This question tests the understanding of the hierarchy and legal enforceability of different regulations governing Hong Kong’s financial markets. Statement I is correct; the Securities and Futures Ordinance (SFO) is primary legislation passed by the Legislative Council and carries the full force of law, enforceable through the courts. Statement III is also correct; under section 397 of the SFO, the SFC is empowered to make rules which are considered subsidiary legislation and are legally binding. Statement IV is correct; the Code on Corporate Governance Practices, contained in Appendix 14 of the Main Board Listing Rules, is not legally binding in the same way as an ordinance. It operates on a ‘comply or explain’ basis, where issuers are expected to comply with its provisions but may deviate if they provide a considered explanation. Statement II is incorrect; the Listing Rules are not subsidiary legislation and do not have the force of law. They represent a contractual agreement between the Stock Exchange of Hong Kong and the listed issuer, and breaches are handled through disciplinary actions by the Exchange rather than through the courts. Therefore, statements I, III and IV are correct.

The correct answer is that Mr. Chan has engaged in insider dealing by counselling or procuring another person to deal. Under section 270 of the Securities and Futures Ordinance (SFO), insider dealing occurs when a person connected with a listed corporation, who has information they know is relevant (i.e., non-public and price-sensitive), either deals in the corporation’s securities or counsels or procures another person to do so. In this scenario, Mr. Chan, as a director, is a ‘connected person’. The information about the government contract is ‘relevant information’. By advising his brother to buy shares based on this non-public information, he is counselling another person to deal, which is a specific form of insider dealing. Stock market manipulation involves transactions intended to interfere with the supply or demand for securities, which is not what occurred. False trading involves creating a misleading appearance of active trading in securities, which is also not applicable here. Disclosure of false or misleading information inducing transactions is incorrect because the information Mr. Chan possessed about the contract was true, not false or misleading.

The correct answer is that the Exchange may permit a non-underwritten rights issue if the only available underwriting offers include force majeure clauses that the directors find unacceptable. According to the Listing Rules, rights issues must normally be fully underwritten to provide certainty of funding for the issuer. However, the Exchange may grant an exception in specific circumstances. One such circumstance is when underwriting can only be obtained subject to a force majeure clause or other similar terms that are unacceptable to the directors, as this could undermine the certainty the underwriting is meant to provide. A verbal guarantee from a controlling shareholder is not a substitute for a formal underwriting agreement and could raise concerns about the potential for the controlling shareholder to increase their stake at the expense of minority shareholders who do not subscribe. A general belief that underwriting fees are too high is not a sufficient reason; the issuer must demonstrate that the additional costs are not justified for the specific intended use of the proceeds. Finally, preliminary interest from institutional investors, while encouraging, does not provide the same level of certainty as a formal underwriting commitment and is therefore not an accepted reason to waive the requirement.

This question assesses the understanding of frustrating actions under Rule 4 of the Hong Kong Code on Takeovers and Mergers. When a board of a target company has reason to believe that a bona fide offer may be imminent, it is prohibited from taking any action that could frustrate the offer without the approval of shareholders at a general meeting. Issuing new shares, even under a pre-existing general mandate granted under the Listing Rules, is a classic example of a frustrating action because it can alter the company’s shareholding structure and dilute the stake of a potential offeror. The underlying principle is to ensure that the decision on the merits of a takeover offer rests with the shareholders, not the management. Therefore, proposing to issue shares to a friendly party to defend against a potential bid would require independent shareholder approval (Statement I). The rationale for this rule is precisely to empower shareholders to decide on the offer’s merits (Statement II). Statement III is incorrect because the provisions of the Takeovers Code override the general permissions of the Listing Rules in this specific circumstance. Statement IV is incorrect because the restrictions apply once the board has reason to believe an offer is ‘imminent,’ which is a lower threshold than a formal announcement of a firm intention to make an offer. Therefore, statements I and II are correct.

According to the Main Board Listing Rules (specifically Rule 3.21), a listed issuer must establish an audit committee. Statement II is correct as the rules mandate that the audit committee must be chaired by an independent non-executive director (INED). Statement III is also correct, as the rules require that at least one member of the audit committee must be an INED with appropriate professional qualifications or accounting or related financial management expertise. Statement I is incorrect because while the committee must have a minimum of three members, only a majority must be INEDs; all members must be non-executive directors, but not necessarily all independent. Statement IV is incorrect because the audit committee must be composed solely of non-executive directors. The company’s qualified accountant is a full-time employee (an executive function) and therefore cannot be a member of the audit committee. Therefore, statements II and III are correct.

The correct answer is that the company must obtain prior approval from its independent shareholders in a general meeting. According to the GEM Listing Rules (specifically Rule 17.25), an issuer is prohibited from implementing any fundamental change to its principal business activities during the financial year of its listing and the two subsequent financial years. The scenario describes such a fundamental change occurring within this restricted period (18 months after listing). The rules provide an exception, allowing the change to proceed only if it is approved beforehand by the company’s independent shareholders at a general meeting. This requirement is designed to protect minority shareholders from significant strategic shifts that deviate from the business plan presented at the time of the IPO. While consulting with a compliance adviser is necessary for regulatory announcements and securing pre-approval from the Stock Exchange may be required for certain transactions, the specific and primary requirement for a fundamental business change in this context is the vote of independent shareholders. A board resolution is an internal procedural step but is insufficient on its own to satisfy this external listing rule requirement.

The correct answer is that while the new service is outside the specific scope of the Code of Conduct for Corporate Finance Advisers, the firm’s overall fitness and properness, a core principle, requires it to have adequate controls for this new business. The Code of Conduct for Corporate Finance Advisers (CFCF) specifically defines ‘advising on corporate finance’ as giving advice concerning compliance with rules like the Listing Rules or Takeovers Code, public offers, or corporate restructuring for listed companies. Providing general market commentary to the public does not fall under this narrow definition. Therefore, the specific conduct requirements of the CFCF do not directly apply to this new activity. However, a fundamental underlying principle for all licensed corporations, reinforced in the CFCF, is the requirement to be ‘fit and proper’. This means the firm must organize and control its entire business in a prudent and responsible manner, which includes maintaining satisfactory operational controls and risk management procedures for any new business line it undertakes. Launching a new service without the appropriate systems would call into question the firm’s overall fitness and properness. Stating that the CFCF directly governs the new service is incorrect because the activity itself is not ‘advising on corporate finance’. Claiming the firm is exempt from regulatory scrutiny for this service is also incorrect, as the overarching ‘fit and proper’ requirement applies to the firm as a whole. Finally, suggesting that the firm can launch the service without any impact on its regulatory status is misleading, as a failure to implement proper controls for the new business could breach its fundamental duty to remain fit and proper.

This question assesses understanding of key compliance and corporate governance obligations for a company listed on the GEM of the Hong Kong Stock Exchange, particularly within the initial years following its listing.

Statement I is correct. According to GEM Listing Rule 17.25, an issuer is prohibited from implementing any fundamental change to its principal business activities during the financial year of its listing and the two subsequent financial years, unless it obtains prior approval from its independent shareholders in a general meeting. As Innovate Robotics Ltd was listed 18 months ago, it is still within this restricted period. Shifting from industrial robotics to consumer AI is a clear fundamental change, thus requiring independent shareholder approval.

Statement II is correct. Under GEM Listing Rule 6A.23, a newly listed issuer must consult its compliance adviser before publishing any regulatory announcement, circular, or financial report. A major strategic shift would certainly require a regulatory announcement, making prior consultation with the compliance adviser a mandatory step.

Statement III is incorrect. The Listing Rules require a listed issuer to have a minimum of three Independent Non-Executive Directors (INEDs). If one has resigned, the company is in breach of this requirement and must appoint a new INED to fill the vacancy within three months. Making a significant strategic decision while not in compliance with the board composition rules would be improper corporate governance.

Statement IV is incorrect. The obligation to consult the compliance adviser under GEM Rule 6A.23 is proactive and mandatory for the issuer before the publication of relevant documents. It is not a reactive measure to be taken only upon inquiry from the Stock Exchange. The purpose is to ensure compliance before information is released to the market. Therefore, statements I and II are correct.

Statement I is correct. According to Chapter 20 of the Hong Kong Listing Rules, a collective investment scheme such as a mutual fund that has been authorized by the Securities and Futures Commission (SFC) is the type of vehicle considered for listing under this chapter. Statement II is also correct. The Listing Rules provide a pathway for investment vehicles that are not authorized by the SFC to be listed. Chapter 21 specifically governs the listing of ‘investment companies’, which is the appropriate category for such unauthorized schemes. Statement III is correct. The rules specify a clear timetable for applications under Chapter 20. The application along with proof documents must be submitted to the Exchange at least 15 clear business days prior to the date of bulk printing of the listing document. Statement IV is incorrect. While SFC authorization is a prerequisite for a listing under Chapter 20, it does not automatically guarantee that the Exchange will grant the listing. The applicant must still independently satisfy all the relevant requirements set out in the Listing Rules. Therefore, statements I, II and III are correct.

This question assesses understanding of the disciplinary review and appeal process under the Hong Kong Listing Rules. Statement I is correct; a party subject to a decision has seven days to request a review. If they first request written reasons for the decision, this seven-day period begins from the date they receive those reasons, as stipulated in the Listing Rules (specifically, Rule 2B.06(1)). Statement II is also correct. The principle of natural justice is fundamental to the Exchange’s disciplinary proceedings. This ensures fairness by allowing the affected party (the adviser) the right to attend hearings, present their case (‘make submissions’), and be heard by the relevant committee, whether it is the Listing Committee or the Listing Appeals Committee. Statement III is incorrect because while the adviser has the right to be accompanied by professional advisers (such as lawyers), there is no rule preventing these advisers from making submissions on the firm’s behalf; in fact, this is a common practice. Statement IV is incorrect because a decision by the Listing Committee is not necessarily final. The adviser has a further right to have the matter referred to the Listing Appeals Committee for a final review. Therefore, statements I and II are correct.

The correct answer is a detailed description of its proposed investment strategies, target client base, and the specific types of assets it intends to manage. According to the SFC’s licensing requirements, an applicant for a corporate license must submit a business plan that clearly outlines its proposed business activities. The SFC places significant emphasis on the applicant having a ‘focused line of business’. This means the proposed activities must be specific, well-defined, and directly related to the regulated activity for which the license is sought. Describing the investment strategy, target clients, and asset classes directly addresses this by defining the core asset management activities, demonstrating expertise and a clear business purpose. The other options are less critical for this specific requirement. While a five-year financial projection is part of a business plan, one showing ‘aggressive’ growth might raise concerns about sustainability and risk management rather than demonstrating focus. The SFC is more interested in realistic and viable plans. A list of third-party service providers is an operational detail that supports the business but does not define its core objectives or focus. A statement about future expansion into unrelated regulated activities directly contradicts the principle of a ‘focused line of business’ for the current application, suggesting a lack of commitment or clarity regarding the Type 9 activities.

The correct answer is that a statutory defence may be available if the transaction was conducted in good faith while performing functions as a receiver and not for the purpose of profiting from the inside information. The Securities and Futures Ordinance (SFO) provides specific defences against allegations of insider dealing. One such defence is for individuals acting in the capacity of a liquidator, receiver, or trustee in bankruptcy. To rely on this defence, the person must demonstrate that they came into possession of the relevant information solely due to their official capacity, that the dealing was conducted in good faith as part of their duties, and, crucially, that the purpose of the transaction was not to make a profit or avoid a loss by using that inside information. In this scenario, Mr. Lau’s purpose for selling the shares is to satisfy creditor claims, a core duty of a receiver, not to exploit the confidential information about the patent acquisition. The other options are incorrect. Stating that he has committed insider dealing regardless of his role or intentions ignores the existence of statutory defences under the SFO. The ‘Chinese Wall’ defence is not relevant in this context; it applies to corporations that segregate information flow between departments, not to an individual acting in a specific legal capacity. Finally, misinterpreting the act of raising funds as being equivalent to the ‘purpose of making a profit’ is a misunderstanding of the law. The ‘purpose’ test relates to the intention to exploit the inside information, not the general financial outcome of a transaction performed as part of a statutory duty.

This question assesses the candidate’s understanding of the specific financial eligibility tests for listing on the Main Board and GEM of the Stock Exchange of Hong Kong (SEHK), as well as other key differentiating rules.

Statement I is incorrect. According to the Main Board Listing Rules (Rule 8.05(3)), for an applicant to qualify under the market capitalisation/revenue test, it must have a market capitalisation of at least HK$4 billion at the time of listing AND revenue of at least HK$500 million for the most recent audited financial year. While Innovate Robotics meets the market capitalisation requirement (HK$4.2 billion), it fails the revenue requirement (HK$480 million is less than HK$500 million).

Statement II is incorrect. The financial eligibility tests under Listing Rule 8.05 are fundamental requirements. The Exchange does not typically grant waivers for failing to meet one of the quantitative thresholds of a specific test, even if another threshold within the same test is exceeded. The waiver powers are reserved for more exceptional circumstances and are not for routine shortfalls.

Statement III is correct. The GEM Listing Rules (Rule 11.12A) require an applicant to have a market capitalisation of at least HK$150 million at the time of listing. With a projected market capitalisation of HK$4.2 billion, the company far exceeds this minimum requirement for a GEM listing.

Statement IV is incorrect. This statement misrepresents the rule. According to GEM Listing Rule 11.03, a new applicant will not be rendered unsuitable for listing on the grounds that any director or shareholder has an interest in a business which competes or may compete with the applicant’s business. This is a key distinction from the Main Board’s approach to competing interests. Therefore, statement III is correct.

Statement I is correct. An off-market share repurchase, which involves a transaction with a specific, identified party rather than through the open market, requires prior approval from the SFC Executive under Rule 2 of the Code on Share Buy-backs.

Statement II is also correct. The SFC Executive’s approval for an off-market repurchase is typically conditional upon the transaction being approved by a supermajority of independent shareholders. Specifically, Rule 2 of the Code on Share Buy-backs states this is normally conditional on approval by shareholders holding at least 75% of the voting rights at a general meeting, with the repurchasing company and its concert parties abstaining.

Statement III is incorrect. This transaction is a classic example of an off-market repurchase, not an exempt one. Exempt share repurchases fall into specific, narrow categories such as those related to employee share schemes, fulfilling the terms of the shares themselves, or as required by law. A negotiated buy-back from a major shareholder does not fall under these exemptions.

Statement IV is correct. A significant share repurchase reduces the total number of shares in issue. This can increase the percentage holding of the remaining substantial shareholders. According to Rule 32 of the Takeovers Code, if this increase causes a shareholder or a group of concert parties to cross the 30% voting rights threshold (or to increase their holding if they are already between 30% and 50%), it may trigger an obligation to make a mandatory general offer to all other shareholders. Therefore, statements I, II and IV are correct.

Under Rule 4 of the Hong Kong Code on Takeovers and Mergers, once a board of an offeree company has reason to believe that a bona fide offer is imminent, it must not take any action which could effectively result in the offer being frustrated or in the shareholders being denied an opportunity to decide on its merits, without the approval of shareholders at a general meeting. Such actions are known as ‘frustrating actions’.

Statement I: The disposal of a significant asset, particularly a core subsidiary, fundamentally alters the nature of the company that the offeror is attempting to acquire. This is a classic example of a frustrating action as it could deter the offeror.

Statement II: Entering into a substantial new service contract with the CEO that includes a ‘golden parachute’ is not considered to be in the ordinary course of business. Such a contract is designed to impose a significant financial burden on the acquirer upon a change of control, thereby frustrating the offer.

Statement III: The payment of a dividend that was previously announced and is consistent with the company’s established dividend policy is generally considered an action in the ordinary course of business and is not typically deemed a frustrating action.

Statement IV: The issuance of new shares, especially to a friendly party (a ‘white squire’ defence), dilutes the shareholding and can make it more difficult and expensive for the offeror to gain control. This is a prohibited frustrating action unless approved by shareholders. Therefore, statements I, II and IV are correct.

The correct course of action is for the stabilizing manager to gradually sell the acquired shares in the market. Under the Securities and Futures (Price Stabilizing) Rules, actions are divided into ‘core’ and ‘ancillary’ stabilizing actions. Core actions, such as placing bids to support the price, are only permitted during the defined stabilizing period, which is typically 30 days from the prospectus date. Once this period ends, core actions must cease. However, the liquidation of a ‘net long’ position (the shares acquired during stabilization) is classified as a permitted ancillary stabilizing action. These ancillary actions do not have a strict time limit and can be carried out after the stabilizing period concludes, as soon as market conditions are deemed suitable. Continuing to place bids would be a violation, as that is a core action restricted to the stabilizing period. There is no provision to transfer the shares to the issuer in this manner, as liquidation occurs through market sales. Finally, imposing a mandatory holding period of six months is incorrect; the rules expect the position to be unwound as soon as practicable after the stabilizing period.

This question tests the specific requirements for the constitutional documents of a Bermuda-incorporated issuer listing in Hong Kong, as stipulated in Appendix 13 of the Main Board Listing Rules. Statement I is incorrect; an amendment to the memorandum and articles of association requires a special resolution passed by members holding at least three-fourths (75%) of the voting rights of those present and voting, not a simple majority. Statement II is correct; the bye-laws must stipulate that the threshold for sanctioning a variation of class rights is 75% of the holders of that class of shares. Statement III is correct; the notice period for a general meeting where a special resolution is proposed must be at least 21 days. Statement IV is also correct; payments made to directors must be approved by shareholders in a general meeting. Therefore, statements II, III and IV are correct.

This question assesses the understanding of the specific listing framework for PRC issuers on the Stock Exchange of Hong Kong. Statement I is correct; Chapter 19A of the Listing Rules was specifically introduced to govern the listing of PRC-incorporated enterprises, clarifying that the main body of the Listing Rules applies to them, subject to certain additional requirements and modifications to accommodate the PRC legal and regulatory system. Statement II is also correct; the term ‘H shares’ refers to the foreign-listed shares of a company incorporated in the PRC that are traded on the Hong Kong Stock Exchange. Statement III is incorrect. A key reason for the success of Hong Kong as a listing venue for PRC companies was the Exchange’s insistence that they meet international standards of accounting, disclosure, and corporate governance to attract international investors, not that they would be exempt from them. Statement IV is correct. Similar to other overseas issuers under Chapter 19, PRC issuers under Chapter 19A are required to appoint and maintain a person authorized to accept service of process and notices on their behalf in Hong Kong (Rule 19A.13(2)), ensuring there is a legal point of contact within the jurisdiction. Therefore, statements I, II and IV are correct.

According to the Codes on Takeovers and Mergers and Share Buy-backs, a financial adviser has an obligation to use all reasonable efforts to ensure that its client’s submission is true, accurate, and complete. The adviser’s responsibility is not discharged simply by filing the document as authorized. Therefore, statement I is incorrect. If a party disagrees with a ruling from the Executive, they have the right to ask for the matter to be reviewed by the Takeovers Panel. This is the primary mechanism for appeal. Therefore, statement II is correct. The Executive also has the discretion to refer a matter directly to the Panel for a ruling, without issuing one itself, especially when the issue is particularly novel, important, or difficult. Therefore, statement III is correct. There is no requirement for the offeror to withdraw the offer to contest a ruling; the appeal to the Panel is the prescribed next step. Therefore, statements II and III are correct.

This question tests the understanding of key requirements for share option schemes under Chapter 17 of the Hong Kong Listing Rules.

Statement I is a breach. According to Listing Rule 17.05, a listed issuer cannot grant options after a price-sensitive event has occurred or a price-sensitive matter has been decided, until such information has been publicly announced. Granting options after approving a major joint venture but before its announcement is a clear violation.

Statement II is a breach. Listing Rule 17.03(4) stipulates that if a grant of options to a participant would result in the total value of securities issued or to be issued to that person under all schemes in any 12-month period exceeding HK$5 million, such further grant must be separately approved by the issuer’s shareholders. Relying solely on committee approval for a HK$6 million grant is non-compliant.

Statement III is a breach. Listing Rule 17.03(9) requires the exercise price to be at least the higher of: (i) the closing price of the shares on the date of grant; and (ii) the average closing price of the shares for the five business days immediately preceding the date of grant. Setting the price at the 5-day average when the grant-day price is higher would not meet this ‘higher of’ requirement.

Statement IV describes a compliant action, not a breach. Listing Rule 14A.95 provides a specific exemption from the connected transaction rules (shareholder approval, announcement, etc.) for the issue of securities (including options) to a connected person under a share scheme that complies with Chapter 17. Therefore, statements I, II and III are correct.

Statement I is correct. Appendix 13 of the Listing Rules requires that the articles of association for an issuer incorporated in the Cayman Islands must provide for an annual general meeting to be held each year. This ensures a minimum level of shareholder engagement and corporate governance.

Statement II is correct. As Cayman Pharma Ltd. is a company incorporated overseas, its prospectus for a public offering in Hong Kong must be registered with the Registrar of Companies under section 342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), which governs prospectuses of non-Hong Kong companies. Hong Kong incorporated companies register under section 38D of the Companies Ordinance (Cap. 622).

Statement III is incorrect. The Listing Rules specifically require that the articles of a Cayman Islands issuer must contain provisions restricting the making of loans to directors that are at least equivalent to the corresponding provisions in Hong Kong company law. An absolute prohibition is not required, but unrestricted lending is not permitted.

Statement IV is incorrect. While the Securities and Futures Ordinance provides safe harbours where certain offers to professional investors are not considered ‘offers to the public’ and thus do not require a prospectus, this does not apply to a public listing (IPO). For an IPO, a prospectus is mandatory and must be registered. The SFC’s power to grant exemptions relates to specific, unduly burdensome disclosure requirements within the prospectus (under the Third Schedule of the CWUMPO), not an exemption from the entire registration requirement itself. Therefore, statements I and II are correct.

This question assesses the specific and heightened responsibilities of sponsors and compliance advisers for PRC issuers under the Hong Kong Listing Rules.

Statement I is correct. Rule 19A.06 increases the sponsor’s role for a PRC issuer. The sponsor must satisfy itself that the directors and supervisors understand their responsibilities. As the provided text notes, this training often needs to extend beyond senior management to key personnel like middle management in the accounts department, who are critical for preparing financial statements in accordance with the Listing Rules.

Statement II is incorrect. The Listing Rules, as modified for PRC issuers under Rule 3A.26, explicitly state that a PRC issuer must not terminate the appointment of its compliance adviser until a replacement has been appointed. There is no grace period; the transition must be seamless to ensure continuous compliance support.

Statement III is correct. According to the modified Rule 3A.27, upon termination or resignation, both the PRC issuer and the outgoing compliance adviser are required to immediately notify the Exchange, and this notification must include the reasons for the change.

Statement IV is correct. Rule 6.11A outlines the ongoing duties of a compliance adviser for a PRC issuer. This includes proactively informing the issuer on a timely basis of any amendments to the Listing Rules and any new or amended laws or regulations in Hong Kong that are applicable to the issuer. Therefore, statements I, III and IV are correct.

Under Parts XIII and XIV of the Securities and Futures Ordinance (SFO), insider dealing occurs when a person connected with a corporation, who has information they know is relevant (price-sensitive) and not generally known, deals in the corporation’s securities or derivatives, or counsels/procures another person to do so. Statement I is a classic case of insider dealing, where the banker uses non-public information about the takeover to deal in the target (offeree) company’s shares for personal gain. Statement II constitutes ‘tipping’ or counselling, as the banker discloses relevant information to a third party, knowing they are likely to deal based on it. Statement IV is also a form of counselling or procuring, where the banker uses inside information about the offeror’s bid to advise his wife to sell the offeror’s shares to avoid a potential loss. Statement III, however, is unlikely to be considered insider dealing. The action is taken after the takeover is publicly announced, meaning the core information is no longer inside information. Furthermore, the dealing is in the shares of a competitor, not the offeror or offeree. While the banker’s analysis is informed by his expertise, the dealing is based on an assessment of the market’s reaction to public news, not on non-public, price-sensitive information about that competitor itself. Therefore, statements I, II and IV are correct.

Statement I is correct. According to Rule 2 of the Code on Share Buy-backs (the ‘Share Repurchase Code’), an off-market share repurchase must be approved by the Executive (the SFC’s Corporate Finance Division) before it is made. The Executive’s approval will normally be conditional upon the repurchase being approved by a vote of at least 75% of the voting rights of disinterested shareholders (referred to as independent shareholders in the question) present and voting at a general meeting. Statement II is correct. A core principle of a general offer is equitable treatment. A share repurchase by way of a general offer must be made on the same terms to all shareholders of the class of shares to which the offer relates. Statement III is correct. Rule 32 of the Code on Takeovers and Mergers explicitly states that a share repurchase by a company can result in a shareholder (or a group of shareholders acting in concert) acquiring or consolidating control, thereby incurring an obligation to make a mandatory general offer. This is because a repurchase reduces the total number of shares in issue, which can passively increase the percentage holding of the remaining shareholders. Statement IV is incorrect. The approval requirements for an off-market share repurchase, specifically the need for SFC Executive and independent shareholder approval, are fundamental and are not waived based on the transaction price relative to the market price. The price is a relevant factor for consideration but does not provide an exemption from the core approval process. Therefore, statements I, II and III are correct.

According to the Code of Conduct for Corporate Finance Advisers, the SFC assesses an adviser’s fitness and properness based on several key principles. Statement I is correct because maintaining satisfactory risk management procedures and financial/operational controls is a fundamental requirement for an adviser to demonstrate it can conduct its business in a prudent and responsible manner. Statement II is correct as the Code explicitly requires an adviser to ensure that its directors and representatives are themselves fit and proper and appropriately registered or licensed. Statement IV is correct because a core function of a corporate finance adviser is to provide advice concerning compliance with regulations like the Takeovers Code and Listing Rules; having established procedures for this demonstrates competence and a commitment to regulatory adherence. Statement III is incorrect because while profitability is a business goal, stating that maximizing deal fees is the ‘primary objective’ can conflict with the overarching duty to act prudently, responsibly, and in the best interests of clients. The SFC would view a firm’s culture and its ability to manage conflicts of interest as paramount, and an overemphasis on fees could be seen as a negative indicator. Therefore, statements I, II and IV are correct.

The explanation is that under the Code of Conduct for Corporate Finance Advisers, a sponsor has a fundamental duty to the market that goes beyond its duty to the client. The sponsor acts as a primary gatekeeper to ensure the quality of companies seeking to list. This requires the sponsor to conduct all reasonable due diligence and to exercise independent professional judgment. When faced with information that appears potentially misleading, such as overly optimistic and unsubstantiated financial projections, the sponsor’s primary responsibility is to challenge the client’s management, verify the assumptions, and ensure that any information included in the listing document is accurate, complete, and not misleading. The correct answer is that the adviser must independently verify the projections and ensure the prospectus is not misleading. Simply adding a generic risk warning while knowingly including questionable figures does not fulfill the sponsor’s due diligence obligations. Resigning immediately is a possible outcome if the issue cannot be resolved, but it is not the initial primary duty; the duty is to first attempt to rectify the information. Reporting the client to the SFC is an extreme step and not the first course of action; the sponsor should first address the concerns directly with the listing applicant.

The correct answer is that the SEHK has the power to cancel the listing of the company’s securities. Under the Main Board Listing Rules, the SEHK may at any time suspend or cancel the listing of any securities if it believes it is necessary to maintain an orderly and fair market, or if the issuer fails to comply with the Listing Rules. A prolonged failure to maintain the minimum public float is a fundamental breach that can render a company unsuitable for continued listing, leading the SEHK to exercise its power of cancellation. The other options describe actions that are outside the SEHK’s primary powers in this specific context. The SEHK does not have the authority to order the compulsory winding up of a company; that is a legal process handled by the courts under the Companies (Winding Up and Miscellaneous Provisions) Ordinance. While the SEHK can take disciplinary action against directors, such as imposing a ban, this is a separate proceeding and not the primary action taken against the company’s listing status itself. Finally, while the SEHK can require a company to take remedial action to restore its public float, it cannot compel the company to issue new shares; its ultimate enforcement power for non-compliance is to delist the securities.

The correct answer is that a board of supervisors is a mandatory body. The Company Law of the People’s Republic of China (PRC) mandates a two-tier governance structure for joint stock limited companies. This structure consists of a board of directors, responsible for management and operations, and a separate board of supervisors. The board of supervisors is an oversight body responsible for monitoring the company’s financial affairs, supervising the conduct of directors and senior management to prevent misconduct, and protecting the interests of shareholders. This is a key feature that distinguishes the corporate governance framework of PRC-incorporated companies from those in common law jurisdictions like Hong Kong, which typically operate with a single-tier board structure. A nomination committee composed exclusively of independent non-executive directors is a requirement under the Hong Kong Listing Rules for listed issuers, not a mandatory body under the PRC Company Law for all joint stock companies. Similarly, a risk management committee is considered a best practice for corporate governance and internal control but is not a statutorily mandated body under the PRC Company Law. The concept of a single corporate representative director who holds ultimate legal liability misinterprets the role of the ‘legal representative’ (法定代表人) in the PRC, who is an individual designated to represent the company but is not a formal governing body or committee.

A Responsible Officer (RO) has ultimate responsibility for the management and supervision of the licensed corporation’s regulated activities. Statement I is correct as ROs must ensure robust internal controls are in place for client onboarding, which includes the review and approval of accounts, particularly those classified as high-risk, to comply with anti-money laundering and suitability obligations under the Code of Conduct. Statement II is correct because a key supervisory function, as outlined in the Internal Control Guidelines for Persons Licensed by or Registered with the SFC, is the active monitoring of staff’s trading activities to detect and prevent potential misconduct such as unauthorized trading or excessive dealing. Statement IV is also correct; senior management, including ROs, are responsible for ensuring that licensed representatives remain fit and proper, which involves providing adequate training and ensuring compliance with Continuous Professional Training (CPT) requirements. Statement III, however, describes an action that is operationally impractical and not a specific regulatory requirement. While an RO must ensure a proper system for reviewing investment recommendations exists, they are not expected to personally approve every single recommendation made by all representatives. The focus is on the adequacy of the supervisory system and procedures, not on micromanaging every transaction. Therefore, statements I, II and IV are correct.

The correct answer is that the shares listed in Hong Kong will be designated as ‘H’ shares, and the company must comply with the additional requirements in Chapter 19A of the Listing Rules. Shares of a PRC-incorporated company that are listed and traded on the Stock Exchange of Hong Kong are specifically known as ‘H’ shares. Due to the different legal and regulatory systems in the PRC, these issuers are subject to a specific regime outlined in Chapter 19A and Appendix 13 of the Listing Rules, which supplements the general listing requirements. It is incorrect to suggest that existing ‘A’ shares can be directly listed in Hong Kong; ‘A’ shares are denominated in Renminbi and are restricted to trading on mainland exchanges. The assertion that the shares would be ‘B’ shares is also inaccurate; while ‘B’ shares are traded in foreign currencies, this designation applies to shares traded on the Shanghai or Shenzhen exchanges, not the Hong Kong exchange. Finally, PRC issuers are not exempt from the main body of the Listing Rules. They must comply with both the general rules applicable to all issuers and the additional specific requirements designed to bridge the differences between the two jurisdictions, ensuring a consistent level of investor protection.