Bulgarian Investment Consultant Exam cheat sheet

In Bulgaria, the Financial Supervision Commission (FSC, КФН) is the integrated regulator for capital markets, insurance and pension funds; the Bulgarian National Bank supervises banks and payment institutions.

The Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) are transposed into the Markets in Financial Instruments Act (ЗПФИ), which governs licensing, conduct and organisational requirements for investment firms.

An investment firm must obtain FSC authorisation before providing investment services; passporting allows an authorised firm to serve clients in other EEA states via a branch (notification) or freely (freedom of services).

The European Securities and Markets Authority (ESMA) coordinates supervisory convergence; national competent authorities like the FSC remain the direct supervisors of local entities.

Market abuse rules prohibit insider dealing, unlawful disclosure of inside information and market manipulation; the FSC may impose administrative penalties and publish decisions.

Prospectus requirements: a public offer of securities or admission to trading on a regulated market requires an approved prospectus unless an exemption applies (e.g. small offers below the threshold, offers to fewer than 150 persons per EEA state).

Transparency obligations require issuers on regulated markets to disclose periodic financial reports, inside information and changes in major holdings (voting rights thresholds).

Settlement of securities in Bulgaria is typically handled by the Central Depository; regulated market trading is operated by the Bulgarian Stock Exchange (BSE).

MiFID II classifies instruments into categories: transferable securities, money market instruments, units in collective investment undertakings, and derivative instruments (options, futures, swaps, forwards).

Transferable securities include shares, bonds, depositary receipts and other negotiable instruments; they are negotiable on the capital market and do not include payment instruments.

Order types: market orders execute at the best available price; limit orders execute only at or better than a specified price; stop orders become active when a trigger price is reached.

Market structures include regulated markets, multilateral trading facilities (MTFs) and organised trading facilities (OTFs); systematic internalisers are investment firms dealing on own account outside these venues.

Equity vs. debt: shareholders hold residual claims and voting rights; bondholders hold contractual interest and principal claims ranking ahead of equity in liquidation.

Derivatives derive value from an underlying (equity, index, rate, FX, commodity); key features are notional amount, maturity, settlement method (cash vs physical) and counterparty risk.

Primary market involves issuance (IPO, bond placement); secondary market involves trading of already-issued instruments, providing liquidity and price discovery.

Clearing and settlement: central counterparties (CCPs) novate trades and manage counterparty risk via margin; settlement finality transfers ownership of securities against payment (DvP).

UCITS funds are harmonised EEA retail funds subject to diversification, liquidity and leverage limits; they may be marketed cross-border with a notification to the host regulator.

ETFs trade intraday on exchanges; physical ETFs hold the underlying assets, synthetic ETFs use derivatives (swaps) to replicate index returns, adding counterparty risk.

Bonds: price and yield move inversely; key metrics are coupon, maturity, yield to maturity, duration and credit spread; callable/putable features alter cash-flow timing.

Money market funds hold short-term, high-quality debt instruments and aim to preserve principal with high liquidity; they are not deposit-guaranteed.

Structured products combine a bond with a derivative payoff (e.g. capital protection plus participation); the issuer's credit risk and payoff formula determine investor outcomes.

Shares: characteristics include voting rights, dividend discretion, residual claim and price volatility; classes (ordinary, preference) may differ in rights and priority.

Collective investment schemes may be open-ended (redeemable at NAV) or closed-ended (listed, limited liquidity); fees include entry, exit, management and performance fees.

Insurance-based investment products (IBIPs) combine insurance cover with investment exposure; they are subject to the Insurance Distribution Directive and PRIIPs disclosure.

Expected portfolio return: E(Rp) = Σ wi·E(Ri), where wi are portfolio weights summing to 1.

Portfolio variance for two assets: σp² = w1²σ1² + w2²σ2² + 2·w1·w2·σ1·σ2·ρ12; lower correlation reduces total risk.

Diversification reduces unsystematic (idiosyncratic) risk; systematic (market) risk remains and is compensated with a risk premium.

Capital Asset Pricing Model: E(Ri) = Rf + βi·(E(Rm) − Rf); beta measures sensitivity to market movements.

The efficient frontier plots portfolios offering the highest expected return for each level of risk; the optimal risky portfolio is the tangency point with the capital allocation line.

Sharpe ratio = (Rp − Rf) / σp; it measures excess return per unit of total risk and is used to compare portfolios.

Asset allocation should reflect the investor's risk tolerance, investment horizon, liquidity needs and constraints; strategic allocation is long-term, tactical allocation adjusts short-term.

Rebalancing restores target weights, controlling drift in risk exposure; it can be calendar-based or threshold-based.

Present value: PV = CF / (1 + r)^t; bond price = Σ coupon/(1+r)^t + face/(1+r)^n, discounted at the yield to maturity.

Bond price and yield are inversely related; premium when coupon > YTM, discount when coupon < YTM, par when coupon = YTM.

Macaulay duration = weighted average time to cash flows; modified duration = Macaulay duration / (1 + y/m); price change ≈ −modified duration × Δy.

Convexity corrects duration estimates: ΔP/P ≈ −D_mod·Δy + 0.5·C·(Δy)²; higher convexity reduces downside and increases upside for a given yield change.

Dividend discount model: P0 = D1 / (r − g) (Gordon growth); requires r > g and a stable growth rate.

Price-to-earnings (P/E) = price per share / earnings per share; comparisons require similar growth, risk and accounting standards.

Net asset value (NAV) per fund unit = (total assets − liabilities) / number of units; open-ended funds transact at NAV computed at a specified valuation point.

For derivatives, forward price ≈ S0·(1 + r)^T − FV(dividends/carry); option value depends on underlying price, strike, volatility, time and interest rates.

Risk categories: market risk (price, interest rate, FX, commodity), credit risk, liquidity risk, operational risk and systemic risk.

Value at Risk (VaR) estimates the maximum loss over a horizon at a confidence level (e.g. 99% one-day VaR); it does not describe losses beyond the threshold.

Standard deviation measures total volatility; beta measures systematic risk relative to the market; both are inputs to portfolio risk assessment.

Stress testing and scenario analysis evaluate portfolio losses under extreme but plausible market conditions, complementing statistical VaR.

Credit risk metrics include probability of default (PD), loss given default (LGD) and exposure at default (EAD); expected loss = PD × LGD × EAD.

Liquidity risk includes funding liquidity (ability to meet obligations) and market liquidity (ability to trade without moving prices); bid-ask spread is a common measure.

Risk mitigation tools include diversification, hedging with derivatives, position limits, stop-loss rules and collateral/margin arrangements.

Concentration limits cap exposure to a single issuer, sector or counterparty to avoid disproportionate single-name risk.

Client assets must be segregated from the firm's own assets; client money is held in separate accounts to protect against firm insolvency.

Investor compensation schemes cover eligible claims up to a statutory limit when an authorised firm fails and cannot return client assets.

Best execution requires firms to take all sufficient steps to obtain the best possible result for clients, considering price, cost, speed, likelihood of execution and settlement.

Firms must provide clear, fair and not misleading information, including costs and charges disclosure, before or at the point of service.

Complaints handling: firms must have a documented procedure and respond within defined timelines; unresolved disputes may go to an out-of-court dispute resolution body.

Fair treatment of customers principles require acting honestly, fairly and professionally, and managing conflicts of interest in the client's best interest.

Product governance: manufacturers must define a target market and distributors must ensure products reach the intended target market.

Marketing communications must be identifiable as such, balanced, and consistent with information in the prospectus or key information documents.

Suitability assessment requires gathering information on the client's knowledge and experience, financial situation (ability to bear loss) and investment objectives (risk tolerance, horizon).

For execution-only services, the appropriateness test checks whether the client has the knowledge to understand the product's risks; complex products require a fuller assessment.

Portfolio approach: suitability is assessed for the whole portfolio, not each trade in isolation, when managing a portfolio under mandate.

Product costs and charges must be disclosed and aggregated, including one-off, ongoing and incidental costs, so the client can compare net outcomes.

Risk warnings must be clear; a firm should decline or warn when a product is unsuitable, and record the client's decision if the client insists.

Inducements (third-party payments) must not impair the duty to act in the client's best interest; they must be disclosed and, for independent advice, generally prohibited.

Record-keeping: suitability reports, client instructions and communications must be retained for the required retention period for supervisory review.

Client categorisation: retail, professional and eligible counterparty; categorisation determines the level of protection and required disclosures.

Customer due diligence (CDD) requires identifying the client, verifying identity using reliable sources, and identifying the beneficial owner and the purpose of the business relationship.

Enhanced due diligence (EDD) applies to higher-risk situations such as politically exposed persons (PEPs), high-risk jurisdictions and complex ownership structures.

Simplified due diligence may apply to lower-risk situations, but the firm must still document the risk assessment; it is never a blanket exemption.

Suspicious activity reports (SARs) are filed with the Financial Intelligence Unit (in Bulgaria, ДАНС); tipping off the client is prohibited.

Record-keeping obligations require retaining transaction and identification records for the statutory period (commonly five years after the relationship ends).

A risk-based approach requires a firm-wide AML/CFT policy, a designated compliance officer, employee training and independent audit of controls.

Ongoing monitoring includes transaction screening, periodic review of client files and updating CDD when risk or circumstances change.

Sanctions screening compares clients and transactions against national and international sanctions lists; matches must be investigated and reported.

Bulgaria applies a flat 10% personal income tax rate; capital gains from the sale of shares and other financial instruments are generally taxable at that rate.

Dividends distributed by Bulgarian companies are subject to a 5% withholding tax, which is a final tax for resident individuals.

Interest income from bank deposits is generally exempt for resident individuals, while interest from certain other sources may be taxable; classification of the instrument matters.

Gains on shares traded on a regulated market may be exempt for individuals in specified circumstances; eligibility depends on the venue and holding conditions.

Collective investment scheme redemptions are generally treated as capital gains; the taxable base is the difference between sale proceeds and acquisition cost.

Taxable income from foreign investments must be declared; double taxation treaties and the foreign tax credit mechanism may reduce the effective burden.

Corporate income tax is 10%; withholding tax rules apply to payments to non-residents, subject to treaty relief and documentation.

Losses may offset gains within the same category where the law permits; loss carry-forward rules and deadlines should be verified for the tax year.

Core ethical duties: act honestly, fairly, professionally and in the client's best interest; integrity, competence, confidentiality and diligence underpin conduct.

Conflicts of interest must be identified, prevented or managed via organisational separation, disclosure, or declining the business where management is insufficient.

Inducements and third-party payments must be disclosed and must not create a bias toward recommending a particular product.

Personal account dealing by employees is restricted; pre-clearance, blackout periods and reporting requirements reduce misuse of inside information.

Confidentiality: client information may be shared only with consent or where required by law, and must be protected against unauthorised access.

Remuneration structures should not create incentives for mis-selling; sales targets must not override suitability obligations.

Independence of research: analysts must be separated from investment banking activities, and conflicts affecting recommendations must be disclosed.

Whistleblowing channels and a compliance culture support early detection of misconduct and reduce regulatory and reputational risk.