HKSI Licensing Examination Paper 1 (Regulation) — All Questions

Which body is the statutory regulator of Hong Kong's securities and futures markets?

• a.The Hong Kong Monetary Authority (HKMA)
• b.Hong Kong Exchanges and Clearing Limited (HKEX)
• c.The Securities and Futures Commission (SFC)✓
• d.The Financial Services and the Treasury Bureau

The SFC is the independent statutory body established under Part II of the SFO to regulate Hong Kong's securities and futures markets. The HKMA regulates banks, HKEX operates the exchanges and clearing houses, and the FSTB is a government policy bureau.

Which of the following is a regulatory objective of the SFC under the SFO?

• a.To set interest rates for the banking sector
• b.To guarantee that ordinary investors always earn a positive return on any listed securities bought through a Hong Kong intermediary
• c.To maintain the fairness, efficiency, transparency and orderliness of the securities and futures industry✓
• d.To manage the Exchange Fund

SFO s.4 sets out the SFC's regulatory objectives: maintaining fair, efficient, transparent and orderly markets, protecting the investing public, minimising financial crime and reducing systemic risk. It does not guarantee profits, set interest rates, or manage the Exchange Fund (an HKMA function).

What is the principal role of Hong Kong Exchanges and Clearing Limited (HKEX)?

• a.It administers the Investor Compensation Fund
• b.It operates the Stock Exchange of Hong Kong and the Hong Kong Futures Exchange and their clearing houses✓
• c.It licenses individual securities dealers
• d.It investigates and prosecutes insider dealing and other market misconduct in the Hong Kong criminal courts on its own authority

HKEX is the recognised exchange controller that owns and operates SEHK and HKFE together with the clearing houses (HKSCC, SEOCH, HKCC). Licensing is done by the SFC, criminal prosecution by the courts, and the Investor Compensation Fund is administered by the SFC under Part XII of the SFO.

A Hong Kong bank that carries on regulated activities does so as a 'registered institution'. Which regulator is its front-line supervisor for that securities business?

• a.The Stock Exchange of Hong Kong
• b.The Companies Registry
• c.The Investor Compensation Company
• d.The Hong Kong Monetary Authority (HKMA)✓

Banks that carry on regulated activities are registered institutions, and the HKMA is their front-line regulator under a memorandum of understanding with the SFC. SFC conduct standards such as the Code of Conduct still apply to their securities business.

Hong Kong's legal system is based principally on:

• a.Religious law
• b.Purely customary Chinese law
• c.The common law, preserved under the Basic Law after 1997✓
• d.The civil-law codified system of Mainland China

Under Article 8 of the Basic Law, the common law, rules of equity, ordinances and customary law previously in force are maintained. Hong Kong retains a common-law system separate from the Mainland's civil-law system.

Under Hong Kong company law, a document offering a company's shares to the public must generally:

• a.Be exempt from any content requirement if the company is private
• b.Be approved personally by the Financial Secretary
• c.Be registered as a prospectus complying with statutory content requirements✓
• d.Be published only in a single newspaper

A public offer of shares requires a registered prospectus meeting the statutory content and registration requirements under the Companies (Winding Up and Miscellaneous Provisions) Ordinance. A private company is prohibited by its constitution from offering shares to the public.

Under s.114 of the SFO, a person who carries on a business in a regulated activity in Hong Kong must:

• a.Be licensed by, or registered with, the SFC unless an exemption applies✓
• b.Register the business name with the Companies Registry only
• c.Simply notify HKEX before starting
• d.Obtain approval from the HKMA in every case

SFO s.114 prohibits any person from carrying on (or holding out as carrying on) a business in a regulated activity unless they are a licensed corporation or an authorised institution registered with the SFC. Breach is a criminal offence.

Schedule 5 to the SFO defines the categories of 'regulated activity'. Type 9 refers to:

• a.Dealing in securities
• b.Securities margin financing
• c.Asset management✓
• d.Advising on corporate finance

Under Schedule 5 to the SFO, Type 9 is asset management. Type 1 is dealing in securities, Type 6 is advising on corporate finance, and Type 8 is securities margin financing.

The SFO addresses insider dealing and other market misconduct through:

• a.A dual civil (Market Misconduct Tribunal) and criminal regime, though not both for the same conduct✓
• b.Only a single criminal regime, under which all cases are prosecuted by the Department of Justice in the ordinary criminal courts
• c.Only civil proceedings before the SFC
• d.Arbitration administered by HKEX

Part XIII (civil, before the Market Misconduct Tribunal) and Part XIV (criminal, in the courts) create parallel routes for the same forms of market misconduct. The SFC may pursue one route or the other for the same conduct, but not both.

Under Part XV of the SFO, a person becomes a 'substantial shareholder' of a listed corporation, triggering a disclosure obligation, when they become interested in:

• a.3% of the corporation's non-voting shares
• b.10% or more of the corporation's total shares
• c.Any single share, if they are a retail investor
• d.5% or more of any class of the corporation's voting shares✓

Part XV of the SFO sets the substantial-shareholder threshold at 5% of a class of voting shares. Notification is required within 3 business days of the triggering event and again on crossing each whole percentage level up or down.

A substantial shareholder whose interest crosses a notifiable threshold under Part XV of the SFO must file notice within:

• a.3 business days✓
• b.1 month
• c.7 calendar days
• d.24 hours

Part XV requires notification within 3 business days of the relevant event, such as first reaching 5% or crossing a whole percentage level. Short positions of 1% or more are also disclosable and cannot be netted against long positions.

Every licensed corporation must appoint responsible officers (ROs) for each regulated activity it conducts. The minimum requirement is:

• a.Three ROs, all of whom must be executive directors
• b.At least two ROs per regulated activity, at least one of whom is an executive director✓
• c.One RO for the whole firm regardless of activities
• d.A single responsible officer for the firm as a whole, who need not be a director or be actively involved in supervision

A licensed corporation must have at least two responsible officers for each regulated activity, and at least one RO must be an executive director available to supervise the business at all times.

In deciding whether to grant a licence, the SFC applies the 'fit and proper' test. Which factor is relevant?

• a.The applicant's financial status, competence, reputation and reliability✓
• b.Whether the applicant banks with a specific institution
• c.The applicant's political affiliation
• d.The number of social-media followers and public endorsements the applicant has accumulated within the industry

The Fit and Proper Guidelines require the SFC to consider an applicant's financial status and solvency, qualifications and experience (competence), and reputation, character, reliability and financial integrity. Commercial or political preferences are irrelevant.

Licensed individuals must keep their knowledge current through Continuous Professional Training (CPT). Under the SFC's current regime this means:

• a.A single fixed total of forty hours completed once every five years, none of which needs to relate to regulatory compliance
• b.No formal requirement, only encouragement
• c.A one-off course taken only at the time of licensing
• d.A minimum number of CPT hours each calendar year for each regulated activity, including compliance and ethics content✓

The SFC's CPT regime requires ongoing annual CPT hours for each regulated activity, with a defined minimum devoted to regulatory-compliance and ethics topics (currently 10 hours per year, of which at least 5 relate to compliance). Verify the current figures against the SFC's guidelines before relying on them.

The Securities and Futures (Client Money) Rules require a licensed corporation to:

• a.Remit all client money to the SFC
• b.Hold client money in a segregated account with an authorised institution, separate from the firm's own money✓
• c.Lend client money to its directors
• d.Treat client money as part of the firm's own working capital, pooling it with corporate funds to meet day-to-day expenses

The Client Money Rules require client money to be held in a segregated client account with an authorised institution, kept separate from the firm's own assets so clients are protected if the firm fails. Parallel Client Securities Rules apply to client securities.

Which activity would generally require a licence for Type 1 regulated activity (dealing in securities)?

• a.A company issuing and selling only its own shares to raise capital
• b.A newspaper that publishes general share-price tables and routine market commentary for its ordinary readership
• c.A person giving investment views to family members, not as a business
• d.A firm that, for a commission, receives and transmits clients' orders to buy listed shares✓

Receiving and transmitting client orders in listed securities for a commission is dealing in securities (Type 1) and requires a licence. An issuer selling only its own securities, incidental media reporting and non-business private views fall outside the licensing net.

General Principle 1 of the SFC Code of Conduct requires a licensed person, in conducting business, to act:

• a.So as to maximise commission income
• b.In the firm's own commercial interest first, provided the client is not deliberately deceived during the process
• c.Honestly, fairly, and in the best interests of clients and the integrity of the market✓
• d.Only within the letter of the law, ignoring fairness

General Principle 1 (Honesty and fairness) requires licensed persons to act honestly, fairly and in the best interests of their clients and the integrity of the market. It is the foundational conduct principle of the Code of Conduct.

Before providing services, the Code of Conduct requires an intermediary to take reasonable steps to establish the client's identity, financial situation, investment experience and objectives. This 'know your client' duty is found in:

• a.The tipping-off offence in the AMLO
• b.The Listing Rules
• c.Part XV of the SFO
• d.Paragraph 5.1 of the Code of Conduct (Know your client)✓

The know-your-client duty is set out in paragraph 5.1 of the Code of Conduct, supporting General Principle 4 (Information about clients). It underpins the suitability obligation in paragraph 5.2.

A licensed representative recommends a complex derivative product to a retail client. The Code of Conduct's suitability obligation (para 5.2) requires that the recommendation be:

• a.Treated as suitable only where the client signs a waiver giving up all rights and protections under the Code of Conduct
• b.Approved by HKEX in advance
• c.Reasonably suitable for the client given their financial situation, investment experience and objectives✓
• d.The product carrying the highest commission

Paragraph 5.2 requires that when making a recommendation or solicitation, the intermediary ensures its suitability for the client in all the circumstances. The suitability obligation is also incorporated into the client agreement through the mandatory Suitability Clause.

An intermediary that trades as principal against a client's order must, under General Principle 6 of the Code of Conduct:

• a.Conceal its principal position from the client so as not to discourage the client from proceeding with the transaction
• b.Manage the conflict fairly, disclose its capacity, and give priority to the client's interests✓
• c.Always refuse the trade
• d.Charge the client a penalty

General Principle 6 (Conflicts of interest) requires a licensed person to avoid conflicts where possible and, where they arise, to ensure clients are fairly treated, including disclosing whether it acts as principal and giving client orders priority.

The Code of Conduct requires an intermediary to enter into a written client agreement. That agreement must:

• a.Be filed with, and individually approved by, the SFC before the intermediary executes any trade for the client
• b.Waive the firm's duty of suitability
• c.Be in a form the client can understand and must not contain terms inconsistent with the Code✓
• d.Be signed only by the responsible officer

A client agreement must be clear, fair and not misleading, and cannot contain provisions inconsistent with the Code. Clauses that purport to override the suitability obligation are unenforceable.

Under the AMLO and the SFC's AML/CFT Guideline, a licensed corporation opening an account for a new client must first:

• a.Obtain the SFC's written consent
• b.Wait 90 days before any transaction
• c.Report the prospective client to the police as a criminal suspect before opening any account or accepting funds
• d.Carry out customer due diligence to identify and verify the client and any beneficial owner✓

The Anti-Money Laundering and Counter-Terrorist Financing Ordinance requires customer due diligence (CDD): identifying and verifying the customer and beneficial owners and understanding the purpose of the relationship, on a risk-based approach, with enhanced due diligence for higher-risk clients such as politically exposed persons.

A licensed representative forms a suspicion that a client's transaction involves proceeds of crime. The representative must:

• a.Reverse the transaction without keeping a record
• b.File a suspicious transaction report with the Joint Financial Intelligence Unit (JFIU)✓
• c.Immediately warn the client of the concern and ask them to explain the source of the funds before doing anything else
• d.Report only at the year-end audit

Suspicious transactions must be reported to the Joint Financial Intelligence Unit (JFIU). Warning or 'tipping off' the client that a report has been or may be made is a criminal offence under the AMLO and OSCO.

Handling of clients' personal data by an intermediary is governed principally by:

• a.The Stamp Duty Ordinance
• b.The Listing Rules of the Stock Exchange, which set out how the personal data of investors must be collected and stored
• c.The Companies Ordinance
• d.The Personal Data (Privacy) Ordinance and its data protection principles✓

The Personal Data (Privacy) Ordinance (PDPO) and its six Data Protection Principles govern the collection, use, security and retention of clients' personal data, and are referenced in the business-operations topic of the Paper 1 syllabus.

Under the Management, Supervision and Internal Control Guidelines and General Principle 9, ultimate responsibility for a firm's proper controls and compliance rests with:

• a.The firm's senior management✓
• b.The external auditor
• c.The most junior compliance clerk
• d.The SFC's enforcement division

General Principle 9 (Responsibility of senior management) and the Internal Control Guidelines place ultimate responsibility for maintaining appropriate standards of conduct, controls and compliance on the firm's senior management.

Securities traded on the Stock Exchange of Hong Kong are normally settled through CCASS on a:

• a.A rolling ten-business-day (T+10) basis, with paper certificates delivered physically between the brokers involved
• b.Same-day (T+0) basis
• c.T+2 basis (two business days after the trade)✓
• d.Monthly netting basis

Exchange trades in HK-listed securities settle through the Central Clearing and Settlement System (CCASS), operated by HKSCC, on a T+2 basis, with money settlement following the same cycle.

A general offer to acquire control of a Hong Kong listed company is regulated principally by:

• a.The Basic Law
• b.The Stamp Duty Ordinance
• c.The Companies Registry's internal administrative rules, which set the terms on which control of a listed company may change
• d.The Codes on Takeovers and Mergers and Share Buy-backs administered by the SFC✓

Takeovers, mergers and share buy-backs of public companies are governed by the SFC-administered Codes on Takeovers and Mergers and Share Buy-backs. Though non-statutory, they are enforced through the SFC's powers, and a mandatory general offer is triggered at 30% of voting rights.

Insider dealing under the SFO occurs when a person connected with a listed corporation deals in its securities while in possession of:

• a.Relevant, price-sensitive information that is not generally known to the market✓
• b.Only information published in the annual report
• c.A rumour circulating on social media
• d.Any information about the company at all, whether or not it is already public and whether or not it affects the price

Insider dealing turns on a 'connected person' dealing while in possession of 'relevant information': specific, price-sensitive information not generally known that, if known, would likely materially affect the price. Publicly available information cannot found the offence.

Entering matched buy and sell orders that involve no genuine change in beneficial ownership, in order to create a misleading appearance of active trading, is:

• a.Lawful if disclosed to the broker
• b.Only a breach of the Listing Rules
• c.A permitted market-making technique
• d.False trading, a form of market misconduct under the SFO✓

Wash sales and matched orders that create a false or misleading appearance of active trading constitute false trading, which is prohibited under both Part XIII (civil) and Part XIV (criminal) of the SFO.

When the Market Misconduct Tribunal (MMT) finds market misconduct under Part XIII of the SFO, it may:

• a.Cancel the company's listing automatically
• b.Order disgorgement, disqualification, a cold-shoulder order and a cease-and-desist order✓
• c.Impose a term of imprisonment on the individuals found to have engaged in the market misconduct in question
• d.Levy criminal fines

The MMT is a civil tribunal chaired by a judge. It can order disgorgement, disqualification (director bans), cold-shoulder and cease-and-desist orders, but it cannot impose imprisonment or criminal fines, which require criminal prosecution under Part XIV.

Which Part of the Securities and Futures Ordinance (SFO) establishes the Securities and Futures Commission and sets out its constitution?

• a.Part XV
• b.Part I
• c.Part XIII
• d.Part II✓

Part II of the SFO (beginning at s.3) establishes the SFC as an independent statutory body and provides for its constitution, board and staffing. Part I contains preliminary provisions and definitions, Part XIII deals with the Market Misconduct Tribunal, and Part XV with disclosure of interests.

Under Schedule 5 to the SFO, Type 2 regulated activity is:

• a.Dealing in securities
• b.Dealing in futures contracts✓
• c.Advising on futures contracts
• d.Leveraged foreign exchange trading

Schedule 5 lists Type 2 as dealing in futures contracts. Type 1 is dealing in securities, Type 3 is leveraged foreign exchange trading, and Type 5 is advising on futures contracts.

A firm that, as a business, enters into leveraged spot foreign exchange contracts with clients is carrying on which regulated activity under Schedule 5 to the SFO?

• a.Type 1 (dealing in securities), on the footing that all leveraged currency positions are treated as ordinary securities dealing
• b.Type 9 (asset management)
• c.Type 8 (securities margin financing)
• d.Type 3 (leveraged foreign exchange trading)✓

Leveraged foreign exchange trading is Type 3 regulated activity under Schedule 5. Note that authorised institutions (banks) are excluded from Type 3, which is why leveraged FX for retail clients is dominated by licensed corporations and banks under separate arrangements.

A person who, for a fee and as a business, gives advice on the merits of buying or selling exchange-traded futures is carrying on:

• a.Type 4 (advising on securities)
• b.Type 6 (advising on corporate finance)
• c.Type 2 (dealing in futures contracts)
• d.Type 5 (advising on futures contracts)✓

Giving advice on the merits of dealing in futures contracts is Type 5 (advising on futures contracts) under Schedule 5. Type 4 covers advising on securities and Type 2 covers dealing (executing) in futures rather than advising.

Operating an electronic platform that brings together buyers and sellers to match orders in securities or futures otherwise than through a recognized exchange is which regulated activity?

• a.Type 6 (advising on corporate finance)
• b.Type 7 (providing automated trading services)✓
• c.Type 1 (dealing in securities), because any electronic order-matching facility is regarded as a form of ordinary securities dealing
• d.Type 4 (advising on securities)

Providing automated trading services (ATS) is Type 7 under Schedule 5. It covers electronic facilities that match, or provide access to markets for, securities or futures transactions outside a recognized exchange or clearing house.

A company that provides financial accommodation to clients to facilitate the purchase of listed securities and to hold those securities as collateral is carrying on:

• a.Type 10 (providing credit rating services)
• b.Type 1 (dealing in securities)
• c.Type 8 (securities margin financing)✓
• d.Type 9 (asset management)

Securities margin financing is Type 8 regulated activity under Schedule 5. Where a Type 1 dealer provides margin financing to its own dealing clients that activity is treated as ancillary to its dealing and does not require a separate Type 8 licence.

Preparing and issuing credit ratings for use by the public or by subscribers, as a business, is which regulated activity under Schedule 5?

• a.Type 7 (providing automated trading services)
• b.Type 10 (providing credit rating services)✓
• c.Type 4 (advising on securities)
• d.Type 6 (advising on corporate finance)

Providing credit rating services is Type 10 regulated activity under Schedule 5, added to bring credit rating agencies under SFC oversight. It is distinct from advising on the merits of specific investments (Types 4, 5 and 6).

Which of the following is NOT a regulated activity under Schedule 5 to the SFO?

• a.Taking deposits from the public✓
• b.Dealing in securities
• c.Advising on corporate finance
• d.Asset management, which under Schedule 5 is defined to include the taking of deposits from members of the investing public

Taking deposits is banking business regulated by the Hong Kong Monetary Authority under the Banking Ordinance, not a Schedule 5 regulated activity. Asset management (Type 9), advising on corporate finance (Type 6) and dealing in securities (Type 1) are all regulated activities under the SFO.

Under the definition of 'securities' in Schedule 1 to the SFO, which of the following is generally EXCLUDED?

• a.Shares of a listed company, which are specifically carved out of the Schedule 1 definition of securities as an exclusion
• b.Shares or debentures of a private company (as defined)✓
• c.Units in an authorised collective investment scheme
• d.Debentures of a public company

The Schedule 1 definition of 'securities' expressly excludes shares or debentures of a company that is a private company within the meaning of the Companies Ordinance. Listed shares, public-company debentures and CIS interests fall within the definition.

Under s.103 of the SFO, issuing to the public an advertisement or document inviting them to acquire securities is an offence UNLESS the material is:

• a.Printed in both English and Chinese and lodged in advance with the Stock Exchange for its prior clearance and approval
• b.Filed with the Companies Registry
• c.Approved by the issuer's auditors
• d.Authorised by the SFC or falls within a statutory exemption✓

Section 103 makes it an offence to issue, or possess for issue, advertisements or invitations to the public to acquire securities or to enter into investment agreements unless the SFC has authorised the material or an exemption applies (for example, offers only to professional investors).

An investment offer that is directed only at 'professional investors' can benefit from an exemption from the offer-authorisation requirement in s.103 of the SFO. Under the Securities and Futures (Professional Investor) Rules, an individual generally qualifies as a professional investor if they have a portfolio of at least:

• a.HK$1 million
• b.HK$8 million✓
• c.HK$40 million
• d.HK$100 million

The Professional Investor Rules set the threshold for an individual at a portfolio of not less than HK$8 million (or its equivalent). Reaching the monetary threshold is only part of the test; intermediaries must still assess and document a corporate professional investor's knowledge and experience before disapplying certain protections.

Offers to the public of interests in a collective investment scheme (CIS), such as a retail fund, generally require:

• a.Authorisation of the scheme and its offering documents by the SFC✓
• b.Only registration with the Companies Registry, since collective investment schemes are treated as ordinary companies limited by shares
• c.Approval by the Hong Kong Monetary Authority
• d.A resolution of the Legislative Council

Under Part IV of the SFO, a collective investment scheme and its offering documents must be authorised by the SFC before interests are offered to the public in Hong Kong. Offers made only to professional investors may be exempt from this requirement.

Under s.115 of the SFO, a person based outside Hong Kong who 'actively markets' regulated services to the Hong Kong public:

• a.Only needs to notify the SFC of their activities
• b.Must instead register with the overseas regulator only
• c.Is always outside the reach of the Securities and Futures Ordinance because the person and their servers happen to be located physically overseas at all times
• d.Is regarded as carrying on a business in a regulated activity in Hong Kong and may require a licence✓

Section 115 deems a person who actively markets regulated activities to the public of Hong Kong to be carrying on that business in Hong Kong, even if the person is located overseas. This 'active marketing' provision prevents firms from avoiding the licensing net by operating from outside Hong Kong.

The maximum penalty for carrying on a business in a regulated activity without a licence, contrary to s.114 of the SFO, on conviction on indictment is:

• a.Imprisonment for life
• b.A fine of HK$5 million and imprisonment for 7 years✓
• c.A public reprimand only
• d.A fine of HK$100,000 only, with no possibility of imprisonment for a first-time contravention of the licensing requirement

Breach of the s.114 licensing requirement is a serious criminal offence: on conviction on indictment the maximum is a fine of HK$5 million and imprisonment for 7 years, plus a further daily fine for a continuing offence. This underlines that unlicensed regulated activity is prosecuted, not merely dealt with administratively.

Under Part VIII of the SFO, when investigating a suspected contravention the SFC may:

• a.Only ask questions on a voluntary basis
• b.Require a person to produce records and documents and to answer questions and give an explanation✓
• c.Do nothing until a court first grants permission in every case
• d.Impose a prison sentence directly on the person under investigation, without any need to involve a court, a judge or a prosecutor at all

Part VIII gives the SFC power to appoint investigators who can compel the production of records and documents and require persons to attend, answer questions and give explanations. It is an offence to fail to comply without reasonable excuse or to provide false or misleading information.

Under its disciplinary powers in Part IX of the SFO, which sanction can the SFC impose on a regulated person for misconduct?

• a.Revocation or suspension of a licence, a public reprimand, a prohibition order or a fine✓
• b.Cancellation of the company's stock exchange listing
• c.A term of imprisonment of up to two years, which the Commission is empowered to order directly against the licensed person concerned
• d.An order winding up the firm made by the SFC itself

Part IX (notably ss.194 and 196) lets the SFC revoke or suspend a licence or registration, publicly or privately reprimand, prohibit a person from re-entering the industry, and impose a fine. Imprisonment and winding up require a court; delisting is a matter for the Stock Exchange.

Where the SFC imposes a disciplinary fine on a regulated person under the SFO, the maximum fine is the greater of:

• a.HK$100,000 or the firm's paid-up capital
• b.HK$50 million in every case
• c.HK$10 million or three times the profit gained or loss avoided as a result of the misconduct✓
• d.HK$1 million or the person's annual salary, whichever of those two particular figures happens to be the greater in the individual case

Under the SFO the SFC may impose a disciplinary pecuniary penalty of up to the greater of HK$10 million or three times the amount of the profit gained or loss avoided by the misconduct. The SFC publishes Disciplinary Fining Guidelines explaining how it sets the figure.

Under s.213 of the SFO, following a contravention of the Ordinance the SFC may apply to the Court of First Instance for:

• a.Injunctions and remedial orders, such as orders restoring parties to their pre-transaction position✓
• b.An order that the defendant be imprisoned without any form of trial, imposed at the sole discretion of the Securities and Futures Commission
• c.A licence for the SFC to operate the defendant's business
• d.The immediate delisting of any company involved

Section 213 allows the SFC to seek civil orders from the court, including injunctions to restrain contraventions and remedial orders (for example, requiring a person to take steps to restore counterparties to the position they were in before a transaction). It is a key investor-restitution tool.

Under s.214 of the SFO, where the affairs of a listed corporation have been conducted in a manner involving misconduct or unfair prejudice to members, the court may make a disqualification order against a responsible person for a period of up to:

• a.5 years at the very most
• b.3 years
• c.1 year
• d.15 years✓

Section 214 empowers the court, on the SFC's application, to disqualify a person from being a director or otherwise being involved in the management of any corporation for up to 15 years, among other orders, where the affairs of a listed corporation involve defalcation, fraud, misfeasance or unfairly prejudicial conduct.

Part XIVA of the SFO imposes a statutory obligation on a listed corporation, once inside information comes to its knowledge, to disclose that information to the public:

• a.As soon as reasonably practicable✓
• b.Only if the Stock Exchange first requests it
• c.Within 30 days
• d.Only at the next annual general meeting

Part XIVA requires a listed corporation to disclose inside information to the public as soon as reasonably practicable after it comes to the corporation's knowledge, unless a safe harbour applies. Breaches are dealt with by the Market Misconduct Tribunal, which may fine the corporation up to HK$8 million.