HKSI Licensing Examination Paper 8 (Securities) — All Questions

A 'special dividend' is:

• a.interest paid on a corporate bond
• b.a payment made only to the company's directors
• c.a one-off distribution outside the normal dividend pattern, often after an exceptional gain✓
• d.a regularly scheduled quarterly payment

A special dividend is a non-recurring distribution declared in addition to (or instead of) the ordinary dividend, commonly following a large asset sale or unusually strong profit. It is not part of the regular dividend cycle.

For major index futures, the VCM cooling-off is triggered by a price move beyond a band of about:

• a.5%✓
• b.40%
• c.100%
• d.0.1%

The VCM band for major index futures is tighter than for stocks, at roughly 5% from the reference price, reflecting the leverage and speed of the derivatives market. Eligible stocks use a wider band of about 10%.

The Hang Seng TECH Index (HSTECH) tracks:

• a.Hong Kong government bonds
• b.global oil and gas companies
• c.Hong Kong retail and commercial banks only, together with their principal deposit-taking subsidiaries
• d.the largest technology-themed companies listed in Hong Kong✓

The HSTECH Index represents the largest technology-related companies listed in Hong Kong, giving investors a focused benchmark for the tech sector. It complements the broad HSI and the Mainland-focused HSCEI.

The 'free float' of a listed company refers to:

• a.the company's total cash balance
• b.the number of directors on the board
• c.the proportion of shares available for public trading, excluding locked-in strategic holdings✓
• d.the company's dividend yield

Free float is the portion of a company's shares that is freely available to be traded by the public, excluding strategic or restricted stakes. Index providers use it to weight constituents by their investable value.

Indices such as the HSI adjust their constituent weights for free float in order to:

• a.favour state-owned firms
• b.increase index turnover fees
• c.reflect only the shares actually available to investors✓
• d.reduce the number of constituents to ten

Free-float adjustment ensures each constituent's index weight is based on the shares genuinely available for trading, giving a more investable and representative benchmark. Closely held, restricted shares are excluded from the weighting.

The opening price set in the Pre-opening Session is determined by:

• a.the broker submitting the largest single order
• b.an auction algorithm that maximises the number of shares that can be matched✓
• c.the previous trading day's official closing price, which is simply carried over automatically each morning
• d.a price fixed by the SFC each morning

In the Pre-opening auction, the system calculates the single price at which the greatest volume of orders can be matched, and that becomes the opening price. This concentrates opening liquidity at one fair price.

Between the morning and afternoon continuous sessions, SEHK:

• a.runs its closing auction
• b.trades only government bonds
• c.has an extended midday (lunch) break with no continuous trading✓
• d.distributes dividends to shareholders

There is a midday break between the morning session (ending at noon) and the afternoon session (starting at 1:00 p.m.), during which continuous auction trading does not take place. The closing auction occurs after the afternoon session, not at midday.

A liquidity provider (market maker) for a listed structured product or ETF chiefly:

• a.independently audits the product issuer's annual accounts and reports its findings to investors
• b.continuously quotes bid and offer prices to support tradability✓
• c.sets the territory's monetary policy
• d.collects stamp duty on behalf of the government

A liquidity provider stands ready to quote both buy (bid) and sell (offer) prices, so investors can trade the product even when natural counterparties are scarce. This continuous quoting underpins an orderly secondary market for ETFs and structured products.

Ad valorem stamp duty on an ordinary Hong Kong share transaction is currently charged at a rate of:

• a.0.1% of the consideration on each of the buyer and the seller✓
• b.0.1% on the buyer only, with the seller exempt
• c.1% of the consideration on the buyer only
• d.A flat HK$5 per trade regardless of size

Stamp duty is an ad valorem government charge levied on both sides of a share transfer at 0.1% of the consideration each (about 0.2% round-trip). It is a transaction tax proportional to value, not a flat fee, and both buyer and seller pay.

A share trades at HK$20 cum-rights. The company launches a one-for-three rights issue at a subscription price of HK$14. The theoretical ex-rights price (TERP) is:

• a.HK$19.00
• b.HK$18.50✓
• c.HK$16.00
• d.HK$17.00

TERP = (existing shares x cum-price + new shares x subscription price) / total shares = (3 x 20 + 1 x 14) / 4 = 74 / 4 = HK$18.50. The ex-rights price settles between the cum-price and the discounted subscription price.

A share trades at HK$9.00. The company makes a one-for-three bonus (scrip) issue. The theoretical ex-bonus price is:

• a.HK$4.50
• b.HK$3.00
• c.HK$6.75✓
• d.HK$12.00

A bonus issue spreads the same total value over more shares and raises no new money. Three shares worth HK$27 become four shares, so the ex-bonus price = 27 / 4 = HK$6.75; each holder's total value is unchanged.