Resources :

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The following updates are examinable from 1 March 2024

 

TOPIC 1 – GENERAL REGULATORY FRAMEWORK

 

Distributors and Fund Managers Engaging in Activities Related to Virtual Assets

  • The SFC regulates the trading of virtual assets conducted by distributors and fund managers
  • A virtual asset is a cryptographically secured digital representation of value:
    • that falls within the SFO because it constitutes “securities” as defined in the SFO; or
    • that falls within the ambit of the AMLO because it:
      • is expressed as a unit of account or a store of economic value
      • can be used as a medium of exchange
      • can be transferred, stored or traded electronically; and
      • satisfies and other characteristics prescribed by the SFC
  • Fund management activities could be related to:
    • Virtual assets that are securities as defined in the SFO
    • Virtual assets that are not securities but fall within the ambit of the SFO
    • Virtual assets where the underlying of a futures contracts are virtual assets
    • A CIS that is investing in virtual assets
  • SFC laws and regulations apply to the foregoing fund management activities
  • Licensing requirements will continue to apply to persons who distribute shares or CIS units irrespective of what the CIS invests in, as they are engaged in Type 1 activities
  • Virtual Asset Fund Managers, who need to be Type 9 licensed and will be subject to additional terms and conditions, will manage an investment portfolio where either:
    • the portfolio investment objective is to invest in virtual assets; or
    • the manager intends to invest 10%or more of the gross asset value of the portfolio in virtual assets

 

 TOPIC 2 – BACK-OFFICE COMPLIANCE

No updates to report

 

TOPIC 3 – ASSET MANAGEMENT REGULATIONS

No updates to report

 

TOPIC 4 – MISCONDUCT

No updates to report

 

The following updates are examinable from 1 March 2024

 

TOPIC 1 – REGULATORY OVERVIEW OF THE HONG KONG FINANCIAL INDUSTRY
  • Minor updates to reflect changes in AMLO and recognition of Virtual Asset Exchanges

 

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

 

TOPIC 3 – SECURITIES AND FUTURES ORDINANCE
  • Minor updates to reflect changes in AMLO and recognition of Virtual Asset Exchanges

 

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

 

 TOPIC 5 – BUSINESS CONDUCT AND CLIENT RELATIONS
  • Minor updates to reflect changes in AMLO and recognition of Virtual Asset Exchanges

 

 TOPIC 6 –BUSINESS OPERATIONS AND PRACTICES
  • The anti-money laundering provisions that apply to licensed corporations now also apply to virtual asset service providers and this is now reflected in the materials

Virtual Assets

  • The GAML explains how its requirements apply to virtual asset transactions and activities
  • Virtual assets give rise to particular risks associated with money laundering:
    • Ease of cross border activity
    • Speed at which multiple transactions can be executed
    • Involvement of unregulated businesses in other jurisdictions
    • Potential use of anonymity-enhancing services
  • Accordingly, there are additional risk considerations:
    • Regulatory treatment of virtual assets in other jurisdictions
    • Nature of a particular virtual asset
    • Market characteristics of the virtual asset
    • Whether virtual asset is transacted on a public or private blockchain

 

TOPIC 7 –PARTICIPATING IN THE HONG KONG EXCHANGES
  • No updates

 

TOPIC 8 –ACCESSING PUBLIC CAPITAL
  • Additional material on Virtual Assets
Virtual Assets

Introduction

  • Since the first Bitcoin was issued in January 2009, a wide range of different types of virtual assets have been issued, based on some form of blockchain or distributed ledger technology
  • Billions of dollars have been invested in virtual assets, in primary market capital raisings and in subsequent secondary market activity, frequently in the absence of the usual regulatory oversight mechanisms that are normally in place in traditional markets
  • The resulting significant investor protection risks have required regulatory agencies globally to consider how such virtual assets and related activities, should be treated under current laws and regulations
  • Under the approach taken in Hong Kong, a virtual asset that is a cryptographically secured digital representation of value will be regulated under either:
    • The SFO where the virtual asset constitutes a securities or futures contract, as defined in the SFO (central bank digital currencies are excluded); or
    • The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), where the virtual asset does not fall under the SFO

Regulation by the SFO

  • A virtual asset will be considered to be a security under the SFO if:
    • It might represent equity or ownership interests in a corporation
    • It might represent a debt or liability
    • It might have proceeds managed on a collective basis as a CIS

Regulation by the AMLO

  • Virtual assets will be regulated by the AMLO if they:
    • Are expressed as a unit of account or a store of economic value
    • Can be used as a medium of exchange
    • Can be transferred, stored or traded electronically
    • Satisfy characteristics as prescribed by the SFC
  • Any person operating an exchange, trading virtual assets falling under the above definition, will need to be licensed by the SFC under AMLO provisions
  • Under the AMLO, a virtual asset exchange means an entity providing services through electronic facilities
    • that offers to sell/purchase virtual assets which can be made binding; or
    • that enables persons to negotiate or conclude sales or purchases of virtual assets in a way that forms a binding transaction

Dual Licensing Regime for Platforms

  • Platforms that trade virtual assets must be licensed according to the nature of the virtual assets traded on the platform:
    • A platform that trades one or more virtual assets that constitutes securities under the SFO will need to be licensed/registered under the SFO, typically for Type 1 and Type 7 regulated activities
    • A platform that trades one or more virtual assets that are not securities under the SFO and meet the definition of virtual assets under the AMLO will need to be licensed under the AMLO
    • A platform that engages in both trading activities will need to be licensed under both the SFO and the AMLO

Regulated Activities Under the SFO

    • 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 underlying assets consist solely of virtual assets that are neither securities nor futures
    • For futures contracts on virtual assets, dealing and advising are covered by regulated activities 2 and 5
    • Licensed corporations/registered institutions who provide virtual asset services to their clients must partner with SFC licensed virtual asset trading platforms and must be type 1 licensed
    • Any plan to start providing trading or asset management services involving virtual assets will require a significant change in activities notification to the SFC

 

TOPIC 9 –MARKET MISCONDUCT AND IMPROPER TRADINGPRACTICES
  • No updates

The following updates are examinable from 29 November 2023

 

TOPIC 1 – REGULATORY FRAMEWORK

Material updated regarding Continuous Professional Training

  • A licensed representative or relevant individual must complete 10 CPT hours per calendar year, irrespective of the number or type of regulated activities involved
  • A responsible/executive officer must complete a minimum of 12 CPT hours per calendar year, with the 2 additional hours being related to regulatory compliance
  • Each individual practitioner must complete at least 5 CPT hours per calendar year on topics directly relevant to the regulated activity he/she is involved in. Sponsors must not take less than 2.5 hours of sponsor-related CPT and TC Advisers/TCROs must complete at least 2.5 hours of relevant CPT
  • No less than 2 CPT hours per calendar year must relate to ethics or compliance
  • Each new individual practitioner in Hong Kong must complete 2 CPT hours on ethics within 12 months as a one-off requirement (not applicable to temporary lcensees)

 

TOPIC 2 – REQUIREMENTS OF RELEVANT SUBSIDIARY LEGISLATION

No updates

 

TOPIC 3 – MANAGEMENT AND SUPERVISION OF SECURITIES BUSINESS
Investor Identification Regime

Investor Identification

  • An intermediary involved in trading on behalf of clients must assign to each client a unique and permanent Broker-to-Client Assigned Number (BCAN) and must keep up-to-date client identification data (CID) for each client
    • For proprietary trading, “client” means the intermediary itself
    • For a CIS or a discretionary account, “client” means the CIS, discretionary account holder or the asset management company that has opened the account
    • For a joint account, the account itself should be assigned its own BCAN
    • CID is the name and details of the identity document used for identity verification
  • Client on-exchange orders must be accompanied by submission of BCAN and CID to the SEHK’s data repository in a “BCAN-CID Mapping File” as well as the unique central entity number (CE number) assigned to the intermediary by the SFC
  • These requirements also apply to off-exchange orders that are reportable by SEHK exchange participants (OE Trade Reporting)

OTC Securities Transactions

  • Whether as principal or agent, an intermediary involved in OTC transactions (not OE trading) must report OTC trades directly to the SFC – this is intended to improve OTC trade transparency using the SFC market oversight function
  • Only transfers of ordinary shares and REIT units listed on the SEHK, that are subject to HK stamp duty, are subject to this requirement
  • Information required to be submitted to the SFC within three trading days after the trade: intermediary’s CE number; details of securities traded; client CID; and the CE number of any other licensed intermediary involved in the trade
  • Reporting obligation does not apply for share transfers to do with a structured product/derivative, or for conversion of a depository receipt into shares or vice versa

Client Data

  • Individual clients must give prior consent to the use of their data
Prevention of Money Laundering and Terrorist Financing
  • The Financial Action Task Force (FATF) is an inter-governmental body supported by the membership of 36 jurisdictions (as at July 2023) and includes Hong Kong
  • Primary purpose of FATF is to set standards and promote effective implementation of legal/regulatory/operational measures to combat money laundering/terrorist financing
  • Hong Kong financial intermediaries, including virtual asset service (VAS) providers, must be familiar with FATF standards and how they relate to their day-to-day work
Virtual Assets
  • Features of virtual assets giving rise to ML related risks:
  • Ease of cross-border activity
  • Speed at which multiple transactions can be executed
  • Involvement of unregulated businesses in other jurisdictions
  • Potential use of anonymity-enhancing services

 

TOPIC 4 – DEALING IN SECURITIES TRADED ON THE SEHK
Orion Trading Platform – Securities Market
  • An Exchange Participant is required to subscribe to the Orion Central Gateway – Securities Market (OCG-C) session(s) and connect its Broker Supplied System (BSS) through OCG-C session(s) to OTP-C
  • A BSS is a broker’s in-house developed system or a third-party software package developed by commercial vendors

Slight adjustments made to the Volatility Control Mechanism material:

  • VCM aims to safeguard market integrity from extreme price volatility from trading incidents such as a “flash crash” and algorithm errors and provides a window allowing market participants to reassess their strategies
  • A five-minute cooling-off period will be imposed for a particular stock/contract if the market price moves by more than the specified triggering thresholds from the last traded price 5 minutes before. Normal continuous trading will resume when the 5-minute cooling-off period ends
  • A tiered structure of triggering thresholds at +/- 10%, +/-15% and +/-20% is applied to the Hang Seng Composite LargeCap, Hang Seng Composite MidCap and Hang Seng Composite SmallCap Indices constituent stocks respectively
  • In the derivatives market, the VCM covers spot and next calendar month index futures contracts with:
    • Hang Seng Index;
    • Mini Hang Seng Index;
    • Hang Seng China Enterprises Index;
    • Mini-Hang Seng China Enterprises Index; or
    • Hang Seng TECH Index
  • VCM does not apply to the first 15 minutes of morning and afternoon continuous trading sessions and the last 15 minutes of the afternoon session nor during auction sessions
Updates to Transaction Costs:

Brokerage

  • No minimum
  • 1% of application money for IPOs

SFC Transaction Levy and FRC Transaction Levy

  • Two levies charged by the SEHK on each purchase/sale of securities on behalf of SFC and the Financial Reporting Council (FRC)
  • SFC transaction levy of 0.0027%
  • FRC transaction levy of 0.00015%
  • An investor compensation levy of 0.002% was charged for the Investor Compensation Fund until December 2005 when it was suspended by the SFC as the Fund was full

Trading Fee

  • 00565% charged to both buyer and seller and paid to SEHK

Trading Tariff

  • HK$0.50 charged on each purchase/sale payable to SEHK

Stamp Duty on Stock Transaction

  • 13% on each purchase/sale. No stamp duty on ETFs, derivative warrants and CBBCs trading

Transfer Deed Stamp Duty

  • HK$5 charged to seller, irrespective of quantity traded

Transfer Fee

  • Registrar of each listed company charges HK$2.50 per share certificate on buyers

 

 TOPIC 5 – OTHER SECURITIES ACTIVITIES
  • No updates

 

TOPIC 6 –EXCHANGE TRADED OPTIONS AND OVER-THE-COUNTER (OTC) DERIVATIVES
  • No updates
TOPIC 7 –MARKET MISCONDUCT AND IMPROPER TRADING PRACTICES
  • No updates

The following updates are examinable from 1 June 2023

 

TOPIC 1 – REGULATORY OVERVIEW OF THE HONG KONG FINANCIAL INDUSTRY
  • Minor updates to Financial Secretary responsibilities
  • Update of number of IOSCO members

 

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

 

TOPIC 3 – SECURITIES AND FUTURES ORDINANCE
  • No updates

 

TOPIC 4 – LICENSING AND REGISTRATION, AND SUBSIDIARY LEGISLATION
  • Additional material on competence requirements:

Additional Competence Requirements in Connection with Codes on Takeovers and Mergers and Share But-backs

  • Takeover Code Adviser Guidelines (TC Adviser Guidelines) provide additional competence requirements for those who advise on takeovers, mergers and share buy-backs
  • A responsible officer of a TC Adviser who can advise on takeovers, mergers and share buy-backs is known as a TCRO
  • TC Advisers and TCROs must comply with the following requirements:
    • At least one TCRO must supervise and be involved in each transaction subject to the Codes the TC Adviser is advising on
    • TCROs and licensed representatives of TC Advisers must meet additional eligibility and CPT requirements
  • Updated material covering Continuous Professional Training (CPT):

Guidelines on Continuous Professional Training

    • A licensed representative or relevant individual must complete 10 CPT hours per calendar year, irrespective of the number or type of regulated activities involved
    • A responsible/executive officer must complete a minimum of 12 CPT hours per calendar year, with the 2 additional hours being related to regulatory compliance
    • Each individual practitioner must complete at least 5 CPT hours per calendar year on topics directly relevant to the regulated activity he/she is involved in. Sponsors must not take less than 2.5 hours of sponsor-related CPT and TC Advisers/TCROs must complete at least 2.5 hours of relevant CPT
    • No less than 2 CPT hours per calendar year must relate to ethics or compliance
    • Each new individual practitioner in Hong Kong must complete 2 CPT hours on ethics within 12 months as a one-off requirement (not applicable to temporary lcensees)

 

 TOPIC 5 – BUSINESS CONDUCT AND CLIENT RELATIONS
  • Additional material on GP 4: Information about Clients

Investor Identification Regime

Investor Identification

  • An intermediary involved in trading on behalf of clients must assign to each client a unique and permanent Broker-to-Client Assigned Number (BCAN) and must keep up-to-date client identification data (CID)
  • Investor identification for the Hong Kong securities market took effect on 20 March 2023
  • Client on-exchange orders must be accompanied by submission of BCAN and CID to the SEHK’s data repository as well as the unique central entity number (CE number) assigned to the intermediary by the SFC
  • These requirements also apply to off-exchange orders that are reportable by SEHK exchange participants (OE Trade Reporting)

OTC Securities Transactions

  • Whether as principal or agent, an intermediary involved in OTC transactions (not OE trading) must report OTC trades directly to the SFC – this is intended to improve OTC trade transparency using the SFC market oversight function
  • Only transfers of ordinary shares and REIT units listed on the SEHK, that are subject to HK stamp duty, are subject to this requirement
  • This OTC reporting requirement will be effective from 25 September 2023
  • Information required to be submitted to the SFC within three trading days after the trade: intermediary’s CE number; details of securities traded; client CID; and the CE number of any other licensed intermediary involved in the trade
  • Reporting obligation does not apply for share transfers to do with a structured product/derivative, or for conversion of a depository receipt into shares or vice versa

Client Data

  • Individual clients must give prior consent to the use of their data

 

 TOPIC 6 –BUSINESS OPERATIONS AND PRACTICES

Material added relating to Customer Due Diligence:

Involvement of Third-Parties

  • Extra due diligence steps should be taken when dealing with a third party who claims to be acting on behalf of the customer
  • Identity of such third parties should be verified, just as with customers

Cross-Border Correspondent Relationships

  • Licensed corporations may provide services for financial institutions located outside Hong Kong
  • Additional customer due diligence should be carried out on the respondent institution and the underlying customers
  • Cross-border correspondent relationships should not be established with financial institutions that are not physically present in the place it is authorised and is not a member of a regulated group

 

TOPIC 7 –PARTICIPATING IN THE HONG KONG EXCHANGES

Material updated relating to stock transaction costs:

  • FRC transaction levy of 0.00015%
  • Trading fee of 0.00565% charged to both buyer and seller and paid to SEHK
  • Stamp Duty on stock transactions of 0.13% on each purchase/sale

 

TOPIC 8 –ACCESSING PUBLIC CAPITAL
  • Material added relating to Overall Coordinators, SPACs and cryptocurrency exchange licensing:

Overall Coordinators

  • An overall coordinator is a capital markets intermediary that will undertake the overall management of the offering, including:
    • Coordinating bookbuilding activities
    • Advising listing applicant on the offer price
    • Making allocation recommendations to the listing applicant
    • Exercising discretion around share allocation
  • The listing applicant will need to observe the “sponsor coupling” requirement: each independent sponsor appointed must also be appointed as an overall coordinator, or there must be an overall coordinator appointed from the same group of companies as the independent sponsor
  • Sponsors that are not independent will need written confirmation that the listing applicant has already made an appointment that satisfies the sponsor coupling requirement

Special Purpose Acquisition Companies (SPACs)

  • A SPAC is created to raise funds that will be used to acquire a business
  • Gross funds raised in an initial offering must not be less than HK$1 billion
  • SPAC securities can only be marketed to and traded by professional investors
  • A SPAC is admitted to listing subject to a pre-defined time period (usually 24 months) within which it must acquire a suitable business in what is known as a “De-SPAC Transaction”
  • The De-SPAC transaction must be completed within 36 months of the listing date
  • A SPAC must appoint at least one sponsor for the listing application
  • A sponsor will also be needed for the De-SPAC Transaction as the company will need to meet the same listing requirements

Cryptocurrency Exchange Licensing

  • Platforms that are sometimes called “cryptocurrency exchanges” or “cryptoexchanges” may trade in a variety of virtual assets
  • Where any of those assets meet the definition of securities under the SFO, the platform will need to be licensed or registered under the SFO
  • Where one or more of the assets do not meet the definition, the platform will need to be licensed under AMLO
  • Accordingly, under this dual licensing regime, a platform may need to hold a license under either or both the SFO and AMLO

 

TOPIC 9 –MARKET MISCONDUCT AND IMPROPER TRADINGPRACTICES
  • No updates

The following updates are examinable from 1 April 2023

 

TOPIC 1 – OVERVIEW OF SECURITIES INVESTMENTS
  • Dates and data updated for the Main Board, GEM, the debt market, global securities market and Hong Kong market indices
  • Material added relating to market sentiment:

Market Sentiment

  • Market sentiment generally refers to the collective views of market participants on asset prices
  • The sentiment can be collectively positive or negative
  • Positive market sentiment in China stocks could arise from an expectation that China’s economy will grow and exceed US GDP
  • Negative market sentiment in China stocks could be linked to political instability, social unrest, war, uncertain government policies, weak global economic environments and/or market crashes
TOPIC 2 – THE STOCK EXCHANGE OF HONG KONG: PRIMARY AND SECONDARY MARKETS
  • Data updated relating to initial public offerings and prospectus publication
  • Material added relating to special purpose acquisition companies, paperless initiatives and trading systems

Special Purpose Acquisition Company (SPAC)

  • SEHK introduced a listing regime for SPACs in January 2022
  • A SPAC is a company without any commercial operation, which raises funds via IPO to acquire another company within a specified period, normally 2 years
  • Investors in SPAC IPOs simply trust the SPAC board members as they do not know which company will be eventually acquired
  • If the SPAC fails to acquire any company within the specified period, the SPAC will refund all its investors
  • Also known as “blank cheque” companies

Paperless Initiatives

  • In July 2021, SEHK introduced a paperless listing and subscription regime, online display of documents and a reduction in the types of documents on display
  • Aims are to support environmental protection, make IPO process more efficient and mitigate impact on distribution of printed documents by special situations (eg pandemic)
  • This digitisation initiative triggered many Exchange rule and regulation amendments

Trading Platform for the Securities Market

  • The SEHK’s trading system moved to the Orion Trading Platform – Securities Market (OTP-C) from AMS/3 in February 2018, and is only accessible to Exchange Participants (EPs)
  • EPs must subscribe to Orion Central Gateway and connect to the system via Broker Supplied Systems (BSS) or New Securities Trading Device (NSTD)
  • BSS is an in-house developed system, while a NSTD is a Window-based trading facility
TOPIC 3 – PARTICIPANTS IN THE MARKETS
  • Dates and data updated for the number of Exchange Participants in Hong Kong – 604 at 31 October 2022
  • Material added relating to agencies and public bodies:

Financial Services and The Treasury Bureau (FSTB)

  • The FSTB, one of the Government’s policy bureaus, is responsible for developing and executing government policy on finance and treasury
  • Aims include maintaining the financial stability of Hong Kong and enhancing Hong Kong as a global financial centre
  • Works closely with market regulators and participants to capitalise on opportunities for Hong Kong’s financial services sector
  • Seeks breakthroughs in green finance and financial technology development

Financial Services Development Council (FDC)

  • Acts as an advisory body to the financial services industry in terms of formulating proposals and identifying strategic directions to promote the further development of the industry in Hong Kong
  • Key objectives are:
    • Advise the Government on strategies and measures to expand Hong Kong’s financial markets and enhance its competitiveness as an international financial centre
    • Support Hong Kong’s financial services industry in developing the core competencies and knowledge of its practitioners
    • Promote Hong Kong’s financial services industry in China as well as overseas
TOPIC 4 – TYPES OF SECURITIES
  • New material relating to bond analysis:

Bond Analysis

  • Bonds tend to provide investors with more stable returns than stocks
  • The major risk of bonds is default risk
  • Some governments and some corporates have defaulted their bonds over the last 20 years
  • There are two simple ways to evaluate the default risk of bonds:
    • Credit ratings provided by credit rating agencies; and
    • Bond yields from bond trading
  • Provision of credit rating services in Hong Kong is a Type 10 SFC regulated activity
  • Assuming credit ratings are reliable, better credit ratings should be associated with lower bond yields
  • Investment-grade bonds are considered safe with ratings above BBB for S&P and Fitch
  • Non-investment grades are also known as speculative grades
  • Credit spread is the difference between a bond’s yield and the risk-free bond yield (normally US Treasury bond yields
  • Investment-grade bonds have a credit spread of less than or equal to 2% (200 basis points)

 

 TOPIC 5 – STOCK MARKET ADMINISTRATION
  • The Stock Exchange trading tariff of HK$0.50 has been dropped
  • An investor identification regime for the Hong Kong securities market (HKIDR) was introduced on 20 March 2023 in which intermediaries are required to assign each of their clients a Broker-Client Assigned Number (BCAN)
TOPIC 6 –SECURITIES ANALYSIS
  • New material relating to metrics on stock selection:

METRICS ON STOCK SELECTION

  • Metrics used for stock selection are dependent upon the investment strategies used by investors
  • Investors preferring stable income will look for stable and positive earnings per share (EPS) over time
  • Investors who prefer growth stocks will look to price-earnings-to-growth (PEG):

PEG  =  P/E ratio / EPS growth x 100

  • A low PEG means a low P/E ratio but a high growth rate, possibly indicating high-growth stocks that are undervalued
  • Investors preferring low risk stocks may look at debt-to-equity ratio, low beta and large firm size
  • Investors optimistic about future economic growth may consider high debt-to-equity ratio, high beta and small firm size firms
  • There are investment portals that provide stock screening functions to help investors organise potential stocks using their preferred ratios and technical indicators. The example below is from the Yahoo Finance website:
Investment StrategySelection Criteria
Undervalued growth stocksStocks with earnings growth rates better than 25% and relatively low P/E
Growth technology stocksTechnology stocks with revenue and earnings growth rates in excess of 25%
Undervalued large capsLarge-cap stocks that are potentially undervalued
Aggressive small capsSmall-cap stocks with earnings growth rates better than 25%

 

  • “Near price highs” is a strategy to capture upward momentum. Studies have shown that stocks with recent strong growth tend to rise further – part of technical analysis
  • “Momentum” is a strategy to consider stocks with recent promising positive moves – also part of technical analysis
  • An investment strategy and the underlying principles need to be identified before considering relevant indicators

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

 

HKSI Paper 7 – Pass Rates (%)

%

2022

2023

Change

Comments

January
February
March
April
May
June
July
August
September
October
November
December
71.91
80.77
0
0
65.80
65.37
64.29
71.29
72.46
64.76
66.22
75.19
63.54
59.03
66.46
 .
.
.
.
 .
 .
 .
 .
 .
-8.37
-21.74
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.
.
.
.
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.
January pass rate falls
February pass rate falls significantly
Exam suspended in 2022
Exam suspended in 2022
 .
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 .
 .
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.
 .
 .
  Mean69.8163.01-6.80Average monthly pass rate falls
Standard deviation5.453.74-1.71Pass rate variability falls

 

A regular analysis of HKSI Paper 8 pass rates to help you gauge exam difficulty

 

HKSI Paper 8 – Pass Rates (%)

2022

2023

Change

Comments
January
February
March
April
May
June
July
August
September
October
November
December
66.67
68.97
0
0
72.47
61.21
66.33
65.85
63.27
67.24
65.71
72.41
63.21
62.22
59.26
.
.
.
.
.
.
.
.
.
-1.72
2.03
.
.
.
.
.
.
.
.
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.
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.
Exam suspended in 2022
Exam suspended in 2022
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.
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.
  Mean67.0161.56-5.45Average monthly pass rate falls
Standard deviation3.562.06-1.50Pass rate variability falls

 

 

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

 

HKSI Paper 1 – Pass Rates (%)

 

2022

2023

Change

Comments
January
February
March
April
May
June
July
August
September
October
November
December
54.89
55.79
66.42
72.73
54.16
52.70
53.37
54.26
54.47
53.45
51.62
49.28
51.94
48.49
49.92
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-2.95
-7.30
-16.50
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Pass rate for March falls significantly
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  Mean56.1050.12-5.98Average pass rate falls
Standard deviation6.651.73-4.92Pass rate variability falls

The following updates are examinable from 1 March 2022

 

TOPIC 1 – THE GLOBAL FINANCIAL SYSTEM
  • Dates and data updated for the Asian Infrastructure Investment Bank
  • Material added relating to types of financial markets:

Virtual Asset Market

  • Virtual asset trading began with the trading of Bitcoin. A wide range of products is available in the virtual asset market with most trades supported by distributed ledger technology (DLT), one of which is blockchain
  • DLT allows direct transactions between buyers and sellers without going through an intermediary (eg banks, securities firms), thereby saving transaction costs
  • SFC definition of virtual assets:

“virtual assets” means digital representations of value which may be in the form of digital tokens (such as digital currencies, utility tokens or security or asset-backed tokens), any other virtual commodities, crypto assets or other assets of essentially the same nature, irrespective of whether they amount to “securities” or “futures contracts” as defined under the Securities and Futures Ordinance (SFO)”

  • Security token offering/trading is limited to professional investors under the SFO
  • Trading of non-security tokens (payment tokens, virtual commodities, non-fungible tokens (NFTs)) is out-with the SFC’s jurisdiction
  • Central banks are starting to introduce their own digital currencies – virtual money
  • Virtual asset trading platforms (VATPs) offering security token trading are regulated by the SFC, however VATPs operating outside of Hong Kong are not covered by Hong Kong laws

Loan Market and Syndicated Loan

  • Unlike bonds, loans are not tradable in the public market
  • Banks traditionally play the role of lenders, however non-bank lending companies (finance companies) are permitted to provide loans as long as they apply for a money lender license. Such lending is governed by the Money Lenders Ordinance
  • A loan is an agreement between two parties, whereas a bond is an agreement between a bond issuer and numerous investors. A syndicated loan is an agreement between a borrower and numerous lenders.  The lenders are usually banks with one bank acting as lead manager. Such loans often finance long-term infrastructure projects

 Islamic Financial Market

  • The population and economic growth of Islamic countries has continued to grow at a rapid rate
  • How to make financial assets and financial services fit into Islamic culture will be a lucrative opportunity for Hong Kong financial institutions
  • Malaysia plays a strong role in international Islamic financial services
  • A bond structured as a Sukuk complies with Islamic rules – in Hong Kong a Sukuk is considered to be an asset-backed security
  • The Hong Kong Government issued Sukuks in 2016/17 receiving extremely positive feedback from Islamic investors

 

TOPIC 2 – FINANCIAL SYSTEM IN HONG KONG
    • Dates and data updated for the Exchange Fund, the Government’s fund accounts, Authorised Institutions, government budget surpluses and trade figures
    • Material added relating to the economy of Mainland China::

    Investment

    • Hong Kong is the dominant financial gateway to China, is an important RMB financing centre and hosts the largest offshore RMB bond market
    • Many China-based securities firms set up their operations in Hong Kong, helping institutions and individuals from China trade Hong Kong listed stocks
    • The mutual market access schemes between Hong Kong and China, including Stock Connect and Bond Connect, have ensured Hong Kong’s status as a unique financial hub connecting investors from overseas and China
    • China’s commitment to reform and opening-up continues with the development of the Greater Bay area (GBA) bringing together Guangdong, Hong Kong and Macao
    • Plans are in place to allow the GBA to reinforce its leading fintech position and enhance Hong Kong’s competitive position by strengthening fintech supervisory exchanges in an environment of rapidly advancing technology

 

TOPIC 3 – THE EQUITY MARKET
    • Dates and data updated for main board of the Stock Exchange of Hong Kong and the Hang Seng Index
    • A new section has been added covering Equity Pricing:
    • The value of a company’s equity is influenced by numerous factors, including:
      • Macroeconomic conditions
      • Government policies
      • Competition environments
      • International politics
      • Natural disasters
      • Pandemics
      • Population composition and growth
      • Management quality
      • Business innovation
      • Technology breakthroughs
    • A survey of around 2,000 financial analysts gave results of their preferred method of equity valuation:
    Method of equity valuation%
    Market multiples approach92.8
    Discounted present value approach78.8
    Asset-based approach61.4
    Real options approach5.0
    Other approach12.7

     

    • One commonly adopted market multiple is the price-earnings ratio (P/E) which considers how much peer companies are valued with reference to their earning records
    • The discounted present value approach is based on the discounted cash flows model
    • The asset-based approach assumes liquidation of a company and estimates the market value of all assets, less total debt
    • The top three methods require information regarding cash flows, accounting records of sales, earnings and operating income and estimates of the disposal value of assets

 

TOPIC 4 – THE DEBT MARKET
  • Dates and data updated for the listing of exchange fund notes, southbound bond market, and investors in debt securities

 

 TOPIC 5 – THE FOREIGN EXCHANGE AND DERIVATIVES MARKETS
  • Compliance risk added to list of other risks

 

TOPIC 6 – FINANCIAL RISK MANAGEMENT

The Archegos Capital Management case has been added to “lessons from the past”:

  • Archegos Capital Management Case
    • Archegos was a family office established by Bill Hwang to manage his personal wealth
    • In March 2021, Archegos suffered a serious loss in its heavy investment in total return swaps, a type of credit derivative product
    • Brokers involved in Archegos derivative trades had to liquidate the positions as margin calls were not answered. Due to an illiquid market, brokers lost significantly due to poor prices.  Examples of losses were:
      • Credit Suisse – USD5.5 billion
      • Nomura – USD2.8 billion
      • Morgan Stanley – USD911 million
      • UBS – USD774 million
      • Mitsubishi UFJ – USD300 million
    • Bill Hwang lost USD20 billion and some of the above financial institutions saw their share prices fall by more than 10%
    • This case highlights two risk issues:
      • When a client trades aggressively and loses money, the client’s brokers may also get into trouble. A client’s risk can become the risk of a financial institution
      • Family offices are not fully regulated by financial regulators. This needs to be resolved

 

TOPIC 7 – APPLICATIONS IN THE FINANCIAL SECTOR
  • Dates and data updated for regulated open-end funds