The Securities and Futures Ordinance (SFO)
The Securities and Futures Ordinance (Cap. 571) is the single statute that consolidates Hong Kong's securities and futures law. Paper 1 expects you to know how the SFO is organised into numbered Parts, which Part does what, and a handful of high-frequency provisions: the licensing requirement, the ten regulated activities in Schedule 5, market-misconduct powers, disclosure of inside information, and the substantial-shareholder disclosure regime.
One consolidating statute, organised in Parts
Before the SFO, Hong Kong's securities regime was spread across ten separate ordinances. The SFO merged them into one modern statute that took effect in 2003, structured as numbered Parts. Knowing the map of the Parts lets you place almost any provision. Part I is preliminary and definitions. Part II constitutes the SFC. Part III deals with recognised exchange companies, clearing houses and their controllers. Part V governs licensing and registration of intermediaries. Parts XIII and XIV create the civil and criminal market-misconduct regimes respectively. Part XIVA requires listed corporations to disclose inside information. Part XV imposes disclosure-of-interests duties on substantial shareholders and directors.
The licensing requirement (s.114)
The cornerstone provision is section 114: no person may carry on a business in a regulated activity, or hold themselves out as carrying on such a business, in Hong Kong unless they are licensed by, or registered with, the SFC (banks that conduct regulated activities register as 'registered institutions' and are supervised front-line by the HKMA). Carrying on business in a regulated activity without a licence is a criminal offence. This single section is why the whole licensing regime in Part V exists, and it links directly to the licensing topic: the SFO creates the requirement, and the subsidiary rules fill in the detail.
The ten regulated activities (Schedule 5)
Schedule 5 defines the categories of regulated activity, numbered Type 1 to Type 10: Type 1 dealing in securities; Type 2 dealing in futures contracts; Type 3 leveraged foreign exchange trading; Type 4 advising on securities; Type 5 advising on futures contracts; Type 6 advising on corporate finance; Type 7 providing automated trading services; Type 8 securities margin financing; Type 9 asset management; Type 10 providing credit rating services. Paper 1 loves to test recognition—'a firm that enters into leveraged spot FX contracts with clients as a business is carrying on Type 3'; 'giving advice for a fee on the merits of buying or selling futures is Type 5'; 'discretionary management of a fund or portfolio is Type 9'. Learn the ten by number and by a one-line description each.
Market misconduct: parallel civil and criminal routes
The SFO tackles market abuse through two parallel Parts covering the same conduct. Part XIII creates the civil regime, under which the Market Misconduct Tribunal (MMT) determines, on the civil standard, whether market misconduct has occurred and can impose civil consequences. Part XIV creates the mirror-image criminal offences, prosecuted in the courts, carrying fines and imprisonment. Both Parts address the same forms of misconduct (insider dealing, false trading, price rigging, stock-market manipulation, and disclosures of false or misleading information). The key rule for Paper 1: for one course of conduct the SFC may pursue either the civil MMT route or a criminal prosecution, but not both—the same conduct cannot be punished twice. The detail of the six forms lives in the market-misconduct topic.
Disclosure of inside information and of interests (Parts XIVA and XV)
Part XIVA imposes a statutory duty on a listed corporation to disclose inside information to the market as soon as reasonably practicable after it comes to the corporation's knowledge, unless a safe harbour applies. This is a corporate obligation aimed at keeping the market fully informed. Part XV is different: it imposes personal disclosure duties on those with significant interests. A person who becomes interested in 5% or more of any class of a listed corporation's voting shares becomes a 'substantial shareholder' and must notify the corporation and the Exchange; thereafter they must file again whenever their interest crosses a whole percentage point, or when they cease to be substantial. Directors and chief executives must disclose their interests as well. The prescribed filing period is short—generally within three business days of the relevant event.
How Paper 1 tests the SFO
Questions cluster around four things: (1) which Part does what—especially 'which Part establishes the SFC?' (Part II), 'which Part covers licensing?' (Part V), 'which Parts cover market misconduct?' (XIII civil, XIV criminal); (2) the s.114 licensing requirement and its criminal consequence; (3) recognising a regulated activity from a description of a business (Schedule 5, Types 1-10); and (4) the substantial-shareholder numbers—5% threshold, whole-percentage-point movements, and the three-business-day filing window. Because these are statutory and stable, they are high-yield. Where the paper asks for a monetary penalty figure, remember these are set by statute and occasionally amended; know the structure of the offence and verify exact maxima against the current SFO.
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