reading 27 Understanding Cash Flow Statements 9 1 11% Reading 28 Financial Analysis Techniques 7 4 57% Reading 29 Inventories 8 0 0% Reading 30 Long-Lived Assets 11 0 0% Reading 31 Income Taxes 10 0 0% Reading 32 Non-Current (Long-Term) Liabilities 11 0 0% Reading 33 Financial Reporting Quality 9 0 0% Reading 34 Financial Statement Analysis: Applications 5 0 0% Reading 35 Capital Budgeting 6 0 0% Reading 36 Cost of Capital 12 0 0% Reading 37 Measures of Leverage 5 0 0% Reading 38 Dividends and Share Repurchases: Basics 6 2 33% Reading 39 Working Capital Management 7 0 0% Reading 40 The Corporate Governance of Listed Companies: A Manual for Investors 7 0 0% Reading 41 Portfolio Management: An Overview 5 4 80% Reading 42 Portfolio Risk and Return: Part I 8 6 75% Reading 43 Portfolio Risk and Return: Part II 8 0 0% Reading 44 Basics of Portfolio Planning and Construction 7 7 100% Reading 45 Market Organization and Structure 12 11 92% Reading 46 Security Market Indices 11 4 36% Reading 47 Market Efficiency 7 1 14% Reading 48 Overview of Equity Securities 8 2 25%

4

Reading 49 Introduction to Industry and Company Analysis 11 1 9% Reading 50 Equity Valuation: Concepts and Basic Tools 11 4 36% Reading 51 Fixed-Income Securities: Defining Elements 6 3 50% Reading 52 Fixed-Income Markets: Issuance, Trading, and Funding 8 7 88% Reading 53 Introduction to Fixed-Income Valuation 9 3 33% Reading 54 Introduction to Asset-Backed Securities 8 4 50% Reading 55 Understanding Fixed-Income Risk and Return 12 1 8% Reading 56 Fundamentals of Credit Analysis 10 1 10% Reading 57 Derivative Markets and Instruments 5 4 80% Reading 58 Basics of Derivative Pricing and Valuation 15 5 33% Reading 59 Risk Management Applications of Option Strategies 2 2 100% Reading 60 Introduction to Alternative Investments 7 3 43%

Total 529 127 24%

5

Summary Table - Direct Mapping - Claritas Mapped to CSC

# of Matching

CSC Modules # of CSC LOS Claritas LOS %

Matching

Module 1: The Capital Market 4 4 100% Module 2: The Canadian Securities Industry 5 4 80% Module 3: The Canadian Regulatory Environment 5 5 100% Module 4: Economic Principles 7 6 86% Module 5: Economic Policy 5 5 100% Module 6: Fixed Income Securities: Features and Types 7 7 100% Module 7: Fixed Income Securities: Pricing and Trading 6 5 83% Module 8: Equity Securities: Common and Preferred Shares 3 3 100%

Module 9: Equity Securities: Equity Transactions 5 5 100% Module 10: Derivatives 6 6 100% Module 11: Financing and Listing Securities 6 5 83% Module 12: Corporations and their Financial Statements 5 5 100%

Module 13: Fundamental and Technical Analysis 5 4 80% Module 14: Company Analysis 4 4 100% Module 15: Introduction to the Portfolio Approach 5 5 100%

Module 16: The Portfolio Management Process 5 4 80% Module 17: Evolution of Managed and Structured Products 3 1 33% Module 18: Mutual Funds: Structure and Regulation 4 2 50%

Module 19: Mutual Funds: Types and Features 4 4 100% Module 20: Segregated Funds and Other Insurance Products 4 0 0% Module 21: Hedge Funds 4 3 75%

6

Module 22: Exchange Listed Managed Products 4 3 75% Module 23: Fee Based Accounts 2 2 100% Module 24: Structured Products 5 4 80% Module 25: Canadian Taxation 4 1 25% Module 26: Working with the Retail Client 3 3 100%

Module 27: Working with the Institutional Client 3 3 100%

Total 123 103 84%

7

Summary Table - Reverse Mapping- CSC Mapped to Claritas

# of Matching

Claritas Chapters # of Claritas

LOS CSC LOS % Matching

Chapter 1: The Investment Industry 4 3 75% Chapter 2: Ethics and Investment Professionalism 7 5 71% Chapter 3: Regulation and Supervision 5 5 100% Chapter 4: Microeconomics 10 6 60% Chapter 5: Macroeconomics 10 10 100% Chapter 6: International Trade and Foreign Exchange 9 6 67% Chapter 7: Financial Statements 7 7 100% Chapter 8: Quantitative Concepts 7 6 86% Chapter 9: Equity Securities 8 7 88% Chapter 10: Debt Securities 10 10 100% Chapter 11: Derivatives 8 7 88% Chapter 12: Alternative Investments 4 4 100% Chapter 13: Structure of the Investment Industry 9 8 89% Chapter 14: Investment Vehicles and Structures 9 8 89% Chapter 15: Investment Market Characteristics 9 7 78% Chapter 16: Risk Management 8 2 25% Chapter 17: Performance Evaluation 8 8 100% Chapter 18: Investment Industry Documentation 7 0 0% Chapter 19: Investor Needs and Investment Policy 4 4 100% Chapter 20: Asset Allocation 2 2 100% Chapter 21: Active and Passive Investment Management 3 3 100%

Total 148 118 80%

8

Detailed Direct Mapping - CFA Level I Mapped to CSC

CSC Learning Outcome Statements (LOS) CFA Level I LOS

Module 1: The Capital Market

By the end of this module, you should be able to:

Define investment capital and describe its role in the

economy. 45 a. explain the main functions of the financial system;

Describe how individuals, businesses, governments, and foreign agencies supply and use capital in the economy.

45 d. describe types of financial intermediaries and services that they provide;

Differentiate between the types of financial instruments used in capital transactions.

45 b. describe classifications of assets and markets;

c. describe the major types of securities, currencies, contracts, commodities, and real assets that trade in organized markets, including their distinguishing characteristics and major subtypes;

Explain the role of financial markets in the Canadian financial services industry, distinguish among the types of financial markets, and describe how auction and dealer markets work.

45 b. describe classifications of assets and markets;


45 j. describe how securities, contracts, and currencies are traded in quote-driven, order-driven, and brokered markets;

13 i. describe types of auctions and calculate the winning price(s) of an auction;

Module 2: The Canadian Securities Industry


9

Summarize the state of the Canadian securities industry today.

Distinguish among the three categories of securities firms, explain how they are organized, and compare and contrast dealer, principal, and agency transactions.


45 h. compare market orders with limit orders;

i. define primary and secondary markets and explain how secondary markets support primary markets;

j. describe how securities, contracts, and currencies are traded in quote-driven, order-driven, and brokered markets;

Describe the roles of the chartered banks in the capital markets.


Describe the roles of trust companies, credit unions, and insurance companies in the capital markets.


Describe the roles of investment companies, savings companies, loan companies, and pension plans in the capital markets.


Module 3: The Canadian Regulatory Environment


Identify and describe the agencies and legal entities

through which the Canadian securities industry is regulated and evaluate the role the self-regulatory organizations play in the regulatory process.

45 l. describe objectives of market regulation.

Discuss the principles that underlie securities legislation.

45 l. describe objectives of market regulation.

Identify unethical practices and conduct in securities trading.

1 a. describe the structure of the CFA Institute Professional Conduct Program and the process for the enforcement of the Code and Standards;

b. state the six components of the Code of Ethics and the seven Standards of Professional Conduct;

10

c. explain the ethical responsibilities required by the Code and Standards, including the sub-sections of each Standard.

2 a. demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity;

b. distinguish between conduct that conforms to the Code and Standards and conduct that violates the Code and Standards;

c. recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct.

Describe the rules for public company disclosure and the statutory rights of investors.

Explain how takeover bids and insider trading are regulated and list the investigation and prosecution powers of securities regulators.

Module 4: Economic Principles


Define economics, identify the decision makers in an

economy, and describe the process for achieving market equilibrium.

13 a. distinguish among types of markets;

b. explain the principles of demand and supply;

19 j. describe qualities of effective central banks;


13 e. describe the concept of equilibrium (partial and general), and mechanisms by which markets achieve equilibrium;

f. distinguish between stable and unstable equilibria, including price bubbles, and identify instances of such equilibria;

11

Define gross domestic product (GDP), explain how GDP is measured, and list the factors that lead to growth in GDP.

17 a. calculate and explain gross domestic product (GDP) using expenditure and income approaches;

b. compare the sum-of-value-added and value-of-final-output methods of calculating GDP;

c. compare nominal and real GDP and calculate and interpret the GDP deflator;

d. compare GDP, national income, personal income, and personal disposable income;

Describe the phases of the business cycle, distinguish among the economic indicators used to analyze business conditions, and identify the determinants of long-term economic growth.

18 a. describe the business cycle and its phases;

b. describe how resource use, housing sector activity, and external trade sector activity vary as an economy moves through the business cycle;

c. describe theories of the business cycle; Compare and contrast the two key indicators of the labour market in Canada and the three main types of unemployment.

18 d. describe types of unemployment and measures of unemployment;

Describe the determinants of interest rates and discuss how interest rates affect the performance of the economy.

19 k. explain the relationships between monetary policy and economic growth, inflation, interest, and exchange rates;

l. contrast the use of inflation, interest rate, and exchange rate targeting by central banks;

Define inflation, calculate the inflation rate using the consumer price index (CPI), and analyze the causes and impacts of inflation, disinflation, and deflation on an economy.

18 e. explain inflation, hyperinflation, disinflation, and deflation;

f. explain the construction of indices used to measure inflation;

g. compare inflation measures, including their uses and limitations;

h. distinguish between cost-push and demand-pull inflation;

12

Define the accounts included in a country's balance of payments, describe the determinants of the exchange rate, and explain the impact the balance of payments and the exchange rate have on the economy.

20 h. describe the balance of payments accounts including their components;

i. explain how decisions by consumers, firms, and governments affect the balance of payments;

21 a. define an exchange rate, and distinguish between nominal and real exchange rates and spot and forward exchange rates;

b. describe functions of and participants in the foreign exchange market;

c. calculate and interpret the percentage change in a currency relative to another currency;

d. calculate and interpret currency cross-rates;

e. convert forward quotations expressed on a points basis or in percentage terms into an outright forward quotation;

f. explain the arbitrage relationship between spot rates, forward rates, and interest rates;

g. calculate and interpret a forward discount or premium;

h. calculate and interpret the forward rate consistent with the spot rate and the interest rate in each currency;

i. describe exchange rate regimes;

j. explain the effects of exchange rates on countries’ international trade and capital flows.

Module 5: Economic Policy


Compare and contrast the rational, Keynesian,

monetarist, and supply-side theories of the economy. 19 o. describe roles and objectives of fiscal policy;

13

p. describe tools of fiscal policy, including their advantages and disadvantages;

q. describe the arguments about whether the size of a national debt relative to GDP matters;

r. explain the implementation of fiscal policy and difficulties of implementation;

s. determine whether a fiscal policy is expansionary or contractionary;

Analyze the mechanisms by which governments establish fiscal policy and evaluate the impacts of fiscal policy on the economy.

19 o. describe roles and objectives of fiscal policy;





Explain the role and functions of the Bank of Canada.

19 f. describe roles and objectives of central banks;

19 j. describe qualities of effective central banks;

Analyze how the Bank of Canada implements and conducts monetary policy.

19 b. describe functions and definitions of money;

c. explain the money creation process;

d. describe theories of the demand for and supply of money;

e. describe the Fisher effect;

f. describe roles and objectives of central banks;

Discuss the challenges governments face in their fiscal and monetary policies and the consequences of failed policy

19 a. compare monetary and fiscal policy;

19 k. explain the relationships between monetary policy and economic growth, inflation, interest, and exchange rates;

14


m. determine whether a monetary policy is expansionary or contractionary;

n. describe limitations of monetary policy;

o. describe roles and objectives of fiscal policy;





t. explain the interaction of monetary and fiscal policy.

Module 6: Fixed Income Securities: Features and

Types


Describe the fixed-income market and discuss the rationale for issuing debt instruments.

45 c. describe the major types of securities, currencies, contracts, commodities, and real assets that trade in organized markets, including their distinguishing characteristics and major subtypes;

Define the terms used in transactions involving bonds, describe bond features, explain the use of sinking and purchase funds, and describe the protective provisions found in a bond indenture.

51 a. describe the basic features of a fixed-income security;

b. describe functions of a bond indenture;

c. compare affirmative and negative covenants and identify examples of each;

15

51 f. describe contingency provisions affecting the timing and/or nature of cash flows of fixed-income securities and identify whether such provisions benefit the borrower or the lender.

Compare and contrast the types of Government of Canada securities.

52 e. describe securities issued by sovereign governments, non-sovereign governments, government agencies, and supranational entities;

Compare and contrast the different types of provincial government securities and municipal debentures.

52 e. describe securities issued by sovereign governments, non-sovereign governments, government agencies, and supranational entities;

Identify the different types of corporate bonds and describe their features.


51 a. describe the basic features of a fixed-income security;



51 e. describe how cash flows of fixed-income securities are structured;

51 f. describe contingency provisions affecting the timing and/or nature of cash flows of fixed-income securities and identify whether such provisions benefit the borrower or the lender.

52 f. describe types of debt issued by corporations;

Describe the features of other fixed-income securities, including bankers’ acceptances, commercial paper, term deposits and guaranteed investment certificates.

52 g. describe short-term funding alternatives available to banks;

h. describe repurchase agreements (repos) and their importance to investors who borrow short term.

16

6 d. calculate and compare the money-weighted and time-weighted rates of return of a portfolio and evaluate the performance of portfolios based on these measures;

e. calculate and interpret the bank discount yield, holding period yield, effective annual yield, and money market yield for US Treasury bills and other money market instruments;

Interpret bond quotes and summarize and evaluate bond ratings.

52 d. describe secondary markets for bonds;

56 a. describe credit risk and credit-related risks affecting corporate bonds;

b. describe seniority rankings of corporate debt and explain the potential violation of the priority of claims in a bankruptcy proceeding;

c. distinguish between corporate issuer credit ratings and issue credit ratings and describe the rating agency practice of “notching”;

d. explain risks in relying on ratings from credit rating agencies;

e. explain the components of traditional credit analysis;

f. calculate and interpret financial ratios used in credit analysis;

g. evaluate the credit quality of a corporate bond issuer and a bond of that issuer, given key financial ratios of the issuer and the industry;

h. describe factors that influence the level and volatility of yield spreads;

i. calculate the return impact of spread changes;

j. explain special considerations when evaluating the credit of high yield, sovereign, and municipal debt issuers and issues.

17

Module 7: Fixed Income Securities: Pricing and Trading


Define the present value and the discount rate of a

bond and perform calculations relating to the time value of money, bond pricing and yield.

5 a. interpret interest rates as required rates of return, discount rates, or opportunity costs;

b. explain an interest rate as the sum of a real risk-free rate, and premiums that compensate investors for bearing distinct types of risk;

c. calculate and interpret the effective annual rate, given the stated annual interest rate and the frequency of compounding;

d. solve time value of money problems for different frequencies of compounding;

e. calculate and interpret the future value (FV) and present value (PV) of a single sum of money, an ordinary annuity, an annuity due, a perpetuity (PV only), and a series of unequal cash flows;

f. demonstrate the use of a time line in modeling and solving time value of money problems.

Define a real rate of return and a yield curve. 5 a. interpret interest rates as required rates of return, discount rates, or opportunity costs;


53 f. calculate and interpret yield measures for fixed-rate bonds, floating-rate notes, and money market instruments;

g. define and compare the spot curve, yield curve on coupon bonds, par curve, and forward curve;

Evaluate three theories of interest-rate determination. 19 d. describe theories of the demand for and supply of money;

Analyze the impact of fixed-income pricing properties on bond prices.

53 a. calculate a bond’s price given a market discount rate;

18

b. identify the relationships among a bond’s price, coupon rate, maturity, and market discount rate (yield-to-maturity);

55 i. estimate the percentage price change of a bond for a specified change in yield, given the bond’s approximate duration and convexity;

55 l. explain how changes in credit spread and liquidity affect yield-to-maturity of a bond and how duration and convexity can be used to estimate the price effect of the changes.

Summarize the rules and regulations of bond delivery and settlement.

51 d. describe how legal, regulatory, and tax considerations affect the issuance and trading of fixed-income securities;

Assess the role of bond indexes in the securities industry. 46 a. describe a security market index;

b. calculate and interpret the value, price return, and total return of an index;

c. describe the choices and issues in index construction and management;

d. compare the different weighting methods used in index construction;

e. calculate and analyze the value and return of an index given its weighting method;

f. describe rebalancing and reconstitution of an index;

g. describe uses of security market indices;

46 i. describe types of fixed-income indices;

46 k. compare types of security market indices.

Module 8: Equity Securities: Common and

Preferred Shares


19

Discuss the benefits of common share ownership; describe how dividends are taxed, declared, and claimed; and describe the impact of stock splits and consolidations on shareholders.

48 a. describe characteristics of types of equity securities;

b. describe differences in voting rights and other ownership characteristics among different equity classes;

Discuss the position, advantages, disadvantages, and special provisions of preferred shares; and differentiate among the types of preferred shares, describe their features, and perform related calculations.

48 a. describe characteristics of types of equity securities;


48 e. compare the risk and return characteristics of different types of equity securities;

50 e. calculate the intrinsic value of a non-callable, non-convertible preferred stock;

Differentiate between a stock market index and an average, and summarize the important stock market indexes and averages. 46 a. describe a security market index;







46 h. describe types of equity indices;

46 k. compare types of security market indices.

Module 9: Equity Securities: Equity Transactions

20

By the end of this module you should be able to:

Distinguish between cash and margin accounts. 45 e. compare positions an investor can take in an asset;

Understand margin requirements for long and short positions.

45 f. calculate and interpret the leverage ratio, the rate of return on a margin transaction, and the security price at which the investor would receive a margin call;

Describe the process of short selling and discuss the risks associated with short selling.

45 f. calculate and interpret the leverage ratio, the rate of return on a margin transaction, and the security price at which the investor would receive a margin call;

Describe the trading and settlement procedures for equity transactions.

45 g. compare execution, validity, and clearing instructions;

Distinguish among the types of buy and sell orders. 45 e. compare positions an investor can take in an asset;

45 h. compare market orders with limit orders;

Module 10: Derivatives


Describe what a derivative is and explain the

differences between over-the-counter and exchange-traded derivatives.

57 a. define a derivative, and distinguish between exchange-traded and over-the-counter derivatives;

Identify the types of underlying assets on which derivatives are based.

57 b. define forward contracts, futures contracts, options (calls and puts), swaps, and credit derivatives, and compare their basic characteristics;

Describe the participants in and the uses of derivatives trading.

57 d. describe purposes of, and controversies related to, derivative markets;

Describe what options are and how they are traded, and evaluate call and put option strategies for individual and institutional investors and corporations.


21

59 a. determine the value at expiration, the profit, maximum profit, maximum loss, breakeven underlying price at expiration, and payoff graph of the strategies of buying and selling calls and puts and determine the potential outcomes for investors using these strategies;

b. determine the value at expiration, profit, maximum profit, maximum loss, breakeven underlying price at expiration, and payoff graph of a covered call strategy and a protective put strategy, and explain the risk management application of each strategy.

Describe what forwards are and distinguish futures contracts from forward agreements and evaluate futures strategies for investors and corporations.


58 b. distinguish between value and price of forward and futures contracts;

c. explain how the value and price of a forward contract are determined at expiration, during the life of the contract, and at initiation;

58 e. define a forward rate agreement and describe its uses;

f. explain why forward and futures prices differ;

Define and describe rights and warrants, explain why they are issued, and calculate the value of rights and warrants.

57 a. define a derivative, and distinguish between exchange-traded and over-the-counter derivatives;

Module 11: Financing and Listing Securities


Compare and contrast the three types of business

structures and explain the process, outcomes, and advantages and disadvantages of incorporation.

Describe the processes by which governments raise debt capital to finance their funding requirements.


22

Describe the processes by which corporations raise debt or equity capital to finance their funding requirements.


Summarize the steps in the corporate financing process, explain the different methods of offering securities to the public, summarize the prospectus system, and evaluate after-market stabilization.

35 a. describe the capital budgeting process and distinguish among the various categories of capital projects;

b. describe the basic principles of capital budgeting;

c. explain how the evaluation and selection of capital projects is affected by mutually exclusive projects, project sequencing, and capital rationing;

d. calculate and interpret net present value (NPV), internal rate of return (IRR), payback period, discounted payback period, and profitability index (PI) of a single capital project;

e. explain the NPV profile, compare the NPV and IRR methods when evaluating independent and mutually exclusive projects, and describe the problems associated with each of the evaluation methods;

f. describe expected relations among an investment’s NPV, company value, and share price.

36 a. calculate and interpret the weighted average cost of capital (WACC) of a company;

b. describe how taxes affect the cost of capital from different capital sources;

c. describe the use of target capital structure in estimating WACC and how target capital structure weights may be determined;

d. explain how the marginal cost of capital and the investment opportunity schedule are used to determine the optimal capital budget;

23

e. explain the marginal cost of capital’s role in determining the net present value of a project;

f. calculate and interpret the cost of debt capital using the yield-to-maturity approach and the debt-rating approach;

g. calculate and interpret the cost of noncallable, nonconvertible preferred stock;

h. calculate and interpret the cost of equity capital using the capital asset pricing model approach, the dividend discount model approach, and the bond-yield-plus risk-premium approach;

i. calculate and interpret the beta and cost of capital for a project;

j. describe uses of country risk premiums in estimating the cost of equity;

k. describe the marginal cost of capital schedule, explain why it may be upward-sloping with respect to additional capital, and calculate and interpret its break-points;

l. explain and demonstrate the correct treatment of flotation costs.

45 a. explain the main functions of the financial system;

b. describe classifications of assets and markets;


d. describe types of financial intermediaries and services that they provide;

45 i. define primary and secondary markets and explain how secondary markets support primary markets;

24


k. describe characteristics of a well-functioning financial system;

Identify other methods of distributing securities to the public through stock exchanges.



Discuss the advantages and disadvantages of listing shares for trading on an exchange and explain the circumstances and ways in which exchanges can withdraw trading privileges.

45 i. define primary and secondary markets and explain how secondary markets support primary markets;

Module 12: Corporations and their Financial Statements


Describe the format and the items of the statement of

financial position and explain how the items are classified.

23 a. explain the relationship of financial statement elements and accounts, and classify accounts into the financial statement elements;

b. explain the accounting equation in its basic and expanded forms;

c. describe the process of recording business transactions using an accounting system based on the accounting equation;

d. describe the need for accruals and other adjustments in preparing financial statements;

e. describe the relationships among the income statement, balance sheet, statement of cash flows, and statement of owners’ equity;

f. describe the flow of information in an accounting system;

25

g. describe the use of the results of the accounting process in security analysis.

Describe the structure of the statement of comprehensive income.

22 b. describe the roles of the key financial statements (statement of financial position, statement of comprehensive income, statement of changes in equity, and statement of cash flows) in evaluating a company’s performance and financial position;

23 e. describe the relationships among the income statement, balance sheet, statement of cash flows, and statement of owners’ equity;

25 a. describe the components of the income statement and alternative presentation formats of that statement;

b. describe general principles of revenue recognition and accrual accounting, specific revenue recognition applications (including accounting for long-term contracts, installment sales, barter transactions, gross and net reporting of revenue), and implications of revenue recognition principles for financial analysis;

c. calculate revenue given information that might influence the choice of revenue recognition method;

d. describe general principles of expense recognition, specific expense recognition applications, and implications of expense recognition choices for financial analysis;

e. describe the financial reporting treatment and analysis of non-recurring items (including discontinued operations, extraordinary items, unusual or infrequent items) and changes in accounting standards;

f. distinguish between the operating and non-operating components of the income statement;

26

g. describe how earnings per share is calculated and calculate and interpret a company’s earnings per share (both basic and diluted earnings per share) for both simple and complex capital structures;

h. distinguish between dilutive and antidilutive securities, and describe the implications of each for the earnings per share calculation;

i. convert income statements to common-size income statements;

j. evaluate a company’s financial performance using common-size income statements and financial ratios based on the income statement;

k. describe, calculate, and interpret comprehensive income;

l. describe other comprehensive income, and identify major types of items included in it.

Describe the purpose of the statement of changes in equity and describe its link with the statement of financial position and the statement of comprehensive income.



26 d. describe the components of shareholders’ equity;

Describe the components of the statement of cash flows and classify an accounting activity or item as a cash flow from operating, financing, or investing activities.



27

27 a. compare cash flows from operating, investing, and financing activities and classify cash flow items as relating to one of those three categories given a description of the items;

b. describe how non-cash investing and financing activities are reported;

c. contrast cash flow statements prepared under International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (US GAAP);

d. distinguish between the direct and indirect methods of presenting cash from operating activities and describe arguments in favor of each method;

e. describe how the cash flow statement is linked to the income statement and the balance sheet;

f. describe the steps in the preparation of direct and indirect cash flow statements, including how cash flows can be computed using income statement and balance sheet data;

g. convert cash flows from the indirect to direct method;

h. analyze and interpret both reported and common-size cash flow statements;

i. calculate and interpret free cash flow to the firm, free cash flow to equity, and performance and coverage cash flow ratios.

Explain the importance of the notes to the financial statements and the auditor's report.

22 c. describe the importance of financial statement notes and supplementary information—including disclosures of accounting policies, methods, and estimates—and management’s commentary;

d. describe the objective of audits of financial statements, the types of audit reports, and the importance of effective internal controls;

28

Module 13: Fundamental and Technical Analysis By the end of this lesson, you should be able to:

Compare and contrast fundamental and technical

analysis, and evaluate the three market theories explaining stock market behaviour.

47 a. describe market efficiency and related concepts, including their importance to investment practitioners;

b. distinguish between market value and intrinsic value;

c. explain factors that affect a market’s efficiency;

d. contrast weak-form, semi-strong-form, and strong-form market efficiency;

e. explain the implications of each form of market efficiency for fundamental analysis, technical analysis, and the choice between active and passive portfolio management;

f. describe selected market anomalies;

g. contrast the behavioral finance view of investor behavior to that of traditional finance.

Describe how the four macroeconomic factors affect investor expectations and the price of securities.

19 a. compare monetary and fiscal policy;

b. describe functions and definitions of money;





g. contrast the costs of expected and unexpected inflation;

h. describe tools used to implement monetary policy;

i. describe the monetary transmission mechanism;

j. describe qualities of effective central banks;

29

k. explain the relationships between monetary policy and economic growth, inflation, interest, and exchange rates;










20 h. describe the balance of payments accounts including their components;


21 a. define an exchange rate, and distinguish between nominal and real exchange rates and spot and forward exchange rates;



d. calculate and interpret currency cross-rates;

30

e. convert forward quotations expressed on a points basis or in percentage terms into an outright forward quotation;






18 e. explain inflation, hyperinflation, disinflation, and deflation;




Analyze how industries are classified and explain how industry classifications impact a company’s stock valuation.

49 a. explain uses of industry analysis and the relation of industry analysis to company analysis;

b. compare methods by which companies can be grouped, current industry classification systems, and classify a company, given a description of its activities and the classification system;

c. explain the factors that affect the sensitivity of a company to the business cycle and the uses and limitations of industry and company descriptors such as “growth,” “defensive,” and “cyclical”;

d. explain how “peer group” as used in equity valuation relates to a company’s industry classification;

e. describe the elements that need to be covered in a thorough industry analysis;

31

f. describe the principles of strategic analysis of an industry;

g. explain the effects of barriers to entry, industry concentration, industry capacity, and market share stability on pricing power and return on capital;

h. describe product and industry life cycle models, classify an industry as to life cycle phase (embryonic, growth, shakeout, maturity, and decline), and describe limitations of the life-cycle concept in forecasting industry performance;

i. compare characteristics of representative industries from the various economic sectors;

j. describe demographic, governmental, social, and technological influences on industry growth, profitability, and risk;

k. describe the elements that should be covered in a thorough company analysis.

Calculate and interpret the intrinsic value of a stock using the dividend discount model (DDM).

50 a. evaluate whether a security, given its current market price and a value estimate, is overvalued, fairly valued, or undervalued by the market;

b. describe major categories of equity valuation models;

c. explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-equity models;

d. calculate the intrinsic value of a non-callable, non-convertible preferred stock;

e. calculate and interpret the intrinsic value of an equity security based on the Gordon (constant) growth dividend discount model or a two-stage dividend discount model, as appropriate;

f. identify companies for which the constant growth or a multistage dividend discount model is appropriate;

32

g. explain the rationale for using price multiples to value equity and distinguish between multiples based on comparables versus multiples based on fundamentals;

h. calculate and interpret the following multiples: price to earnings, price to an estimate of operating cash flow, price to sales, and price to book value;

i. describe enterprise value multiples and their use in estimating equity value;

j. describe asset-based valuation models and their use in estimating equity value;

k. explain advantages and disadvantages of each category of valuation model.

Define technical analysis and describe the tools used in technical analysis.

12 a. explain principles of technical analysis, its applications, and its underlying assumptions;

b. describe the construction of different types of technical analysis charts and interpret them;

c. explain uses of trend, support, resistance lines, and change in polarity;

d. describe common chart patterns;

e. describe common technical analysis indicators (price-based, momentum oscillators, sentiment, and flow of funds);

f. explain how technical analysts use cycles;

g. describe the key tenets of Elliott Wave Theory and the importance of Fibonacci numbers;

h. describe intermarket analysis as it relates to technical analysis and asset allocation.

Module 14: Company Analysis

After completing this module, you should be able to do the following:

33

Identify the factors involved in performing company analysis to determine whether a company represents a good investment.


50 c. explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-equity models;

Explain how to analyze a company’s financial statements using trend analysis and external comparisons.

28 a. describe tools and techniques used in financial analysis, including their uses and limitations;

50 g. explain the rationale for using price multiples to value equity and distinguish between multiples based on comparables versus multiples based on fundamentals;

Describe the different types of liquidity, risk analysis, operating performance, and value ratios, and evaluate company performance using these ratios.

28 a. describe tools and techniques used in financial analysis, including their uses and limitations;

b. classify, calculate, and interpret activity, liquidity, solvency, profitability, and valuation ratios;

c. describe relationships among ratios and evaluate a company using ratio analysis;

d. demonstrate the application of DuPont analysis of return on equity, and calculate and interpret effects of changes in its components;

e. calculate and interpret ratios used in equity analysis and credit analysis;

f. explain the requirements for segment reporting, and calculate and interpret segment ratios;

g. describe how ratio analysis and other techniques can be used to model and forecast earnings.

Evaluate the investment quality of preferred shares. 50 d. calculate the intrinsic value of a non-callable, non-convertible preferred stock;

Module 15: Introduction to the Portfolio Approach

34

By the end of this chapter, you should be able to:

Describe the relationship between risk and return,

calculate rates of return of a single security, identify the different types and measures of risk, and evaluate the role of risk in asset selection.

42 a. calculate and interpret major return measures and describe their appropriate uses;

b. describe characteristics of the major asset classes that investors consider in forming portfolios;

c. calculate and interpret the mean, variance, and covariance (or correlation) of asset returns based on historical data;

Explain the relationship between risk and return of a portfolio of securities, calculate and interpret the expected return of a portfolio, and identify strategies for maximizing return while reducing risk.

42 d. explain risk aversion and its implications for portfolio selection;

e. calculate and interpret portfolio standard deviation;

f. describe the effect on a portfolio’s risk of investing in assets that are less than perfectly correlated;

g. describe and interpret the minimum-variance and efficient frontiers of risky assets and the global minimum-variance portfolio;

h. discuss the selection of an optimal portfolio, given an investor’s utility (or risk aversion) and the capital allocation line.

List the steps in the portfolio management process. 41 d. describe the steps in the portfolio management process;

Evaluate investment objectives and constraints and explain how to use them in creating an investment policy statement (IPS) for a client.

44 e. describe the investment constraints of liquidity, time horizon, tax concerns, legal and regulatory factors, and unique circumstances and their implications for the choice of portfolio assets;

Describe the content of an investment policy statement and explain the purpose of an IPS.

44 a. describe the reasons for a written investment policy statement (IPS);

b. describe the major components of an IPS;

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Module 16: The Portfolio Management Process By the end of this module, you should be able to:

Describe the asset mix categories and evaluate strategies for setting the asset mix.

42 b. describe characteristics of the major asset classes that investors consider in forming portfolios;

42 f. describe the effect on a portfolio’s risk of investing in assets that are less than perfectly correlated;

42 g. describe and interpret the minimum-variance and efficient frontiers of risky assets and the global minimum-variance portfolio;


Compare and contrast the portfolio management styles of equity and fixed-income managers.

49 a. explain uses of industry analysis and the relation of industry analysis to company analysis;






36










52 a. describe classifications of global fixed-income markets;

52 d. describe secondary markets for bonds;

e. describe securities issued by sovereign governments, non-sovereign governments, government agencies, and supranational entities;

f. describe types of debt issued by corporations;

g. describe short-term funding alternatives available to banks;

37


53 a. calculate a bond’s price given a market discount rate;


c. define spot rates and calculate the price of a bond using spot rates;

d. describe and calculate the flat price, accrued interest, and the full price of a bond;

e. describe matrix pricing;

f. calculate and interpret yield measures for fixed-rate bonds, floating-rate notes, and money market instruments;


h. define forward rates and calculate spot rates from forward rates, forward rates from spot rates, and the price of a bond using forward rates;

i. compare, calculate, and interpret yield spread measures.

55 a. calculate and interpret the sources of return from investing in a fixed-rate bond;

b. define, calculate, and interpret Macaulay, modified, and effective durations;

c. explain why effective duration is the most appropriate measure of interest rate risk for bonds with embedded options;

d. define key rate duration and describe the key use of key rate durations in measuring the sensitivity of bonds to changes in the shape of the benchmark yield curve;

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e. explain how a bond’s maturity, coupon, embedded options, and yield level affect its interest rate risk;

f. calculate the duration of a portfolio and explain the limitations of portfolio duration;

g. calculate and interpret the money duration of a bond and price value of a basis point (PVBP);

h. calculate and interpret approximate convexity and distinguish between approximate and effective convexity;

i. estimate the percentage price change of a bond for a specified change in yield, given the bond’s approximate duration and convexity;

j. describe how the term structure of yield volatility affects the interest rate risk of a bond;

k. describe the relationships among a bond’s holding period return, its duration, and the investment horizon;

l. explain how changes in credit spread and liquidity affect yield-to-maturity of a bond and how duration and convexity can be used to estimate the price effect of the changes.

Discuss the benefits of asset allocation, distinguish strategic asset allocation from the types of ongoing asset allocation techniques, and differentiate active and passive management.



d. explain risk aversion and its implications for portfolio selection;



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47 e. explain the implications of each form of market efficiency for fundamental analysis, technical analysis, and the choice between active and passive portfolio management;

Describe the steps in monitoring and evaluating portfolio performance in relation to the market, the economy, and the client.

41 d. describe the steps in the portfolio management process;

Describe how portfolio performance is evaluated, calculate and interpret the total return and risk-adjusted rate of return of a portfolio.

42 a. calculate and interpret major return measures and describe their appropriate uses;

42 c. calculate and interpret the mean, variance, and covariance (or correlation) of asset returns based on historical data;




Module 17: Evolution of Managed and Structured

Products


List and describe the factors that are driving the

growth of managed and structured products. 54 a. explain benefits of securitization for economies and financial markets;

Differentiate between managed and structured products, including the advantages, disadvantages, and investment risks of structured products and managed products.

41 e. describe mutual funds and compare them with other pooled investment products.

40

54 a. explain benefits of securitization for economies and financial markets;

b. describe the securitization process, including the parties to the process, the roles they play, and the legal structures involved;

Describe how the growth of managed products has changed the role and compensation model of the Investment Advisor.

Module 18: Mutual Funds: Structure and Regulation


Define what a mutual fund is and describe the advantages and disadvantages of investing in mutual funds.


Compare and contrast mutual fund trusts and mutual fund corporations. Calculate a fund’s net asset value per share (NAVPS) and explain and calculate how mutual fund units or shares are priced for sales and redemptions. Analyze the effects of charges and fees associated with mutual funds on performance and unitholder net return.


Define labour sponsored venture capital corporations (LSVCCs), discuss the advantages and disadvantages of LSVCCs, and contrast them with mutual funds.

Describe the mutual fund regulatory environment and the disclosure documents necessary to satisfy provincial requirements, identify mutual fund registration requirements and discuss restrictions that sellers of mutual funds must observe.

Module 19: Mutual Funds: Types and Features


Describe the types of mutual funds and discuss the

risk-return trade-off of investing in each type.


Evaluate mutual fund management styles. 41 e. describe mutual funds and compare them with other pooled investment

41

products.


Calculate the redemption/selling price of a mutual fund, explain the tax consequences of redemptions, and describe the four types of withdrawal plans and the appropriate use of each plan for an investor.

Describe how mutual fund performance is measured and how the comparative performance of mutual funds is determined.

42 b. calculate and interpret major return measures and describe their appropriate uses;

Module 20: Segregated Funds and Other Insurance

Products


Identify and describe the various features of

segregated funds. Describe the tax considerations of investing in

segregated funds. Discuss the regulation of segregated funds, including

the role played by OSFI, Assuris, and other regulatory bodies.

Describe the features of guaranteed minimum withdrawal plans and other insurance products.

Module 21: Hedge Funds By the end of this module, you should be able to:

Define hedge funds and compare and contrast hedge

funds with mutual funds, and institutional investors with retail investors in hedge funds, summarize the history and growth of the hedge fund market, and discuss how hedge fund performance is tracked.

60 a. compare alternative investments with traditional investments;

b. describe categories of alternative investments;

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60 e. describe issues in valuing, and calculating returns on, hedge funds, private equity, real estate, and commodities;

f. describe, calculate, and interpret management and incentive fees and net-of-fees returns to hedge funds;

Evaluate the benefits, risks, and due diligence requirements of investing in hedge funds.

60 c. describe potential benefits of alternative investments in the context of portfolio management;

d. describe hedge funds, private equity, real estate, commodities, and other alternative investments, including, as applicable, strategies, sub-categories, potential benefits and risks, fee structures, and due diligence;

60 g. describe risk management of alternative investments.

Identify the three categories of hedge fund strategies and describe how the specific strategies within each category work.

60 d. describe hedge funds, private equity, real estate, commodities, and other alternative investments, including, as applicable, strategies, sub-categories, potential benefits and risks, fee structures, and due diligence;

Describe the advantages and disadvantages of investing in a fund of hedge funds (FoHFs) structure versus individual hedge funds.


e. describe issues in valuing, and calculating returns on, hedge funds, private equity, real estate, and commodities;


Module 22: Exchange Listed Managed Products


Define closed-end funds and discuss the advantages

and disadvantages of investing in closed-end funds.


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Define income trust, differentiate among the types of income trusts and describe their features.


Describe the advantages, disadvantages and features of exchange-traded funds (ETFs).


Explain how to invest in private equity through a listed equity (private equity firm).

Module 23: Fee Based Accounts


Differentiate the features, advantages and

disadvantages of the various types of fee-based accounts.


Describe the various types of managed accounts. 41 e. describe mutual funds and compare them with other pooled investment products.

Module 24: Structured Products


Describe the features, risks and benefits of principal-

protected notes (PPNs). Explain the structure, risks associated with and the tax

implications of Index-, Mutual Fund- and Hedge Fund- linked guaranteed investment certificates (GICs).

Explain the structure, risks associated with and the tax implications of split shares.

Describe the features of asset-backed securities including asset-backed commercial paper and the securitization process.

54 b. describe the securitization process, including the parties to the process, the roles they play, and the legal structures involved;

c. describe types and characteristics of residential mortgage loans that are typically securitized;

44

d. describe types and characteristics of residential mortgage-backed securities, and explain the cash flows and credit risk for each type;

e. explain the motivation for creating securitized structures with multiple tranches (e.g., collateralized mortgage obligations), and the characteristics and risks of securitized structures;

f. describe the characteristics and risks of commercial mortgage-backed securities;

g. describe types and characteristics of non-mortgage asset-backed securities, including the cash flows and credit risk of each type;

h. describe collateralized debt obligations, including their cash flows and credit risk.

Discuss the structure and benefits of mortgage-backed securities.

54 a. explain benefits of securitization for economies and financial markets;

Module 25: Canadian Taxation By the end of this module, you should be able to:

Discuss the features of the Canadian income tax

system, calculate income tax payable, and differentiate the tax treatment of interest, dividends, and capital gains (and losses);

Calculate capital gains and capital losses and assess strategies for minimizing tax liability;

Describe and differentiate the different tax deferral plans and their uses;

Identify basic tax planning strategies and discuss their advantages.

Module 26: Working with the Retail Client


45

Evaluate the importance of and summarize the steps in the financial planning process.

41 d. describe the steps in the portfolio management process;

Describe how life cycle hypothesis is used to understand a client’s investment needs.

44 e. describe the investment constraints of liquidity, time horizon, tax concerns, legal and regulatory factors, and unique circumstances and their implications for the choice of portfolio assets;

Summarize the values on which the code of ethics is based and the standards of conduct that advisors should apply in their relationships with clients.

1 a. describe the structure of the CFA Institute Professional Conduct Program and the process for the enforcement of the Code and Standards;

b. state the six components of the Code of Ethics and the seven Standards of Professional Conduct;


2 a. demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity;



Module 27: Working with the Institutional Client


Define the term institutional client. 41 b. describe types of investors and distinctive characteristics and needs of each;

Differentiate between retail client suitability requirements and institutional information requirements.

41 b. describe types of investors and distinctive characteristics and needs of each;

46

44 c. describe risk and return objectives and how they may be developed for a client;

d. distinguish between the willingness and the ability (capacity) to take risk in analyzing an investor’s financial risk tolerance;

Describe the roles and responsibilities of the participants in the institutional marketplace.

44 a. describe the reasons for a written investment policy statement (IPS);

b. describe the major components of an IPS;

c. describe risk and return objectives and how they may be developed for a client;


e. describe the investment constraints of liquidity, time horizon, tax concerns, legal and regulatory factors, and unique circumstances and their implications for the choice of portfolio assets;

f. explain the specification of asset classes in relation to asset allocation;

g. describe the principles of portfolio construction and the role of asset allocation in relation to the IPS.

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Detailed Reverse Mapping - CSC Mapped to CFA Level I

CFA Level I LOS CSC Learning Outcome Statements

Reading 1 Code of Ethics and Standards of Professional Conduct

The candidate should be able to:

a. describe the structure of the CFA Institute Professional Conduct Program and the process for the enforcement of the Code and Standards;

3 Discuss the principles that underlie securities legislation.

3 Identify unethical practices and conduct in

securities trading.

b. state the six components of the Code of Ethics and the seven Standards of Professional Conduct



securities trading.




securities trading.

Reading 2 Guidance for Standards I-VII


a. demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity;



securities trading.




securities trading.

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securities trading.

Reading 3 Introduction to the Global Investment Performance Standards (GIPS)


a. explain why the GIPS standards were created, what parties the GIPS standards apply to, and who is served by the standards;

b. explain the construction and purpose of composites in performance reporting;

c. explain the requirements for verification.

Reading 4 Global Investment Performance Standards (GIPS)


a. describe the key features of the GIPS standards and the fundamentals of compliance;

b. describe the scope of the GIPS standards with respect to an investment firm’s definition and historical performance record;

c. explain how the GIPS standards are implemented in countries with existing standards for performance reporting and describe the appropriate response when the GIPS standards and local regulations conflict;

d. describe the nine major sections of the GIPS standards.

Reading 5 The Time Value of Money


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a. interpret interest rates as required rates of return, discount rates, or opportunity costs;


c. calculate and interpret the effective annual rate, given the stated annual interest rate and the frequency of compounding;

d. solve time value of money problems for different frequencies of compounding;

e. calculate and interpret the future value (FV) and present value (PV) of a single sum of money, an ordinary annuity, an annuity due, a perpetuity (PV only), and a series of unequal cash flows;

f. demonstrate the use of a time line in modeling and solving time value of money problems.

Reading 6 Discounted Cash Flow Applications


a. calculate and interpret the net present value (NPV) and the internal rate of return (IRR) of an investment;

b. contrast the NPV rule to the IRR rule, and identify problems associated with the IRR rule;

c. calculate and interpret a holding period return (total return);

d. calculate and compare the money-weighted and time-weighted rates of return of a portfolio and evaluate the performance of portfolios based on these measures;

16 Describe the steps in monitoring and evaluating portfolio performance in relation to the market, the economy, and the client.

16 Describe how portfolio performance is evaluated, calculate and interpret the total return and risk-adjusted rate of return of a portfolio.

e. calculate and interpret the bank discount yield, holding period yield, effective annual yield, and money market yield for US Treasury bills and other money market instruments;

f. convert among holding period yields, money market yields, effective annual yields, and bond equivalent yields.

50

Reading 7 Statistical Concepts and Market Returns


a. distinguish between descriptive statistics and inferential statistics, between a population and a sample, and among the types of measurement scales;

b. define a parameter, a sample statistic, and a frequency distribution;

c. calculate and interpret relative frequencies and cumulative relative frequencies, given a frequency distribution;

d. describe the properties of a data set presented as a histogram or a frequency polygon;

e. calculate and interpret measures of central tendency, including the population mean, sample mean, arithmetic mean, weighted average or mean, geometric mean, harmonic mean, median, and mode;

f. calculate and interpret quartiles, quintiles, deciles, and percentiles;

g. calculate and interpret 1) a range and a mean absolute deviation and 2) the variance and standard deviation of a population and of a sample;

h. calculate and interpret the proportion of observations falling within a specified number of standard deviations of the mean using Chebyshev’s inequality;

i. calculate and interpret the coefficient of variation and the Sharpe ratio;

j. explain skewness and the meaning of a positively or negatively skewed return distribution

k. describe the relative locations of the mean, median, and mode for a unimodal, nonsymmetrical distribution;

l. explain measures of sample skewness and kurtosis; m. compare the use of arithmetic and geometric

means when analyzing investment returns.

Reading 8 Probability Concepts

51


a. define a random variable, an outcome, an event, mutually exclusive events, and exhaustive events;

b. state the two defining properties of probability and distinguish among empirical, subjective, and a priori probabilities;

c. state the probability of an event in terms of odds for and against the event;

d. distinguish between unconditional and conditional probabilities;

e. explain the multiplication, addition, and total probability rules;

f. calculate and interpret 1) the joint probability of two events, 2) the probability that at least one of two events will occur, given the probability of each and the joint probability of the two events, and 3) a joint probability of any number of independent events;

g. distinguish between dependent and independent events;

h. calculate and interpret an unconditional probability using the total probability rule;

i. explain the use of conditional expectation in investment applications;

j. explain the use of a tree diagram to represent an investment problem;

k. calculate and interpret covariance and correlation; l. calculate and interpret the expected value, variance,

and standard deviation of a random variable and of returns on a portfolio;

m. calculate and interpret covariance given a joint probability function;

n. calculate and interpret an updated probability using Bayes’ formula;

o. identify the most appropriate method to solve a particular counting problem, and solve counting problems using factorial, combination, and permutation concepts.

Reading 9 Common Probability Distributions

52


a. define a probability distribution and distinguish between discrete and continuous random variables and their probability functions;

b. describe the set of possible outcomes of a specified discrete random variable;

c. interpret a cumulative distribution function; d. calculate and interpret probabilities for a random

variable, given its cumulative distribution function; e. define a discrete uniform random variable, a

Bernoulli random variable, and a binomial random variable;

f. calculate and interpret probabilities given the discrete uniform and the binomial distribution functions;

g. construct a binomial tree to describe stock price movement;

h. calculate and interpret tracking error; i. define the continuous uniform distribution and

calculate and interpret probabilities, given a continuous uniform distribution;

j. explain the key properties of the normal distribution;

k. distinguish between a univariate and a multivariate distribution, and explain the role of correlation in the multivariate normal distribution;

l. determine the probability that a normally distributed random variable lies inside a given interval;

m. define the standard normal distribution, explain how to standardize a random variable, and calculate and interpret probabilities using the standard normal distribution;

n. define shortfall risk, calculate the safety-first ratio, and select an optimal portfolio using Roy’s safety-first criterion;

o. explain the relationship between normal and lognormal distributions and why the lognormal distribution is used to model asset prices;

53

p. distinguish between discretely and continuously compounded rates of return, and calculate and interpret a continuously compounded rate of return, given a specific holding period return;

q. explain Monte Carlo simulation and describe its applications and limitations;

r. compare Monte Carlo simulation and historical simulation.

Reading 10 Sampling and Estimation


a. define simple random sampling and a sampling distribution;

b. explain sampling error; c. distinguish between simple random and stratified

random sampling; d. distinguish between time-series and cross-sectional

data; e. explain the central limit theorem and its

importance; f. calculate and interpret the standard error of the

sample mean; g. identify and describe desirable properties of an

estimator; h. distinguish between a point estimate and a

confidence interval estimate of a population parameter;

i. describe properties of Student’s t-distribution and calculate and interpret its degrees of freedom;

j. calculate and interpret a confidence interval for a population mean, given a normal distribution with 1) a known population variance, 2) an unknown population variance, or 3) an unknown variance and a large sample size;

k. describe the issues regarding selection of the appropriate sample size, data-mining bias, sample selection bias, survivorship bias, look-ahead bias, and time-period bias.

54

Reading 11 Hypothesis Testing


a. define a hypothesis, describe the steps of hypothesis testing, and describe and interpret the choice of the null and alternative hypotheses;

b. distinguish between one-tailed and two-tailed tests of hypotheses;

c. explain a test statistic, Type I and Type II errors, a significance level, and how significance levels are used in hypothesis testing;

d. explain a decision rule, the power of a test, and the relation between confidence intervals and hypothesis tests;

e. distinguish between a statistical result and an economically meaningful result;

f. explain and interpret the p-value as it relates to hypothesis testing;

g. identify the appropriate test statistic and interpret the results for a hypothesis test concerning the population mean of both large and small samples when the population is normally or approximately distributed and the variance is 1) known or 2) unknown;

h. identify the appropriate test statistic and interpret the results for a hypothesis test concerning the equality of the population means of two at least approximately normally distributed populations, based on independent random samples with 1) equal or 2) unequal assumed variances;

i. identify the appropriate test statistic and interpret the results for a hypothesis test concerning the mean difference of two normally distributed populations;

j. identify the appropriate test statistic and interpret the results for a hypothesis test concerning 1) the variance of a normally distributed population, and 2) the equality of the variances of two normally distributed populations based on two independent random samples;

55

k. distinguish between parametric and nonparametric tests and describe situations in which the use of nonparametric tests may be appropriate.

Reading 12 Technical Analysis


a. explain principles of technical analysis, its applications, and its underlying assumptions;

13 Compare and contrast fundamental and technical analysis, and evaluate the three market theories explaining stock market behaviour.

13 Define technical analysis and describe the tools

used in technical analysis.

b. describe the construction of different types of technical analysis charts and interpret them;

13 Define technical analysis and describe the tools used in technical analysis.

c. explain uses of trend, support, resistance lines, and change in polarity;


d. describe common chart patterns; 13 Define technical analysis and describe the tools

used in technical analysis.

e. describe common technical analysis indicators (price-based, momentum oscillators, sentiment, and flow of funds);


f. explain how technical analysts use cycles; g. describe the key tenets of Elliott Wave Theory and

the importance of Fibonacci numbers; h. describe intermarket analysis as it relates to

technical analysis and asset allocation.

Reading 13 Demand and Supply Analysis: Introduction


a. distinguish among types of markets;

b. explain the principles of demand and supply;

4 Define economics, identify the decision makers in an economy, and describe the process for achieving market equilibrium.

c. describe causes of shifts in and movements along demand and supply curves;

d. describe the process of aggregating demand and supply curves;

56

e. describe the concept of equilibrium (partial and general), and mechanisms by which markets achieve equilibrium;


f. distinguish between stable and unstable equilibria, including price bubbles, and identify instances of such equilibria;

g. calculate and interpret individual and aggregate demand, and inverse demand and supply functions, and interpret individual and aggregate demand and supply curves;

h. calculate and interpret the amount of excess demand or excess supply associated with a non-equilibrium price;

i. describe types of auctions and calculate the winning price(s) of an auction;

j. calculate and interpret consumer surplus, producer surplus, and total surplus;

k. describe how government regulation and intervention affect demand and supply;

l. forecast the effect of the introduction and the removal of a market interference (e.g., a price floor or ceiling) on price and quantity;

m. calculate and interpret price, income, and cross-price elasticities of demand and describe factors that affect each measure.

Reading 14 Demand and Supply Analysis: Consumer Demand


a. describe consumer choice theory and utility theory;

b. describe the use of indifference curves, opportunity sets, and budget constraints in decision making;

c. calculate and interpret a budget constraint; d. determine a consumer’s equilibrium bundle of

goods based on utility analysis; e. compare substitution and income effects;

57

f. distinguish between normal goods and inferior goods, and explain Giffen goods and Veblen goods in this context.

Reading 15 Demand and Supply Analysis: The Firm


a. calculate, interpret, and compare accounting profit, economic profit, normal profit, and economic rent;

b. calculate and interpret and compare total, average, and marginal revenue;

c. describe a firm’s factors of production; d. calculate and interpret total, average, marginal,

fixed, and variable costs; e. determine and describe breakeven and shutdown

points of production; f. describe approaches to determining the profit-

maximizing level of output; g. describe how economies of scale and

diseconomies of scale affect costs; h. distinguish between short-run and long-run profit

maximization; i. distinguish among decreasing-cost, constant-cost,

and increasing-cost industries and describe the long-run supply of each;

j. calculate and interpret total, marginal, and average product of labor;

k. describe the phenomenon of diminishing marginal returns and calculate and interpret the profit-maximizing utilization level of an input;

l. determine the optimal combination of resources that minimizes cost.

Reading 16 The Firm and Market Structures


a. describe characteristics of perfect competition, monopolistic competition, oligopoly, and pure

58

monopoly;

b. explain relationships between price, marginal revenue, marginal cost, economic profit, and the elasticity of demand under each market structure;

c. describe a firm’s supply function under each market structure;

d. describe and determine the optimal price and output for firms under each market structure;

e. explain factors affecting long-run equilibrium under each market structure;

f. describe pricing strategy under each market structure;

g. describe the use and limitations of concentration measures in identifying market structure;

h. identify the type of market structure within which a firm operates.

Reading 17 Aggregate Output, Prices, and Economic Growth


a. calculate and explain gross domestic product (GDP) using expenditure and income approaches;

4 Define gross domestic product (GDP), explain how GDP is measured, and list the factors that lead to growth in GDP.

b. compare the sum-of-value-added and value-of-final-output methods of calculating GDP;


c. compare nominal and real GDP and calculate and interpret the GDP deflator;

d. compare GDP, national income, personal income, and personal disposable income;

e. explain the fundamental relationship among saving, investment, the fiscal balance, and the trade balance;

f. explain the IS and LM curves and how they combine to generate the aggregate demand curve;

g. explain the aggregate supply curve in the short run and long run;

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h. explain causes of movements along and shifts in aggregate demand and supply curves;

i. describe how fluctuations in aggregate demand and aggregate supply cause short-run changes in the economy and the business cycle;

j. distinguish between the following types of macroeconomic equilibria: long-run full employment, short-run recessionary gap, short-run inflationary gap, and short-run stagflation;

k. explain how a short-run macroeconomic equilibrium may occur at a level above or below full employment;

l. analyze the effect of combined changes in aggregate supply and demand on the economy;

m. describe sources, measurement, and sustainability of economic growth;

4 Describe the phases of the business cycle, distinguish among the economic indicators used to analyze business conditions, and identify the determinants of long-term economic growth.

n. describe the production function approach to analyzing the sources of economic growth;

o. distinguish between input growth and growth of total factor productivity as components of economic growth.

Reading 18 Understanding Business Cycles


a. describe the business cycle and its phases;


b. describe how resource use, housing sector activity, and external trade sector activity vary as an economy moves through the business cycle;

c. describe theories of the business cycle; 5 Compare and contrast the rational, Keynesian,

monetarist, and supply-side theories of the economy.

d. describe types of unemployment and measures of unemployment;

4 Compare and contrast the two key indicators of the labour market in Canada and the three main types of unemployment.

60

e. explain inflation, hyperinflation, disinflation, and deflation;

4 Define inflation, calculate the inflation rate using the consumer price index (CPI), and analyze the causes and impacts of inflation, disinflation, and deflation on an economy.

13 Describe how the four macroeconomic factors affect investor expectations and the price of securities.







i. describe economic indicators, including their uses and limitations;


Reading 19 Monetary and Fiscal Policy


a. compare monetary and fiscal policy



b. describe functions and definitions of money;




61





5 Explain the role and functions of the Bank of

Canada. g. contrast the costs of expected and unexpected inflation;

h. describe tools used to implement monetary policy; 5 Analyze how the Bank of Canada implements

and conducts monetary policy. i. describe the monetary transmission mechanism;

j. describe qualities of effective central banks; k. explain the relationships between monetary policy

and economic growth, inflation, interest, and exchange rates;

4 Describe the determinants of interest rates and discuss how interest rates affect the performance of the economy.





5 Discuss the challenges governments face in their fiscal and monetary policies and the consequences of failed policy


5 Analyze the mechanisms by which governments establish fiscal policy and evaluate the impacts of fiscal policy on the economy.







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Reading 20 International Trade and Capital Flows


a. compare gross domestic product and gross national product;

b. describe benefits and costs of international trade; c. distinguish between comparative advantage and

absolute advantage; d. explain the Ricardian and Heckscher–Ohlin

models of trade and the source(s) of comparative advantage in each model;

e. compare types of trade and capital restrictions and their economic implications;

f. explain motivations for and advantages of trading blocs, common markets, and economic unions;

g. describe common objectives of capital restrictions imposed by governments;

h. describe the balance of payments accounts including their components;

4 Define the accounts included in a country's balance of payments, describe the determinants of the exchange rate, and explain the impact the balance of payments and the exchange rate have on the economy.




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j. describe functions and objectives of the international organizations that facilitate trade, including the World Bank, the International Monetary Fund, and the World Trade Organization.

Reading 21 Currency Exchange Rates


a. define an exchange rate, and distinguish between nominal and real exchange rates and spot and forward exchange rates;



d. calculate and interpret currency cross-rates; e. convert forward quotations expressed on a points

basis or in percentage terms into an outright forward quotation;







Reading 22 Financial Statement Analysis: An Introduction


a. describe the roles of financial reporting and financial statement analysis;

14 Explain how to analyze a company’s financial statements using trend analysis and external comparisons.

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b. describe the roles of the key financial statements (statement of financial position, statement of comprehensive income, statement of changes in equity, and statement of cash flows) in evaluating a company’s performance and financial position;

c. describe the importance of financial statement notes and supplementary information—including disclosures of accounting policies, methods, and estimates—and management’s commentary;

12 Explain the importance of the notes to the financial statements and the auditor's report.

d. describe the objective of audits of financial statements, the types of audit reports, and the importance of effective internal controls;

e. identify and describe information sources that analysts use in financial statement analysis besides annual financial statements and supplementary information;

f. describe the steps in the financial statement analysis framework.

Reading 23 Financial Reporting Mechanics


a. explain the relationship of financial statement elements and accounts, and classify accounts into the financial statement elements;

b. explain the accounting equation in its basic and expanded forms;

c. describe the process of recording business transactions using an accounting system based on the accounting equation;

d. describe the need for accruals and other adjustments in preparing financial statements;

e. describe the relationships among the income statement, balance sheet, statement of cash flows, and statement of owners’ equity;

12 Describe the purpose of the statement of changes in equity and describe its link with the statement of financial position and the statement of comprehensive income.

f. describe the flow of information in an accounting system;

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g. describe the use of the results of the accounting process in security analysis.

Reading 24 Financial Reporting Standards


a. describe the objective of financial statements and the importance of financial reporting standards in security analysis and valuation;

b. describe roles and desirable attributes of financial reporting standard-setting bodies and regulatory authorities in establishing and enforcing reporting standards, and describe the role of the International Organization of Securities Commissions;

c. describe the status of global convergence of accounting standards and ongoing barriers to developing one universally accepted set of financial reporting standards;

d. describe the International Accounting Standards Board’s conceptual framework, including the objective and qualitative characteristics of financial statements, required reporting elements, and constraints and assumptions in preparing financial statements;

e. describe general requirements for financial statements under International Financial Reporting Standards (IFRS);

f. compare key concepts of financial reporting standards under IFRS and US generally accepted accounting principles (US GAAP) reporting systems;

g. identify characteristics of a coherent financial reporting framework and the barriers to creating such a framework;

h. describe implications for financial analysis of differing financial reporting systems and the importance of monitoring developments in financial reporting standards;

i. analyze company disclosures of significant accounting policies.

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Reading 25 Understanding Income Statements


a. describe the components of the income statement and alternative presentation formats of that statement;

12 Describe the structure of the statement of comprehensive income.

b. describe general principles of revenue recognition and accrual accounting, specific revenue recognition applications (including accounting for long-term contracts, installment sales, barter transactions, gross and net reporting of revenue), and implications of revenue recognition principles for financial analysis;

c. calculate revenue given information that might influence the choice of revenue recognition method;

d. describe general principles of expense recognition, specific expense recognition applications, and implications of expense recognition choices for financial analysis;

e. describe the financial reporting treatment and analysis of non-recurring items (including discontinued operations, extraordinary items, unusual or infrequent items) and changes in accounting standards;

f. distinguish between the operating and non-operating components of the income statement;

g. describe how earnings per share is calculated and calculate and interpret a company’s earnings per share (both basic and diluted earnings per share) for both simple and complex capital structures;

h. distinguish between dilutive and antidilutive securities, and describe the implications of each for the earnings per share calculation;

i. convert income statements to common-size income statements;

j. evaluate a company’s financial performance using common-size income statements and financial ratios based on the income statement;

k. describe, calculate, and interpret comprehensive income;

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l. describe other comprehensive income, and identify major types of items included in it.

Reading 26 Understanding Balance Sheets


a. describe the elements of the balance sheet: assets, liabilities, and equity;

12 Describe the format and the items of the statement of financial position and explain how the items are classified.

b. describe uses and limitations of the balance sheet in financial analysis;

c. describe alternative formats of balance sheet presentation;

d. distinguish between current and non-current assets, and current and non-current liabilities;

e. describe different types of assets and liabilities and the measurement bases of each;

f. describe the components of shareholders’ equity;


g. convert balance sheets to common-size balance sheets and interpret common-size balance sheets;

h. calculate and interpret liquidity and solvency ratios.

Reading 27 Understanding Cash Flow Statements


a. compare cash flows from operating, investing, and financing activities and classify cash flow items as relating to one of those three categories given a description of the items;

12 Describe the components of the statement of cash flows and classify an accounting activity or item as a cash flow from operating, financing, or investing activities.

b. describe how non-cash investing and financing activities are reported;

c. contrast cash flow statements prepared under International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (US GAAP);

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d. distinguish between the direct and indirect methods of presenting cash from operating activities and describe arguments in favor of each method;

e. describe how the cash flow statement is linked to the income statement and the balance sheet;

f. describe the steps in the preparation of direct and indirect cash flow statements, including how cash flows can be computed using income statement and balance sheet data;

g. convert cash flows from the indirect to direct method;

h. analyze and interpret both reported and common-size cash flow statements;

i. calculate and interpret free cash flow to the firm, free cash flow to equity, and performance and coverage cash flow ratios.

Reading 28 Financial Analysis Techniques


a. describe tools and techniques used in financial analysis, including their uses and limitations;


b. classify, calculate, and interpret activity, liquidity, solvency, profitability, and valuation ratios;


14 Describe the different types of liquidity, risk analysis, operating performance, and value ratios, and evaluate company performance using these ratios.

c. describe relationships among ratios and evaluate a company using ratio analysis;


d. demonstrate the application of DuPont analysis of return on equity, and calculate and interpret effects of changes in its components;

e. calculate and interpret ratios used in equity analysis and credit analysis;


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f. explain the requirements for segment reporting, and calculate and interpret segment ratios;

g. describe how ratio analysis and other techniques can be used to model and forecast earnings.

Reading 29 Inventories


a. distinguish between costs included in inventories and costs recognised as expenses in the period in which they are incurred;

b. describe different inventory valuation methods (cost formulas);

c. calculate cost of sales and ending inventory using different inventory valuation methods and explain the effect of the inventory valuation method choice on gross profit;

d. calculate and compare cost of sales, gross profit, and ending inventory using perpetual and periodic inventory systems;

e. compare cost of sales, ending inventory, and gross profit using different inventory valuation methods;

f. describe the measurement of inventory at the lower of cost and net realisable value;

g. describe the financial statement presentation of and disclosures relating to inventories;

h. calculate and interpret ratios used to evaluate inventory management.

Reading 30 Long-Lived Assets


a. distinguish between costs that are capitalized and costs that are expensed in the period in which they are incurred;

b. compare the financial reporting of the following types of intangible assets: purchased, internally developed, acquired in a business combination;

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c. describe the different depreciation methods for property, plant, and equipment, the effect of the choice of depreciation method on the financial statements, and the effects of assumptions concerning useful life and residual value on depreciation expense;

d. calculate depreciation expense; e. describe the different amortization methods for

intangible assets with finite lives, the effect of the choice of amortization method on the financial statements, and the effects of assumptions concerning useful life and residual value on amortization expense;

f. calculate amortization expense; g. describe the revaluation model; h. explain the impairment of property, plant, and

equipment and intangible assets; i. explain the derecognition of property, plant, and

equipment and intangible assets; j. describe the financial statement presentation of and

disclosures relating to property, plant, and equipment and intangible assets;

k. compare the financial reporting of investment property with that of property, plant, and equipment.

Reading 31 Income Taxes


a. describe the differences between accounting profit and taxable income, and define key terms, including deferred tax assets, deferred tax liabilities, valuation allowance, taxes payable, and income tax expense;

b. explain how deferred tax liabilities and assets are created and the factors that determine how a company’s deferred tax liabilities and assets should be treated for the purposes of financial analysis;

c. calculate the tax base of a company’s assets and liabilities;

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d. calculate income tax expense, income taxes payable, deferred tax assets, and deferred tax liabilities, and calculate and interpret the adjustment to the financial statements related to a change in the income tax rate;

e. evaluate the impact of tax rate changes on a company’s financial statements and ratios;

f. distinguish between temporary and permanent differences in pre-tax accounting income and taxable income;

g. describe the valuation allowance for deferred tax assets—when it is required and what impact it has on financial statements;

h. compare a company’s deferred tax items;

i. analyze disclosures relating to deferred tax items and the effective tax rate reconciliation, and explain how information included in these disclosures affects a company’s financial statements and financial ratios;

j. identify the key provisions of and differences between income tax accounting under International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (GAAP).

Reading 32 Non-Current (Long-Term) Liabilities


a. determine the initial recognition, initial measurement and subsequent measurement of bonds;

b. describe the effective interest method and calculate interest expense, amortisation of bond discounts/premiums, and interest payments;

c. explain the derecognition of debt; d. describe the role of debt covenants in protecting

creditors; e. describe the financial statement presentation of and

disclosures relating to debt; f. explain motivations for leasing assets instead of

purchasing them; g. distinguish between a finance lease and an

operating lease from the perspectives of the lessor

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and the lessee;

h. determine the initial recognition, initial measurement, and subsequent measurement of finance leases;

i. compare the disclosures relating to finance and operating leases;

j. compare the presentation and disclosure of defined contribution and defined benefit pension plans;

k. calculate and interpret leverage and coverage ratios.

Reading 33 Financial Reporting Quality


a. distinguish between financial reporting quality and quality of reported results (including quality of earnings, cash flow, and balance sheet items);

b. describe a spectrum for assessing financial reporting quality;

c. distinguish between conservative and aggressive accounting;

d. describe motivations that might cause management to issue financial reports that are not high quality;

e. describe conditions that are conducive to issuing low-quality, or even fraudulent, financial reports;

f. describe mechanisms that discipline financial reporting quality and the potential limitations of those mechanisms;

g. describe presentation choices, including non-GAAP measures, that could be used to influence an analyst’s opinion;

h. describe accounting methods (choices and estimates) that could be used to manage earnings, cash flow, and balance sheet items;

i. describe accounting warning signs and methods for detecting manipulation of information in financial reports.

Reading 34 Financial Statement Analysis: Applications

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a. evaluate a company’s past financial performance and explain how a company’s strategy is reflected in past financial performance;

b. forecast a company’s future net income and cash flow;

c. describe the role of financial statement analysis in assessing the credit quality of a potential debt investment;

d. describe the use of financial statement analysis in screening for potential equity investments;

e. explain appropriate analyst adjustments to a company’s financial statements to facilitate comparison with another company.

Reading 35 Capital Budgeting


a. describe the capital budgeting process and distinguish among the various categories of capital projects;

b. describe the basic principles of capital budgeting; c. explain how the evaluation and selection of capital

projects is affected by mutually exclusive projects, project sequencing, and capital rationing;

d. calculate and interpret net present value (NPV), internal rate of return (IRR), payback period, discounted payback period, and profitability index (PI) of a single capital project;

e. explain the NPV profile, compare the NPV and IRR methods when evaluating independent and mutually exclusive projects, and describe the problems associated with each of the evaluation methods;

f. describe expected relations among an investment’s NPV, company value, and share price.

Reading 36 Cost of Capital

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a. calculate and interpret the weighted average cost of capital (WACC) of a company;

b. describe how taxes affect the cost of capital from different capital sources;

c. describe the use of target capital structure in estimating WACC and how target capital structure weights may be determined;

d. explain how the marginal cost of capital and the investment opportunity schedule are used to determine the optimal capital budget;

e. explain the marginal cost of capital’s role in determining the net present value of a project;

f. calculate and interpret the cost of debt capital using the yield-to-maturity approach and the debt-rating approach;

g. calculate and interpret the cost of noncallable, nonconvertible preferred stock;

h. calculate and interpret the cost of equity capital using the capital asset pricing model approach, the dividend discount model approach, and the bond-yield-plus risk-premium approach;

i. calculate and interpret the beta and cost of capital for a project;

j. describe uses of country risk premiums in estimating the cost of equity;

k. describe the marginal cost of capital schedule, explain why it may be upward-sloping with respect to additional capital, and calculate and interpret its break-points;

l. explain and demonstrate the correct treatment of flotation costs.

Reading 37 Measures of Leverage


a. define and explain leverage, business risk, sales risk, operating risk, and financial risk, and classify a risk;

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b. calculate and interpret the degree of operating leverage, the degree of financial leverage, and the degree of total leverage;

c. analyze the effect of financial leverage on a company’s net income and return on equity;

d. calculate the breakeven quantity of sales and determine the company's net income at various sales levels;

e. calculate and interpret the operating breakeven quantity of sales.

Reading 38 Dividends and Share Repurchases: Basics


a. describe regular cash dividends, extra dividends, liquidating dividends, stock dividends, stock splits, and reverse stock splits, including their expected effect on shareholders’ wealth and a company’s financial ratios;

8 Discuss the benefits of common share ownership; describe how dividends are taxed, declared, and claimed; and describe the impact of stock splits and consolidations on shareholders.

b. describe dividend payment chronology, including the significance of declaration, holder-of-record, ex-dividend, and payment dates;


c. compare share repurchase methods; d. calculate and compare the effect of a share

repurchase on earnings per share when 1) the repurchase is financed with the company’s excess cash and 2) the company uses debt to finance the repurchase;

e. calculate the effect of a share repurchase on book value per share;

f. explain why a cash dividend and a share repurchase of the same amount are equivalent in terms of the effect on shareholders’ wealth, all else being equal.

Reading 39 Working Capital Management


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a. describe primary and secondary sources of liquidity and factors that influence a company’s liquidity position;

b. compare a company’s liquidity measures with those of peer companies;

c. evaluate working capital effectiveness of a company based on its operating and cash conversion cycles, and compare the company’s effectiveness with that of peer companies;

d. describe how different types of cash flows affect a company’s net daily cash position;

e. calculate and interpret comparable yields on various securities, compare portfolio returns against a standard benchmark, and evaluate a company’s short-term investment policy guidelines;

f. evaluate a company’s management of accounts receivable, inventory, and accounts payable over time and compared to peer companies;

g. evaluate the choices of short-term funding available to a company and recommend a financing method.

Reading 40 The Corporate Governance of Listed Companies: A Manual for Investors


a. define corporate governance;

b. describe practices related to board and committee independence, experience, compensation, external consultants, and frequency of elections, and determine whether they are supportive of shareowner protection;

c. describe board independence and explain the importance of independent board members in corporate governance;

d. identify factors that an analyst should consider when evaluating the qualifications of board members;

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e. describe responsibilities of the audit, compensation, and nominations committees and identify factors an investor should consider when evaluating the quality of each committee;

f. describe provisions that should be included in a strong corporate code of ethics;

g. evaluate, from a shareowner’s perspective, company policies related to voting rules, shareowner sponsored proposals, common stock classes, and takeover defenses.

Reading 41 Portfolio Management: An Overview


a. describe the portfolio approach to investing;


b. describe types of investors and distinctive characteristics and needs of each;

17 List and describe the factors that are driving the growth of managed and structured products.

27 Define the term institutional client. c. describe defined contribution and defined benefit pension plans;

d. describe the steps in the portfolio management process;

15 List the steps in the portfolio management process.


26 Evaluate the importance of and summarize the steps in the financial planning process.

e. describe mutual funds and compare them with other pooled investment products.

17 Differentiate between managed and structured products, including the advantages, disadvantages, and investment risks of structured products and managed products.

18 Define what a mutual fund is and describe the advantages and disadvantages of investing in mutual funds.

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18 Compare and contrast mutual fund trusts and mutual fund corporations. Calculate a fund’s net asset value per share (NAVPS) and explain and calculate how mutual fund units or shares are priced for sales and redemptions. Analyze the effects of charges and fees associated with mutual funds on performance and unitholder net return.

19 Describe the types of mutual funds and discuss

the risk-return trade-off of investing in each type.

19 Calculate the redemption/selling price of a mutual fund, explain the tax consequences of redemptions, and describe the four types of withdrawal plans and the appropriate use of each plan for an investor.

22 Define closed-end funds and discuss the advantages and disadvantages of investing in closed-end funds.

22 Describe the advantages, disadvantages and

features of exchange-traded funds (ETFs).

Reading 42 Portfolio Risk and Return: Part I


a. calculate and interpret major return measures and describe their appropriate uses;

15 Describe the relationship between risk and return, calculate rates of return of a single security, identify the different types and measures of risk, and evaluate the role of risk in asset selection.

15 Explain the relationship between risk and return of a portfolio of securities, calculate and interpret the expected return of a portfolio, and identify strategies for maximizing return while reducing risk.


19 Describe how mutual fund performance is measured and how the comparative performance of mutual funds is determined.

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b. describe characteristics of the major asset classes that investors consider in forming portfolios;



16 Describe the asset mix categories and evaluate

strategies for setting the asset mix.













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Reading 43 Portfolio Risk and Return: Part II


a. describe the implications of combining a risk-free asset with a portfolio of risky assets;

b. explain the capital allocation line (CAL) and the capital market line (CML);

c. explain systematic and nonsystematic risk, including why an investor should not expect to receive additional return for bearing nonsystematic risk;

d. explain return generating models (including the market model) and their uses;

e. calculate and interpret beta; f. explain the capital asset pricing model (CAPM),

including its assumptions, and the security market line (SML);

g. calculate and interpret the expected return of an asset using the CAPM;

h. describe and demonstrate applications of the CAPM and the SML.

Reading 44 Basics of Portfolio Planning and Construction

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a. describe the reasons for a written investment policy statement (IPS);

15 Describe the content of an investment policy statement and explain the purpose of an IPS.

b. describe the major components of an IPS; 15 Describe the content of an investment policy

statement and explain the purpose of an IPS.

c. describe risk and return objectives and how they may be developed for a client;

15 Evaluate investment objectives and constraints and explain how to use them in creating an investment policy statement (IPS) for a client.

26 Evaluate the importance of and summarize the

steps in the financial planning process.

27 Differentiate between retail client suitability requirements and institutional information requirements.




e. describe the investment constraints of liquidity, time horizon, tax concerns, legal and regulatory factors, and unique circumstances and their implications for the choice of portfolio assets;


26 Evaluate the importance of and summarize the

steps in the financial planning process.


f. explain the specification of asset classes in relation to asset allocation;

16 Discuss the benefits of asset allocation, distinguish strategic asset allocation from the types of ongoing asset allocation techniques, and differentiate active and passive management.

g. describe the principles of portfolio construction and the role of asset allocation in relation to the IPS.


Reading 45 Market Organization and Structure


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a. explain the main functions of the financial system; 1 Define investment capital and describe its role in

the economy.

1 Describe how individuals, businesses, governments, and foreign agencies supply and use capital in the economy.

b. describe classifications of assets and markets; 1 Differentiate between the types of financial

instruments used in capital transactions.


1 Explain the role of financial markets in the Canadian financial services industry, distinguish among the types of financial markets, and describe how auction and dealer markets work.




2 Distinguish among the three categories of securities firms, explain how they are organized, and compare and contrast dealer, principal, and agency transactions.

2 Describe the roles of the chartered banks in the

capital markets.

2 Describe the roles of trust companies, credit unions, and insurance companies in the capital markets.

2 Describe the roles of investment companies, savings companies, loan companies, and pension plans in the capital markets.

11 Discuss the advantages and disadvantages of listing shares for trading on an exchange and explain the circumstances and ways in which exchanges can withdraw trading privileges.

27 Describe the roles and responsibilities of the

participants in the institutional marketplace.

e. compare positions an investor can take in an asset; 9 Describe the process of short selling and discuss

the risks associated with short selling.

9 Distinguish among the types of buy and sell

orders.

f. calculate and interpret the leverage ratio, the rate of return on a margin transaction, and the security price at which the investor would receive a margin call;

9 Distinguish between cash and margin accounts.

9 Understand margin requirements for long and

short positions.

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9 Describe the process of short selling and discuss

the risks associated with short selling.

g. compare execution, validity, and clearing instructions;

9 Describe the trading and settlement procedures for equity transactions.

h. compare market orders with limit orders; 9 Distinguish among the types of buy and sell

orders.

i. define primary and secondary markets and explain how secondary markets support primary markets;

11 Summarize the steps in the corporate financing process, explain the different methods of offering securities to the public, summarize the prospectus system, and evaluate after-market stabilization.



11 Identify other methods of distributing securities to the public through stock exchanges.


k. describe characteristics of a well-functioning financial system;

l. describe objectives of market regulation.

3 Identify and describe the agencies and legal entities through which the Canadian securities industry is regulated and evaluate the role the self-regulatory organizations play in the regulatory process.

3 Discuss the principles that underlie securities

legislation.

Reading 46 Security Market Indices


a. describe a security market index;

8 Differentiate between a stock market index and an average, and summarize the important stock market indexes and averages.


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h. describe types of equity indices;


i. describe types of fixed-income indices; 7 Assess the role of bond indexes in the securities

industry. j. describe indices representing alternative investments;

k. compare types of security market indices.

Reading 47 Market Efficiency


a. describe market efficiency and related concepts, including their importance to investment practitioners;

b. distinguish between market value and intrinsic value;

c. explain factors that affect a market’s efficiency; d. contrast weak-form, semi-strong-form, and strong-

form market efficiency;

e. explain the implications of each form of market efficiency for fundamental analysis, technical analysis, and the choice between active and passive portfolio management;



19 Evaluate mutual fund management styles.

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f. describe selected market anomalies; g. contrast the behavioral finance view of investor

behavior to that of traditional finance.

Reading 48 Overview of Equity Securities


a. describe characteristics of types of equity securities;


8 Discuss the position, advantages, disadvantages, and special provisions of preferred shares; and differentiate among the types of preferred shares, describe their features, and perform related calculations.



c. distinguish between public and private equity securities;

d. describe methods for investing in non-domestic equity securities;

e. compare the risk and return characteristics of different types of equity securities;

f. explain the role of equity securities in the financing of a company’s assets;

g. distinguish between the market value and book value of equity securities;

h. compare a company’s cost of equity, its (accounting) return on equity, and investors’ required rates of return.

Reading 49 Introduction to Industry and Company Analysis


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a. explain uses of industry analysis and the relation of industry analysis to company analysis;

13 Analyze how industries are classified and explain how industry classifications impact a company’s stock valuation.




e. describe the elements that need to be covered in a thorough industry analysis;

f. describe the principles of strategic analysis of an industry;

g. explain the effects of barriers to entry, industry concentration, industry capacity, and market share stability on pricing power and return on capital;

h. describe product and industry life cycle models, classify an industry as to life cycle phase (embryonic, growth, shakeout, maturity, and decline), and describe limitations of the life-cycle concept in forecasting industry performance;

i. compare characteristics of representative industries from the various economic sectors;

j. describe demographic, governmental, social, and technological influences on industry growth, profitability, and risk;

k. describe the elements that should be covered in a thorough company analysis.

Reading 50 Equity Valuation: Concepts and Basic Tools


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a. evaluate whether a security, given its current market price and a value estimate, is overvalued, fairly valued, or undervalued by the market;

14 Identify the factors involved in performing company analysis to determine whether a company represents a good investment.





14 Evaluate the investment quality of preferred shares.


13 Calculate and interpret the intrinsic value of a stock using the dividend discount model (DDM).







Reading 51 Fixed-Income Securities: Defining Elements


a. describe the basic features of a fixed-income security;

6 Define the terms used in transactions involving bonds, describe bond features, explain the use of sinking and purchase funds, and describe the protective provisions found in a bond indenture.

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d. describe how legal, regulatory, and tax considerations affect the issuance and trading of fixed-income securities;

e. describe how cash flows of fixed-income securities are structured;

f. describe contingency provisions affecting the timing and/or nature of cash flows of fixed-income securities and identify whether such provisions benefit the borrower or the lender.

Reading 52 Fixed-Income Markets: Issuance, Trading, and Funding


a. describe classifications of global fixed-income markets;

6 Describe the fixed-income market and discuss the rationale for issuing debt instruments.

b. describe the use of interbank offered rates as reference rates in floating-rate debt;

c. describe mechanisms available for issuing bonds in primary markets;

11 Describe the processes by which governments raise debt capital to finance their funding requirements.

11 Describe the processes by which corporations raise debt or equity capital to finance their funding requirements.


d. describe secondary markets for bonds; 6 Interpret bond quotes and summarize and

evaluate bond ratings.

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7 Summarize the rules and regulations of bond

delivery and settlement.

e. describe securities issued by sovereign governments, non-sovereign governments, government agencies, and supranational entities;

6 Compare and contrast the types of Government of Canada securities.

6 Compare and contrast the different types of provincial government securities and municipal debentures.


f. describe types of debt issued by corporations; 6 Identify the different types of corporate bonds

and describe their features.

11 Describe the processes by which corporations raise debt or equity capital to finance their funding requirements.

g. describe short-term funding alternatives available to banks;

6 Describe the features of other fixed-income securities, including bankers’ acceptances, commercial paper, term deposits and guaranteed investment certificates.


6 Describe the features of other fixed-income securities, including bankers’ acceptances, commercial paper, term deposits and guaranteed investment certificates.

Reading 53 Introduction to Fixed-Income Valuation


a. calculate a bond’s price given a market discount rate;

7 Define the present value and the discount rate of a bond and perform calculations relating to the time value of money, bond pricing and yield.


7 Define a real rate of return and a yield curve.

7 Analyze the impact of fixed-income pricing

properties on bond prices.

c. define spot rates and calculate the price of a bond using spot rates;

7 Define a real rate of return and a yield curve.

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d. describe and calculate the flat price, accrued interest, and the full price of a bond;

e. describe matrix pricing;

f. calculate and interpret yield measures for fixed-rate bonds, floating-rate notes, and money market instruments;


h. define forward rates and calculate spot rates from forward rates, forward rates from spot rates, and the price of a bond using forward rates;

i. compare, calculate, and interpret yield spread measures.

Reading 54 Introduction to Asset-Backed Securities


a. explain benefits of securitization for economies and financial markets;

24 Discuss the structure and benefits of mortgage-backed securities.

b. describe the securitization process, including the parties to the process, the roles they play, and the legal structures involved;

c. describe types and characteristics of residential mortgage loans that are typically securitized;


d. describe types and characteristics of residential mortgage-backed securities, and explain the cash flows and credit risk for each type;

e. explain the motivation for creating securitized structures with multiple tranches (e.g., collateralized mortgage obligations), and the characteristics and risks of securitized structures;

f. describe the characteristics and risks of commercial mortgage-backed securities;


g. describe types and characteristics of non-mortgage asset-backed securities, including the cash flows and credit risk of each type;

24 Describe the features of asset-backed securities including asset-backed commercial paper and the securitization process.

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h. describe collateralized debt obligations, including their cash flows and credit risk.

Reading 55 Understanding Fixed-Income Risk and Return


a. calculate and interpret the sources of return from investing in a fixed-rate bond;

b. define, calculate, and interpret Macaulay, modified, and effective durations;

c. explain why effective duration is the most appropriate measure of interest rate risk for bonds with embedded options;

d. define key rate duration and describe the key use of key rate durations in measuring the sensitivity of bonds to changes in the shape of the benchmark yield curve;

e. explain how a bond’s maturity, coupon, embedded options, and yield level affect its interest rate risk;

f. calculate the duration of a portfolio and explain the limitations of portfolio duration;

g. calculate and interpret the money duration of a bond and price value of a basis point (PVBP);

h. calculate and interpret approximate convexity and distinguish between approximate and effective convexity;

i. estimate the percentage price change of a bond for a specified change in yield, given the bond’s approximate duration and convexity;

j. describe how the term structure of yield volatility affects the interest rate risk of a bond;

k. describe the relationships among a bond’s holding period return, its duration, and the investment horizon;

7 Evaluate three theories of interest-rate determination.

l. explain how changes in credit spread and liquidity affect yield-to-maturity of a bond and how duration and convexity can be used to estimate the price effect of the changes.

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Reading 56 Fundamentals of Credit Analysis


a. describe credit risk and credit-related risks affecting corporate bonds;

6 Interpret bond quotes and summarize and evaluate bond ratings.

b. describe seniority rankings of corporate debt and explain the potential violation of the priority of claims in a bankruptcy proceeding;

c. distinguish between corporate issuer credit ratings and issue credit ratings and describe the rating agency practice of “notching”;

d. explain risks in relying on ratings from credit rating agencies;

e. explain the components of traditional credit analysis;

f. calculate and interpret financial ratios used in credit analysis;

g. evaluate the credit quality of a corporate bond issuer and a bond of that issuer, given key financial ratios of the issuer and the industry;

h. describe factors that influence the level and volatility of yield spreads;

i. calculate the return impact of spread changes; j. explain special considerations when evaluating the

credit of high yield, sovereign, and municipal debt issuers and issues.

Reading 57 Derivative Markets and Instruments


a. define a derivative, and distinguish between exchange-traded and over-the-counter derivatives;

10 Describe what a derivative is and explain the differences between over-the-counter and exchange-traded derivatives.

10 Define and describe rights and warrants, explain why they are issued, and calculate the value of rights and warrants.

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b. contrast forward commitments with contingent claims;

10 Describe what forwards are and distinguish futures contracts from forward agreements and evaluate futures strategies for investors and corporations.

c. define forward contracts, futures contracts, options (calls and puts), swaps, and credit derivatives, and compare their basic characteristics;

10 Identify the types of underlying assets on which derivatives are based.

10 Describe what options are and how they are traded, and evaluate call and put option strategies for individual and institutional investors and corporations.


d. describe purposes of, and controversies related to, derivative markets;

10 Describe the participants in and the uses of derivatives trading.

e. explain arbitrage and the role it plays in determining prices and promoting market efficiency.

Reading 58 Basics of Derivative Pricing and Valuation


a. explain how the concepts of arbitrage, replication, and risk neutrality are used in pricing derivatives;

10 Define and describe rights and warrants, explain why they are issued, and calculate the value of rights and warrants.

b. distinguish between value and price of forward and futures contracts;

c. explain how the value and price of a forward contract are determined at expiration, during the life of the contract, and at initiation;

d. describe monetary and nonmonetary benefits and costs associated with holding the underlying asset, and explain how they affect the value and price of a forward contract;


e. define a forward rate agreement and describe its uses;


f. explain why forward and futures prices differ;

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g. explain how swap contracts are similar to but different from a series of forward contracts;

h. distinguish between the value and price of swaps; i. explain how the value of a European option is

determined at expiration;

j. explain the exercise value, time value, and moneyness of an option;


k. identify the factors that determine the value of an option, and explain how each factor affects the value of an option;


l. explain put–call parity for European options; m. explain put–call–forward parity for European

options; n. explain how the value of an option is determined

using a one-period binomial model; o. explain under which circumstances the values of

European and American options differ.

Reading 59 Risk Management Applications of Option Strategies


a. determine the value at expiration, the profit, maximum profit, maximum loss, breakeven underlying price at expiration, and payoff graph of the strategies of buying and selling calls and puts and determine the potential outcomes for investors using these strategies;


b. determine the value at expiration, profit, maximum profit, maximum loss, breakeven underlying price at expiration, and payoff graph of a covered call strategy and a protective put strategy, and explain the risk management application of each strategy.


Reading 60 Introduction to Alternative Investments


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a. compare alternative investments with traditional investments;

b. describe categories of alternative investments; c. describe potential benefits of alternative

investments in the context of portfolio management;

d. describe hedge funds, private equity, real estate, commodities, and other alternative investments, including, as applicable, strategies, sub-categories, potential benefits and risks, fee structures, and due diligence;

21 Define hedge funds and compare and contrast hedge funds with mutual funds, and institutional investors with retail investors in hedge funds, summarize the history and growth of the hedge fund market, and discuss how hedge fund performance is tracked.

21 Identify the three categories of hedge fund strategies and describe how the specific strategies within each category work.

22 Define income trust, differentiate among the types of income trusts and describe their features.

e. describe issues in valuing, and calculating returns on, hedge funds, private equity, real estate, and commodities;

21 Evaluate the benefits, risks, and due diligence requirements of investing in hedge funds.


21 Describe the advantages and disadvantages of investing in a fund of hedge funds (FoHFs) structure versus individual hedge funds.

g. describe risk management of alternative investments.

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Detailed Direct Mapping - Claritas Mapped to CSC

CSC Learning Outcome Statements Claritas LOS

Module 1: The Capital Market


Define investment

capital and describe its role in the economy.

1 Explain how an economy benefits from the existence of the investment industry;

Describe how individuals, businesses, governments, and foreign agencies supply and use capital in the economy.

1 Explain how an individual benefits from the existence of the investment industry;

1 Describe types and functions of participants that collectively comprise the structure of the investment industry;

Differentiate between the types of financial instruments used in capital transactions.

9 Describe types and characteristics of equity securities;

10 Describe types and characteristics of debt securities;

11 Define a derivative contract and describe the uses of derivatives contracts;

11 Distinguish between forwards, futures, options, and swaps;

11 Describe characteristics of derivative contracts;

11 Describe option contracts and factors that affect option values;

11 Describe swap contracts and identify factors that affect swap values.

12 Describe private equity investments;

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14 Distinguish among closed-end funds, open- end mutual funds, exchange traded funds, and unit investment trusts and identify their relative advantages and limitations;

Explain the role of financial markets in the Canadian financial services industry, distinguish among the types of financial markets, and describe how auction and dealer markets work.

1 Explain how an economy benefits from the existence of the investment industry;

13 Identify types of financial intermediaries, including deposit-taking institutions, finance corporations, securitizers, and insurance companies, and explain their role in the investment industry;

13 Distinguish between buy- and sell-side firms in the investment industry;

Module 2: The Canadian Securities Industry


Summarize the state of

the Canadian securities industry today. Distinguish among the three categories of securities firms, explain how they are organized, and compare and contrast dealer, principal, and agency transactions.


15 Identify characteristics of quote-driven, order-driven, and brokered markets;

15 Compare the roles of brokers and dealers;

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15 Explain the roles of exchanges and alternative trading systems;

Describe the roles of the chartered banks in the capital markets.


Describe the roles of trust companies, credit unions, and insurance companies in the capital markets.


Describe the roles of investment companies, savings companies, loan companies, and pension plans in the capital markets.


Module 3: The

Canadian Regulatory Environment

By the end of this

module, you should be able to:

Identify and describe the agencies and legal entities through which the Canadian securities industry is regulated and evaluate the role the self-regulatory organizations play in the regulatory process.

3 Describe objectives of regulation;

3 Describe a regulatory process and the importance of each step in the process;

3 Identify specific types of regulation and describe the reasons for each;

3 Describe a firm’s obligations to consumers and related elements of corporate policies and procedures;

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3 Describe potential consequences of inadequate regulation and of failure to comply with regulations and corporate policies and procedures.

Discuss the principles that underlie securities legislation. 2 Describe the need for ethics in the investment industry; 3 Describe objectives of regulation;

3 Describe a regulatory process and the importance of each step in the process;


3 Describe a firm’s obligations to consumers and related elements of corporate policies and procedures;

3 Describe potential consequences of inadequate regulation and of failure to comply with regulations and corporate policies and procedures.

Identify unethical practices and conduct in securities trading.

2 Identify obligations that individuals in the investment industry have to clients, prospective clients, employers, and co-workers;

2 Describe the relevance of ethics to individuals that work in the investment industry;

2 Identify the elements of the CFA Institute Code of Ethics

2 Explain the standards of practice (professional principles) that are based on the CFA Institute Code of Ethics;

2 Describe consequences of conduct that is unethical or unprofessional;

2 Describe a framework for making ethical decisions.

Describe the rules for public company disclosure and the statutory rights of investors.


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Explain how takeover bids and insider trading are regulated and list the investigation and prosecution powers of securities regulators.


Module 4: Economic Principles


Define economics, identify the decision makers in an economy, and describe the process for achieving market equilibrium. 4 Define economics and the concept of scarcity; 4 Describe market equilibrium; Define gross domestic product (GDP), explain how GDP is measured, and list the factors that lead to growth in GDP.

5 Define gross domestic product (GDP) and GDP per capita;

5 Identify basic components of GDP;

5 Describe economic growth and factors that affect it;

Describe the phases of the business cycle, distinguish among the economic indicators used to analyze business conditions, and identify the determinants of long-term economic growth.

5 Describe phases of a business cycle and their characteristics;

5 Explain the global nature of business cycles;

5 Describe economic indicators and their uses and limitations;

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Compare and contrast the two key indicators of the labour market in Canada and the three main types of unemployment.

Describe the determinants of interest rates and discuss how interest rates affect the performance of the economy.

5 Describe economic growth and factors that affect it;

5 Define inflation, deflation, stagflation, and hyperinflation and describe their effects on consumers, businesses, and investments;

5 Describe and compare monetary and fiscal policy;

Define inflation, calculate the inflation rate using the consumer price index (CPI), and analyze the causes and impacts of inflation, disinflation, and deflation on an economy.


Define the accounts included in a country's balance of payments, describe the determinants of the exchange rate, and explain the impact the balance of payments and the exchange rate have on the economy.

6 Define the balance of payments and explain the relationship between the current account and the capital account;

6 Compare fixed versus floating exchange rate systems;

6 Describe the functioning of the foreign exchange market;

6 Compare spot and forward transactions;

6 Describe factors that cause appreciation and depreciation of currencies.

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Module 5: Economic Policy


Compare and contrast

the rational, Keynesian, monetarist, and supply-side theories of the economy.


Analyze the mechanisms by which governments establish fiscal policy and evaluate the impacts of fiscal policy on the economy.


Explain the role and functions of the Bank of Canada.


Analyze how the Bank of Canada implements and conducts monetary policy.


Discuss the challenges governments face in their fiscal and monetary policies and the consequences of failed policy

5 Explain limitations of monetary policy and fiscal policy.

Module 6: Fixed Income Securities: Features and Types


Describe the fixed-

income market and discuss the rationale for

10 Identify issuers of debt securities;

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issuing debt instruments.


Define the terms used in transactions involving bonds, describe bond features, explain the use of sinking and purchase funds, and describe the protective provisions found in a bond indenture.


10 Describe characteristics of fixed-rate bonds, floating- rate bonds, and zero-coupon bonds;

10 Describe characteristics of bonds with embedded provisions;

Compare and contrast the types of Government of Canada securities.



Compare and contrast the different types of provincial government securities and municipal debentures.



Identify the different types of corporate bonds and describe their features.



Describe the features of other fixed-income securities, including bankers’ acceptances, commercial paper, term deposits and guaranteed investment certificates.


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Interpret bond quotes and summarize and evaluate bond ratings.

10 Explain risks of investing in debt securities;

Module 7: Fixed

Income Securities: Pricing and Trading


Define the present value and the discount rate of a bond and perform calculations relating to the time value of money, bond pricing and yield.

8 Define the concept of interest;

8 Compare simple and compound interest;

8 Describe effects of time and discount rate on value;

8 Explain the relevance of the net present value in valuing financial investments;

Define a real rate of return and a yield curve.

10 Describe the discounted cash flow approach to valuing debt securities;

10 Explain the relationship between a bond’s price and its yield to maturity;

10 Compare a bond’s yield to maturity and its current yield;

10 Describe term structure of interest rates and credit spreads.

17 Describe measures of return, including holding-period returns and time-weighted rates of return;

17 Compare arithmetic and geometric means rates of returns;

Evaluate three theories of interest-rate determination.

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Analyze the impact of fixed-income pricing properties on bond prices.

10 Describe characteristics of fixed-rate bonds, floating- rate bonds, and zero-coupon bonds;

10 Describe characteristics of bonds with embedded provisions;

10 Explain risks of investing in debt securities;

10 Describe the discounted cash flow approach to valuing debt securities;

10 Explain the relationship between a bond’s price and its yield to maturity;

10 Compare a bond’s yield to maturity and its current yield;

10 Describe term structure of interest rates and credit spreads.

Summarize the rules and regulations of bond delivery and settlement.

15 Describe steps for clearing and settlement of trades;

Assess the role of bond indexes in the securities industry.

14 Explain the purpose of security market indices, identify their types, and describe uses of security market indices in the investment industry;

Module 8: Equity Securities: Common and Preferred Shares


Discuss the benefits of

common share ownership; describe how dividends are taxed, declared, and claimed; and describe the impact of stock splits and consolidations on shareholders.

9 Describe differences in voting rights and other ownership characteristics among different equity classes;


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9 Distinguish between preferred stock and common stock;

9 Compare risk and return characteristics of types of equity securities;

9 Describe approaches to valuing common stock;

9 Distinguish between an initial public offering (IPO) and a seasoned equity offering;

9 Describe corporate actions that affect a company’s shares outstanding.

Discuss the position, advantages, disadvantages, and special provisions of preferred shares; and differentiate among the types of preferred shares, describe their features, and perform related calculations.

9 Distinguish between preferred stock and common stock;


Differentiate between a stock market index and an average, and summarize the important stock market indexes and averages.

14 Explain the purpose of security market indices, identify their types, and describe uses of security market indices in the investment industry;

Module 9: Equity Securities: Equity Transactions


Distinguish between

cash and margin accounts.

15 Compare long, short, and levered positions in terms of risk and potential return;

Understand margin requirements for long and short positions.


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Describe the process of short selling and discuss the risks associated with short selling.


Describe the trading and settlement procedures for equity transactions.

15 Describe steps for clearing and settlement of trades;

Distinguish among the types of buy and sell orders.

15 Compare different orders and order instructions;

Module 10:

Derivatives By the end of this

module you should be able to:

Describe what a

derivative is and explain the differences between over-the-counter and exchange-traded derivatives.



Identify the types of underlying assets on which derivatives are based.


Describe the participants in and the uses of derivatives trading.


Describe what options are and how they are traded, and evaluate call and put option strategies for individual and institutional investors and corporations.

11 Distinguish between long and short positions in derivative contracts;


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Describe what forwards are and distinguish futures contracts from forward agreements and evaluate futures strategies for investors and corporations.


11 Explain the role of futures markets; Define and describe rights and warrants, explain why they are issued, and calculate the value of rights and warrants.



Module 11: Financing

and Listing Securities By the end of this


Compare and contrast the three types of business structures and explain the process, outcomes, and advantages and disadvantages of incorporation. Describe the processes by which governments raise debt capital to finance their funding requirements.

15 Distinguish between primary and secondary markets;

Describe the processes by which corporations raise debt or equity capital to finance their funding requirements.


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Summarize the steps in the corporate financing process, explain the different methods of offering securities to the public, summarize the prospectus system, and evaluate after-market stabilization.


Identify other methods of distributing securities to the public through stock exchanges.


15 Compare the roles of brokers and dealers; Discuss the advantages and disadvantages of listing shares for trading on an exchange and explain the circumstances and ways in which exchanges can withdraw trading privileges.


Module 12:

Corporations and their Financial Statements


Describe the format and the items of the statement of financial position and explain how the items are classified.

7 Describe information provided by the income statement, balance sheet, and cash flow statement;

7 Compare types of assets, liabilities, and equity;

Describe the structure of the statement of comprehensive income.


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Describe the purpose of the statement of changes in equity and describe its link with the statement of financial position and the statement of comprehensive income.

7 Explain links between the income statement, balance sheet, and cash flow statement;

Describe the components of the statement of cash flows and classify an accounting activity or item as a cash flow from operating, financing, or investing activities.

7 Distinguish between profit and net cash flow;

7 Identify and compare cash flow classifications of operating, investing, and financing activities;

Explain the importance of the notes to the financial statements and the auditor's report.


Module 13:

Fundamental and Technical Analysis

By the end of this

lesson, you should be able to:

Compare and contrast

fundamental and technical analysis, and evaluate the three market theories explaining stock market behaviour.

13 Compare passive and active management, and describe approaches used by active investment managers to design their investment strategies;

Describe how the four macroeconomic factors affect investor expectations and the price of securities.


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5 Explain limitations of monetary policy and fiscal policy.

6 Describe the flows of goods, services, and capital in international trade;

6 Define the balance of payments and explain the relationship between the current account and the capital account;

Analyze how industries are classified and explain how industry classifications impact a company’s stock valuation. Calculate and interpret the intrinsic value of a stock using the dividend discount model (DDM).


Define technical analysis and describe the tools used in technical analysis.


Module 14: Company

Analysis After completing this

module, you should be able to do the following:

Identify the factors

involved in performing company analysis to determine whether a company represents a good investment.


Explain how to analyze a company’s financial statements using trend analysis and external comparisons.


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Describe the different types of liquidity, risk analysis, operating performance, and value ratios, and evaluate company performance using these ratios.

7 Explain the usefulness of ratio analysis for financial statements;

7 Identify and interpret ratios used to analyze a company’s liquidity, profitability, financing, shareholder return, and shareholder value.

Evaluate the investment quality of preferred shares.


Module 15:

Introduction to the Portfolio Approach

By the end of this

chapter, you should be able to:

Describe the

relationship between risk and return, calculate rates of return of a single security, identify the different types and measures of risk, and evaluate the role of risk in asset selection.

8 Explain uses of mean, median, mode, range, percentile, and standard deviation;

16 Define risk and identify types of risk;

16 Define investment risk and explain how they are managed.



17 Describe measures of risk, including standard deviation, downside deviation, and reward-to-risk ratios;

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Explain the relationship between risk and return of a portfolio of securities, calculate and interpret the expected return of a portfolio, and identify strategies for maximizing return while reducing risk.

8 Explain uses of mean, median, mode, range, percentile, and standard deviation;

8 Describe and interpret correlation. 16 Define risk and identify types of risk;

16 Define investment risk and explain how they are managed.





List the steps in the portfolio management process.

19 Describe the importance of identifying investor needs to the investment process;

19 Describe and contrast types of investors; 19 Explain how needs differ among investors;

19 Describe the rationale for and structure of investment policy statements in serving client needs.

Evaluate investment objectives and constraints and explain how to use them in creating an investment policy statement (IPS) for a client.



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Describe the content of an investment policy statement and explain the purpose of an IPS.




Module 16: The Portfolio Management Process


Describe the asset mix categories and evaluate strategies for setting the asset mix.

21 Describe how portfolios are constructed to address client investment objectives and constraints;

21 Compare strategic and tactical asset allocation.

Compare and contrast the portfolio management styles of equity and fixed-income managers. Discuss the benefits of asset allocation, distinguish strategic asset allocation from the types of ongoing asset allocation techniques, and differentiate active and

20 Describe how portfolios are constructed to address client investment objectives and constraints;

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passive management.

20 Compare strategic and tactical asset allocation.

21 Compare active and passive investment management;

21 Explain factors necessary for profitable active management;

21 Describe how active managers attempt to identify and capture market inefficiencies.

Describe the steps in monitoring and evaluating portfolio performance in relation to the market, the economy, and the client.

17 Describe a performance evaluation process;


17 Describe uses of benchmarks and explain the selection of a benchmark;

17 Explain measures of relative performance, including tracking error and the information ratio;

17 Explain the concept of alpha;

17 Explain uses and processes of performance attribution.

Describe how portfolio performance is evaluated, calculate and interpret the total return and risk-adjusted rate of return of a portfolio.

17 Describe a performance evaluation process;



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17 Describe uses of benchmarks and explain the selection of a benchmark;

17 Explain measures of relative performance, including tracking error and the information ratio;

17 Explain the concept of alpha;

17 Explain uses and processes of performance attribution.

Module 17: Evolution

of Managed and Structured Products

By the end of this


List and describe the factors that are driving the growth of managed and structured products.

Differentiate between managed and structured products, including the advantages, disadvantages, and investment risks of structured products and managed products.

14 Compare investing through direct investments in securities and assets with investing through indirect investments;

14 Describe structured investment products, including linked notes, equity-linked annuities, and exchange traded notes;


14 Describe the characteristics of hedge funds;

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14 Describe the characteristics of funds of funds;

Describe how the growth of managed products has changed the role and compensation model of the Investment Advisor.

Module 18: Mutual

Funds: Structure and Regulation


Define what a mutual fund is and describe the advantages and disadvantages of investing in mutual funds.



Compare and contrast mutual fund trusts and mutual fund corporations. Calculate a fund’s net asset value per share (NAVPS) and explain and calculate how mutual fund units or shares are priced for sales and redemptions. Analyze the effects of charges and fees associated with mutual funds on performance and unitholder net return.


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Define labour sponsored venture capital corporations (LSVCCs), discuss the advantages and disadvantages of LSVCCs, and contrast them with mutual funds.

Describe the mutual fund regulatory environment and the disclosure documents necessary to satisfy provincial requirements, identify mutual fund registration requirements and discuss restrictions that sellers of mutual funds must observe.

Module 19: Mutual Funds: Types and Features


Describe the types of

mutual funds and discuss the risk-return trade-off of investing in each type.


Evaluate mutual fund management styles. 21 Compare active and passive investment management;

Calculate the redemption/selling price of a mutual fund, explain the tax consequences of redemptions, and describe the four types of withdrawal plans and the appropriate use of each plan for an


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investor.

Describe how mutual fund performance is measured and how the comparative performance of mutual funds is determined.



Module 20:

Segregated Funds and Other Insurance Products

By the end of this


Identify and describe

the various features of segregated funds.

Describe the tax considerations of investing in segregated funds.

Discuss the regulation of segregated funds, including the role played by OSFI, Assuris, and other regulatory bodies.

Describe the features of guaranteed minimum withdrawal plans and other insurance products.

Module 21: Hedge Funds

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Define hedge funds and compare and contrast hedge funds with mutual funds, and institutional investors with retail investors in hedge funds, summarize the history and growth of the hedge fund market, and discuss how hedge fund performance is tracked.



Evaluate the benefits, risks, and due diligence requirements of investing in hedge funds.


Identify the three categories of hedge fund strategies and describe how the specific strategies within each category work.

Describe the advantages and disadvantages of investing in a fund of hedge funds (FoHFs) structure versus individual hedge funds.



Module 22: Exchange

Listed Managed Products

By the end of this

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Define closed-end funds and discuss the advantages and disadvantages of investing in closed-end funds.


Define income trust, differentiate among the types of income trusts and describe their features.

12 Describe real estate investments;

Describe the advantages, disadvantages and features of exchange-traded funds (ETFs).


Explain how to invest in private equity through a listed equity (private equity firm).

Module 23: Fee Based

Accounts


Differentiate the features, advantages and disadvantages of the various types of fee-based accounts.

14 Explain the differences between separate accounts and commingled accounts;

Describe the various types of managed accounts.

14 Explain the differences between separate accounts and commingled accounts;

Module 24: Structured Products

By the end of this module, you should be

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able to:

Describe the features,

risks and benefits of principal-protected notes (PPNs).


Explain the structure, risks associated with and the tax implications of Index-, Mutual Fund- and Hedge Fund- linked guaranteed investment certificates (GICs).


Explain the structure, risks associated with and the tax implications of split shares. Describe the features of asset-backed securities including asset-backed commercial paper and the securitization process.



Discuss the structure and benefits of mortgage-backed securities.



Module 25: Canadian

Taxation By the end of this


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Discuss the features of the Canadian income tax system, calculate income tax payable, and differentiate the tax treatment of interest, dividends, and capital gains (and losses);

Calculate capital gains and capital losses and assess strategies for minimizing tax liability;

Describe and differentiate the different tax deferral plans and their uses;

Identify basic tax planning strategies and discuss their advantages.

14 Compare investment in taxable and tax-advantaged accounts;

Module 26: Working

with the Retail Client By the end of this


Evaluate the importance of and summarize the steps in the financial planning process.


19 Explain how needs differ among investors;


Describe how life cycle hypothesis is used to understand a client’s investment needs.

13 Identify and describe types of individual and institutional investors;

Summarize the values on which the code of ethics is based and the standards of conduct that advisors should

2 Describe the need for ethics in the investment industry;

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apply in their relationships with clients.


2 Describe the relevance of ethics to individuals that work in the investment industry;

2 Identify the elements of the CFA Institute Code of

2 Explain the standards of practice (professional principles) that are based on the CFA Institute Code of Ethics;

2 Describe consequences of conduct that is unethical or unprofessional;

2 Describe a framework for making ethical decisions.

Module 27: Working with the Institutional Client


Define the term

institutional client. 13 Identify and describe types of individual and institutional investors;

Differentiate between retail client suitability requirements and institutional information requirements.




125

Describe the roles and responsibilities of the participants in the institutional marketplace.

13 Identify positions and responsibilities for firms in the investment industry;

15 Compare the roles of brokers and dealers;

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Detailed Reverse Mapping- CSC Mapped to Claritas

Claritas Learning Outcome Statements CSC Learning Outcome Statements

Chapter 1: The Investment Industry

After completing this chapter, you should be able to do the following:

Explain how an economy benefits from the existence of the investment industry;

1 Define investment capital and describe its role in the economy.

Explain how an individual benefits from the existence of the investment industry;


Describe types and functions of participants that collectively comprise the structure of the investment industry;


Describe forces that affect the evolution of the investment industry.

Chapter 2: Ethics and Investment Professionalism


Describe the need for ethics in the investment industry;


26 Summarize the values on which the code of ethics is based and the standards of conduct that advisors should apply in their relationships with clients.

Identify obligations that individuals in the investment industry have to clients, prospective clients, employers, and co-workers;


3 Describe the rules for public company disclosure and the statutory rights of investors.

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Describe the relevance of ethics to individuals that work in the investment industry;

3 Identify unethical practices and conduct in securities trading.


Identify the elements of the CFA Institute Code of Ethics;

Explain the standards of practice (professional principles) that are based on the CFA Institute Code of Ethics;

Describe consequences of conduct that is unethical or unprofessional;

3 Identify unethical practices and conduct in securities trading

Describe a framework for making ethical decisions.



Chapter 3: Regulation and Supervision


Describe objectives of regulation; 3 Discuss the principles that underlie securities legislation.

Describe a regulatory process and the importance of each step in the process;



128

Identify specific types of regulation and describe the reasons for each;

3 Describe the rules for public company disclosure and the statutory rights of investors.

3 Explain how takeover bids and insider trading are regulated and list the investigation and prosecution powers of securities regulators.

Describe a firm’s obligations to consumers and related elements of corporate policies and procedures;



Describe potential consequences of inadequate regulation and of failure to comply with regulations and corporate policies and procedures.


3 Discuss the principles that underlie securities legislation

Chapter 4: Microeconomics


Define economics and the concept of scarcity;


Differentiate between macroeconomics and microeconomics;


Explain factors that affect quantity demanded and quantity supplied;


Describe market equilibrium;


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Describe and interpret price and income elasticities of demand and their effects on quantity and revenue;

Describe how demand for a good is affected by substitute and complementary goods and by market supply;

Distinguish between economic profit and accounting profit;



Explain production levels and costs, contrast fixed and variable costs, and explain the law of diminishing returns;

Identify factors that affect pricing;


Compare types of industry structure: perfect competition, pure monopoly, monopolistic competition, and oligopoly.

Chapter 5: Macroeconomics


Describe why macroeconomic considerations are important to an investment firm and how macroeconomic information may be used;


Define gross domestic product (GDP) and GDP per capita;


Identify basic components of GDP;


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Describe economic growth and factors that affect it;



Describe phases of a business cycle and their characteristics;


Explain the global nature of business cycles;


Describe economic indicators and their uses and limitations;


Define inflation, deflation, stagflation, and hyperinflation and describe their effects on consumers, businesses, and investments;


Describe and compare monetary and fiscal policy;

5 Compare and contrast the rational, Keynesian, monetarist, and supply-side theories of the economy.


Explain limitations of monetary policy and fiscal policy.


Chapter 6: International Trade and Foreign Exchange


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Define imports and exports;


Explain the need for and benefit of international trade;

Describe comparative advantages among countries;


Describe the flows of goods, services, and capital in international trade;


Define the balance of payments and explain the relationship between the current account and the capital account;


Compare fixed versus floating exchange rate systems;


Describe the functioning of the foreign exchange market;


Compare spot and forward transactions;


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Describe factors that cause appreciation and depreciation of currencies.


Chapter 7: Financial Statements


Describe information provided by the income statement, balance sheet, and cash flow statement;



12 Describe the structure of the statement of comprehensive income.

12 Explain the importance of the notes to the financial statements and the auditor's report.

Compare types of assets, liabilities, and equity;


Explain links between the income statement, balance sheet, and cash flow statement;


Distinguish between profit and net cash flow;


Identify and compare cash flow classifications of operating, investing, and financing activities;


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Explain the usefulness of ratio analysis for financial statements;


Identify and interpret ratios used to analyze a company’s liquidity, profitability, financing, shareholder return, and shareholder value.


Chapter 8: Quantitative Concepts


Define the concept of interest;


Compare simple and compound interest;


Describe effects of time and discount rate on value;


Explain the relevance of the net present value in valuing financial investments;


Explain uses of mean, median, mode, range, percentile, and standard deviation;


Describe and interpret the characteristics of a normal distribution;

Describe and interpret correlation.

15 Explain the relationship between risk and return of a portfolio of securities, calculate and interpret the expected return of a portfolio, and identify strategies for maximizing return while reducing risk

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Chapter 9: Equity Securities


Describe differences in voting rights and other ownership characteristics among different equity classes;


Describe types and characteristics of equity securities;


Distinguish between preferred stock and common stock;



Describe global depository receipts;

Describe characteristics of convertible bond and warrants;


Compare risk and return characteristics of types of equity securities;



135

Distinguish between an initial public offering (IPO) and a seasoned equity offering;


Describe corporate actions that affect a company’s shares outstanding.


Chapter 10: Debt Securities


Identify issuers of debt securities;


Describe types and characteristics of debt securities;


Explain seniority ranking of debt securities when default occurs;


Describe characteristics of fixed-rate bonds, floating rate bonds, and zero-coupon bonds;

7 Analyze the impact of fixed-income pricing properties on bond prices.

Describe characteristics of bonds with embedded provisions;


Explain risks of investing in debt securities; 6 Interpret bond quotes and summarize and evaluate bond ratings.


Describe the discounted cash flow approach to valuing debt securities;

7 Define a real rate of return and a yield curve


Explain the relationship between a bond’s price and its yield to maturity;


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Compare a bond’s yield to maturity and its current yield;



Describe term structure of interest rates and credit spreads.



Chapter 11: Derivatives


Define a derivative contract and describe the uses of derivatives contracts;


10 Identify the types of underlying assets on which derivatives are based.

10 Describe the participants in and the uses of derivatives trading.

Distinguish between forwards, futures, options, and swaps;


Distinguish between long and short positions in derivative contracts;


Describe characteristics of derivative contracts;


Compare forward and futures contracts;


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Explain the role of futures markets;


Describe option contracts and factors that affect option values;


Describe swap contracts and identify factors that affect swap values.

Chapter 12: Alternative Investments


Describe advantages and limitations of alternative investments;

22 Explain how to invest in private equity through a listed equity (private equity firm).

Describe private equity investments; 22 Explain how to invest in private equity through a listed equity (private equity firm).

Describe real estate investments;

22 Define income trust, differentiate among the types of income trusts and describe their features.

Describe commodity investments. 22 Describe the advantages, disadvantages and features of exchange-traded funds

Chapter 13: Structure of the Investment Industry


Identify and describe types of individual and institutional investors;

26 Describe how life cycle hypothesis is used to understand a client’s investment needs.

27 Define the term institutional client.

Describe needs served by the investment industry;


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27 Describe the roles and responsibilities of the participants in the institutional marketplace.

Describe services provided by the investment industry, including financial planning, investment advisory, investment information, trading, and custodial and depository services;


27 Describe the roles and responsibilities of the participants in the institutional marketplace

Compare passive and active management, and describe approaches used by active investment managers to design their investment strategies;

13 Compare and contrast fundamental and technical analysis, and evaluate the three market theories explaining stock market behavior.


14 Identify the factors involved in performing company analysis to determine whether a company represents a good investment.


Identify types of financial intermediaries, including deposit-taking institutions, finance corporations, securitizers, and insurance companies, and explain their role in the investment industry;



2 Describe the roles of the chartered banks in the capital markets.

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2 Describe the roles of trust companies, credit unions, and insurance companies in the capital markets.

2 Describe the roles of investment companies, savings companies, loan companies, and pension plans in the capital markets.



Distinguish between buy- and sell-side firms in the investment industry;


9 Distinguish among the types of buy and sell orders.

Distinguish between front-, middle-, and back-office functions in the investment industry;

Identify positions and responsibilities for firms in the investment industry;


Describe aspects of institutional investors’ investment processes.


Chapter 14: Investment Vehicles and Structures


Explain the purpose of security market indices, identify their types, and describe uses of

7 Assess the role of bond indexes in the securities industry.

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security market indices in the investment industry;


Compare investing through direct investments in securities and assets with investing through indirect investments;





Describe structured investment products, including linked notes, equity-linked annuities, and exchange traded notes;


24 Describe the features, risks and benefits of principal-protected notes (PPNs).

24 Explain the structure, risks associated with and the tax implications of Index-, Mutual Fund- and Hedge Fund- linked guaranteed investment certificates (GICs).

Distinguish among closed-end funds, open-end mutual funds, exchange traded funds, and unit investment trusts and identify their relative advantages and limitations;

1 Differentiate between the types of financial instruments used in capital transactions



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19 Describe the types of mutual funds and discuss the risk-return trade-off of investing in each type

22 Define closed-end funds and discuss the advantages and disadvantages of investing in closed-end funds.

22 Describe the advantages, disadvantages and features of exchange-traded funds (ETFs).

Describe the characteristics of hedge funds;



21 Evaluate the benefits, risks, and due diligence requirements of investing in hedge funds.

Describe the characteristics of funds of funds;



21 Describe the advantages and disadvantages of investing in a fund of hedge funds (FoHFs) structure versus individual hedge funds.

Explain the differences between separate accounts and commingled accounts;

23 Differentiate the features, advantages and disadvantages of the various types of fee-based accounts.

23 Describe the various types of managed accounts.

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Compare investment in taxable and tax-advantaged accounts;

25 Identify basic tax planning strategies and discuss their advantages.

Compare defined contribution and defined benefit pension schemes.

Chapter 15: Investment Market Characteristics


Distinguish between primary and secondary markets;


11 Describe the process by which corporations raise debt or equity capital to finance their funding requirements


Identify characteristics of quote-driven, order-driven, and brokered markets;


Compare the roles of brokers and dealers;




Explain the roles of exchanges and alternative trading systems;


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Compare long, short, and levered positions in terms of risk and potential return;

9 Distinguish between cash and margin accounts.

9 Understand margin requirements for long and short positions.

9 Describe the process of short selling and discuss the risks associated with short selling.

Compare different orders and order instructions;

9 Distinguish among the types of buy and sell orders.

Describe steps for clearing and settlement of trades;

7 Summarize the rules and regulations of bond delivery and settlement.

9 Describe the trading and settlement procedures for equity transactions.

Identify types of transaction costs; Describe market efficiency in terms of

operations, information, and allocation.

Chapter 16: Risk Management


Define risk and identify types of risk;



State the importance of risk management; Describe a risk management process;

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Describe benefits and costs of risk management;

Describe limitations of using models and historical information to measure risk;

Define operational risk and explain how they are managed;

Define compliance risk and explain how they are managed;

Define investment risk and explain how they are managed.


Chapter 17: Performance Evaluation


Describe a performance evaluation process;



Describe measures of return, including holding-period returns and time-weighted rates of return;




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Compare arithmetic and geometric means rates of returns;






Describe measures of risk, including standard deviation, downside deviation, and reward-to-risk ratios;




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Describe uses of benchmarks and explain the selection of a benchmark;



Explain measures of relative performance, including tracking error and the information ratio;



Explain the concept of alpha;



Explain uses and processes of performance attribution.



Chapter 18: Investment Industry Documentation


Define a document;

Describe objectives of documentation; Describe document classification systems; Describe types of internal documentation;

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Compare internal and external documentation;

Describe types of external documentation; Describe document management.

Chapter 19: Investor Needs and Investment Policy


Describe the importance of identifying investor needs to the investment process;






Describe and contrast types of investors; 15 List the steps in the portfolio management process.




Explain how needs differ among investors; 15 List the steps in the portfolio management process.

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Describe the rationale for and structure of investment policy statements in serving client needs.






Chapter 20: Asset Allocation


Describe how portfolios are constructed to address client investment objectives and constraints;

16 Describe the asset mix categories and evaluate strategies for setting the asset mix.


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Compare strategic and tactical asset allocation.

16 Describe the asset mix categories and evaluate strategies for setting the asset mix.


Chapter 21: Active and Passive Investment Management


Compare active and passive investment management;


19 Evaluate mutual fund management styles.

Explain factors necessary for profitable active management;


Describe how active managers attempt to identify and capture market inefficiencies.


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