The correct answer is that the IFA must take all reasonable steps to satisfy itself that there is no reason to believe the information relied upon from the expert is untrue or omits a material fact. Under the Hong Kong Listing Rules (e.g., MBLR 13.84), an IFA has a specific duty of due diligence. This includes critically assessing information provided by third parties, such as expert reports, that will form the basis of the IFA’s own opinion. Simply accepting an expert’s report without challenge, especially when there are clear red flags like exceptionally optimistic assumptions, would be a failure to discharge its responsibilities with due care and skill. The duty of impartiality requires the IFA to form an objective view, not to passively accept questionable information. While an IFA must cooperate with SEHK investigations, its primary obligation upon identifying a potential issue is to conduct its own due diligence, not to immediately report internal concerns to the Listing Committee before proper verification. Reaffirming independence by filing a declaration is a standard requirement but does not resolve the specific problem of a potentially flawed valuation report.

The Securities and Futures Commission (SFC) is structured into several operational divisions, each with distinct responsibilities. The question asks to identify the functions of the division primarily responsible for formulating policies concerning the regulation of asset management, which is the Investment Products Division.

Statement I is correct. The Investment Products Division is responsible for authorising and regulating collective investment schemes (CIS), such as mutual funds and unit trusts, and vetting their marketing materials before they can be offered to the public in Hong Kong.

Statement II is incorrect. The ongoing supervision of licensed corporations’ business conduct and financial soundness is a primary responsibility of the Intermediaries Division, not the Investment Products Division.

Statement III is incorrect. Formulating policies related to market infrastructure, such as Stock Connect and Bond Connect, falls under the purview of the Supervision of Markets Division.

Statement IV is correct. The Investment Products Division develops and implements regulatory policies for publicly offered investment products. This includes setting standards for new product types and addressing emerging trends, such as the disclosure and labelling requirements for Environmental, Social, and Governance (ESG) funds. Therefore, statements I and IV are correct.

Under Part XV of the Securities and Futures Ordinance (SFO), an individual has a duty to disclose their interests in the voting shares of a Hong Kong listed corporation. The initial disclosure threshold is triggered when a person’s interest first reaches 5% or more. Once this threshold is crossed, the person must notify both the listed corporation and The Stock Exchange of Hong Kong Limited (SEHK). This notification must be made within 3 business days of the day the person came to know of the relevant event that triggered the disclosure obligation. Therefore, the correct course of action is to notify both the listed corporation and the SEHK within 3 business days. A notification to only the listed corporation within 5 business days is incorrect because the law requires dual notification (to the company and the SEHK) and the timeframe is shorter. The requirement is not to make a public announcement via a broker within 24 hours; the process involves filing a prescribed disclosure of interest form. Finally, waiting until the interest reaches 10% is incorrect, as the initial substantial shareholding disclosure threshold is set at 5%.

The correct answer is that the platform must assess the client’s knowledge of virtual assets, including the associated risks. The Guidelines for Virtual Asset Trading Platform Operators (VATP Guidelines) place a strong emphasis on investor protection, particularly for retail clients who may not be fully aware of the unique risks associated with virtual assets. Before providing any services, a licensed VATP must take reasonable steps to ensure the client has sufficient knowledge of virtual assets. This assessment is a critical part of the client onboarding and suitability process. The platform cannot simply rely on a client’s self-declaration or past experience in other markets; it must actively evaluate their understanding. Requiring a client to have a minimum of two years’ experience trading traditional securities is incorrect because knowledge of stocks or bonds does not equate to an understanding of virtual assets, their technology, or their specific risks. Mandating that all retail clients must first qualify as Professional Investors would severely and unnecessarily restrict market access, which is not the SFC’s intention; the regime is designed to allow retail participation with appropriate safeguards. Merely providing a standardized risk disclosure document for the client to sign, without conducting an actual knowledge assessment, is insufficient as it is a passive measure and does not fulfill the platform’s obligation to actively gauge the client’s understanding.

This question assesses the understanding of specific exemptions from the margin requirements for non-centrally cleared (NCC) over-the-counter (OTC) derivatives as stipulated by the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA).

Statement I is correct. The regulations provide a specific exemption for intragroup transactions where the entities are consolidated for accounting purposes and their risk is managed on a group-wide basis. This allows groups to manage internal hedging and risk transfer without incurring the operational and liquidity costs of margining.

Statement II is correct. This describes the principle of “substituted compliance.” A licensed person can be exempted from Hong Kong’s margin requirements if it notifies the SFC that it will comply with the margin rules of another jurisdiction for a specific counterparty relationship, provided the SFC or HKMA has deemed that jurisdiction’s regime to be comparable to Hong Kong’s.

Statement III is correct. Certain entities are explicitly excluded from the definition of a “covered entity” to which the margin rules apply. These include sovereigns, public sector entities, the Bank for International Settlements, and multilateral development banks as specified by the HKMA. As the counterparty is not a covered entity, the margin requirements do not apply to the transaction.

Statement IV is incorrect. While an exemption exists where there is reasonable doubt about the enforceability of a netting or collateral agreement, this doubt must be properly founded and, critically, supported by a written legal opinion. A compliance officer’s internal assessment or doubt, without this formal legal backing, is insufficient to claim the exemption. Therefore, statements I, II and III are correct.

The correct answer is that the firm must ensure equitable treatment among all ALP users and prevent its proprietary activities from having an unfair advantage over client orders. Paragraph 19 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission imposes specific obligations on operators of Alternative Liquidity Pools (ALPs). A core principle is the duty to operate the platform in a fair and orderly manner, which includes managing conflicts of interest between the operator’s own activities and those of its clients. Granting the firm’s proprietary desk preferential access to order flow data, even if anonymized and for a very short time, creates a significant informational advantage. This directly conflicts with the requirement to ensure that the operator’s proprietary orders do not have an unfair advantage over client orders. The integrity of the ALP relies on all participants having access to information on an equitable basis. Simply disclosing the practice in an annual report is insufficient as it does not address the underlying fairness issue. Using the profits to reduce client fees is a commercial consideration and does not rectify the regulatory breach of fair treatment. While obtaining client consent is important for transparency, it cannot override the fundamental regulatory obligation to maintain a fair trading environment and prevent inherent conflicts of interest from disadvantaging clients.

The correct answer is that the director has failed to discharge the duty to exercise reasonable care, skill, and diligence. Under the Companies Ordinance (CO), directors have a statutory duty to exercise the care, skill, and diligence that would be exercised by a reasonably diligent person with both the general knowledge, skill, and experience that may reasonably be expected of a person carrying out the functions of that director (the objective test) and the general knowledge, skill, and experience that the director actually has (the subjective test). In this scenario, making a significant investment decision based solely on an informal, unverified conversation without conducting any formal due diligence falls far below this standard. A reasonably diligent director would have sought independent verification, commissioned a due diligence report, and presented a formal analysis to the board. The other options are incorrect. The duty to avoid conflicts of interest would be breached if the director had a personal, undisclosed interest in the transaction, which is not stated in the scenario. The duty to act for a proper purpose relates to using directorial powers for the benefit of the company as a whole, not for a collateral purpose; while the investment was ill-judged, the primary failure was in the negligent process, not necessarily an improper motive. The duty to declare the nature of an interest in a proposed transaction is a specific aspect of managing conflicts of interest and is not the central issue, as no personal interest is mentioned.

Statement I is correct because a core principle of the Stock Connects is the ‘home market’ rule. This means that while orders are placed through a Hong Kong intermediary, the actual trading, clearing, and settlement of A-shares occur on the Mainland exchanges (SSE/SZSE) and are therefore subject to Mainland China’s market rules and regulations. Statement II is also correct. While general Northbound trading is open to all Hong Kong investors, access to specific boards with higher risk profiles, such as the ChiNext Board of the SZSE and the STAR Market of the SSE, is restricted to institutional professional investors only. Statement III is incorrect. The Hong Kong brokerage firm, as an SFC-licensed corporation, remains fully subject to the SFC’s regulatory oversight, including the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, for all its activities, including facilitating Stock Connect trades. The ‘home market’ principle does not absolve the Hong Kong intermediary of its local regulatory obligations. Statement IV is incorrect. According to the ‘home market’ principle, any suspension of trading in a specific A-share would be initiated by the relevant Mainland exchange (SSE or SZSE), subject to the approval of their regulator, the CSRC, not the SFC. The SFC’s approval is required for suspensions on the SEHK (Southbound). Therefore, statements I and II are correct.

This question assesses the understanding of the Securities and Futures Commission’s (SFC) extensive powers of investigation and intervention under the Securities and Futures Ordinance (SFO).

Statement I is correct. Under Part X of the SFO, the SFC has the power to issue a restriction notice to an intermediary if it deems it desirable for the protection of clients or the public interest. Such a notice can prohibit the firm from disposing of or dealing with property, including client assets, without the SFC’s consent.

Statement II is correct. The SFC’s investigation powers under Part VIII of the SFO extend to associated entities of a licensed corporation. The SFC can require an associated entity and its officers to produce records and documents, and provide explanations or further particulars in respect of them, if they are relevant to an investigation.

Statement III is incorrect. While the SFC has disciplinary powers to revoke licences under Part IX of the SFO, this is a formal disciplinary sanction. It cannot be done ‘immediately’ based solely on initial reports. The SFO requires the SFC to follow due process, which includes conducting an investigation, determining there is misconduct, and giving the individuals concerned an opportunity to be heard before a final decision is made.

Statement IV is correct. As part of its powers under Part X of the SFO, if the SFC believes it is in the public interest, it can apply to the Court of First Instance for various orders to protect property, including the appointment of an administrator to manage the property of the corporation. Therefore, statements I, II and IV are correct.

Statement I is correct. According to the SFC’s Guideline on Anti-Money Laundering and Counter-Financing of Terrorism, senior management of a licensed corporation is ultimately responsible for ensuring the firm’s compliance with all applicable AML/CFT requirements, which includes overseeing the regular review of its systems. Statement III is correct. It is a serious offence known as ‘tipping off’ under ordinances such as the Organized and Serious Crimes Ordinance (OSCO) to inform or warn a client that a suspicious transaction report has been filed against them. Statement II is incorrect. The guidelines require that new staff receive AML/CFT training as soon as possible after being appointed, not within a delayed timeframe like three months, to ensure they are immediately aware of their obligations. Statement IV is incorrect. There is no rule that grants automatic consent if the JFIU does not respond within a specific period. A licensed corporation must await consent from the JFIU before proceeding with a transaction that is the subject of a report and must not assume consent based on a lack of response. Therefore, statements I and III are correct.

This question assesses the understanding of the specific requirements for establishing and operating discretionary accounts under Paragraph 7.1 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. Statement I is correct because the client’s authority to operate a discretionary account must be given in writing. Statement II is correct as the Code explicitly requires the account to be designated as a discretionary account. Statement IV is also correct because the opening of such an account, which grants significant authority to the licensed person, must be approved by senior management as a key internal control measure. Statement III is incorrect. While the authority must be confirmed annually, the Code of Conduct permits this to be done via a notification to the client stating that the authority will be automatically renewed unless the client revokes it in writing before the expiry date. It does not mandate that a new, physically signed agreement must be executed each year. Therefore, statements I, II and IV are correct.

According to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission and the specific provisions for corporate finance advisers, firms must have robust systems to manage personal account dealings. Statement (I) is incorrect because the definition of ‘relevant persons’ is not limited to those formally on a deal team; it includes any employee or director who is likely to have access to confidential information. Statement (IV) provides the correct, broader definition. Statement (II) is correct as the code explicitly requires that all personal account dealings of relevant persons be monitored by a designated compliance officer. Statement (III) is incorrect because the code stipulates that a system including both a watch list and a restricted list should be maintained for proper monitoring; they are considered integral parts of a compliant system, not optional components. Therefore, statements II and IV are correct.

The correct answer is that for a Main Board listing involving a bookbuilding exercise, there is a ‘sponsor coupling’ requirement. This rule, as outlined in the Listing Rules, mandates that at least one of the overall coordinators must also be the independent sponsor or belong to the same group of companies as the independent sponsor. This ensures alignment and accountability between the firm responsible for due diligence (the sponsor) and the firm managing the offering and allocation (the overall coordinator). The suggestion that the overall coordinator must be a completely separate entity to prevent conflicts of interest is incorrect; the regulation specifically requires a link between the two roles in this context. The idea that the company has complete commercial freedom without any regulatory linkage between the sponsor and overall coordinator is also false for a Main Board IPO, as this describes the situation for a GEM listing, not a Main Board one. Finally, the assertion that the SEHK mandates a specific number of overall coordinators is inaccurate; the number of overall coordinators is a commercial decision for the listing applicant, provided the sponsor coupling rule is met.

According to the Fund Manager Code of Conduct, a Fund Manager has significant responsibilities when appointing and overseeing a custodian for fund assets. Statement I is correct as the Fund Manager must conduct due diligence to ensure the custodian is suitably qualified, assessing its legal and regulatory status, financial resources, and organisational capabilities. Statement II is correct because the appointment must be formalized through a custody agreement that specifies the scope of responsibility and liability. Statement III is also correct, as the Fund Manager’s duty does not end with the appointment; it must continuously monitor the custodian’s compliance with the agreement. Statement IV is incorrect because a Fund Manager cannot delegate its ultimate regulatory responsibility for the safeguarding of fund assets. While the custodian performs the custody function, the Fund Manager remains responsible for the proper selection and ongoing monitoring of the custodian. Therefore, statements I, II and III are correct.

The correct answer is that the firm must provide a written agreement in a language the client understands, in this case, Chinese, and ensure he comprehends the terms before opening the account. The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (SFC) explicitly requires that a client agreement, particularly for a high-risk product like margin trading, must be prepared in a language understood by the client. This is to ensure genuine and informed consent. Simply providing a verbal summary of an English document is insufficient, as the client must be able to read and refer to the binding written terms themselves. Asking the client to sign a waiver acknowledging he does not understand the language is a direct violation of the principle of ensuring client understanding and would not be a valid defense for the firm. While refusing to open the account is a way to avoid a compliance breach, it is not the most appropriate first step; the primary obligation is to facilitate the service compliantly, which involves providing the necessary translated documents.

Under the Securities and Futures (OTC Derivative Transactions – Reporting and Record Keeping Obligations) Rules, a licensed corporation’s reporting obligation can be triggered in several specific circumstances. Statement I is correct because a licensed corporation that enters into a specified OTC derivative transaction as a principal counterparty has a direct reporting obligation. Statement II is also correct; the rules explicitly state that a reporting obligation arises when a licensed corporation conducts a transaction ‘in Hong Kong’ on behalf of an affiliate. A parent company is considered an affiliate. Statement III is incorrect because the obligation to report for transactions conducted on behalf of others is limited to affiliates. Acting as an agent for unaffiliated clients does not trigger this specific reporting obligation for the licensed corporation itself. Statement IV is correct as losing a previously held exemption is one of the key events that subjects a licensed corporation to the reporting requirements. Therefore, statements I, II and IV are correct.

The correct answer is that the client should be made aware that GEM is designed for smaller, emerging companies, which may carry a higher investment risk and potentially experience greater price volatility and lower trading liquidity compared to Main Board stocks. The Listing Rules for GEM specifically acknowledge this higher risk profile, which is inherent in investing in growth-stage companies. Issuers on GEM are required to include appropriate risk warnings in their listing documents to ensure investors are fully informed. While GEM provides a listing venue for companies that may not yet meet the more stringent requirements of the Main Board, it is crucial for intermediaries to highlight these associated risks to clients. The other options are incorrect. The suggestion that investment in GEM-listed companies is exclusively reserved for professional investors is false; GEM is accessible to all investors, including retail clients, just like the Main Board. The statement that GEM companies are not subject to the same ongoing disclosure obligations is misleading; while the specific listing and ongoing requirements may differ from the Main Board, GEM issuers are still bound by strict rules regarding the timely disclosure of material information to maintain a fair and orderly market. Finally, the assertion that directors of GEM-listed companies operate under a different fiduciary standard is incorrect; the core principle that directors must act in the best interests of all shareholders as a whole applies to companies on both boards.

The correct answer is that licensed corporations must conduct periodic stress tests to ensure their electronic trading systems can operate effectively under high-volume and high-volatility market conditions. Schedule 7 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission places significant emphasis on the reliability, security, and capacity of electronic trading systems. This includes the requirement for regular and rigorous testing to simulate stressful market scenarios, ensuring the system’s stability and preventing disruptions. Licensed corporations must also have adequate contingency plans in place. While submitting an annual report on system uptime might be part of internal management reporting, the Code of Conduct’s focus is on proactive measures like stress testing and contingency planning, not just reactive reporting of performance metrics. Ensuring marketing materials are approved by HKEX is incorrect; marketing material approval is a compliance function governed by advertising rules, not a system integrity requirement under Schedule 7, and HKEX is not the approving body for a firm’s marketing. Implementing a user-friendly interface approved by a client focus group is a sound business and design practice to attract and retain clients, but it is not a specific regulatory requirement for system integrity and reliability mandated by the SFC.

The correct answer is that the maximum penalty is a fine of HK$1 million and imprisonment for seven years. Under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), employees or managers of a licensed corporation who knowingly cause or permit the entity to breach a specified provision commit a criminal offence. While the standard maximum penalty is a HK$1 million fine and two years’ imprisonment, this is elevated where there is an intent to defraud a relevant authority, such as the SFC. In this scenario, the manager’s deliberate action to bypass required checks to mislead the regulator constitutes such intent, triggering the higher maximum penalty of a HK$1 million fine and a seven-year term of imprisonment. The penalty of a HK$1 million fine and two years’ imprisonment is incorrect because it applies to breaches where there is no intent to defraud. The scenario explicitly describes an act of intentional deception. The suggestion that only the licensed corporation is liable is incorrect; the AMLO establishes clear personal criminal liability for managers who knowingly permit such breaches. Finally, while regulatory sanctions like a public reprimand and license suspension are potential outcomes of a disciplinary action by the SFC, they are separate from and do not represent the maximum criminal penalties stipulated under the AMLO itself.

Statement I is correct. The Securities and Futures (Short Position Reporting) Rules specify a dual threshold for a reportable short position. The obligation to report is triggered when a net short position in specified shares reaches a value of HK$30 million or 0.02% of the total number of issued shares of the corporation, whichever value is lower. Statement II is correct. Under the standard weekly reporting cycle, the reporting day is the last trading day of the week (typically Friday). The report must be submitted to the SFC within two business days after the reporting day, which would be the following Tuesday, assuming no public holidays. Statement III is correct. The Rules empower the SFC to implement a daily reporting requirement during periods of perceived market instability. If such a notice is published, a reportable short position must be reported to the SFC within one business day after the trading day on which it was held. Statement IV is incorrect. The short position report must be submitted directly to the SFC via its designated electronic system. The Hong Kong Exchanges and Clearing Limited (HKEX) and its subsidiary, HKSCC, which operates the Central Clearing and Settlement System (CCASS), are responsible for market operation, clearing, and settlement, not for receiving short position reports on behalf of the regulator. Therefore, statements I, II and III are correct.

The correct answer is that this action constitutes a criminal offence, as it involves intentionally making a false or misleading entry in a required record. Under the Securities and Futures (Keeping of Records) Rules, made pursuant to the Securities and Futures Ordinance (SFO), a person commits an offence if, with intent to defraud, they make a false or misleading entry in any record required to be kept. The representative’s intention to amend the trade blotter to deceive the client and avoid a complaint clearly demonstrates fraudulent intent, and the trade blotter is a mandatory record. This action is a direct violation of the SFO and is not merely an internal compliance matter. The consent of the client cannot override statutory requirements; falsifying official records is illegal regardless of whether the client agrees. Furthermore, the offence is defined by the act of falsification with fraudulent intent, not by the financial outcome for the firm or any other party.

This question assesses understanding of various enforcement-related provisions in the Securities and Futures Ordinance (SFO). Statement I is correct because under section 390 of the SFO, if a corporation commits an offence, any officer of the corporation whose recklessness, consent, or connivance led to the offence is also deemed guilty of the offence. This includes senior management like a CEO or CFO. Statement II is correct as section 391 of the SFO establishes a private right of action, allowing individuals who have suffered financial loss as a result of relying on false or misleading public communications concerning securities to seek compensation. Statement III is incorrect because the SFC’s power to intervene in civil proceedings between third parties under section 385 of the SFO is not automatic; it is subject to the approval of the court. Statement IV is incorrect as civil and criminal liabilities are distinct legal concepts. A finding of civil liability against a corporation does not preclude or absolve its officers from facing separate criminal prosecution for their role in the offence. Therefore, statements I and II are correct.

This question assesses the candidate’s understanding of the requirements for managing conflicts of interest under the Corporate Finance Adviser Code of Conduct (CFA Code). A corporate finance adviser has a fundamental duty to act in the best interests of its client.

Statement I is correct. Paragraph 5.1 of the CFA Code explicitly requires a corporate finance adviser to disclose in writing to the client, as soon as practicable, any material interest it or its group companies may have in a transaction. The 15% holding by an affiliated fund is a clear material interest that must be disclosed.

Statement II is correct. Paragraph 5.2 of the CFA Code states that where a corporate finance adviser has a material interest, it must take all reasonable steps to ensure that the client is not disadvantaged by reason of that interest. This is an overarching duty to protect the client.

Statement III is incorrect. While resignation may be necessary in cases where a conflict is so severe that it cannot be managed, it is not an automatic requirement. The CFA Code provides a framework for managing conflicts through disclosure and other measures, allowing the engagement to continue if the conflict can be properly handled and the client consents after full disclosure.

Statement IV is incorrect. Establishing information barriers (or ‘Chinese Walls’) is a common and effective internal control for managing conflicts of interest, particularly to prevent the flow of sensitive information. However, the CFA Code’s primary and explicit requirements in this situation are disclosure to the client and ensuring the client is not disadvantaged. While an information barrier is a good practice and a tool to achieve the latter, it is not listed as a mandatory action in the same way as disclosure. The core duties are owed directly to the client. Therefore, statements I and II are correct.

According to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) and the SFC’s Guideline on Anti-Money Laundering and Counter-Financing of Terrorism, when a licensed corporation encounters a situation that raises suspicion of money laundering, it must follow specific procedures. The presence of multiple red flags, such as a large cash deposit, vagueness about the source of funds, and an intention to structure transactions, requires immediate action. The first proper step is for the staff member to report their suspicions internally to the designated Money Laundering Reporting Officer (MLRO) for assessment (Statement I). If the MLRO, after reviewing the case, also concludes that there are grounds for suspicion, the firm is legally obligated to file a Suspicious Transaction Report (STR) with the Joint Financial Intelligence Unit (JFIU) as soon as reasonably practicable (Statement II). It is a serious offense, known as ‘tipping off’, to inform the client or any third party that a report has been or will be made to the authorities (Statement III is incorrect). Simply accepting the suspicious transaction and placing the account on a watch list without first reporting the suspicion would be a breach of regulatory duties, as it facilitates a potentially illicit activity (Statement IV is incorrect). Therefore, statements I and II are correct.

Under the Securities and Futures Ordinance (SFO), the definition of a ‘substantial shareholder’ of a licensed corporation includes specific criteria for both direct and indirect control. A person is considered a substantial shareholder if they, either alone or with associates, have an interest in 10% or more of the issued shares or can control the exercise of 10% or more of the voting power at the corporation’s general meetings. The definition extends to indirect control. Specifically, if a person controls 35% or more of the voting power of a second corporation, and that second corporation in turn controls 10% or more of the voting power of the licensed corporation, the first person is deemed a substantial shareholder of the licensed corporation. In the given scenario, Apex Holdings controls 35% of Venture Partners, which in turn controls 12% of Prosperity Securities. Both thresholds are met, making Apex Holdings a substantial shareholder. The assertion that the relationship is undefined because it is indirect is incorrect, as the SFO explicitly provides for this situation. Similarly, misapplying the 35% threshold to the intermediary’s holding in the licensed corporation is a misunderstanding of the rule. The idea that only direct holdings qualify as a substantial shareholding ignores the specific provisions for indirect control outlined in the SFO.

The eligibility of securities for Northbound trading through the Shanghai-Hong Kong Stock Connect is subject to specific criteria set by the relevant authorities. Statement I is correct because being a constituent stock of major SSE indices, such as the SSE A Share Index, is a primary criterion for inclusion, although this is subject to periodic reviews and other conditions. Statement III is also correct; securities that are placed under a ‘risk alert’ by the Shanghai Stock Exchange (SSE), such as ‘ST’ shares which may be facing delisting procedures, are explicitly excluded from the scheme to protect investors from heightened risks. Statement II is incorrect because not all A-shares listed on the SSE are eligible; they must meet specific inclusion criteria. Statement IV is incorrect as B-shares, which are denominated in foreign currencies, are a separate category of shares and are explicitly excluded from the Stock Connect program. Therefore, statements I and III are correct.

The correct answer is that the firm is conducting Type 7 (Providing automated trading services) and Type 8 (Securities margin financing). The platform described is an electronic system that provides a trading mechanism for non-local securities, separate from the operations of a recognised exchange company in Hong Kong. This falls squarely within the definition of an Automated Trading Service (ATS), which is a Type 7 regulated activity under the Securities and Futures Ordinance (SFO). Furthermore, the company offers financial accommodation (loans) to clients specifically to facilitate the acquisition of these securities. This activity is defined as Securities Margin Financing (SMF), which constitutes a Type 8 regulated activity. Therefore, the firm must be licensed for both activities. Merely being licensed for dealing in securities (Type 1) is insufficient because the SFO specifically categorises the provision of an automated trading platform as a distinct activity (Type 7). Conducting only one of the activities, such as providing ATS without the financing, or vice versa, would not accurately reflect the full scope of the firm’s business as described in the scenario.

The correct answer is that the SEHK may suspend the trading of the issuer’s shares. Under the Main Board Listing Rules, the Stock Exchange of Hong Kong (SEHK) has a range of disciplinary sanctions. When the Listing Committee makes a public statement that a director is unsuitable to hold their position due to serious or repeated breaches, and that director fails to resign by a specified date, the SEHK can impose further sanctions against the listed issuer itself. These follow-on actions are designed to protect the integrity of the market and compel compliance. Suspending the trading of the company’s securities is one of the most significant powers the SEHK can exercise in this situation. Other potential actions include cancelling the listing or prohibiting the issuer from using market facilities. The SEHK’s power to impose financial penalties is limited, with significant fines typically being a matter for the Securities and Futures Commission (SFC). While the SEHK can report matters to other regulatory bodies like the SFC, it does not refer such matters to professional membership bodies for primary enforcement. Finally, the SEHK does not have the authority to directly order the resignation of a company’s auditors as a sanction for a director’s misconduct.

The correct answer is that the issuer should request an immediate trading halt pending the release of an announcement. According to the Main Board Listing Rules and Part XIVA of the Securities and Futures Ordinance (SFO), a listed issuer must disclose inside information as soon as reasonably practicable. When such information, like a major joint venture, is finalized during trading hours and there is a risk of a false market or uneven information dissemination, the standard procedure is to request a trading halt. A trading halt is a brief interruption of trading, lasting no more than two trading days, intended to give the issuer time to formally announce the information and allow the market to digest it. This ensures a fair and orderly market. A trading suspension is a more prolonged stoppage of trading and is not the appropriate initial step for a pending announcement. Releasing sensitive information during active trading without a halt can lead to market volatility and unfair advantages for some investors. While issuers often release information after market hours, if the information is ready and confidentiality is at risk during the trading day, a halt is necessary to fulfill the obligation of timely disclosure and prevent a false market.

This question assesses the understanding of the statutory grounds for a court-ordered winding-up under section 177 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (CWUMPO).

Statement I is correct. This falls under the ‘just and equitable’ ground for winding up. When the fundamental purpose or ‘substratum’ for which a company was formed has failed or become impossible to achieve, the court may order it to be wound up.

Statement II is correct. Section 177(1)(b) of CWUMPO explicitly states that a company may be wound up by the court if it has suspended its business for a whole year. The 14-month suspension described in the scenario clearly meets this criterion.

Statement III is incorrect. While persistent unprofitability is a significant business concern and can lead to insolvency, it is not, in itself, a specific statutory ground for a compulsory winding-up petition. A company can be unprofitable yet still be able to pay its debts and continue its operations. The key statutory test is the ability to pay debts, not profitability.

Statement IV is correct. This is one of the most common grounds for winding up. Section 177(1)(d) of CWUMPO provides that a court may wind up a company if it is ‘unable to pay its debts’. The scenario indicates the company has defaulted on payments, which is strong evidence of this. Therefore, statements I, II and IV are correct.