HKSI Paper 5: 60 Key Concepts and Study Guide
HKSI Paper 5, Regulation of Corporate Finance, tests the regulatory framework behind listings, takeovers, share buy-backs and share schemes in Hong Kong. The exam is 40 multiple-choice questions in 60 minutes, and the pass mark is 70%. This article is based on the Paper 5 syllabus effective from 1 March 2026 and study guide version 3.4 published in December 2025. If you sit the exam on a different date, always confirm the current version on the HKSI Institute website before you rely on any revision material.
This guide walks through 60 key revision concepts in official syllabus order, from the regulatory structure through listing on SEHK, the Takeovers Codes, and convertible bonds, rights issues and share schemes. Each concept gives you a short explanation, a hypothetical example, a common trap, and a self-check question with an answer, so you can test whether you can apply the idea rather than just recognise it.
Exam format: HKSI examination overview . Latest published pass rate: 50.00% (Jul 2026) . A pass rate is a past result for a group of candidates, not your required score.
How to use these 60 concepts
- Work through the concepts topic by topic in syllabus order, and cover the self-check answers before reading them so each concept becomes an active recall exercise.
- Keep the official Paper 5 study guide beside you and mark any concept where your understanding differs from the guide, then re-read the relevant guide section before moving on.
- In your final revision week, redo only the self-check questions you first answered incorrectly, and practise writing out scenario answers such as trigger aggregation and offer timetables from memory.
The practice examples are original and hypothetical unless explicitly identified as a published case. The concept count is a revision structure; it does not represent official question frequency or topic weighting.
No matching concepts. Try a shorter search term.
Topic 1: Overview of the legal and regulatory structure and code of conduct
The layers of Hong Kong law and codes affecting corporate finance, the regulators and how they inter-relate, corporate governance, the Corporate Finance Adviser Code of Conduct, and the character of the Hong Kong equity capital market.
1. The regulatory map for corporate finance
Corporate finance activity sits under layers: ordinances such as the SFO, the Companies Ordinance and the CWUMPO, subsidiary legislation made under them, and non-statutory codes such as the Listing Rules and the Takeovers Codes. The SFC is the statutory regulator while SEHK is the front-line regulator and market operator. The layer involved determines what follows from a breach.
Example. Hypothetically, a company planning an IPO deals with SEHK for listing approval and with the SFC, which comments on the prospectus under the dual filing arrangement.
Watch out. Treating the Listing Rules as legislation. They are Exchange rules with contractual force, not ordinances.
Self-check: A colleague calls the Listing Rules an ordinance. What is the correction?
Answer: They are rules of the Exchange with contractual force, not statutes passed by the legislature.
2. Binding law versus codes and guidelines
Ordinances and subsidiary legislation can create civil, criminal or regulatory consequences. Codes and exchange requirements operate differently: a breach can lead to discipline, affect fitness and properness or engage listing enforcement. Any statutory court remedy must satisfy its own legal basis; a code breach does not automatically establish a statutory offence.
Example. Hypothetically, insider dealing is an offence under the SFO, while a corporate governance code departure without explanation is handled through Exchange and regulatory routes, not prosecution.
Watch out. Assuming every breach of a code is a criminal offence. Most code breaches are addressed through regulatory or disciplinary routes.
Self-check: Why can the SFC still act when a non-statutory code is breached?
Answer: The relevant code or exchange disciplinary process can apply, and conduct may affect fitness and properness. A separate statutory remedy requires the elements of its own legal basis.
3. The SFC's role in corporate finance
The SFC is the statutory regulator under the SFO. It licenses intermediaries, including Type 6 licensed firms advising on corporate finance, supervises takeovers through the Executive in its Corporate Finance Division, and reviews listing filings under the dual filing arrangement with statutory objection powers.
Example. Hypothetically, a licensed corporate finance adviser acting on a takeover must satisfy the SFC's licensing and conduct requirements throughout the transaction.
Watch out. Thinking SEHK regulates takeovers. The Takeovers Executive sits within the SFC's Corporate Finance Division.
Self-check: Which body regulates a licensed adviser's conduct during a takeover?
Answer: The SFC, through the Executive and its licensing and conduct supervisory powers.
4. SEHK as front-line regulator
SEHK administers the Listing Rules, processes listing applications, monitors continuing obligations and disciplines issuers and their directors. Its powers largely derive from the listing contract with issuers and its role as the exchange operator, supplemented by the statutory dual filing regime.
Example. Hypothetically, a listed company that publishes results late faces SEHK enforcement action rather than an SFC prosecution.
Watch out. Assuming SEHK's powers are wholly statutory. Much of its authority over issuers is contractual under the listing agreement.
Self-check: Who takes first-line action when a listed issuer breaches a Listing Rule?
Answer: SEHK, as front-line regulator, with the SFC able to become involved through dual filing.
5. Other bodies in the picture
The Accounting and Financial Reporting Council oversees auditing and accounting matters of listed entities, the Registrar of Companies administers the Companies Ordinance, and for PRC-incorporated issuers the PRC regulator is involved on the home-law side. Corporate finance work can therefore engage several authorities at once.
Example. Hypothetically, suspected accounting irregularities in a listed issuer's published accounts may be referred to the Accounting and Financial Reporting Council.
Watch out. Assuming the SFC handles every regulatory matter. Accounting oversight and company registry functions sit elsewhere.
Self-check: Which body oversees the work of auditors of listed companies?
Answer: The Accounting and Financial Reporting Council.
6. Corporate governance and the CG Code
The Corporate Governance Code in the Listing Rules sets out principles and provisions on the board, its committees, remuneration and disclosure. Listed issuers follow a comply-or-explain approach: they may depart from provisions, but must give considered reasons in their periodic reports.
Example. Hypothetically, an issuer without an independent remuneration committee must explain the departure and how it applies alternative measures in its annual report.
Watch out. Thinking the Code is optional in effect. A departure without a proper explanation is itself a Listing Rule compliance failure.
Self-check: What must an issuer do if it departs from a CG Code provision?
Answer: Give considered reasons for the departure in its periodic reports to shareholders.
7. Directors' duties
Directors owe fiduciary duties derived from common law and the Companies Ordinance: act in good faith in the company's interests, exercise care and skill, avoid conflicts, and not misuse their position or the company's information. These duties apply during corporate finance transactions as much as in day-to-day management.
Example. Hypothetically, a director who diverts a corporate opportunity to a personal vehicle instead of the company breaches fiduciary duty.
Watch out. Confusing the direction of the duty. Directors owe duties to the company as a whole, not to individual shareholders.
Self-check: To whom do directors' fiduciary duties run?
Answer: To the company as a whole, not to individual shareholders or the director who appointed them.
8. Corporate Finance Adviser Code of Conduct: core standards
The Corporate Finance Adviser Code of Conduct applies to licensed intermediaries advising on corporate finance transactions. Its core standards are honesty, fairness and professionalism, competence, adequate resources, effective management supervision, and protection of client interests and assets.
Example. Hypothetically, an adviser must demonstrate adequate staffing, systems and supervision before accepting a listing mandate.
Watch out. Assuming the Code covers only sponsors. It applies to corporate finance advisory work generally, including takeover and transaction advice.
Self-check: What are the foundation standards set for corporate finance advisers?
Answer: Honesty, fairness, professionalism, competence, adequate resources, supervision and protection of client interests.
9. Adviser Code in practice: conflicts, confidentiality and personal dealings
The Adviser Code requires firms to manage conflicts of interest, keep client information confidential, and control personal account dealing by staff involved in transactions. Information barriers and dealing restrictions protect market integrity during live deals, and obligations continue after a mandate ends.
Example. Hypothetically, a staff member on a live deal who buys the client's shares before an announcement breaches dealing restrictions and may commit insider dealing.
Watch out. Assuming confidentiality ends when the deal closes. Confidentiality obligations continue beyond completion.
Self-check: A deal team member trades the target's shares using inside information. What is breached?
Answer: Personal account dealing restrictions under the Adviser Code, and the insider dealing provisions of the SFO.
10. Character of the Hong Kong equity capital market
The Hong Kong equity market is deep and liquid, with a strong institutional investor base alongside active retail participation, and a high proportion of PRC-related issuers. It offers two boards, the Main Board for more established companies and GEM for smaller and growth companies, giving issuers venues suited to different stages of development.
Example. Hypothetically, a young growth company that does not yet meet Main Board financial eligibility may consider GEM as its listing venue.
Watch out. Assuming Hong Kong listings are only local companies. Many issuers are PRC-incorporated or incorporated offshore.
Self-check: Why might a young company choose GEM over the Main Board?
Answer: GEM is positioned for smaller and growth companies with less onerous eligibility requirements than the Main Board.
Topic 2: Listing on The Stock Exchange of Hong Kong Limited
Main Board and GEM requirements, the roles of the Listing Division and committees, sponsors and other intermediaries, the Companies Ordinance on share capital and treasury shares, PRC issuers, prospectuses, methods of listing, underwriting and stabilisation, continuing obligations, halts and suspensions, delisting, winding up and SEHK discipline.
11. Main Board versus GEM
SEHK operates two boards. The Main Board serves established companies and applies financial eligibility tests such as profit, market capitalisation and revenue-based routes. GEM serves smaller and growth companies with less onerous eligibility requirements, but GEM issuers remain subject to a full continuing obligations framework.
Example. Hypothetically, a profitable mature manufacturer targets the Main Board, while an early-stage company with a shorter track record considers GEM.
Watch out. Assuming GEM issuers face few obligations. GEM has its own Listing Rules with continuing obligations similar in nature to the Main Board.
Self-check: What is the core difference between the two boards?
Answer: Eligibility requirements and market positioning; both boards impose continuing obligations on issuers.
12. The Listing Division
The Listing Division is SEHK's executive arm for listing matters. It processes listing applications, reviews listing documents, monitors compliance with the Listing Rules, answers issuer and sponsor queries, and handles day-to-day supervision for both the Main Board and GEM.
Example. Hypothetically, a sponsor submits a draft listing document to the Listing Division and responds to its comments before a hearing.
Watch out. Confusing the Division with the committees. The Division executes and reviews; the committees set policy and decide or review key matters.
Self-check: Who reviews a listing application first within SEHK?
Answer: The Listing Division, before matters go to the Listing Committee where required.
13. Listing Committee and Listing Review Committee
The Listing Committee sets Listing Rule policy and makes or approves key listing decisions, while the Listing Review Committee reviews decisions such as refused applications and certain disciplinary outcomes. Both bodies operate across the Main Board and GEM.
Example. Hypothetically, an issuer whose listing application is refused may seek a review of that decision by the Listing Review Committee.
Watch out. Thinking the SFC approves listings. SEHK's committees decide, with the SFC holding statutory objection rights under the dual filing regime.
Self-check: Where can a rejected applicant seek review within SEHK's structure?
Answer: The Listing Review Committee.
14. Sponsors
A sponsor is a licensed intermediary that guides an issuer through listing: performing due diligence, preparing the application and listing document, and satisfying eligibility requirements. Sponsors must be independent of the issuer, meet eligibility criteria, and carry substantive responsibility for the quality of disclosure.
Example. Hypothetically, a sponsor verifies a Main Board applicant's track record and business before submitting the listing application.
Watch out. Thinking a sponsor merely files paperwork. The sponsor bears real due diligence and disclosure responsibility.
Self-check: What is a sponsor's core pre-listing task?
Answer: Conducting due diligence on the issuer and ensuring the listing document's disclosure is accurate and complete.
15. Overall coordinators
For larger offerings, overall coordinators are appointed to coordinate the syndicate, marketing, bookbuilding, pricing and allocation process, and to perform specified capital market intermediary functions under the SFC's regulatory framework for such intermediaries.
Example. Hypothetically, in a large IPO the overall coordinator coordinates pricing discussions and allocation among the syndicate members.
Watch out. Assuming the overall coordinator and the sponsor are the same role. The sponsor leads regulatory due diligence; coordinators lead the syndicate and marketing side.
Self-check: Who typically coordinates bookbuilding and allocation in a large IPO?
Answer: The overall coordinator or coordinators.
16. Compliance advisers
A newly listed issuer must retain a compliance adviser for the period required by the Listing Rules after listing. The compliance adviser advises on Listing Rule compliance, for example before significant announcements, proposed transactions or unusual share price movements.
Example. Hypothetically, a newly listed company consults its compliance adviser before announcing a major acquisition.
Watch out. Confusing the compliance adviser with the sponsor. The compliance adviser's role begins after listing, whereas the sponsor's principal work is pre-listing.
Self-check: When does the compliance adviser's role begin?
Answer: After listing, for the post-listing period required under the Listing Rules.
17. Other parties in an IPO
Reporting accountants provide assurance and comfort on financial information; legal advisers in Hong Kong, and PRC counsel for PRC issuers, handle legal disclosure; property valuers value material properties; underwriters commit to take up unsubscribed shares. Each professional is responsible for its own portion of the listing document.
Example. Hypothetically, reporting accountants issue comfort letters covering unaudited financial data included in the prospectus.
Watch out. Assuming the sponsor alone bears disclosure responsibility. Each expert is accountable for the sections it signs or supports.
Self-check: Who provides assurance on financial information in a prospectus?
Answer: The reporting accountants.
18. The Companies Ordinance: shares and class rights
The Companies Ordinance governs the issue of shares and the rights attached to different classes. Variation of class rights generally requires the consent of the affected class, given by the special resolution procedure at a class meeting, together with any further safeguards in the company's articles.
Example. Hypothetically, a company wishing to vary preference shareholders' dividend rights must obtain the preference class's consent as required.
Watch out. Assuming a simple ordinary resolution of all shareholders can vary class rights. Class consent procedures protect the affected class.
Self-check: What approval is generally needed to vary class rights?
Answer: Consent of the affected class under the Companies Ordinance procedures and the company's articles.
19. Treasury shares
Shares bought back by a listed company may be held in treasury or cancelled under the applicable rules. While held as treasury shares, the shares carry no voting rights and no dividends, and they may later be reissued, transferred or cancelled in accordance with the rules.
Example. Hypothetically, a company buys back shares and holds them as treasury shares for possible later use, such as reissue for employee schemes.
Watch out. Assuming treasury shares vote or receive dividends. Their rights are suspended while they are held in treasury.
Self-check: Do treasury shares carry voting rights?
Answer: No. Voting and dividend rights are suspended while shares are held as treasury shares.
20. Capital reductions and variations of share capital
A company may reduce its share capital using Companies Ordinance procedures, such as the solvency statement route or court approval, which exist to protect creditors. It may also consolidate or subdivide shares, changing the number of shares without changing the underlying value of holders' interests.
Example. Hypothetically, a company with accumulated losses reduces capital via the solvency statement route, with directors confirming the company remains solvent.
Watch out. Assuming capital can simply be cancelled by board decision. Statutory procedure and creditor protection always apply.
Self-check: What protects creditors in a capital reduction?
Answer: The Companies Ordinance procedures, such as solvency statement requirements or court approval.
21. Listing requirements for PRC issuers
Companies incorporated in the PRC may list in Hong Kong, commonly as H-share issuers. Their internal corporate matters are governed by PRC law, but they must comply with the Hong Kong Listing Rules, adopt constitutional documents containing protections for Hong Kong shareholders, and obtain any required PRC-side approvals or filings.
Example. Hypothetically, a PRC-incorporated bank lists H shares in Hong Kong, and its articles provide for arbitration in Hong Kong for shareholder disputes.
Watch out. Assuming PRC law replaces the Listing Rules. Both layers apply simultaneously to a PRC issuer.
Self-check: Which law governs a PRC issuer's internal corporate matters?
Answer: PRC law, while the Hong Kong Listing Rules govern its listing and continuing obligations.
22. Prospectuses under the CWUMPO
The Companies (Winding Up and Miscellaneous Provisions) Ordinance prescribes prospectus contents and imposes liability for material misstatements. The company, its directors, promoters and named experts can face civil liability to subscribers who suffer loss, and criminal liability can arise for dishonest or reckless misstatement.
Example. Hypothetically, a prospectus omits material pending litigation; directors may be liable to subscribers who suffered loss from the omission.
Watch out. Assuming only the company is liable. Directors, promoters and experts can be personally liable under the Ordinance.
Self-check: Who may be liable for a prospectus misstatement?
Answer: The company, its directors, promoters and named experts, under the CWUMPO.
23. Dual filing and the Stock Market Listing Rules
Under the Securities and Futures (Stock Market Listing) Rules, listing-related filings are made to both SEHK and the SFC. The SFC may require amendments to listing documents or object to a listing, giving it statutory oversight of listing matters alongside SEHK's front-line role.
Example. Hypothetically, the SFC comments on a prospectus filed under dual filing and requires additional disclosure before the listing proceeds.
Watch out. Thinking the SFC's role is purely advisory. It holds statutory powers to require changes or object.
Self-check: What statutory power does the SFC hold under the Stock Market Listing Rules?
Answer: The power to require amendments to listing filings or to object to a listing.
24. Methods of listing
A company may list through an offer, such as a public offer, a placing or a combination, or by introduction. An offer raises new funds from subscribers, while an introduction lists existing shares without raising any new capital, for example on a transfer between boards or a spin-off where shares are already widely held.
Example. Hypothetically, a GEM company transferring to the Main Board lists by introduction, with no new capital raised.
Watch out. Assuming every listing raises money. An introduction raises none because no new shares are offered.
Self-check: Which listing method raises no new funds?
Answer: Listing by introduction.
25. Listing criteria for different instruments
Different instruments carry different listing criteria. Equity listings apply the Main Board or GEM eligibility tests; debt listings focus on matters such as issuer eligibility, issue size and disclosure rather than equity profit tests; derivative warrants and other structured products have their own issuer and documentation requirements.
Example. Hypothetically, a company seeking to list bonds faces disclosure and eligibility requirements suited to debt, not the equity profit tests.
Watch out. Assuming one set of criteria fits all instruments. Each instrument type is governed by its own Listing Rules chapter.
Self-check: Do listed debt securities face the same profit tests as equity?
Answer: No. Debt listing criteria focus on different matters, such as issuer eligibility, size and disclosure.
26. Underwriting and syndication
In an underwritten offering, underwriters commit to subscribe any shares not taken up by the public, in return for an underwriting commission. The syndicate of lead managers and underwriters shares the commitment, and portions may be passed to sub-underwriters under the underwriting agreement.
Example. Hypothetically, a public offer is 60% subscribed, so the underwriters take up the remaining 40% at the offer price under the agreement.
Watch out. Assuming underwriters buy at the market price. They take up shares at the offer price as agreed.
Self-check: What happens to unsubscribed shares in a fully underwritten IPO?
Answer: The underwriters subscribe them at the offer price under the underwriting agreement.
27. Price stabilisation
Stabilisation allows the stabilising manager to support the market price after an offering, for example by buying shares below the offer price or using over-allotment arrangements, within the SFC's stabilisation rules. Its purpose is to counteract selling pressure in an orderly way, not to manipulate the market.
Example. Hypothetically, after listing the shares fall below the offer price, and the stabilising manager buys shares within the permitted limits to support the price.
Watch out. Assuming stabilisation can support the price indefinitely. It is limited to permitted actions and a defined period.
Self-check: Who conducts stabilisation and within what constraint?
Answer: The stabilising manager, within the permitted actions and period set by the SFC's stabilisation rules.
28. Continuing obligations: disclosure of inside information
Listed issuers must disclose inside information as soon as reasonably practicable under Part XIVA of the SFO, unless a statutory safe harbour applies, such as where the information concerns an incomplete proposal or is genuinely kept confidential. Breach can lead to SFC enforcement action.
Example. Hypothetically, a major contract falls through; the company must announce promptly rather than let market rumours circulate.
Watch out. Assuming disclosure can wait for the next board meeting. The test is as soon as reasonably practicable.
Self-check: When must inside information be disclosed?
Answer: As soon as reasonably practicable, unless a statutory safe harbour applies.
29. Notifiable and connected transactions
The Listing Rules classify transactions using percentage ratios, which drive the level of announcement, circular and shareholder approval required. Connected transactions, involving directors, substantial shareholders or their associates, attract extra protections: an independent board committee, independent financial adviser advice, and approval by independent shareholders with connected parties abstaining.
Example. Hypothetically, a company selling a subsidiary to its controlling shareholder needs independent shareholders' approval for the connected transaction.
Watch out. Assuming size alone determines the requirements. Connectedness adds protections regardless of the transaction's size.
Self-check: Who must abstain from voting on a connected transaction?
Answer: The connected shareholders, and connected directors must not vote at board level where the rules require.
30. Trading halt versus suspension
A trading halt is a short pause in trading, typically pending a clarification or announcement, and should be brief. A suspension is a longer stoppage pending resolution of substantive issues, such as failure to publish results or insufficient operations, and resumption requires the issuer to satisfy the Exchange's requirements.
Example. Hypothetically, a company halts trading pending an announcement on a rumoured acquisition; if the underlying issues persist, trading may be suspended.
Watch out. Using halt and suspension interchangeably. They differ in purpose, expected duration and what is needed to resume trading.
Self-check: What distinguishes a suspension from a halt?
Answer: A suspension is a longer-term stoppage pending resolution of issues, while a halt is a brief pause.
31. Cancellation and withdrawal of listing
A listing may be cancelled, for example after prolonged suspension or where public float or operational requirements are not met, or withdrawn, for example following a privatisation by scheme of arrangement or offer. The procedures are designed to protect minority shareholders, typically requiring approvals and a fair exit opportunity.
Example. Hypothetically, a controlling shareholder privatises a company by scheme of arrangement, and the listing is withdrawn on completion.
Watch out. Assuming a company can simply walk away from its listing. Withdrawal requires procedures that protect remaining shareholders.
Self-check: How does a privatisation typically end a listing?
Answer: Through a scheme of arrangement or offer, followed by withdrawal of the listing.
32. Consequences of winding up
On winding up, the company ceases business and a liquidator collects assets, pays creditors in the statutory order of priority, and distributes any surplus to shareholders. Directors' powers effectively pass to the liquidator, and the listing comes to an end. In an insolvent winding up, shareholders typically receive nothing.
Example. Hypothetically, an insolvent listed company is wound up; the liquidator sells assets and pays secured creditors ahead of unsecured creditors.
Watch out. Assuming shareholders rank ahead of creditors. Creditors are paid first in the statutory order; shareholders receive any surplus last.
Self-check: Who is paid first in a winding up?
Answer: Creditors, in the statutory priority order, with shareholders receiving only any remaining surplus.
33. SEHK's disciplinary powers
SEHK can discipline issuers and their directors for Listing Rule breaches through sanctions such as public censure, monetary fines, and statements of director unsuitability, with sanctions published. Serious matters may also be referred to or pursued by the SFC under its statutory powers.
Example. Hypothetically, a director who knowingly delays results disclosure may be publicly censured and fined by SEHK.
Watch out. Assuming SEHK can impose criminal punishment. Its sanctions are regulatory and contractual in nature, not criminal penalties.
Self-check: Name two disciplinary sanctions SEHK can impose.
Answer: Public censure and monetary fines; it can also issue statements of director unsuitability.
Topic 3: Takeovers and mergers and share buy-backs
The status and General Principles of the Codes, acting in concert, mandatory and voluntary offers, waivers, frustrating actions, board and adviser responsibilities, verification, timetables, other laws, share buy-backs, and the review structure of the Executive, the Panel and the Appeal Committee.
34. Status and structure of the Codes
The Takeovers and Share Buy-backs Codes are non-statutory standards administered by the Executive and the Takeovers and Mergers Panel. They apply to the relevant offerors, target companies, shareholders and advisers. The disciplinary framework can lead to criticism, public censure, restrictions on intermediaries acting for a person and adviser-appearance bans. Separate licensing or legal consequences require their own applicable basis.
Example. Hypothetically, a party breaches a takeover ruling. The matter may proceed through the Code's disciplinary process; a finding against an adviser can also be relevant to its professional or regulatory standing.
Watch out. Assuming the Codes bind only bidders. They also bind target boards and the professional advisers on both sides.
Self-check: Are the Takeovers Codes legally binding statutes?
Answer: No. They are non-statutory codes with their own disciplinary framework, and relevant conduct can also affect a person's regulatory or professional standing.
35. The ten General Principles
The Codes rest on ten General Principles covering themes such as equal treatment of all shareholders, informed decisions with adequate information and time, full and accurate disclosure, boards acting bona fide in shareholders' interests without denying them the chance to decide, genuine offers, avoiding frustrating actions, considering employees and other stakeholders, and maintaining fair and orderly markets. Learn each principle's exact wording from the study guide.
Example. Hypothetically, a bidder giving one shareholder better terms than others breaches the equal treatment principle.
Watch out. Learning only a few principles. The syllabus expects you to be able to describe all ten.
Self-check: Which principle is engaged when a bidder leaks selective price information?
Answer: Primarily equal treatment of shareholders and the full-disclosure principle; a selective leak can also engage the principle against creating a false market in the shares.
36. Persons acting in concert
Persons acting in concert are those who cooperate, formally or informally, to obtain or consolidate control of a company. The Codes presume certain categories, such as companies in the same group, a company and its directors, and fund managers acting for a party, unless rebutted. Their holdings are aggregated for the trigger and creeper tests.
Example. Hypothetically, two companies under common control each buy shares in a target; their stakes are aggregated as if held by one party.
Watch out. Assuming only written agreements create concert parties. Presumed categories apply unless the contrary is shown.
Self-check: Why does acting in concert matter in an offer?
Answer: Because concert parties' holdings are aggregated for the mandatory offer trigger and creeper calculations.
37. The mandatory offer trigger
Unless a waiver applies, Rule 26.1 requires a mandatory offer when an acquisition takes a person and concert parties to 30% or more of the voting rights. A further trigger applies to holdings from 30% through 50% under the creeper rule. Under Rule 26.3, the offer must include cash or a cash alternative at no less than the highest price paid by the offeror or concert parties during the offer period and in the six months before the offer period began.
Example. Hypothetically, an investor with no concert parties increases from 29% to 30% of the voting rights. Reaching 30% triggers the mandatory-offer requirement unless a waiver applies; it is not necessary to exceed 30%.
Watch out. Forgetting that increases below 50% can also trigger an offer. The creeper rule catches gradual accumulation.
Self-check: What two situations trigger a mandatory offer?
Answer: An acquisition reaching 30% or more, or an acquisition that triggers the more-than-two-percentage-point creeper test for a holding from 30% through 50%, subject to applicable waivers.
38. The creeper
For a person and concert parties holding 30% through 50%, an acquisition triggers an offer if it increases their holding by more than two percentage points from their lowest percentage holding in the 12-month period ending on the acquisition date. Measure from the lowest holding, not merely the latest purchase. Independent shareholder approval alone is not a general permission to exceed this limit; any waiver needs the Executive's approval and applicable conditions.
Example. Hypothetically, a group's lowest holding in the relevant 12 months is 34%. It now holds 35.5% and buys another 1%, reaching 36.5%. The increase from the low is 2.5 percentage points, so the creeper trigger is met even though the latest purchase is only 1%.
Watch out. Assuming any purchase below 50% is unrestricted. The creep limit constrains increases in that band.
Self-check: What is the creep allowance designed to do?
Answer: It limits acquisitions that increase a holding from 30% through 50% by more than two percentage points above the lowest holding in the relevant 12 months, unless a waiver applies.
39. Waivers from the mandatory offer obligation
The Executive can waive the mandatory-offer requirement in circumstances described in the Code, subject to the relevant conditions. A whitewash may be sought where an issue of new securities would otherwise trigger Rule 26; this involves prescribed independent voting and Executive approval. A rescue operation has its own requirements. Identify the actual waiver route rather than treating shareholder support as a universal exemption.
Example. Hypothetically, a subscription for new shares would take an investor above 30%. The company explores a whitewash with its advisers, seeking the required independent votes and the Executive's waiver before treating the transaction as exempt from a mandatory offer.
Watch out. Treating waivers as discretionary favours. They depend on defined circumstances and prescribed conditions being met.
Self-check: Name one circumstance in which a mandatory offer may be waived.
Answer: An issue of new securities may qualify for a whitewash, subject to the Code's conditions, the required independent votes and Executive approval.
40. Voluntary offers
A voluntary offer is made at the bidder's choice, without a mandatory trigger, and may be made even when the bidder holds a small stake. It can be conditional on a minimum acceptance level, but the conditions must be genuine and capable of satisfaction, not illusory devices to avoid completion.
Example. Hypothetically, a bidder holding 10% makes a voluntary offer for the whole company conditional on acceptance by holders of a majority of the shares.
Watch out. Assuming voluntary offers cannot carry conditions. They can, provided the conditions are genuine.
Self-check: What distinguishes a voluntary offer from a mandatory offer?
Answer: A voluntary offer is made at the bidder's choice, without any mandatory trigger having been crossed.
41. Comparable offers
The comparable offer rules protect shareholders who hold a class of shares when the offeror, having control, acquires shares in that class at a higher price. The offeror may then be required to extend comparable terms to the remaining shareholders of that class, so that equal treatment is preserved even after control is achieved.
Example. Hypothetically, a bidder holding a majority buys further shares at a premium; it may need to make a comparable offer to remaining shareholders at that price.
Watch out. Assuming control above 50% ends all offer obligations. Premium purchases after control can trigger comparable offer duties.
Self-check: What can give rise to a comparable offer?
Answer: Purchases at a higher price after the offeror has control, requiring comparable terms for remaining shareholders.
42. Constructing the offer timetable
The Code fixes the offer timetable: the offer document must be posted within a set period after the announcement, the offer must remain open for a minimum period from posting, and revisions and closing dates follow Code rules. Changes to key dates generally need the Executive's consent, so candidates should practise mapping dates onto a scenario.
Example. Hypothetically, an offer is announced on day zero; the offer document must be posted by the Code's deadline, and the first closing date follows the required period after posting.
Watch out. Assuming timetable dates are negotiable between the parties. The Code fixes them, with the Executive's consent needed for changes.
Self-check: What governs the interval between announcement and posting of the offer document?
Answer: The Code's timetable rules, which fix the deadline and require Executive consent for changes.
43. Frustrating actions
Once a genuine offer is likely or imminent, the target board must not take actions that could frustrate it, such as issuing new shares, disposing of significant assets or entering unusual contracts, without shareholder approval or the Executive's consent. The board must remain free to act in the shareholders' interests.
Example. Hypothetically, a target board issues a large block of new shares to a friendly party as a bid approaches; absent approval, this is a frustrating action.
Watch out. Assuming ordinary business decisions are always permitted during an offer. Many such actions need shareholder or Executive consent at that time.
Self-check: What must a board obtain before an action that could frustrate an offer?
Answer: Shareholder approval or the Executive's consent.
44. The target board's role and recommendation
The target board must obtain competent independent advice, evaluate the offer, and publish its recommendation with reasons in the target's circular within the Code's timetable. Directors must act bona fide in the shareholders' interests and must not deny shareholders the opportunity to decide on the offer themselves.
Example. Hypothetically, the target board publishes a circular recommending rejection, supported by an independent financial adviser's letter explaining its reasoning.
Watch out. Assuming the board can reject an offer on shareholders' behalf. It only recommends; the shareholders decide by accepting or not.
Self-check: Who ultimately decides whether an offer succeeds?
Answer: The shareholders. The board's role is to recommend, with reasons and independent advice.
45. Financial advisers' responsibilities under the Codes
Advisers to offerors and targets must satisfy the Executive that they have adequate resources and are appropriate for the role. They must ensure their clients comply with the Codes, confirm that an offeror can genuinely implement its offer, verify key information, and can be disciplined for Code breaches.
Example. Hypothetically, an adviser to a bidder confirms before announcement that the bidder has the resources and intention to implement the offer in full.
Watch out. Assuming advisers only draft documents. They carry affirmative compliance responsibility under the Codes.
Self-check: What must an adviser confirm about a bidder's offer?
Answer: That the offeror has the resources and genuine intention to implement the offer.
46. The verification process
Announcements and documents issued under the Codes must be verified. The adviser takes reasonable steps to confirm the accuracy of material statements, such as financial data and stated intentions, against source documents and management confirmations, and keeps records of the verification performed.
Example. Hypothetically, before publishing an offer document, the adviser checks each material statement against source documents and written management confirmations.
Watch out. Treating verification as optional good practice. It is a Code requirement supporting the accuracy principles.
Self-check: What is the purpose of the verification process?
Answer: To ensure statements in Code documents are accurate and properly sourced before publication.
47. Shareholder approval and disclosure provisions
The Codes require approval by independent shareholders in defined situations, such as whitewash-style proposals and certain share buy-backs, with the interested party and its concert parties abstaining. Full disclosure of shareholdings, dealings and intentions is required at defined stages so shareholders can decide on an informed basis.
Example. Hypothetically, a proposal requiring independent shareholders' approval proceeds to a vote with the bidder and its concert parties abstaining.
Watch out. Assuming all shareholders may vote on everything. Independent shareholder approval deliberately excludes the interested parties.
Self-check: Who votes on an approval that must come from independent shareholders?
Answer: Independent shareholders only; the interested party and its concert parties abstain.
48. Other laws and rules in a takeover
A takeover engages multiple regimes at once: the SFO on insider dealing and disclosure of interests, the Companies Ordinance on schemes of arrangement and their court sanction, the Listing Rules for listed targets, and any other approvals the transaction requires. Advisers must ensure clients comply across all these layers.
Example. Hypothetically, a takeover implemented by scheme of arrangement needs shareholder approval and court sanction under the Companies Ordinance, alongside Code compliance.
Watch out. Assuming the Takeovers Code is the only rulebook. Several regimes apply simultaneously to the same transaction.
Self-check: Which court process often implements a takeover of a Hong Kong listed company?
Answer: A scheme of arrangement under the Companies Ordinance, sanctioned by the court.
49. Share buy-backs: general and specific mandates
A listed company may buy back its own shares on the Exchange only under a prior mandate. A general mandate, renewed annually by ordinary resolution, permits buy-backs up to the percentage cap the rules specify; a buy-back beyond that cap, or an off-market purchase, requires a specific mandate approved by shareholders.
Example. Hypothetically, a company wants to buy back more than its general mandate allows, so it seeks a specific mandate at a general meeting.
Watch out. Assuming the board can buy back shares freely. Mandates and their caps always govern the capacity to buy back.
Self-check: What approval is needed for a buy-back beyond the general mandate?
Answer: A specific mandate approved by the shareholders.
50. Share buy-backs: conduct rules
The Share Buy-back Code governs how buy-backs are conducted. On-market purchases are made through the Exchange, while off-market purchases must be made by a buy-back offer to all shareholders on equal terms. Price, disclosure and conduct requirements apply, and buy-backs must not create a false market.
Example. Hypothetically, a company buys back shares off-market; it must make the offer to all shareholders on equal terms under the Code.
Watch out. Assuming buy-backs are exempt from fairness rules. The Share Buy-back Code imposes equal-treatment requirements similar in spirit to the Takeovers Code.
Self-check: How must an off-market buy-back be structured?
Answer: As a buy-back offer to all shareholders on equal terms.
51. The Executive
The Executive is the Executive Director of the SFC's Corporate Finance Division and administers the Codes day to day. It grants consents and waivers, rules on disputes between parties, supervises offer timetables, and disciplines Code breaches. Its decisions are subject to review by the Takeovers and Mergers Panel.
Example. Hypothetically, a bidder seeks the Executive's consent to extend or revise its offer timetable.
Watch out. Confusing the Executive with the SFC's licensing departments. The Executive is the takeovers regulator within the SFC's Corporate Finance Division.
Self-check: Who administers the Codes on a day-to-day basis?
Answer: The Executive.
52. The Takeovers and Mergers Panel
The Takeovers and Mergers Panel reviews the Executive's decisions on the application of an aggrieved party and can confirm, vary or reverse them. Its members are drawn from market practitioners, providing an industry-based review layer between the Executive and the final appeal body.
Example. Hypothetically, a bidder dissatisfied with an Executive ruling applies to the Panel for a review of that decision.
Watch out. Assuming Executive decisions are final. A structured review route exists and must be used in the correct order.
Self-check: What can the Panel do with an Executive decision on review?
Answer: Confirm, vary or reverse it.
53. The Takeovers Appeal Committee
The Takeovers Appeal Committee hears appeals from decisions of the Takeovers and Mergers Panel and is the final tier in the takeovers review structure. A dispute therefore moves from the Executive to the Panel and, if pursued further, to the Appeal Committee.
Example. Hypothetically, after a Panel decision goes against a party, that party appeals to the Takeovers Appeal Committee.
Watch out. Skipping a tier in the review structure. The route runs Executive, then Panel, then Appeal Committee.
Self-check: What is the final review tier for disputes under the Codes?
Answer: The Takeovers Appeal Committee, which hears appeals from Panel decisions.
Topic 4: Miscellaneous: convertible bonds, rights issues and share schemes
When convertible debt securities may be listed and how their conversion terms work, the rights issue process including nil-paid rights and a worked dilution calculation, the basic rules for share schemes, and the documentation required for listing these securities.
54. When convertible debt securities may be listed
Convertible bonds may be listed where the issuer satisfies the criteria of the relevant Listing Rules chapter for debt securities. Those criteria focus on issuer eligibility, issue size, documentation and disclosure rather than the equity profit tests, and the conversion terms must be clearly set out and rule-compliant.
Example. Hypothetically, a listed company issues convertible bonds and applies to list the bonds under the relevant debt listing chapter.
Watch out. Assuming convertible bonds follow equity listing criteria. The bonds themselves are assessed under the debt criteria.
Self-check: Which criteria govern the listing of convertible bonds?
Answer: The relevant debt listing criteria, covering issuer eligibility, size, documentation and conversion terms.
55. Convertible bonds: conversion and adjustment provisions
Convertible bond terms set the conversion price, the conversion period, and adjustment mechanisms for corporate actions such as rights issues and capitalisation issues. Adjustments follow the formula in the bond terms or trust deed, so that holders' economics are preserved fairly when the underlying shares change in value.
Example. Hypothetically, a rights issue by the issuer triggers a downward adjustment of the conversion price, calculated exactly as the bond terms prescribe.
Watch out. Assuming the conversion price is fixed forever. Adjustment provisions exist precisely to handle corporate actions.
Self-check: Why do convertible bond terms include adjustment provisions?
Answer: To preserve holders' economics fairly when corporate actions change the value of the underlying shares.
56. The rights issue process
A rights issue offers new shares to existing shareholders in proportion to their holdings, usually at a discount, to raise capital while preserving relative ownership. The issuer announces the issue, publishes a listing document, and sends provisional allotment letters; shareholders may subscribe, sell their rights, or let them lapse. Underwriting is common to guarantee the proceeds.
Example. Hypothetically, a company raises capital through a one-for-four rights issue, and shareholders receive provisional allotment letters setting out the terms.
Watch out. Assuming a rights issue needs no listing documentation. A compliant listing document must be published and filed.
Self-check: What document sets out the terms of a rights issue to shareholders?
Answer: The listing document, sent to shareholders together with the provisional allotment letters.
57. Nil-paid rights, lapse and dilution
After the shares go ex-rights, the rights themselves can be traded nil-paid on the Exchange for a limited period, letting shareholders monetise their entitlement without subscribing. A shareholder who does nothing allows the rights to lapse and is diluted, because the new shares increase the total issued shares at a lower subscription price.
Example. Hypothetically, a shareholder who cannot fund the subscription sells the nil-paid rights on the Exchange instead of subscribing.
Watch out. Assuming rights convert automatically. Inaction means lapse and dilution of the shareholder's percentage interest.
Self-check: What happens if a shareholder does nothing during a rights issue?
Answer: The rights lapse and the shareholder's percentage interest is diluted by the new shares issued.
58. Worked example: theoretical ex-rights price
The theoretical ex-rights price weights the cum-rights price and the subscription price by their share counts: TERP equals (existing shares times cum-rights price plus new shares times subscription price) divided by total shares after the issue. It estimates where the price should settle after the issue, ignoring market sentiment.
Example. Hypothetically, a one-for-four rights issue: 4 existing shares at $10.00 cum-rights, 1 new share at $6.00. TERP = (4 x 10.00 + 1 x 6.00) / 5 = 46.00 / 5 = $9.20 per share.
Watch out. Averaging the two prices without weighting by share counts. A simple average of $10.00 and $6.00, giving $8.00, is wrong.
Self-check: Using the example's inputs, what is the TERP?
Answer: $9.20 per share, from (4 x 10.00 + 1 x 6.00) divided by 5.
59. Share schemes: types and basic rules
Share schemes can award shares or options, and the rules distinguish schemes using new shares from those using existing shares. A scheme involving new shares requires shareholder approval in general meeting under Chapter 17. Separate conditions govern eligible participants, limits, vesting and grants to directors or other connected participants; some grants require additional approvals and voting restrictions.
Example. Hypothetically, an issuer proposes an employee option scheme involving new shares. It seeks shareholder approval for the scheme and separately checks the rules before making a grant to a director.
Watch out. Assuming boards can grant options freely. Scheme approval, participant restrictions and grant limits all apply.
Self-check: Does approval of a new-share option scheme mean every later grant to a director is automatically permitted?
Answer: No. Scheme approval and the conditions for individual grants are separate. A director's grant must meet the connected-participant rules and any additional approval requirements.
60. Documentation for listing these securities
Listing convertible bonds, rights issue shares and scheme securities requires a listing document containing the prescribed content: the terms of the securities, risk factors, financial information, and for a rights issue the purpose and use of the new funds. Documents must meet the relevant chapter's requirements and are filed under the dual filing arrangement.
Example. Hypothetically, a rights issue listing document discloses the terms of the rights and a clear statement of how the proceeds will be applied.
Watch out. Assuming a short announcement is enough. A compliant listing document with prescribed content is required for the listing.
Self-check: What must accompany a rights issue seeking listing of the new shares?
Answer: A listing document meeting the relevant chapter's content requirements, filed under dual filing.
Turn your revision into a study plan
Adjust the pace to your starting knowledge and examination date. These are suggested revision stages, not an official preparation timetable.
| Stage | What to do |
|---|---|
| Stage 1: Foundations (Topic 1) | Read the syllabus and study guide Topic 1, then draw a one-page map of the regulators: SFC, SEHK, the Executive, the AFRC (Accounting and Financial Reporting Council) and the Registrar of Companies, noting which layer of law or code each enforces. Learn the comply-or-explain mechanism and the Adviser Code's core standards, and finish by writing your own summary of the Hong Kong equity market's character. |
| Stage 2: Listing mechanics (Topic 2) | Build comparison tables: Main Board versus GEM, the Listing Division versus the two committees, and sponsor versus overall coordinator versus compliance adviser. Then work through the Companies Ordinance concepts of class rights, treasury shares and capital reductions, and the continuing obligations on inside information and connected transactions, testing yourself with the self-check questions for concepts 11 to 33. |
| Stage 3: Takeovers application (Topic 3) | This topic rewards application. Practise aggregation scenarios: given hypothetical stakes for a bidder and two concert parties, decide whether the trigger or creeper rule applies. Memorise the ten General Principles as themes, drill the offer timetable by mapping hypothetical dates, and rehearse the frustrating actions and waiver scenarios until you can reason through them without notes. |
| Stage 4: Miscellaneous and consolidation (Topic 4 plus full review) | Cover convertible bonds, rights issues and share schemes, and redo the TERP calculation with your own hypothetical numbers until the weighting step is automatic. Then consolidate: reread every trap you noted, retake all self-check questions you previously missed, and finish with a timed practice set of 40 questions in 60 minutes to build pace under exam conditions. |
Questions candidates ask
What is the format of HKSI Paper 5 and what mark do I need?
Paper 5 is 40 multiple-choice questions in 60 minutes, and the pass mark is 70%, meaning you need to answer 28 questions correctly. Note that the pass mark is the score you need; it is not the same as the pass rate, which is a statistic about candidates and is not a target you can use.
Which study guide version should I use for Paper 5?
This article is based on the Paper 5 syllabus effective from 1 March 2026 and study guide version 3.4, published in December 2025. Because regulatory updates and examinable versions can differ, confirm the version valid for your exam date on the HKSI Institute website, and rely on the latest published guide for your sitting.
Are the Takeovers Codes and the Listing Rules actually law?
The Takeovers Codes and Listing Rules are not ordinances. They have regulatory and disciplinary consequences, while statutory offences and court remedies require a separate legal basis. In a scenario, identify the instrument being breached and the body that enforces it.
Do I need to do calculations in Paper 5?
Yes, several syllabus outcomes use the words determine and apply, so expect scenario and calculation-style questions. Practise with explicit hypothetical inputs, for example the theoretical ex-rights price in concept 58, and always show the weighting step clearly, because unweighted averages are the classic error.
Is Paper 5 the same as Paper 11, Corporate Finance?
No. Paper 5 is a regulatory paper testing the rules and codes governing corporate finance activity, while Paper 11 is the practical corporate finance paper with its own syllabus and a different format of 40 questions in 90 minutes. Candidates often take both, but they study different materials and should be revised separately.
Official sources and further reading
- HKSI Paper 5 syllabus and learning outcomes (PDF)
- HKSI current study guide versions and effective dates
- HKSI examination format and study resources
- SFC Code of Conduct
- SFC: Market Misconduct Tribunal orders in false trading case
- SFC Codes on Takeovers and Mergers and Share Buy-backs
These independent revision notes explain the public syllabus through original examples. They do not reproduce the official study guide or examination questions. Use the official study guide valid for your examination date for the full examinable detail. HKSIDataBase is an independent provider and is not endorsed by the HKSI Institute.