Free CIRO Director and Executive Exam Practice Questions

Sample Practice Questions

Try these 10 sample questions from the CIRO Director and Executive Exam practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1In CSA terminology, what is an instrument adopted in more than one but not all Canadian provinces and territories called?

   1. A.A National Instrument
   2. B.A Multilateral InstrumentCorrect answer: B
   3. C.A National Policy
   4. D.A Companion Policy

   Explanation: The CSA states: "A Multilateral Instrument is an instrument that has been adopted in more than one, but not all Canadian provinces and territories." A National Instrument is adopted in all thirteen jurisdictions; the policy names do not denote this category of instrument.

   Reference: CSA National and Multilateral Instruments — Introduction

2. 2An order-execution-only dealer reviews its client onboarding controls. Which account assessment must it make before opening the account and on an ongoing basis?

   1. A.Whether the investor is an accredited investor for every product
   2. B.Whether it is appropriate for the investor to become or remain its clientCorrect answer: B
   3. C.Whether every individual order satisfies a personalized recommendation
   4. D.Whether the investor's investment objective matches the issuer's strategy

   Explanation: CIRO states: "Prior to opening an account and on an ongoing basis, an OEO Dealer must determine that it is appropriate for an investor to become or remain a client of the OEO Dealer." This account-appropriateness assessment is distinct from assessing the suitability of each individual order or requiring that every client be accredited.

   Reference: CIRO Guidance on Order Execution Only Account Services — 2.2 Account appropriateness

3. 3Under Ontario securities law, what standard must a prospectus meet for material facts relating to securities proposed for distribution?

   1. A.Plain disclosure limited to facts previously made public
   2. B.Full and plain disclosure of selected favourable facts
   3. C.Accurate disclosure limited to facts requested by buyers
   4. D.Full, true and plain disclosure of material factsCorrect answer: D

   Explanation: Ontario’s Securities Act requires that "A prospectus shall provide full, true and plain disclosure of all material facts relating to the securities issued or proposed to be distributed". The alternatives improperly limit material-fact disclosure to favourable, requested or previously public facts.

   Reference: Ontario Securities Act — section 56(1)

4. 4A federally incorporated dealer's board has delegated day-to-day work to executives. Subject to any unanimous shareholder agreement, what does the CBCA require of the directors?

   1. A.Manage or supervise management of the corporation's business and affairs.Correct answer: A
   2. B.Directly perform every day-to-day management activity without delegation.
   3. C.Confine board oversight to the corporation's external audit engagement.
   4. D.Confine board authority to selecting the executives who manage the dealer.

   Explanation: Section 102(1) states: "Subject to any unanimous shareholder agreement, the directors shall manage, or supervise the management of, the business and affairs of a corporation." Delegation does not make board oversight disappear.

   Reference: Canada Business Corporations Act — section 102(1)

5. 5A dealer uses a SWOT analysis before expanding. A new rival has entered its existing market and may take clients. How should the board classify this development?

   1. A.An external threat to the businessCorrect answer: A
   2. B.An internal weakness in the business
   3. C.An internal strength of the business
   4. D.An external opportunity for the business

   Explanation: "internal strengths and weaknesses and examining the external opportunities and threats" The entrant is outside the dealer and threatens its existing business; it is neither an internal capability nor a favourable external opportunity.

   Reference: BDC, SWOT analysis — SWOT analysis definition

6. 6In a risk assessment for a dealer's expansion objective, what does the term risk describe?

   1. A.The objective's outcome after uncertainty is resolved
   2. B.The effect of uncertainty on the objectiveCorrect answer: B
   3. C.The likelihood of an event without regard to its impact
   4. D.The impact of an event without regard to its likelihood

   Explanation: "refers to the effect of uncertainty on objectives." The same definition describes risk in terms of likelihood and impact, so either likelihood or impact alone is incomplete. A resolved outcome is no longer the effect of uncertainty itself.

   Reference: Treasury Board Framework for the Management of Risk — Appendix A, definitions

7. 7A dealer evaluates a function whose uncontrolled failure could materially harm client assets. Under the CIRO definition, how should it view that function?

   1. A.It can be a significant area of riskCorrect answer: A
   2. B.It is significant only if a loss has already occurred
   3. C.It is significant only if it affects every business line
   4. D.It is significant only if it threatens reported profit

   Explanation: "A function, process or an activity within a Dealer Member in which a failure to mitigate or control its risk could lead to material harm to the Dealer Member’s liquidity, solvency, operational capabilities, clients, client assets and other client positions." The definition covers a function whose uncontrolled risk could materially harm client assets without requiring actual loss or an effect on every business line.

   Reference: CIRO Investment Dealer and Partially Consolidated Rules — section 1201(2), significant area of risk

8. 8A dealer's UDP is setting expectations for everyone acting on the dealer's behalf. What compliance role does CIRO Rule 3910 assign to the UDP?

   1. A.Promote compliance only by those whose work is in the compliance department.
   2. B.Promote compliance by approved persons but not other agents of the dealer.
   3. C.Promote compliance by the dealer and those acting on its behalf.Correct answer: C
   4. D.Promote compliance only after an individual has breached a rule.

   Explanation: "promote compliance by the Dealer Member, and each individual acting on its behalf, with Corporation requirements and securities laws." The UDP promotes compliance by the dealer and individuals acting on its behalf.

   Reference: CIRO Investment Dealer and Partially Consolidated Rules — section 3910(2)

9. 9How are harmonized CSA national and multilateral instruments given local legislative effect?

   1. A.Direct enactment as federal legislation by the CSA as a federal agency
   2. B.Adoption as subordinate legislation under each applicable jurisdiction’s legislationCorrect answer: B
   3. C.Automatic application of CIRO dealer rules in all participating jurisdictions
   4. D.Adoption by the CSA alone, without any local legislative mechanism

   Explanation: The CSA says that "they are adopted as local subordinate legislation under each Canadian province’s or territory’s Securities Act or other applicable acts." Harmonized drafting does not itself create federal legislation, make a CIRO rule, or replace adoption under the relevant local law.

   Reference: CSA National and Multilateral Instruments — Introduction

10. 10A director evaluates a leveraged ETF designed to meet a daily performance objective. What risk should the director recognize when considering a buy-and-hold client base?

    1. A.Returns over longer periods may differ substantially from the stated daily objective.Correct answer: A
    2. B.Returns over longer periods must equal the stated daily multiple of the benchmark.
    3. C.Compounding ensures a constant multi-period multiple even when daily returns vary.
    4. D.Daily rebalancing guarantees the benchmark's total return over the holding period.

    Explanation: The SEC explains that "performance of these ETFs over a period longer than one day can differ significantly from their stated daily performance objectives". A daily objective does not assure the stated multiple or the benchmark’s return over a longer period. The source explains that differences can be magnified by volatility.

    Reference: SEC Updated Investor Bulletin: Leveraged and Inverse ETFs — Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors