HKSI Licensing Examination Paper 8 (Securities) — All Questions

Since Hong Kong abolished the concept of par (nominal) value for shares, newly issued shares:

• a.Must always be issued at a price below their prevailing market price
• b.Can no longer be issued at any premium above their nominal value
• c.Have no par value, and proceeds are simply credited to share capital✓
• d.Must all be issued at a nominal value of exactly HK$1 per share

Under the Companies Ordinance, Hong Kong shares have no par value; the entire subscription price is credited to the company's share capital account, and older concepts such as share premium and issuing 'at a discount to par' no longer apply.

A controlling shareholder of a newly listed Main Board company is generally subject to a lock-up that, in the first six months after listing:

• a.Requires the shareholder to sell down the entire holding to the public
• b.Permits them to sell freely with no restriction of any kind
• c.Prohibits them from disposing of their shares in the company✓
• d.Compels them to buy additional shares in the company each month

To align interests and support market confidence, a controlling shareholder generally may not dispose of any shares during the first six months after listing, and in the following six months may not dispose of shares if it would cause them to cease being a controlling shareholder.

The SFC transaction levy and the AFRC (accounting regulator) levy charged on Hong Kong share trades are:

• a.Payable only on the initial application for shares in an IPO
• b.Fully refundable to the investor whenever the trade closes at a loss
• c.Discretionary charges that each broker may set at its own commercial rate
• d.Statutory levies charged on both the buyer and the seller to fund the relevant regulators✓

These are ad valorem statutory levies charged on both sides of a transaction to fund the SFC and the accounting/financial-reporting regulator respectively. They are small percentages of the consideration and are collected via the broker alongside stamp duty and the Exchange trading fee.

A 'grey market' in an IPO share refers to trading that:

• a.Occurs unofficially before the shares officially begin trading on the Exchange✓
• b.Takes place approximately ten years after the company first lists
• c.Is conducted solely by the regulator to establish a fair opening price
• d.Amounts to illegal insider dealing in each and every instance

The grey market is unofficial, off-exchange dealing in newly issued shares in the short window after pricing but before official listing. It gives an early indication of demand and likely opening price but settles outside the Exchange's normal facilities.

The default allocation to the public (retail) tranche in a typical Hong Kong IPO, before any clawback, is commonly:

• a.Exactly 50% of the offer in every case regardless of demand
• b.Around 10% of the offer, with the rest in the placing tranche✓
• c.Nil, with no shares at all made available to the public
• d.The full 100% of the offer, leaving nothing for the placing tranche

In a typical structure the public offer starts at about 10% of the total, with roughly 90% in the placing tranche; the clawback mechanism then raises the public portion (for example to 30%, 40% or 50%) as retail oversubscription increases.

The core function of the primary market is to:

• a.Channel new capital from investors to issuers through the issue of new securities✓
• b.Clear and settle trades that have already been completed on the Exchange
• c.Supervise and enforce the conduct standards of listed companies
• d.Let investors trade already-issued, second-hand securities among themselves

The primary market is where issuers raise fresh capital by selling newly created securities (via IPOs, rights issues, placings and bond issues); the proceeds go to the issuer. Subsequent trading of those securities takes place in the secondary market.

A 'scrip dividend' option offered to shareholders allows them to:

• a.Take new shares instead of a cash dividend✓
• b.Convert their ordinary shares into fixed-rate bonds
• c.Receive double the normal cash dividend for that period
• d.Sell their shares back to the company at a fixed premium

A scrip dividend lets shareholders elect to receive additional new shares in place of the cash dividend, allowing the company to retain cash while giving investors a way to increase their holding without paying brokerage or stamp duty on a market purchase.

The 'book close' (record date) period set by a listed company is used to:

• a.Determine the rate of ad valorem stamp duty on the shares
• b.Fix the final offer price of a forthcoming new share issue
• c.Determine which registered shareholders qualify for an entitlement such as a dividend or the right to vote✓
• d.Suspend all secondary-market trading in the company's listed shares for a full calendar month while the register is being updated

During the book close the share register is frozen so the company can identify the shareholders of record entitled to a dividend, bonus, rights or the right to attend a meeting. Buyers must settle before the record date to appear on the register in time.

The CCASS settlement (custody/stock) fee charged on transactions is typically:

• a.A charge levied only on the selling side of each transaction
• b.An amount set to be exactly equal to the stamp duty on the same trade
• c.A small percentage of value subject to a minimum and maximum dollar amount per instruction✓
• d.A flat charge of one percent of the trade value with no upper cap

The CCASS instruction/settlement fee is an ad valorem charge (a small fraction of the transaction value) but is bounded by a minimum and a maximum dollar amount per instruction, so it stays modest even on very large trades. It is separate from stamp duty and the Exchange trading fee.

An investor applies for HK-listed IPO shares using an IPO margin (financing) facility. The main extra cost compared with a cash application is:

• a.A higher rate of ad valorem stamp duty on the allotted shares
• b.Interest charged on the money borrowed to fund the application✓
• c.A doubling of the offer price payable for each allotted share
• d.A capital gains tax levied on any listing-day profit realised

IPO financing lets an applicant borrow to apply for far more shares than their own cash allows, but interest accrues on the loan regardless of how many shares are finally allotted. In a heavily scaled-back allocation the interest can outweigh any listing gain.

Which statement about a bond issued in the primary market is correct?

• a.The bondholder thereby becomes a part-owner of the issuing company
• b.The bond can never be bought or sold again once it is issued
• c.The issuer receives the proceeds and takes on an obligation to pay interest and repay principal✓
• d.The issuer receives no money at all from making the bond issue, since the proceeds are paid instead to existing bondholders

A primary bond issue raises debt capital: the issuer receives the proceeds and must pay the agreed coupons and repay the principal at maturity. Bondholders are creditors, not owners, and the bonds can subsequently trade in the secondary market.

'Price discovery' in the secondary market refers to the process by which:

• a.Brokers collectively agree a single fixed price for the year ahead
• b.The issuing company decides how large a dividend to declare
• c.The regulator officially sets and publishes each share's price every day
• d.Continuous buying and selling reveal a market-clearing price reflecting available information✓

Price discovery is the way the interaction of many buyers' and sellers' orders continuously establishes the current market price, incorporating new information as it arrives. A liquid, transparent secondary market makes price discovery more efficient.

A 'special limit order' on SEHK differs from an enhanced limit order in that a special limit order:

• a.Can match at up to its specified price across queues but is not queued in the order book if unfilled✓
• b.Is a facility made available only to registered market makers
• c.Guarantees that the whole quantity of the order will be executed in full at or within the specified limit price
• d.Can only be entered and matched during the pre-opening auction

A special limit order will match against as many price queues as possible up to (and including) its limit price, but any unfilled balance is cancelled rather than left resting in the order book. This suits investors who want an immediate fill up to a price limit without leaving a residual order.

A company makes a five-for-one subdivision (stock split), turning each share into five shares. The likely purpose is to:

• a.Repay outstanding debt owed to the company's bondholders
• b.Increase the total net asset value of the company overall
• c.Raise a significant amount of fresh capital from its shareholders
• d.Lower the price per share to improve marketability and liquidity✓

A subdivision multiplies the number of shares and proportionately cuts the price per share, without raising money or changing total value. A lower per-share price and smaller board-lot cost can make the shares more accessible and liquid for retail investors.

For a Main Board listing, SEHK requires a minimum number of shareholders on listing so as to ensure an open market. This requirement is generally:

• a.Exactly 10 shareholders holding the public float between them
• b.No minimum number of shareholders is imposed at listing
• c.At least 300 shareholders (with limits on concentration among the largest holders)✓
• d.At least 10,000 shareholders across the whole issued share capital

The Listing Rules require a sufficiently spread shareholder base, generally at least 300 holders for a Main Board issue, with limits on how much of the public float the largest few may hold. This supports liquidity and an orderly secondary market.

'Dematerialisation' of securities, which Hong Kong is progressively adopting, means that securities are:

• a.Held only as physical paper certificates lodged with a custodian
• b.Permanently withdrawn from the market and cancelled by the issuer
• c.Converted from shares into an equivalent amount of cash on deposit
• d.Held and transferred in purely electronic (book-entry) form without paper certificates✓

Dematerialisation removes the need for physical certificates: legal title is recorded and transferred electronically. It reduces the risks and delays of handling paper (loss, forgery, slow transfer) and builds on the immobilisation already achieved within CCASS.

An investor buys 5,000 shares at HK$40.00 in the secondary market. Ignoring rounding, the ad valorem stamp duty at 0.1% on this purchase is:

• a.HK$20, taking the duty as 0.01% of the consideration
• b.HK$200✓
• c.HK$2,000, taking the duty as 1% of the consideration
• d.HK$800, taking the duty as 0.4% of the consideration

The consideration is 5,000 x HK$40.00 = HK$200,000. Stamp duty at 0.1% = HK$200 (rounded up to the nearest dollar). The same 0.1% would apply again on a later sale of the shares.

'Book entry' settlement in CCASS means that on settlement the transfer of shares is effected by:

• a.The company formally amending its articles or memorandum of association
• b.Issuing brand-new shares to the buyer directly from the company
• c.Physically posting the paper share certificates to the buyer by courier
• d.Debiting the seller's and crediting the buyer's stock accounts electronically✓

Book-entry settlement moves securities by electronic accounting entries: the seller's CCASS stock account is debited and the buyer's is credited, with no movement of paper. This is faster, cheaper and safer than physical delivery of certificates.

Money settlement for CCASS transactions is generally effected:

• a.In physical cash handed across the counter at the broker's office
• b.By posting a cheque to the counterparty around one month after the trade
• c.Solely in US dollars regardless of the currency of the trade
• d.Through designated settlement banks, with funds moving between participants' bank accounts✓

The cash leg of settlement runs through designated banks: participants maintain money-settlement accounts, and funds are debited or credited to match the stock movements on the settlement day, achieving delivery broadly against payment.

A key risk that IPO subscribers face, even for a company with sound fundamentals, is that:

• a.Their dividend is fixed at the same level for the life of the shares
• b.The shares may trade below the offer price once secondary-market dealing begins✓
• c.They are contractually prevented from ever selling the allotted shares
• d.They are guaranteed by law to lose money on the investment

There is no guarantee that a newly listed share will trade at or above its offer price; weak after-market demand or poor sentiment can push it below the IPO price. Subscribers bear market risk from the first day of dealing despite any stabilisation activity.

A firm that has the right to trade directly on the Stock Exchange of Hong Kong's trading system is known as an:

• a.Exchange Participant✓
• b.Investor Participant, holding a personal stock account within CCASS
• c.Approved custodian appointed to safekeep client securities
• d.Authorised representative accredited to a licensed corporation

An Exchange Participant is a company admitted to trade on SEHK and holding a Stock Exchange trading right. Ordinary investors cannot trade directly; they place orders through an Exchange Participant (a broker), which routes them to the market.

In the Hong Kong market, a 'market maker' (or liquidity provider) chiefly serves to:

• a.Regulate the day-to-day conduct and financial soundness of stockbrokers
• b.Provide continuous buy and sell quotes so that investors can readily trade a product✓
• c.Approve or reject applications from companies seeking a new listing
• d.Determine and publish the level of the Hang Seng Index each day

A market maker stands ready to quote both bid and offer prices, adding liquidity and helping investors trade even when natural counterparties are scarce. Market makers are especially important for structured products (warrants, CBBCs) and ETFs.

A 'Direct Clearing Participant' in CCASS is one that:

• a.Clears and settles its own (and its clients') exchange trades directly with HKSCC✓
• b.Is permitted only to hold securities in custody but never to trade them
• c.Supervises and disciplines the conduct of other clearing participants
• d.Operates as a department of the Hong Kong Government

A Direct Clearing Participant is an Exchange Participant that settles its own trades directly with HKSCC in CCASS. This contrasts with a Non-Clearing Participant that must settle through a General Clearing Participant acting on its behalf.

A 'General Clearing Participant' in CCASS is distinctive because it:

• a.Can clear and settle trades on behalf of other Exchange Participants as well as its own✓
• b.Is simply another name for the Stock Exchange itself
• c.Is unable to settle any trades at all, whether its own trades or those of the other Exchange Participants it serves
• d.May only ever hold and settle securities belonging to itself

A General Clearing Participant provides clearing services to other (non-clearing) Exchange Participants in addition to settling its own business. This lets smaller brokers outsource clearing rather than settle directly with HKSCC themselves.

An individual investor who opens a stock account directly in CCASS to hold shares in their own name is a:

• a.Clearing Participant settling trades directly with HKSCC
• b.CCASS Investor Participant✓
• c.Custodian Participant holding securities for many clients
• d.Designated market maker quoting a listed product

A CCASS Investor Participant is an individual or corporate investor holding a personal stock account in CCASS, allowing them to hold shares directly in the system rather than through a broker's or custodian's account, though they still trade via a broker.

The Hong Kong Securities Clearing Company (HKSCC) primarily acts as:

• a.A retail stockbroker executing orders for individual investors
• b.The statutory regulator licensing corporations and their representatives
• c.The issuer of Exchange Fund Bills and Notes for the Government
• d.The central counterparty and operator of the clearing and settlement system (CCASS)✓

HKSCC, a subsidiary of HKEX, operates CCASS and acts as the central counterparty for eligible market trades, novating trades so that it becomes buyer to every seller and seller to every buyer, thereby managing and reducing settlement risk.

A 'Custodian Participant' in CCASS is typically a:

• a.Company that is applying to list its own shares on the Exchange
• b.Government auditor reviewing the accounts of listed companies
• c.A retail day-trader who actively buys and sells listed securities throughout the day for their own personal investment account
• d.Bank or custodian that holds securities in CCASS for its clients but does not itself trade on the Exchange✓

A Custodian Participant (often a bank) holds securities in CCASS on behalf of its clients and provides custody and settlement services, but it is not an Exchange Participant and does not execute trades on the Exchange itself.

In an IPO, the 'receiving bank' is the institution that:

• a.Provides independent investment advice to each retail applicant
• b.Collects application monies from public applicants and handles refunds✓
• c.Sets the final offer price after the bookbuilding process closes
• d.Underwrites the entire offer and takes up any unsubscribed shares

The receiving bank processes the cash side of a public offer: it receives subscription monies from applicants and, after allocation, arranges refunds for shares not allotted. It is an operational role, distinct from underwriting or pricing.

The share registrar of a Hong Kong listed company is responsible for:

• a.Executing the listed company's own buy and sell orders on the Exchange's automatic order-matching and execution system
• b.Maintaining the register of members and processing transfers, dividends and corporate-action entitlements✓
• c.Underwriting the company's new share issues and placings
• d.Setting the territory's monetary policy and managing the exchange rate

The share registrar keeps the register of shareholders up to date, records transfers, issues and cancels certificates, and administers entitlements such as dividends, rights and bonus issues. It is the record-keeper of legal ownership, separate from trading and custody.

A 'nominee' holding shares for a beneficial owner means that the nominee:

• a.Is the registered legal holder while the beneficial owner retains the economic interest✓
• b.Acts as the statutory regulator of the securities market
• c.Owns the shares beneficially itself and is entitled to keep the dividends
• d.Is the company that originally issued the shares to the market

A nominee is registered as the legal holder of shares but holds them on behalf of the beneficial owner, who keeps the economic rights (dividends, gains). Nominee structures, such as HKSCC Nominees, enable efficient pooled holding and settlement.

A 'global custodian' used by an international institutional investor primarily:

• a.Trading equities, bonds and derivatives on the investor's own behalf across many markets in order to generate an investment profit
• b.Determines the price at which each of the investor's securities is valued
• c.Regulates and supervises the local sub-custodians in each market
• d.Safekeeps the investor's securities across many markets and arranges settlement, income collection and corporate actions worldwide✓

A global custodian provides a single point of contact for holding and administering securities across multiple countries, typically appointing local sub-custodians in each market. Its services cover safekeeping, settlement, dividend and coupon collection, and corporate-action processing.

A 'prime broker' provides hedge funds and active traders with a bundle of services that typically includes:

• a.Securities lending, margin financing, trade execution and consolidated custody and reporting✓
• b.Setting and periodically revising the fund's investment strategy
• c.Only the provision of corporate tax advice and the preparation and filing of the fund's annual tax and regulatory returns
• d.Only the printing and distribution of offering prospectuses

Prime brokerage bundles the services a leveraged fund needs: financing (margin), stock borrowing to support short sales, execution, custody and consolidated reporting. The prime broker does not decide the fund's strategy; the manager does.

In a Hong Kong IPO, the sponsor must be a firm licensed for which regulated activity?

• a.Type 1 (dealing in securities) and nothing further
• b.Type 9 (asset management) on a discretionary basis
• c.No licence of any kind is required to act as a sponsor
• d.Type 6 (advising on corporate finance)✓

A listing sponsor must be a corporation licensed or registered for Type 6 regulated activity (advising on corporate finance) and approved to act as sponsor. It conducts due diligence and manages the listing application, taking on significant statutory responsibility.

The role of a 'placing agent' in a share offering is to:

• a.Find and allocate shares to selected investors on behalf of the issuer or selling shareholder✓
• b.Maintain the company's register of members and process transfers
• c.Act as the statutory regulator overseeing the issuing company
• d.Guarantee the level at which the shares will trade in the after-market

A placing agent markets and distributes shares to targeted investors (often institutions and professional investors) in a placing, earning a placing commission. It sources demand and allocates the shares, rather than opening the offer to the general public.

The 'bookrunner' (lead manager) in an IPO is chiefly responsible for:

• a.Providing safe custody of the shares for retail investors
• b.Running the bookbuilding, gathering demand and coordinating pricing and allocation✓
• c.Independently auditing the issuing company's financial statements
• d.Collecting stamp duty on the listing on behalf of the Government

The bookrunner leads the syndicate, builds and manages the order book during bookbuilding, advises on pricing and drives allocation among investors. Large deals may have several joint bookrunners sharing these coordination duties.

The 'stabilising manager' appointed in an IPO is the party that:

• a.Maintains the company's share register and processes transfers
• b.Conducts permitted price-support activity in the after-market within the rules and disclosed limits✓
• c.Guarantees to investors that the newly listed share price will keep rising indefinitely throughout the period after listing
• d.Grants final approval of the company's listing application

The stabilising manager may buy shares in the after-market to support the price up to the offer price during the permitted stabilisation window, often using the greenshoe option. This activity must be disclosed and conducted strictly within the regulatory limits.

The Hong Kong Monetary Authority (HKMA) supervises the securities-related activities of banks because banks operate as:

• a.Entities that are outside the perimeter of financial regulation
• b.Registered institutions, whose securities business the SFC oversees but which the HKMA front-line regulates✓
• c.Licensed corporations that are directly and solely supervised by the SFC, with the Monetary Authority playing no part in overseeing them
• d.Exchange Participants holding a Stock Exchange trading right

Banks conducting regulated activities do so as Registered Institutions. The SFC sets conduct standards for that securities business, but the HKMA is the front-line regulator supervising the banks, reflecting the division of responsibilities between the two regulators.

HKEX (Hong Kong Exchanges and Clearing Limited) is best described as:

• a.The independent statutory body that regulates and licenses the securities and futures markets and their intermediaries
• b.A retail bank taking deposits and making loans to the public
• c.A department of the Hong Kong Special Administrative Region Government
• d.The holding company that owns and operates the stock exchange, futures exchange and clearing houses✓

HKEX is the listed holding company that owns and operates SEHK, the Hong Kong Futures Exchange and the clearing houses (including HKSCC). It provides market infrastructure and, as a frontline market operator, administers the Listing Rules, but it is not the statutory regulator; that is the SFC.

The Hong Kong Futures Exchange (HKFE), part of HKEX, provides the market for:

• a.Physical gold and silver bars for immediate delivery
• b.Futures and options contracts, such as Hang Seng Index futures✓
• c.Ordinary bank deposits placed by retail savers
• d.Newly issued equities offered to the public in IPOs

HKFE operates Hong Kong's exchange-traded derivatives market, including index futures and options and stock futures. It is distinct from SEHK, which handles cash-market equities, though both sit within the HKEX group.

The Investor Compensation Fund in Hong Kong exists to:

• a.Compensate eligible retail investors, up to a set limit, for losses caused by the default of a licensed intermediary✓
• b.Guarantee that every eligible retail investor will earn at least a small positive return on each securities transaction they enter into
• c.Pay dividends to shareholders when a company is unable to do so
• d.Insure investors against ordinary falls in the Hang Seng Index

The Investor Compensation Fund pays eligible retail investors, up to a prescribed limit per investor (currently HK$500,000 for securities), where a licensed or registered intermediary defaults. It covers broker default, not ordinary investment losses or market falls.

Under the Mandatory Provident Fund (MPF) system, the scheme's assets must be held by:

• a.The individual scheme members themselves, in cash on deposit
• b.The contributing employer itself, which holds and manages the scheme assets directly within its own corporate bank accounts
• c.An approved trustee, with assets kept separate from the trustee's and the sponsor's own assets✓
• d.The MPFA, which pools and manages all schemes' assets centrally

MPF scheme assets are held on trust by an approved trustee and must be segregated from the assets of the trustee, sponsor and service providers, protecting members if a service provider fails. The MPFA regulates the system rather than holding the assets.

An MPF scheme is a significant market participant primarily because it acts as a:

• a.Central counterparty clearing and settling members' trades
• b.Retail stock exchange on which members trade their own shares
• c.A statutory regulator responsible for licensing, supervising and disciplining the stockbrokers that operate in the market
• d.Large institutional investor channelling employees' long-term retirement savings into the markets✓

As a compulsory retirement-savings system covering most of the workforce, MPF schemes aggregate large, steady inflows that are invested through fund managers into equities, bonds and funds, making the MPF a major institutional source of long-term capital.

Which of the following best distinguishes an institutional investor from a retail investor?

• a.Only institutions are legally permitted to buy and hold listed shares
• b.The retail investor is, by regulatory definition, always regarded as the better informed and more experienced of the two parties and is therefore given fewer conduct-of-business protections under the rules
• c.The institutional investor invests large pooled sums professionally on behalf of others, while the retail investor trades relatively small amounts of their own money✓
• d.Retail investors are entirely exempt from stamp duty and transaction levies

Institutional investors (funds, insurers, pension schemes) deploy large, pooled sums with professional resources, whereas retail investors trade smaller amounts of their personal wealth. Both pay stamp duty and other charges, and both can access the market via brokers.

Under the SFC's rules, a person may be treated as a 'professional investor' if, for example, an individual has an investment portfolio of at least:

• a.HK$800, a token qualifying amount set by the regulator
• b.HK$8 million✓
• c.HK$80,000, roughly the cost of a substantial retail parcel of shares
• d.HK$80 million, the threshold applied to large institutions

The monetary threshold for an individual to qualify as a professional investor is a portfolio of at least HK$8 million (or its equivalent). Professional investors may be offered certain products and reduced protections not available to ordinary retail clients.

A fund management company that makes discretionary investment decisions for client portfolios must be licensed for which regulated activity?

• a.Type 1 (dealing in securities), the activity of executing trades
• b.Type 6 (advising on corporate finance), the activity of a sponsor
• c.Type 4 (advising on securities), the activity of giving advice
• d.Type 9 (asset management)✓

Managing a portfolio of securities or futures on a discretionary basis is Type 9 regulated activity (asset management). Merely giving advice without discretion falls under Type 4 (advising on securities), and executing trades is Type 1 (dealing).

A firm that gives clients recommendations on which shares to buy or sell, without taking discretion or executing the trades, is carrying on:

• a.Type 1 (dealing in securities), namely executing client transactions
• b.Type 4 (advising on securities)✓
• c.Type 6 (advising on corporate finance), namely advising on takeovers and issues
• d.Type 9 (asset management), namely managing portfolios with discretion

Providing investment advice on securities to clients is Type 4 regulated activity (advising on securities). Dealing (Type 1) involves executing transactions, and asset management (Type 9) involves managing portfolios with discretion; corporate-finance advice is Type 6.

Within a licensed corporation, a 'Responsible Officer' is:

• a.The most junior sales trainee currently employed by the firm
• b.The external auditor engaged to sign off the firm's accounts
• c.A government inspector permanently stationed inside the firm
• d.An individual approved by the SFC to supervise a regulated activity of the firm✓

A Responsible Officer is an individual specifically approved by the SFC to actively supervise the conduct of a regulated activity within a licensed corporation. Each regulated activity must have at least two Responsible Officers to ensure proper management oversight.

A 'Licensed Representative' of a securities firm is a person who:

• a.Is prohibited from dealing with any of the firm's clients
• b.Is an employee working solely for the statutory regulator
• c.Owns the whole of the licensed corporation and personally controls and directs all of its regulated activities and its representatives
• d.Is licensed to carry on a regulated activity for the firm but does not have supervisory responsible-officer status✓

A Licensed Representative is an individual accredited to a licensed corporation to carry on a regulated activity (for example dealing with clients), but without the supervisory role of a Responsible Officer. Representatives must still meet fit-and-proper and competence requirements.

The key difference between a 'Licensed Corporation' and a 'Registered Institution' in Hong Kong is that a Registered Institution is:

• a.An entirely unregulated firm that sits outside the securities regulatory perimeter and needs no licence or registration to operate
• b.A retail investor holding a personal account with a broker
• c.The stock exchange operator itself, providing the trading system
• d.An authorised bank whose regulated (securities) activities are front-line supervised by the HKMA✓

A Licensed Corporation is licensed by the SFC to conduct regulated activities, whereas a Registered Institution is an authorised institution (bank) registered to conduct regulated activities, with the HKMA as its front-line regulator under standards set with the SFC.

For an SFC-authorised unit trust or mutual fund, the trustee/custodian's core duty is to:

• a.Decide which securities the fund should buy and sell each day
• b.Market and promote the fund aggressively to retail investors
• c.Guarantee to the fund's unit holders a minimum positive return each year regardless of how the underlying investments actually perform
• d.Safeguard the fund's assets and oversee that the manager acts in accordance with the fund's constitutive documents✓

An independent trustee or custodian holds the fund's assets in safekeeping and provides a check on the manager, ensuring the fund is operated in line with its trust deed and regulatory requirements. Investment decisions remain with the fund manager.