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Last updated on: 09-March-2024
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Mr.Yeung is a financial regulator in Hong Kong. In a transaction, he received a report of misconduct from a citizen. Mr Yeung is responsible to combat which of the following offences?
I. Transferring funds between investment stocks and foreign exchange by fund managers.
II. Securities Companies manipulate securities market and price by a large sum of fund.
III. Using online trading platform, Chief Financial Officer of a company perform a number of unknown trading activities. And these transactions are not listed on the banking record.
IV. Continuously moving funds in and out the Hong Kong market through the Hong Kong Stock Exchange.
Objectives of Hong Kong’s regulatory framework
The Hong Kong financial regulators have certain common objectives:
(a) They help to maintain Hong Kong’s position as a leading financial centre by ensuring that the regulations they apply are necessary for the proper supervision of the financial markets.
(b) They aim to achieve this goal through financial regulations of an acceptable international standard.
(c) They strive to be market-friendly, open and approachable, but also fair and effective.
(d) To the extent of their powers, they seek to ensure that the legal framework of financial regulation is certain, adequate and fairly enforced (for example, the Securities and Futures Ordinance (“SFO”) was drafted with these objectives in mind).
(e) They encourage the installation of a sound technical infrastructure for the functioning of the financial markets and for interlinking with settlement and clearing systems globally.
(f) Their actions are designed to help promote confidence in the financial markets, internationally and locally.
(g) Hong Kong financial regulators give effort to prevent money laundering (Answer III of money laundering ) and market misconduct (Answer II of market misconduct ).
Definition of market misconduct
Market misconduct is defined as:
(a) insider dealing;
(b) false trading;
(c) price rigging;
(d) disclosure of information about prohibited transactions;
(e) disclosure of false or misleading information inducing transactions; or
(f) stock market manipulation.
Objectives of Hong Kong’s regulatory framework
The Hong Kong financial regulators have certain common objectives:
(a) They help to maintain Hong Kong’s position as a leading financial centre by ensuring that the regulations they apply are necessary for the proper supervision of the financial markets.
(b) They aim to achieve this goal through financial regulations of an acceptable international standard.
(c) They strive to be market-friendly, open and approachable, but also fair and effective.
(d) To the extent of their powers, they seek to ensure that the legal framework of financial regulation is certain, adequate and fairly enforced (for example, the Securities and Futures Ordinance (“SFO”) was drafted with these objectives in mind).
(e) They encourage the installation of a sound technical infrastructure for the functioning of the financial markets and for interlinking with settlement and clearing systems globally.
(f) Their actions are designed to help promote confidence in the financial markets, internationally and locally.
(g) Hong Kong financial regulators give effort to prevent money laundering (Answer III of money laundering ) and market misconduct (Answer II of market misconduct ).
Definition of market misconduct
Market misconduct is defined as:
(a) insider dealing;
(b) false trading;
(c) price rigging;
(d) disclosure of information about prohibited transactions;
(e) disclosure of false or misleading information inducing transactions; or
(f) stock market manipulation.
The regulatory philosophy and system can sometimes be “merit-based” and sometimes be “disclosure-based”. Which of the following system philosophies are about “merit-based”?
I. Unwelcome participants and offering will be screened out.
II. Much more stringent regulation and accreditation standards are adopted by local regulatory bodies than other overseas regulators.
III. To ensure a fair competition in the Share Offer, the equality between the sponsor and investment; and the equality between risk and return of public investment shall be ensured.
IV. The system focuses on the highest limit disclosure of information and the provision of public offering related information.
Merit regulation is based on the objective of screening out undesirable players and undesirable offerings. In this way, the investor will not have the freedom to invest in a merit-regulated market in so-called undesirable offerings which may be promoted by undesirable persons, as the system bars them. The “Blue Sky” laws in the United States often include aspects of merit regulation, in that registration of a securities offering may be refused if it does not ensure a fair balance between promoters and investors or provide the investing public with a fair balance between risk and returns.
It has been claimed that the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”) are merit-based, as they are designed to achieve the same objective. Nonetheless, the Listing Rules are primarily a system of disclosure.
Merit regulation is based on the objective of screening out undesirable players and undesirable offerings. In this way, the investor will not have the freedom to invest in a merit-regulated market in so-called undesirable offerings which may be promoted by undesirable persons, as the system bars them. The “Blue Sky” laws in the United States often include aspects of merit regulation, in that registration of a securities offering may be refused if it does not ensure a fair balance between promoters and investors or provide the investing public with a fair balance between risk and returns.
It has been claimed that the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”) are merit-based, as they are designed to achieve the same objective. Nonetheless, the Listing Rules are primarily a system of disclosure.
Which of the following description(s) about the functions of the SFC is/are correct?
I. Share Registrars’ Disciplinary Committee conduct preliminary hearing and determine share registries disciplinary related matters.
II. Products Advisory Committee approved unit trusts and mutual funds.
III. The Advisory Committee is responsible for advising the SFC in its policy related to the objectives and functions. It possesses the authority of execution.
IV. Investor Education Advisory Committee set the goal of investor education advice or support to the SFC.
The SFC has established various regulatory committees to which it has delegated some of its functions, e.g.:
(a) Takeovers and Mergers Panel – is responsible for The Codes on Takeovers and Mergers and Share Repurchases. Much of the administration of this code is in practice exercised by the SFC staff, acting as the Takeovers Executive and as staff of the Investment Products Department.
(b) Takeovers Appeal Committee – hears appeals against the disciplinary rulings of the Takeovers and Mergers Panel at the request of an aggrieved party for the sole purpose of determining whether any sanction imposed by the Panel is unfair or excessive.
(c) Products Advisory Committee – Set up in August 2010 to replace the former Committee on Unit Trusts and Committee on Investment-Linked Assurance and Pooled Retirement Funds. It advises on matters relating to the SFC Handbook for Unit Trusts and Mutual Funds, Investment-Linked Assurance Schemes and Unlisted Structured Investment Products, the SFC Code on MPF Products and the Code on Pooled Retirement Funds, including overall market environment, industry practices and novel product features.
(d) Investor Education Advisory Committee – provides advice and support to the SFC in setting investor education targets.
(e) Academic and Accreditation Advisory Committee – approves industry-based courses and examinations for meeting the competence requirements, and recognizes providers of training for the purposes of the continuous professional training (“CPT”) requirements.
(f) Share Registrars’ Disciplinary Committee – hears and determines disciplinary matters relating to share registrars in the first instance.
The SFC has established various regulatory committees to which it has delegated some of its functions, e.g.:
(a) Takeovers and Mergers Panel – is responsible for The Codes on Takeovers and Mergers and Share Repurchases. Much of the administration of this code is in practice exercised by the SFC staff, acting as the Takeovers Executive and as staff of the Investment Products Department.
(b) Takeovers Appeal Committee – hears appeals against the disciplinary rulings of the Takeovers and Mergers Panel at the request of an aggrieved party for the sole purpose of determining whether any sanction imposed by the Panel is unfair or excessive.
(c) Products Advisory Committee – Set up in August 2010 to replace the former Committee on Unit Trusts and Committee on Investment-Linked Assurance and Pooled Retirement Funds. It advises on matters relating to the SFC Handbook for Unit Trusts and Mutual Funds, Investment-Linked Assurance Schemes and Unlisted Structured Investment Products, the SFC Code on MPF Products and the Code on Pooled Retirement Funds, including overall market environment, industry practices and novel product features.
(d) Investor Education Advisory Committee – provides advice and support to the SFC in setting investor education targets.
(e) Academic and Accreditation Advisory Committee – approves industry-based courses and examinations for meeting the competence requirements, and recognizes providers of training for the purposes of the continuous professional training (“CPT”) requirements.
(f) Share Registrars’ Disciplinary Committee – hears and determines disciplinary matters relating to share registrars in the first instance.
Under the “Securities and Futures Ordinance ,” Which of the following conditions may be excluded of certain regulated activities without license ?
I. Professional accountants, solicitors and council conducting type 4, 5, 6 and 9 regulated activities that are wholly incidental to their professions.
II. People licensed or registered to conduct Type 1 activity who carry out type 4, 6, 9 activities for the purposes of their type 1 regulated activity.
III. People licensed or registered to conduct Type 9 activity who carry out type 1, 2 activities for the purposes of their type 9 regulated activity.
IV. Corporation carrying out type 2 regulated activity solely for their wholly owned subsidiaries.
Exclusions from regulated activities
There are certain persons some of whose activities might otherwise fit the descriptions of regulated activities listed in Part 1, Schedule 5, SFO, but for the fact that these are specifically excluded from the definitions of regulated activities given in Part 2 of the Schedule. Such persons will not need licensing in respect of those activities. They include:
(a) professional accountants, solicitors and counsel conducting Type 4, Type 5, Type 6 and Type 9 regulated activities that are wholly incidental to their professions
(b) trust companies conducting Type 4, Type 5, Type 6 and Type 9 regulated activities wholly incidental to the discharge of their trustee duties;
(c) persons licensed or registered to conduct Type 9 regulated activity who carry out Type 1, Type 2, Type 4 and Type 5 regulated activities solely for the purposes of their Type 9 regulated activity; and
(d) corporations carrying out Type 4, Type 5, Type 6 and Type 9 regulated activities solely for their wholly owned subsidiaries, holding companies holding all their issued shares or other wholly owned subsidiaries of the holding company.
The above list of activities and persons conducting them comprise only some of the exclusions from the licensing requirements. For the full list, refer to Schedule 5, SFO.
Exclusions from regulated activities
There are certain persons some of whose activities might otherwise fit the descriptions of regulated activities listed in Part 1, Schedule 5, SFO, but for the fact that these are specifically excluded from the definitions of regulated activities given in Part 2 of the Schedule. Such persons will not need licensing in respect of those activities. They include:
(a) professional accountants, solicitors and counsel conducting Type 4, Type 5, Type 6 and Type 9 regulated activities that are wholly incidental to their professions
(b) trust companies conducting Type 4, Type 5, Type 6 and Type 9 regulated activities wholly incidental to the discharge of their trustee duties;
(c) persons licensed or registered to conduct Type 9 regulated activity who carry out Type 1, Type 2, Type 4 and Type 5 regulated activities solely for the purposes of their Type 9 regulated activity; and
(d) corporations carrying out Type 4, Type 5, Type 6 and Type 9 regulated activities solely for their wholly owned subsidiaries, holding companies holding all their issued shares or other wholly owned subsidiaries of the holding company.
The above list of activities and persons conducting them comprise only some of the exclusions from the licensing requirements. For the full list, refer to Schedule 5, SFO.
A company plans to issue debentures as evidence of loans, which of the following description of the debentures is correct?
I. payment of interest may be extended after payment due date by the issuing company.
II. Issuer use specific assets to secure debentures. But it can also be unsecured.
III. Debenture holders are the company’s creditors. They receive interest at fixed rate.
IV. In a liquidation, the debenture holder will be entitled to repayment of the loan prior to distributions to the shareholders.
Debentures
A debenture is a document issued by a company as evidence of a loan, and is generally transferable unless otherwise specified. The holder of the debenture is a creditor of the company and receives interest at a fixed rate. The debenture may be secured by assets provided by the issuer or it may be unsecured. It can be for a fixed term or be irredeemable. The debenture holder will rank before the shareholders for payment of interest prior to the distribution of dividends. The interest has to be paid and the debenture redeemed on the due date, if it is a redeemable debenture, irrespective of whether the company makes a profit or not. In a liquidation, the debenture holder will be entitled to repayment of the loan prior to distributions to the shareholders.
Secured and unsecured debentures
Debentures may be unsecured or secured by a fixed or floating charge on specific assets of the company or on all of them. An unsecured debenture holder ranks as an unsecured creditor; a secured holder has prior rights to the security in the event of a default by the debtor company or in a winding-up.
Debentures
A debenture is a document issued by a company as evidence of a loan, and is generally transferable unless otherwise specified. The holder of the debenture is a creditor of the company and receives interest at a fixed rate. The debenture may be secured by assets provided by the issuer or it may be unsecured. It can be for a fixed term or be irredeemable. The debenture holder will rank before the shareholders for payment of interest prior to the distribution of dividends. The interest has to be paid and the debenture redeemed on the due date, if it is a redeemable debenture, irrespective of whether the company makes a profit or not. In a liquidation, the debenture holder will be entitled to repayment of the loan prior to distributions to the shareholders.
Secured and unsecured debentures
Debentures may be unsecured or secured by a fixed or floating charge on specific assets of the company or on all of them. An unsecured debenture holder ranks as an unsecured creditor; a secured holder has prior rights to the security in the event of a default by the debtor company or in a winding-up.
A licensed corporation is conducting the annual audit report. The auditor of the corporation shall confirm:
I. The company has complied with the “Securities and Futures (Client Money) Rules” and the “Securities and Futures (Client Securities ) Rules ”
II. Profit and loss account and balance sheet gave “a true and fair view”.
III. Is there an adequate risk management system.
IV. Is there a sound internal control system.
Broadly, the auditor is asked to confirm whether in his opinion:
The auditors are allowed to submit their report in 2 parts, one containing the “normal”, “true and fair” report and another referring to all the other matters. The true and fair report is a short one and is enough to be used for wide circularization when it may not be convenient to issue the full report.
Broadly, the auditor is asked to confirm whether in his opinion:
The auditors are allowed to submit their report in 2 parts, one containing the “normal”, “true and fair” report and another referring to all the other matters. The true and fair report is a short one and is enough to be used for wide circularization when it may not be convenient to issue the full report.
A licensed corporation manager described an internet trading platform to his customer, based on the content ” Internet Governance Guidelines “, what should he pay attention to?
I. The Customer shall bear all the risks faced by Internet transactions.
II. He should emphasize the risk internet transactions to his customer including the possibility of time lags in data transmission or that orders may be executed at prices different from those shown on the Internet.
III. A unified means of communication between the client and the intermediary shall be taken. The trading instructions should at least be transmitted through internet.
IV. Customer shall be described in details the details of authenticating technical processes.
All the requirements for client agreements apply with additional provisions to cover the special features of using the Internet. For example:
(a) there should be disclosures stressing the risks of Internet trading, such as the possibility of time lags in data transmission or that orders may be executed at prices different from those shown on the Internet;
(b) client consent should be obtained for using the Internet; and
(c) details of authenticating technical processes to be used should be communicated to the client.
All the requirements for client agreements apply with additional provisions to cover the special features of using the Internet. For example:
(a) there should be disclosures stressing the risks of Internet trading, such as the possibility of time lags in data transmission or that orders may be executed at prices different from those shown on the Internet;
(b) client consent should be obtained for using the Internet; and
(c) details of authenticating technical processes to be used should be communicated to the client.
Under Schedule 5 of the Interpretation “Securities and Futures Ordinance”, which of the below activities are required to apply for the SFC Type 4 or Type 5 regulated activities license?
I. Analysis reports issuance, so that the recipients could implement real estate investment projects.
II. Provide advice on securities or futures contracts, so that recipients could acquire or dispose securities or enter into futures contracts.
III. Give advice or issue analysis or reports to the companies with a group.
IV. Asset managers who is licensed for Type 9 regulated activity, and the recommendations that came with its asset management activities.
Advising on securities and futures contracts (Type 4 and Type 5 regulated activities)
SFO as constituting advising on securities or futures contracts. They are:
(a) the giving of advice; or
(b) the issuing of analyses or reports, for the purposes of facilitating the recipients to make decisions on the acquisition or disposal of securities or entering into futures contracts.
Advising on securities and futures contracts (Type 4 and Type 5 regulated activities)
SFO as constituting advising on securities or futures contracts. They are:
(a) the giving of advice; or
(b) the issuing of analyses or reports, for the purposes of facilitating the recipients to make decisions on the acquisition or disposal of securities or entering into futures contracts.
The Commission is empowered to intervene the licensed corporations, what is/are its purpose?
I. To safeguard the interests of major shareholders.
II. To use the power when licensed corporations violate the provision of “Securities and Futures Ordinance”.
III. To protect investors of licensed corporations and minority shareholders of listed corporations.
IV. To use the power when it comes to the investing public or the public interest .
The powers granted to the SFC under Part X enable the SFC to intervene in the way a licensed corporation conducts its business. The powers are designed:
(a) to protect the interests of investors of licensed corporations and minority shareholders of listed corporations and also have the effect of protecting those of trade and other creditors;
(b) to be used where it is in the interests of the investing public or the public interest; and
(c) to be used where the licensed corporation has:
(i) shown that it does not meet the fit and proper criteria;
(ii) contravened the specified provisions of the SFO; or
(iii) has had its licence suspended or revoked.
The powers granted to the SFC under Part X enable the SFC to intervene in the way a licensed corporation conducts its business. The powers are designed:
(a) to protect the interests of investors of licensed corporations and minority shareholders of listed corporations and also have the effect of protecting those of trade and other creditors;
(b) to be used where it is in the interests of the investing public or the public interest; and
(c) to be used where the licensed corporation has:
(i) shown that it does not meet the fit and proper criteria;
(ii) contravened the specified provisions of the SFO; or
(iii) has had its licence suspended or revoked.
For market misconduct cases, which of the following is correct?
I. If the Commission decides that the civil route is appropriate, the facts will be presented to the Secretary for Justice who will decide whether or not a criminal prosecution should be brought before the court.
II. The Commission has the right to follow simple procedures of prosecution in the Magistrates Court for minor cases.
III. If the Commission considers that the civil law system is applicable, the facts will be submitted to the Financial Secretary.
IV. If criminal prosecution has to be followed, the Commission will refer to “relative likelihood ” test as the standard of proof .
The important distinction between the two routes of pursuing market misconduct is the issue of evidence and the standard of proof required in each case. A criminal conviction requires the case to be proved “beyond reasonable doubt”, a high standard of proof. In contrast, the MMT determines its proceedings based on the civil standard, “on the balance of probabilities”, a lower standard of proof. The dual system therefore allows a choice of avenues, the civil route or criminal prosecution, according to the nature of the acts allegedly committed and the strength of the available evidence.
Definition of market misconduct
Market misconduct is defined as:
(a) insider dealing;
(b) false trading;
(c) price rigging;
(d) disclosure of information about prohibited transactions;
(e) disclosure of false or misleading information inducing transactions; or
(f) stock market manipulation.
The important distinction between the two routes of pursuing market misconduct is the issue of evidence and the standard of proof required in each case. A criminal conviction requires the case to be proved “beyond reasonable doubt”, a high standard of proof. In contrast, the MMT determines its proceedings based on the civil standard, “on the balance of probabilities”, a lower standard of proof. The dual system therefore allows a choice of avenues, the civil route or criminal prosecution, according to the nature of the acts allegedly committed and the strength of the available evidence.
Definition of market misconduct
Market misconduct is defined as:
(a) insider dealing;
(b) false trading;
(c) price rigging;
(d) disclosure of information about prohibited transactions;
(e) disclosure of false or misleading information inducing transactions; or
(f) stock market manipulation.
Which of the following type of persons is permitted to register in the futures settlement?
Only the following types of participants may be registered in the futures settlement ︰
(a) a comprehensive settlement of the participants; or
(b) General clearing Participant.
Pro Tips: It is common that answers are designed to be tricky and may appear to be correct at a glance. Candidates are reminded to aware of the key words in the questions.
Only the following types of participants may be registered in the futures settlement ︰
(a) a comprehensive settlement of the participants; or
(b) General clearing Participant.
Pro Tips: It is common that answers are designed to be tricky and may appear to be correct at a glance. Candidates are reminded to aware of the key words in the questions.
Which of the following statements is/are corrects related to stock options traded on the stock exchange?
I. Options traded on the Stock Exchange divided into two categories, namely, call options and put options.
II. call option is a contract giving the option the right (but not the responsibility of) the holder may, at a specific time by pressing a specified price (“exercise price”) to purchase the specified shares (“ordinary shares”) of a fixed number of shares at or before the specified date.
III. American-style options, as these options may, at any time within the validity period of the exercise, while European options can only be exercised at maturity.
IV. European options, as these options may, at any time within the validity period of the exercise, while American-style options can only be exercised at maturity.
In which of the below cases, a licensed corporation (LC) shall notify the Commission in writing?
In the following cases, a licensed corporation shall also notify the Commission in writing:
(a) such as liquid capital falls below the required liquid capital at or below 120% of the required liquid capital, or less than 50 percent of the most recent declaration of liquid capital;
(b) the information contained in any declaration submitted in the past has become in it to be false or misleading information.
In the following cases, a licensed corporation shall also notify the Commission in writing:
(a) such as liquid capital falls below the required liquid capital at or below 120% of the required liquid capital, or less than 50 percent of the most recent declaration of liquid capital;
(b) the information contained in any declaration submitted in the past has become in it to be false or misleading information.
The Commission may, within a specified period or until revoked approval before being with withdrawn:
I. Approve or modify the exemption on liquid capital calculation
II. Approve the adoption of accounting principles generally accepted accounting principles outside
III. Approve only introduce some specific types of business, does not hold client assets and will not be liable
IV. Upon application licensed corporation endorsed or review it in the calculation of liquid capital, in recognition of liabilities were deducted redeemable shares and subordinated loans
The Commission may apply to be raised within a specified period or until approval before being withdrawn:
(a) approve only introduce some specific types of business, does not hold client assets and will not be liable
(Except business to convey an offer or presented itself due to negligence, willful default or fraud shall bear legal liability) licensed corporation as “approved introducing agent”;
(b) the approval of redeemable shares into redeemable shares approved, and after the approval of subordinated loans approved after becoming subordinated loan (see note below);
(c) approve or modify the exemption on liquid capital calculation;
(d) the approval of “FRR” amendment or waiver, amendment or waiver made but not harm the interests of any client or the investing public (Amendment or waiver will be made on Internet bulletin published, in order to maintain transparency and the public’s right to know); and
(e) approve the adoption of accounting principles generally accepted accounting principles outside.
Note ︰ Commission may, upon application licensed corporation approved it in the calculation of liquid capital, in recognition of liabilities were deducted redeemable shares and subordinated loans
Pro Tip: Paper 1 usually has less than a 50% pass rate because some of the questions are extremely lengthly. For example, the candidate may take a while to understand all the options. It may be a good idea to adopt method by elimination. For example, if you are certain that option I and II are correct, then you may remove option 2 in the multiple-choice to increase your pass rate (even if you have to take your chances)
The Commission may apply to be raised within a specified period or until approval before being withdrawn:
(a) approve only introduce some specific types of business, does not hold client assets and will not be liable
(Except business to convey an offer or presented itself due to negligence, willful default or fraud shall bear legal liability) licensed corporation as “approved introducing agent”;
(b) the approval of redeemable shares into redeemable shares approved, and after the approval of subordinated loans approved after becoming subordinated loan (see note below);
(c) approve or modify the exemption on liquid capital calculation;
(d) the approval of “FRR” amendment or waiver, amendment or waiver made but not harm the interests of any client or the investing public (Amendment or waiver will be made on Internet bulletin published, in order to maintain transparency and the public’s right to know); and
(e) approve the adoption of accounting principles generally accepted accounting principles outside.
Note ︰ Commission may, upon application licensed corporation approved it in the calculation of liquid capital, in recognition of liabilities were deducted redeemable shares and subordinated loans
Pro Tip: Paper 1 usually has less than a 50% pass rate because some of the questions are extremely lengthly. For example, the candidate may take a while to understand all the options. It may be a good idea to adopt method by elimination. For example, if you are certain that option I and II are correct, then you may remove option 2 in the multiple-choice to increase your pass rate (even if you have to take your chances)
Which of the following regulations or rules are not performed by the Securities And Futures Commission?
Pro Tip: Candidate should aware that MPFA dealing with complaints about MPF products and approved trustees, and referring them to the SFC and other regulators for action where necessary.
Pro Tip: Candidate should aware that MPFA dealing with complaints about MPF products and approved trustees, and referring them to the SFC and other regulators for action where necessary.
Which of the following is based on the regulation of the “Fund Manager Code of Conduct (FMCC)”, especially for fund managers to adhere to?
The FMCC applies to intermediaries conducting discretionary management of CISs (whether or not the CISs are authorized by the SFC) and their representatives (“Fund Managers”). The FMCC supplements the codes and guidelines applicable to all intermediaries and states that in applying the provisions of the FMCC, reference should be made to the legislation, other codes, and guideline and that if there is any inconsistency, the stricter provisions will be applied.
Pro Tip: Very often the exam intends to test candidate’s knowledge specifically related to rules and regulations coverage. Please study the key words carefully.
The FMCC applies to intermediaries conducting discretionary management of CISs (whether or not the CISs are authorized by the SFC) and their representatives (“Fund Managers”). The FMCC supplements the codes and guidelines applicable to all intermediaries and states that in applying the provisions of the FMCC, reference should be made to the legislation, other codes, and guideline and that if there is any inconsistency, the stricter provisions will be applied.
Pro Tip: Very often the exam intends to test candidate’s knowledge specifically related to rules and regulations coverage. Please study the key words carefully.
A person licensed or registered to carry on Type 1 activities include(s):
I. Exchange Participants.
II. In Hong Kong securities dealers in other regions of securities transactions.
III. In an authorized financial institution registered with the SFC.
IV. Securities introducing agent.
The categories of persons conducting Type 1 regulated activity include:
(a) a participant of the SEHK, whether it engages in activities on the SEHK or outside it;
(b) another securities dealer carrying out dealing in securities in Hong Kong;
(c) a licensed representative of the above;
(d) an AFI registered with the SFC for this activity (and its staff who deal with the public and are on a register maintained by the HKMA as engaged in such activity);
(e) a portfolio manager who is licensed (as a securities dealer) for Type 1 regulated activity; and
(f) a securities introducing agent
The categories of persons conducting Type 1 regulated activity include:
(a) a participant of the SEHK, whether it engages in activities on the SEHK or outside it;
(b) another securities dealer carrying out dealing in securities in Hong Kong;
(c) a licensed representative of the above;
(d) an AFI registered with the SFC for this activity (and its staff who deal with the public and are on a register maintained by the HKMA as engaged in such activity);
(e) a portfolio manager who is licensed (as a securities dealer) for Type 1 regulated activity; and
(f) a securities introducing agent
Under the “Securities and Futures (Accounts and Audit) Rules,” all parts of the year-end accounts shall include licensed corporations and intermediaries:
I. Cash Flow
II. Profit and Loss Account
III. Notes to the accounts
IV. The sources and uses of funds
The Accounts and Audit Rules require the preparation of accounts for each financial year consisting of a profit and loss account, a balance sheet and notes to the accounts for licensed corporations and associated entities of an intermediary, and cessation accounts for each of these if they cease to carry on regulated activities or cease to remain as associated entities.
Pro Tip: Please do not confuses answers that are related to Anti-Money Laundering guidelines with Securities and Futures (Accounts and Audit) Rules
The Accounts and Audit Rules require the preparation of accounts for each financial year consisting of a profit and loss account, a balance sheet and notes to the accounts for licensed corporations and associated entities of an intermediary, and cessation accounts for each of these if they cease to carry on regulated activities or cease to remain as associated entities.
Pro Tip: Please do not confuses answers that are related to Anti-Money Laundering guidelines with Securities and Futures (Accounts and Audit) Rules
The SFC, or any person authorized by the SFC, has the power to require specified persons to disclose information related to transactions in securities, futures contracts, and CISs. Which of the following statement(s) is true regarding the definition of specified persons?
I. the parties to the transaction in question, including any person with an interest in the transaction or the subject of the transaction
II. the parties to the transaction in question, including any person with or without an interest in the transaction.
III. any intermediary involved in the execution of the transaction.
IV. any intermediary involved in the discussion or negotiation of the transaction.
Specified persons include:
(a) the parties to the transaction in question, including any person with an interest in the transaction or the subject of the transaction; and
(b) any intermediary involved in the execution of the transaction.
Specified persons include:
(a) the parties to the transaction in question, including any person with an interest in the transaction or the subject of the transaction; and
(b) any intermediary involved in the execution of the transaction.
Which of the following transactions are required to be disclosed?
A “notifiable transaction” means a transaction classified as one of the following types, based on the percentage ratio tests set out in the Main Board Listing Rules:
(a) share transaction – acquisition of assets (excluding cash) by a listed issuer where the consideration includes securities for which listing will be sought, and where all percentage ratios are less than 5%;
(b) disclosable transaction – a transaction or a series of transactions by a listed issuer where any percentage ratio is at least 5%, but less than 25%;
(c) major transaction – a transaction or a series of transactions by a listed issuer where any percentage ratio is at least 25%, but less than 100% for an acquisition or 75% for disposal;
(d) very substantial disposal – disposal or a series of disposals of assets by a listed issuer where any percentage ratio is 75% or more;
(e) very substantial acquisition – an acquisition or a series of acquisitions of assets by a listed issuer where any percentage ratio is 100% or more; and
(f) reverse takeover – an acquisition or a series of acquisitions of assets by a listed issuer which, in the opinion of the SEHK, constitutes an attempt to achieve a listing of the assets to be acquired, and a means to circumvent the requirements for new applicants.
Pro Tips: While not all figures and numbers have to be memorized, such as year of establishment for SFC or specific regulations, but figures related to key concepts such as this one is critical and candidates should remember them accurately.
A “notifiable transaction” means a transaction classified as one of the following types, based on the percentage ratio tests set out in the Main Board Listing Rules:
(a) share transaction – acquisition of assets (excluding cash) by a listed issuer where the consideration includes securities for which listing will be sought, and where all percentage ratios are less than 5%;
(b) disclosable transaction – a transaction or a series of transactions by a listed issuer where any percentage ratio is at least 5%, but less than 25%;
(c) major transaction – a transaction or a series of transactions by a listed issuer where any percentage ratio is at least 25%, but less than 100% for an acquisition or 75% for disposal;
(d) very substantial disposal – disposal or a series of disposals of assets by a listed issuer where any percentage ratio is 75% or more;
(e) very substantial acquisition – an acquisition or a series of acquisitions of assets by a listed issuer where any percentage ratio is 100% or more; and
(f) reverse takeover – an acquisition or a series of acquisitions of assets by a listed issuer which, in the opinion of the SEHK, constitutes an attempt to achieve a listing of the assets to be acquired, and a means to circumvent the requirements for new applicants.
Pro Tips: While not all figures and numbers have to be memorized, such as year of establishment for SFC or specific regulations, but figures related to key concepts such as this one is critical and candidates should remember them accurately.
Hong Kong’s role as a capital market had been developed as which of the following?
I. An international financial market straddling London and New York
II. A regional financial center in the Asia-Pacific time zone
III. An important overseas fund-raising center for Mainland China
IV. A vital market for capital stocks in the South East Asian region
Hong Kong’s role as a capital market had developed as:
(a) an important overseas fund-raising center for Mainland China;
(b) a regional financial center in the Asia-Pacific time zone; and
(c) an international financial market straddling London and New York.
Hong Kong’s role as a capital market had developed as:
(a) an important overseas fund-raising center for Mainland China;
(b) a regional financial center in the Asia-Pacific time zone; and
(c) an international financial market straddling London and New York.
A licensed or registered person is required to do which of the following in regards to complaints
I. Handle complaints from clients in a timely and appropriate manner.
II. Investigate them and respond promptly.
III. Advise the client of any further steps available to him under the regulatory system including the right to refer the dispute to the FDRC.
IV. Review the subject matter of a complaint properly upon receipt.
A licensed or registered person is required to:
(a) handle complaints from clients in a timely and appropriate manner;
(b) investigate them and respond promptly;
(c) if it is unable to do so, advise the client of any further steps available to him under the regulatory system including the right to refer the dispute to the FDRC; and
(d) review the subject matter of a complaint properly upon receipt. If the subject matter relates to other clients, or raises issues of broader concern, the licensed or registered person should take steps to investigate and remedy the matter, even if such other clients have not filed any complaint with the licensed or registered person and/or the FDRC.
A licensed or registered person is required to:
(a) handle complaints from clients in a timely and appropriate manner;
(b) investigate them and respond promptly;
(c) if it is unable to do so, advise the client of any further steps available to him under the regulatory system including the right to refer the dispute to the FDRC; and
(d) review the subject matter of a complaint properly upon receipt. If the subject matter relates to other clients, or raises issues of broader concern, the licensed or registered person should take steps to investigate and remedy the matter, even if such other clients have not filed any complaint with the licensed or registered person and/or the FDRC.
Eligible securities for Northbound trading via Shanghai Connect include which of the following?
I. Constituent stocks of the SSE 180 Index
II. All the constituent stocks of the SZSE Component Index
III. Constituent stocks of the SSE 380 Index
IV. SSE listed A shares with a dual listing of H shares on the SEHK
Eligible securities for Northbound trading via Shanghai Connect are:
(a) constituent stocks of the SSE 180 Index:
(b) constituent stocks of the SSE 380 Index; and
(c) SSE listed A shares with a dual listing of H shares on the SEHK.
Eligible securities for Northbound trading via Shanghai Connect are:
(a) constituent stocks of the SSE 180 Index:
(b) constituent stocks of the SSE 380 Index; and
(c) SSE listed A shares with a dual listing of H shares on the SEHK.
Reporting lines and other firm-wide compliance procedures should be established with procedures that include the following except?
Reporting lines and other firm-wide compliance procedures should be established that eliminate, avoid or manage actual or potential conflicts of interest.
Such procedures include:
(a) not allowing an investment banking function to pre-approve research;
(b) not directly linking an analyst’s remuneration to investment banking transactions;
(c) not allowing research analysts to solicit investment banking business (i.e. analysts should not participate in sales pitches and deal roadshows); and
(d) not providing research analysts preparing a research report on a new listing applicant with any material information that is:
(i) not reasonably expected to be included in the prospectus; or
(ii) not publicly available.
Reporting lines and other firm-wide compliance procedures should be established that eliminate, avoid or manage actual or potential conflicts of interest.
Such procedures include:
(a) not allowing an investment banking function to pre-approve research;
(b) not directly linking an analyst’s remuneration to investment banking transactions;
(c) not allowing research analysts to solicit investment banking business (i.e. analysts should not participate in sales pitches and deal roadshows); and
(d) not providing research analysts preparing a research report on a new listing applicant with any material information that is:
(i) not reasonably expected to be included in the prospectus; or
(ii) not publicly available.
The functions and powers of the SFC include which of the following?
I. promote, encourage and enforce internal control and risk management systems
II. secure an appropriate degree of protection for the investing public
III. maintain and promote confidence in the securities and futures industry
IV. promote, encourage and enforce the proper conduct, competence, and integrity of persons carrying on regulated activities
The functions and powers of the SFC are wide and are set out in s. 5, SFO. The principal functions are to:
(a) take such steps as it considers appropriate to meet the objective in section 3.2 (a) above;
(b) supervise, monitor and regulate the activities of:
(i) recognised exchange, clearing houses, exchange controllers and investor compensation companies or persons carrying on regulated activities; and
(ii) registered institutions that are regulated or to be regulated by the SFC under any relevant provisions;
(c) promote, encourage and enforce the proper conduct, competence and integrity of persons carrying on regulated activities;
(d) maintain and promote confidence in the securities and futures industry;
(e) cooperate with and provide assistance to other regulators;
(f) secure an appropriate degree of protection for the investing public;
(g) promote, encourage and enforce internal control and risk management systems
The functions and powers of the SFC are wide and are set out in s. 5, SFO. The principal functions are to:
(a) take such steps as it considers appropriate to meet the objective in section 3.2 (a) above;
(b) supervise, monitor and regulate the activities of:
(i) recognised exchange, clearing houses, exchange controllers and investor compensation companies or persons carrying on regulated activities; and
(ii) registered institutions that are regulated or to be regulated by the SFC under any relevant provisions;
(c) promote, encourage and enforce the proper conduct, competence and integrity of persons carrying on regulated activities;
(d) maintain and promote confidence in the securities and futures industry;
(e) cooperate with and provide assistance to other regulators;
(f) secure an appropriate degree of protection for the investing public;
(g) promote, encourage and enforce internal control and risk management systems
Which of the following is/are the types of misrepresentation as defined in the SFO?
I. A reckless misrepresentation is any statement which, at the time it is made, is false, misleading or deceptive, and is made recklessly.
II. Negligent misrepresentation is any statement which, at the time it is made, is false, misleading or deceptive, and is made without reasonable care having been taken to ensure its accuracy.
III. A fraudulent misrepresentation is any statement that is known to the person making the misrepresentation, at the time it is made, to be false, misleading, or deceptive.
IV. Negligent typo in the prospectus but has no significant impact on the meaning, pricing and fundamental information in the prospectus as viewed by common law.
These different types of misrepresentation are defined in the SFO as follows:
(a) A fraudulent misrepresentation is any statement which is known to the person making the misrepresentation, at the time it is made, to be false, misleading or deceptive.
(b) A reckless misrepresentation is any statement which, at the time it is made, is false, misleading or deceptive, and is made recklessly.
(c) A negligent misrepresentation is any statement which, at the time it is made, is false, misleading or deceptive, and is made without reasonable care having been taken to ensure its accuracy.
These different types of misrepresentation are defined in the SFO as follows:
(a) A fraudulent misrepresentation is any statement which is known to the person making the misrepresentation, at the time it is made, to be false, misleading or deceptive.
(b) A reckless misrepresentation is any statement which, at the time it is made, is false, misleading or deceptive, and is made recklessly.
(c) A negligent misrepresentation is any statement which, at the time it is made, is false, misleading or deceptive, and is made without reasonable care having been taken to ensure its accuracy.
There are a number of possible defences provided for in the SFO, including which of the following?
I. Market contract
II. Dealing of a connected person
III. Excluded purpose
IV. Chinese wall
There are a number of possible defences provided for in the SFO, including the following:
(a) Chinese wall – where one or more of the directors or employees of a corporation possess inside information and the corporation deals (or counsels, etc.), the corporation will not be regarded as having engaged in insider dealing if the persons actually engaged in the dealing (or counselling, etc.) are not in possession of the inside information at the relevant time (i.e. they were on the other side of an effective Chinese wall);
(b) excluded purpose – the purpose of the insider dealing taking place through dealing, counselling, etc. was not for the purpose of making a profit or avoiding a loss by using inside information;
(c) market contract – the dealing in question was a market contract;
(d) dealing of a connected person – dealing where the other party to the dealing knows or should know the person dealing is a connected person; and
Note: This defence is available only where the connected person played no role in counselling or procuring the other party to the transaction to deal.
(e) exercise of an existing right – dealing as a result of the exercise of a right to subscribe for or acquire securities would not be regarded as insider dealing where the right was acquired prior to becoming aware of the inside information.
There are a number of possible defences provided for in the SFO, including the following:
(a) Chinese wall – where one or more of the directors or employees of a corporation possess inside information and the corporation deals (or counsels, etc.), the corporation will not be regarded as having engaged in insider dealing if the persons actually engaged in the dealing (or counselling, etc.) are not in possession of the inside information at the relevant time (i.e. they were on the other side of an effective Chinese wall);
(b) excluded purpose – the purpose of the insider dealing taking place through dealing, counselling, etc. was not for the purpose of making a profit or avoiding a loss by using inside information;
(c) market contract – the dealing in question was a market contract;
(d) dealing of a connected person – dealing where the other party to the dealing knows or should know the person dealing is a connected person; and
Note: This defence is available only where the connected person played no role in counselling or procuring the other party to the transaction to deal.
(e) exercise of an existing right – dealing as a result of the exercise of a right to subscribe for or acquire securities would not be regarded as insider dealing where the right was acquired prior to becoming aware of the inside information.
A company may be wound up by the court if which of the following were to occur?
I. it has by special resolution resolved that it shall be wound up by the court
II. it does not commence its business within a year from its incorporation
III. the event occurs on the occurrence of which the articles of association provide that the company is to be dissolved
IV. the company secretary has resigned
A company may be wound up by the court if:
(a) it has by special resolution resolved that it shall be wound up by the court;
(b) it does not commence its business within a year from its incorporation; or has suspended its business for a whole year;
(c) it has no members;
(d) it is unable to pay its debts;
(e) the event occurs on the occurrence of which the articles of association provide that the company is to be dissolved
A company may be wound up by the court if:
(a) it has by special resolution resolved that it shall be wound up by the court;
(b) it does not commence its business within a year from its incorporation; or has suspended its business for a whole year;
(c) it has no members;
(d) it is unable to pay its debts;
(e) the event occurs on the occurrence of which the articles of association provide that the company is to be dissolved
A Value at Risk statistic has which of the following components?
I. A relatively high level of confidence
II. A time period
III. An estimate of investment loss
IV. A yield risk curve
A VaR statistic has three components:
i. A relatively high level of confidence (typically either 95% or 99%);
ii. A time period (a day, a month or a year); and
iii. An estimate of investment loss (expressed either in dollar or percentage terms).
A VaR statistic has three components:
i. A relatively high level of confidence (typically either 95% or 99%);
ii. A time period (a day, a month or a year); and
iii. An estimate of investment loss (expressed either in dollar or percentage terms).
Every listed issuer must appoint which of the following to act, at all times, as the listed issuer’s principal channel of communication with the SEHK?
I. Two directors for companies listed on the Main Board.
II. A director and the listed issuer’s company secretary for companies listed on the Main Board.
III. Two individuals from among the listed issuer’s executive directors and company secretary for companies listed on GEM.
IV. A director and the listed company’s head investor for companies listed on GEM.
Every listed issuer must appoint two authorized representatives to act, at all times, as the listed issuer’s principal channel of communication with the SEHK. The authorized representatives must be:
(a) for companies listed on the Main Board – either two directors or a director and the listed issuer’s company secretary (MBLR 3.05); and
(b) for companies listed on GEM – two individuals from among the listed issuer’s executive directors and company secretary (GLR 5.24).
Every listed issuer must appoint two authorized representatives to act, at all times, as the listed issuer’s principal channel of communication with the SEHK. The authorized representatives must be:
(a) for companies listed on the Main Board – either two directors or a director and the listed issuer’s company secretary (MBLR 3.05); and
(b) for companies listed on GEM – two individuals from among the listed issuer’s executive directors and company secretary (GLR 5.24).
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HKSI Paper 1 English Last updated on: 09 March 2024 with over 1840+ Practice Questions
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