Chapter 1: Overview of Securities and Futures
1. Capital market securities include debt and equities.
2. Know the differences between exchange-traded and OTC derivatives.
3. Know the typical uses of derivatives.
4. The derivative trading arm of SGX is SGX-DT.
5. SGX AsiaClear is Asia’s first clearing platform for OTC derivatives traded in Singapore, which includes freight, energy, commodity and financial derivatives.
2. Know the differences between exchange-traded and OTC derivatives.
3. Know the typical uses of derivatives.
4. The derivative trading arm of SGX is SGX-DT.
5. SGX AsiaClear is Asia’s first clearing platform for OTC derivatives traded in Singapore, which includes freight, energy, commodity and financial derivatives.
Chapter 2: The Framework for Making Investment Decisions
6. What do you mean by “risk on” and “risk off” and how USD, stock markets and commodities behave generally during these periods?
7. Fundamental analysis forms the foundation of knowledge in analyzing the market.
8. Technical and statistical analysis helps to identify entry/exit points and the existence of trends, if any.
9. Technical and statistical analysis can also be relied on as a forecasting tool.
10. Market sentiment is basically the dominant bias of the market and it can be a combination of factors that drive it.
11. What are some of the factors that could drive sentiments?
7. Fundamental analysis forms the foundation of knowledge in analyzing the market.
8. Technical and statistical analysis helps to identify entry/exit points and the existence of trends, if any.
9. Technical and statistical analysis can also be relied on as a forecasting tool.
10. Market sentiment is basically the dominant bias of the market and it can be a combination of factors that drive it.
11. What are some of the factors that could drive sentiments?
Chapter 3: Fundamental Analysis
12. Know what’s behind the various economic indicators.
13. What are the components of GNP/GDP?
14. What are the various economic indicators that measure inflation?
15. Know that the objectives of policy makers are to maintain output near the full employment levels and to maintain price stability.
16. Fiscal policy is the use of government expenditure and taxation to try to influence the level of economic activity to achieve these objectives.
17. Fiscal policy is like a demand-management policy.
18. What is the effect of excess demand?
19. What are the effects of insufficient demand?
20. What is an expansionary fiscal policy?
21. What is a restrictive fiscal policy?
22. Monetary policies are the domain of central banks.
23. Understand briefly the Quantitative Theory of Money.
24. What are the 3 ways to control money supply? Understand the mechanism.
25. What is an expansionary monetary policy?
26. What is a restrictive monetary policy?
27. Know the relationship between maturity/credit risk/marketability/legal framework and level of interest rate.
28. What is a yield curve?
29. What are the shapes of the 3 types of yield curves?
30. Understand the 3 hypotheses that explain the shape of yield curves.
31. Know how market tone affects the shape of the yield curves.
32. Know what are included in M1 and M2 money supply.
33. Major refunding of US Treasurys occurs quarterly during Feb, May, Aug and Nov.
34. Know what is steepening/inverting and parallel shifting of the yield curve.
35. Understand PPP.
36. Know the difference between PPP and Relative PPP.
37. What are the components of BOP, current account and capital account?
38. Currencies of countries with higher interest rates are expected to appreciate/depreciate over time according to interest rate parity?
39. Know that if interest rate parity holds, an investor cannot profit by borrowing in a low interest rate country and lending in a high interest rate country.
40. Know how economic performance affects the strength of a currency.
41. Monetary policies that are too tight or too loose normally do more harm to the currency.
42. Know how fiscal policy affects currency and also the meaning of crowding out.
43. What is open mouth policy?
44. The objective of central bank interventions in currency market is to smooth excessive volatility rather than to go against or reverse the trend of the value of any currency.
45. What are some of the common factors that will affect the stock market?
46. What are some of the advantages of technical analysis over fundamental analysis?
47. Know briefly the different types of charts.
48. Point and figure chart is not a time series chart.
49. Know the importance of the 2 parameters in a point and figure chart: box size and reversal number.
50. Understand the 6 tenets to the Dow Theory, especially tenet #2 (3 types of movements) and #3 (lines and consolidation).
51. What is the limitation of the Dow Theory?
52. Know how to draw up/down trendlines.
53. What are channels?
54. Know the dynamics of support and resistance levels.
55. Know how volume confirms the sustainability of a trend and the role it plays in various trading patterns.
56. What are open interests?
57. Know and interpret the various major reversal patterns.
58. Know and interpret the various continuation patterns.
59. Know and interpret the various minor trend change indicators.
60. Know and interpret the various gaps.
61. The basis for statistical analysis is smoothing.
62. Understand moving average and how to use it to evaluate market.
63. What are some of the limitations of moving average?
64. What are the 3 types of moving averages?
65. With the exponential moving average, the recent day’s prices are given more or less weighting than older prices?
66. Momentum is the generic term for tools like rate of change (ROC), MACD and RSI.
67. Know and interpret ROC and RSI.
68. Know the various interpretations of momentum.
69. Know the characteristics of the various waves in Elliot Wave Theory.
70. EW assumes that markets will move forward in a series of _____ waves then retraces in series of _____ waves.
71. Understand Cycle Theory.
72. Which market peak first? Stock market? Bond market or Gold?
73. Know the 3 forms of Random Walk Theory.
74. Contrarian Theory is the techniques of holding a view opposite to what is prevalent and generally believed by the major market participants.
75. Know and interpret the various contrarian indicators.
76. Know the differences between forwards and futures.
77. Know what is mismatch risk and basis risk.
78. Know the considerations one needs to make before he trades in a particular futures exchange.
79. Know the 3 main types of dark pools, their advantages and the objections they face.
80. (***) Know the idea behind futures margins: initial margin, maintenance margin and variation margin. Be ready to do some calculation.
81. Know that one has to top up to initial margin once his margin account (net equity) drops below maintenance margin.
82. Initial margin is also called a good-faith deposit. It is not a partial payment for buying securities.
83. Know some of the factors that determine the amount of margin to post.
84. Who establishes the minimum initial margin?
85. Margin calls must be settled in cash.
86. Know what is Mutual Offset System (MOS) and the advantages of MOS.
87. Understand the different types of orders.
88. Get familiar with the 3 common ways to construct a stock index.
89. Know what are packs and bundles.
90. The matching algorithm used to match packs and bundles on Globex is FIFO (First In, First Out).
91. Get familiar with contract specifications; but don’t need to memorize. Required contract specifications will be given in the exam if needed to be used to solve questions.
92. Eurodollar Futures Price = 100.00 – Implied Forward Rate [in percentage] Eurodollar Futures Price = 100.00 x (1 – Implied Forward Rate) [in decimal]
93. Value of one basis point (1/100 of a percentage) = US$25 (remember this for easy calculation).
94. The underlying instrument in a Eurodollar contract is a 90-day borrowing of US$1m loan in LIBOR market. Thus if the futures matures in 50 day’s time, then the underlying is a
90-day borrowing of US$1m loan in LIBOR market starting in 50 day’s time. The whole loan term will end in 140 (50 + 90) day’s time.
95. Know the 2 futures pricing models: Cost of carry model and anticipatory pricing model.
96. Basis = Cash (or Spot) Price – Futures price
97. Knows the factors that affect basis.
98. Know how to calculate the price of Eurodollar futures.
99. Briefly understand the pricing of T-bond futures, currency futures and stock index futures).
100. What is conversion factor in the context of T-bond futures?
101. US T-bonds futures price is based on a fictitious 20-year 6% T-bond.
102. Conversion factor represents the price of the bond to be delivered if it were to yield 6%:
104. The bond with the narrowest basis will be the cheapest to deliver.
13. What are the components of GNP/GDP?
14. What are the various economic indicators that measure inflation?
15. Know that the objectives of policy makers are to maintain output near the full employment levels and to maintain price stability.
16. Fiscal policy is the use of government expenditure and taxation to try to influence the level of economic activity to achieve these objectives.
17. Fiscal policy is like a demand-management policy.
18. What is the effect of excess demand?
19. What are the effects of insufficient demand?
20. What is an expansionary fiscal policy?
21. What is a restrictive fiscal policy?
22. Monetary policies are the domain of central banks.
23. Understand briefly the Quantitative Theory of Money.
24. What are the 3 ways to control money supply? Understand the mechanism.
25. What is an expansionary monetary policy?
26. What is a restrictive monetary policy?
27. Know the relationship between maturity/credit risk/marketability/legal framework and level of interest rate.
28. What is a yield curve?
29. What are the shapes of the 3 types of yield curves?
30. Understand the 3 hypotheses that explain the shape of yield curves.
31. Know how market tone affects the shape of the yield curves.
32. Know what are included in M1 and M2 money supply.
33. Major refunding of US Treasurys occurs quarterly during Feb, May, Aug and Nov.
34. Know what is steepening/inverting and parallel shifting of the yield curve.
35. Understand PPP.
36. Know the difference between PPP and Relative PPP.
37. What are the components of BOP, current account and capital account?
38. Currencies of countries with higher interest rates are expected to appreciate/depreciate over time according to interest rate parity?
39. Know that if interest rate parity holds, an investor cannot profit by borrowing in a low interest rate country and lending in a high interest rate country.
40. Know how economic performance affects the strength of a currency.
41. Monetary policies that are too tight or too loose normally do more harm to the currency.
42. Know how fiscal policy affects currency and also the meaning of crowding out.
43. What is open mouth policy?
44. The objective of central bank interventions in currency market is to smooth excessive volatility rather than to go against or reverse the trend of the value of any currency.
45. What are some of the common factors that will affect the stock market?
46. What are some of the advantages of technical analysis over fundamental analysis?
47. Know briefly the different types of charts.
48. Point and figure chart is not a time series chart.
49. Know the importance of the 2 parameters in a point and figure chart: box size and reversal number.
50. Understand the 6 tenets to the Dow Theory, especially tenet #2 (3 types of movements) and #3 (lines and consolidation).
51. What is the limitation of the Dow Theory?
52. Know how to draw up/down trendlines.
53. What are channels?
54. Know the dynamics of support and resistance levels.
55. Know how volume confirms the sustainability of a trend and the role it plays in various trading patterns.
56. What are open interests?
57. Know and interpret the various major reversal patterns.
58. Know and interpret the various continuation patterns.
59. Know and interpret the various minor trend change indicators.
60. Know and interpret the various gaps.
61. The basis for statistical analysis is smoothing.
62. Understand moving average and how to use it to evaluate market.
63. What are some of the limitations of moving average?
64. What are the 3 types of moving averages?
65. With the exponential moving average, the recent day’s prices are given more or less weighting than older prices?
66. Momentum is the generic term for tools like rate of change (ROC), MACD and RSI.
67. Know and interpret ROC and RSI.
68. Know the various interpretations of momentum.
69. Know the characteristics of the various waves in Elliot Wave Theory.
70. EW assumes that markets will move forward in a series of _____ waves then retraces in series of _____ waves.
71. Understand Cycle Theory.
72. Which market peak first? Stock market? Bond market or Gold?
73. Know the 3 forms of Random Walk Theory.
74. Contrarian Theory is the techniques of holding a view opposite to what is prevalent and generally believed by the major market participants.
75. Know and interpret the various contrarian indicators.
76. Know the differences between forwards and futures.
77. Know what is mismatch risk and basis risk.
78. Know the considerations one needs to make before he trades in a particular futures exchange.
79. Know the 3 main types of dark pools, their advantages and the objections they face.
80. (***) Know the idea behind futures margins: initial margin, maintenance margin and variation margin. Be ready to do some calculation.
81. Know that one has to top up to initial margin once his margin account (net equity) drops below maintenance margin.
82. Initial margin is also called a good-faith deposit. It is not a partial payment for buying securities.
83. Know some of the factors that determine the amount of margin to post.
84. Who establishes the minimum initial margin?
85. Margin calls must be settled in cash.
86. Know what is Mutual Offset System (MOS) and the advantages of MOS.
87. Understand the different types of orders.
88. Get familiar with the 3 common ways to construct a stock index.
89. Know what are packs and bundles.
90. The matching algorithm used to match packs and bundles on Globex is FIFO (First In, First Out).
91. Get familiar with contract specifications; but don’t need to memorize. Required contract specifications will be given in the exam if needed to be used to solve questions.
92. Eurodollar Futures Price = 100.00 – Implied Forward Rate [in percentage] Eurodollar Futures Price = 100.00 x (1 – Implied Forward Rate) [in decimal]
93. Value of one basis point (1/100 of a percentage) = US$25 (remember this for easy calculation).
94. The underlying instrument in a Eurodollar contract is a 90-day borrowing of US$1m loan in LIBOR market. Thus if the futures matures in 50 day’s time, then the underlying is a
90-day borrowing of US$1m loan in LIBOR market starting in 50 day’s time. The whole loan term will end in 140 (50 + 90) day’s time.
95. Know the 2 futures pricing models: Cost of carry model and anticipatory pricing model.
96. Basis = Cash (or Spot) Price – Futures price
97. Knows the factors that affect basis.
98. Know how to calculate the price of Eurodollar futures.
99. Briefly understand the pricing of T-bond futures, currency futures and stock index futures).
100. What is conversion factor in the context of T-bond futures?
101. US T-bonds futures price is based on a fictitious 20-year 6% T-bond.
102. Conversion factor represents the price of the bond to be delivered if it were to yield 6%:
- Securities with coupons ≥ 6%: CF ≥ 1;
- Securities with coupons < 6%: CF < 1.
104. The bond with the narrowest basis will be the cheapest to deliver.
Chapter 6: Strategies for Futures Markets
105. Know the 4 main types of participants in futures markets and their motivations in using futures contracts.
106. Know the different types of spread trades.
107. If a trader sees a steepening in the short-end of the yield curve, he will buy near contract and sell far contract; vice versa.
108. A butterfly spread is bought if the nearby spread (wing) is expected to strengthen (become more positive or less negative) relative to the distant spread (wing):
110. TED spread is the spread between T-bill futures and Eurodollar futures. Normally bought during flight-to-quality. Can also serve as an indicator of stock market sentiment.
111. In crisis, buy T-bill futures and sell Eurodollar futures in a TED spread expect TED spread to widen).
112. Know that hedging does not eliminate price risk but converts price risks to basis risk.
113. Get familiar with the various factors to be evaluated before actual hedging is being carried out.
114. Get familiar with the steps to develop an effective hedging program.
115. Know the limitations of using futures and exchange-traded options for hedging.
116. (***) Target Rate for Hedge = Futures Rate + Target Rate Basis (Rate is used here to refer to using Eurodollar futures to hedge short-term interest rate risk).
In general: Target Price for Hedge = Futures Price + Target Price Basis
117. (***) When the hedging horizon ends at the same time as the futures contract expires,
106. Know the different types of spread trades.
107. If a trader sees a steepening in the short-end of the yield curve, he will buy near contract and sell far contract; vice versa.
108. A butterfly spread is bought if the nearby spread (wing) is expected to strengthen (become more positive or less negative) relative to the distant spread (wing):
- Buy the wings and Sell 2x the body; or
- Buy nearby spread and Sell farther spread.
110. TED spread is the spread between T-bill futures and Eurodollar futures. Normally bought during flight-to-quality. Can also serve as an indicator of stock market sentiment.
111. In crisis, buy T-bill futures and sell Eurodollar futures in a TED spread expect TED spread to widen).
112. Know that hedging does not eliminate price risk but converts price risks to basis risk.
113. Get familiar with the various factors to be evaluated before actual hedging is being carried out.
114. Get familiar with the steps to develop an effective hedging program.
115. Know the limitations of using futures and exchange-traded options for hedging.
116. (***) Target Rate for Hedge = Futures Rate + Target Rate Basis (Rate is used here to refer to using Eurodollar futures to hedge short-term interest rate risk).
In general: Target Price for Hedge = Futures Price + Target Price Basis
117. (***) When the hedging horizon ends at the same time as the futures contract expires,
- target rate (price) basis equals zero (futures converges to spot at maturity). Therefore,
- target rate (price) for hedge = Futures rate (price).
- Weak form cash hedge (inventory hedge)
- Strong for cash hedge (immunization)
- Weak form anticipatory hedge
- Strong form anticipatory hedge
Chapter 7: Trading Risk and Control
132. Get familiar with the various measures of market risks:
135. Before any new instrument can be traded, it must first be approved. Get familiar with the various parties whom transaction authorization should be obtained from.
136. Get familiar with a trading manager’s responsibilities.
137. Get familiar with back office’s responsibilities.
138. All futures contracts must be marked-to-market for accounting purposes. If they qualify as hedges, they will be given deferral accounting treatment. For those hedges where correlation is not achieved, deferral accounting must be terminated.
139. The same accounting system must be applied to both the target security and the hedge.
140. Conditions for uplifting a hedge must be explicitly mentioned.
- Open contracts limit
- DV01
- Value-at-Risk
- Total overall open contract
- Maximum loss limit
- Option Greeks
- Exchange (not exchange-rate) risk exists as an exchange and its associated clearing house is the counter-party to any exchange-traded contracts.
- Clearing broker risk
- OTC counter-parties‘ credit risks
135. Before any new instrument can be traded, it must first be approved. Get familiar with the various parties whom transaction authorization should be obtained from.
136. Get familiar with a trading manager’s responsibilities.
137. Get familiar with back office’s responsibilities.
138. All futures contracts must be marked-to-market for accounting purposes. If they qualify as hedges, they will be given deferral accounting treatment. For those hedges where correlation is not achieved, deferral accounting must be terminated.
139. The same accounting system must be applied to both the target security and the hedge.
140. Conditions for uplifting a hedge must be explicitly mentioned.
Chapter 8: Options
141. Know the difference between American and European options. Which one worth more?
142. Depending on the market and type of underlying, the seller usually has one of 3 delivery options:
144. Know how to calculate intrinsic value for call/put options. 145. (***) Know how to calculate P&L (including breakeven price) for long/short call and put options given different scenarios.
146. Know how to calculate time value given option price and intrinsic value.
147. (***) Know the basic factors that affect option price.
148. Understand put-call parity and also how to create synthetic positions.
149. Know that put-call parity only holds for European options and for underlying that pay no
dividends during the lifetime of the options..
150. Briefly understand Black-Scholes Option Pricing Model and its underlying assumptions.
151. Understand the various option Greeks:
152. Know the various risks involved in trading options (and derivatives in general).
153. Understand the following option-based strategies:
Long call (also cash extraction strategy)
155. Understand some of the strategies to use for hedging using options:
142. Depending on the market and type of underlying, the seller usually has one of 3 delivery options:
- Closeout
- Settlement by cash or physical delivery
- Exchange-for-physical
144. Know how to calculate intrinsic value for call/put options. 145. (***) Know how to calculate P&L (including breakeven price) for long/short call and put options given different scenarios.
146. Know how to calculate time value given option price and intrinsic value.
147. (***) Know the basic factors that affect option price.
148. Understand put-call parity and also how to create synthetic positions.
149. Know that put-call parity only holds for European options and for underlying that pay no
dividends during the lifetime of the options..
150. Briefly understand Black-Scholes Option Pricing Model and its underlying assumptions.
151. Understand the various option Greeks:
- Delta
- Gamma
- Vega
- Theta
- Rho
152. Know the various risks involved in trading options (and derivatives in general).
153. Understand the following option-based strategies:
Long call (also cash extraction strategy)
- Call writing
- Long put (including protective put strategy; aka, portfolio insurance)
- Put writing
- Straddle
- Strangle
- Bull credit spread (using call options)
- Bull debit spread (using put options)
- Bear credit spread (using put options)
- Bear debit spread (using call options)
- Butterfly spread
- Condor spread
- Ratio spread
- Calendar spread
- Diagonal spread
155. Understand some of the strategies to use for hedging using options:
- Buying call/put for protection
- Writing covered options (selling options against existing positions)
- Zero-cost options
Chapter 9: Warrants and Other Investment Products
156. Differentiate between company-issued warrants and structure warrants (or covered warrants).
157. Remember that structured warrants in Singapore are European-style.
158. Know how to calculate gearing ratio and effective gearing (if given delta of the warrant).
159. (***) Know how to interpret the trading name of a structured warrant.
160. (***) Be ready to calculate the following for call/put warrant positions:
162. Who is Designated Market-Maker (DMM) and what is his job?
163. Get familiar with the procedure of exercising (physically settled) a structure warrant position in call and put.
164. Know that most structured warrants are automatically exercised and settled in cash on
the expiration date.
165. Know also how to calculate the cash settlement payoff.
166. Structured warrants on stocks are subject to adjustments to take into account any corporate action arising from the underlying stock:
169. What are GDRs and ADRs?
170. Convertible bond value = Straight bond value + Value of call option on stock
171. Understand qualitatively (and quantitative, to a lesser extent) the following regarding a
convertible bond:
157. Remember that structured warrants in Singapore are European-style.
158. Know how to calculate gearing ratio and effective gearing (if given delta of the warrant).
159. (***) Know how to interpret the trading name of a structured warrant.
160. (***) Be ready to calculate the following for call/put warrant positions:
- Intrinsic value
- Conversion price (or break-even price)
- Premium (time value of warrant) expressed in $ and %
162. Who is Designated Market-Maker (DMM) and what is his job?
163. Get familiar with the procedure of exercising (physically settled) a structure warrant position in call and put.
164. Know that most structured warrants are automatically exercised and settled in cash on
the expiration date.
165. Know also how to calculate the cash settlement payoff.
166. Structured warrants on stocks are subject to adjustments to take into account any corporate action arising from the underlying stock:
- Right issues
- Bonus issues
- Stock splits
- Special dividends (exclude regular dividends)
- Consolidation
- Index warrants
- Currency translated warrants
- Basket warrants
169. What are GDRs and ADRs?
170. Convertible bond value = Straight bond value + Value of call option on stock
171. Understand qualitatively (and quantitative, to a lesser extent) the following regarding a
convertible bond:
- Conversion value
- Minimum value
- Market conversion price
- Market conversion premium per share (and market conversion premium ration %)
- Premium over straight value
- Premium payback period
Chapter 10: Basics of Structured Products
172. (***) What are wrappers and what are the 3 common types of wrappers sold to investors in the Asia Pacific region?
173. What are principal and return risks?
174. Understand the trade-off between return/income and risk in a structured product (SP).
175. Know what is Structured ILP.
176. One of the main features of SP is to allow risk-return customization.
177. Restrictions are usually put in place for the selling of SPs to retail investors. Know these restrictions.
178. Due to the complexity of SPs, most issuers will put n place independent oversight functions to give investors the assurance that its products are managed with due care. Know these independent oversight providers.
179. Principal preservation feature should be differentiated from principal guarantee whereby the investor’s initial investment is guaranteed by certain collaterals – costs more.
180. For product with principal preservation feature, the principal component is often structured such that it would only realize the full extent of its return only upon maturity.
181. Given the bespoke nature of SPs, liquidity and market access is generally considered to be low. Investors must be prepared to hold them until the maturity to maximize the full value of the investment.
182. Know some of the limitations regarding structure funds where the monies received are invested in financial assets and used as collateral for providing guarantees.
183. Get familiar with some of the uses of SPs.
184. Know the factors to consider in determining the suitability of a SP to an investor.
Chapter 11: Key Risks
185. Understand the key risks involved in the context of investing in a SP:
173. What are principal and return risks?
174. Understand the trade-off between return/income and risk in a structured product (SP).
175. Know what is Structured ILP.
176. One of the main features of SP is to allow risk-return customization.
177. Restrictions are usually put in place for the selling of SPs to retail investors. Know these restrictions.
178. Due to the complexity of SPs, most issuers will put n place independent oversight functions to give investors the assurance that its products are managed with due care. Know these independent oversight providers.
179. Principal preservation feature should be differentiated from principal guarantee whereby the investor’s initial investment is guaranteed by certain collaterals – costs more.
180. For product with principal preservation feature, the principal component is often structured such that it would only realize the full extent of its return only upon maturity.
181. Given the bespoke nature of SPs, liquidity and market access is generally considered to be low. Investors must be prepared to hold them until the maturity to maximize the full value of the investment.
182. Know some of the limitations regarding structure funds where the monies received are invested in financial assets and used as collateral for providing guarantees.
183. Get familiar with some of the uses of SPs.
184. Know the factors to consider in determining the suitability of a SP to an investor.
Chapter 11: Key Risks
185. Understand the key risks involved in the context of investing in a SP:
- Market risk
- Credit risk
- Structure risk
- Foreign exchange risk
- Correlation risk
- Liquidity risk
- Legal risk
- Early termination risk
- Risk of incongruence to investment strategy/mis-selling
- Country and political risk
- Transactional risk
- Counterparty risk
- Reinvestment risk
- Operational risk
- Concentration risk
- Market disruption risk
- Circuit breakers
- Shock absorbers
- Price limits
Chapter 12: Structured Notes
188. (***) A structured note can be directly issued by a financial institution or bank (debt, on Balance Sheet), or a Special Purpose Vehicle (SPV, off Balance Sheet). Know the difference.
189. (***) Under direct issuance, note holders bear the credit risk of the issuer.
190. (***) A structured note takes the legal form of a debenture (wrapper).
191. A structured note falls within the Securities and Futures Act (SFA) regime and is subject to prospectus requirements, unless exempted. Know the exemptions.
192. (***) Structured deposits are a type of deposit and are not debentures. They can only be issued by banks and must meet the definition of “deposit” as defined under the Banking Act.
193. Know the factors the financial institutions have to consider in assessing the suitability of
the SPs to the investors.
194. Know the factors investors have to consider before investing in a SP.
195. Know the contents in the prospectus.
196. Know the contents in the product highlights sheet.
197. Know how a Range Accruals Note RAN) works.
198. RAN with a call feature should carry a higher or lower yield than non-callable RAN?
199. What are some motivations for buying a RAN?
200. Know the workings of an Inverse Floater Note.
201. Know what is Variable Maturity – Multi-Callable RAN.
202. Know the workings of structure notes with embedded zero coupon bond.
203. Know the works of a CPPI.
204. Under a CPPI structure, know how to calculate the multiplier (m) and the amount to be invested in the risky asset (and safe asset).
205. What is the downside risk of CPPI?
206. What is the difference between a CPPI structure and that of DPPI?
207. Exchange-Traded Notes (ETNs) are structured notes that are listed and traded on an exchange.
208. What is the main difference between an ETN and an unlisted structured note?
209. What are the differences between ETNs and ETFs?
210. What is an Index-Linked Note?
211. What are Participatory Notes (PNs)?
212. What are Access Notes? Don’t mix up PNs and Access Notes.
213. Know what an issuer needs to do after selling the SPs to the investors.
214. Mark-to-market values of a SP must be obtained from an independent source and not from the internal traders.
189. (***) Under direct issuance, note holders bear the credit risk of the issuer.
190. (***) A structured note takes the legal form of a debenture (wrapper).
191. A structured note falls within the Securities and Futures Act (SFA) regime and is subject to prospectus requirements, unless exempted. Know the exemptions.
192. (***) Structured deposits are a type of deposit and are not debentures. They can only be issued by banks and must meet the definition of “deposit” as defined under the Banking Act.
193. Know the factors the financial institutions have to consider in assessing the suitability of
the SPs to the investors.
194. Know the factors investors have to consider before investing in a SP.
195. Know the contents in the prospectus.
196. Know the contents in the product highlights sheet.
197. Know how a Range Accruals Note RAN) works.
198. RAN with a call feature should carry a higher or lower yield than non-callable RAN?
199. What are some motivations for buying a RAN?
200. Know the workings of an Inverse Floater Note.
201. Know what is Variable Maturity – Multi-Callable RAN.
202. Know the workings of structure notes with embedded zero coupon bond.
203. Know the works of a CPPI.
204. Under a CPPI structure, know how to calculate the multiplier (m) and the amount to be invested in the risky asset (and safe asset).
205. What is the downside risk of CPPI?
206. What is the difference between a CPPI structure and that of DPPI?
207. Exchange-Traded Notes (ETNs) are structured notes that are listed and traded on an exchange.
208. What is the main difference between an ETN and an unlisted structured note?
209. What are the differences between ETNs and ETFs?
210. What is an Index-Linked Note?
211. What are Participatory Notes (PNs)?
212. What are Access Notes? Don’t mix up PNs and Access Notes.
213. Know what an issuer needs to do after selling the SPs to the investors.
214. Mark-to-market values of a SP must be obtained from an independent source and not from the internal traders.
Chapter 13: Structured Funds and Structured Exchange-Traded Funds
215. Know the differences between structured funds and traditional mutual funds.
216. Know the differences between structured funds and trackers.
217. 2 major types of structured funds:
220. What is SICAV?
221. What is UCITS?
222. What are some of the responsibilities of a manager in structured funds?
223. Know the functions and responsibilities of a trustee in structure funds.
224. Know the different schemes offered to different investors.
225. Know what information are included in a fund prospectus.
226. Know the different risks involved when investing in a structured fund.
227. What are some of the potential conflicts of interest that exist in a structured fund and how to address them?
228. How to best manage the underlying risk exposures in a structured fund? What are some of the internal controls and risk procedures?
229. Understand the different types of fund structures:
231. NAV per share of each class within each structured fund is generally made available by the Administrative Agent.
232. Know where to get information on performance of structured funds.
233. Know the difference between an ETF and a structured ETF.
234. Swap-based ETFs are a major category of synthetic replication ETFs.
235. Majority of ETFs in Europe adopt a swap-based replication structure.
236. (***) Under the UCITS III guidelines, the marked-to-market value of the swap cannot exceed 10% of the fund’s NAV on a daily basis - Counterparty risk exposure limits.
237. (***) If the aggregate exposure of the ETFs to the swap counterparty exceeds 10%, swap counterparty will be required to deliver additional collateral to ensure that the net counterparty risk exposure remains under the UCITS limit.
238. US ETFs: Investment management company or as a unit investment trust. Fall under the jurisdiction of Securities and Exchange Commission (SEC).
239. European: As an open-ended investment company (SICAV). Once UCITS-compliant, a
fund meeting the requirements of its domestic regulator can be “pass-ported” and offered throughout the EU.
240. What types of investors invest in structured ETFs?
241. Know the various risks involved when investing in structured ETFs.
242. (***) Main advantage of replicating an index through swap: Tracking error risk, before fees, is passed to the swap counterparty.
243. Know the counterparty risk involved in ETFs with different replication strategies.
244. Understand the following common synthetic ETFs:
246. Know the difference between ETFs and mutual funds.
247. ETFs offer investors 2 sources of liquidity:
249. Trading price may differ from iNAV for ETFs giving access to restricted markets such as China A-shares.
250. Trading prChapter 14: Comparison of Different Types of
Structured Productsices also likely to be different from iNAVs when ETF is trading out of the time zone of its underlying investments.
251. The bid/offer spread of an ETF is driven by several factors including the cost of hedging. Cost of hedging reflects how efficiently market-maker can access the underlying market.
216. Know the differences between structured funds and trackers.
217. 2 major types of structured funds:
- Those which are based on derivatives
- Those which are based on techniques derived from portfolio insurance
220. What is SICAV?
221. What is UCITS?
222. What are some of the responsibilities of a manager in structured funds?
223. Know the functions and responsibilities of a trustee in structure funds.
224. Know the different schemes offered to different investors.
225. Know what information are included in a fund prospectus.
226. Know the different risks involved when investing in a structured fund.
227. What are some of the potential conflicts of interest that exist in a structured fund and how to address them?
228. How to best manage the underlying risk exposures in a structured fund? What are some of the internal controls and risk procedures?
229. Understand the different types of fund structures:
- Funds with features that aim to preserve invested capital
- Formula funds
- Capitalized/distribution funds
- Indirect investment policy funds (swap-based funds)
231. NAV per share of each class within each structured fund is generally made available by the Administrative Agent.
232. Know where to get information on performance of structured funds.
233. Know the difference between an ETF and a structured ETF.
234. Swap-based ETFs are a major category of synthetic replication ETFs.
235. Majority of ETFs in Europe adopt a swap-based replication structure.
236. (***) Under the UCITS III guidelines, the marked-to-market value of the swap cannot exceed 10% of the fund’s NAV on a daily basis - Counterparty risk exposure limits.
237. (***) If the aggregate exposure of the ETFs to the swap counterparty exceeds 10%, swap counterparty will be required to deliver additional collateral to ensure that the net counterparty risk exposure remains under the UCITS limit.
238. US ETFs: Investment management company or as a unit investment trust. Fall under the jurisdiction of Securities and Exchange Commission (SEC).
239. European: As an open-ended investment company (SICAV). Once UCITS-compliant, a
fund meeting the requirements of its domestic regulator can be “pass-ported” and offered throughout the EU.
240. What types of investors invest in structured ETFs?
241. Know the various risks involved when investing in structured ETFs.
242. (***) Main advantage of replicating an index through swap: Tracking error risk, before fees, is passed to the swap counterparty.
243. Know the counterparty risk involved in ETFs with different replication strategies.
244. Understand the following common synthetic ETFs:
- Funded swap
- Unfunded swap
- Swap-based ETF with multiple counterparties
- Derivative-embedded ETFs
246. Know the difference between ETFs and mutual funds.
247. ETFs offer investors 2 sources of liquidity:
- Primary liquidity via the creation and redemption process
- Secondary liquidity through the trading of shares on exchange
249. Trading price may differ from iNAV for ETFs giving access to restricted markets such as China A-shares.
250. Trading prChapter 14: Comparison of Different Types of
Structured Productsices also likely to be different from iNAVs when ETF is trading out of the time zone of its underlying investments.
251. The bid/offer spread of an ETF is driven by several factors including the cost of hedging. Cost of hedging reflects how efficiently market-maker can access the underlying market.
Chapter 14: Comparison of Different Types of Structured Products
252. Even if the underlying investment product is the same, different wrappers have different benefits (and drawbacks) which can meet the desired financial and personal objectives of a particular investor.
253. Understand the auto-callable features that exist in some of the SPs.
254. For SP which involves zero-coupon bond and long options, ideal situation is where interest rates are high and asset volatility is low at the time of issuance.
255. Understand the risks involved with SPs that involve shorting options.
256. Understand Table 14.2: Similarities and differences if the structure were in various forms.
257. Reverse convertible: Long bond + short put
258. Discount certificate: Long zero-strike call + short call
253. Understand the auto-callable features that exist in some of the SPs.
254. For SP which involves zero-coupon bond and long options, ideal situation is where interest rates are high and asset volatility is low at the time of issuance.
255. Understand the risks involved with SPs that involve shorting options.
256. Understand Table 14.2: Similarities and differences if the structure were in various forms.
257. Reverse convertible: Long bond + short put
258. Discount certificate: Long zero-strike call + short call
- Premium received is passed on to investor as the product is issued at a discount
Chapter 16: Knock-Out Products
259. Know some of the variable features of complex (exotic) options.
260. When a “barrier event” occurs in a barrier option, the option either:
262. Know the 4 broad categories of barrier options
263. Up-&-In Calls and Down-&-In Puts: Simple European-style options that are OTM until the barrier level is reached (trigger event) and the option then becomes active.
264. Up-&-Out Calls and Down-&-Out Puts: Simple European-style options that are ITM until the barrier level is reached (trigger event) and the option then terminates.
265. Know the advantages/disadvantages of barrier options
266. CBBC: Bull” contract and “bear” contract
268. MCE is triggered before the expiry date if:
270. Know how to calculate the gearing ratio of a CBBC (similar to warrants).
271. Know the features of the 2 categories of CBBCs: N-CCBBC and R-CBBC
273. For Bear-CBBC: MCE occurs when asset price rises and hits call price (works like a buy-stop order).
274. Know the various factors that affect the pricing of CBBCs.
275. Financial cost will be higher the longer the maturity of the CBBC and it declines over time as the CBBC moves closer to expiration date.
276. Know how to calculate the theoretical prices of CBBCs.
277. Know how to determine the residual value of R-CBBCs if MCE occurs.
278. Know how to calculate the value of CBBCs at maturity (similar to warrants).
279. If the CBBC is based on an underlying stock, an adjustment is made in the event of a corporate action such as bonus issues, right issues, share splits and reverse share splits – No action is needed for regular share dividends.
280. Know the risks involved in CBBC investments.
281. Know the differences between CBBCs and structured warrants.
260. When a “barrier event” occurs in a barrier option, the option either:
- Gets triggered and becomes line (KI)
- Gets extinguished and expires (KO)
262. Know the 4 broad categories of barrier options
263. Up-&-In Calls and Down-&-In Puts: Simple European-style options that are OTM until the barrier level is reached (trigger event) and the option then becomes active.
264. Up-&-Out Calls and Down-&-Out Puts: Simple European-style options that are ITM until the barrier level is reached (trigger event) and the option then terminates.
265. Know the advantages/disadvantages of barrier options
266. CBBC: Bull” contract and “bear” contract
- Embedded barrier options
- Traded on cash market with settlement procedures similar to stock (T+3)
- Issued by 3rd party (investment bank) and are independent of the underlying asset
268. MCE is triggered before the expiry date if:
- Bear contract: S ≥ Call price
- Bull contact: S ≤ Call price
270. Know how to calculate the gearing ratio of a CBBC (similar to warrants).
271. Know the features of the 2 categories of CBBCs: N-CCBBC and R-CBBC
273. For Bear-CBBC: MCE occurs when asset price rises and hits call price (works like a buy-stop order).
274. Know the various factors that affect the pricing of CBBCs.
275. Financial cost will be higher the longer the maturity of the CBBC and it declines over time as the CBBC moves closer to expiration date.
276. Know how to calculate the theoretical prices of CBBCs.
277. Know how to determine the residual value of R-CBBCs if MCE occurs.
278. Know how to calculate the value of CBBCs at maturity (similar to warrants).
279. If the CBBC is based on an underlying stock, an adjustment is made in the event of a corporate action such as bonus issues, right issues, share splits and reverse share splits – No action is needed for regular share dividends.
280. Know the risks involved in CBBC investments.
281. Know the differences between CBBCs and structured warrants.
Chapter 17: Contracts for Differences (CFDs)
282. Know the characteristics and features of CFDs.
283. CFDs are cash-settled.
284. Long CFDs: Pay interests (financing charges) and receive dividends.
285. Short CFDs: Receive interests in lieu of deferring sale proceeds (or may be charge interest in view of borrowing costs incurred in allowing the “short” transactions) and pay dividends.
286. Interest is computed daily and charged for the number of days the position is kept open.
287. Know the 3 business models used by CFD providers.
288. Know the unique advantages of CFDs over other investments.
289. To initiate a CFD trade, investors have to deposit initial margin. Investors will receive
margin call if the account balance falls below maintenance margin.
290. If investor is unable to meet the margin call, the CFD provider will proceed with liquidation. Investor is liable for any shortfall, loss and expense as a result of the liquidation.
291. What is a Risk Disclosure Statement (RDS)?
292. Know the different types of orders:
295. Be ready to calculate P&L (inclusive of transaction commission and GST on commission).
296. Corporate actions - stock splits and reverse splits: The quantity and price adjustment will be made in the investor’s account to reflect the market equivalent.
297. Corporate actions – Scrip dividends, bonus and rights issues: Investor may or may not be entitled to them. CFD providers may close off all open positions before the ex-date.
298. Know the differences between CFDs and stock futures, especially regarding the financing cost.
299. Know generally the global trading opportunities offered by CFDs, mainly regarding the different underlyings available.
300. Know briefly the following CFD trading strategies:
283. CFDs are cash-settled.
284. Long CFDs: Pay interests (financing charges) and receive dividends.
285. Short CFDs: Receive interests in lieu of deferring sale proceeds (or may be charge interest in view of borrowing costs incurred in allowing the “short” transactions) and pay dividends.
286. Interest is computed daily and charged for the number of days the position is kept open.
287. Know the 3 business models used by CFD providers.
288. Know the unique advantages of CFDs over other investments.
289. To initiate a CFD trade, investors have to deposit initial margin. Investors will receive
margin call if the account balance falls below maintenance margin.
290. If investor is unable to meet the margin call, the CFD provider will proceed with liquidation. Investor is liable for any shortfall, loss and expense as a result of the liquidation.
291. What is a Risk Disclosure Statement (RDS)?
292. Know the different types of orders:
- Limit order
- Market-to-limit order
- Market order
- Stop-loss order
- Stop-entry order
- Good-till-cancelled (GTC) order
- End-of-day (EOD) order
295. Be ready to calculate P&L (inclusive of transaction commission and GST on commission).
296. Corporate actions - stock splits and reverse splits: The quantity and price adjustment will be made in the investor’s account to reflect the market equivalent.
297. Corporate actions – Scrip dividends, bonus and rights issues: Investor may or may not be entitled to them. CFD providers may close off all open positions before the ex-date.
298. Know the differences between CFDs and stock futures, especially regarding the financing cost.
299. Know generally the global trading opportunities offered by CFDs, mainly regarding the different underlyings available.
300. Know briefly the following CFD trading strategies:
- Trading for dividends (dividend stripping/dividend capturing)
- Trading in pairs
Chapter 18: Extended Settlement Contracts (ES)
303. (***) An ES is a stock market transaction. But under the Securities and Futures Act (FSA) in Singapore, ES contracts are classified as futures contracts.
304. An ES contract is physically settled at expiry if not offset.
305. Know the risks of trading in ES contracts.
306. Buying-in affects the shorts only:
308. Know the SGX’s general criteria for stock selection in ES contracts
309. SGX will conduct periodic reviews every 6 months.
310. What actions might SGX carry out in the event it decides that an underlying is no longer suitable?
311. SGX will prescribe different levels of maintenance margin requirements. Outright and spread margins will be set depending on stock volatility.
312. (***) ES contracts will commence trading on the 25th of the month that is immediately proceeding the spot month. Each ES series will therefore have tenor of approximately 35 days.
313. Physical settlement of ES contracts takes place on 3rd business day after the Last Trading (LTD+3). If the seller of the ES contract does not have any or sufficient underlying securities on Settlement Date, CDP will commence buying-in.
314. Where the underlying security of the ES contract is the subject of any corporate action, SGX may adjust the ES contract accordingly:
315. At this stage, SGX will not facilitate settlement of ES contracts through depository agents.
316. Know the policies regarding the use of suspense accounts and sub-accounts.
317. ES series of the same underlying and contract month will be permitted for contra between the Member and its customers. P&L can be settled immediately between the Member and customer.
318. For margins imposed by Member to customer, contra contracts will be excluded from margining. However, margin calculation by CDP would include the contra contracts as settlement between CDP and Member for these contracts would only occur on
LTD+3.
319. Know the daily mark-to-market process by the CDP and how the Valuation Price are being derived.
320. (***) Understand the key margining concepts in trading ES. Be ready to do some calculation:
322. If the CAV falls below the Required Margins, investor must top up within 2 market days.
323. Margin calls shall be made within 1 market day after the occurrence of the margin calls.
324. Members/Trading Representatives must not allow a customer to incur any new trade unless initial margins for the new trade are deposited or have reason to believe that the initial margins will be deposited within T+2.
325. CDP computes margin requirement on a gross basis. Long and short positions belonging to different customers do not cancel each other out in the calculation of a Member’s overall margin requirement.
326. Investors only need to put up one side of the maintenance margin instead of two when trading spreads.
327. All trades, including trades that offset an existing position will only be settled by CDP on
LTD+3.
330. Know the meanings of:
332. Know the comparison between ES contracts with contra and margin financing.
304. An ES contract is physically settled at expiry if not offset.
305. Know the risks of trading in ES contracts.
306. Buying-in affects the shorts only:
- If an investor does not have the required shares in his account on the due date (the 3rd market day following the expiration date), the CDP will buy-in shares on the market to satisfy the delivery obligation.
- Buying-in starts the day after the due date (last trading day + 4), and will start at 2 minimum bids above previous closing price, the current last done price or the current bid, whichever is the highest.
308. Know the SGX’s general criteria for stock selection in ES contracts
309. SGX will conduct periodic reviews every 6 months.
310. What actions might SGX carry out in the event it decides that an underlying is no longer suitable?
311. SGX will prescribe different levels of maintenance margin requirements. Outright and spread margins will be set depending on stock volatility.
312. (***) ES contracts will commence trading on the 25th of the month that is immediately proceeding the spot month. Each ES series will therefore have tenor of approximately 35 days.
313. Physical settlement of ES contracts takes place on 3rd business day after the Last Trading (LTD+3). If the seller of the ES contract does not have any or sufficient underlying securities on Settlement Date, CDP will commence buying-in.
314. Where the underlying security of the ES contract is the subject of any corporate action, SGX may adjust the ES contract accordingly:
- Where the corporate action is widely anticipated (for instance dividend payout) and has a relatively small impact on the underlying, no adjustment will be made
- Adjustments may include early expiration of the respective ES contract
- LTD of the ES contract will be brought forward to a date before the ex-date
- SGX may list a new ES contract replace the expired ES contract
315. At this stage, SGX will not facilitate settlement of ES contracts through depository agents.
316. Know the policies regarding the use of suspense accounts and sub-accounts.
317. ES series of the same underlying and contract month will be permitted for contra between the Member and its customers. P&L can be settled immediately between the Member and customer.
318. For margins imposed by Member to customer, contra contracts will be excluded from margining. However, margin calculation by CDP would include the contra contracts as settlement between CDP and Member for these contracts would only occur on
LTD+3.
319. Know the daily mark-to-market process by the CDP and how the Valuation Price are being derived.
320. (***) Understand the key margining concepts in trading ES. Be ready to do some calculation:
- Required Margin = Maintenance Margin + Variation Margin
- When Customer Asset Value falls below Required Margin, there will be a margin call to top up to (Initial Margin + Variation Margin)
322. If the CAV falls below the Required Margins, investor must top up within 2 market days.
323. Margin calls shall be made within 1 market day after the occurrence of the margin calls.
324. Members/Trading Representatives must not allow a customer to incur any new trade unless initial margins for the new trade are deposited or have reason to believe that the initial margins will be deposited within T+2.
325. CDP computes margin requirement on a gross basis. Long and short positions belonging to different customers do not cancel each other out in the calculation of a Member’s overall margin requirement.
326. Investors only need to put up one side of the maintenance margin instead of two when trading spreads.
327. All trades, including trades that offset an existing position will only be settled by CDP on
LTD+3.
- Accordingly, Variation Margins will be collected by CDP from Members for all trades.
- However, positions which have been offset will, under normal conditions, not require Maintenance Margins.
- Members have to post with CDP
- Customers provided to Members
330. Know the meanings of:
- Risk increasing trades
- Risk neutral trades
- Risk reducing trades
332. Know the comparison between ES contracts with contra and margin financing.
