Statements I and II are correct. The Codes are indeed not concerned with the financial or commercial advantages or disadvantages of a share repurchase; this is a matter for the company and its shareholders to assess. The Codes primarily focus on ensuring fair and equal treatment of all shareholders during such transactions. The Codes apply to takeovers, mergers and share repurchases affecting public companies in Hong Kong and companies with a primary listing of their equity securities in Hong Kong.

Statement III is incorrect because the Executive of the SFC may grant a waiver from the requirements of the Share Repurchase Code for companies with a primary listing outside Hong Kong, provided that shareholders in Hong Kong are adequately protected. This demonstrates a degree of flexibility based on shareholder protection.

Statement IV is incorrect because the responsibilities provided for in the Codes apply to persons who are actively engaged in the securities market, not passively engaged. This highlights the active role expected of market participants in upholding the principles of the Codes. Therefore, the correct combination is I & II only.

The Listing Committee of the Hong Kong Stock Exchange plays a crucial role in maintaining market integrity and protecting investors. Statement I is correct because the Listing Committee is indeed responsible for reviewing and approving applications for listing on the Main Board and GEM. This includes assessing whether companies meet the eligibility criteria and comply with the listing rules. Statement II is also correct. The Listing Committee oversees compliance with the Listing Rules, including continuous obligations of listed companies. This involves monitoring companies’ disclosures, financial performance, and corporate governance practices. Statement III is correct as the Listing Committee has the authority to discipline listed companies and their directors for breaches of the Listing Rules. This can include issuing public censures, imposing fines, or even delisting companies in severe cases. Statement IV is also correct. The Listing Committee is responsible for formulating and amending the Listing Rules to ensure they remain relevant and effective in light of changing market conditions and regulatory developments. Therefore, all the statements accurately reflect the responsibilities of the Listing Committee. These responsibilities are crucial for ensuring a fair, orderly, and transparent market in Hong Kong, as outlined in the Securities and Futures Ordinance and related regulations.

The Code of Conduct for Corporate Finance Advisers emphasizes the paramount importance of integrity and independence in all advisory activities. This includes avoiding conflicts of interest, ensuring fair treatment of all clients, and maintaining objectivity in providing advice. Specifically, paragraph 3.1 of the Code mandates that advisers must act with due skill, care, and diligence, and must not engage in any conduct that is unethical or unprofessional. Paragraph 4.1 further requires advisers to disclose any material interests that could potentially compromise their objectivity. The Securities and Futures Ordinance (SFO) underpins these requirements by establishing the legal framework for licensing and regulating corporate finance advisers, ensuring they meet the necessary standards of competence and integrity. The Listing Rules also reinforce these principles by requiring advisers to provide independent advice to listed companies, particularly in transactions involving potential conflicts of interest. Failing to adhere to these standards can result in disciplinary actions by the SFC, including suspension or revocation of licenses, as well as potential legal consequences under the SFO. Therefore, maintaining the highest ethical standards is not only a regulatory requirement but also essential for preserving the integrity of the financial markets and protecting the interests of investors.

The principle of treating all shareholders even-handedly is a cornerstone of Hong Kong’s regulatory framework for takeovers and mergers, as emphasized in the Codes on Takeovers and Mergers issued by the Securities and Futures Commission (SFC). This principle ensures fairness and protects the interests of all shareholders, particularly minority shareholders, during significant corporate events.

Statement I is correct because it accurately reflects the requirement for a general offer to all shareholders when control of a company changes. This ensures that all shareholders have the opportunity to exit their investment at a fair price. This is in line with the General Principles of the Codes on Takeovers and Mergers.

Statement II is correct as it highlights the prohibition against providing selective information to certain shareholders during an offer or when an offer is contemplated. This ensures that all shareholders have access to the same information to make informed decisions. The exception for confidential information shared with a bona fide potential offeror is also accurately stated.

Statement III is incorrect because it suggests that directors can consider their personal shareholdings when advising shareholders. The Codes explicitly state that directors must act solely in their capacity as directors and consider only the shareholders’ interests as a whole, disregarding their personal or family shareholdings.

Statement IV is correct because it accurately describes the restrictions placed on the board of an offeree company after a bona fide offer has been communicated or is believed to be imminent. The board cannot take actions that could frustrate the offer or deny shareholders the opportunity to decide on its merits without shareholder approval. This is to prevent defensive tactics that could harm shareholder value.

Therefore, the correct combination is I, II & IV only.

The primary responsibility of the independent adviser, as stipulated by Hong Kong’s securities regulations, is to act in the best interests of the offeror or offeree company, focusing solely on the interests of the independent shareholders. This principle is crucial for maintaining fairness and transparency during takeover bids and corporate restructurings. The independent adviser must provide unbiased advice, ensuring that the independent shareholders’ interests are not compromised by the interests of management or controlling shareholders. This often involves evaluating the terms of the offer, assessing its fairness, and advising the independent committee on whether to accept or reject the offer. The independent committee, composed of non-executive directors with no direct or indirect interest in the offer, plays a vital role in this process. They rely on the independent adviser’s expertise to make informed decisions that protect the interests of all independent shareholders. Furthermore, the regulations emphasize the importance of avoiding any actions that could frustrate a bona fide offer or deny shareholders the opportunity to decide on the merits of the offer. This includes restrictions on issuing shares, creating convertible securities, disposing of material assets, or entering into contracts outside the ordinary course of business without shareholder approval. These measures are designed to prevent the offeree company’s board from taking actions that could undermine the offer or disadvantage shareholders. In situations where forming an independent committee is not feasible, the independent financial adviser assumes primary responsibility for representing the interests of independent shareholders, underscoring the importance of their role in safeguarding shareholder value and ensuring fair treatment during corporate transactions.

The Main Board of the Hong Kong Stock Exchange is designed for established companies with a proven track record, while the GEM (Growth Enterprise Market) caters to emerging companies with high growth potential. Statement I is correct because the Main Board generally requires a longer operating history and more stringent financial performance criteria compared to GEM. This is to ensure that companies listed on the Main Board have demonstrated stability and profitability. Statement II is also correct. GEM listing rules are often less stringent regarding profitability, focusing more on growth prospects. This allows younger companies to access capital markets earlier in their development. Statement III is incorrect because the Main Board typically has higher market capitalization requirements than GEM, reflecting the larger size and scale of companies listed on the Main Board. Statement IV is correct. GEM is designed to be a stepping stone for companies that may eventually list on the Main Board, so its listing rules are generally more flexible to accommodate companies at an earlier stage of development. Therefore, the correct combination is I, II & IV only. These differences reflect the distinct roles of each board in the Hong Kong financial market, with the Main Board serving as a platform for established companies and GEM supporting the growth of emerging enterprises, as outlined in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The Listing Committee, as outlined in Rule 2A.17 of the Main Board Listing Rules, plays a crucial role in the Hong Kong securities market by overseeing listing-related matters. The committee’s composition is designed to ensure a balance of perspectives, including representation from Exchange members, listed companies, and market practitioners. The inclusion of the Chief Executive of HKEx as an ex officio member further strengthens the committee’s connection to the exchange’s overall strategy. The GEM Listing Committee operates under similar principles, as detailed in GEM Rule 3.18, but with a slightly smaller membership. The requirement for a quorum of five members, including the Chief Executive (with specific limitations in disciplinary proceedings), ensures that decisions are made with sufficient participation and consideration. The rule that members present at a review of a disciplinary decision must not have been present at the original meeting is designed to ensure impartiality and fairness in the appeals process. The Listing Appeals Committee, composed of members of the HKEx Board, provides a further avenue for appeal against Listing Committee decisions, reinforcing the integrity and transparency of the listing process. This structure is essential for maintaining investor confidence and the orderly functioning of the Hong Kong securities market, in accordance with the Securities and Futures Ordinance (SFO) and related regulations.

The Securities and Futures Commission (SFC) in Hong Kong mandates that licensed representatives and responsible officers maintain a high standard of competence and ethical behavior. This includes a thorough understanding of the relevant rules, regulations, and guidelines governing the securities and futures industry. The examination for licensed representatives and responsible officers is designed to assess this understanding. Permitting candidates to bring in external materials, such as personal notes or unauthorized study guides, would undermine the integrity of the examination process. It would compromise the assessment of a candidate’s individual knowledge and understanding of the regulatory framework. The examination aims to ensure that individuals operating in these roles possess the necessary expertise to protect investors and maintain market integrity. Allowing external materials would create an unfair advantage for some candidates and would not accurately reflect their competence. The use of non-programmable calculators is permitted to assist with calculations, but access to external information is strictly prohibited to maintain the fairness and validity of the examination. This aligns with the SFC’s commitment to ensuring that only qualified individuals are licensed to operate in the securities and futures industry in Hong Kong, as outlined in the Securities and Futures Ordinance (SFO).

A capitalization issue, as defined by the HKEx, involves the allotment of additional securities to existing shareholders, where the payment for these securities is derived from the issuer’s reserves or profits, and is typically proportional to their existing holdings. This process does not entail any monetary payments from the shareholders. A key component of a capitalization issue is the scrip dividend scheme, where shareholders receive free shares equivalent to the value of a cash dividend they would otherwise receive. According to the listing rules, specifically referencing Chapter 11, a capitalization issue necessitates the preparation and distribution of a listing document in the form of a circular to shareholders. This circular must adhere to all relevant provisions outlined in Chapter 11, ensuring transparency and providing shareholders with comprehensive information regarding the issue. This requirement is in place to protect the interests of shareholders by ensuring they are fully informed about the implications of the capitalization issue on their holdings and the company’s capital structure. The circular serves as a critical communication tool, enabling shareholders to make informed decisions about their investments. Failing to comply with Chapter 11 when undertaking a capitalization issue can result in regulatory penalties and reputational damage for the issuer. Therefore, adherence to these regulations is essential for maintaining market integrity and investor confidence, as emphasized by the Securities and Futures Commission (SFC).

The Securities and Futures Ordinance (SFO) addresses market misconduct, including insider dealing. A key consideration is the intent behind securities dealings. If the purpose of dealing in securities was not to make a profit or reduce a loss, it can be a valid defense against accusations of market misconduct. This defense recognizes that legitimate business strategies might involve securities transactions that don’t have immediate profit or loss reduction as their primary goal. For instance, building a block of shares to prevent a hostile takeover, as mentioned in the reference material, falls under this category. The Tribunal, empowered by section 253 of the SFO, can investigate potential market misconduct cases and has the authority to require individuals to appear before it. Furthermore, under section 257, the Tribunal can issue various orders, including prohibiting individuals from serving as directors of listed corporations or dealing in securities for up to five years. It can also order the payment of costs to the government or the SFC, or the disgorgement of profits gained or losses avoided due to market misconduct. The SFO also criminalizes insider dealing under section 291, aligning the definitions and defenses with those used in Tribunal proceedings. This represents a significant shift from previous regulations where insider dealing was not a criminal offense. Section 305(7)(b) allows courts to admit the Tribunal’s report as evidence, but section 307 prevents criminal proceedings while Tribunal proceedings are ongoing. Understanding these provisions is crucial for anyone involved in securities dealings in Hong Kong.

Statements I and II are correct. Statement I accurately reflects the Listing Rules’ emphasis on early consultation with the Exchange regarding potential connected transactions. This proactive approach allows listed issuers to clarify the applicability of connected transaction rules and ensure compliance. Statement II is also correct as the Exchange retains the authority to designate individuals as connected persons and to determine whether specific exemptions apply to certain transactions. This discretionary power enables the Exchange to address potential conflicts of interest and maintain market integrity. Statement III is incorrect because while the Takeovers Code is crucial, a breach of it is deemed a breach of the Listing Rules, and the Exchange can penalize the listed issuer and/or its directors, not necessarily only the directors. Statement IV is incorrect because the definition of a connected person includes any non wholly-owned subsidiary of the listed issuer where any connected person(s) of the listed issuer is/are (individually or together) entitled to exercise, or control the exercise of, 10% or more of the voting power at any general meeting of such non-wholly-owned subsidiary.

The principle of even-handed treatment of shareholders is a cornerstone of Hong Kong’s regulatory framework for takeovers and mergers, as articulated in the Codes on Takeovers and Mergers and Share Buy-backs. This principle mandates that all shareholders of the same class must be treated similarly, ensuring fairness and preventing preferential treatment. This is particularly crucial during a change of control, where a general offer to all other shareholders is typically required to protect their interests. The underlying rationale is to prevent controlling shareholders from extracting private benefits at the expense of minority shareholders. The Securities and Futures Commission (SFC) actively enforces this principle to maintain market integrity and investor confidence. The even-handed treatment principle extends to the provision of information. During an offer or when an offer is contemplated, neither the offeror, the offeree company, nor their respective advisors can selectively disclose information to some shareholders without making it available to all. This prevents insider dealing and ensures that all shareholders have access to the same information when making decisions about the offer. The only exception is the confidential exchange of information between the offeree company and a bona fide potential offeror, or vice versa, which is necessary for due diligence and negotiation purposes. Directors of both the offeror and offeree companies have a fiduciary duty to act in the best interests of all shareholders, taken as a whole, and must not allow personal interests or relationships to influence their advice. This duty is reinforced by the requirement that directors must not enter into commitments that restrict their freedom to advise shareholders, as such commitments could create conflicts of interest or breach their fiduciary duties. The Codes also emphasize the importance of full and prompt disclosure of all relevant information to avoid creating a false market and to ensure that shareholders have sufficient information, advice, and time to make informed decisions. The SFC’s enforcement actions and the Takeovers Panel’s decisions consistently uphold these principles, demonstrating their importance in maintaining a fair and transparent market for corporate control transactions in Hong Kong.

The correct combination is ‘I & II only’.

Statement I is correct because the issuance of shares as consideration for an acquisition or other transaction is a common practice. The Listing Rules require that such issuances are properly valued and disclosed to ensure fairness and transparency for all shareholders. This prevents dilution of existing shareholders’ equity without proper justification.

Statement II is correct because when a listed company exchanges existing assets for new assets, it is crucial to assess the fair value of both assets involved. This ensures that the exchange is conducted on an arm’s length basis and that the company is not overpaying or undervaluing the assets. The Listing Rules emphasize the need for independent valuations and disclosures to maintain market integrity.

Statement III is incorrect because while shareholder approval is often required for significant transactions, it is not universally required for all consideration issues or asset exchanges. The specific thresholds and circumstances that trigger the need for shareholder approval are detailed in Chapter 14 of the Listing Rules, which outlines notifiable transactions based on percentage ratios. A minor exchange might not require shareholder approval.

Statement IV is incorrect because the Listing Rules do not prohibit the issuance of shares as consideration if it leads to a change in control. However, such a transaction would be subject to very close scrutiny and would likely require independent shareholder approval, particularly if it triggers a mandatory general offer under the Takeovers Code. The primary concern is to protect the interests of minority shareholders and ensure they have an opportunity to exit if there is a change in control.

A focused line of business, as it relates to securities firms in Hong Kong, refers to a business model where the firm concentrates its activities on a specific area of the securities market or a limited range of financial products and services. This contrasts with a diversified approach where a firm engages in a wide array of activities. The Securities and Futures Commission (SFC) in Hong Kong encourages firms to adopt business models that are appropriate for their size, resources, and expertise. A focused approach can allow a firm to develop deeper expertise, manage risks more effectively, and potentially offer specialized services that cater to a specific client base. However, it also means the firm is more vulnerable to downturns or regulatory changes affecting that particular segment. The statement of business objectives is crucial as it outlines the firm’s strategic goals, target market, and the specific activities it intends to undertake. This statement is a key component of the firm’s overall business plan and is essential for regulatory compliance and risk management. It must be realistic, achievable, and consistent with the firm’s resources and capabilities. The SFC expects firms to regularly review and update their statement of business objectives to reflect changes in the market environment or the firm’s strategic direction. A well-defined statement of business objectives helps the firm to focus its resources, manage its risks, and demonstrate its commitment to regulatory compliance. It also provides a clear framework for assessing the firm’s performance and making strategic decisions.

The question addresses the roles of the SFC and the Exchange in vetting prospectuses under the Companies Ordinance (CO) and Listing Rules. Statement I is correct because the Exchange reviews prospectuses for compliance with both the Listing Rules and the CO, as outlined in Chapter 11A of the Listing Rules. This concurrent review ensures that listing applicants meet all necessary regulatory requirements efficiently. Statement II is also correct. While the Exchange issues a certificate of authorization, this does not guarantee full compliance with the CO. Issuers remain responsible for ensuring the prospectus meets all legal requirements, including those related to misstatements under sections 40 and 40A of the CO. Statement III is incorrect because sections 38 and 38A of the CO do specify requirements for both English and Chinese translations of the prospectus. Generally, both versions are required, although exceptions exist for advertisements in single-language publications. Statement IV is incorrect because Part I of Schedule 3 does include a description of the founders of the business, as well as details on the business itself, share capital, and the intended use of capital raised. Therefore, only statements I and II are correct.

The HKSI Paper 5 examination is designed to assess a candidate’s understanding of the local regulatory framework in Hong Kong relevant to securities and futures. The examination format, as outlined in the study manual, is crucial for candidates to understand for effective preparation. The study manual explicitly states that the Paper 5 examination consists of 40 multiple-choice questions. Candidates are given a total of 60 minutes to complete the exam. Therefore, statement I is correct. The passing grade for the Paper 5 examination is explicitly stated as 70%, meaning candidates must achieve this score to pass. Thus, statement II is also correct. The study manual recommends allocating approximately 1.5 minutes per question to manage time effectively during the exam. This is a suggested strategy to ensure all questions are attempted within the time limit. Therefore, statement III is correct. The study manual also estimates a study time of 75-80 hours. Therefore, statement IV is correct. All four statements accurately reflect information provided in the HKSI Paper 5 study manual regarding the examination format, passing grade, and study recommendations.

A Compliance Adviser’s primary duty, as stipulated by the Exchange, is to ensure the listed issuer adheres to all relevant listing rules and regulations. This includes maintaining impartiality in their advisory role, cooperating fully with Exchange investigations, and providing an undertaking to comply with listing rules. While directors also have a responsibility to ensure compliance, the Compliance Adviser’s role is specifically focused on guiding the issuer through the initial period after listing and providing expert advice on regulatory matters. The Independent Financial Advisor (IFA) has a different role, focusing on providing independent financial advice, and while they also need to be impartial and cooperate with investigations, their primary responsibility is not the overall compliance of the listed issuer with all listing rules. The Exchange may direct a listed issuer to appoint a Compliance Adviser for such period and to undertake such role as may be specified by the Exchange (rule 3A.20 / GEM rule 6A.20). Each Compliance Adviser must give an undertaking to the Exchange and must undertake to (rule 3A.22 / GEM rule 6A.22): comply with the listing rules applicable to Compliance Advisers; and co-operate in any investigation conducted by the Listing Division and/or the Listing Committee of the Exchange. The Board of directors of a listed issuer is collectively responsible for the management and operations of the listed issuer. The Exchange expects the directors, both collectively and individually, to fulfil their duties to a standard at least commensurate with the standard established by Hong Kong law (rule 3.08).

Section 270 of the Securities and Futures Ordinance (SFO) outlines specific circumstances under which dealing in securities, even with inside information, does not constitute insider dealing. These exceptions are designed to accommodate legitimate business activities and situations where the informational advantage is not exploited for personal gain. The key elements revolve around the purpose of the transaction and the nature of the information held.

Firstly, if a person acquires shares as a liquidator, receiver, or trustee in bankruptcy, their actions are considered legitimate if they are fulfilling their legal duties. The acquisition is incidental to their role and not driven by an intention to profit from inside information. Secondly, the law recognizes that individuals within a corporation may possess information without necessarily using it for personal gain. If the individuals dealing in the securities lack relevant information within the corporation, their actions do not constitute insider dealing. This acknowledges that large organizations often have information silos, and not all employees are privy to sensitive data. Thirdly, the purpose of the transaction is crucial. If the dealing in securities is not aimed at making a profit or avoiding a loss, it falls outside the scope of insider dealing. This covers situations where the transaction is driven by other factors, such as fulfilling contractual obligations or restructuring a portfolio for reasons unrelated to the inside information. These exceptions are narrowly defined to prevent abuse and ensure that only legitimate activities are protected, maintaining the integrity of the securities market in Hong Kong.

GEM Rule 11.22 stipulates that management shareholders and significant shareholders must collectively hold at least 35% of the issued share capital at the time of listing. This requirement ensures that those with significant influence in the company retain a substantial stake, aligning their interests with those of public shareholders and promoting responsible corporate governance. GEM Rule 11.23(2)(b) mandates a minimum of 100 public shareholders at the time of listing for issuers with at least 24 months of active business pursuits. This rule aims to ensure sufficient liquidity and public interest in the newly listed shares. For companies meeting only the 12-month active business pursuit requirement, GEM Rule 11.12(3)(c) increases the minimum number of public shareholders to 300, reflecting the higher risk associated with shorter operating histories. GEM Rule 11.24 clarifies that underwriting is not compulsory; however, if new capital is raised and not fully underwritten, the listing can only proceed if the minimum subscription amount stated in the prospectus is achieved. This protects investors by ensuring that the company secures the necessary funding. The applicant has the freedom to choose its offering mechanism, provided full disclosure is made, promoting transparency and investor awareness. Finally, GEM Rule 6A.02 requires a new applicant to appoint a sponsor from the Exchange’s list of qualified sponsors to assist with the listing application, ensuring expert guidance and compliance with listing rules.

Rule 14 of the Takeovers Code emphasizes equitable treatment across different classes of equity share capital during an offer. This principle ensures that all shareholders, regardless of the class of shares they hold, receive comparable consideration and are not unfairly disadvantaged. The requirement to consult the Executive in advance underscores the importance of regulatory oversight in maintaining fairness and preventing potential abuses. The Executive’s role is to assess the terms of the offer and ensure that they are equitable to all shareholders, taking into account the specific characteristics and rights attached to each class of shares. This consultation process helps to identify and address any potential conflicts of interest or unfair practices that could arise from the offer. The Takeovers Code is administered by the Securities and Futures Commission (SFC) in Hong Kong. The SFC is responsible for enforcing the Code and ensuring that all parties involved in a takeover or merger comply with its provisions. The SFC has the power to investigate potential breaches of the Code and to take disciplinary action against those who violate its rules. This regulatory framework promotes transparency, fairness, and the protection of minority shareholders’ interests in corporate transactions. The consultation with the Executive is a critical step in this process, providing an opportunity for the regulator to scrutinize the offer and ensure that it meets the standards of fairness and equity required by the Takeovers Code.

The question addresses the concept of ‘acting in concert’ under the Takeovers Code in Hong Kong, which is crucial for determining when a mandatory offer is triggered. The Takeovers Code aims to prevent individuals or entities from circumventing the mandatory offer requirements by acting together to acquire control of a company without making a general offer to all shareholders. Statement I is correct because the definition of ‘acting in concert’ explicitly involves an agreement or understanding to actively cooperate to obtain or consolidate control. Statement II is also correct; the Takeovers Code specifically deems certain relationships, such as a company and its subsidiaries, as acting in concert. Statement III is incorrect because while fund managers and their clients can be deemed to be acting in concert, this is specifically in respect of the relevant investment accounts managed on a discretionary basis, not all shareholdings. Statement IV is incorrect because the transitional arrangements relating to the trigger apply to a person who, alone or with concert parties, held between 30% and 34.9% of the voting rights of a company on 19 October 2001. Therefore, only statements I and II accurately reflect the principles and definitions within the Takeovers Code regarding ‘acting in concert’.

In the context of Hong Kong IPOs, especially larger ones involving both placing and public offerings, the claw-back mechanism plays a crucial role in balancing the allocation of shares between institutional and retail investors. The primary purpose of the claw-back is to ensure that if there is excessive demand from the public for the shares, a portion of the shares initially allocated to institutional investors through the placing tranche can be reclaimed to satisfy this public demand. This mechanism is designed to promote fairness and accessibility in the IPO process, allowing retail investors to participate even in highly sought-after offerings. The decision to implement the claw-back and the extent to which shares are reallocated from the placing tranche to the public tranche is typically determined by the level of oversubscription in the public offering. If the public demand significantly exceeds the number of shares initially allocated to the public tranche, the sponsor may exercise the claw-back option to increase the allocation to the public. This ensures that a reasonable proportion of the shares are made available to retail investors, preventing institutional investors from dominating the allocation. The claw-back mechanism is a standard practice in Hong Kong IPOs and is governed by regulations and guidelines issued by the Hong Kong Stock Exchange and the Securities and Futures Commission (SFC). These regulations aim to ensure transparency, fairness, and investor protection in the IPO process. The claw-back mechanism is disclosed in the IPO prospectus, providing investors with information on the potential reallocation of shares between the placing and public tranches. The sponsor plays a key role in overseeing the claw-back process and ensuring that it is conducted in accordance with the applicable regulations and guidelines.

A share repurchase, also known as a buyback, involves a company using its available cash to buy its own outstanding shares in the open market or through a tender offer. This action reduces the number of shares outstanding, which can lead to an increase in earnings per share (EPS) and potentially boost the share price. The decision-making process for a share repurchase is multifaceted and involves careful consideration of various factors. Firstly, the company must assess its financial position, ensuring it has sufficient cash reserves without jeopardizing its operational needs or future investment opportunities. A thorough analysis of the company’s cash flow, debt levels, and capital expenditure plans is crucial. Secondly, the board of directors must evaluate the market conditions and the company’s stock valuation. If the shares are undervalued, a repurchase can be seen as a strategic move to enhance shareholder value. Thirdly, regulatory and legal considerations play a significant role. In Hong Kong, share repurchases are governed by the Companies Ordinance and the Listing Rules of the Stock Exchange of Hong Kong. Companies must adhere to specific guidelines regarding the maximum number of shares that can be repurchased, the timing of repurchases, and disclosure requirements. Failure to comply with these regulations can result in penalties and reputational damage. Finally, the company must consider the potential impact on its stakeholders, including employees, creditors, and other shareholders. A share repurchase can signal confidence in the company’s future prospects, but it can also raise concerns about the company’s commitment to long-term investments and innovation. Therefore, a well-defined communication strategy is essential to manage stakeholder expectations and address any potential concerns. The Securities and Futures Commission (SFC) also monitors share repurchases to ensure fair and transparent market practices.

The question explores the scope of ‘advising on corporate finance’ under the Securities and Futures Ordinance (SFO) in Hong Kong. According to the SFO, Type 6 regulated activity encompasses providing advice on compliance with listing rules, offers to dispose of or acquire securities from the public, and corporate restructuring advice to listed corporations or public companies.

Statement I is correct because advising a listed company on compliance with rules made under section 23 or 36 of the SFO, which govern the listing of securities, falls squarely within the definition of advising on corporate finance.

Statement II is incorrect. While advising on offers to dispose of securities to the public is included, the advice must be given generally to holders of securities or a class of securities, not specifically to an individual investor.

Statement III is correct. Providing advice to a listed corporation regarding corporate restructuring in respect of securities is explicitly included in the definition of advising on corporate finance.

Statement IV is incorrect. Advice given by a solicitor incidental to their practice is excluded from the definition of ‘advising on corporate finance’.

Therefore, the correct combination is I & III only.

The Investment Products Department at the SFC plays a crucial role in safeguarding investors by regulating the public marketing of investment products. Statement I is correct because the department’s primary function is indeed to oversee how investment products, such as unit trusts and mutual funds, are marketed to the public, ensuring transparency and fair representation of these products. Statement II is also correct, as the department’s oversight extends to other collective investment schemes available to Hong Kong investors. This ensures that all publicly marketed investment products adhere to regulatory standards. Statement III is incorrect because the Investment Products Department focuses on the marketing aspect of investment products, not the licensing of individuals or corporations dealing with corporate finance; that falls under the purview of the Licensing Department. Statement IV is incorrect because the department’s focus is on regulating the marketing of investment products to the public, not the supervision of licensed corporations and individual licensees, which is the responsibility of the Intermediaries Supervision Department. Therefore, only statements I and II accurately reflect the responsibilities of the Investment Products Department.

The Takeovers Code sets strict timelines for documentation related to takeover offers to ensure shareholders have sufficient information and time to make informed decisions, as highlighted in General Principles 2.5 and 2.6.

Statement I is correct. Rule 8.2 stipulates that in a cash offer, the offer document should normally be posted within 21 days of the announcement of the offer terms.

Statement II is incorrect. Rule 8.4 states that if a composite offer document is not issued, the offeree company should send its response document to its shareholders within 14 days of the date the offer document is posted, not 21 days.

Statement III is correct. Rule 15.5 specifies that, unless the offer becomes unconditional as to acceptances, the offer cannot be kept open after 60 days from the posting date, except with the Executive’s consent.

Statement IV is incorrect. Rule 15.7 provides that all conditions of the offer (other than acceptances) must be fulfilled within 21 days of the first closing date or the date the offer is unconditional as to acceptances, whichever is later, leading to a final day of day 81 if it becomes unconditional as to acceptances on day 60. Therefore, the correct combination is I & III only.

The Securities and Futures Ordinance (SFO) in Hong Kong mandates specific disclosure requirements for prospectuses to ensure investors have access to comprehensive and accurate information before making investment decisions. Section 38A outlines the general duty to disclose all information that is materially significant and necessary for informed investment decisions. This includes details about the company’s financial condition, business operations, risk factors, and future prospects. The prospectus must not contain any false or misleading statements and must present information in a clear, concise, and easily understandable manner. Section 38A emphasizes the importance of transparency and accountability in the offering process, requiring issuers and their advisors to exercise due diligence in preparing the prospectus. Failure to comply with these disclosure requirements can result in legal liabilities, including potential claims for damages from investors who suffer losses as a result of inadequate or misleading disclosures. The SFO aims to protect investors and maintain the integrity of the securities market by ensuring that prospectuses provide a reliable basis for investment decisions. This regulatory framework promotes investor confidence and fosters a fair and efficient market environment in Hong Kong. The specific content and format of the prospectus are further detailed in the Companies (Winding Up and Miscellaneous Provisions) Ordinance and related guidelines issued by the Securities and Futures Commission (SFC).

The Takeovers Code and Share Repurchase Code in Hong Kong are designed to ensure fair treatment of all shareholders in relevant companies during takeovers, mergers, and share repurchases. The Codes apply to public companies in Hong Kong and those with a primary listing of equity securities in Hong Kong. A critical aspect is determining whether a company qualifies as a ‘public company’ within Hong Kong’s regulatory scope, which involves an economic or commercial test considering the number of Hong Kong shareholders, the extent of share trading in Hong Kong, and other factors like the location of the head office and business assets. The Executive of the SFC assesses these factors to determine applicability. The Codes aim to protect Hong Kong shareholders, even in cases where a company has a primary listing outside Hong Kong, ensuring they receive adequate protection. The Takeovers Code specifically addresses offers for relevant companies, partial offers, and transactions where control is obtained or consolidated, while the Share Repurchase Code focuses on share repurchases by relevant companies. Share repurchases by general offer are subject to both Codes. Early consultation with the Executive is recommended when transactions fall under the jurisdiction of both the Panel and an overseas regulator to resolve potential conflicts. The Codes’ General Principles guide the interpretation and application of the specific rules, emphasizing equal treatment, timely disclosure, and shareholder approval where appropriate. Understanding these principles and the scope of the Codes is crucial for ensuring compliance and maintaining market integrity in Hong Kong’s financial landscape.

Statement I is correct because the GEM Rules explicitly require a designated compliance officer for each GEM issuer. This officer is responsible for ensuring compliance with the GEM Rules and other relevant laws and regulations, as well as responding to inquiries from the Exchange. This requirement is outlined in GEM Rules 5.19 to 5.23.

Statement II is also correct. The Code on Corporate Governance Practices provides the Exchange’s views on good corporate governance principles. It includes Code Provisions and Recommended Best Practices. Issuers are expected to comply with Code Provisions but may deviate, provided they disclose and explain any deviations in their interim/half-year and annual reports.

Statement III is incorrect. While directors must adhere to Model Code for Securities Transactions by Directors of Listed Companies, the statement oversimplifies the scope. The Model Code includes more than just restrictions on dealing during specific blackout periods. It also covers general principles of fair dealing and avoiding insider trading, as well as pre-notification requirements.

Statement IV is incorrect. While the Listing Rules and GEM Rules aim to ensure fair and transparent markets, they do not explicitly guarantee the profitability of investments. Investment profitability depends on numerous factors, including market conditions, company performance, and investor decisions. The rules focus on providing investors with sufficient information to make informed decisions, not on guaranteeing returns. Therefore, the correct combination is I & II only.

The Exchange’s power to request clarification announcements and circulars is a critical tool for maintaining market transparency and investor protection, as outlined in the Listing Rules. When unusual price or volume movements occur, the Exchange may suspect insider trading, dissemination of false information, or other market misconduct. By requiring a listed issuer to issue a clarification announcement, the Exchange compels the company to disclose any material information that may be contributing to the unusual activity. This ensures that all investors have access to the same information, preventing information asymmetry and promoting fair trading practices. Circulars are used for more detailed disclosures, such as those related to major transactions or corporate restructurings. The Exchange’s ability to request these documents allows it to proactively address potential issues and maintain market integrity. Sponsors, on the other hand, play a crucial role during the IPO process, ensuring the new applicant is prepared for listing and complies with all relevant regulations. They are responsible for due diligence and preparing listing documents, but their role is primarily focused on the initial listing phase, not ongoing market surveillance and clarification. Therefore, statements I and II are correct, while statements III and IV are incorrect.