Correct: Statement II is correct because the quality of investor demand is defined by the likelihood of investors holding their shares for the long term versus selling them immediately in the aftermarket. Statement IV is correct because the Listing Rules and GEM Listing Rules provide the specific regulatory framework that governs how underwriters can reallocate shares between the placing and public tranches.

Incorrect: Statement I is incorrect because the final offer price is determined by considering both the quantitative volume of demand (subscription multiples) and the qualitative nature of the investors, not just the absolute numbers. Statement III is incorrect because underwriters intentionally allocate a portion of shares to short-term investors to ensure there is sufficient trading activity and liquidity in the secondary market after the listing.

Takeaway: The IPO allocation process requires balancing long-term stability with aftermarket liquidity, while strictly adhering to the clawback and reallocation requirements set by the Listing Rules. Therefore, statements II and IV are correct.

Correct: Statement I is correct because paragraph 17.1(b) of the Code of Conduct requires sponsors to provide assurance that the listing document offers sufficient information for investors to assess the applicant’s financial condition and profitability. Statement III is correct as it is a core regulatory function of a sponsor to provide advice and guidance to the listing applicant regarding the Listing Rules and other regulatory requirements. Statement IV is correct because GEM is defined as a standalone market for small and mid-sized companies, while the Main Board allows for the listing of both shares and Hong Kong Depositary Receipts (HDRs).

Incorrect: Statement II is incorrect because the regulatory framework specifically allows companies, particularly foreign issuers, to list Hong Kong Depositary Receipts (HDRs) on the SEHK as an alternative to ordinary shares to facilitate their entry into the Hong Kong market.

Takeaway: Sponsors serve as essential gatekeepers ensuring disclosure quality and regulatory compliance, while the SEHK provides various listing structures like HDRs and GEM to accommodate different issuer profiles. Therefore, statements I, III and IV are correct.

Correct: Statement I is correct because the Market Capitalisation/Revenue Test requires a minimum market cap of HK$4 billion at the time of listing. Statement II is correct because the applicant must demonstrate revenue of at least HK$500 million for the most recent audited financial year. Statement III is correct because Main Board applicants must generally show a three-year trading record under substantially the same management.

Incorrect: Statement IV is incorrect because the SEHK Listing Rules require a minimum of 300 shareholders at the time of listing for the Main Board, rather than 1,000.

Takeaway: The Market Capitalisation/Revenue Test provides an alternative financial eligibility route for large companies that have significant revenue but do not yet meet the standard profit test. Therefore, statements I, II and III are correct.

Correct: Ensuring that a Capital Market Intermediary (CMI) is appointed to undertake the overall management of the offering is a specific requirement introduced in August 2022 for listings involving bookbuilding activities.

Incorrect: Requiring the issuer to re-domicile to Hong Kong is incorrect because the regulations allow companies incorporated in other jurisdictions to list, provided they meet shareholder protection standards. Mandating a 50% retail reservation is wrong because while retail participation is high in Hong Kong, clawback triggers are specific mechanisms and not a mandatory management appointment requirement. Limiting the listing to a secondary listing is incorrect as sponsors are responsible for primary listings and the reform focuses on the role of CMIs in the offering process.

Takeaway: Sponsors must ensure a CMI is appointed for the overall management of an offering when the listing involves bookbuilding and placing activities.

Correct: Clarifying the interpretation and application of Listing Rules without being based on specific circumstances is the right answer because this is the primary function of guidance notes and letters issued by the SEHK. This distinguishes them from listing decisions, which are case-specific and based on the unique facts of a particular applicant.

Incorrect: Describing these as formal decisions on specific past applications is incorrect because that definition applies to listing decisions, not general guidance. The assertion that these are issued by the SFC to override SEHK rules is wrong, as these are SEHK publications designed to clarify its own rules. Stating that these are confidential documents is incorrect because guidance notes and letters are published for the benefit of all market participants.

Takeaway: Guidance notes and letters serve as general interpretive tools for the Listing Rules, whereas listing decisions are based on the unique facts of a specific applicant’s case.

Correct: Statement I is correct because Listing Decisions are published by the Exchange to provide transparency by summarizing how the Listing Rules were applied to specific cases. Statement II is correct because guidance letters and notes provide general advice on the interpretation of the Listing Rules and administrative procedures rather than case-specific outcomes. Statement IV is correct because the placing underwriting agreement is typically executed on the price determination date after the book-building process is finalized.

Incorrect: Statement III is incorrect because the public offer underwriting agreement is signed before the public offer period begins and the prospectus is issued, which is typically before the final offer price is determined through the book-building process of the placing tranche.

Takeaway: Listing Decisions offer case-specific transparency while guidance letters provide general rule interpretations; furthermore, public offer underwriting precedes the offer period while placing underwriting follows price discovery. Therefore, statements I, II and IV are correct.

Correct: Statement I is correct because the bookrunner’s primary marketing function involves building a book of demand and recommending share allocations to the issuer. Statement II is correct because while global coordinators are normally appointed as bookrunners, the reverse is not always required. Statement III is correct because lead managers who do not hold senior roles or titles generally do not sell stock to investors, focusing instead on research and underwriting.

Incorrect: Statement IV is incorrect because a praecipium is a portion of the management and underwriting fees specifically allocated for senior members of a syndicate, rather than junior members like sub-underwriters or selling group members.

Takeaway: Syndicate roles in an IPO are hierarchical, with senior roles like global coordinators and bookrunners handling marketing and allocation, while junior roles focus on research and underwriting. Therefore, statements I, II and III are correct.

Correct: Liaising and coordinating directly with the SEHK and the SFC regarding the listing application is the right answer because the Listing Rules specifically assign the regulatory liaison function to the sponsor. While global coordinators manage marketing and documentation, they lack the formal mandate to act as the primary interface with regulators unless they also hold the sponsor role.

Incorrect: Managing the coordination of valuation and marketing work is wrong because these are standard functions of a global coordinator and do not require the specific regulatory status of a sponsor. Overseeing the preparation of listing and disclosure documents is wrong because both roles are involved in documentation, but only the sponsor has the specific regulatory duty to be closely involved under LR Chapter 3A. Coordinating the work of reporting accountants and legal advisers is wrong because this is a general coordination task performed by both sponsors and global coordinators during an IPO.

Takeaway: The defining regulatory distinction of a sponsor compared to a global coordinator is the sponsor’s exclusive responsibility for formal liaison and coordination with the SEHK and the SFC.

Correct: The firm must stay informed of these developments because they directly impact disclosures in the listing document for which the sponsor is responsible. According to regulatory expectations, sponsors must keep abreast of the syndication process and roadshow arrangements as these affect the “underwriting” and “selling restrictions” sections of the listing document.

Incorrect: The claim that a sponsor is exempt from reviewing underwriting sections is incorrect because the sponsor remains directly responsible for the accuracy of the listing document’s contents. Suggesting that a sponsor should delegate verification to a lead underwriter is wrong because the sponsor cannot abdicate its regulatory duty to ensure disclosure quality. Stating that monitoring is only required when multiple sponsors are appointed is false, as the obligation to oversee disclosure applies to every appointed sponsor regardless of the syndicate size.

Takeaway: Sponsors must monitor the syndication and marketing process to ensure accurate disclosure in the listing document, even if they do not hold a role in the underwriting syndicate.

Correct: Statement I is correct because the SFC requires sponsors to have effective systems and controls that include detailed planning and the clear assignment of roles within the transaction team. Statement III is correct because the Management of a sponsor, including its Board of Directors and Responsible Officers, is ultimately accountable for the quality and sufficiency of the due diligence performed.

Incorrect: Statement II is incorrect because sponsors are required to maintain records of their due diligence work, including the planning and execution phases, regardless of whether the listing application is approved, rejected, or withdrawn. Statement IV is incorrect because sponsors cannot blindly rely on expert reports; they must perform reasonable due diligence to assess the expert’s qualifications and ensure the report’s findings are consistent with other information known to the sponsor.

Takeaway: A sponsor must maintain robust internal systems for documenting and supervising due diligence, with the firm’s management holding ultimate responsibility for regulatory compliance. Therefore, statements I and III are correct.

Correct: Statement I is correct because the SFC requires sponsors to maintain a complete record of their due diligence inquiries and the results of those inquiries for at least seven years. Statement II is correct because a sponsor must conduct a formal assessment of its resources and expertise to ensure it can properly handle a specific listing application before accepting the mandate. Statement III is correct because the regulatory framework requires that each Transaction Team be supervised by at least one Principal who is responsible for the overall management of the IPO assignment.

Incorrect: Statement IV is incorrect because record-keeping obligations are not limited to final submissions; they must encompass the entire process, including internal deliberations, advice given to the applicant, and the underlying working papers used to form the sponsor’s opinion.

Takeaway: Sponsors are subject to stringent record-keeping and resource-management requirements, including a seven-year retention period for all due diligence materials and mandatory Principal supervision for every transaction. Therefore, statements I, II and III are correct.

Correct: Statement I is correct because the Listing Rules mandate that all joint sponsors share the same duty of care, responsibilities, and potential liabilities, regardless of their specific commercial arrangement. Statement II is correct because any financial adviser appointed to safeguard interests in this context must be licensed or registered under the SFO to perform regulated activities. Statement III is correct because the SEHK explicitly expects that the sponsor designated as the primary channel for communication should normally be independent of the listing applicant.

Incorrect: Statement IV is incorrect because the current market practice is that firms appointed in roles below co-lead manager are typically not required to produce pre-deal research reports, and such roles are increasingly rare in modern syndicates.

Takeaway: While issuers may appoint multiple sponsors and advisers for commercial reasons, all sponsors remain equally liable under the Listing Rules, and all advisers must be properly licensed under the SFO. Therefore, statements I, II and III are correct.

Correct: The rule against double jeopardy under the SFO ensures that once proceedings have been initiated under either the administrative route (MMT) or the criminal route (court), no proceedings may be started under the alternative route for the same misconduct.

Incorrect: The claim that the SFC may transition a case from the MMT to criminal proceedings is incorrect because the SFO explicitly states that the chosen route cannot be changed once proceedings have commenced. The suggestion that a person can be subject to both a court fine and an MMT disqualification order for the same act is wrong as it violates the statutory protection against double jeopardy. The statement that criminal proceedings are mandatory based on specific penalty thresholds is false; the choice of route depends on the nature of the wrongdoing and the strength of the evidence.

Takeaway: Market misconduct can be pursued via administrative or criminal routes, but these paths are mutually exclusive to prevent double jeopardy.

Correct: Statement I is correct because an IPO involves a public offer, which triggers the requirement for the listing document to comply with both the SEHK Listing Rules and the CWUMPO prospectus requirements. Statement III is correct because the SFO defines Type 6 regulated activity to include giving advice on compliance with the Code on Share Buy-backs. Statement IV is correct because Section 384 of the SFO specifically prohibits the provision of false or misleading information to the SFC or the SEHK.

Incorrect: Statement II is incorrect because a listing by way of Introduction does not involve an offer of securities to the public for subscription or purchase; therefore, the prospectus requirements of the CWUMPO do not apply to the listing document.

Takeaway: While IPOs must comply with both Listing Rules and CWUMPO prospectus requirements, listings that do not involve a public offer, such as Introductions, are exempt from the latter. Therefore, statements I, III and IV are correct.

Correct: Statement I is correct because the SFC Code of Conduct requires sponsors to maintain a list of all sponsor work, which must include the names of client companies and the composition of Transaction Teams. Statement II is correct as the records must also include the names, titles, and specific roles of all staff members assigned to each listing assignment. Statement III is correct because sponsors are required to document the bases on which they have given opinions or reached conclusions on key issues of regulatory concern.

Incorrect: Statement IV is incorrect because the SFC Code of Conduct explicitly states that the format of such records will vary depending on the setup and infrastructure of the licensed corporation or registered institution, rather than being a single standardized format prescribed by the regulator.

Takeaway: Sponsors must maintain detailed, up-to-date records of team composition and the rationale for regulatory conclusions to demonstrate compliance with the SFC Code of Conduct. Therefore, statements I, II and III are correct.

Correct: The sponsor must maintain records of the internal discussions and the involvement of senior management in resolving this significant matter because the Code of Conduct requires documentation of all significant matters and internal actions, regardless of whether they appear in the final listing document. This ensures a complete audit trail of the due diligence process and demonstrates that senior management was involved in critical decisions.

Incorrect: The assertion that only the final decision and reasons require documentation is incorrect because the regulations specifically mandate recording the internal discussions and actions taken leading to that decision. The claim that documentation is unnecessary for items excluded from the listing document is wrong, as the requirement explicitly covers matters regardless of their final disclosure status. The idea that records are only required upon a specific request from the Stock Exchange is false, as sponsors have a proactive duty to maintain these records as part of their regulatory obligations.

Takeaway: Sponsors must document the entire decision-making process, including internal debates and senior management’s role, to demonstrate the reasonableness of their due diligence.

Correct: Statement I is correct because the Market Misconduct Tribunal can order a person to pay the Government any profit gained or loss avoided, plus compound interest. Statement II is correct because officers are liable for a corporation’s misconduct if it is attributable to their recklessness or occurred with their consent. Statement III is correct because the regulatory framework allows for the recovery of reasonable costs and expenses incurred by both the Government and the SFC during the investigation and proceedings.

Incorrect: Statement IV is incorrect because the liability to pay civil damages to those who suffered pecuniary loss is an additional consequence that exists alongside regulatory orders; disgorgement to the Government does not provide immunity from civil lawsuits.

Takeaway: Market misconduct triggers multiple financial liabilities, including disgorgement of gains to the Government, recovery of regulatory costs, and potential civil damages to affected third parties. Therefore, statements I, II and III are correct.

Correct: Statement I is correct because the vetting process is designed to satisfy general KYC requirements, specifically including checks for anti-corruption and money laundering. Statement III is correct because maintaining the integrity of Chinese walls is essential; recipients of sensitive mandate information must be on the same side of the wall or have been officially “crossed” by compliance. Statement IV is correct because the regulatory framework identifies existing mandates for direct competitors in the same industry and region as a primary source of potential conflict.

Incorrect: Statement II is incorrect because information regarding potential sponsor mandates is highly sensitive and must be disseminated only on a “need-to-know” basis to authorized personnel, rather than being shared broadly across all departments or functions.

Takeaway: Before accepting a mandate, sponsors must conduct a structured vetting process that balances thorough conflict and KYC assessments with strict information barriers and confidentiality protocols. Therefore, statements I, III and IV are correct.

Correct: Maintaining the due diligence plan, including any subsequent modifications and the rationale for those changes, in Hong Kong for at least seven years is the right answer because the SFC requires sponsors to document the planning process, the skill sets involved, and any adjustments made to ensure a clear audit trail of the due diligence performed.

Incorrect: The suggestion to store records at a global headquarters for five years is wrong because the regulations specifically mandate that records must be kept within Hong Kong for a minimum of seven years. The option mentioning a ten-year retention period is wrong as it incorrectly identifies the duration, which is specifically seven years according to the regulatory requirements. The choice regarding a three-year digital storage period is wrong because it fails to meet the mandatory seven-year minimum retention period required for all listing transaction records.

Takeaway: Sponsors are required to maintain comprehensive records of their due diligence plans and outcomes in Hong Kong for a minimum of seven years following the completion or termination of a listing assignment.

Correct: The corporation maintains an effective information barrier between the individuals possessing the inside information and those making the trading decisions is the right answer because the Securities and Futures Ordinance (SFO) provides a specific defense for corporations that operate such barriers. This defense applies if the corporation can prove that the individuals making the investment decisions were not the same individuals who possessed the inside information, and that no such information was communicated between them due to the barrier.

Incorrect: The suggestion that lack of personal profit provides a defense is wrong because the prohibition applies to the act of dealing itself, regardless of whether the individual or the firm realized a gain. Publicly disclosing information after a trade has occurred does not provide a defense, as the information must be generally known to the market at the time of the transaction to lose its status as inside information. Relying on independent research is wrong because it does not satisfy the specific structural requirements of the Chinese wall defense, which focuses on the internal separation of information within the firm.

Takeaway: A corporation can avoid liability for insider dealing by operating an effective information barrier that prevents the flow of inside information to those executing trades.

Correct: Utilizing a standardized form or checklist ensures that all critical areas, such as KYC, corporate history, and potential related-party transactions, are investigated consistently across all mandate opportunities. This systematic approach helps the committee assess the risks and rationale of a potential assignment before acceptance.

Incorrect: The suggestion that the checklist serves as a legal certification to the SEHK is incorrect because the form is an internal tool for the sponsor’s committee to evaluate mandate opportunities, not a regulatory filing. The claim that it replaces the need for the transaction team to attend meetings is false, as the person who originated the mandate typically attends to provide clarifications. Finally, the checklist is used for the initial proposal and mandate assessment, not as a template for the final due diligence report submitted at the conclusion of the listing process.

Takeaway: Internal checklists for new mandates are essential for ensuring consistency in the evaluation process and verifying that all necessary preliminary investigations, including KYC and related-party checks, have been performed.

Correct: Negligent misrepresentation, as the statement was made without taking reasonable care to ensure its accuracy is accurate because the SFO defines negligent misrepresentation as a statement that is false, misleading, or deceptive, made without reasonable care taken to ensure its accuracy. In this scenario, the director’s failure to verify the underlying figures despite having the means to do so constitutes a lack of reasonable care.

Incorrect: The claim that this is fraudulent misrepresentation is wrong because fraud requires the person to know the statement is false at the time it is made, which is not indicated here. The suggestion that it is reckless misrepresentation is incorrect because recklessness involves a specific disregard for truth, and the law does not automatically classify all false forecasts as reckless. The statement that this is an immune misrepresentation is wrong because the SFO explicitly extends the definitions of misrepresentation to include promises, forecasts, and material omissions.

Takeaway: Statutory liability for misrepresentation under the SFO specifically includes forecasts and applies to directors who authorize statements without exercising reasonable care.

Correct: Providing information on the proposed Transaction Team is the right answer because sponsors must document the seniority, experience, and reporting lines of team members. This includes identifying the Principals and assessing the team’s capacity by reviewing other assignments they are currently working on to ensure the listing receives adequate supervision and resources.

Incorrect: The option regarding a five-year list of all firm applications is wrong because the requirement focuses on the specific team’s qualifications and current capacity rather than the firm’s historical track record. The suggestion of a formal guarantee to work on no other projects is incorrect because regulations require disclosure and management of workload, not an absolute prohibition on multi-tasking. The requirement for personal financial statements is wrong as conflict checks and independence assessments are conducted at the institutional level rather than by collecting personal balance sheets of all staff.

Takeaway: Before accepting a sponsor mandate, a firm must evaluate the Transaction Team’s expertise and current workload to ensure they can fulfill their regulatory duties to the listing applicant.

Correct: Statement I is correct because s. 107 SFO defines reckless misrepresentation as a criminal offense when used to induce another person to enter into an agreement to subscribe for securities. Statement II is correct because s. 108 SFO establishes civil liability for negligent misrepresentations that induce a person to participate in a collective investment scheme, allowing for the recovery of pecuniary losses.

Incorrect: Statement III is incorrect because s. 108 SFO is broader than s. 107 SFO and specifically includes reckless and negligent misrepresentations in addition to fraudulent ones for civil remedies. Statement IV is incorrect because the criminal provisions of s. 107 SFO explicitly cover misrepresentations intended to induce participation in a collective investment scheme, not just equity securities.

Takeaway: Sections 107 and 108 of the SFO provide a dual framework for misrepresentation, where criminal liability (s. 107) requires fraud or recklessness, while civil liability (s. 108) also encompasses negligence. Therefore, statements I and II are correct.

Correct: Statement I is correct because regulatory guidance for sponsors specifies that minutes of committee deliberations should include the date, attendees, and details of concerns or follow-up investigations. Statement III is correct because while electronic or off-site storage is permitted, the records must be retained in Hong Kong to ensure they are readily accessible to regulators when required.

Incorrect: Statement II is incorrect because the Securities and Futures (Keeping of Records) Rules require that such documents be retained for a period of seven years, not five. Statement IV is incorrect because internal compliance manuals and procedures for IPO execution must be reviewed and updated annually to ensure they remain current with legal and regulatory changes.

Takeaway: Sponsors must maintain detailed records of mandate decisions in Hong Kong for seven years and ensure their internal compliance manuals are reviewed on an annual basis. Therefore, statements I and III are correct.

Correct: Conducting transactions in accordance with the Securities and Futures (Price Stabilizing) Rules is necessary because sections 278 and 299 of the SFO provide that such actions do not constitute market manipulation if they comply with these specific rules.

Incorrect: Requiring SFC approval on a case-by-case basis is not a feature of the Price Stabilizing Rules, which instead provide a general framework for conduct rather than individual trade permissions. Setting a 10% price drop threshold is not a requirement under the SFO, as the rules do not specify a numerical trigger for stabilization. Mandating public disclosure within one hour of the first trade is not a requirement found in the Price Stabilizing Rules mentioned in the text.

Takeaway: Stabilizing managers must ensure all price-support activities strictly follow the Securities and Futures (Price Stabilizing) Rules to avoid liability for market manipulation.

Correct: Principals must ensure that the Transaction Team’s specialized experience does not result in a standardized approach to due diligence for unique listing applicants is correct because the regulatory framework emphasizes that every listing applicant is unique. While specialization helps in execution, it must not lead to a “cookie-cutter” approach to due diligence and disclosure.

Incorrect: The suggestion that Principals can delegate ultimate responsibility is wrong because they are explicitly required to have ultimate responsibility for the conduct of the transaction. The idea that teams should prioritize standardized checklists is incorrect because the guidance warns against standardization due to the unique nature of each applicant. The claim that the team only interacts with regulators is false, as they are also responsible for interacting with issuers, advisers, and consultants.

Takeaway: Principals are ultimately responsible for the transaction and must ensure that due diligence is specifically tailored to the unique circumstances of each listing applicant.

Correct: Statement I is correct because the SFO provides a safe harbour for information concerning an incomplete proposal or negotiation, provided that confidentiality is strictly preserved. Statement II is correct as disclosure is not required if it is prohibited by a restriction imposed by a Hong Kong enactment or a court order. Statement IV is correct because officers have a statutory duty to take all reasonable measures to ensure proper safeguards exist to prevent breaches of disclosure requirements.

Incorrect: Statement III is incorrect because the maximum fine the Market Misconduct Tribunal (MMT) can impose for a breach of the disclosure requirements under section 307N of the SFO is HK$8 million, not HK$10 million.

Takeaway: While safe harbours protect confidential negotiations and legally restricted information, officers must maintain robust internal safeguards to avoid significant MMT fines and potential civil liability. Therefore, statements I, II and IV are correct.

Correct: The SEHK reviews the prospectus for CWUMPO compliance and issues a certificate of authorization, but the issuer remains responsible for its registration with the Companies Registry. This is correct because the SFC’s vetting functions for listed companies under CWUMPO have been transferred to the SEHK, and the law explicitly places the responsibility for delivering documents to the Companies Registry on the issuer.

Incorrect: The claim that the SFC retains sole authority to vet prospectuses is wrong because these functions were transferred to the SEHK to prevent regulatory duplication. The statement that the SEHK’s certificate confirms full compliance is incorrect because the CWUMPO specifies that such authorization does not constitute a confirmation of compliance. The suggestion that the SEHK only reviews Listing Rules is false as the SEHK conducts concurrent reviews for both Listing Rules and CWUMPO requirements.

Takeaway: For listed issuers, the SEHK vets prospectuses for CWUMPO compliance and authorizes registration, but the issuer must personally handle the filing with the Companies Registry.

Correct: Evaluating the applicant’s preliminary fitness for listing and identifying potential conflicts of interest is a primary purpose of the knowledge check. This process allows the sponsor to satisfy general KYC requirements, assess its own independence from the applicant, and determine if the candidate is suitable for listing before formally accepting the mandate.

Incorrect: Performing a comprehensive audit of financial statements is the responsibility of the reporting accountants rather than the sponsor’s preliminary knowledge check. Establishing final commission rates and securing cornerstone investors are activities that occur much later in the listing process, not during the initial screening phase. Publicly announcing the transaction at this stage is wrong because information regarding potential mandates is highly sensitive and must be kept confidential on a need-to-know basis.

Takeaway: The knowledge check is a preliminary assessment used to clear conflicts, assess applicant fitness, and ensure the sponsor can maintain confidentiality before a formal engagement.