CIRO Derivatives Exam study guide
CIRO Derivatives Exam · Work through your exam, one topic at a time.
The CIRO Derivatives Exam is a Canadian securities-industry proficiency examination for individuals who advise on or trade derivative instruments, including futures contracts, options and related strategies. It is generally written by candidates seeking registration in a derivatives capacity at an investment dealer, or by staff in compliance, operations and supervision roles that touch derivative products. The CIRO Derivatives Exam study guide has 8 sections and about 2,465 words.
01Derivatives Fundamentals and Market Structure
A derivative is a contract whose value derives from an underlying reference (equity, index, rate, currency, commodity, credit event). Candidates must distinguish exchange-traded from OTC products: exchanges interpose a central counterparty (CCP), standardise terms, and publish prices, while OTC contracts are bilaterally negotiated and carry counterparty exposure unless cleared.
301 words, about 2 min02Futures Contracts and Mechanics
A futures contract is a standardised, exchange-traded agreement to buy or sell a specified quantity of an underlying at a future date. Candidates must know contract specifications: underlying grade, contract size/multiplier, delivery months, tick size and tick value, last trading day, and settlement method (physical vs cash).
331 words, about 2 min03Options Contracts and Pricing
An option gives the buyer a right, not an obligation, to buy (call) or sell (put) at a strike price before or on expiry. Distinguish European (exercise at expiry only) from American (any time before expiry) exercise.
331 words, about 2 min04Hedging and Risk Management Strategies
Hedging reduces unwanted exposure by taking an offsetting position. Candidates must know short hedges (sell futures to protect a long asset or future sale) and long hedges (buy futures to lock a purchase price).
323 words, about 2 min05Derivatives Trading, Clearing and Settlement
Trading occurs on exchanges (order-driven, transparent) and OTC (quote-driven, bilateral). Know order types: market, limit, stop, stop-limit, and time-in-force instructions (day, GTC, IOC, FOK).
293 words, about 1 min06Margin, Collateral and Counterparty Risk
Margin protects the clearing system against default. Know initial margin (posted at inception, covers potential future exposure over the close-out period), variation margin (daily cash settlement of mark-to-market moves), and maintenance margin (the threshold below which a call is triggered).
295 words, about 1 min07Regulatory Framework and Conduct Requirements
Candidates must know the regulatory architecture for derivatives: licensing and authorisation, market conduct rules, and reporting obligations. Key themes include trade reporting to trade repositories, central clearing mandates for standardised OTC derivatives, margin requirements for non-cleared derivatives, and the senior managers and certification regime style of accountability.
300 words, about 2 min08Client Suitability, Disclosure and Sales Practices
Suitability requires a firm to understand the client (knowledge, experience, financial situation, objectives), understand the product (risk, complexity, liquidity), and match the two. Know the difference between execution-only (no suitability assessment, limited protections), advisory (personal recommendation triggers suitability), and discretionary management.
291 words, about 1 min