Securities and Investment Products
This domain tests whether you can classify an instrument, identify the regime that governs it, and match it to a client.
What the law treats as a security
ISA 2025 uses a broad, purposive definition: shares, debentures, bonds, notes, derivatives, units in collective investment schemes and any investment contract. Substance beats labelling - a scheme paying returns from a promoter's efforts is caught even when called a "partnership" or "farm investment".
Product families
- Equity: ordinary and preference shares; residual claim, discretionary dividends, voting rights.
- Debt: FGN bonds, sukuk, corporate bonds, commercial paper, promissory notes; fixed claim, credit and rate risk, ranking ahead of equity.
- Pooled: mutual funds, ETFs, REITs, money market funds - CIS requiring SEC registration, a trustee and a custodian.
- Structured and derivative: options, futures, forwards, depositary receipts, convertibles.
- Digital assets: tokens only where they meet the securities test; SEC digital asset rules then apply to the offering and the platform.
Features that drive suitability
Liquidity, tenor, seniority, currency, tax treatment, callability, and whether the return is contractual or contingent.
Worked example
A client is offered a 12-month "24% guaranteed note" from a small unlisted finance house, marketed through a WhatsApp group. Reasoning: a fixed-return instrument offered to the public is a security, so the offer needs SEC registration or a valid exemption; "guaranteed" is only the issuer's promise unless a bank guarantees it; soliciting strangers through a group is a public offer, not a private placement. Verify registration before recommending, and treat unregistered public offers as a red flag.
Traps
Equating "unlisted" with "unregulated"; assuming sukuk pays interest; treating an ETF as a single share rather than a CIS unit; ignoring that convertibles carry equity risk.