HKSI Licensing Examination Paper 1 (Regulation) — All Questions

A member of the public can check whether a firm or individual is licensed by the SFC, and for which regulated activities, by consulting:

• a.The Companies Registry's charges index
• b.A confidential internal list that is made available only to banks and other authorised institutions on a written request being made to the Commission
• c.The Stock Exchange trading floor
• d.The SFC's public register of licensed persons and registered institutions✓

The SFC maintains a public register of licensed persons and registered institutions, showing the regulated activities they are licensed/registered for and any conditions or public disciplinary actions. Investors are encouraged to verify status before dealing with an intermediary.

A licensed person ceases to meet the fit-and-proper standard part-way through their licence (for example, following a serious conviction). Under the SFO the SFC may:

• a.Only issue a private note
• b.Suspend or revoke the licence, or attach conditions, because being fit and proper is a continuing requirement✓
• c.Do nothing until the licence expires at the end of its current term, and then simply decline to renew the licence at that later point in time
• d.Refer the matter to the Companies Registry

Being fit and proper is a continuing obligation, not a one-off test at entry. If a licensed person ceases to be fit and proper, the SFC may exercise its disciplinary and licensing powers to suspend, revoke or impose conditions on the licence to protect the investing public.

A person applying to be a licensed representative may, in appropriate cases, apply for a provisional licence in order to:

• a.Trade for their own account without supervision
• b.Avoid ever having to meet the competence, fit-and-proper and continuing-professional-training requirements that would otherwise apply on full licensing
• c.Bypass the fit-and-proper assessment permanently
• d.Begin carrying on the regulated activity while their substantive licence application is being processed✓

A provisional licence lets a representative applicant start work while the full application is assessed, subject to conditions and the SFC's power to withdraw it. It does not lower the fit-and-proper or competence standards, which must still be met for the substantive licence.

A licensed corporation that acts as a sponsor for an initial public offering is carrying on which type of regulated activity, for which the SFC imposes additional eligibility and 'principal' requirements?

• a.Type 9 (asset management)
• b.Type 6 (advising on corporate finance)✓
• c.Type 8 (securities margin financing)
• d.Type 1 (dealing in securities), which is the regulated activity said to cover all initial-public-offering sponsor work carried on by the firm

Sponsor work on IPOs falls within Type 6 (advising on corporate finance). Firms must meet additional sponsor eligibility criteria and appoint sponsor principals, reflecting the gatekeeper role sponsors play in the quality of listing applications and prospectus disclosure.

A licensed corporation changes its business address and the responsibilities of one of its responsible officers. Under the licensing/information rules it must:

• a.Take no action, since such changes are private
• b.Notify the SFC of the changes within the required time✓
• c.Wait until the next annual audit to report any of the changes to the Commission or to any other regulator that may be involved in supervising it
• d.Notify only its clients

The Securities and Futures (Licensing and Registration) (Information) Rules require licensed corporations and individuals to notify the SFC of specified changes in their circumstances (such as address, business, or officers) within the prescribed periods, keeping the register accurate and supervision effective.

A licensed representative wishes to be accredited to two different licensed corporations at the same time. This is:

• a.Always prohibited without any exception, because a representative may only ever be accredited to a single principal at any one time under the rules
• b.A matter solely for the two firms to agree between themselves
• c.Permitted only with the SFC's approval, with conflicts of interest properly managed✓
• d.Automatically permitted with no approval needed

A representative is normally accredited to a single principal, but may be accredited to more than one licensed corporation with the SFC's approval, provided conflicts of interest and supervisory responsibility are appropriately addressed. Each principal remains responsible for supervising the representative.

Which of the following persons would generally NOT require an SFC licence?

• a.A firm receiving and transmitting clients' securities orders for a commission, which is said to be treated as exempt agency work outside the licensing net
• b.A company managing client portfolios for a fee
• c.A company issuing and selling only its own shares to raise capital for its business✓
• d.A firm advising the public on the merits of specific listed shares as a business

An issuer selling only its own securities to raise capital for itself is generally not carrying on a business in a regulated activity and does not need a licence. Order routing (Type 1), portfolio management (Type 9) and advising on securities as a business (Type 4) do require licensing.

When determining the level of a disciplinary fine on a licensed person, the SFC has published:

• a.A rule that fines are decided by the Stock Exchange
• b.A fixed statutory tariff that requires exactly the same fine to be imposed for every breach of the same provision, regardless of the circumstances of the case
• c.Disciplinary Fining Guidelines setting out the factors it considers✓
• d.No guidance at all

The SFC's Disciplinary Fining Guidelines explain the factors it weighs (such as the nature, seriousness and impact of the misconduct, benefit gained, and the person's disciplinary record and co-operation) when setting a fine within the statutory maximum. This promotes consistency and transparency.

The requirement that a licensed corporation have at least two responsible officers for each regulated activity exists mainly to:

• a.Ensure that competent, accountable supervision of the regulated activity is available at all times✓
• b.Provide extra shareholders
• c.Satisfy the Stock Exchange listing rules
• d.Increase the licensed firm's annual tax bill, so that it is required to contribute rather more to the overall funding of the regulatory system

Requiring at least two ROs (at least one an executive director) for each regulated activity ensures there is always a fit-and-proper, accountable person supervising the business, avoiding gaps in supervision if one RO is absent. It reflects the SFC's emphasis on senior-management responsibility.

The eight Core Functions under the MIC regime include, among others:

• a.Overall management oversight, key business line, risk management, and finance and accounting✓
• b.Only compliance and nothing else
• c.Advertising, investor relations and travel
• d.Marketing, catering, building security and cleaning, which the regime is said to treat as the core operational functions of the licensed firm

The MIC Core Functions comprise overall management oversight, key business line, operational control and review, risk management, finance and accounting, information technology, compliance, and anti-money-laundering/counter-terrorist-financing. Each must have an identified Manager-In-Charge accountable to senior management.

A licensed corporation that holds client money in Hong Kong must, under the Client Money Rules:

• a.Transfer it to the SFC each week
• b.Lend it to its directors on request
• c.Keep it in a segregated client account with an authorised institution, separate from the firm's own money✓
• d.Mix it with the firm's own operating funds for the sake of efficiency, provided only that the combined total is reconciled at the end of each month

The Securities and Futures (Client Money) Rules require client money to be held in a segregated client bank account with an authorised institution, kept separate from the firm's own money, so that clients' funds are protected on the firm's insolvency. Payments out are tightly restricted to permitted purposes.

The competence requirements distinguish between a licensed representative and a responsible officer principally because a responsible officer:

• a.Carries supervisory and management responsibility and so must meet additional experience and management-competence standards✓
• b.Handles rather less client contact and therefore faces a reduced set of the competence and continuing-training requirements that apply to representatives
• c.Is not required to be fit and proper
• d.Never needs any qualifications

An RO must satisfy higher competence standards, including relevant management experience, because they supervise the regulated activity and bear accountability for the firm's conduct. A representative operates under supervision and faces the baseline competence requirements.

If a licensed corporation wants to add a new regulated activity to its existing licence, it must:

• a.Register the change with the Companies Registry only
• b.Obtain approval from its clients
• c.Simply start conducting the new regulated activity straight away, provided only that it notifies the Commission within seven business days afterwards
• d.Apply to the SFC to vary its licence and demonstrate it meets the requirements for the additional activity✓

Because a licence is specific to the regulated activities stated on it, adding a new activity requires an application to vary the licence, with the firm meeting the fit-and-proper, competence, responsible-officer and financial-resources requirements for that activity before conducting it.

The subsidiary legislation made under the SFO that governs how licensed corporations must safeguard, use and account for client money and client securities is collectively important because it:

• a.Guarantee that clients cannot lose money on any leveraged position that is taken through the firm's securities margin financing facilities
• b.Protects client assets by requiring segregation and restricting their use✓
• c.Applies only to overseas clients
• d.Sets the commission rates firms may charge

The Client Money and Client Securities Rules require segregation of client assets from firm assets and restrict how those assets may be used, so that clients are protected if the firm fails or misbehaves. Asset protection, not pricing or profit, is their purpose.

A licensed corporation must maintain adequate systems of control and sufficient resources. Ultimate responsibility for ensuring these are in place rests with:

• a.The external auditor alone
• b.The SFC
• c.The firm's senior management✓
• d.The most junior back-office clerk

Under General Principle 9 of the Code of Conduct and the Management, Supervision and Internal Control Guidelines, ultimate responsibility for maintaining appropriate standards of conduct, adequate controls, competent staffing and sufficient resources lies with the firm's senior management, reinforced by the MIC regime.

A licence granted by the SFC may be made subject to conditions. This means the SFC can, for example:

• a.Appoint the firm's directors
• b.Restrict the licence, such as prohibiting the firm from holding client assets, to address specific risks✓
• c.Guarantee the firm's future profitability by restricting the number of competitors that are permitted to hold the very same type of licence in the market
• d.Set the firm's share price

The SFO allows the SFC to impose conditions on a licence (for instance, that the firm not hold client assets, or that it serve only professional investors), tailoring the authorisation to the firm's business model and risk profile. Breaching a licence condition is a disciplinary matter.

Which statement about responsible officers is correct?

• a.A responsible officer need not be a licensed representative at all, and may instead be any employee who is nominated for the role by the firm's board
• b.At least one RO for each regulated activity must be an executive director available to supervise the business✓
• c.A licensed corporation needs only one RO for the whole firm regardless of activities
• d.An RO cannot be an executive director

Each regulated activity requires at least two ROs, and at least one of them must be an executive director of the licensed corporation, ensuring board-level accountability for supervision. An RO is by definition also a licensed representative who has been additionally approved.

A journalist writes routine market commentary and reports share prices for a newspaper's general readership. In relation to Type 4 (advising on securities), this activity is:

• a.A criminal offence
• b.Always a licensable activity that requires a Type 4 licence, because any published comment on share prices is said to amount to advising the public
• c.Only permitted for professional investors
• d.Generally outside the licensing requirement where it is incidental journalism not carried on as an investment-advisory business✓

Incidental reporting and general commentary in the media, not carried on as a business of advising on specific investments for the reader, generally fall outside Type 4 licensing. The position changes if the person moves to giving tailored advice or recommendations as a business.

A person giving occasional investment views informally to family members, not as a business, in relation to the licensing requirement is:

• a.Generally not required to be licensed, because they are not carrying on a business in a regulated activity✓
• b.Required to obtain a Type 4 licence immediately, because any discussion of specific investments at all is said to count as carrying on a business of advising
• c.Required to register with the HKMA
• d.Committing market misconduct

The licensing requirement bites on carrying on a business in a regulated activity. Casual, non-commercial views shared privately with family are not carrying on such a business and generally require no licence, unlike advising the public on the merits of investments for reward.

The 'Overall Management Oversight' Core Function under the MIC regime refers to the individual(s) responsible for:

• a.Only the cleaning and the building-security arrangements at the firm's registered office and at each of its other business premises in Hong Kong
• b.Auditing the firm from outside
• c.Steering and providing management oversight of the licensed corporation's business as a whole✓
• d.Writing the firm's marketing brochures

The Overall Management Oversight function covers senior individuals who steer and oversee the whole business of the licensed corporation. The SFC expects the MIC of this function to be a responsible officer, given their central management accountability.

A licensed corporation that provides securities margin financing to its clients must, in addition to conduct requirements, comply with rules that:

• a.Allow unlimited repledging of client collateral
• b.Limit the extent to which it may repledge client securities collateral and require proper risk controls✓
• c.Require no capital
• d.Guarantee that clients cannot lose money on their margin-financed positions, whatever happens to the market price of the securities that are involved

Margin financiers are subject to limits on repledging client securities collateral (with client standing authority) and to financial-resources and risk-management requirements, protecting clients' assets and containing the risks of leverage. They are not permitted to repledge without limit or authority.

Which of the following best describes the relationship between the SFC and the HKMA for a bank that conducts SFC-regulated activities?

• a.The bank needs no independent oversight of its securities business at all, because it is already supervised as a deposit-taking institution by the authority
• b.The Stock Exchange is the front-line regulator of the bank's securities business
• c.The SFC licenses the bank's individual staff as representatives
• d.The HKMA is the front-line regulator of the registered institution, while SFC conduct standards still apply to its regulated activities✓

A bank conducting regulated activities is a registered institution supervised on the front line by the HKMA under a memorandum of understanding with the SFC. SFC conduct standards, including the Code of Conduct, nonetheless apply to the bank's securities and futures business.

An applicant for a licence has the necessary qualifications and experience but has recently been declared bankrupt. In assessing fitness and propriety the SFC will:

• a.Ignore the applicant's financial status entirely, on the footing that a past bankruptcy has no bearing at all on a person's fitness to be licensed
• b.Refer the matter to the Stock Exchange to decide
• c.Automatically grant the licence because the person is experienced
• d.Take the financial status and any bankruptcy into account as relevant to reliability and financial integrity✓

Financial status and integrity are express fit-and-proper considerations under s.129. A recent bankruptcy is relevant and the SFC will weigh it, though it does not automatically bar a licence; the SFC assesses the whole picture, and conditions may be imposed.

The requirement for licensed individuals to undertake CPT each year is enforced through:

• a.The Stock Exchange listing rules
• b.The firm's record-keeping and the SFC's supervision and fit-and-proper assessment✓
• c.A single one-off examination taken at the point of retirement, in order to confirm that the person's knowledge had remained current across their whole career
• d.The Companies Registry

Firms must maintain CPT records for their licensed staff, and failure to meet CPT requirements reflects on competence and thus on fitness and propriety, which the SFC supervises. CPT is an ongoing obligation, not a single event.

A licensed corporation intends to cease carrying on a regulated activity. In relation to its licence it should:

• a.Sell the licence to another firm
• b.Apply to the SFC to have the relevant regulated activity revoked or to surrender the licence, and deal properly with client assets✓
• c.Transfer the licence to its directors
• d.Simply stop carrying on the activity and do nothing further, on the basis that a dormant licence is said to lapse automatically over the course of time

A firm ceasing a regulated activity should apply to revoke that part of the licence or surrender the licence, and must handle outstanding client positions and assets properly. A licence cannot be sold or transferred, and continuing obligations apply until the position is regularised.

The SFC is financially independent of the Government. It is funded principally by:

• a.Profits from trading shares on its own account
• b.Fees and charges paid by market participants and levies on securities and futures transactions✓
• c.General taxation only, appropriated to the Commission each year by the Government through the ordinary annual public budget process of the territory
• d.Donations from listed companies

The SFC is funded by transaction levies and by fees and charges paid by the industry it regulates, which supports its operational independence from the Government. It does not trade for profit, and its independence is a key feature of Hong Kong's regulatory design.

The members of the SFC board (including its Chairman and Chief Executive Officer) are appointed by:

• a.The Chief Executive of the Hong Kong Special Administrative Region✓
• b.The board of the Stock Exchange of Hong Kong, acting together with the Listing Committee of that same exchange in each instance
• c.A vote of listed companies
• d.The Hong Kong Monetary Authority

The SFC board comprises executive and non-executive directors appointed by the Chief Executive of the HKSAR. The mix of executive and independent non-executive members supports balanced governance and accountability of the regulator.

Which of the following is one of the SFC's operating divisions?

• a.The Listing Committee
• b.The Enforcement Division✓
• c.The Market Misconduct Tribunal
• d.The Deposit Protection Board

The SFC is organised into operating divisions such as Corporate Finance, Intermediaries, Investment Products, Enforcement, and Supervision of Markets. The Listing Committee belongs to the Stock Exchange, the MMT is an independent tribunal, and the Deposit Protection Board is separate.

Hong Kong Exchanges and Clearing Limited (HKEX) operates the securities and derivatives markets through its subsidiaries. Which of the following is a clearing house within the HKEX group?

• a.The Hong Kong Monetary Authority
• b.The Companies Registry
• c.Hong Kong Securities Clearing Company Limited (HKSCC)✓
• d.The Securities and Futures Commission, which both regulates the market and directly operates the central clearing and settlement system

HKSCC, which operates the Central Clearing and Settlement System (CCASS) for securities, is a clearing house within the HKEX group, alongside SEOCH (stock options) and HKCC (futures). The SFC and HKMA are regulators, not clearing houses.

Which body regulates insurers and insurance intermediaries in Hong Kong?

• a.The Hong Kong Monetary Authority
• b.The Mandatory Provident Fund Schemes Authority
• c.The Securities and Futures Commission
• d.The Insurance Authority (IA)✓

The Insurance Authority is the independent statutory regulator of insurance companies and insurance intermediaries in Hong Kong, having taken over from the former Office of the Commissioner of Insurance. It sits alongside the SFC, HKMA and MPFA in Hong Kong's regulatory architecture.

The Mandatory Provident Fund Schemes Authority (MPFA) is responsible for:

• a.Setting bank interest rates
• b.Prosecuting insider dealing
• c.Regulating the listing of shares and the conduct of listed issuers under the Listing Rules that are administered by the exchange
• d.Regulating and supervising MPF schemes and their trustees✓

The MPFA regulates and supervises the Mandatory Provident Fund system, including approving and overseeing MPF trustees and schemes. Listing, monetary policy and market-misconduct enforcement fall to the SEHK/SFC, HKMA and SFC/courts respectively.

The front-line day-to-day regulation of companies applying to list, and of listed issuers' compliance with the Listing Rules, is administered by:

• a.The Mandatory Provident Fund Schemes Authority
• b.The Listing Division of the Stock Exchange of Hong Kong, under the Listing Committee✓
• c.The Insurance Authority
• d.The Hong Kong Monetary Authority, acting as the front-line regulator of every company that seeks to obtain a listing on the exchange

The Stock Exchange's Listing Division administers the Listing Rules on the front line, with listing decisions made by the Listing Committee. The SFC has a statutory oversight role, including dual filing, and can object to prospectuses, but the Exchange runs day-to-day listing regulation.

Under the 'dual filing' regime, when a company applies to list, disclosure documents filed with the Stock Exchange are also filed with the SFC. This allows the SFC to:

• a.Guarantee that the shares will rise in price once trading in them begins on the exchange following the completion of the whole listing process
• b.Take over running the company
• c.Exercise its statutory powers, including to object to a listing or prospectus where disclosure is materially false, incomplete or misleading✓
• d.Set the offer price

Dual filing under the Securities and Futures (Stock Market Listing) Rules gives the SFC a statutory backstop over listing disclosure: it can object to a listing application or prospectus (and take enforcement action) where the information is materially deficient, while the Exchange handles day-to-day vetting.

Takeovers, mergers and share buy-backs of public companies in Hong Kong are regulated principally through:

• a.The MPF Schemes Ordinance
• b.The Codes on Takeovers and Mergers and Share Buy-backs, administered by the SFC's Corporate Finance Division and overseen by the Takeovers and Mergers Panel✓
• c.The Banking Ordinance, which is said to set out all of the detailed rules that govern the takeovers, mergers and share buy-backs of public companies in Hong Kong
• d.The Personal Data (Privacy) Ordinance

The non-statutory Takeovers and Share Buy-backs Codes are administered by the SFC (through the Executive) and overseen by the Takeovers and Mergers Panel. Though not law, they are enforced through the SFC's powers, and a mandatory general offer is triggered at 30% of voting rights.

The body established to promote investor and financial education among the Hong Kong public is the:

• a.Investor and Financial Education Council (IFEC)✓
• b.Takeovers and Mergers Panel
• c.The Market Misconduct Tribunal, which is said to run the public financial-education programmes that are provided for investors
• d.Hong Kong Deposit Protection Board

The Investor and Financial Education Council, a subsidiary of the SFC, promotes financial literacy and investor education across the community. It supports the SFC's investor-protection objective by helping the public make informed financial decisions.

The Financial Dispute Resolution Centre (FDRC) provides a means for individual clients and financial institutions to resolve monetary disputes through:

• a.Mediation and, if necessary, arbitration✓
• b.Bringing criminal prosecutions against the financial institution concerned in the ordinary Hong Kong courts
• c.Delisting the institution
• d.A public referendum

The FDRC offers an independent 'mediation first, arbitration next' scheme to resolve eligible monetary disputes between individual clients and financial institutions, providing an accessible alternative to litigation. It does not prosecute or discipline firms.

The Investor Compensation Fund is administered by:

• a.The Stock Exchange Listing Committee
• b.The Hong Kong Monetary Authority, which is said to administer the Fund on behalf of the whole of the securities industry
• c.The Investor Compensation Company Limited, a subsidiary of the SFC✓
• d.The Insurance Authority

The Investor Compensation Company Limited (ICC), a wholly owned subsidiary of the SFC, administers the Investor Compensation Fund and handles claims. The Fund compensates investors for losses from a licensed intermediary's or authorised institution's default in relation to exchange-traded products.

Hong Kong's legal system, within which securities and futures regulation operates, is based on:

• a.The common law, preserved under the Basic Law after 1997✓
• b.The civil-law codified system that was said to have been inherited directly from the Mainland of China after the year 1997
• c.Purely customary trade practice
• d.Religious law

Under Article 8 of the Basic Law, the common law, rules of equity, ordinances and customary law previously in force are maintained after 1997. Hong Kong retains a common-law system distinct from the Mainland's civil-law system, shaping how the SFO is interpreted and applied.

Hong Kong Exchanges and Clearing Limited (HKEX) also owns which overseas metals exchange?

• a.The New York Stock Exchange, together with its affiliated equity-options trading market in the United States
• b.The Tokyo Stock Exchange
• c.The London Metal Exchange (LME)✓
• d.The Frankfurt Stock Exchange

HKEX acquired the London Metal Exchange, the world's leading base-metals trading venue, giving the HKEX group an international commodities dimension in addition to its Hong Kong securities and derivatives markets. This is a distinctive feature of HKEX's group structure.

The single company that operates the Central Clearing and Settlement System (CCASS) for Hong Kong-listed securities is:

• a.The Companies Registry
• b.Hong Kong Securities Clearing Company Limited (HKSCC)✓
• c.The Insurance Authority
• d.The Securities and Futures Commission, acting in the role of the statutory operator of the central settlement system

HKSCC, part of the HKEX group, operates CCASS, through which exchange trades in Hong Kong-listed securities are cleared and settled, generally on a T+2 basis. Its role is central to the safe and efficient settlement of the securities market.

Which statement best describes Hong Kong's overall approach to regulating its securities and futures markets?

• a.It relies solely on the criminal courts with no regulator
• b.It combines statutory regulation by the SFC with front-line market operation and regulation by HKEX, supported by codes and guidelines✓
• c.It has no formal regulator
• d.It relies solely on self-regulation by the industry itself, with market participants setting and then enforcing all of their own standards of conduct

Hong Kong uses a blend: the SFC is the statutory regulator, HKEX operates and provides front-line regulation of the markets and listed issuers, and non-statutory codes and guidelines (Code of Conduct, Takeovers Codes) fill in conduct standards. The model balances statutory oversight with market operation.

The regulator responsible for banking stability and the front-line supervision of banks (including banks' securities business as registered institutions) is the:

• a.Hong Kong Monetary Authority (HKMA)✓
• b.Stock Exchange of Hong Kong
• c.Insurance Authority
• d.The Securities and Futures Commission, acting as the front-line prudential supervisor of all of the banks in Hong Kong

The HKMA is Hong Kong's central banking institution and regulates authorised institutions under the Banking Ordinance, including the securities business banks conduct as registered institutions. The SFC sets the applicable conduct standards, while the HKMA provides front-line supervision.

Government financial-services policy in Hong Kong is set principally by:

• a.The Investor Compensation Company
• b.The Stock Exchange
• c.The Securities and Futures Commission, which is said to set the overall government policy for the whole of the financial-services sector
• d.The Financial Services and the Treasury Bureau (FSTB), under the Financial Secretary✓

The Financial Services and the Treasury Bureau is the Government policy bureau for financial services, operating under the Financial Secretary. The SFC is the operationally independent statutory regulator that implements and enforces the law, distinct from Government policymaking.

Which company within the HKEX group operates the market for exchange-traded stock options in Hong Kong?

• a.The SEHK Options Clearing House (SEOCH)✓
• b.The Insurance Authority
• c.The Securities and Futures Commission
• d.Hong Kong Securities Clearing Company (HKSCC)

SEOCH (The SEHK Options Clearing House) clears exchange-traded stock options, while HKCC clears futures and HKSCC handles securities settlement via CCASS. Together these clearing houses within the HKEX group support Hong Kong's cash and derivatives markets.

In market terminology, the 'primary market' refers to:

• a.The market in which securities are first issued and sold by the issuer to raise capital✓
• b.The market where the SFC buys shares
• c.The trading of already-issued shares between one investor and another on the secondary market of the Stock Exchange of Hong Kong
• d.The market for foreign exchange only

The primary market is where new securities are issued and sold by the issuer (for example, in an IPO) to raise capital. The secondary market is where investors subsequently trade those securities among themselves, for example on the Stock Exchange.

The scheme that protects bank depositors in Hong Kong (as opposed to securities investors) is the:

• a.Takeovers and Mergers Panel scheme
• b.Mandatory Provident Fund
• c.The Investor Compensation Fund, said to be administered by the SFC in order to protect the deposits that are placed by savers at banks
• d.Deposit Protection Scheme, overseen by the Hong Kong Deposit Protection Board✓

The Deposit Protection Scheme, overseen by the Hong Kong Deposit Protection Board, compensates depositors if a Scheme member bank fails. It is distinct from the SFC's Investor Compensation Fund, which covers investors for defaults in relation to exchange-traded securities and futures products.

The SFC's codes and guidelines, such as the Code of Conduct and the Fit and Proper Guidelines, are:

• a.Primary legislation that is passed directly by the Legislative Council after it has been taken through the full three readings in the usual way
• b.Administered by the Stock Exchange
• c.Entirely voluntary with no regulatory consequence
• d.Non-statutory in form, but breaches reflect on a person's fitness and propriety and can lead to disciplinary action✓

The Code of Conduct and similar guidance are not themselves statute, but a failure to comply reflects adversely on a person's fitness and propriety and can ground SFC disciplinary action. They set the practical conduct standards expected of intermediaries.

An 'Exchange Participant' that trades on the Stock Exchange of Hong Kong must:

• a.Simply be any member of the public at all who wishes to buy or sell shares through the exchange for their own personal account
• b.Be approved only by the Insurance Authority
• c.Hold a trading right and be a licensed corporation (or registered institution) permitted to trade on the Exchange✓
• d.Be a listed company

To trade directly on SEHK, a firm must be an Exchange Participant, which requires holding a trading right and being appropriately SFC-licensed (or an HKMA-registered institution). This links exchange access to the licensing regime, ensuring only fit-and-proper firms trade on the market.

The SFC is a signatory to the IOSCO Multilateral Memorandum of Understanding. The main benefit of this is to:

• a.License overseas banks
• b.Facilitate cross-border co-operation and information-sharing with other securities regulators for enforcement✓
• c.Set Hong Kong's interest rates
• d.Guarantee profits to Hong Kong investors who choose to trade through firms that are members of the relevant international regulatory bodies

As an IOSCO MMoU signatory, the SFC can request and share information with counterpart regulators worldwide, supporting cross-border investigations and enforcement of securities laws. This co-operation is increasingly important as markets and misconduct become more international.

The Securities and Futures Appeals Tribunal (SFAT) and the Market Misconduct Tribunal (MMT) differ in that:

• a.They are the same body under two names
• b.The SFAT reviews specified SFC decisions (such as licensing and disciplinary decisions), while the MMT adjudicates alleged market misconduct✓
• c.The SFAT prosecutes criminal market-misconduct offences in the courts, while the MMT is instead made responsible for the setting of Hong Kong's interest rates
• d.Both are divisions of the Stock Exchange

The SFAT, under Part XI of the SFO, provides an independent review of specified SFC decisions, whereas the MMT, under Part XIII, determines whether market misconduct has occurred and imposes civil orders. Both are chaired by judges but perform different functions.