The correct answer is that goodwill from a recent acquisition is assigned a 100% haircut. Under the Securities and Futures (Financial Resources) Rules (FRR), a licensed corporation’s assets are valued based on their liquidity for the purpose of calculating liquid capital. This valuation involves applying percentage deductions, known as ‘haircuts’, to reflect the risk and time it would take to convert an asset into cash. Intangible assets, such as goodwill, are considered highly illiquid as they cannot be readily sold or converted to cash in a timely manner, especially during a financial stress event. Therefore, the FRR mandates a 100% haircut for such assets, effectively reducing their value to zero in the liquid capital calculation. In contrast, cash held in a licensed bank is the most liquid asset and is given its full value, meaning it has a 0% haircut. Listed blue-chip equities are liquid but subject to market price fluctuations, so they receive a specific haircut (e.g., 15% for Hang Seng Index constituents), not 100%. A receivable from a recognized clearing house is also considered highly liquid and secure, typically attracting a very low or zero haircut.

Statement I is correct. A fundamental characteristic of a company as a separate legal entity is perpetual succession. This means the company’s existence is independent of its members. It continues to exist until it is formally dissolved, regardless of changes in its membership, such as the death or resignation of a member. Statement II is also correct. The Companies Ordinance (Cap. 622) permits the formation of a company by a single person (s. 67) and allows a private company to have a sole director, who can also be the sole member. Statement III is incorrect. While the new Companies Ordinance (Cap. 622) covers most areas of company law, the prospectus regime remains regulated under the older Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32). Statement IV is incorrect. A private company’s membership is limited to 50, but this count specifically excludes present and certain past employees who are also members of the company. Therefore, statements I and II are correct.

The correct answer is that the firm should adopt a strong encryption algorithm for both data at rest and data in transit. According to the SFC’s Guidelines for Reducing and Mitigating Hacking Risks Associated with Internet Trading, protecting the confidentiality and integrity of client data is paramount. Strong encryption is the fundamental technical control that renders data unreadable and unusable to unauthorized parties, even if they manage to bypass other security layers. It directly protects the data itself, whether it is stored on a server (at rest) or being transmitted over a network (in transit). Establishing a multi-tiered firewall within a Demilitarised Zone is a critical network security measure for protecting the system’s perimeter, but it does not protect the data itself if the perimeter is breached or if data is intercepted outside the network. Conducting annual vulnerability assessments is a detective and preventative measure used to identify weaknesses, but it is not the primary control that actively protects the data. Granting system access strictly on a ‘need-to-have’ basis is an essential administrative control to limit internal threats, but it does not protect the data from external attackers or from being compromised if an authorized user’s credentials are stolen.

According to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, when a licensed person receives Initial Margin (IM) for a non-centrally cleared OTC derivative transaction, it must treat the IM as client assets. This requires the IM to be segregated from the licensed person’s own proprietary assets. The IM may not be reused, for example by re-pledging, unless two conditions are met: first, the counterparty must provide explicit written consent for reuse, and second, the reuse is strictly for the purpose of hedging the licensed person’s exposure to the position established with that specific counterparty. Therefore, the correct answer is that the IM must be segregated from the firm’s assets and can only be re-pledged to hedge the specific exposure from that client’s transaction. It is incorrect to commingle the received IM with the firm’s proprietary assets, as this violates the fundamental principle of asset segregation. It is also incorrect to suggest that the IM can be used for the firm’s general hedging activities; the permission for reuse is narrowly defined and tied directly to the exposure from the counterparty that posted the margin. Finally, stating that the IM can never be reused, even with consent, is also inaccurate, as the Code of Conduct provides a specific, albeit limited, exception for reuse with written consent for hedging purposes.

According to Schedule 2, Part 2 of the Securities and Futures Ordinance (SFO), certain fundamental powers of the Securities and Futures Commission (SFC) cannot be delegated to its committees, employees, or other individuals. These powers are reserved for the Commission itself due to their significance.

Statement I is correct. The power to make subsidiary legislation is a quasi-legislative function and is explicitly listed as non-delegable.

Statement II is correct. The appointment of an external investigator under the SFO is a significant investigatory power that is reserved for the Commission and cannot be delegated.

Statement III is incorrect. The power to grant or refuse licences for regulated activities is a core operational function of the SFC. To ensure efficiency, this power is typically delegated to the SFC’s Licensing Department or relevant committees.

Statement IV is correct. The decision to institute proceedings in the Market Misconduct Tribunal (MMT) is a major enforcement action with serious consequences, and this power is expressly non-delegable under the SFO. Therefore, statements I, II and IV are correct.

This question assesses the understanding of how an individual’s portfolio is calculated for the purpose of qualifying as a Professional Investor (PI) under the Securities and Futures (Professional Investor) Rules, and the regulatory implications of such a classification. Statement I is correct because when a portfolio is held in a joint account and there is no written agreement specifying the shares, the individual’s share is calculated on an equal basis. In this case, with two account holders, Mr. Leung’s share is half of HK$12 million, which is HK$6 million. Statement II is correct as the rules permit the inclusion of a portfolio held by a corporation that is wholly owned by the individual and has investment holding as its principal business. Therefore, the entire HK$5 million from Leung Holdings Ltd. is counted. Statement III is correct. A key consequence of being classified as a PI is that certain provisions of the Securities and Futures Ordinance (SFO) do not apply. Specifically, PIs are exempt from the prohibitions on unsolicited calls (cold calling) under section 174 of the SFO. Statement IV is incorrect because it miscalculates the total attributable portfolio. The correct total is the sum of the shares from the joint account (HK$6 million) and the investment holding company (HK$5 million), which equals HK$11 million, not HK$17 million. Therefore, statements I, II and III are correct.

The correct answer is that the representative must produce the required documents without delay as specified in the notice. Under the Securities and Futures Ordinance (SFO), the SFC is granted extensive powers to investigate potential market misconduct and other breaches. When an SFC investigator, acting under this authority, serves a formal written notice requiring the production of specified records or documents, the recipient has a statutory obligation to comply. This duty to cooperate with the regulator overrides any general duty of confidentiality owed to clients. Failure to comply with such a notice without a reasonable excuse constitutes a criminal offence, which can lead to severe penalties, including fines and imprisonment. Seeking client consent is not a valid reason for non-compliance, as the SFO provides the legal authority for the disclosure. While consulting legal counsel is a prudent step, it cannot be used as a basis for refusing to provide the documents; the legal obligation to comply remains. Providing a summary instead of the actual documents requested is also considered non-compliance, as the SFC is entitled to inspect the specific records it has formally requested.

This question assesses the understanding of disclosure requirements for benefits received by an intermediary under the SFC Code of Conduct, specifically relating to General Principle 6 (Conflicts of Interest).

Statement I is correct. The 2% commission is a monetary benefit that is quantifiable prior to the transaction. The Code requires a specific disclosure of such a benefit, including the exact percentage or amount, to be made to the client.

Statement II is correct. The annual trailer fee, which is variable but has a defined maximum, is considered a monetary benefit that is not quantifiable at the point of entering the transaction. The rules mandate the disclosure of its existence, nature, and the maximum percentage receivable per year (in this case, 0.5%).

Statement III is correct. Exclusive access to research seminars is a non-monetary benefit. The Code requires that the existence and nature of such benefits be disclosed to the client, as they could potentially influence the intermediary’s recommendations.

Statement IV is incorrect. According to the Code of Conduct, if a licensed person receives monetary benefits (like the commission and trailer fees described) in relation to the distribution of investment products, it is considered to be not independent. The firm must disclose its non-independent status to the client. Claiming independence despite receiving these benefits would be a direct violation of the regulatory requirements. Therefore, statements I, II and III are correct.

The correct answer is that the clause attempts to override the intermediary’s fundamental obligation to ensure the suitability of its recommendations, which is a requirement that cannot be waived. The SFC Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission mandates the inclusion of a specific clause in all client agreements. This clause states that if an intermediary solicits the sale of or recommends a financial product, it must be reasonably suitable for the client, considering their financial situation, investment experience, and objectives. The Code explicitly forbids any other provision in the agreement from undermining or derogating from this core obligation. The proposed clause, by framing recommendations as ‘for reference only’ and disclaiming suitability, directly contradicts this non-waivable duty. While it is true that client agreements must contain a full description of services and an undertaking for parties to notify each other of material changes, these are separate requirements and not the primary reason this specific clause is non-compliant. The suitability obligation is a cornerstone of investor protection and cannot be contracted out of.

The correct answer is that the call warrant is defined as a ‘security’ under the SFO and is traded on the SEHK. The Securities and Futures Ordinance (SFO) provides a broad definition of ‘securities’ that explicitly includes instruments like rights, options, and warrants in respect of listed shares. Therefore, the warrant itself is a regulated security. A unique feature of the Hong Kong market structure is that while the Hong Kong Futures Exchange (HKFE) is considered the primary derivatives market, derivatives on listed securities, such as options and warrants, are traded on The Stock Exchange of Hong Kong Limited (SEHK). This contradicts the common but informal distinction between the SEHK as the ‘cash market’ and the HKFE as the ‘derivatives market’. One incorrect statement suggests that because the warrant is a derivative, it must be traded on the HKFE. This is a common misconception that ignores the specific market practice in Hong Kong for equity derivatives. Another incorrect option claims the warrant is a derivative but not a security. This is false, as the SFO’s definition of securities is intentionally broad to encompass such instruments. The final incorrect option wrongly suggests that warrants are private over-the-counter contracts and that only the underlying shares are securities; exchange-traded warrants are standardized, listed instruments regulated by the SEHK.

The Common Reporting Standard (CRS) is an international standard for the automatic exchange of financial account information between tax authorities to combat cross-border tax evasion. Financial Institutions in Hong Kong, including licensed corporations, have specific obligations under this framework. Statement I is correct as the cornerstone of CRS due diligence is to obtain a self-certification from account holders to determine their tax residency. Statement II is also correct because if an account holder is identified as a tax resident of a reportable jurisdiction, the financial institution must report the relevant account information to the Hong Kong Inland Revenue Department (IRD). Statement IV is correct as financial institutions are required to have procedures in place to identify and act upon changes in circumstances that could affect an account holder’s CRS status. Statement III is incorrect because a Suspicious Transaction Report (STR) is filed with the Joint Financial Intelligence Unit (JFIU) for matters related to anti-money laundering and counter-terrorist financing (AML/CFT), not for CRS reporting. The reporting channel and purpose for CRS (tax transparency to IRD) are distinct from AML/CFT (suspicious transactions to JFIU). Therefore, statements I, II and IV are correct.

A Responsible Officer’s primary duties during a cybersecurity incident are guided by regulatory expectations and sound risk management principles. Statement I is correct because the immediate priority is to contain the breach by isolating affected systems. This prevents the attacker from moving laterally within the network and minimizes further data loss, as emphasized in the SFC’s Circular on Cybersecurity Controls. Statement II is correct as licensed corporations are required to report significant cybersecurity incidents to the SFC as soon as reasonably practicable. If criminal activity is suspected, reporting to the Hong Kong Police Force is also a necessary step. Statement III is correct because the firm must assess the scope of the breach, identify which clients are affected, and communicate with them transparently and in a timely manner. This aligns with the duty to act in the best interests of clients under the Code of Conduct and obligations under the Personal Data (Privacy) Ordinance. Statement IV is incorrect because initiating a full-scale infrastructure upgrade is a long-term remedial action, not an immediate response priority. The immediate focus must be on containment, assessment, and reporting. Delaying these critical steps to plan and execute an upgrade would be an improper response strategy. Therefore, statements I, II and III are correct.

The Securities and Futures (Client Securities) Rules are designed to protect client assets held by intermediaries. Statement I is correct because a core principle of these rules is the segregation of client assets from the licensed corporation’s own assets. Client securities must be deposited into a segregated account maintained with an authorized institution, an approved custodian, or the SFC, as soon as reasonably practicable. Statement II is correct as an intermediary cannot pledge, lend, or otherwise deal with a client’s securities as collateral for its own financial benefit without obtaining prior, specific written authority from that client. This authority must be separate from the general client agreement. Statement III is incorrect because it describes an action that is explicitly prohibited. Commingling client securities with the firm’s proprietary (house) securities in the same account is a fundamental breach of the segregation requirement. Statement IV is incorrect because the rules are stringent regarding the authority to pledge client securities, requiring it to be in writing. A recorded verbal instruction is not a valid substitute for the required written authorization. Therefore, statements I and II are correct.

Statement I is correct. Under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), a Trust or Company Service Provider (TCSP) is a designated non-financial business and profession. As such, it is required to conduct customer due diligence and report any transaction it knows or suspects to be related to money laundering or terrorist financing to the Joint Financial Intelligence Unit (JFIU). The scenario described falls squarely within this obligation. Statement II is incorrect. The Companies Registry’s (CR) role is primarily administrative and related to corporate filings and registration. It does not have the mandate or power to conduct criminal investigations into money laundering; such investigations are handled by law enforcement agencies like the Hong Kong Police Force and the Customs and Excise Department. Statement III is correct. The CR is responsible for ensuring companies, including Open-Ended Fund Companies (OFCs), comply with their statutory filing obligations, such as submitting annual returns. As stated in the Miscellaneous Incorporation Ordinances, the CR has the power to strike off a company that is not carrying on business or has persistently failed to meet its filing requirements. Statement IV is correct. The Securities and Futures Commission (SFC) is the primary regulator for OFCs concerning their operations, management, and compliance with the Securities and Futures Ordinance (SFO) and the Code on Open-Ended Fund Companies. However, the administrative function of corporate registration and enforcement of filing deadlines is the responsibility of the Companies Registry. While the two bodies liaise, their regulatory functions are distinct. Therefore, statements I, III and IV are correct.

Statement I is incorrect because a VCM trigger does not lead to a complete halt in trading. Instead, it initiates a five-minute cooling-off period during which the instrument can still be traded, but only within a specified price band. Statement II is incorrect as the VCM is not active during certain periods of the Continuous Trading Session (CTS); specifically, it excludes the first 15 minutes of the morning and afternoon CTS, and the last 15 minutes of the afternoon CTS. Statement IV is incorrect because the VCM in the securities market applies to constituent stocks of the Hang Seng Composite LargeCap, MidCap, and SmallCap Indices. Statement III is the only correct description. During the cooling-off period, trading is not suspended but is restricted to a pre-defined price range, allowing the market to stabilize. Therefore, statement III is correct.

According to the SFC’s Management, Supervision and Internal Control Guidelines, senior management of a licensed corporation bears the ultimate responsibility for establishing and maintaining a robust compliance culture. This responsibility is comprehensive and cannot be fully delegated. Statement I is correct as establishing clear reporting lines and defining responsibilities are fundamental to good governance and accountability. Statement II is also correct because written policies provide clarity and consistency, while the separation of supervisory and operational functions is a key internal control to prevent conflicts of interest and errors. Statement IV is correct as senior management is expected to foster open and constructive relationships with external parties like the SFC and auditors, which is crucial for transparency and regulatory compliance. However, Statement III is incorrect. While the compliance department plays a vital role, senior management cannot delegate the ‘ultimate responsibility’ for the firm’s compliance culture. They must provide leadership and drive to ensure compliance is embedded throughout the organization, not just within a single department. Therefore, statements I, II and IV are correct.

The correct answer is that the compliance function must be established as an effective function, headed by a designated officer who is independent of other business functions and reports directly to senior management. The Corporate Finance Adviser Code of Conduct (CFA Code) explicitly requires a corporate finance adviser to maintain an effective compliance function. To ensure its objectivity and authority, this function should be independent of the business lines it oversees, such as deal origination and execution. The designated compliance officer must have a direct reporting line to senior management to ensure that compliance issues are given appropriate attention at the highest level of the firm. The code does allow for this function to be assumed by senior management where necessary, which is common in smaller firms, but the principle of independence from day-to-day business activities remains crucial. Requiring the compliance officer to report to the most senior deal originator is incorrect because this would create a direct conflict of interest and undermine the independence of the compliance function. The compliance officer’s role is to provide objective oversight, which is compromised if they report to the head of the business they are monitoring. Mandating the full outsourcing of compliance duties to an external consultancy is not a requirement. While firms can use external consultants for support, the ultimate responsibility for maintaining an effective internal compliance function rests with the licensed corporation itself. Implementing a system where compliance decisions are approved by a majority vote of all licensed representatives is incorrect. This is not a recognized governance structure under the SFC’s regulatory framework, which requires clear lines of responsibility and authority, typically vested in a designated compliance officer and senior management, not a democratic vote among staff.

Under the Securities and Futures Ordinance (SFO), a licensed corporation must meet specific requirements regarding its Responsible Officers (ROs) to ensure adequate supervision of its regulated activities. Statement I is correct as section 125 of the SFO mandates that a licensed corporation must appoint not less than two ROs. Statement II is also correct, as the same section requires that at least one of these ROs must be an executive director of the corporation. Statement III correctly reflects another key requirement from section 125 of the SFO, which states that every individual who is an executive director of the licensed corporation must be approved as an RO. Statement IV is incorrect. While the SFO (s. 118(1)(a)(ii)) requires that for each regulated activity, there must be at least one RO available at all times to supervise the business who is based in Hong Kong, it does not mandate that all ROs must be based in Hong Kong. A firm can have other ROs based overseas, provided the local supervision requirement is met. Therefore, statements I, II and III are correct.

The correct answer is that the firm must be able to immediately suspend or disable the trading algorithm. According to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (specifically Paragraph 18 and the associated guidelines on algorithmic trading), a licensed corporation must have effective and adequate systems and controls to manage the risks associated with its algorithmic trading activities. A critical component of these controls is the ability to immediately suspend, withdraw, or disable a trading algorithm if it behaves erratically or creates risks to market integrity. This ‘kill switch’ functionality is the most crucial immediate action to prevent further potential market disruption. While notifying the SFC is an important regulatory obligation, it is a subsequent step after the immediate risk has been contained. Similarly, conducting a full internal investigation to find the root cause is essential for remediation and prevention, but it is not the first priority in a live incident. Attempting to adjust the algorithm’s parameters in real-time could be risky and may not resolve the underlying issue, making a complete suspension the safer and required initial response.

Under the Securities and Futures (OTC Derivative Transactions – Clearing and Record Keeping Obligations and Designation of Central Counterparties) Rules (the “OTCD Clearing Rules”), a licensed corporation must keep records sufficient to demonstrate compliance with its clearing obligations. Statement I is correct as these records must be kept for at least five years after the termination or maturity date of the transaction. Statement II is also correct because the record-keeping obligation applies irrespective of whether the transaction was conducted partly or wholly outside of Hong Kong or whether counterparties are located overseas. Statement III is correct; the SFC is empowered to bring a licensed corporation that breaches the OTCD Clearing Rules before the Court of First Instance. Statement IV is incorrect as the maximum penalty that may be imposed by the Court of First Instance for such a breach is HK$5 million, not HK$10 million. Therefore, statements I, II and III are correct.

The correct answer is that the court may grant a director relief if it finds they acted honestly and reasonably. Under the Companies Ordinance (Cap. 622), a court has the power to relieve a director, either wholly or partly, from their liability for negligence, default, breach of duty, or breach of trust. This relief is conditional upon the court being satisfied that the director acted honestly and reasonably, and that, considering all the circumstances of the case, they ought to be fairly excused. Ratification of a director’s conduct requires a resolution passed by the company’s members, not merely the board of directors, and the votes of the director in question and their connected entities are disregarded. There is no automatic statutory provision that limits a director’s liability for a breach of duty to the amount of their remuneration. Finally, while a company can seek an injunction to prevent a future breach, it can also sue for damages to recover losses that have already occurred; its remedies are not limited to preventative actions.

This question assesses the understanding of rules surrounding unauthorised trading by a third party. Statement I is correct because Paragraph 7.1(c) of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission explicitly requires a licensed person to obtain the client’s written authorisation before effecting transactions for the client on the instruction of a third party. Verbal consent is insufficient. Statement II is correct as licensed corporations have a primary responsibility under General Principle 7 (Compliance) and General Principle 2 (Diligence) to implement and maintain adequate internal controls and procedures to ensure their staff comply with all applicable regulations, including those for third-party authorisations. Statement III is correct; the SFC has the power under the Securities and Futures Ordinance to take disciplinary action against licensed individuals for misconduct. Allowing unauthorised trading is a serious breach, and past enforcement cases have resulted in the suspension of licences for similar failures. Statement IV is incorrect because a firm’s regulatory responsibility is not automatically negated just because an employee violated an internal policy. The SFC would investigate whether the firm’s supervision, training, and enforcement of its policies were adequate. A failure in supervision can lead to the firm also being disciplined. Therefore, statements I, II and III are correct.

The correct answer is that the licensed corporation is responsible, as it is accountable for all orders sent to the market through its electronic trading system. According to Paragraph 18 of the SFC Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, a licensed or registered person is ultimately responsible for the settlement and financial obligations of all orders transmitted to the market through its electronic trading system. This responsibility holds regardless of whether the orders were generated by the client, a third-party vendor, or the firm’s own system. The principle is that the firm providing market access is the gatekeeper and must have adequate controls to manage the risks associated with electronic trading. Attributing sole responsibility to the client because their algorithm was flawed is incorrect, as the licensed corporation is the entity with the direct relationship and obligations to the exchange. While a client agreement may allow the firm to seek recovery from the client, it does not absolve the firm of its primary regulatory responsibility to the market. The exchange (HKEX) is responsible for market operation and integrity but not for the financial obligations of trades executed by its participants; that liability rests with the participant firm.

The correct answer is that Leo has committed the market misconduct of disclosing false or misleading information inducing transactions. Under Section 298 of the Securities and Futures Ordinance (SFO), this misconduct occurs when a person discloses, circulates, or disseminates information that is likely to induce another person to subscribe for or trade securities, if the information is false or misleading as to a material fact and the person knows, or is reckless as to whether, the information is false or misleading. Leo knowingly exaggerated an unverified rumor to encourage his followers to buy the stock, directly fitting this definition. The suggestion of insider dealing is incorrect. Insider dealing involves trading while in possession of relevant information that is not generally known to the public (i.e., inside information) and which was obtained due to a connection with the corporation. Leo did not possess confidential inside information; he created and spread false public information. The concept of price rigging is also not the most accurate description. Price rigging, under Section 296 of the SFO, typically involves creating a false or misleading appearance of active trading or market price through transactions like wash sales or matched orders. Leo’s misconduct was through the dissemination of information, not through manipulative trading activity itself. Finally, making unsolicited calls is incorrect. This offence, under Section 174 of the SFO, relates to making uninvited direct communications (like phone calls) to induce someone to deal in securities. A public blog post, accessible to anyone, does not constitute an unsolicited call in the legal sense.

Under the Securities and Futures Ordinance (SFO), Type 3 regulated activity is defined as ‘leveraged foreign exchange trading’. This refers to contracts or arrangements where a person speculates on currency movements using leverage, meaning the potential profit or loss is magnified relative to the initial capital or margin provided. Statement I describes a rolling spot forex contract with a 5% margin, which is a classic example of a leveraged transaction requiring a Type 3 license. Statement III describes a contract where settlement is based on currency fluctuations without physical delivery, which is another form of leveraged foreign exchange trading, often structured as a contract for differences (CFD) on forex. Statement II, introducing a client to a futures dealer, falls under the definition of Type 2 regulated activity (‘Dealing in Futures Contracts’), not Type 3. Statement IV describes a simple, fully-funded physical currency exchange (money changing) for travel purposes, which does not involve leverage and is not a regulated activity under the SFO. Therefore, statements I and III are correct.

The Shanghai-Hong Kong Stock Connect program has specific eligibility criteria for securities traded through its Northbound channel. The scope is primarily focused on specific A-shares and certain Exchange Traded Funds (ETFs).

Statement I is correct. B shares, which are denominated in foreign currencies (like USD or HKD) and are listed on Mainland exchanges for foreign investors, are a separate class of security and are not eligible for trading via Stock Connect.
Statement II is correct. To protect investors, securities that have been placed under a ‘risk alert’ by the Shanghai Stock Exchange (SSE), such as shares of ‘ST’ (Special Treatment) companies which are facing financial distress or delisting risks, are excluded from Northbound trading.
Statement III is correct. The Stock Connect scheme is designed for equity trading. Other types of listed securities, such as corporate or government bonds, are not included in the scope of eligible securities.
Statement IV is incorrect. A-shares that are constituent stocks of major indices like the SSE 180 Index and the SSE 380 Index are generally eligible for Northbound trading, provided they meet other criteria and are not subject to exclusion. Therefore, statements I, II and III are correct.

The SFC’s Guidance Note on Cooperation with the SFC outlines key principles for individuals and corporations to follow when cooperating in investigations to potentially receive a reduced sanction. Statement I is correct because prompt and proactive self-reporting of misconduct is a primary indicator of genuine cooperation. Statement III is also correct as taking immediate and effective remedial action to rectify failures and prevent recurrence is a crucial factor the SFC considers. Statement IV is correct because accepting responsibility and agreeing on the factual basis and liability for the misconduct is fundamental to the cooperation process, facilitating an early and efficient resolution. Statement II is incorrect; cooperation must be unconditional. The SFC does not provide guarantees on the outcome, and any reduction in sanctions is at the SFC’s discretion based on the extent and value of the cooperation. Making cooperation conditional on a specific outcome, such as a waiver of penalties, is contrary to the principles of the guidance note. Therefore, statements I, III and IV are correct.

The correct answer is that the HKCC can initiate an intra-day mark-to-market calculation and call for immediate settlement of variation adjustments. The HKFE’s mark-to-market system is designed to prevent losses from accumulating. While this is typically done at the end of each T Session, the rules grant the HKCC the authority to perform additional, intra-day calculations during periods of extreme price volatility. This allows the clearing house to manage heightened counterparty risk swiftly by ensuring that losses are covered immediately, rather than waiting for the end-of-day settlement cycle. Waiting until the close of the T Session is the standard procedure but is inadequate for managing the acute risk presented by severe intra-day price movements. Requesting the HKFE to halt trading is an action related to market operation, not the specific financial risk management function of the clearing house in this context. Mandating a reduction in positions is an extreme measure not typically employed; the intra-day call is the primary tool to ensure existing positions remain fully collateralised.

This question tests the understanding of a licensed corporation’s obligations regarding employee dealings and complaint handling under the SFC Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

Statement I is correct. Paragraph 12.2 of the Code of Conduct explicitly states that a licensed or registered person should not knowingly deal for an employee of another licensed or registered person without the prior written consent of that employee’s principal (employer).

Statement II is correct. Paragraph 12.2 also requires that when an employee is permitted to deal through another licensed person, arrangements must be made for duplicate trade confirmations and account statements to be provided to the senior management of the employee’s firm. This facilitates proper monitoring.

Statement III is correct. According to paragraph 12.3 on complaints, if the subject matter of a complaint raises issues of broader concern that may affect other clients, the licensed person must investigate and remedy the matter for all potentially affected clients, even if those other clients have not filed a complaint themselves.

Statement IV is incorrect. The scope of monitoring by the employer’s senior management is not limited to preventing front-running of the firm’s proprietary trades. Paragraph 12.2 requires senior management to actively monitor employee accounts to ensure there are no irregularities and, crucially, that the transactions are not prejudicial to the interests of the firm’s clients. Therefore, statements I, II and III are correct.

Statement I is correct. CCASS Clearing Participants receive Provisional Clearing Statements on the trade day (T) after market close (around 5:00 pm and 8:00 pm) to reconcile with their own trading records. Statement II is also correct. Through the legal process of novation, HKSCC steps in as the central counterparty to all CCASS Clearing Participants, guaranteeing the settlement of trades and assuming the counterparty risk. Statement III is incorrect. CCASS operates on a Continuous Net Settlement (CNS) system, not a gross or trade-for-trade basis. The CNS system offsets a participant’s buy and sell transactions in the same security on the same day, resulting in a single net stock position to be settled. Statement IV is incorrect. Trade data from trades executed on the SEHK is automatically relayed to CCASS. There is no requirement for CCASS Clearing Participants to manually input or re-confirm these trade details. Therefore, statements I and II are correct.