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Questions and Answers
Which entity is responsible for licensing corporations that perform SFC-regulated activities?
Which entity is responsible for licensing corporations that perform SFC-regulated activities?
What can the HKMA do in relation to AFIs' employees under the Banking Ordinance?
What can the HKMA do in relation to AFIs' employees under the Banking Ordinance?
Which of the following activities is NOT classified as an SFC-regulated activity?
Which of the following activities is NOT classified as an SFC-regulated activity?
What action may the SFC take towards AFIs if they are reported by the HKMA?
What action may the SFC take towards AFIs if they are reported by the HKMA?
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Which statement about the relationship between HKMA and SFC is accurate?
Which statement about the relationship between HKMA and SFC is accurate?
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Who must register with the SFC?
Who must register with the SFC?
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Which activity involves advising on investment in financial markets?
Which activity involves advising on investment in financial markets?
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What is required for a firm performing an SFC regulated activity?
What is required for a firm performing an SFC regulated activity?
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Which entities are recognized as exchange companies in Hong Kong?
Which entities are recognized as exchange companies in Hong Kong?
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What is the primary purpose of Open-ended Fund Companies (OFCs)?
What is the primary purpose of Open-ended Fund Companies (OFCs)?
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What is required for overseas corporate funds wanting to re-domicile to Hong Kong?
What is required for overseas corporate funds wanting to re-domicile to Hong Kong?
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Which authority is responsible for the oversight of Collective Investment Schemes (CISs) in Hong Kong?
Which authority is responsible for the oversight of Collective Investment Schemes (CISs) in Hong Kong?
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Which part details the framework for the regulation of Over-The-Counter derivative transactions?
Which part details the framework for the regulation of Over-The-Counter derivative transactions?
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What legal consequence can occur for operating as an OFC without registration?
What legal consequence can occur for operating as an OFC without registration?
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Who must be licensed by the SFC when carrying out regulated activities?
Who must be licensed by the SFC when carrying out regulated activities?
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Which of the following is NOT recognized as a clearing house in Hong Kong?
Which of the following is NOT recognized as a clearing house in Hong Kong?
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What is the primary function of representatives in the context of intermediaries?
What is the primary function of representatives in the context of intermediaries?
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What is the nature of the licensing regime for intermediaries?
What is the nature of the licensing regime for intermediaries?
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Which of the following is NOT one of the ten SFC-regulated activities?
Which of the following is NOT one of the ten SFC-regulated activities?
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Who has the authority to amend the list of SFC-regulated activities?
Who has the authority to amend the list of SFC-regulated activities?
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Which set of rules is concerned with the financial resources of intermediaries?
Which set of rules is concerned with the financial resources of intermediaries?
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What do Client Securities Rules primarily address?
What do Client Securities Rules primarily address?
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What type of entities do Client Securities Rules apply to?
What type of entities do Client Securities Rules apply to?
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Which of the following activities is specifically not regulated under SFC activities?
Which of the following activities is specifically not regulated under SFC activities?
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Which of the following powers can members exercise at a general meeting?
Which of the following powers can members exercise at a general meeting?
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What percentage of voting rights is required for a class of shareholders to petition the court against a variation of their rights?
What percentage of voting rights is required for a class of shareholders to petition the court against a variation of their rights?
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What is the minimum number of directors required for a public company?
What is the minimum number of directors required for a public company?
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Which of the following individuals cannot be appointed as a director?
Which of the following individuals cannot be appointed as a director?
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Under what circumstance may members intervene in the management decisions of directors?
Under what circumstance may members intervene in the management decisions of directors?
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What is considered a personal action in the context of judicial protection for minority shareholders?
What is considered a personal action in the context of judicial protection for minority shareholders?
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What is the role of shadow directors?
What is the role of shadow directors?
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What must directors ensure during board meetings?
What must directors ensure during board meetings?
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Which group can call an investigator to examine the company's affairs?
Which group can call an investigator to examine the company's affairs?
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What is one of the responsibilities of the Chief Executive in relation to the SFC?
What is one of the responsibilities of the Chief Executive in relation to the SFC?
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What is one of the fiduciary duties of directors?
What is one of the fiduciary duties of directors?
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Which authority does the Financial Secretary primarily oversee?
Which authority does the Financial Secretary primarily oversee?
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What power does the Financial Secretary have over the SFC?
What power does the Financial Secretary have over the SFC?
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What type of report does the SFC submit to the Financial Secretary?
What type of report does the SFC submit to the Financial Secretary?
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Which entity can appoint inspectors to investigate problematic companies?
Which entity can appoint inspectors to investigate problematic companies?
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Which body does the Financial Secretary chair that is related to the Hong Kong Monetary Authority?
Which body does the Financial Secretary chair that is related to the Hong Kong Monetary Authority?
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What does the Chief Executive do regarding the SFC's budget?
What does the Chief Executive do regarding the SFC's budget?
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What does the Independent Commission Against Corruption (ICAC) focus on?
What does the Independent Commission Against Corruption (ICAC) focus on?
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Which of these organizations does the Hong Kong Monetary Authority (HKMA) primarily regulate?
Which of these organizations does the Hong Kong Monetary Authority (HKMA) primarily regulate?
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What is the role of the Chief Secretary for Administration?
What is the role of the Chief Secretary for Administration?
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What is one of the primary obligations of directors regarding their actions towards the company?
What is one of the primary obligations of directors regarding their actions towards the company?
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What could lead to a director incurring liabilities?
What could lead to a director incurring liabilities?
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When is a director required to declare their interest in a transaction with the company?
When is a director required to declare their interest in a transaction with the company?
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What happens if a director breaches their statutory duties?
What happens if a director breaches their statutory duties?
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What triggers the requirement for a company in Hong Kong to conduct internal audits?
What triggers the requirement for a company in Hong Kong to conduct internal audits?
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Which party may initiate a compulsory liquidation of a company?
Which party may initiate a compulsory liquidation of a company?
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What is a requirement for a members' voluntary winding up to proceed?
What is a requirement for a members' voluntary winding up to proceed?
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Under what condition can a company be wound up by the court?
Under what condition can a company be wound up by the court?
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What is the role of inspectors appointed by the Financial Secretary?
What is the role of inspectors appointed by the Financial Secretary?
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Who is required to assist the inspector during an investigation of the company?
Who is required to assist the inspector during an investigation of the company?
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What process does a creditors' voluntary liquidation involve?
What process does a creditors' voluntary liquidation involve?
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What must a company do if it wishes to make a loan to a director?
What must a company do if it wishes to make a loan to a director?
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Which of the following is NOT a criterion for compulsory liquidation?
Which of the following is NOT a criterion for compulsory liquidation?
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Study Notes
Topic 1 - Overview
- Financial products and services in Hong Kong include futures, options, FX products, mutual funds, unit and investment trusts, certificates of deposit, money market products, gold market products, company shares, debentures, warrants, and convertible securities.
- Securities dealing, futures trading, FX trading, virtual asset trading, financial advising, corporate finance, underwriting, mergers and acquisitions, venture capital, investment/portfolio management, investment banking, commercial banking, credit rating services, money lending, gold trading, and insurance/insurance broking are services offered.
- Hong Kong's regulations are designed for efficient and organized markets, addressing the growth and sophistication of financial products and services, flows of large amounts of wealth, and the proliferation of malpractices.
- The common objectives of Hong Kong's financial regulators are maintaining Hong Kong's position as a leading financial center, operating financial regulations to an acceptable international standard, operating in a market-friendly, open, approachable, fair, and effective manner, ensuring legal frameworks of financial regulations are certain, adequate, and fairly enforced, encouraging a sound technical infrastructure for financial markets, and promoting confidence in the financial markets internationally and locally.
- Merit-based regulation screens undesirable players and offerings, ensuring a fair balance between promoters and investors. Disclosure-based regulation emphasizes maximizing disclosure regarding public offerings. Risk-based regulation prioritizes areas with the greatest market risk.
- Past regulatory problems, like stock exchange formations and market crashes, have led to the implementation of regulations and review of frameworks, including the Securities Ordinance and the Protection of Investors Ordinance; and the Davison Committee report which emphasized systemic stability, orderly markets, and investor protection.
- The Hong Kong Monetary Authority (HKMA) manages Hong Kong's monetary policy and is responsible for ensuring banking system stability and financial system efficiency. The Securities and Futures Commission (SFC) regulates the securities and futures industry in Hong Kong.
Topic 2 - Overview
- Hong Kong's legal system includes common law, equity, and primary/subsidiary legislation. Common law developed in courts and operates on the doctrine of precedent. Equity focuses on common fairness and justice. Primary legislation is enacted by the Chief Executive. Subsidiary legislation follows directives from LegCo and is enacted by non-government bodies.
- Categories of Hong Kong LawRelevant to Exam include criminal law (punishing offences against society), civil law (remedying losses for individuals/businesses), contract law (enforcing agreements), and employment law (employers' obligations to employees).
- Hong Kong's court system includes the Chief Justice, the Court of Final Appeal, the Court of First Instance, the District Court, and the Magistrates' Court; as well as various tribunals and panels for specific areas.
- The Companies Ordinance creates separate legal entities (companies), covers private, public, and guarantee companies, and details share capital, debentures, and shareholder powers.
- It includes regulations pertaining to company meetings, director qualifications/duties/liabilities, audits, and company liquidations.
- The study guide lists the broad points of the Davison Committee's recommendations and how those influenced future regulatory frameworks.
Topic 3 - Overview
- The Securities and Futures Ordinance (SFO) was created to address challenges from the 1990s, upgrading and consolidating 10 previous ordinances and implementing a more efficient and flexible financial regulatory regime. Its objectives include promoting market fairness, offering protection to investors, minimizing industry misconduct, and ensuring financial stability for Hong Kong.
- The SFO is structured into parts, detailing specific functions/powers of SFC with relation to various participants (eg operational units), regulatory functions/structure, and powers/responsibilities across the financial sector.
Topic 4 - Overview
- The SFO and registration requirements for licensing and registration are in Part V. The requirements differ for licensed corporations, registered institutions, and intermediaries (a collective classification term). The SFC has various licensing and registration requirements including board responsibility, responsible officers/executive officers, and substantial shareholders.
- Capital requirements (for licensing) mandate minimum capital levels, depending on the type of regulated activity.
- Client security requirements include holding client assets safely and procedures for transactions.
- Keeping of records requires detailed record keeping for various types of dealings and assets, retention time, and the potential for penalties due to noncompliance.
Topic 5 - Overview
- The Code of Conduct provides nine general principles for licensed and registered persons to uphold, covering honesty, fairness, diligence, capabilities, information about clients, conflicts of interest, compliance, and responsibility of senior management for the actions of those under their purview.
- Distinctions exist regarding these principles for professional investors, including those covered by the Professional Investor Rules.
- Separate codes are available for fund managers and corporate finance advisors, as well as separate codes for persons providing credit rating services and regulators covering share registrars.
Topic 6 - Overview
- The Internal Control Guidelines (ICG) lay out detailed requirements in 8 categories: establishment/maintenance of a compliance and governance system and its function(s) that is separate from day-to-day operations, segregation of duties, personnel and training, information management, audit/compliance, operational controls, risk management, and other matters.
Topic 7 - Overview
- This topic focuses on the rules of the HKEx markets covering dealings in listed securities (Type 1), dealing in traded options (Type 1), and dealing in futures contracts (Type 2). It covers participants, mutual market access programs, and relevant trading rules, such as position limits, short selling, reporting obligations, clearing, and settlement practices for the exchanges and their respective entities.
- Specific rules regarding trading in listed securities cover participants and exchange, and trading procedures
- Specific rules regarding trading in options cover market-makers, clearing participants, clearing, and settlement matters
- Specific rules regarding futures contracts cover participants and clearing participants along with trading rules, clearing practices, and procedures
Topic 8 - Overview
- This topic examines listing rules and procedures as well as alternative funding methods. It defines a listing, identifies the various participants, specifies listing procedures and criteria (differing for GEM and main board listings) including quantitative tests, and discusses other types of securities.
- Separate rules are available for special purpose acquisition companies (SPACs) and companies with weighted voting rights (WVR), including separate procedures and criteria.
- Additional regulations for specific products, including the authorization of collective investment schemes (CISs), structured products, and share option schemes, are also covered.
Topic 9 - Overview
- Market Misconduct under the SFO considers various instances of wrongdoing, including insider dealing, false trading, price rigging, prohibited transactions, disclosures, and stock market manipulations. These acts carry specified penalties.
- Unsolicited calls (cold calls) and improper practices, such as boiler room activities, churning, corporate misgovernance, front running, and rat trading, are also considered market misconduct, resulting in a structured disciplinary process.
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