HKSI Licensing Examination Paper 8 (Securities) — All Questions

The role of a custodian in the securities market is to:

• a.Set monetary policy
• b.Underwrite new share issues and guarantee that any shares left unsold in an offering are taken up
• c.Provide investment advice to retail clients
• d.Hold and safeguard clients' securities and settle transactions on their behalf✓

A custodian holds securities in safekeeping and handles settlement, income collection and corporate actions for clients such as institutional investors. Underwriting, advice and monetary policy are functions of other participants.

Which two bodies are the principal statutory regulators overseeing Hong Kong's securities markets and banking respectively?

• a.The Financial Secretary and the Stock Exchange
• b.The Market Misconduct Tribunal and the JFIU
• c.The SFC and the HKMA✓
• d.HKEX and the Companies Registry

The Securities and Futures Commission (SFC) regulates the securities and futures markets, while the Hong Kong Monetary Authority (HKMA) regulates banks, including their registered-institution securities business. HKEX operates the market infrastructure rather than regulating it.

To protect investors, a sell-side research analyst publishing a stock recommendation must:

• a.Guarantee the accuracy of the price forecast
• b.Disclose the firm's and the analyst's relevant interests and avoid misleading the market✓
• c.Share the report only with the issuer before publication
• d.Trade ahead of the published report in order to confirm the accuracy of the recommendation being made

Analysts must disclose conflicts of interest (such as the firm's holdings or banking relationships) and present balanced, non-misleading research. Trading ahead of a report (front running) and selective pre-disclosure to the issuer are prohibited.

Which of the following is an institutional investor?

• a.A first-time IPO subscriber buying for himself
• b.A retail investor using an online broker
• c.An individual day-trader
• d.A pension fund investing on behalf of its members✓

Institutional investors are organisations that invest large pooled sums, such as pension funds, insurance companies, mutual funds and asset managers. The other options describe retail investors trading their own money.