CIRE · Element 6
CIRE Element 6: market integrity, trade execution and settlement
Element 6 accounts for about 13 of the CIRE's 110 questions. The market integrity rules, the main order types, how a trade settles, and three questions to test yourself.
Element 6 accounts for about 13 of the CIRE's 110 questions, under the syllabus's indicative weighting. Its title is Market integrity, trade execution and settlement. It follows an order from the client's instruction to settlement, along with the rules that keep the market fair.
Where do you stand on Element 6? The free CIRE diagnostic gives you an indication of your strengths and the areas to review, element by element.
What the exam tests
According to the exam syllabus, you need to:
- understand the Universal Market Integrity Rules (UMIR) and their gatekeeping obligations, and apply them to manipulative and deceptive practices, unacceptable trading activities and front running;
- know the basic purpose of investment banking, research and corporate finance;
- understand order entry, settlement and delivery;
- understand the features of the different order types, and how orders are varied, cancelled and corrected;
- understand the requirement to confirm orders with clients, including fees and commissions;
- know the features of the main account types and the margin requirements;
- know the need for a specialized trading agreement for derivative accounts;
- know the reporting obligations to firms and regulators.
Source: CIRE syllabus (CIRO, January 2025), learning outcomes 6.1 to 6.12.
The key ideas, in plain English
1. Market integrity and best execution
The Universal Market Integrity Rules (UMIR) aim for a fair and transparent market that investors can trust. Together with related dealer rules, they cover, among other things:
- best execution of client orders (now set out in CIRO's dealer rules rather than UMIR);
- manipulative and deceptive practices, such as orders entered to set an artificial closing price;
- front running: for example, placing a proprietary trade using knowledge of a pending client order reasonably expected to affect the market price;
- client priority: subject to exceptions, such as the client's specific consent, a dealer must not enter a principal or non-client order that it knows, or should know, will likely execute ahead of an earlier client order for the same security, on the same side, at the same or a less favourable price.
Gatekeeping: an employee who sees activity that may breach these rules, such as a possible attempt to manipulate a price, reports it at once to their supervisor or the compliance department.
2. The main order types
| Order type | In plain English | Point to remember |
|---|---|---|
| Market order | Buy or sell now, at the best price available | It sets no price limit: in a thinly traded stock, it can fill far from the last trade, and it isn't certain to be filled in every market condition |
| Limit order | Buy at a maximum price, or sell at a minimum price | It controls the price, but it may not be filled |
| On-stop order | Waits, undisplayed, until the stock trades at a set price | How it is triggered depends on the marketplace. On the TSX, the trigger price is also its limit price, and the order becomes a limit order |
The syllabus also covers immediate or cancel orders (fill what can be filled now, cancel the rest), fill or kill orders (fill all of it now, or cancel all of it), iceberg orders (show only part of the volume) and short sales.
Watch out: a limit order controls the price, not the execution. A market order seeks quick execution with no price limit, but execution isn't assured.
3. From order to settlement
- Order entry: the client gives the order, which is entered and sent to a marketplace.
- Execution: the trade takes place.
- Confirmation: the dealer sends the client a trade confirmation, which shows, for a retail client, each charge on the transaction and the total.
- Settlement: the securities and the money change hands.
Since May 27, 2024, Canadian equity and long-term debt trades generally settle one business day after the trade date (T+1).
Changes, cancellations and corrections of orders follow the dealer's procedures. A position created by the dealer's own error is moved to its error account by a journal entry, not by a new trade on a marketplace.
4. Accounts and margin
The syllabus covers advisory, order-execution-only, managed, discretionary and margin accounts.
- In a cash account, the client pays the full cost of each purchase.
- In a margin account, the client borrows part of the cost from the dealer, and the securities serve as collateral.
Margin requirements set the part the client must finance personally. If a long position falls in value, or a stock sold short rises, the client may receive a margin call and have to add money or securities.
For derivative accounts, the client must sign a specialized trading agreement: derivatives carry particular risks.
5. Reporting obligations
Dealers and their employees have reporting obligations to their firm and to regulators. One example: a suspicious transaction, even one the client only attempted, is escalated through the firm's procedures. Once there are reasonable grounds to suspect a money laundering or terrorist financing offence, the dealer, as the reporting entity, must report it to FINTRAC as soon as practicable, including for attempted transactions.
Three important distinctions to understand
- Price or execution. A limit order controls the price; a market order seeks quick execution with no price limit, but execution isn't assured.
- A client order and a principal order. Subject to the conditions and exceptions described above, an earlier client order has priority over a competing principal or non-client order.
- Long and short positions in a margin account. A falling price hurts a long position; a rising price hurts a short one.
Test yourself: 3 questions
Original CIROPrep questions, in the style of the exam.
1. A client wants to buy a stock now, but won't pay more than $20 a share. Which order fits?
- a) A market order
- b) A limit order
- c) An on-stop order
- d) No order allows this
Answer
b) A limit order sets the maximum price for a purchase. A market order has no price limit, and an on-stop order stays inactive until the stock trades at its trigger price, so it doesn't fit an order the client wants working now.
2. A client buys Canadian shares on a Thursday, and Friday is a business day. When does the trade generally settle?
- a) The following Tuesday
- b) The following Monday
- c) Friday
- d) Thursday, the same day
Answer
c) Canadian equity trades generally settle one business day after the trade date (T+1), here Friday. The following Monday would be T+2, the cycle used before May 27, 2024.
3. A dealer's order-entry error leaves 500 shares in a client's account that the client never ordered. How should the position be moved out of the client's account?
- a) By a journal entry that moves it to the dealer's error account
- b) By selling the shares on a marketplace from the client's account
- c) By asking the client to keep the shares at a discount
- d) By leaving the shares in the account until the client decides to sell them
Answer
a) A position created by the dealer's own error is moved to its error account by a journal entry, not by a trade on a marketplace (b). The client doesn't bear the dealer's error (c, d).
Continue your preparation
Want to practise Element 6 in more depth? The Module — Element 6 has lessons, practice questions with an explanation for every answer, summaries, flashcards, a mind map and exam tips, in English and French. $29 plus applicable sales taxes · one payment · 6 months of access. Explore the Element 6 module.
Not sure which elements to prioritize? Take the free CIRE diagnostic: 27 questions, about 25 minutes, with a study plan based on your results.
Read next: Element 9, conflicts of interest and ethics and the CIRE study plan.
