HKSI Licensing Examination Paper 8 (Securities) — All Questions

Orders entered into the Stock Exchange of Hong Kong's automatic order-matching system are generally executed on the basis of:

• a.Price and then time priority✓
• b.The broker offering the highest commission first
• c.The largest order first, regardless of price
• d.Random allocation among all orders

The Exchange's automatic order-matching and execution system matches orders on a price-then-time priority basis: better-priced orders execute first, and among equally priced orders the earliest entered is filled first.

Which of the following is a government-imposed cost on a typical Hong Kong share transaction?

• a.The custodian's safekeeping fee
• b.The broker's commission
• c.The fund manager's performance fee
• d.Stamp duty on the transfer of shares✓

Stamp duty is a government levy charged on transfers of Hong Kong stock. Brokerage commission, custody fees and management fees are charged by market participants; the SEHK and SFC also levy small trading and transaction fees.

A brokerage's requirement that the staff who execute trades are kept separate from those who settle and record them is an example of:

• a.A breach of the Code of Conduct
• b.A tax-avoidance technique
• c.A marketing strategy intended to reassure clients that their orders are handled by separate teams
• d.Segregation of duties, an internal control to reduce error and fraud✓

Segregation of duties separates incompatible functions (dealing, settlement, record-keeping) so no single person controls a whole transaction, reducing the risk of error and fraud. It is a core internal-control principle in a firm's operations.

Most HK-listed shares today are held and transferred:

• a.By the SFC on investors' behalf, which holds all listed shares centrally in a single government register
• b.In book-entry (electronic) form within CCASS rather than by moving paper certificates✓
• c.Exclusively through overseas custodians
• d.Only as physical paper certificates delivered by hand

Modern settlement is largely dematerialised: securities are immobilised in CCASS and transferred by electronic book entry, which is faster and safer than physically delivering paper certificates.