Recent Updates to HKSI Paper 1 Version 3.5 Manual– Fundamentals of Securities and Futures Regulation

The following updates are examinable from 30 June 2026

TOPIC 1 – REGULATORY OVERVIEW OF THE HONG KONG FINANCIAL INDUSTRY

• Renaming of the Chinese Gold & Silver Exchange Society:

Hong Kong Gold Exchange (HKGX)

• • Runs a market now focused on bullion trading in tael gold and kilo gold
  • The HKGX is NOT directly regulated
  • Promotes paper gold schemes, which are classified as Collective Investment Schemes, which are, in turn, regulated by the SFC

TOPIC 2 – PRINCIPLES OF RELEVANT HONG KONG LAW AND THE COMPANIES ORDINANCE

• Material covering Treasury Shares has been added:

Treasury Shares

• • Treasury shares are defined as shares bought back by a listed company and held either in its own name or through a nominee, rather than being immediately cancelled
  • The Ordinance permits listed companies to hold, sell, transfer, or cancel treasury shares, but suspends shareholder rights attached to them, including voting and dividend entitlements
  • Companies must report the holding, sale, transferring or cancellation of treasury shares to the Registrar of Companies using specified forms

 TOPIC 3 – SECURITIES AND FUTURES ORDINANCE

• No updates

 TOPIC 4 – LICENSING AND REGISTRATION, AND SUBSIDIARY LEGISLATION

• No updates

  TOPIC 5 – BUSINESS CONDUCT AND CLIENT RELATIONS

• No updates

 TOPIC 6 –BUSINESS OPERATIONS AND PRACTICES

• No updates

TOPIC 7 –PARTICIPATING IN THE HONG KONG EXCHANGES

• No updates

TOPIC 8 –ACCESSING PUBLIC CAPITAL

• New material on Tokenised Securities

Tokenised Securities and Digital Securities

• • Tokenised securities are fundamentally traditional securities with a tokenisation wrapper and amount to “securities” as defined under the SFO
  • Tokenised securities should not be regarded as complex products, rather they should be considered a subset of digital securities that use distributed ledger technology (DLT)
  • Digital securities that are not tokenised securities are likely to be regarded as complex products
  • Existing conduct requirements for securities-related activities will apply to:
    • distribution of or advising on tokenised securities
    • management of tokenised securities in the form of tokenised funds
    • management of funds investing in tokenised securities
    • secondary market trading of tokenised securities on virtual asset trading platforms (VATPs)
  • Intermediaries should manage the specific risks in activities involving tokenisation, including:
    • Ownership risks – relating to how ownership interests in tokenised securities are transferred and recorded
    • Custody risks – relating to the safety and security of custodial arrangements for tokenised securities and protections against the risk of loss; and
    • Technology risks – relating to blockchain network outages, cyberattacks, forking, etc
  • Tokenised securities issued as permissionless tokens on public-permissionless networks pose heightened cybersecurity risks due to unrestricted access, ease of transfer and anonymity compared to registered forms

Virtual Asset-related Products

• • VA-related products and tokenised SFC-authorised investment products are also subject to SFC rules and regulations
  • VA-related products refer to investment products which:
    • have a principal investment objective or strategy to invest in VAs;
    • derive their value principally from the value and characteristics of VAs; or
    • track or replicate the investment results or returns which closely match or correspond to VAs.
  • VA-related products are generally to be considered complex products that can only be available to PIs, except:
    • VA-related derivative products traded on regulated exchanges specified by the SFC;
    • exchange-traded VA derivative funds authorised or approved for offering to retail investors by the respective regulator in a designated jurisdiction; and
    • VA funds authorised by the SFC that:
      • invest directly in the same spot VA tokens accessible to the Hong Kong public for trading on SFC-licensed VATPs; and/or
      • acquire indirect investment exposure to such VA (e.g. through VA futures traded on conventional regulated futures exchanges and other exchange-traded products (“ETP”) for public offering and traded on regulated exchanges specified by the SFC)

SFC-authorised VA Funds

• • VA funds seeking SFC authorisation should ensure:
  • appropriate management competence
  • compliance with investment requirements on eligible underlying assets
  • adoption of proper custody and valuation arrangements, and
  • adequate disclosure of fund features and risks.

Tokenised SFC-authorised Investment Products

• • SFC-authorised investment products (including SFC-authorised funds) are “securities” as defined under the SFO
  • Tokenised SFC-authorised investment products refer to CISs that satisfy the SFC’s applicable product authorisation requirements and are wrapped with a tokenisation arrangement and sufficient risk management arrangements
  • SFC allows primary dealing of tokenised SFC-authorised investment products, as long as the underlying product can meet its applicable product authorisation requirements

Dual Licensing Regime for Virtual Asset Trading Platforms

• • Centralised platforms that trade VAs (i.e. VATP) must be licensed according to the nature of the VAs traded on the platform:
    • a platform that trades one or more VAs that constitutes securities under the SFO will need to be licensed or registered under the SFO (typically for Type 1 and Type 7 regulated activites);
    • a platform that trades one or more VAs that are not securities under the SFO and meet the definition of VAs under the AMLO will need to be licensed by the SFC under the AMLO;
    • a platform that engages in both of the above trading activities will need to be licensed under both the SFO and the AMLO.

Regulated Activities under the SFO

• • Irrespective of whether or not a VA is regulated under the SFO, the SFO may still be relevant
  • VA-related products and VA-related activities may fall within the SFO as follows:
    • where an investment portfolio is structured as a CIS, activities in relation to the CIS’s shares or units will be subject to the SFO even though the investment portfolio might consist solely of VAs that are not securities or futures contracts – management of such an investment portfolio will constitute a Type 9 regulated activity;
    • with the launch of futures contracts on VAs on regulated markets, dealing in or advising on such futures contracts will constitute Type 2 regulated activity and Type 5 regulated activity, respectively
    • licensed corporations and registered institutions who provide VA dealing services to their clients may only do so by partnering with VATPs that have been licensed by the SFC

TOPIC 9 –MARKET MISCONDUCT AND IMPROPER TRADINGPRACTICES

• No updates