HKSI Licensing Examination Paper 8 (Securities) — All Questions

When a company raises new money by selling shares to the public for the first time, the transaction takes place in the:

• a.Secondary market
• b.Primary market✓
• c.Derivatives market
• d.Money market

A primary-market transaction is one in which the issuer itself receives the proceeds, such as an initial public offering (IPO). Once the shares subsequently trade between investors, that trading occurs in the secondary market.

In a Hong Kong IPO, the firm responsible for conducting due diligence and dealing with the Exchange on the listing application is the:

• a.Sponsor✓
• b.Share registrar
• c.External auditor only
• d.Custodian

The sponsor, a licensed Type 6 (corporate finance) firm, manages the listing, conducts due diligence and liaises with the Exchange and the SFC. Registrars, custodians and auditors have separate, narrower roles in the listing process.

The prospectus issued for a Hong Kong IPO principally serves to:

• a.Set the level of the Hang Seng Index
• b.Give investors the material information needed to make an informed investment decision✓
• c.Guarantee that the share price will rise once the company is admitted to trading on the Main Board
• d.Replace the need for audited accounts

A prospectus must disclose the material information investors need to make an informed decision and carries statutory liability for false or misleading statements. It does not guarantee performance or replace audited financial statements.

A listed company raising additional capital by offering existing shareholders the right to buy new shares in proportion to their holdings is conducting a:

• a.Rights issue✓
• b.Bonus issue
• c.Stock split
• d.Share buy-back

A rights issue offers new shares to existing shareholders pro rata, usually at a discount, raising fresh capital. A bonus issue and a stock split raise no new money, and a buy-back returns capital by repurchasing shares.

Trades in HK-listed shares are cleared and settled through:

• a.Physical delivery of paper certificates on the trade date
• b.The Investor Compensation Fund, which matches and settles every exchange trade on behalf of the two brokers
• c.CCASS, operated by Hong Kong Securities Clearing Company, on a T+2 basis✓
• d.The Market Misconduct Tribunal

The Central Clearing and Settlement System (CCASS), run by HKSCC, clears and settles exchange trades on a T+2 (two-business-day) cycle, largely by electronic book entry rather than physical certificates.

A company makes a one-for-one bonus issue. All else being equal, the immediate effect is that:

• a.The company raises new capital
• b.The number of shares doubles while each share's price roughly halves, leaving total value unchanged✓
• c.Each existing shareholder receives an equivalent cash dividend funded from the company's distributable reserves
• d.The company's total assets increase

A bonus (scrip) issue capitalises reserves into new shares given free to shareholders. The share count rises and the price adjusts down proportionately, so an investor's total holding value and the company's net assets are unchanged.