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TOPIC 1 – REGULATORY OVERVIEW OF THE HONG KONG FINANCIAL INDUSTRY

 

1. Philosophy and Systems of Regulation

Share offers and listing matters can be referred to as merit-based or disclosure-based.

Merit-based Regulation

  • Objective is to screen out undesirable players and undesirable offerings
  • Ensure a fair balance between promoters and investors
  • Provides the investing public with a fair balance between risks and returns
  • It has been claimed that the HK Listing Rules are merit-based, although they are primarily a system of disclosure

Disclosure-based Regulation

  • the focus is on maximizing disclosure and provision of information regarding public offerings
  • UK and US are disclosure-based
  • HK New Companies Ordinance (NCO) is disclosure-based and has legal force
  • the idea is that maximum disclosure is required to enable investors to make their own investment decisions

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

2. Hong Kong Monetary Authority
  • Headed by a Chief Executive with several deputies
  • Manages the Exchange Fund
  • Manages Hong Kong’s monetary policy
  • Required to maintain currency stability
  • Ensures the safety and stability of the banking system
  • Promotes the efficiency, integrity and development of the financial system
  • Supervises the banking system
  • Under the SFO and the Banking Ordinance, Authorized Financial Institutions (AFI’s), which are regulated by the HKMA and include banks, have to be registered with SFC as registered institutions if they wish to carry out an SFC-regulated activity
  • HKMA is frontline regulator of AFIs and takes the leading role in vetting applications for registration with the SFC and in supervising their SFC-regulated activities, including on-site inspection
  • HKMA applies all SFC criteria in supervising AFIs registered with the SFC

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

3. Ten SFC-regulated Activities

 

1.Dealing in securities
2.Dealing in futures contracts
3.Leveraged foreign exchange trading
4.Advising on securities
5.Advising on futures contracts
6.Advising on corporate finance
7.Providing automated trading services
8.Securities margin financing
9.Asset management
10.Providing credit rating services

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

4. Regulatory Objectives of the SFC

As stated in the SFO, the objectives of the SFC, in relation to the securities and futures industry, are:

  • Maintain and promote the fairness, efficiency, competitiveness, transparency and orderliness of the industry
  • Promote understanding by the public of financial services including the operation and functioning of the industry
  • Provide protection to the investing public
  • Minimize crime and misconduct in the industry
  • Reduce systemic risks in the industry
  • Assist the financial secretary in maintaining the financial stability of Hong Kong by taking appropriate steps in relation to the industry

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

5. SFC Committees, Tribunals and Panels

Examples of regulatory committees established by the SFC, to which it has delegated some of its functions, are:

  • Takeovers and Mergers Panel
  • Takeovers Appeal Committee
  • Products Advisory Committee
  • Investor Compensation Fund Committee
  • Academic and Accreditation Advisory Committee
  • Share Registrars’ Disciplinary Committee

The following tribunals and panels are independent of the SFC:

  • Securities and Futures Appeals Tribunal – statutory body with full-time members headed by a judge appointed by the Chief Executive to hear appeals against decisions made by the SFC
  • Arbitration Panel – hears disputes relating to leveraged foreign exchange trading
  • Process Review Panel – reviews and monitors the operational processes of the SFC, reporting suggested improvements to the Financial Secretary
  • Market Misconduct Tribunal – see Topic 9

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 6. Disciplinary Powers of the SFC

The SFC may investigate suspected breaches of the SFO, subsidiary legislation, codes and guidelines:

  • Breaches of SFO and subsidiary legislation are legal offences. Serious cases may be referred to law enforcement agencies such as the Commercial Crime Bureau (CCB – part of the police force), or the Independent Commission Against Corruption (ICAC)
  • SFC can apply to the courts for an injunction to stop someone dealing with his assets or from carrying on his business, if it can be shown to be in the public interest
  • Codes and guidelines do not have the force of law and are not legally enforceable. Breaching the codes and guidelines may result in a licensed or registered person not being considered ‘fit and proper’ to remain licensed or registered
  • The SFC has the power to:
    • Reprimand (privately or publicly)
    • Fine
    • Suspend or revoke a license or registration

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

TOPIC2 – PRINCIPLES OF RELEVANT HONG KONG LAW AND THE NEW COMPANIES ORDINANCE

 

7. Primary and Subsidiary Legislation
  • Primary legislation consists of Ordinances enacted by the Chief Executive, with the advice of LegCo (drafted by Government)
  • Subsidiary legislation is drafted by non-Government bodies, as delegated by LegCo, and referred to as Rules
  • SFC has extensive powers to make rules under SFO

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

8. Independence of the Judiciary
  • Judiciary is completely independent of other parts of Government
  • Judges are not politically appointed; decisions based on interpretation of law
  • Judges are not pressurized by Government, LegCo, media or pressure groups

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

9. Redeemable Shares
  • Redeemable preference and ordinary shares may be issued if authorized by articles of association
  • May be redeemed at the option of the shareholder or company
  • May only be issued if company has already issued shares that are not redeemable
  • Redemption must be paid out of distributable profits, the proceeds of a new share issue, or share capital
  • Redemption can only occur if shares are fully paid

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

10. Special Resolution
  • Passed by at least 75% of members at a general meeting
  • 21 days notice of the meeting is required
  • Printed copy of resolution must be lodged with Company Registrar within 15 days
  • Special resolution required for:
    • Reduction of share capital
    • Company liquidation
    • Alteration of articles of association

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

TOPIC 3 – SECURITIES AND FUTURES ORDINANCE (SFO)

 

11. Objectives of the Securities and Futures Ordinance

To provide a regulatory framework which:

  • Promotes a fair, orderly and transparent market
  • Is flexible enough to cope with new products and other innovations, and further advances in technological infrastructure
  • Is administered by a regulator with sufficient powers and discretion whose operations are transparent and who is accountable to the stakeholders through a system of adequate checks and balances
  • Is on a par with international standards and compatible with international practices, but tailored to meet local needs and circumstances

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

12. Associated Entity
  • The Client Securities Rules apply to intermediaries and their associated entities.
  • An associated entity (AE) of an intermediary is defined as a company which:
    • Is in a controlling entity relationship (>20% voting power) with the intermediary; and
    • Receives or holds client assets of the intermediary in Hong Kong
  • An AE is required to notify the SFC in writing within 7 business days of becoming or ceasing to be an AE
  • An AE cannot conduct any other business unless authorized in writing by the SFC

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

13. SFO Audit Provisions
  • The audit provisions apply to licensed corporations and their associated entities, but not to registered institutions
  • The main requirements relating to audits are in the SFO, although the contents of audited accounts and audit reports are given in the Accounts and Audit Rules
  • Audited accounts of a licensed corporation must be submitted to the SFC not later than 4 months after the end of the financial year, or the date of cessation of the business
  • Licensed corporations and any associated entities must appoint auditors within one month of being licensed – the appointment must be notified to the SFC within 7 business days
  • Removal or resignation of auditors should be notified to the SFC within 1 business day from giving notice of the required resolution
  • If an auditor becomes aware of a reportable matter, a written report must be made to the SFC as soon as practicable (or to HKMA if AE is an AFI). [A reportable matter is a failure to comply with a prescribed requirement and anything that adversely affects a financial position to a material extent or breaches the FRR]

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

14. Discipline of Regulated Persons
  • The disciplinary provisions in this part of the SFO relate to:
    • Licensed corporations, licensed representatives, responsible officers and persons involved in the management of licensed corporations;
    • Any person involved in the management of a licensed corporation, including managers-in-charge of core functions. Such individuals are not necessarily SFC licensed; and
    • Registered institutions, executive officers and persons involved in the management of registered institutions
  • If a regulated person (any of the above) is guilty of misconduct, or is not a fit and proper person, the SFC may:
    • Revoke or suspend the license/registration in respect of all or part of the regulated activity
    • Revoke or suspend approval as a responsible/executive officer
    • Publicly or privately reprimand the regulated person
    • Prohibit the regulated person from applying for a license, registration, approval as a responsible officer, or entry in the HKMA register, or to act as an executive officer
    • Separately, or in addition, order the regulated person to pay a penalty up to the greater of HK$10million or 3 times any profit gained or loss avoided as a result of his misconduct
  • Misconduct includes contravention of:
    • Provisions of the SFO and certain parts of the NCO
    • Terms and conditions of any license or registration with the SFC
    • Any act or omission relating to regulated activities which is prejudicial to the public interest

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

15. Investor Compensation
  • SFO empowers SFC to establish and maintain a single Investor Compensation Fund to cover losses incurred by clients of intermediaries in general, including non-exchange participants
  • The Investor Compensation Company Limited has been established to administer, manage and operate the Investor Compensation Fund and process claims made against the fund
  • Detailed legislation contained in three sets of rules:
    • Securities and Futures (Investor Compensation – Levy) Rules: funded by a levy on buy and sell transactions on the SEHK and HKFE
    • Securities and Futures (Investor Compensation – Claims) Rules: prescribe who can make claims from the Fund and how claims may be made and paid
    • Securities and Futures (Investor Compensation – Compensation Limits) Rules: prescribe that the maximum amount of compensation that can be paid per person is HK$500,000

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

16. Duty of Disclosure
  • Reflects modern trend towards greater disclosure and transparency
  • Two basic rules concerning the duty to disclose interests in the relevant share capital of a listed company:
    • Directors and chief executives are required to disclose all interests
    • Other persons must make disclosures once their interests in the relevant share capital reach 5%
  • ‘Interest in relevant share capital’ is widely defined to include:
    • Both long and short positions, without any netting
    • Interests in equity derivatives
    • Attributed interests, including trust arrangements, corporate shareholdings and family arrangements
  • Persons subject to disclosure requirements are required to make disclosures when:
    • Having reached (and reported) the 5% disclosure level, their holdings rise or fall through a whole percentage level
    • The level of interest falls below 5%
    • The nature of their interest changes (eg acquiring shares on the exercise of a call option)
  • Disclosure must be made:
    • To the listed company
    • To the exchange on which the company is listed
    • Within 3 business days after the relevant date

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 17. Miscellaneous Provisions of SFO
  • Statutory immunity is provided to persons performing the SFCs statutory functions in good faith
  • Auditors of listed companies reporting suspected fraud and other improper practices are given immunity from civil liability
  • A person commits an offence if he knowingly or recklessly provides false or misleading information regarding a material matter to the SFC – also applies to filing of public statements and disclosure obligations imposed by the listing rules
  • SFC can intervene in civil proceedings between third parties which concern matters under the SFO or certain parts of the NCO
  • If an offence under the SFO committed by a company is aided or abetted by an officer of the company, that officer will be guilty of that offence. “Officer” includes senior management and managers-in-charge
  • Powers are given to the Financial Secretary to prescribe, by notice in the Gazette, new financial products, including OTC derivatives
  • SFC is given powers to make rules, codes and guidelines (eg Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered with the Securities and Futures Commission)

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

TOPIC4 – LICENSING AND REGISTRATION AND SUBSIDIARY LEGISLATION

 

18. Responsible Officer
  • A responsible officer is a licensed representative who:
    • Actively participates in or supervises a regulated activity;
    • Is nominated by the licensed corporation; and
    • Is approved by the SFC
  • Although the SFO does not provide a definition of responsible officer, the SFC has stated:
    • Every executive director* of a licensed corporation is required to obtain the approval of the SFC as a responsible officer; and
    • Every licensed corporation must have, for each regulated activity for which it is licensed, at least two responsible officers approved by the SFC – at least one of them must be an executive director

*  A director who actively participates in, or is responsible for directly supervising, the business of a regulated activity for which the corporation is licensed (s113, SFO)

  • For registered institutions: the Banking Ordinance requires at least two executive officers to be responsible for supervising regulated activities – at least one to be available at all times

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

19. Substantial Shareholder
  • Substantial shareholders have a special relevance in the licensing regime
  • All substantial shareholders of licensed corporations must be approved by the SFC
  • Under this legislation, a substantial shareholder is a person who, alone or together with his associates:
    • Has an interest of more than 10% of the total number of the issued shares of the corporation
    • Directly or indirectly has more than 10% of the voting power of the company at a general meeting
    • Is able to exercise 35% or more of the voting power of another company at a general meeting which in turn has more than 10% of the voting power of the company at a general meeting

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

20. Exclusions from Regulated Activities

A number of parties are not required to be licensed for certain activities, including:

  • Professional accountants, solicitors, and counsel conducting Types 4, 5, 6 and 9 regulated activities that are wholly incidental to their profession
  • Trust companies conducting Types 4, 5, 6 and 9 regulated activities, wholly incidental to the discharge of their trustee duties
  • Persons licensed or registered to conduct Type 9 regulated activity who carry out Types 1, 2, 4 and 5 regulated activities solely for the purposes of their Type 9 regulated activity
  • Corporations carrying out Types 4, 5, 6 and 9 regulated activities solely for their wholly owned subsidiaries, holding companies holding all their issued shares or other wholly owned subsidiaries of the holding company

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

21. Temporary and Provisional Licenses

Temporary Licenses

  • The SFC may grant a temporary license to a corporation, for not more than 3 months:
    • Which principally carries on its business overseas
    • For specified SFC regulated activities, other than Types 3, 7, 8 and 9
  • The SFC may grant a temporary license to representatives of a licensed or a temporary licensed corporation, for not more than 3 months
  • The total period for which temporary licenses can be held by the same person may not exceed 6 months over a 24-month period

Provisional Licenses

  • On application for a representative license, a person may be given a provisional license to cover the period before a decision is made on the licensing application

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

22. Fitness and Properness
  • Corporate and individual applicants for licensing and registration must satisfy fitness and properness requirements as stated in the Fitness and Properness Guidelines. These relate to:
    • Financial status or solvency
    • Educational or other qualifications/experience
    • Ability to carry on the regulated activity competently, honestly and fairly
    • Reputation, character, reliability and financial integrity

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

23. Guidelines on Continuous Professional Training
  • Every individual licensee is expected to undertake a minimum of 5 CPT hours every calendar year for each regulated activity competence group (eg Types 1 and 4 are in the same Group; Types 1 and 9 are in different Groups)
  • Activities allowed as CPT:
    • Attending courses, workshops, lectures and seminars
    • Distance learning
    • Self-study with submission of assignments to recognized institutions
    • Research
    • Publications
    • Speeches
  • Activities not allowed as CPT:
    • Reading financial journals, newspapers and other technical publications
    • Normal work
    • Activities which do not involve interaction with other individuals

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

24. Applicability of SFC Rules
Licensed CorporationsRegistered InstitutionsAssociated Entities
Financial Resources Rules

YES

NO

(HKMA)

NO

(Not an issue)

Client Securities Rules

YES

YES

YES

Client Money Rules

YES

NO

(HKMA)

YES

(if not an AFI)

Keeping of Records Rules

YES

YES

YES

Contract Notes Rules

YES

YES

YES

Accounts and Audit Rules

YES

NO

(HKMA)

YES

(If not an AFI)

Insurance Rules

YES

(Those holding client assets)

NO

NO

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

25. FRR: Required Liquid Capital

LIQUID CAPITAL     =    LIQUID ASSETS     –     RANKING LIABILITIES

Liquid capital must be greater than Required Liquid Capital  at all times

Liquid assets are cash and close to cash (eg treasury bills after haircuts)

Ranking liabilities are total liabilities less approved subordinated loans

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

26. FRR: Paid-up Share Capital Requirements
  • Licensed corporations are required to maintain, at all times, paid-up share capital ranging from HK$5m to HK$30m depending on their regulated activity
    • Approved introducing agents, securities advisers, corporate finance advisers, asset managers and credit rating agencies, which do not hold client assets, do not have paid-up capital requirements

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

27. FRR: Notifications to the SFC
  • A licensed corporation, unable to comply with capital requirements (Required Liquid Capital (RLC) and paid-up capital) must:
    • Notify the SFC in writing asap
    • Cease conducting the regulated activity immediately, unless permitted by SFC to continue
  • A licensed corporation must also notify the SFC in writing if:
    • Liquid Capital (LC) falls below 120% of RLC
    • LC falls below 50% of last LC reported
    • Information submitted in an earlier return becomes materially false or misleading

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

28. CSR: The Assets
  • The Client Securities Rules (CSR) apply to client securities or securities collateral of an intermediary that are:
    • Listed on a recognized stock market (ie SEHK);
    • Interests in an SFC authorized CIS; and
    • Received or held in Hong Kong by an intermediary (or its associated entity) in the course of conducting a regulated activity
  • The Client Securities Rules do not apply to securities held by an intermediary in an account in a client’s name, set up by that client with persons other than the intermediary or its associated entity:

[Rules only apply to Hong Kong stocks held in Hong Kong received by an intermediary or associated entity in the course of conducting regulated activities]

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

29. CSR: Standing Authority
  • A written notice authorizing the intermediary/associated entity to deal with client assets in specified ways
  • Effective for a period not more than 12 months (no time limit for PIs)
  • May be renewed on the written request of the client for a period not more than 12 months
  • May be deemed to be renewed by the intermediary/associated entity giving written notice at least 14 days prior to expiry reminding client of impending expiry. Deemed to be renewed on date of expiry, unless client objects
  • Intermediary/associated entity must provide written confirmation of deemed renewal to client within a week of expiry date
  • The standing authority cannot be used by the intermediary/associated entity to:
    • Transfer client securities/securities collateral to an account of the intermediary, its associated entity or any entity which has a controlling entity relationship with the intermediary
    • Make any such transfer to any officer or employee of these entities
    • Deal with client securities/securities collateral in an unconscionable manner
      (Unconscionable = contrary to a sense of justice, decency or reasonableness)

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

30. Client Money Rules
  • The Client Money Rules prescribe how licensed corporations and their associated entities should deal with client money received or held in Hong Kong
  • The Rules do not apply to client money that:
    • Is received or held outside Hong Kong
    • Is moved outside Hong Kong
    • Is held in a bank account by the client in his own name
  • Within one business day of receiving client money, the licensed corporation/associated entity should pay the money:
    • Into a segregated account
    • To the client directly
    • In accordance with a written direction
    • In accordance with a standing authority
  • Money held in a segregated account, which is discovered not to be client money, must be moved out of the account within one business day of discovery

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

31. Keeping of Record Rules
  • Records should be kept in Chinese or English, in writing or in any other form that may be convertible into writing
  • The general rule is that all records should be kept for at least 7 years, except for:
    • Daily statements of account – 2 years
    • Records documenting orders – 2 years
    • Copies of contract notes – 2 years

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

32. Daily Statement of Accounts
  • A daily statement must be prepared:
    • By intermediaries providing securities margin finance and their associated entities when client assets are deposited or withdrawn
    • By intermediaries conducting margined transactions, both when the margined transaction is entered into, and when it is closed
  • A daily statement must be issued to the client no later than the end of the second business day after the specified event

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

33. Monthly Statement of Accounts
  • A monthly statement must be prepared by an intermediary for all clients
  • Monthly statements must contain the same information as outlined above for contract notes
  • Information should also include:
    • All contracts entered into for the client during the month
    • Outstanding balances at the beginning and end of the month
    • All open positions held at the end of the month
  • Monthly statements must be issued within 7 business days of the end of each monthly accounting period (10 business days for portfolio asset managers)
  • No statement needed when no activity during the month and no balances at the end of the month
  • An asset manager does not need to prepare monthly statements for authorized CISs that it manages

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

34. Approved Introducing Agent
  • Approved introducing agents introduce securities or futures business to other securities/futures dealers. Not defined in the SFO, but created under the FRR
  • The SFC may approve a licensed corporation as an approved introducing agent if it can satisfy the SFC that it
    • Only receives offers for dealings in securities and passes them on to an exchange participant or another licensed dealer; or
    • Only introduces a client who wishes to trade with an exchange participant or another licensed dealer; and
    • Does not handle client assets and incurs no legal liability in respect of the introduced business
  • The SFC allows approved introducing agents to maintain a lower level of liquid capital and is not required to maintain paid-up capital

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 35. Securities Margin Financing (SMF)
  • SMF is defined as lending money to allow:
    • The acquisition of securities listed on any stock market, whether in HK or elsewhere
    • Where applicable, the continued holding of such securities
  • Exceptions to the definition are lending:
    • For underwriting, sub-underwriting and acquisition under a prospectus
    • By a Type 1 licensee to enable the licensee to engage in SMF for his clients
    • By a CIS to finance investment in the CIS it issues
    • By an AFI to enable its clients to buy/hold securities

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

TOPIC 5 – BUSINESS CONDUCT AND CLIENT RELATIONS

 

 36. GP1 – Honesty and Fairness
  • A licensed/registered person should act honestly, fairly and in the best interests of its clients and the integrity of the market. More specifically:
    • Representations and information to clients should be accurate and not misleading
    • Charges to clients should be fair and reasonable
    • Invitations and advertisements should not contain information that is false, misleading or deceptive; no negative advertising
    • Actions should comply with the Prevention of Bribery Ordinance and any related guidelines issued by the ICAC

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 37. GP2 – Diligence
  • A licensed/registered person should act with due skill, care and diligence, in the best interests of its clients and the integrity of the market. Some practical examples of this are:
    • Client orders should be executed promptly in accordance with clients’ instructions – prompt execution
    • Client orders should be executed on the best available terms – best execution
    • Orders executed for clients should be promptly and fairly allocated to those clients – prompt and fair allocation
    • Advice should be given to clients with due skill, care and diligence
  • Telephone orders should be centrally recorded. Recordings should be kept for at least 6 months

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 38. GP4 – Information about Clients

Client Agreements

  • A written client agreement should be entered into with a client before providing services to the client.
  • The agreement should be in Chinese or English, at the option of the client
  • Attention to relevant risks should be drawn to the client
  • If a face-to-face meeting with the client does not take place, a copy of the agreement should be provided to the client, and steps should be taken to verify the client’s signature

Discretionary Accounts

  • A discretionary account is a client account operated by the licensed/registered person, without the client’s prior approval for each transaction
  • The discretion may be absolute or subject to conditions
  • The Code of Conduct imposes the following on the establishment and operation of discretionary accounts:
    • The client’s authority must be in writing
    • The person authorized to operate the account should be identified
    • The terms of the authority should be explained to the client
    • The authority should be confirmed annually
    • The account should be designated as a discretionary account and be approved by senior management
    • Internal control systems should ensure that the operation of the account is properly supervised

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 39. GP6 – Conflicts of Interest

Handling Client Orders

  • Client orders should be handled fairly and in the order in which they are received
  • Client orders should have priority over orders for the account of the licensed/registered person, or for the account of any employee or agent of the licensed/registered person
  • Where there are aggregated orders for several clients, and the intermediary itself, priority must be given to client orders if all orders cannot be filled
  • The unfair preference of any one client should be avoided
  • When handling client orders, a licensed/registered person will acquire non-public information. This information should not be used to deal:
    • Ahead of transactions pending for other clients (front running)
    • When the release of the information will affect the price

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 40. Fund Manager Code of Conduct
  • Applies to “Fund Managers”, being persons licensed/registered with the SFC whose business involves the management of:
    • Collective Investment Schemes (CIS), whether or not they are SFC authorised
    • Discretionary accounts, whether in the form of an investment mandate or a pre-defined model portfolio (“Discretionary Accounts”)
  • If FMCC is inconsistent with any other legislation, rules, codes or guidelines, the stricter provisions apply
  • Provisions are similar to the general Code of Conduct. Those unique to the FMCC are detailed below
  • A Fund Manager should ensure that client orders are allocated fairly, the allocation intentions are recorded before placing the orders and adhered to, except that any revised allocation should not disadvantage a client (and reasons should be properly documented)
  • Fund managers participating in IPOs are not permitted to make preferential allocations and the reasons for allocations should be documented
  • Any client transactions carried out with a connected person should be at arm’s length, with standard commission rates and on best-execution terms
  • Borrowing/depositing money for a client with a connected person should be at standard interest terms, or better
  • Regarding cross trades:
    • Cross-trades between client accounts should be fairly conducted so that no client is disadvantaged and the clients should be informed
    • Cross-trades between the house account and client accounts should only be done with prior approval of the client
    • Cross-trades between staff personal accounts and client accounts are prohibited
  • House trades are orders for the house account operated for the fund manager itself. The following conditions apply:
    • Priority should be given to client orders
    • House orders should only be aggregated with client orders where it is in the best interests of clients
    • Advance knowledge of recommendations/research reports should not be used to deal until clients have had a reasonable chance to act on the information (no front running)

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

TOPIC 6 – BUSINESS CONDUCT AND CLIENT RELATIONS

 

 41. Internal Control Guidelines
  • Full title: Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered with the Securities and Futures Commission
  • The ICG identifies eight key areas of business controls:
    • Management and supervision
    • Segregation of duties and functions
    • Personnel and training
    • Information management
    • Compliance
    • Audit
    • Operational controls
    • Risk management
  • SFC recognizes that small entities may not have a complicated system of functional segregation or any compliance/internal audit departments
  • Internal controls refer to the entire system of policies, procedures, checks, controls and division of responsibilities which a licensed/registered person has installed to the run the business
  • A licensed/registered person should use internal controls to provide itself with reasonable assurance that it is able to:
    • Operate its business in an orderly and efficient manner
    • Safeguard the assets of its clients and its own
    • Maintain proper records, and reliable financial and other information that it produces
    • Comply with all applicable laws and regulatory requirements

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 42. Prevention of Money Laundering and Terrorist Financing

Money Laundering: Activities and processes by which property obtained as a result of illegal activities is altered so that it is given the appearance of coming from a legitimate source

  • Five pieces of legislation and one SFC Guideline:
    • Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO)
    • Drug Trafficking (Recovery of Proceeds) Ordinance (DTRPO)
    • Organised and Serious Crimes Ordinance (OSCO)
    • United Nations (Anti-terrorism Measures) Ordinance (UNATMO)
    • Weapons of Mass Destruction (Control of Provision of Services) Ordinance (WMD(CPS)O)
    • Guideline on Anti-Money Laundering and counter-Terrorist Financing (GAML)

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 43. Personal Data Privacy Ordinance (PDPO)
  • The PDPO protects the privacy of individuals in relation to personal data
  • The Privacy Commissioner for Personal Data is an independent public officer appointed to enforce and promote compliance with the PDPO
  • Data users must comply with six data protection principles:

Principle 1 – Purpose and manner of collection of personal data

  • Data shall only be collected for a lawful and relevant purpose
  • The purpose of collecting the data should be disclosed

Principle 2 – Accuracy and duration of retention of personal data

  • Personal data should be accurate, up to date and kept no longer than necessary and should be rectified if incorrect

Principle 3 – Use of personal data

  • Without the consent of the subject, the data should not be used for any purpose other than for which it was collected

Principle 4 – Security of personal data

  • All measures should be taken to ensure that personal data are protected against unauthorized access, processing, erasure, etc

Principle 5 – Information to be generally available

  • A data user’s policies and practices relating to the data should be available

Principle 6 – Access to personal data

  • A data subject should be able to get access (at a reasonable fee) to the data held and request corrections to it

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

44. Roles of Senior Management
  • Senior management must provide leadership to drive the promotion of good compliance practices by installing:
    • Good line and reporting structures
    • Clearly defined functions and responsibilities
    • Effective communications
    • Appropriate transparency and disclosure practices
    • Well-defined policies, practices and procedures….in writing
    • Distinctions between supervisory/review functions and operational/line functions

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 45. Corporate Governance
  • Corporate governance is concerned with the system by which companies are directed and controlled to ensure the proper relationship between a company’s management, its board and its shareholders
  • The Organisation for Economic Co-operation and Development (OECD) has issued a set of core principles for corporate governance practices to include:
    • Fairness
    • Transparency
    • Accountability
    • Responsibility
  • An objective of good corporate governance is to avoid management taking improper advantage of its position to the detriment of the company’s interests
  • Corporate governance can be improved through:
    • Installing appropriate checks and balances, such as separating the functions of Chairman and CEO, appointment of non-executive directors, establishment of independent audit committees and setting up of remuneration and benefit committees
    • Increasing transparency and disclosures to shareholders / stakeholders /public
    • Adopting international accounting/auditing standards
    • Installing strong protective structures for minority shareholders, creditors and other lenders
    • Identifying and penalizing corporate wrongdoing
  • Corporate governance deficiencies can lead to insider dealing, fraud and connected transactions which are undervalued

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

TOPIC 7 – PARTICIPATING IN THE HONG KONG EXCHANGES

 

 46. Exchange Participants
  • Those who wish to trade through the SEHK or HKFE, must hold trading rights
  • Only exchange participants can hold trading rights
  • Therefore, before applying for a trading right, an intermediary must register as an exchange participant
  • Exchange Participants are participants of the SEHK; HKFE Participants are participants of HKFE
  • Those wishing to clear trades must become clearing participants of the respective clearing houses
  • From a regulatory point of view, participants must:
    • Be licensed by the SFC for Type 1 or Type 2 regulated activity, as necessary
    • Hold the necessary participantship (SEHK and/or HKFE) for the trading activities they wish to perform

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 47. Short Selling

Under the SFO:

A person shall not sell securities through a recognized stock market unless, at the time he sells them, he or his principal has (or he believes he or his principal has) a presently exercisable and unconditional right to vest the securities in the buyer

  • Securities charged or pledged to secure a loan may still give a person an unconditional right to vest the securities, depending upon details of the charge/pledge
  • Covered short sale: a short sale which satisfies the above general rule
  • Naked short sale: a short sale which does not satisfy the above general rule. Considered an offence
  • It may only be undertaken in securities designated by SEHK, of which there are a large number
  • Exchange Participants must indicate short sell orders when inputting the orders to the trading system
  • Exchange participants must make stock borrowing arrangements for settlement before the short sale
  • A short sale cannot be made below the best current ask price (the tick rule)

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 48. Clearing and Settlement Services
  • The Central Clearing and Settlement System (CCASS) is operated by HKSCC for clearing and settlement of securities transactions on the SEHK
  • HKSCC’s Investor Account Service allows individual and corporate investors to open direct stock accounts in CCASS
  • CCASS stock accounts:
    • 01 account: clearing account where a CCASS Clearing Participant maintains stocks for settlement
    • 02 account: for the handling of stock dividends
    • 03 onwards: safe custody stocks, house investments and securities collateral
  • The clearing and settlement system is as follows:

During Trading Day (T)

  • Trade data automatically transferred from SEHK trading system to CCASS
  • Clearing Participants receive Provisional Clearing Statements through CCASS terminals after 5pm (current day’s SEHK trades) and after 8pm (exercised option trades)
  • Trades reconciled with internal records

(T+1)

  • Final clearing statements available after 2pm
  • Continuous Net Settlement (CNS) system offsets stock transactions in the same security on the same day resulting in a single net stock position for the day
  • Through novation, HKSCC guarantees both sides of the trade

(T+2)

  • SEHK trades settled by electronic debit and credit entries to CCASS CP’s stock accounts

(T+3)

  • Money settlement by CPs through designated banks confirmed in the morning
  • CPs who do not have sufficient stock in their CCASS accounts will be subject to a compulsory buy-in

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

49. Options Trading
  • Licensed/registered persons providing Traded Options services to clients must enter into an options client agreement before engaging in Traded Options business for the clients
  • Only SFC licensed/registered persons may access the trading systems and facilities of the traded market for options in Hong Kong
  • To conduct Traded Options business for clients, an Exchange Participant must register with the SEHK as an Options Exchange Participant (OEP) under one of two categories:
    • Options Trading Exchange Participant (OTEP)
      • must hold system access rights
      • entitled to access the options system
    • Options Broker Exchange Participant (OBEP)
      • not permitted to have system access rights
      • entitled to conduct Traded Options business for the accounts of clients
      • enters into broking client contracts with an OTEP and corresponding client contracts, acting as principal in both cases
    • OTEPs input orders/quotes through the HKATS of HKFE – matched trades are passed to DCASS for processing

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 50. Futures Trading
  • Only licensed/registered persons may have access to HKFE trading systems (directly or indirectly) to carry out the Type 2 activity of dealing in futures contracts
  • There are four categories of HKFE Participant:
Traderentitled to trade in futures contracts and/or options contracts on his own account only
Brokerentitled to trade in futures contracts and/or options contracts on his own account and as agent of an HKFE Participant for the sole purpose of concluding trades on HKFE markets
Futures Commission Merchantentitled to trade in futures contracts and/or options contracts on his own account, for the account of other HKFE Participants and for the account of any other persons
Merchant Traderentitled to trade in futures contracts and/or options contracts only on its own account and only ancillary to its principal business or that of its holding company

 [To access practice questions for this topic, go to Examinator.online – Paper 1]

 

TOPIC 8 – ACCESSING PUBLIC CAPITAL

 

 51. Rules Governing Listings
  • Listing is the process by which an issue of securities is admitted for trading on a stock exchange.
  • The SEHK administers listing matters as part of its responsibility to perform its function of providing a fair, orderly and efficient market for the trading of securities.
  • The Listing Rules are intended to ensure:
    • the suitability of applicants for listing;
    • the fair and orderly issue and marketing of securities;
    • the provision of sufficient, material and timely information by issuers which might concern the investors and the public and affect the prices of listed securities;
    • the fair and equal treatment of shareholders;
    • that the directors act in the interests of the shareholders as a whole, particularly where the public shareholders are a minority; and
    • that all new issues are first issued to existing equity shareholders as rights issues unless they agree otherwise
  • There are also Listing Rules covering listings on GEM, which tend to follow the structure and content of the Main Board rules
  • GEM has been positioned as a “buyers beware” market designed to accommodate companies to which a higher investment risk may be attached

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 52. Listing Procedures for Equity Securities
  • A new applicant must have a trading record of at least three financial years under substantially the same management and ownership
  • The issuer must satisfy at least one of the following three quantitative tests:

Profit Test

  • Profits for the most recent year must not be less than HK$20 million and those of the two preceding years must not be, in aggregate, less than HK$30 million

Market Capitalisation/Revenue/Cash Flow Test

  • The issuer must have:
    • A market capitalization of at least HK$2 billion at time of listing
    • Revenue of at least HK$500 million for the most recent audited financial year
    • Positive cash flow of at least HK$100 million in aggregate for the three preceding financial years

Market Capitalisation/Revenue Test

  • The issuer must have:
    • A market capitalization of at least HK$4 billion at time of listing
    • Revenue of at least HK$500 million for the most recent audited financial year
  • There must be a minimum of 300 shareholders for all three tests
  • At the time of listing, the issuer must have a minimum market capitalisation of HK$500 million, including a public float of at least HK$125 million
  • For GEM listing, the track record must cover at least two years under substantially the same management

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 53. Price Stabilization
  • Price stabilization occurs when issuers or underwriters of newly issued securities may buy or sell the stock to prevent or minimize a decline in the price
  • The SFC considers that it is in the public interest to permit and regulate price stabilizing action connected with public offerings
  • The Securities and Futures (Price Stabilizing) Rules provide a safe harbour for permitted stabilizing activity (otherwise it would be considered stock market manipulation – a form of market misconduct)

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 54. General Principles of the Code on Takeovers and Mergers
  • The Code is based on 10 general principles which are considered to reflect good standards of conduct for persons engaged in takeovers, mergers and repurchases. The principles include provision for:
    • equal treatment of shareholders, the provision of accurate and sufficient information and advice to them;
    • the making of general offers to be made if control of a company changes, is acquired or is consolidated;
    • full and prompt disclosure of information by persons concerned with offers;
    • offerors to ensure when making an offer that they will be able to meet their obligations;
    • rights of control to be exercised in good faith and without oppressing minority and non-controlling shareholders;
    • directors of offeror and offeree companies to provide disinterested advice to their shareholders; and
    • the board of an offeree company in an offer situation not to take any action likely to frustrate the offer without the approval of the shareholders in general meeting

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 55. Mandatory Offers
  • The general principle underlying a mandatory offer is that if the control of a company changes or is acquired or consolidated, a general offer to all other shareholders is normally required
  • A mandatory offer is required to be made when:
    • any person (or two or more persons acting in concert*) acquires, whether by a series of transactions over a period of time or not, 30% or more of the voting rights of a company (trigger); or
    • any person (or two or more persons acting in concert*) who owns between 30% to 50% (inclusive) of the voting rights of a company, acquires at least an extra 2% of the voting rights within a 12 month period (creeper)

*Persons are acting in concert if they, pursuant to an agreement or understanding, actively co-operate to obtain or consolidate control of a company through the acquisition by them of voting rights of the company

  • All mandatory offers must include a cash component and must be at a price not less than the highest price paid by the offeror, or any person acting in concert, within 6 months prior to the start of the offer period

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 56. Definition of CIS
  • The SFO defines a CIS as:
    • An arrangement in respect of a property under which the management of the property is not subject to the day-to-day control of the scheme’s participants, and either:
      • The property is managed as a whole by or for the person operating the arrangement; or
      • The participants’ contributions and accruing profits or income are pooled; and
    • The purpose of the arrangement is to enable the participants to receive profits, income or other payments or returns from the property or dealings relating to it
  • Excluded from the definition are:
    • Arrangements where the participants and the operator of the arrangement belong to the same group of companies
    • Franchise arrangements
    • Arrangements where a solicitor acting in his professional capacity holds money from clients during the course of his work
  • The definition can be extended by the Financial Secretary
  • The intention is to make the definition flexible to ensure any new products are properly regulated

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

TOPIC 9 – MARKET MISCONDUCT AND IMPROPER TRADING PRACTICES

 

 57. Market Misconduct Under the SFO
  • There are six categories of market misconduct:
    • Insider dealing
    • False trading
    • Price rigging
    • Disclosure of information about prohibited transactions
    • Disclosure of false or misleading information inducing transactions
    • Stock market manipulation
  • Legal proceedings against the accused can be criminal in the courts or civil under the Market Misconduct Tribunal (MMT), but not both

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 58. Market Misconduct Tribunal
  • The MMT is chaired by a judge with 2 other members who cannot be public officers. All 3 are appointed by the Chief Executive of HKSAR
  • Can compel and receive evidence relevant to hearings
  • A ‘balance of probabilities’ standard of proof is applied
  • At the conclusion of proceedings, the MMT will issue a public report giving details of the market misconduct and the disciplinary orders handed out
  • Appeals against MMT findings can be made to the Court of Appeal
  • The MMT is subject to judicial review
  • Orders that may be made by MMT against those found to have committed market misconduct include:
    • disqualification for up to 5 years from holding office as director, liquidator, receiver or taking part in the management of a corporation;
    • prohibition on investing or trading in HK markets for up to 5 years (cold shoulder order);
    • prohibition of further market misconduct as specified in the order;
    • payment of profits made or loss avoided, plus compound interest, to the Government;
    • payment of reasonable costs incurred by the Government and the SFC; and
    • disciplinary referral orders recommending that a professional body of which the person is a member should take disciplinary action against him

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

59. Unsolicited Calls (Cold calls)
  • Unsolicited calls include most possible forms of communication made by an intermediary with any person without his express invitation
  • It is an offence to engage in the following acts during an unsolicited call:
    • Offering to make agreements to buy/sell financial products regulated by the SFC
    • Offering SMF
    • Offering to provide profits, income or other returns from dealing in such financial products
  • The provisions are intended to protect the investing public from:
    • Recklessly giving personal details and money to a stranger
    • Believing a person giving financial advice without checking the person’s status or background
    • Buying stock without checking the background of the issuer
    • Opening an account without taking proper precautions
  • Persons exempt from the prohibition:
    • Existing clients
    • Licensed persons
    • Registered institutions
    • PIs
    • Solicitors/accountants acting in their professional capacity
    • Money lenders
  • The prohibition on unsolicited calls does not apply to an agreement to buy or sell securities to/from a person who already holds such securities
  • Unsolicited calls occur when responses are required immediately
  • A person who enters into an agreement as a result of such a call may rescind the agreement by giving written notice within 28 days of entering into the agreement or within 7 days of finding out about the contravention, whichever is the earlier

[To access practice questions for this topic, go to Examinator.online – Paper 1]

 

 60. Improper Practices
  • This section considers some unethical practices and market malpractices which are likely to involve a breach of one or more SFC codes, affecting the fitness and properness of an intermediary to hold a license
  • Some of these practices may also be illegal
    • Boiler room activities
    • Churning
    • Corporate mis-governance
    • Front running
    • Rat trading
    • Unsuitability
    • Unauthorized trades

[To access practice questions for this topic, go to Examinator.online – Paper 1]

The following updates are examinable from 9 June 2021

 

TOPIC 1 – REGULATORY OVERVIEW OF THE HONG KONG FINANCIAL INDUSTRY
  • No updates

 

TOPIC 2 – PRINCIPLES OF RELEVANT HONG KONG LAW AND THE COMPANIES ORDINANCE
  • No updates

 

TOPIC 3 – SECURITIES AND FUTURES ORDINANCE

Material added relating to Open-ended Fund Companies:

  • It is intended that the OFC regime will allow an overseas corporate fund to re-domicile to Hong Kong, enabling the legal entity of the OFC to remain unchanged and all its existing contractual arrangements, resolutions and liabilities not being affected

 

TOPIC 4 – LICENSING AND REGISTRATION, AND SUBSIDIARY LEGISLATION
  • No updates

 

 TOPIC 5 – BUSINESS CONDUCT AND CLIENT RELATIONS

Material added relating to the Code on Open-ended Fund Companies:

  • OFCs allow investment funds in Hong Kong to be established as incorporated companies with limited liability and variable capital as an alternative to the unit trust structure
  • The OFC Code applies to both public and private OFCs and their key operators
  • A public OFC is authorised by the SFC and a private OFC is not a public OFC

REQUIREMENTS APPLICABLE TO ALL OPEN-ENDED FUND COMPANIES (OFCs)

  • Code requirements applicable to all open-ended fund companies cover:
    • General principles
    • Registration and naming
    • Directors
    • Investment manager
    • Custody of OFC assets
    • Administration of the OFC
    • Audit and annual accounts
    • Termination and cancellation of registration

General Principles

  • The OFC Code contains the following seven general principles:
    • Key operators of an OFC shall act honestly, fairly and professionally
    • Key operators shall act with due skill, care and diligence
    • Scheme property of an OFC shall be held by a custodian and properly protected
    • Key operators shall avoid conflicts of interests and where they cannot, there should be disclosure to investors
    • Disclosures should be timely, clear and concise
    • Key operators shall comply with regulatory requirements, co-operate with regulators and promptly inform the SFC of any material breach of the OFC Code
    • Key operators shall ensure compliance with the OFC instrument of incorporation and offering documents

Registration and Naming

  • An OFC registration application must be made to the SFC on the specified form
  • An OFC’s name must not be misleading and must end with “Open-ended Fund company” or “OFC”

Directors

  • OFC appointed directors must be of good repute, appropriately qualified, experienced and proper for the purpose of carrying out OFC
  • An OFC’s name must not be misleading and must end with “Open-ended Fund company” or “OFC”
  • There must be at least one independent director, who is not a director or an employee of the custodian
  • The independent director does not need to be independent of the investment manager
  • Directors must oversee the activities of the investment manager and the custodian

Investment Manager

  • The appointed investment manager must be licensed or registered with the SFC for Type 9 (asset management) regulated activity
  • An OFC may appoint more than one investment manager
  • The investment manager must comply with relevant SFC codes and guidelines:
    • Fund Manager code of Conduct
    • Code of conduct
    • Internal Control Guidelines
    • Guideline on Anti-Money Laundering
  • Sufficient trading, accounting and other records should be kept to reflect financial position and operation
  • Records should be kept in SFC approved premises for at least 7 years
  • The investment manager must act in the best interests of the OFC and investors

Custody of OFC’s Assets

  • An OFC must appoint a custodian to hold in custody the OFC scheme property
  • Eligibility requirements are the same as those of trustees/custodians in Topic 8
  • Custodians of private OFCs may be Type 1 licensed or registered
  • The custodian must keep OFC assets segregated from assets belonging to others
  • Scheme assets may be kept in an omnibus account, subject to adequate safeguards

Administration of the OFC

  • An OFC’s instrument of incorporation must provide for: Procedures for shareholder and director meetings; Share capital structure; and Rights attaching to shares
  • OFC offering documents should indicate how shareholders can obtain information about the OFC

Audit and Annual Accounts

  • An auditor must be appointed that is independent of the investment manager, the custodian and the OFC directors
  • Audited accounts must be disclosed on an annual basis within 4 months of the financial year-end

Termination and Cancellation of Registration

  • When an OFC is voluntarily terminated, its SFC registration will be cancelled, ensuring fair treatment of shareholders
  • OFC liabilities will need to be cleared before proceeds are distributed to shareholders

REQUIREMENTS APPLICABLE ONLY PRIVATE OFCs

There are additional Code requirements for private OFCs covering:

Investment Scope

  • Private OFCs are designed to operate as investment vehicles and so should not operate as corporate entities for general commercial business or trade

Changes to the scheme

  • Any change to the instrument of incorporation must have shareholder approval

Fund operations and Disclosure

  • The instrument of incorporation should clearly set out details of: pricing, dealing, issue and redemption of shares, valuation, distribution policy, use of leverage, fees and charges
  • An OFC must file its offering document with the SFC as soon as practicable
  • Any changes to the offering document must be filed within 7 days of issuing the revised document

Custody Arrangements

  • The custodian may be licenced or registered for Type 1 (Dealing in Securities) regulated activities
  • A Type 1 regulated custodian must comply with the following laws and regulations:
    • SFC Client Securities Rules
    • SFC Client Money Rules
    • SFC Keeping of Records rules
    • SFC Code of conduct
    • SFC Internal Control Guidelines
    • Guidelines on Anti-Money Laundering

 

 TOPIC 6 –BUSINESS OPERATIONS AND PRACTICES

Material added relating to Information Management under the SFC Internal Control Guidelines:

  • Licensed corporations using external electronic data storage providers (EDSPs) must obtain prior SFC approval
  • License corporations using EDSPs should:
    • Conduct proper due diligence on the EDSP’s controls
    • Ensure the EDSP maintains a proper information security policy
    • Ensure there are well-defined responsibilities between the licensed corporation and the EDSP
    • Be aware of concentration risk where an EDSP provides data services to a large number of financial firms

 

TOPIC 7 –PARTICIPATING IN THE HONG KONG EXCHANGES

Material updated relating to stamp duty on stock transactions:

  • 1% on each purchase/sale (increased to 0.13% in the 2012-22 budget)

 

TOPIC 8 –ACCESSING PUBLIC CAPITAL

Material added relating to risks associated with investing in virtual assets:

  • Different levels of regulatory safeguards – not all virtual assets admitted to trade on a licensed platform are subject to the same level of statutory protection

 

TOPIC 9 –MARKET MISCONDUCT AND IMPROPER TRADINGPRACTICES
  • No updates

A regular analysis of HKSI Paper 5 pass rates to help you gauge exam difficulty

 

HKSI Paper 5 – Pass Rates (%)

2020

2021

Change

Comments
January
February
March
April
May
June
July
August
September
October
November
December
74.4
76.47
81.25
58.33
66.67
64.52
70.00
76.00
85.71
86.67
86.67
66.67
69.23
84.62
84.21
58.33
.
.
.
.
.
.
.
.
-4.81
8.15
2.96
0.00
.
.
.
.
.
.
.
.
.
February pass rate increases significantly
.
.
.
.
.
.
.
.
.
.
  Mean74.4274.10-0.32Average monthly pass rate steady
Standard deviation9.4312.723.29Pass rate variability increases

 

A regular analysis of HKSI Paper 3 pass rates to help you gauge exam difficulty

 

HKSI Paper 3 – Pass Rates (%)

2020

2021

Change

Comments
January
February
March
April
May
June
July
August
September
October
November
December
75.00
93.33
85.71
75.22
70.83
87.10
85.71
86.36
70.83
87.50
75.00
86.96
83.33
61.54
75.00
75.00
.
.
.
.
.
.
.
.
8.33
-31.79
-10.71
-0.22
.
.
.
.
.
.
.
.
.
February pass rate falls significantly
March pass rate falls
.
 .
 .
 .
 .
 .
.
 .
.
  Mean81.6373.72-7.91Average monthly pass rate falls
Standard deviation7.679.021.35Pass rate variability rises

 

A regular analysis of HKSI Paper 9 pass rates to help you gauge exam difficulty

 

HKSI Paper 9 – Pass Rates (%)

2020

2021

Change

Comments
January
February
March
April
May
June
July
August
September
October
November
December
60.00
46.67
57.14
55.16
53.85
70.37
52.63
55.17
70.00
88.00
65.71
42.31
57.14
55.88
62.07
27.03
.
.
.
.
.
.
.
.
-2.86
9.21
4.93
-28.13
.
.
.
.
.
.
.
.
.
February pass rate increases significantly
.
April pass rate falls significantly
.
.
.
.
.
.
.
.
  Mean59.7550.53Average monthly pass rate falls
Standard deviation12.2915.89Pass rate variability increases

 

A regular analysis of HKSI Paper 12 pass rates to help you gauge exam difficulty

 

HKSI Paper 12 – Pass Rates (%)

2020

2021

Change

Comments
January
February
March
April
May
June
July
August
September
October
November
December
45.45
55.17
66.67
55.17
66.67
87.18
64.81
52.63
54.55
72.22
72.92
80.65
71.43
70.00
48.57
56.00
.
.
.
.
.
.
.
.
25.98
14.83
-18.10
0.83
.
.
.
.
.
.
.
.
January pass rate increases significantly
February pass rate increases significantly
March pass rate falls significantly
.
.
.
.
.
.
.
.
.
  Mean64.5161.50-3.01Average monthly pass rate falls
Standard deviation12.4011.08-1.32Pass rate variability falls

 

A regular analysis of HKSI Paper 2 pass rates to help you gauge exam difficulty

HKSI Paper 2 – Pass Rates (%)

2020

2021

Change

Comments
January
February
March
April
May
June
July
August
September
October
November
December
73.64
68.29
64.71
59.33
54.05
69.11
72.19
70.12
75.89
65.93
67.96
68.46
61.40
63.81
60.53
67.61
.
.
.
.
.
.
.
.
-12.24
-4.48
-4.18
8.28
.
.
.
.
.
.
.
.
January pass rate falls significantly
February pass rate falls
 March pass rate falls
April pass rate rises
.
.
.
.
 .
 .
.
.
  Mean67.4763.34-4.14Average monthly pass rate falls
Standard deviation6.023.17-2.86Pass rate variability falls

A regular analysis of HKSI Paper 7 pass rates to help you gauge exam difficulty

 

HKSI Paper 7 – Pass Rates (%)

%

2020

2021

Change

Comments

January
February
March
April
May
June
July
August
September
October
November
December
63.77
64.44
69.37
61.08
60.66
66.22
73.21
72.64
65.98
60.99
63.30
67.57
69.89
76.82
57.80
 63.00
 .
 .
 .
 .
 .
 .
 .
 .
6.12
12.38
-11.57
1.92
.
.
.
.
.
.
.
.
January pass rate rises
February pass rate rises significantly
March pass rate falls significantly
 .
 .
 .
 .
 .
 .
.
 .
 .
  Mean65.7766.881.11Average monthly pass rate rises
Standard deviation4.288.273.99Pass rate variability rises

 

 

A regular analysis of HKSI Paper 1 pass rates to help you gauge exam difficulty

 

HKSI Paper 1 – Pass Rates (%)

 

2020

2021

Change

Comments
January
February
March
April
May
June
July
August
September
October
November
December
52.86
54.38
51.60
50.45
53.9
52.19
49.44
54.10
50.36
52.20
45.42
50.48
51.16
44.69
49.83
49.47
.
.
.
.
.
.
.
.
-1.70
-9.69
-1.77
-0.98
.
.
.
.
.
.
.
.
.
Pass rates for February fall significantly
.
.
 .
.
 .
 .
 .
 .
 .
 .
  Mean51.4548.79-2.66Average pass rate falls by 2.7%
Standard deviation2.492.830.34Pass rate variability steady