Study equities for CISI Introduction to Investment, with a UK-specific reading frame built around the official chapter structure and exam weighting.
Equities are one of the most heavily weighted parts of the paper, so this chapter needs more than label recognition. A good answer understands what ownership in a company means, what rights can attach to that ownership, how companies raise further equity, where the shares trade, and how title is ultimately held and settled. The chapter also punishes candidates who lump all share-related language together. Ordinary shares, shareholder rights, rights issues, bonus issues, exchange trading, nominee holding, and settlement all sit in the same broad area, but they answer different exam questions.
| Check | What matters |
|---|---|
| Official topic weighting | 14% |
| Core distinction under pressure | understand the shareholder position from issue to trading to settlement, and distinguish capital-raising events from market trading or custody mechanics. |
| Strongest use of this page | read it before timed sets so you can recognise what kind of question the chapter is asking |
| UK note | Use UK terminology first: FCA, PRA, Bank of England, HMRC, FOS, FSCS, ISA, SIPP, OEIC, unit trust, gilt, and GBP where a sterling amount matters. |
The paper often tests whether you can identify what has changed for the shareholder. Has the company raised new capital, simply re-denominated existing capital, offered a shareholder vote, or changed where and how shares are traded or held? The strongest answer tracks the event back to its effect on ownership, rights, and marketability.
It also tests whether you can separate primary-market activity from secondary-market dealing. A company issuing new shares is not the same as an investor buying listed shares from another investor on an exchange.
| Section | Main exam angle |
|---|---|
| Company formation and shareholder rights | If the stem is about control, voting, or ownership participation, think shareholder rights before market pricing |
| Corporate actions and shareholder events | New capital from existing shareholders usually points to a rights issue |
| Exchanges, indices, and trading venues | An index measures market performance; it does not issue shares or hold assets for a client |
| Holding title, clearing, and settlement | If the question mentions nominee accounts, legal title, or administration, slow down and separate record-keeping from economic ownership |
| Feature | Ordinary shares | Preference shares |
|---|---|---|
| Ownership position | Residual ownership interest in the company | Hybrid-like equity interest with preferential dividend or capital features |
| Dividend pattern | Variable and not guaranteed | Often fixed or preferential, subject to the terms and company ability to pay |
| Voting rights | Usually stronger voting participation | Often limited or different voting rights |
| Capital upside | Greater participation in growth and takeover value | Usually less direct upside than ordinary shares |
| Main exam clue | Voting, residual claim, capital growth, ordinary dividend | Preferential dividend, priority over ordinary shares, less control |
Do not treat preference shares as risk-free. They may rank ahead of ordinary shares for certain payments, but they remain company capital and do not have the same contractual position as a secured creditor.
Dividend yield measures cash dividend relative to the share price:
\[ \text{Dividend yield} = \frac{\text{Dividend per share}}{\text{Market price per share}} \times 100 \]If a share pays an annual dividend of 6p and trades at 120p, the dividend yield is:
\[ \frac{6}{120} \times 100 = 5\% \]Dividend yield is not total return. Total shareholder return can also include price gain or loss. A high dividend yield may reflect attractive income, but it can also reflect a falling share price or concern about dividend sustainability.
| Corporate action | What changes | New money raised? | Exam clue |
|---|---|---|---|
| Rights issue | Existing shareholders are offered new shares, usually at a discount | Yes | Maintain proportionate ownership, possible dilution if rights ignored |
| Bonus or capitalisation issue | Additional shares issued from reserves | No | More shares, value spread across more shares |
| Scrip dividend | Shareholder receives shares instead of cash dividend | Usually no new external cash | Dividend alternative paid in shares |
| Share buyback | Company repurchases its own shares | Company uses cash | Fewer shares in issue, capital-management signal |
| Takeover or merger | Corporate control or ownership changes | Depends on terms | Offer, acquisition, combination, control change |
| Term | What it is | What it is not |
|---|---|---|
| Listing | Admission of securities to a recognised market list | The same as every individual trade |
| Exchange | Venue supporting trading, price discovery, and liquidity | The issuer or the custodian |
| Index | Measurement of a selected market or segment | A place where shares are held or issued |
| OTC trading | Bilateral or dealer-based trading away from a central exchange | Automatically unsuitable or illegal |
| Clearing | Post-trade process that manages obligations between parties | Price discovery |
| Settlement | Final transfer of cash and securities | The decision to buy or sell |
| Custody or nominee holding | Safekeeping and registration layer | The economic investment decision |
Start with what an equity investor owns: a residual claim on a company, voting rights where relevant, and exposure to dividends and capital growth without any guarantee. Foundation questions stay practical and usually ask what an ordinary shareholder can expect relative to creditors or other stakeholders.
Rights issues, bonus issues, scrip dividends, takeovers, and similar events change the shareholder experience in different ways. The exam usually rewards recognising the purpose of the event, such as raising capital or redistributing existing value, rather than memorising every procedural detail.
Questions here are usually about where shares trade and how the market is organised. The key distinction is between the company itself, the market venue, and the index measuring part of the market.
This section tests the difference between beneficial ownership, nominee holding, and the post-trade process. Many candidates know the market event but lose marks by missing how title is recorded or how settlement infrastructure works at a foundation level.
A listed company wants to raise additional equity capital while giving existing shareholders the first opportunity to maintain their proportionate ownership. Which corporate action best matches that aim?
Answer: C.
A rights issue raises new equity capital and offers existing shareholders the chance to subscribe in proportion to their current holdings. The other options do not perform that same capital-raising function.