Under the Securities and Futures (Financial Resources) Rules (FRR), a licensed corporation must notify the SFC in writing within one business day if its liquid capital falls below the required amount. The discovery was made on Tuesday morning, so notification must be made by the end of Wednesday. This makes statement I correct. The notification must also be accompanied by information explaining the reason for the failure and the remedial action proposed, making statement II correct. There is no automatic requirement to cease business activities, although the SFC may direct the corporation to do so after being notified; therefore, statement III is incorrect. The required liquid capital is not a fixed amount but is the higher of a specified minimum amount (e.g., HK$30,000,000 for a Type 3 LC not holding client assets) and a variable amount calculated based on its ranking liabilities. Therefore, statements I and II are correct.

The Securities and Futures Commission (SFC) assesses an individual’s fitness and properness based on several criteria outlined in its Fit and Proper Guidelines, which support the requirements of the Securities and Futures Ordinance (SFO). These criteria include the applicant’s financial status, educational or other qualifications, experience, ability, reputation, character, reliability, and financial integrity. The correct answer is that a criminal conviction for an offence involving fraud or dishonesty is the most significant factor. This is because such a conviction directly impugns the individual’s integrity and reliability, which are paramount for anyone handling client assets or providing financial advice. It raises serious doubts about their suitability to be entrusted with the responsibilities of a licensed person. While the SFC considers all aspects of an applicant’s history, a past personal bankruptcy that has been fully discharged is generally viewed as less severe than a crime of dishonesty, although it is still a relevant consideration regarding financial soundness. Being a non-executive director of a firm that was disciplined for operational breaches, where the individual had no direct involvement in the misconduct, is a concern but the culpability is less direct. A civil litigation case that was dismissed without any finding of fault against the individual would carry the least weight, as it does not imply any wrongdoing.

This question assesses the candidate’s understanding of the distinct roles and powers of the Securities and Futures Commission (SFC) as an investigator and the Market Misconduct Tribunal (MMT) as an adjudicator under the Securities and Futures Ordinance (SFO). Statement I is correct; under Part VIII of the SFO, the SFC has extensive investigative powers, including the power to compel individuals to attend interviews and produce documents relevant to an investigation. Statement III is also correct; the MMT has a range of orders it can make upon finding a person has engaged in market misconduct, including a disgorgement order to pay the Government an amount up to the profit gained or loss avoided as a result of the misconduct. Statement II is incorrect because the SFC, not the MMT, is responsible for conducting investigations into suspected market misconduct. The MMT’s role is to hear and determine the case after proceedings are instituted by the Financial Secretary. Statement IV is incorrect; while the MMT can make various orders (e.g., disqualification, ‘cold shoulder’, cease and desist), it does not have the direct power to revoke a license issued by the SFC. The SFC would take separate disciplinary action, potentially based on the MMT’s findings, to suspend or revoke a license. Therefore, statements I and III are correct.

According to the Securities and Futures (Financial Resources) Rules, a licensed corporation is required to notify the Securities and Futures Commission (SFC) in writing immediately (or ‘forthwith’) if its liquid capital falls below certain thresholds. One of these critical thresholds is 120% of its required liquid capital. Another is when it falls below 100% of its required liquid capital. In the given scenario, the required liquid capital is HK$5 million. The 120% notification threshold is therefore HK$6 million (120% of HK$5 million). Since the firm’s liquid capital has dropped to HK$4.2 million, it has fallen below both the 120% and the 100% thresholds, triggering the immediate obligation to notify the SFC in writing on the same business day. The correct answer is that the firm must immediately notify the SFC in writing of the deficit. One incorrect option suggests a different notification threshold of 80%, which is not a trigger point specified in the rules. Another incorrect option confuses a potential business decision, such as ceasing trading, with the specific regulatory notification requirement mandated by the rules. While ceasing trading might be a prudent risk management step, the primary regulatory obligation is notification. A final incorrect option incorrectly refers to paid-up share capital instead of liquid capital and mistakenly identifies the Hong Kong Monetary Authority as the recipient of the notification, which is incorrect for a licensed corporation regulated primarily by the SFC for this matter.

Under Section 4 of the Securities and Futures Ordinance (SFO), the principal regulatory objectives of the Securities and Futures Commission (SFC) are clearly defined. These objectives guide the SFC’s actions in supervising the securities and futures markets, including the leveraged foreign exchange trading sector. Statement I is correct as it directly reflects the objective to maintain and promote a fair, efficient, competitive, transparent, and orderly market. Statement II is also correct, as providing protection for the investing public is a fundamental mandate of the SFC. Statement IV is correct, as the SFC is tasked with minimizing crime and misconduct within the industry. However, Statement III is incorrect. Maintaining the stability and integrity of the monetary system of Hong Kong is a primary function of the Hong Kong Monetary Authority (HKMA), not the SFC. Candidates must be able to distinguish between the core mandates of these two key regulators. Therefore, statements I, II and IV are correct.

This question assesses the understanding of the Securities and Futures Commission’s (SFC) investigative powers under the Securities and Futures Ordinance (SFO). Statement I is correct; Section 183 of the SFO explicitly grants the SFC the power to require a person to attend an interview and answer questions relevant to an investigation. Statement III is also correct; Section 182 of the SFO empowers the SFC to require the production of records and documents that are relevant to its functions. Statement II is incorrect because the SFC is a regulator, not a court of law. While it can initiate disciplinary proceedings and refer matters for criminal prosecution, the authority to impose criminal sanctions such as imprisonment lies with the Hong Kong courts. Statement IV is incorrect as it is an oversimplification of the rules against self-incrimination. Section 187 of the SFO provides that compelled answers are generally not admissible in criminal proceedings against the person, but there are exceptions, such as in proceedings for perjury. The statement’s absolute claim that they cannot be used ‘in any legal proceedings whatsoever’ is false. Therefore, statements I and III are correct.

According to the Securities and Futures (Financial Resources) Rules, a licensed corporation is required to maintain liquid capital that is not less than its required liquid capital. An early warning system is built into the rules. The correct course of action is to notify the Securities and Futures Commission (SFC) in writing within one business day whenever its liquid capital falls below 120% of its required liquid capital. This notification allows the SFC to monitor the situation closely. Waiting until the liquid capital falls below 100% of the required amount would mean the corporation is already in breach of the minimum requirement, and the notification obligation would have been missed. The primary regulator for a licensed corporation concerning the FRR is the SFC, not the Hong Kong Monetary Authority (HKMA). While ceasing trading might be a prudent internal risk management decision in severe cases, the specific regulatory reporting obligation is triggered at the 120% threshold and is directed to the SFC.

The correct answer is that the corporation must notify the SFC in writing within one business day that its liquid capital has fallen below 120% of its required liquid capital. According to the Securities and Futures (Financial Resources) Rules, a licensed corporation is required to notify the SFC in writing of this event within one business day. The 120% threshold serves as an early warning sign. In this scenario, the required liquid capital is HK$5,000,000, so the 120% threshold is HK$6,000,000. Since the firm’s liquid capital dropped to HK$4,000,000, it has breached this notification trigger. While the capital has also fallen below the 100% requirement (which requires same-day notification), the 120% threshold is the initial trigger for this level of decline. A notification period of five business days is incorrect as it does not reflect the urgency required by the rules. Notifying the Hong Kong Monetary Authority is incorrect because the SFC is the regulator responsible for overseeing the compliance of licensed corporations with the Financial Resources Rules. A notification threshold of 150% is not the specified early warning trigger for this particular requirement.

This question assesses the understanding of the Securities and Futures (Client Money) Rules, which are fundamental for any licensed corporation handling client assets. Statement I is correct because Rule 4(1) of the Securities and Futures (Client Money) Rules mandates that a licensed corporation must, without delay and in any event not later than the next business day, pay any client money received into a segregated account. Statement III is also correct. Rule 9 of the same rules specifies that any interest earned on money held in a segregated account is to be treated as client money and paid to the client, unless the licensed corporation has a written agreement with the client to the contrary. Statement II is incorrect as it describes a clear breach of the segregation principle; a client’s money cannot be used to cover the obligations or debts of another client. Statement IV is incorrect because client money must be strictly segregated and cannot be used to pay for the licensed corporation’s own operational expenses or liabilities, regardless of the firm’s financial resources. Using client money for such purposes constitutes a serious breach of the rules. Therefore, statements I and III are correct.

The correct answer is that the Market Misconduct Tribunal (MMT) is responsible for conducting civil proceedings to determine if market misconduct has occurred and, if so, to impose various civil sanctions. Under the Securities and Futures Ordinance (SFO), the SFC can institute proceedings before the MMT when it suspects market misconduct. The MMT’s proceedings are inquisitorial and civil in nature. If it finds that misconduct has taken place, it can impose orders such as disgorgement of profits, disqualification of a person from being a director, or ‘cease and desist’ orders. One incorrect option suggests the MMT handles criminal prosecutions and imprisonment; this is incorrect as criminal proceedings for market misconduct are pursued by the Department of Justice through the criminal courts. Another incorrect option states the MMT’s primary role is to directly revoke the firm’s license; while the SFC may revoke a license as a separate disciplinary action based on MMT findings, the MMT itself does not have the power to revoke SFC licenses. Finally, the suggestion that the MMT arbitrates client disputes is also incorrect; that function is handled by bodies like the Leveraged Foreign Exchange Trading Arbitration Panel for specific client-broker disputes, whereas the MMT’s focus is on upholding the integrity of the market as a whole.

Statement I is correct. The Securities and Futures (Leveraged Foreign Exchange Trading) (Arbitration) Rules establish an arbitration panel to provide an independent and informal forum for resolving monetary disputes between licensed persons and their clients concerning leveraged foreign exchange trading. Statement II is incorrect. A person aggrieved by a disciplinary decision of the SFC, such as the revocation of a license, should appeal to the Securities and Futures Appeals Tribunal (SFAT), not the Market Misconduct Tribunal (MMT). The SFAT is the statutory body responsible for reviewing specified decisions made by the SFC. Statement III is correct. The Market Misconduct Tribunal (MMT) is the body established under the Securities and Futures Ordinance (SFO) to hear and determine cases of market misconduct, such as creating a false or misleading market appearance. Proceedings before the MMT are initiated by the Financial Secretary. Statement IV is incorrect. The SFAT’s role is to review regulatory decisions, not to adjudicate commercial disputes between licensed corporations. Such disputes would typically be resolved through civil court proceedings or private commercial arbitration, depending on the terms of their agreement. Therefore, statements I and III are correct.

The correct answer is that the primary issue is the failure to immediately time-stamp the order upon receipt. According to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, a licensed person engaging in leveraged foreign exchange trading must, immediately upon receipt of a client order, record the particulars of the order, including the time of receipt. This requirement is crucial for maintaining a proper audit trail, ensuring fair treatment of clients, and resolving any potential disputes regarding the timing and price of execution, especially in fast-moving markets. Delaying the formal recording compromises the integrity of this process. While executing a verbal order is permissible, it must be properly documented at the time it is received. The requirement to provide a risk disclosure statement applies when opening an account or introducing new products, not before every single transaction for an existing client. Failing to confirm the client’s identity before the trade is a breach, but the scenario implies an existing client relationship where identity would have already been established; the most immediate operational failure described is the lack of time-stamping.

This question assesses the understanding of the regulatory process concerning market misconduct under the Securities and Futures Ordinance (SFO). Statement I is incorrect. While the SFC has disciplinary powers, for cases of market misconduct as defined in the SFO, it will typically initiate proceedings before the Market Misconduct Tribunal (MMT) for civil remedies or refer the case for criminal prosecution. The SFC’s own disciplinary actions often follow a finding by the MMT or a court. Statement II is correct. Under section 252 of the SFO, it is the Financial Secretary who, after consultation with the SFC, may institute proceedings before the MMT. Statement III is incorrect. The MMT is a civil tribunal, not a criminal court. It can make various orders such as disgorgement of profits, disqualification of directors, and ‘cold shoulder’ orders, but it does not impose criminal penalties. Criminal proceedings are handled separately by the courts. Statement IV is correct. A finding of market misconduct by the MMT can serve as a basis for the SFC to take separate disciplinary action against a licensed person or corporation, as such a finding would call into question their fitness and properness to remain licensed. Therefore, statements II and IV are correct.

The correct answer is the Securities and Futures Appeals Tribunal (SFAT). The SFAT is an independent, full-time body established under the Securities and Futures Ordinance (SFO) to provide a check on the powers of the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA). Its primary function is to hear and determine appeals against specified regulatory decisions made by these authorities. This includes decisions concerning the granting, suspension, or revocation of licenses for corporations and individuals. Therefore, an individual who disputes a disciplinary action such as a license suspension by the SFC would appeal to the SFAT. The Market Misconduct Tribunal (MMT) is incorrect because its role is to conduct civil proceedings and make findings on whether market misconduct has occurred; it does not review the SFC’s licensing or disciplinary decisions. The Leveraged Foreign Exchange Trading Arbitration Panel is incorrect as it is designed to resolve monetary disputes between licensed persons and their clients, not to handle appeals against regulatory actions. The High Court is incorrect as the primary and statutory route for appeal against an SFC disciplinary decision is first to the SFAT, not directly to the court system.

The Market Misconduct Tribunal (MMT) is established under the Securities and Futures Ordinance (SFO) to handle civil proceedings regarding identified market misconduct. Its powers are distinct from those of the criminal courts or the SFC’s direct disciplinary actions. The correct answer is that the MMT can issue a disqualification order, which prohibits an individual found to have committed market misconduct from being a director of a listed corporation for a period of up to five years. This is one of the key sanctions available to the MMT to protect the integrity of the market. Imposing a term of imprisonment is incorrect because this is a criminal sanction that can only be handed down by a court of law after a criminal prosecution, whereas MMT proceedings are civil in nature. Directly revoking an individual’s license is also incorrect; this is a disciplinary power that rests with the SFC. While the findings of the MMT can form the basis for the SFC to take disciplinary action, including license revocation, the MMT itself does not issue this order. Finally, requiring the individual to compensate all affected clients for their total initial investment is not a standard order from the MMT. The MMT can issue a ‘disgorgement order’ to recover any profit gained or loss avoided, but claims for damages or full compensation by investors are typically pursued through separate civil court actions.

According to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, specifically the section on additional requirements for leveraged foreign exchange trading, licensed corporations must ensure certain key terms and risks are clearly disclosed in the client agreement. Statement I is correct because the agreement must explicitly warn the client that they may be required to deposit further margin at short notice to maintain their positions. Statement II is also correct as the agreement must detail the specific conditions under which the firm can close out a client’s positions without prior consent, which is a crucial risk management provision. Statement IV is correct because providing the standardized risk disclosure statements and ensuring the client acknowledges understanding them is a mandatory part of the client onboarding process. Statement III is incorrect; leveraged foreign exchange trading carries the risk of losses that can exceed the initial margin deposited. Providing a guarantee to the contrary would be a serious misrepresentation and a breach of regulatory requirements. Therefore, statements I, II and IV are correct.

The correct answer is that the representative must provide the client with the specific risk disclosure statement for leveraged foreign exchange trading and obtain a signed acknowledgement. According to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, a licensed person must, before providing a client with any services in leveraged foreign exchange trading, provide the client with a risk disclosure statement in the prescribed form and obtain the client’s signed acknowledgement that they have received and understood it. This is a mandatory step to ensure clients are fully aware of the high risks involved. Simply explaining the risks verbally is insufficient as the Code requires a formal, written, and acknowledged disclosure. Relying on a generic risk clause within a general client agreement does not meet the specific requirement for a dedicated leveraged foreign exchange trading risk disclosure statement. While assessing a client’s financial situation is part of the suitability assessment, there is no specific requirement to only accept clients with a net worth exceeding a certain high threshold like HK$8 million; the key initial step is the risk disclosure, which applies to all retail clients engaging in this activity.

The Securities and Futures Ordinance (SFO) sets out the principal regulatory objectives of the Securities and Futures Commission (SFC). Statement I is correct as a primary objective is to maintain and promote the fairness, efficiency, competitiveness, transparency, and orderliness of the securities and futures industry. Statement II is also correct, as providing protection for the investing public is a cornerstone of the SFC’s mandate. Statement III correctly identifies another key objective, which is to minimize crime and misconduct within the industry. However, Statement IV is incorrect. Ensuring the stability and integrity of Hong Kong’s monetary system is a primary function of the Hong Kong Monetary Authority (HKMA), not the SFC. It is crucial for candidates to distinguish between the roles of these two major regulators. Therefore, statements I, II and III are correct.

This question assesses the candidate’s understanding of the distinct roles of various tribunals and panels established under the Securities and Futures Ordinance (SFO) framework. Statement I is correct because the Securities and Futures Appeals Tribunal (SFAT) is the statutory body responsible for hearing appeals against regulatory decisions made by the SFC, such as the revocation of a license. Statement II is correct as the Market Misconduct Tribunal (MMT) is a civil tribunal specifically constituted to handle cases involving suspected market misconduct, including creating a false or misleading market. Statement III is correct because the Securities and Futures (Leveraged Foreign Exchange Trading) (Arbitration) Rules provide for an independent and informal arbitration process to resolve monetary disputes between licensed corporations and their clients. Statement IV is incorrect; while the SFC’s Enforcement Division investigates misconduct, it does not adjudicate and award compensation for civil monetary disputes between a client and a firm. This function is handled by the courts or, more commonly for smaller claims in this context, the prescribed arbitration panel. Therefore, statements I, II and III are correct.

Under the Securities and Futures Ordinance (SFO), the SFC is granted significant investigative powers to fulfill its regulatory objectives. Section 183 of the SFO explicitly allows the SFC to require a person under investigation, or a person believed to have relevant information, to produce any record or document specified by the investigator (Statement I). The same section also empowers the SFC to require a person to attend an interview to explain documents or answer questions relating to the investigation, and the investigator may administer an oath (Statement III). However, the power to enter and search business premises is not absolute. While the SFC can enter premises, a search and seizure operation typically requires a warrant issued by a magistrate under Section 191 of the SFO, unless consent is given (Statement II is incorrect as it implies a general power without a warrant). Furthermore, while the SFC can take disciplinary action, such as imposing fines or revoking licenses, it does not have the authority to impose criminal sentences like imprisonment. Criminal prosecution is handled by the Department of Justice, and sentencing is a power reserved for the courts (Statement IV is incorrect). Therefore, statements I and III are correct.

The correct answer is that the Hong Kong Monetary Authority (HKMA) is the primary front-line regulator in this scenario. Under the Securities and Futures Ordinance (SFO), there is a dual regulatory regime. While the Securities and Futures Commission (SFC) is the principal regulator for all securities and futures activities, it delegates the day-to-day supervision of banks and other authorized financial institutions that are registered to conduct regulated activities (known as Registered Institutions or RIs) to the HKMA. The HKMA acts as the front-line regulator for these RIs, which includes handling client complaints and conducting investigations into their conduct related to regulated activities. The SFC retains its statutory powers and can intervene if necessary, but the initial point of contact and primary supervisory body is the HKMA. The Market Misconduct Tribunal (MMT) is incorrect because it is a civil tribunal that hears specific cases of market misconduct referred by the Financial Secretary; it is not a primary body for handling individual client complaints against intermediaries. The Leveraged Foreign Exchange Trading Arbitration Panel is also incorrect as its function is to provide an independent arbitration service for resolving monetary disputes between clients and licensed corporations, not to conduct regulatory investigations into misconduct. Finally, while the SFC has ultimate authority, it is not the front-line regulator for a Registered Institution; the complaint would be primarily handled by the HKMA.

Under the Securities and Futures Ordinance (SFO), the Market Misconduct Tribunal (MMT) conducts civil proceedings to determine if market misconduct has taken place. Statement I is correct; one of the key orders the MMT can make is a disgorgement order, requiring a person to pay an amount equal to the profit gained or loss avoided from the misconduct. Statement III is also correct; MMT proceedings are civil, not criminal. Therefore, the standard of proof required is the lower civil standard of ‘on the balance of probabilities,’ rather than the criminal standard of ‘beyond a reasonable doubt.’ Statement II is incorrect because the MMT, being a civil tribunal, does not have the power to impose criminal sanctions such as imprisonment. Criminal prosecution for market misconduct is a separate process handled by the courts. Statement IV is incorrect; the SFO specifies that the MMT is to be chaired by a judge or former judge of the High Court or the Court of First Instance, not necessarily the Court of Final Appeal. Therefore, statements I and III are correct.

Under the Securities and Futures Ordinance (SFO), the Securities and Futures Commission (SFC) is granted a wide range of powers to investigate potential misconduct and protect the investing public. Statement I is correct as Section 180 of the SFO empowers the SFC to require the production of records and documents relevant to an investigation. Statement III is correct; under Sections 204 and 205 of the SFO, the SFC can issue a restriction notice to limit a licensed corporation’s business activities to protect clients or the public interest. Statement IV is also correct, as Section 181 of the SFO allows the SFC to appoint an auditor to investigate and report on the affairs of a corporation if it suspects misconduct. However, Statement II is incorrect. While the SFC can initiate criminal proceedings for certain offences under the SFO, it does not have the judicial power to impose criminal sentences such as imprisonment. Such sentences can only be handed down by a court of law following a successful prosecution. The SFC’s own disciplinary powers are civil in nature and include actions like fines, reprimands, and license suspension or revocation. Therefore, statements I, III and IV are correct.

Section 4 of the Securities and Futures Ordinance (SFO) sets out the principal regulatory objectives of the Securities and Futures Commission (SFC). These objectives are: (i) to maintain and promote the fairness, efficiency, competitiveness, transparency and orderliness of the securities and futures industry; (ii) to provide protection for members of the public investing in or holding financial products; and (iii) to minimize crime and misconduct in the securities and futures industry. Statement I, II, and IV are accurate reflections of these statutory objectives. Statement III, which refers to maintaining the stability and integrity of the monetary and banking systems, describes a primary function of the Hong Kong Monetary Authority (HKMA), not the SFC. Therefore, statements I, II and IV are correct.

This question assesses the understanding of the distinct roles of two key independent bodies under the Securities and Futures Ordinance (SFO): the Securities and Futures Appeals Tribunal (SFAT) and the Market Misconduct Tribunal (MMT).

Statement I is incorrect. The Market Misconduct Tribunal (MMT) hears cases of alleged market misconduct; it does not hear appeals against regulatory decisions made by the SFC, such as the suspension of a license.

Statement II is correct. The Securities and Futures Appeals Tribunal (SFAT) is the statutory body responsible for reviewing specified decisions made by the SFC. A decision to suspend a license is a reviewable decision, and the affected licensed corporation has the right to appeal to the SFAT.

Statement III is incorrect. The SFAT’s role is to review regulatory decisions, not to conduct initial hearings to determine if market misconduct has occurred. That is the function of the MMT.

Statement IV is correct. The Market Misconduct Tribunal (MMT) is specifically empowered under the SFO to conduct civil proceedings and make a determination on whether market misconduct, such as creating a false or misleading market, has taken place. If misconduct is found, the MMT can impose various orders and sanctions. Therefore, statements II and IV are correct.

The correct answer is that the case would be referred to the Market Misconduct Tribunal (MMT). The Securities and Futures Ordinance (SFO) establishes the MMT as the primary body for conducting civil proceedings into identified market misconduct. When the SFC concludes an investigation and believes there is sufficient evidence of misconduct, such as market manipulation, it can recommend to the Financial Secretary that proceedings be instituted in the MMT. The MMT’s role is to determine whether market misconduct has taken place and, if so, to impose a range of civil sanctions. The Securities and Futures Appeals Tribunal (SFAT) serves a different purpose; it is an appellate body that hears appeals against regulatory decisions made by the SFC or the HKMA, such as those related to licensing or disciplinary actions, rather than conducting initial hearings on market misconduct. The Leveraged Foreign Exchange Trading Arbitration Panel is designed to resolve monetary disputes between licensed corporations and their clients, not to handle regulatory enforcement actions initiated by the SFC. While the Hong Kong Monetary Authority (HKMA) has a significant regulatory role, particularly concerning authorized institutions, the specific statutory body for adjudicating civil market misconduct cases under the SFO is the MMT.

This question assesses the specific obligations for licensed corporations engaged in leveraged foreign exchange trading under the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

Statement I is correct. Paragraph 13.3 and Schedule 1 of the Code of Conduct mandate that before opening an account for a client to trade in leveraged foreign exchange contracts, a licensed person must provide the client with a standardized Risk Disclosure Statement. The client must be asked to sign and return a copy of this statement to acknowledge that they have read and understood it.

Statement II is correct. Paragraph 13.6(c) of the Code of Conduct specifies that for discretionary accounts in leveraged foreign exchange trading, the written authority provided by the client must be renewed at least annually. This is a stricter requirement to ensure the client’s ongoing consent and awareness.

Statement III is incorrect. While licensed corporations must ensure the suitability of any recommendation made to a client (General Principle 2 and Paragraph 5.2 of the Code of Conduct), there is no absolute prohibition on providing recommendations to retail clients. The key obligation is to perform a thorough suitability assessment, not to withhold all recommendations.

Statement IV is incorrect. The concept of a mandatory ‘cooling-off period’ allowing a client to rescind an agreement is not a general requirement under the Code of Conduct for opening a leveraged foreign exchange trading account. Such provisions are typically associated with specific products or circumstances, such as those arising from unsolicited calls, but are not a standard part of the account opening process for this activity. Therefore, statements I and II are correct.

The correct answer is that under the Securities and Futures Ordinance (SFO), the SFC has the authority to enter the business premises of a licensed corporation to inspect and make copies of any records or documents. This is a key investigatory power granted to the SFC to enable it to effectively supervise intermediaries and investigate potential misconduct. This power allows investigators to gather evidence directly and efficiently. The other options describe actions that are either incorrect or misrepresent the SFC’s powers in this context. While the SFC can apply to the Court of First Instance for orders to freeze assets, it does not have the unilateral power to immediately freeze all corporate and client bank accounts as a first step in an investigation. Disciplinary actions, such as issuing a public censure against Responsible Officers, would only occur after an investigation is concluded and the individuals are found to be culpable, not during the evidence-gathering phase. Finally, the SFO grants the SFC direct statutory powers to enter and inspect the premises of a licensed corporation; it does not need to first obtain a search warrant from the Hong Kong Police Force for such an inspection, although it may apply to a magistrate for a warrant in specific circumstances, such as when entry is denied or to enter domestic premises.

Under the Securities and Futures (Financial Resources) Rules (FRR), a corporation licensed for Type 3 (Leveraged Foreign Exchange Trading) regulated activity is subject to specific capital requirements. Statement I is correct as the minimum paid-up share capital requirement for a Type 3 licensed corporation is HK$5,000,000. Statement II is also correct as the minimum liquid capital requirement is HK$3,000,000. Statement III is incorrect because if a licensed corporation’s liquid capital falls below the required amount, it must notify the SFC immediately upon becoming aware of the deficit, not within one business day. The immediacy of the notification is a critical compliance point. Statement IV is incorrect because while an approved subordinated loan can be included in the calculation of liquid capital, it does not count towards the separate and distinct requirement for paid-up share capital. Paid-up share capital must be met through issued and fully paid shares. Therefore, statements I and II are correct.

The Securities and Futures Ordinance (SFO) outlines the principal regulatory objectives of the Securities and Futures Commission (SFC). Statement I correctly reflects the objective to maintain and promote the fairness, efficiency, competitiveness, transparency, and orderliness of the securities and futures industry. Statement II accurately combines two other key objectives: to provide protection for the investing public and to reduce systemic risks in the industry. Statement III is incorrect; ensuring the stability of Hong Kong’s currency and managing the Exchange Fund are primary functions of the Hong Kong Monetary Authority (HKMA), not the SFC. Statement IV is also incorrect. While the SFC sets rules that impact risk management for licensed corporations, such as the Financial Resources Rules, its high-level statutory objective is not to directly set specific product terms like maximum leverage ratios for all products. Its objectives are broader, focusing on principles like investor protection and systemic risk reduction. Therefore, statements I and II are correct.