This question assesses the candidate’s understanding of the core requirements under the Securities and Futures (Client Money) Rules (Cap 571I). Statement I is correct because licensed corporations are required to hold client money in a segregated account with an authorized financial institution to protect it from being co-mingled with the firm’s own funds. Statement III is correct as the rules stipulate a clear deadline, requiring the firm to deposit the client money into the segregated account no later than the next business day following its receipt. Statement IV is also correct; the default position is that any interest earned on client money belongs to the client. The firm may only retain the interest if there is a specific written agreement with the client allowing it to do so. Statement II is fundamentally incorrect. A core principle of the Client Money Rules is the protection of client assets. Using client money for the firm’s own financial obligations, even with client consent, is a serious breach of these rules and undermines the entire purpose of segregation. Therefore, statements I, III and IV are correct.

The explanation teaches the concept by detailing the correct procedure and explaining why other actions are inappropriate, without using option letters. The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission places a strong emphasis on acting with due skill, care, and diligence in the best interests of clients. When receiving a client’s order, particularly in a volatile market and via a medium with potential for miscommunication like a poor telephone line, the primary duty of a licensed representative is to ensure the order’s accuracy and completeness before execution. The correct course of action is to immediately seek clarification from the client to confirm all parameters of the trade, such as the instrument, quantity, direction, and any specific price levels like stop-loss or take-profit. Executing a trade based on professional judgment or an assumption about the client’s intentions is a serious breach, as it amounts to an unauthorized transaction and exposes the client to risks they did not agree to. Similarly, recording and executing what is believed to have been heard, despite uncertainty, fails the duty of care and accuracy. While refusing the order and demanding written instructions is a cautious approach, it is not the most appropriate immediate action; the first step should always be to attempt to resolve the ambiguity directly with the client.

The correct answer is that the representative must promptly inform the Securities and Futures Commission (SFC) about the conviction. The Fit and Proper Guidelines, issued under the Securities and Futures Ordinance (SFO), impose a continuing obligation on all licensed persons to remain fit and proper at all times. A criminal conviction, particularly one involving fraud or dishonesty like tax evasion, directly impacts the assessment of an individual’s integrity and reputation, which are key components of being ‘fit and proper’. The obligation is to notify the SFC in writing within seven business days of the event. While informing the firm’s compliance department is also a professional necessity, it does not absolve the individual of their direct regulatory duty to notify the SFC. Delaying the disclosure until the next license renewal is incorrect as the rules require prompt notification of any material changes affecting one’s fitness and properness. The argument that the offense is a personal matter is invalid because the ‘fit and proper’ test assesses the overall character and reliability of a person, not just their conduct within the workplace.

The SFC’s Fit and Proper Guidelines outline several criteria for assessing an individual’s suitability for licensing. Statement I is correct because the financial status and solvency of an applicant are key considerations. A past bankruptcy, even if discharged, is a relevant factor that the SFC will review to understand the circumstances and assess any ongoing risk to clients or the market. Statement II is correct as the guidelines explicitly state that an applicant’s reputation, character, and reliability are paramount. Disciplinary actions by any local or overseas regulatory body are highly relevant to this assessment. Statement III is also correct because competence, which is evidenced by qualifications and experience, is a core component of the fit and proper test. The SFC needs to be satisfied that the applicant has the necessary skills to perform their functions competently. Statement IV is incorrect because while criminal convictions are a factor, they are typically relevant only if they involve fraud, dishonesty, or other offenses that cast doubt on an individual’s integrity. A minor, non-financial summary offense like a traffic violation is generally not considered material to an assessment of fitness and properness for a licensed role. Therefore, statements I, II and III are correct.

The correct answer is that a licensed person must not guarantee a client against trading losses. The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission contains specific guidelines for those engaged in leveraged foreign exchange trading. A core prohibition under these guidelines is that a licensed person, or any of its representatives, cannot in any way represent to a client that they will be guaranteed against loss or that their losses will be limited to a specific amount. Such a guarantee misrepresents the inherent risks of leveraged trading and is a serious breach of conduct. Explaining the function of risk management tools like stop-loss orders is a legitimate and responsible practice. Recommending a conservative leverage level is considered prudent advice and is consistent with acting in the client’s best interest. Disclosing that losses can exceed the initial margin deposit is a mandatory and critical part of the risk disclosure process, ensuring the client understands the full extent of potential liability.

The explanation teaches the concept of ‘best execution’ under the SFC’s Code of Conduct. A licensed person’s primary obligation when handling a client order is to act in the best interests of the client. This means taking all reasonable steps to obtain the best possible result for the client, considering factors like price, costs, speed, and the likelihood of execution and settlement. Simply executing an order immediately without considering the potential for negative price impact (slippage) may not fulfill this duty, especially for large orders in volatile markets. The correct approach involves using professional judgment to manage the execution in a way that is most advantageous to the client. Requiring the client to sign a new risk disclosure for every volatile market trade is impractical and would unduly delay the execution of their instructions. Similarly, delaying execution to wait for a specific price level when a market order has been given is a failure to act on the client’s instructions promptly. Finally, a firm’s internal risk limits are a separate matter and do not override the fundamental duty to execute a valid client order in their best interest.

The correct answer is that the representative must provide the client with the required Risk Disclosure Statement, allow him adequate time to comprehend its contents, and obtain his signed acknowledgement before proceeding with account opening. The Code of Conduct for Persons Licensed by or Registered with the SFC is explicit in its requirements for leveraged foreign exchange trading. Before providing any services, a licensed person must furnish the client with a standardized Risk Disclosure Statement that clearly outlines the high risks associated with such products. The client must be given sufficient opportunity to read and understand this document, and the firm must obtain a signed copy of the acknowledgement slip from the client. This procedure is mandatory and cannot be waived, regardless of the client’s claimed experience or urgency. Allowing a client to sign a waiver based on experience is incorrect as the disclosure requirement applies to all clients. Opening an account and providing the disclosure later violates the principle of ensuring the client understands the risks before committing. A verbal summary is insufficient as the Code mandates a specific, written statement and a physical or electronic signature as proof of acknowledgement.

This question assesses the candidate’s understanding of the specific business conduct requirements for licensed persons engaging in leveraged foreign exchange trading, as stipulated in the Code of Conduct for Persons Licensed by or Registered with the SFC.

Statement I is correct. Paragraph 13.4(a) of the Code of Conduct explicitly states that a licensed person should not effect a transaction for a client in a leveraged foreign exchange contract on a discretionary basis unless the client has given prior written authorization to do so.

Statement II is correct. To ensure a proper audit trail and resolve potential disputes, Paragraph 13.5(a) of the Code of Conduct requires that all telephone order instructions from clients must be recorded on a telephone recording system.

Statement III is correct. Paragraph 13.5(b) of the Code of Conduct mandates that upon receipt of a client order, a licensed person should immediately time-stamp the order, recording the date and time of receipt.

Statement IV is incorrect. The comprehensive Risk Disclosure Statement for leveraged foreign exchange trading must be provided to the client and acknowledged in writing before the first transaction is effected (as per Paragraph 13.2 of the Code of Conduct). There is no requirement to provide a new, separate risk disclosure statement for each subsequent transaction. Post-trade documentation includes contract notes and statements of account, not repeated risk disclosures. Therefore, statements I, II and III are correct.

The correct answer is that the representative must repeat the essential details of the order back to the client for confirmation on the recorded telephone line. According to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, specifically the additional requirements for leveraged foreign exchange trading, when receiving client orders via telephone, a licensed person must use a recording system. A crucial part of this procedure is to confirm the order details by repeating them back to the client to ensure there are no misunderstandings. This creates a clear, contemporaneous record of the client’s instructions and the firm’s understanding of them, which is vital for dispute resolution and regulatory compliance. Simply executing the order and sending a contract note later does not fulfill the requirement for immediate confirmation and could lead to errors. Informing the client that verbal orders are not accepted is incorrect, as the Code of Conduct explicitly provides procedures for handling them. Requiring the client to visit the office to sign a form before execution is impractical for time-sensitive orders like stop-losses in the volatile foreign exchange market and would constitute a failure to act with due skill, care, and diligence in the best interests of the client.

This question assesses understanding of the specific business conduct requirements for licensed persons engaging in leveraged foreign exchange trading, as outlined in the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

Statement I is correct. Paragraph 13.4(a) of the Code of Conduct mandates that a licensed person should use a telephone recording system to record order instructions from clients and provide a written copy of such instructions to the client upon request.

Statement II is correct. Paragraph 13.5(b) of the Code of Conduct specifies that any client authority given to a licensed person or its representative to operate a leveraged foreign exchange trading account on a discretionary basis must be in writing. Furthermore, this authority is only valid for a maximum period of 12 months and must be renewed in writing.

Statement III is incorrect. A licensed person should not accept instructions from a third party for a client’s account unless the third party is authorized in writing by the client and appropriate identity verification procedures have been completed. Verbal confirmation of identity details by the spouse is insufficient.

Statement IV is correct. Paragraph 13.4(c) of the Code of Conduct requires that for any day on which a transaction has been effected for a client’s account, the licensed person must provide the client with a daily statement of account. Therefore, statements I, II and IV are correct.

The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission strictly prohibits a licensed person from effecting transactions for a client on a discretionary basis unless the client has provided prior written authority to do so in a formal discretionary account agreement. The correct course of action is to inform the client that without a signed discretionary account agreement, the representative cannot accept such broad instructions and must receive a specific order for each transaction. This ensures that all trades are explicitly authorized by the client, protecting both the client and the firm. Executing trades based on a vague instruction, even with the client’s apparent consent via message, constitutes operating an unauthorized discretionary account, which is a serious regulatory breach. Seeking a supervisor’s approval does not override the fundamental requirement for a client’s written authorization. Similarly, simply confirming the instruction via message does not formalize the arrangement into a compliant discretionary account.

The correct answer is that the representative must provide the client with the required risk disclosure statements in writing and receive a signed acknowledgement from her. The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission specifically requires that before a licensed person provides services in leveraged foreign exchange trading to a client, it must provide the client with a written explanation of the nature and risks of such trading. Crucially, the licensed person must obtain a signed acknowledgement from the client in the risk disclosure statement, confirming that the client has been given a copy and has read and understood its contents. Simply explaining the risks verbally is insufficient as it does not meet the requirement for a formal, written, and acknowledged disclosure. Executing a trade before this step is a direct violation of the client protection principles, as the client must be informed of the risks prior to any transaction. While some rules may differ for Professional Investors, the fundamental requirement to provide the specific risk disclosure for leveraged FX trading at the account opening stage applies to all clients to ensure they understand the high-risk nature of the product.

The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission contains specific additional requirements for licensed persons engaging in leveraged foreign exchange trading, due to the high-risk nature of the product. Statement I is correct because licensed persons must provide clients with a separate written explanation of the salient features of the client agreement, including matters such as margin policies, fees, and interest charges, before the first transaction. Statement IV is also correct as the Code mandates that all client orders placed via telephone must be tape-recorded, and these recordings must be retained for at least six months. Statement II is incorrect; the risk disclosure statement for leveraged foreign exchange trading must be specific to the product and highlight its unique risks, such as the potential for losses to exceed the initial margin deposit. It is not identical to the one used for general securities trading. Statement III is incorrect because there is no blanket requirement for all clients engaging in leveraged foreign exchange trading to be classified as Professional Investors with a specific net worth. While a client’s financial situation is a key part of the suitability assessment, this specific declaration is not a universal prerequisite. Therefore, statements I and IV are correct.

This question assesses the candidate’s understanding of the fundamental obligations of a licensed person when dealing with clients in leveraged foreign exchange trading, as stipulated by the SFC’s Code of Conduct. Statement I is correct because the Code of Conduct specifically requires licensed persons to provide clients with a standardized Risk Disclosure Statement for leveraged foreign exchange trading and to obtain the client’s signed acknowledgement before the first transaction is effected. This ensures the client is fully aware of the high risks involved. Statement III is also correct as it reflects the ‘know your client’ (KYC) and suitability requirements under General Principle 2 of the Code of Conduct. A licensed person must gather sufficient information about the client’s financial situation, investment experience, and objectives to ensure that any recommendations or transactions are suitable for them. Statement II is incorrect because guaranteeing a client against trading losses is explicitly prohibited. Such a guarantee would be a breach of the Code of Conduct. Statement IV is incorrect because advising a client to concentrate all their investment capital into a high-risk product like leveraged FX would almost certainly be a violation of the suitability requirement, as it disregards the client’s risk tolerance and the need for diversification. Therefore, statements I and III are correct.

The correct answer is that the licensed person must promptly close out all of the client’s outstanding positions without seeking further instructions. According to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, specifically the additional requirements for leveraged foreign exchange trading, a licensed person is obligated to close out a client’s positions if their margin level falls to or below the pre-agreed close-out level as stipulated in the client agreement. This is a critical risk management control to prevent the client’s losses from exceeding their deposited funds. Attempting to contact the client for additional funds is incorrect because market movements can be extremely rapid, and any delay could lead to significantly greater losses for both the client and the firm; the rule mandates immediate action. Partially closing the position is also incorrect as the standard procedure is to close all outstanding positions to fully mitigate the risk, unless the client agreement specifically allows for a different procedure. Waiting for a market rebound constitutes an unauthorized exercise of discretion and is a direct violation of the representative’s duty to adhere to the agreed-upon risk parameters.

This question assesses the specific obligations of a licensed person when dealing with clients in leveraged foreign exchange (LFX) trading, as stipulated in the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. Statement I is correct because Paragraph 14.2(a) of the Code of Conduct requires a licensed person to provide the client with a separate written explanation of the salient features of the client agreement, including the nature and risks of LFX trading, before the first transaction. Statement III is also correct. Paragraph 14.2(b) mandates that the client must be asked to sign a risk disclosure statement for LFX trading, which must be separate from the client agreement. Statement II is incorrect; while a client’s experience is a key factor in the suitability assessment, the Code of Conduct does not prescribe a rigid minimum period of experience, such as two years, for opening an LFX account. The assessment is holistic. Statement IV is incorrect because, while certain exemptions under the Code of Conduct apply to Professional Investors, the specific risk disclosures for highly complex and risky products like LFX are fundamental. A licensed person cannot simply waive this requirement and must still ensure that even a Professional Investor is fully aware of the specific risks involved before trading. Therefore, statements I and III are correct.

The correct answer is that the representative should refuse to execute the transaction as it is clearly unsuitable for the client’s risk profile and investment objectives. The Code of Conduct for Persons Licensed by or Registered with the SFC places a fundamental obligation on licensed persons to act in the best interests of their clients. This includes the ‘suitability obligation,’ which requires that any recommendation or solicitation made for a client must be suitable for that client, having regard to their financial situation, investment experience, and investment objectives. Since the transaction is described as highly speculative and inconsistent with the client’s documented conservative profile, proceeding with it would breach this core duty. Executing the transaction even with a signed disclaimer does not absolve the representative of their suitability obligation; a waiver cannot be used to justify facilitating a transaction known to be inappropriate. Suggesting a smaller, less leveraged version of the transaction is also incorrect because it still involves recommending a product that is fundamentally unsuitable for the client’s risk tolerance. The primary issue is the nature of the transaction, not just its size. Finally, while the friend’s ‘hot tip’ may be problematic, the representative’s immediate and primary regulatory duty is to their client, Mrs. Wong, not to investigate or report third parties in this context.

This question assesses the candidate’s understanding of specific operational requirements for licensed persons engaging in leveraged foreign exchange trading, as stipulated in the Code of Conduct for Persons Licensed by or Registered with the SFC.

Statement I is correct. Paragraph 13.6 of the Code of Conduct specifically requires licensed persons conducting leveraged foreign exchange trading to use a telephone recording system to record client order instructions and to maintain these recordings for at least six months. This is a critical control to mitigate disputes.

Statement II is incorrect. The Code of Conduct does not prohibit verbal orders. Instead, it mandates that if verbal orders are accepted, they must be recorded, as described in Statement I. Insisting on written instructions only is a possible internal policy for a firm, but it is not a regulatory requirement.

Statement III is correct. Paragraph 7.1 of the Code of Conduct outlines the requirements for discretionary accounts. Any authority given by a client to a licensed person to effect transactions without the client’s specific authorization for each transaction must be in writing and be designated as a ‘discretionary account’. This authority must be confirmed annually. This applies to all licensed activities, including leveraged foreign exchange trading.

Statement IV is incorrect. The requirement to provide a risk disclosure statement and have it acknowledged by the client applies at the account opening stage, before providing any services. It is not required for each individual transaction. The initial disclosure is intended to cover all subsequent trading activity within that account. Therefore, statements I and III are correct.

This question assesses the specific obligations for licensed corporations engaging in leveraged foreign exchange trading as outlined in Schedule 5 of the SFC Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

Statement I is correct. Paragraph 4 of Schedule 5 mandates that a licensed corporation must provide the client with the prescribed risk disclosure statement and receive a signed acknowledgement from the client before effecting the first transaction for that client.

Statement II is correct. Paragraph 13 of Schedule 5 specifies that if a discretionary account is to be operated, a separate written authority from the client is required. This authority must be reviewed by a responsible officer and renewed with the client at least annually.

Statement III is correct. Paragraph 5(a) of Schedule 5 requires the client agreement to clearly state that the licensed corporation, in its dealings with the client, is acting as a principal.

Statement IV is incorrect. While a licensed corporation must assess a client’s knowledge and experience to ensure suitability, there is no specific requirement under the Code of Conduct to administer a mandatory in-house examination. The assessment can be done through other means, such as reviewing the client’s trading history or educational background. Therefore, statements I, II and III are correct.

The explanation teaches the concept of handling discretionary accounts in leveraged foreign exchange trading under the SFC’s Code of Conduct. The correct answer is that a licensed person is prohibited from executing a transaction for a client’s discretionary account unless the client has provided specific prior written authorization for that transaction. A general discretionary mandate does not grant unlimited authority to trade without consultation, especially in high-risk products. The core principle is to protect the client from unauthorized trading. Simply documenting the trade rationale and notifying the client after the fact does not rectify the failure to obtain prior authorization. While a discretionary agreement grants authority, this authority is not absolute and is governed by the specific terms of the agreement and the overarching Code of Conduct, which prioritizes client consent. Obtaining approval from the firm’s senior management is an internal control matter and does not substitute for the fundamental regulatory requirement of obtaining the client’s authorization.

According to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, specifically the additional requirements for licensed persons engaging in leveraged foreign exchange trading, certain steps are mandatory before any transaction can be effected for a client. Statement I is correct because licensed corporations must provide clients with the standardized risk disclosure statements as set out in Schedule 5 of the Code of Conduct. Statement II is also correct as Paragraph 14.3 of the Code of Conduct requires a written client agreement, duly executed by the client and the licensed person, to be in place before services are provided. Statement III is incorrect; while the Securities and Futures (Client Money) Rules require client money to be paid into a segregated account, these accounts can be maintained with an authorized institution in Hong Kong or, under certain conditions, with a bank outside of Hong Kong, not exclusively within Hong Kong. Statement IV is incorrect because the suitability assessment must be conducted before any recommendation is made or a transaction is solicited, not after the first trade has been executed. Therefore, statements I and II are correct.

The correct answer is that the time the order was received and the identity of the individual who transmitted it for execution must be recorded. According to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, specifically the provisions for leveraged foreign exchange trading, licensed persons must maintain a proper audit trail for all orders. For discretionary orders, where the representative makes the trading decision, it is crucial to record the time the investment decision was made (equivalent to when the order was ‘received’ internally), the identity of the person who made the decision and transmitted the order, and the time of execution. This ensures transparency and helps resolve any potential disputes regarding the timing and price of the execution. A summary of the market analysis relates to the suitability of the investment decision, not the specific order recording requirements. The name of the counterparty bank is part of the trade confirmation details but not a required element of the initial order ticket. A client’s verbal confirmation code might be part of a firm’s internal security procedures but is not a specific requirement under the Code of Conduct’s order handling rules.

The Securities and Futures Commission (SFC) requires licensed individuals to be, and remain, fit and proper at all times. This is a continuing obligation. When assessing an individual’s fitness and properness, the SFC considers several key criteria as outlined in its Fit and Proper Guidelines. Statement I is correct because the SFC must be satisfied that the individual can perform their duties competently and ethically, and personal financial distress could create pressure to act improperly. Statement II is correct as bankruptcy can impact an individual’s reputation and perceived reliability, which are crucial in the financial industry. Statement III is directly relevant and explicitly mentioned in the guidelines; the SFC will consider an individual’s financial status, including bankruptcy, as it may affect their ability to meet their obligations and their judgment. Statement IV, concerning the number of clients served, is an operational metric for the firm and is not a primary factor the SFC would consider when evaluating an individual’s personal financial solvency and its impact on their fitness and properness. Therefore, statements I, II and III are correct.

The correct answer is that the representative should execute the trade without prior client contact, provided it is consistent with the investment objectives and terms of the written discretionary authority. According to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, a licensed person must have specific written authority from a client before effecting transactions for that client on a discretionary basis. Once this authority is properly established in a client agreement, the representative is empowered to make decisions on behalf of the client without needing to obtain consent for each individual transaction. The primary obligation is to ensure that any action taken is genuinely in the client’s best interests and aligns with the mandate defined in the agreement. Requiring written confirmation for each specific transaction would negate the nature of a discretionary account. While documenting attempts to contact a client is a good practice, it is not a prerequisite for exercising validly granted discretionary authority. Similarly, adhering to a generic firm-wide transaction limit is a matter of internal policy, but the representative’s primary regulatory duty is to act in accordance with the specific client’s mandate and best interests as outlined in their agreement.

The correct answer is that the individual must promptly notify the Securities and Futures Commission (SFC) of the conviction. The ‘Fit and Proper’ requirement, as stipulated under the Securities and Futures Ordinance and the Fit and Proper Guidelines, is a continuing obligation for all licensed persons. This means an individual must remain fit and proper at all times, not just at the initial licensing stage. A criminal conviction, even for an offence seemingly unrelated to financial services like theft, can impact the SFC’s assessment of a person’s character, reliability, and integrity. Therefore, licensed individuals are required to report such matters to the SFC within a specified period (typically 7 business days). Simply informing the employer’s compliance department is insufficient as the primary regulatory obligation is to the SFC. Waiting until the next license renewal to disclose the conviction would be a breach of the requirement for timely notification. The belief that only finance-related offenses need to be reported is incorrect; the SFC considers any information that may cast doubt on a person’s fitness and properness, which includes all criminal convictions.

The correct answer is that the representative must inform the client that he cannot accept a discretionary instruction without prior written authorization and must request specific order details. The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission strictly prohibits licensed persons from effecting transactions for a client on a discretionary basis unless the client has provided specific written authority to do so in a formal discretionary account agreement. An instruction to ‘do what you think is best’ is a discretionary order. Therefore, the representative’s primary duty is to refuse the instruction and clarify that a specific order, including the currency pair, direction, and amount, is required. Executing a trade, even a small one intended to reduce risk, and then seeking confirmation constitutes an unauthorized discretionary trade, as the action was taken without a specific client instruction. Recording the conversation does not legitimize the acceptance of a discretionary order; the fundamental requirement for written authorization is still missing. While suggesting the use of a secure platform for order placement is good practice, it does not resolve the immediate issue, which is the unacceptable nature of the discretionary instruction itself. The representative must first address and reject the discretionary mandate before discussing the method of placing a proper, specific order.

This question assesses the candidate’s understanding of the key features of the arbitration process under the Securities and Futures (Leveraged Foreign Exchange Trading) (Arbitration) Rules. Statement I is correct because the SFC is responsible for establishing and maintaining a panel of arbitrators from which a single arbitrator is appointed to hear a dispute. Statement II is correct as the Rules specify a streamlined ‘documents-only’ procedure for claims not exceeding HK$500,000 to ensure efficiency and cost-effectiveness, although the arbitrator retains the discretion to hold a hearing if deemed necessary. Statement III is correct; a fundamental principle of this arbitration scheme is that the arbitrator’s award is final and binding on all parties involved, with very limited grounds for challenge in court. Statement IV is incorrect because the costs of the arbitration are not automatically borne by the licensed corporation. The arbitrator has the discretion to direct how the costs are to be paid by the parties, which could involve apportionment or ordering one party to pay the other’s costs based on the case’s merits. Therefore, statements I, II and III are correct.

The correct answer is that the firm must deposit the funds into a segregated client account as soon as reasonably practicable, and no later than the next business day. The Securities and Futures (Client Money) Rules are designed to protect client assets by ensuring they are kept separate from the firm’s own money. This segregation is crucial in the event of the licensed corporation’s insolvency. Depositing the money into the firm’s general operating account, even with the intent to transfer it later, constitutes co-mingling of funds, which is a serious breach of the rules. Waiting for a client’s specific trading instructions before depositing the funds is also incorrect, as the obligation to safeguard the money by placing it in a segregated account is immediate upon receipt. A five-day period is too long and does not comply with the requirement to deposit the money by the next business day.

The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (SFC) sets out specific requirements for licensed corporations engaging in leveraged foreign exchange (LFX) trading, detailed in Schedule 5. Statement I is correct because a written and signed client agreement, containing all prescribed information, must be in place before any services are provided. Statement II is also correct as the Code explicitly requires licensed persons to provide clients with a clear written explanation of the basis for margin calls and the circumstances under which their positions might be closed without their prior consent. This is a critical risk disclosure. Statement III is incorrect; while the Securities and Futures (Financial Resources) Rules set out minimum margin requirements that a licensed corporation must maintain for different currency pairs (e.g., 2% for major currency pairs), it does not mandate a specific initial deposit percentage from the client before the account is active. The firm’s own credit policy will determine the initial margin required from the client. Statement IV is incorrect because while explaining the risk disclosure statements is mandatory, the Code of Conduct does not stipulate that this must be done in a face-to-face meeting. This can be accomplished through various means of communication, as long as the licensed person is satisfied the client understands the risks. Therefore, statements I and II are correct.

This question assesses the understanding of specific business conduct requirements for licensed persons engaging in leveraged foreign exchange (LFX) trading, as stipulated in the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

Statement I is correct. Paragraph 14 of Schedule 5 to the Code of Conduct explicitly requires that if a client’s order is received by telephone, the order should be tape-recorded. A written confirmation must also be provided to the client as soon as practicable after the transaction is executed. This ensures there is a clear record of the client’s instructions.

Statement II is incorrect. To operate an LFX trading account on a discretionary basis, a licensed person must obtain a specific written authorization from the client for this purpose. A general clause within the main client agreement is insufficient to grant discretionary authority for such high-risk activities. This heightened requirement protects clients from unauthorized trading.

Statement III is incorrect. This action would be a direct violation of the ‘know your client’ (KYC) and suitability requirements under the Code of Conduct. A licensed representative must have a thorough understanding of a client’s financial situation, investment experience, and objectives before making any recommendation. Providing advice without this assessment is a serious breach of conduct.

Statement IV is correct. The Code of Conduct mandates that all client orders be time-stamped upon receipt to ensure fair handling and to maintain a proper audit trail. Using a third-party order confirmation system is a common and acceptable method for fulfilling this requirement. Therefore, statements I and IV are correct.