This question assesses the understanding of the distinct requirements for different categories of Options Exchange Participants and the process for terminating participantship under the SEHK Options Trading Rules. Statement II is correct because a fundamental requirement for a Trading Participant is to have the necessary staff and internal procedures to ensure continuous access to HKATS for its business operations. Statement III is also correct as it accurately describes a key structural requirement for a Broker Participant: they must have an exclusive options broking agreement with a single Trading Participant that is a specific type of clearing participant (SEOCH Direct Clearing Participant or General Clearing Participant). Statement I is incorrect because the requirement for direct HKATS access via specified equipment applies to Trading Participants, not Broker Participants. Broker Participants primarily need access to updated price information. Statement IV is incorrect because the resignation of an Options Exchange Participant is not immediate. The process is only complete after all open positions are closed, all obligations to the SEHK and SEOCH are fulfilled, and the SEHK formally notifies the participant of the cancellation. Therefore, statements II and III are correct.

The correct answer is that notification must be made within one business day of becoming aware of the inability to meet the demand for three consecutive business days. According to the Financial Resources Rules (FRR), a licensed corporation providing securities margin financing must notify the SFC within one business day after it becomes aware that it is unable to meet calls or demands for payment from any of its lenders for three consecutive business days. In this scenario, the firm failed to meet the demand on Monday, Tuesday, and Wednesday. The third consecutive day of failure was Wednesday. Therefore, the firm became aware of this specific reportable event on Wednesday, and the notification to the SFC was required by the end of the next business day, which is Thursday. An incorrect option suggests notification is required immediately on the first day of failure. While prudent, the specific FRR rule for this situation is triggered only after three consecutive days of non-payment. Another incorrect choice confuses the trigger period with the reporting deadline, suggesting a three-day notification window from the initial demand. The rule clearly states a one-business-day notification period after the three-day trigger is met. The final incorrect option states that notification is only required after the lender liquidates collateral. While the liquidation of security by a lender is also a separate event requiring notification within one business day, it is not the trigger described in this particular scenario.

This question assesses understanding of offences related to obstructing an audit initiated by the SFC under the Securities and Futures Ordinance (SFO). Under Section 163 of the SFO, it is an offence for a person, with intent to prevent, delay, or obstruct an audit, to perform certain actions. Statement I describes the alteration or falsification of records, which is a direct violation of SFO s. 163(a). Statement III describes an attempt to leave Hong Kong with the intent to obstruct the audit, which is a specific offence under SFO s. 163(c). Statement II is incorrect because an offence requires intent or a failure to comply ‘without reasonable excuse’; an honest but mistaken recollection does not meet this threshold. Statement IV is incorrect because Section 162 of the SFO explicitly grants the appointed auditor the power to examine the business of any of the licensed corporation’s associated entities (such as a wholly-owned subsidiary) if it is relevant to the audit. Therefore, statements I and III are correct.

The correct answer is that the certificate must be issued within the 5 weeks immediately preceding the date of the resolution to wind up the company. For a members’ voluntary winding-up to proceed, which is only possible if the company is solvent, the directors must make a full inquiry into the company’s affairs. Based on this inquiry, they must form the opinion that the company will be able to pay its debts in full within a period not exceeding 12 months from the commencement of the winding-up. This declaration is formalized in a ‘Certificate of Solvency’. According to the New Companies Ordinance (NCO), this certificate has a strict validity period; it must be made within the five weeks leading up to the passing of the special resolution for winding up. It must then be delivered to the Registrar of Companies for registration. Stating that the company can pay its debts within a 24-month period is incorrect; the statutory timeframe is 12 months. Requiring approval from creditors is a feature of a creditors’ voluntary winding-up, not a members’ voluntary winding-up. The process of filing the Certificate of Solvency is a corporate matter handled by the Registrar of Companies; it does not require prior approval from the Securities and Futures Commission (SFC).

The correct answer is that a written agreement must exist between the two intermediaries, specifying which one is responsible for issuing the contract notes. According to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, when a client is serviced by two intermediaries (such as an introducing broker and an executing broker), the obligation to provide documents like contract notes can be fulfilled by just one of them. However, this is only permissible if there is a formal agreement in writing between the two firms that clearly designates the responsible party. The nature of the firms’ roles, such as one being an introducing broker and the other an executing broker, does not automatically create an exemption; the written agreement is the critical compliance requirement. A client’s verbal consent is not sufficient to waive this regulatory obligation, as the requirement is for a formal arrangement between the licensed corporations. Similarly, the issuance of a separate monthly statement does not negate the specific requirement for a contract note to be issued by the end of the second business day following the transaction, nor does it resolve the issue of which intermediary is responsible in the absence of a written agreement.

The correct answer is that the licensed corporation must provide the necessary information regarding the ultimate client to the SFC within two business days of the request. The SFC’s Client Identity Rule Policy explicitly states this timeframe for responding to requests for information on the identity of ultimate clients. Compliance with this rule is crucial, as a failure to provide the information within the stipulated period can negatively reflect on the licensed or registered person’s fitness and properness. The policy is designed to ensure transparency and allow the regulator to effectively monitor market activities. Claiming that client confidentiality prevents disclosure without a court order is incorrect, as the SFC has statutory authority to request this information for regulatory purposes. Freezing the client’s account is an excessive measure not required by the policy for a simple information request. Suggesting a response time of seven business days is also incorrect, as the policy specifies a much shorter, two-business-day deadline.

The SFC’s guidelines for OTC derivatives, which align with IOSCO principles, set out specific expectations for an intermediary’s internal controls. Statement I is correct because the guidelines require an independent market risk management function to ensure objective monitoring of risk limits and validation of pricing models, separate from the trading function that takes the risks. Statement II is correct as intermediaries are expected to perform accurate risk valuations daily, using an acceptable methodology like mark-to-market, to have a timely understanding of their exposures. Statement III is correct because the ultimate responsibility for the risk management framework lies with senior management; therefore, written policies and procedures must be overseen and approved by the board of directors or an equivalent body. Statement IV is incorrect because stress tests must be comprehensive. They should assess not only severe price moves but also changes in market behaviour, which explicitly includes changes in correlations and other underlying risk assumptions, regardless of product complexity. Therefore, statements I, II and III are correct.

When an investor sells shares of a Hong Kong-listed company, several costs are incurred. Statement I is correct because ad valorem stamp duty is a government tax levied on the value of the share transaction. It is payable by both the buyer and the seller on their respective contract notes at a rate of 0.13% of the consideration or market value, whichever is higher. Statement II is correct as a nominal fixed stamp duty of HK$5 is payable on the instrument of transfer (the transfer deed), which is typically paid by the seller (the transferor). Statement IV is also correct; the transaction levy is a statutory charge payable to the Securities and Futures Commission (SFC) by both the buyer and the seller to fund the regulator’s operations. Statement III is incorrect because the transfer fee is a charge levied by the listed company’s share registrar to cover the administrative cost of registering the new shareholder. This fee is customarily paid by the buyer (the transferee), not the seller. Therefore, statements I, II and IV are correct.

Statement I is correct. According to the Rules of the Exchange, the SEHK board must first be satisfied that a prima facie case exists against an Exchange Participant before it proceeds to call the participant for a hearing to explain its conduct. This is a fundamental step in ensuring procedural fairness. Statement II is also correct. The SEHK board has the explicit power to suspend an Exchange Participant from trading while disciplinary proceedings are underway. This is a protective measure to safeguard the market and its participants from potential ongoing misconduct. Statement III is incorrect. The SEHK is obligated to keep the SFC informed of any disciplinary action it takes against an Exchange Participant, but it does not require the SFC’s prior approval. The SEHK exercises its own disciplinary authority as a front-line regulator. Statement IV is incorrect. The Rules of the Exchange specifically state that the board may exercise its disciplinary powers against an Exchange Participant even if it fails to attend the hearing called by the board. Therefore, statements I and II are correct.

This question assesses the understanding of the distinct but coordinated regulatory roles of the Mandatory Provident Fund Schemes Authority (MPFA) and the Securities and Futures Commission (SFC) concerning MPF products. Statement I is correct because the SFC is responsible for the vetting and authorization of the specific MPF investment products and their related marketing materials under the SFC Code on MPF Products. Statement II is correct as the MPFA’s core mandate under the Mandatory Provident Fund Schemes Ordinance (MPFSO) includes the approval, registration, and ongoing supervision of entities acting as MPF trustees. Statement IV is also correct because the SFC licenses, registers, and supervises the conduct of investment managers (a Type 9 regulated activity), and this oversight extends to their management of MPF product portfolios. Statement III is incorrect; while the MPFA handles complaints about trustees, the SFC is specifically responsible for investigating alleged breaches related to marketing materials for SFC-authorized MPF products. The MPFA would likely refer such a complaint to the SFC for action. Therefore, statements I, II and IV are correct.

According to the SFC Code of Conduct, particularly General Principle 5 (Information for clients) and the associated guidance on risk disclosure, licensed persons must ensure clients fully understand the risks of products and services. For margin trading, this involves specific warnings. Statement I is correct because leverage can amplify losses, potentially causing a client’s total loss to exceed their initial margin deposit. Statement II is correct as the margin agreement grants the firm the right to liquidate a client’s collateral, often without prior notice, if they fail to meet a margin call. Statement III is also correct; the SFC specifically warns that stop-loss orders may not be effective in limiting losses, especially in volatile or fast-moving markets where execution prices can ‘gap’ below the stop price. Statement IV is incorrect; there is no regulatory requirement for a fixed grace period like 24 hours. Margin agreements typically allow the firm to liquidate positions immediately or with very short notice upon failure to meet a margin call. Therefore, statements I, II and III are correct.

The correct answer is that the firm must cooperate fully and provide the requested documents, as the SFC has broad powers under the SFO to conduct inspections and inquire into the affairs of a licensed corporation. Under Section 180 of the Securities and Futures Ordinance (SFO), the SFC is empowered to conduct inspections to ascertain whether a licensed corporation has complied with the SFO, its subsidiary legislation, codes, and any conditions of its licence. This power is fundamental to the SFC’s supervisory role. A licensed corporation has a statutory obligation to cooperate with such inspections. Refusing to provide documents on the grounds of commercial confidentiality is not a valid reason, as the SFC’s regulatory powers override such concerns. Similarly, attempting to negotiate the scope of the request or demanding a court order misunderstands the nature of the SFC’s statutory authority, which does not require a specific complaint or court intervention to initiate a compliance inspection. Delaying the process by escalating to another regulator is inappropriate and constitutes non-cooperation.

Statement I is correct. For a company limited by guarantee, the liability of its members is not related to share capital (as they typically do not have any) but is limited by the company’s articles to the amount that the members undertake to contribute to the assets of the company in the event of it being wound up. Statement II is correct. Under the New Companies Ordinance (Cap. 622), which took effect on 3 March 2014, the memorandum of association was abolished for all companies. Conditions previously set out in the memorandum are now deemed to be included in the articles of association, making the articles the single constitutional document of the company. Statement III is correct. Section 610 of the Companies Ordinance permits a company to dispense with the requirement to hold an annual general meeting if all members agree, which can be achieved by passing a written resolution or a resolution at a general meeting with unanimous consent. Statement IV is incorrect. While the Companies (Model Articles) Notice provides model articles for different types of companies, including those limited by guarantee, their adoption is not mandatory. A company is free to prepare its own articles of association, provided they are acceptable to the Registrar of Companies. Therefore, statements I, II and III are correct.

The principle of segregation of duties is fundamental to an intermediary’s internal controls, as outlined in the SFC’s Management, Supervision and Internal Control Guidelines. The objective is to separate incompatible functions to prevent conflicts of interest, fraud, errors, and misappropriation. Statement I is a classic example of a control failure; the dealing function (front office) must be segregated from the settlement function (back office) to prevent unauthorized trading or the concealment of errors. Statement II represents a significant conflict of interest; research must be independent from corporate finance activities to ensure its objectivity is not compromised by the firm’s interest in a successful IPO. Statement IV combines a front-office sales function with a back-office accounting function, creating an opportunity for an individual to initiate transactions and then control their reconciliation, which could facilitate misappropriation of client assets. In contrast, Statement III describes a best practice for internal control, where the compliance function is independent of operational duties and has a direct reporting line to the highest level of management (the Board), ensuring its effectiveness and authority. Therefore, statements I, II and IV are correct.

This question assesses understanding of market misconduct related to the dissemination of false or misleading information under the Securities and Futures Ordinance (SFO). Statement I is correct because under Part XIV of the SFO, a person who disseminates information that is false or misleading, knowing that or being reckless as to whether it is, commits a criminal offence. Statement II is correct because the civil regime under Part XIII of the SFO has a lower threshold. It captures conduct where a person knows, or is reckless or negligent as to whether, the information is false or misleading. Therefore, even if only negligence is proven, Alex could be found culpable by the Market Misconduct Tribunal (MMT). Statement III is incorrect. The ‘conduit’ defence is not automatic. It requires the person re-transmitting the information to have acted in good faith and in the ordinary course of business. A professional news outlet reprinting unverified, price-sensitive rumours without exercising due diligence may not be considered to be acting in good faith. Statement IV is correct. The SFO’s market misconduct provisions have extraterritorial effect. They explicitly cover conduct in Hong Kong that affects securities markets overseas, which applies here since InnovateHK Ltd. is dually listed and its price was affected in Frankfurt. Therefore, statements I, II and IV are correct.

The Market Misconduct Tribunal (MMT) conducts civil proceedings and has the power to impose a range of non-criminal orders under the Securities and Futures Ordinance (SFO). Statement I is correct; the MMT can order an individual to disgorge any profit gained or loss avoided as a result of the market misconduct. This is a common order aimed at removing the financial incentive from the wrongdoing. Statement II is also correct; the MMT can issue a disqualification order, preventing the person from being a director or being involved in the management of a listed corporation for a period of up to five years. Statement IV is correct as well; this is known as a ‘cold shoulder’ order, where the MMT can prohibit a person from dealing in securities, futures contracts, or leveraged foreign exchange contracts for a specified period. However, Statement III is incorrect. The MMT does not have the authority to impose criminal sanctions such as imprisonment. Imprisonment is a penalty that can only be imposed by a court of law following successful criminal prosecution, which is a separate process from the civil proceedings of the MMT. Therefore, statements I, II and IV are correct.

This question assesses the understanding of the Securities and Futures Commission’s (SFC) distinct powers under different parts of the Securities and Futures Ordinance (SFO). Statement I is correct as Part VIII of the SFO (specifically s. 180) grants the SFC broad powers to conduct inspections and investigations into intermediaries, including the power to compel the production of records and require individuals to attend interviews. Statement II is also correct. Under Part X of the SFO, the SFC has intervention powers to protect investors. If it suspects misconduct that jeopardizes client assets, it can seek restrictive orders from the Court of First Instance to freeze assets, which is a measure to protect the interests of the investing public. Statement III is incorrect because while the SFC can impose fines under its disciplinary powers in Part IX, this action follows a formal disciplinary process which includes issuing a notice of proposed disciplinary action and giving the regulated person an opportunity to be heard. The SFC cannot impose such a significant penalty summarily without due process. Statement IV is incorrect because the Market Misconduct Tribunal (MMT), established under Part XIII, specifically deals with civil proceedings for defined market misconduct activities like insider dealing or market manipulation. The scenario described relates to potential breaches of the Code of Conduct and client asset rules, which fall under the SFC’s direct disciplinary jurisdiction (Part IX) and do not require a referral to the MMT. Therefore, statements I and II are correct.

The correct answer is that the firm must ensure that only orders from qualified investors are routed to the ALP, and therefore decline the client’s request. According to Schedule 8 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, an ALP operator must implement measures to ensure that only ‘qualified investors’ are accepted as users and that only orders originated by such investors are routed to the ALP. A retail investor does not meet the definition of a qualified investor. While the duty of best execution is a fundamental obligation, it cannot be used to justify a breach of specific eligibility rules designed to protect certain classes of investors. Similarly, obtaining client consent or risk acknowledgement does not override this strict regulatory prohibition. The rule is not discretionary; therefore, seeking special approval from a responsible officer based on order size is also not a permissible course of action.

This question assesses understanding of the SFC’s investigation powers under the Securities and Futures Ordinance (SFO) and the corresponding obligations of a person under investigation.

Statement I is correct. Under section 183 of the SFO, a person under investigation is required to give the investigator all reasonable assistance. This includes attending before the investigator at a time and place required in writing and answering questions related to the investigation.

Statement II is incorrect. The SFO stipulates that if a corporation commits an offence, such as providing false or misleading information, any officer of the corporation who, with intent, causes or allows the corporation to commit the offence is also guilty. Therefore, liability is not limited solely to the employee; both the individual and potentially the corporation and its senior management could be held accountable.

Statement III is incorrect. According to section 191 of the SFO, when documents are seized under a warrant issued by a magistrate, they may be retained for a period of six months. This period can be extended if required for criminal proceedings or other proceedings under the SFO. The three-month period stated is inaccurate.

Statement IV is correct. Section 183 of the SFO provides a mechanism for a person who is genuinely unable to answer a question. If the answer is not within their knowledge or possession, they are required to make a statutory declaration to verify this fact. This fulfills their obligation for that specific inquiry. Therefore, statements I and IV are correct.

The correct answer is that the auditor must make a written report to the SFC regarding these findings as soon as reasonably practicable. Under section 157 of the Securities and Futures Ordinance (SFO), an auditor has a statutory duty to report any ‘reportable matter’ to the SFC. A breach of the Financial Resources Rules (FRR) is explicitly defined as a reportable matter for a licensed corporation, regardless of its materiality or whether it has been rectified. Additionally, a significant weakness in systems designed to comply with the Client Securities Rules constitutes a failure to comply with prescribed requirements, which is also a reportable matter. The law requires this report to be made as soon as is reasonably practicable after the auditor becomes aware of the issue. One incorrect option suggests that reporting is only necessary if there is a material adverse effect on the corporation’s financial position. This is incorrect because a breach of the FRR is a standalone reportable matter, irrespective of its financial impact. Another incorrect option proposes allowing management a period to rectify the issues before notifying the SFC. This is also wrong, as the SFO imposes a direct and immediate reporting obligation on the auditor to the regulator, which is not conditional on management’s response. Finally, the suggestion to only include the findings in the final audit report is incorrect because it does not satisfy the requirement to report ‘as soon as reasonably practicable,’ which is a separate and more urgent duty than the standard audit reporting process.

According to the Client Securities Rules, when an intermediary re-pledges client securities collateral, the aggregate market value of that collateral must not exceed 140% of the intermediary’s aggregate margin loans to clients. In this scenario, the limit is 140% of HK$100 million, which equals HK$140 million. The firm’s re-pledged collateral is at HK$150 million, exceeding this limit. The rules stipulate that if this limit is breached, the intermediary must take corrective action to reduce the value of the re-pledged collateral to or below the 140% threshold by the close of the next business day. Since the excess was identified at the close of business on Tuesday, the deadline for compliance is the close of business on Wednesday. The correct answer is that the firm must take action to reduce the value of the re-pledged collateral to no more than HK$140 million by the close of business on Wednesday. Reducing the collateral value to 100% of the margin loans is incorrect as it is more stringent than the 140% limit allowed by the rules. Reporting the matter to the SFC is only required if the firm fails to rectify the excess within the prescribed timeframe, thereby resulting in non-compliance. The primary obligation is to correct the position. Taking action on the same day is not required, as the rules provide a grace period until the close of the following business day.

The correct answer is that a Broker Participant is permitted to conduct Traded Options business for its clients by entering into an options broking agreement with a Trading Participant and corresponding client contracts. This is the fundamental role of a Broker Participant – to act as an intermediary introducing client business to a Trading Participant. The Broker Participant acts as a principal in its contracts with its own clients. The other options describe activities that are explicitly prohibited for a Broker Participant under the SEHK Options Trading Rules. A Broker Participant is restricted to having an options broking agreement with only one Trading Participant at any given time. Furthermore, to prevent conflicts of interest and maintain a clear distinction of roles, Broker Participants are not permitted to engage in proprietary trading for their own account. Finally, direct system access rights to the Hong Kong Futures Automated Trading System (HKATS) are reserved for Trading Participants; Broker Participants are not granted such access.

The correct answer is that the representative must decline the order until the client provides evidence that the shares have been successfully borrowed. Under the rules governing the Northbound trading link of Stock Connect, all short selling orders must be covered. This means the seller must have entered into a legally binding stock borrowing agreement to borrow the relevant shares before placing the short sell order. This is a strict pre-borrowing requirement. Accepting an order based on a client’s promise to cover the position later in the day would constitute an uncovered or ‘naked’ short sale, which is strictly prohibited. Executing the order and marking it as ‘covered’ is a misrepresentation and a serious regulatory breach. While reporting to the SFC might be necessary for repeated or suspicious activities, the immediate and primary obligation is to refuse to execute a non-compliant order.

According to the rules governing options trading for SEHK exchange participants and other licensed corporations, the options client agreement is a critical document that must contain specific provisions to protect both the client and the firm. Statement I is a mandatory inclusion, as clients must be informed of their right to claim under the Investor Compensation Fund in case the licensed corporation defaults. Statement III is also a required clause, ensuring the firm is protected from losses if a client breaches their obligations, such as failing to meet a margin call. Statement IV is a fundamental requirement related to knowing the client and anti-money laundering (AML) obligations, requiring the client to declare if they are the ultimate beneficiary or to disclose who is. However, Statement II is not a regulatory requirement for the client agreement; while a firm may offer market commentary as a service, it is not a mandated undertaking to be included in the formal agreement. Therefore, statements I, III and IV are correct.

Under Hong Kong’s Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) and the SFC’s guidelines, licensed corporations must comply with sanctions published by the United Nations Security Council (UNSC). The correct action upon identifying a potential client on the UNSC Consolidated Sanctions List is to immediately cease the on-boarding process, refrain from conducting any transactions for the individual, and file a suspicious transaction report with the Joint Financial Intelligence Unit (JFIU). Establishing a business relationship or dealing with a designated person on the sanctions list is a strict prohibition. Simply reporting the match to the SFC is insufficient, as the JFIU is the designated body for receiving suspicious transaction reports. Obtaining senior management approval is a procedure for high-risk clients, but it cannot override a legal prohibition against dealing with a sanctioned individual. Contacting the United Nations directly for verification is not the prescribed procedure for a financial institution; the obligation is to act upon the published list and report to the relevant local authorities.

The correct answer is that Ms. Chan can likely rely on the defence that she was exercising a right to acquire the securities that was obtained before she possessed the inside information. The Securities and Futures Ordinance (SFO) provides several statutory defences against an allegation of insider dealing. One such defence, often referred to as the ‘exercise of an existing right’ defence, applies when a person deals in securities by exercising a right to subscribe for or acquire them. A crucial condition for this defence is that the right itself was acquired before the person came into possession of the relevant inside information. In this scenario, Ms. Chan was granted the share options in January, well before she learned of the positive clinical trial results in May. Therefore, her action of exercising these pre-existing options, even while possessing inside information, is covered by this specific defence. The argument that she is liable because her purpose was to profit misunderstands the hierarchy of defences; the ‘exercise of an existing right’ is a specific carve-out. While being a connected person is a necessary condition for the insider dealing provisions to apply, it does not preclude the availability of statutory defences. The Chinese Wall defence is irrelevant here as it applies to corporations separating information-sensitive departments from their dealing functions, not to an individual acting on her own behalf.

According to the Securities and Futures (Insurance) Rules, a licensed corporation must maintain professional indemnity insurance. Statement I is correct because when a licensed corporation carries out more than one regulated activity and maintains a single insurance policy to cover all of them, the minimum insured amount required is HK$25 million. Statement II is correct because if the corporation arranges separate policies for each regulated activity, the minimum insured amount is HK$15 million per policy for activities such as Type 1 (Dealing in Securities). Statement III is incorrect; professional indemnity insurance covers the licensed corporation against liability for claims arising from negligence, errors, or omissions, whereas the Investor Compensation Fund (ICF) compensates investors for pecuniary losses suffered as a result of a default by an intermediary in relation to exchange-traded products. Their functions are distinct. Statement IV is incorrect because the minimum insured amount for a single regulated activity like Type 1 is HK$15 million, not HK$25 million. Therefore, statements I and II are correct.

Under Section 163 of the Securities and Futures Ordinance (SFO), it is an offence for a person, with the intent to prevent, delay, or obstruct an audit appointed by the SFC, to engage in certain activities. Statement I describes the intentional deletion of records relevant to the audit, which is a direct violation. Statement II illustrates an attempt to leave Hong Kong to evade the audit process, which is also a specified offence. Statement IV involves disposing of or making unavailable property that is relevant to the audit, constituting another form of obstruction. In contrast, Statement III describes a legitimate action. Challenging the SFC’s interpretation of a rule through a formal submission to the auditor is a procedural matter and does not constitute an illegal obstruction of the audit itself. It is an act of defence or clarification, not concealment or evasion. Therefore, statements I, II and IV are correct.

The correct answer is that trade information is electronically transmitted to the SEOCH for registration and clearing. After an options trade is matched on the Hong Kong Futures Automated Trading System (HKATS), the system’s primary function is complete. The next immediate step involves the post-trade process, where the trade data is automatically sent to the Derivatives Clearing and Settlement System (DCASS). The Stock Exchange of Hong Kong Options Clearing House (SEOCH), as the central clearing counterparty, uses this data in DCASS to register the trade, perform novation (becoming the counterparty to both the buyer and seller), and calculate the required margins. The Central Clearing and Settlement System (CCASS) is involved much later in the process, specifically to handle the settlement of the underlying stock only when an option is exercised and assigned. The trading system, HKATS, is responsible for order matching, not for calculating or collecting margin; this risk management function is a core responsibility of the clearing house, SEOCH. The process is automated and electronic, so manual reporting of matched trades to the clearing house is not the standard procedure.

Licensed corporations in Hong Kong have a legal obligation to comply with sanctions regimes implemented under the United Nations Sanctions Ordinance (Cap. 537). This requires them to screen clients, beneficial owners, and relevant parties against the sanctions lists published by the United Nations Security Council (UNSC). Statement I is correct because the first step is to verify if the specific individual is a ‘designated person’ on the UNSC consolidated list, as sanctions are typically targeted and do not automatically apply to all nationals of a sanctioned country. Statement II is correct because if a match is confirmed, the firm is prohibited from dealing with that person or their assets. This includes establishing a business relationship or conducting transactions, unless a specific license is obtained from the Commerce and Economic Development Bureau. Statement III is incorrect; customer due diligence and sanctions screening obligations explicitly extend to the beneficial owners, directors, and controllers of a corporate client, not just the entity itself. Statement IV is incorrect because while nationality from a high-risk or sanctioned jurisdiction is a risk factor, it does not automatically trigger the requirement to file a Suspicious Transaction Report (STR). An STR should be filed when there is knowledge or suspicion of money laundering or terrorist financing, not merely based on a demographic factor without other suspicious indicators. Therefore, statements I and II are correct.