I85PREP
⌘ K
HKSI Paper 11 study materials
HKSI Paper 11 study resources

HKSI Paper 11 practice questions

One question at a time. Build your HKSI Paper 11 understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Regulatory framework and corporate finance advisory standards

Under the Securities and Futures Ordinance, which body is the principal statutory regulator of the securities and futures industry in Hong Kong?

  1. The Insurance Authority
  2. The Securities and Futures Commission Correct answer.
  3. The Stock Exchange of Hong Kong Limited
  4. The Hong Kong Monetary Authority

Explanation

The Securities and Futures Ordinance establishes the Securities and Futures Commission as the statutory regulator responsible for the securities and futures markets, including licensing intermediaries and supervising corporate finance activity. The other bodies have narrower or different mandates.

Question 2Regulatory framework and corporate finance advisory standards

In a Hong Kong initial public offering, which party is responsible for sponsoring the listing applicant and conducting due diligence on the applicant on behalf of the listing?

  1. The sponsor Correct answer.
  2. The receiving bank
  3. The share registrar
  4. The reporting accountant

Explanation

A sponsor is appointed to advise the listing applicant, conduct reasonable due diligence, and ensure the accuracy of the listing document; the sponsor's role is central to the listing application and is subject to specific SFC conduct requirements. The other parties provide narrower services.

Question 3Regulatory framework and corporate finance advisory standards

Which of the following best describes the role of the Listing Rules administered by the Stock Exchange?

  1. They regulate money lending and deposit-taking business
  2. They govern the admission of securities to listing and continuing obligations of listed issuers Correct answer.
  3. They set capital adequacy requirements for licensed corporations
  4. They prescribe the conduct of licensed intermediaries in dealing with clients

Explanation

The Listing Rules are the exchange's rules governing eligibility for listing, disclosure in listing documents, and continuing obligations such as announcements and connected transactions. They operate alongside the SFO but address listing matters.

Question 4Regulatory framework and corporate finance advisory standards

A licensed corporate finance adviser is asked to provide a fairness opinion to an independent board committee on a connected transaction. Which principle most directly governs the adviser's approach?

  1. The adviser should limit its work to reviewing the transaction price against the previous day's closing price
  2. The adviser should delegate the opinion to the transaction's financial adviser to avoid duplication
  3. The adviser should adopt the valuation preferred by the majority shareholder to expedite the transaction
  4. The adviser should provide an opinion based on independent analysis and disclose any relationships that may affect independence Correct answer.

Explanation

An independent financial adviser must give an opinion grounded in its own independent analysis and must disclose conflicts or relationships affecting independence, so the independent board committee can rely on it. Speed or shareholder preference cannot override independence.

Question 5Regulatory framework and corporate finance advisory standards

Under the SFO, an intermediary that comes into possession of inside information regarding a listed issuer should generally:

  1. Trade on the information before it becomes public to benefit clients
  2. Disclose the information to selected institutional clients only
  3. Refrain from dealing and take reasonable steps to prevent misuse of the information Correct answer.
  4. Pass the information to a journalist to prompt earlier disclosure

Explanation

Insider dealing is prohibited under the SFO, so a person in possession of inside information must not deal or counsel others to deal, and should put in place controls to prevent misuse. Selective disclosure to clients or the press also risks liability.

Question 6Regulatory framework and corporate finance advisory standards

Which document is normally issued by a listing applicant in Hong Kong to provide investors with the information needed to make an informed investment decision on a new listing?

  1. The circular to shareholders
  2. The directors' service contract
  3. The annual report
  4. The prospectus Correct answer.

Explanation

The prospectus is the listing document for a new listing, containing the issuer's business, financial and risk information so investors can make an informed decision. Circulars and annual reports serve different purposes after listing.

Question 7Regulatory framework and corporate finance advisory standards

A corporate finance advisory firm is advising on a very substantial acquisition by a listed issuer. Which requirement is most relevant to the adviser's work?

  1. Confirming the target has no employees
  2. Assessing whether shareholder approval and a circular are required under the Listing Rules Correct answer.
  3. Obtaining approval from the Insurance Authority
  4. Ensuring the acquisition is completed within one week of announcement

Explanation

A very substantial acquisition is a notifiable transaction that generally requires shareholder approval and a circular containing prescribed information, and the adviser must assess these requirements. There is no rule requiring completion within a week or Insurance Authority approval.

Question 8Regulatory framework and corporate finance advisory standards

Which of the following is a core function of the SFC in relation to corporate finance?

  1. Operating the clearing and settlement systems for securities trades
  2. Setting the Hong Kong dollar interest rate
  3. Supervising sponsors and regulating listing-related conduct and disclosure Correct answer.
  4. Registering company charges

Explanation

The SFC supervises sponsors, administers the securities legislation and codes affecting corporate finance, and works with the exchange on listing matters. Clearing and settlement, interest rates and company charge registration belong to other bodies.

Question 9Regulatory framework and corporate finance advisory standards

A listed issuer proposes a connected transaction with its controlling shareholder. Which step is most consistent with the Listing Rules?

  1. Proceed without disclosure because the shareholder controls the board
  2. Rely solely on the audit committee's verbal approval
  3. Announce the transaction only after completion
  4. Obtain independent shareholder approval with the controlling shareholder abstaining, and issue a circular Correct answer.

Explanation

Connected transactions generally require announcement, independent shareholder approval with the connected person abstaining, and a circular with independent financial advice. Board control or verbal approval does not substitute for these safeguards.

Question 10Regulatory framework and corporate finance advisory standards

Which of the following best describes the SFC's Fit and Proper Guidelines in relation to licensed corporate finance advisers?

  1. They require all staff to hold a legal qualification
  2. They set criteria on financial soundness, competence, integrity and management to assess fitness Correct answer.
  3. They specify minimum office floor area
  4. They prescribe the exact fee an adviser may charge

Explanation

The Fit and Proper Guidelines set out the criteria the SFC uses to assess whether a person is fit and proper, covering financial status, competence, integrity and management. They do not set office size, fees or mandatory legal qualifications.

Question 11Regulatory framework and corporate finance advisory standards

Which of the following is most likely to constitute a conflict of interest requiring management under the SFC Code of Conduct?

  1. An adviser's affiliate holds a material stake in the party on the other side of the transaction Correct answer.
  2. An adviser uses the office printer for client documents
  3. An adviser attends a client meeting in Central
  4. An adviser subscribes to a financial news service

Explanation

Where an affiliate of the adviser has a material interest in the counterparty, the adviser faces a conflict that must be identified, disclosed and managed so that the client's interests are protected. The other items are ordinary business matters without conflict implications.

Question 12Regulatory framework and corporate finance advisory standards

An analyst at a licensed firm prepares a research report on a listed issuer for public distribution. Which practice is most consistent with regulatory expectations?

  1. Allowing the issuer to approve the recommendation before publication
  2. Including a recommendation without disclosing the firm's holdings in the issuer
  3. Disclosing the firm's material interests and any conflicts in the report Correct answer.
  4. Omitting the basis of the recommendation to protect proprietary methods

Explanation

Research reports should disclose the firm's interests and conflicts and present the basis of the recommendation so readers can assess objectivity. Issuer pre-approval of recommendations and non-disclosure of holdings undermine independence.

Question 13Regulatory framework and corporate finance advisory standards

Which of the following statements about the SFC's power to investigate corporate finance conduct is correct?

  1. The SFC may investigate only after a court has found a breach
  2. The SFC can investigate only listed issuers, not advisers
  3. The SFC may investigate suspected breaches of the SFO and related codes and require production of records Correct answer.
  4. The SFC must obtain the Financial Secretary's consent for every inquiry

Explanation

The SFC has statutory powers to investigate suspected contraventions and to require the production of records and information from relevant persons, including advisers. It does not need a prior court finding or consent for each inquiry.

Question 14Regulatory framework and corporate finance advisory standards

A licensed corporation's responsible officer for corporate finance is reviewing a proposed transaction. Which action best reflects the duty of a responsible officer?

  1. Leave compliance matters to the client's legal advisers
  2. Ensure adequate supervision, resources and compliance controls over the advisory work Correct answer.
  3. Approve the transaction without review because the deal team is experienced
  4. Focus only on fee negotiation

Explanation

A responsible officer must actively supervise the regulated activity, ensure adequate resources and maintain compliance controls so that advice meets regulatory standards. Delegating compliance to the client or ignoring review is inconsistent with that role.

Question 15Regulatory framework and corporate finance advisory standards

Which of the following best describes the purpose of the SFC's Corporate Finance Adviser Code of Conduct?

  1. To prescribe the accounting standards used in Hong Kong
  2. To regulate the listing of collective investment schemes only
  3. To set the tax rates applicable to corporate finance fees
  4. To set out expected standards of conduct for corporate finance advisers in discharging their advisory roles Correct answer.

Explanation

The Corporate Finance Adviser Code of Conduct sets expected standards for advisers, including independence, due diligence and disclosure, to promote quality advice. It does not deal with tax, accounting standards or only collective investment schemes.

Question 16Regulatory framework and corporate finance advisory standards

In assessing whether a proposed transaction is a major transaction under the Listing Rules, which factor is most relevant?

  1. The size of the transaction relative to the issuer, measured by the applicable percentage ratios Correct answer.
  2. The location of the issuer's registered office
  3. The number of employees of the listing applicant
  4. The identity of the issuer's auditors

Explanation

Transaction classification depends on the percentage ratios, such as assets, profits and consideration relative to the issuer, which determine whether a transaction is discloseable, major or very substantial. Employee numbers, office location and auditor identity do not determine classification.

Question 17Regulatory framework and corporate finance advisory standards

A sponsor discovers during due diligence that a material statement in a draft listing document may be inaccurate. What is the most appropriate course of action?

  1. Proceed with the listing and correct the statement after listing
  2. Withdraw from the engagement without telling anyone
  3. Ignore the issue because the reporting accountant is responsible for all statements
  4. Raise the issue with the applicant and ensure the listing document is corrected before submission Correct answer.

Explanation

A sponsor must conduct reasonable due diligence and ensure the listing document is accurate and complete; on discovering a potentially inaccurate statement it should raise the matter and have it corrected before submission. Proceeding and correcting later exposes investors and breaches the sponsor's obligations.

Question 18Regulatory framework and corporate finance advisory standards

Which of the following is a typical continuing obligation of a listed issuer under the Listing Rules?

  1. Reporting the names of all customers to the exchange
  2. Submitting monthly profit forecasts to the SFC
  3. Publishing annual and interim results and disclosing inside information in a timely manner Correct answer.
  4. Obtaining shareholder approval for every contract above a fixed amount

Explanation

Listed issuers must publish periodic financial results and disclose inside information promptly, among other continuing obligations. Monthly profit forecasts, approval of every contract above a fixed amount and customer name reporting are not general requirements.

Question 19Regulatory framework and corporate finance advisory standards

A corporate finance adviser is asked to advise on a rights issue by a listed issuer. Which consideration is most relevant to the adviser's assessment under the Listing Rules?

  1. Whether the issuer has changed its auditor in the past five years
  2. Whether the adviser's fee is paid in cash
  3. Whether the issuer's directors personally subscribe for all the shares
  4. Whether the issue is fair and reasonable to shareholders and complies with the applicable timetable and disclosure requirements Correct answer.

Explanation

For a rights issue, the adviser assesses fairness to shareholders, compliance with the Listing Rules timetable and disclosure, and any connected or underwriting issues. Director subscriptions, fee payment method and auditor history are not the governing considerations.

Question 20Regulatory framework and corporate finance advisory standards

Which statement best reflects the relationship between the SFO and the Listing Rules in Hong Kong's regulatory framework?

  1. The SFO applies only to banks
  2. The Listing Rules apply only to unlisted companies
  3. The SFO provides the statutory framework while the Listing Rules impose exchange-based listing requirements that operate alongside it Correct answer.
  4. The Listing Rules replace the SFO for listed issuers

Explanation

The SFO is the primary statute regulating securities and futures activity, while the Listing Rules are exchange rules governing listing eligibility and continuing obligations; they operate together. Neither replaces the other, and neither is confined to unlisted companies or banks.

Question 21Hong Kong listing regime and Listing Rules requirements

Under the Listing Rules, which body is responsible for approving applications for listing of equity securities on the Main Board?

  1. The Listing Committee of the Stock Exchange of Hong Kong Correct answer.
  2. The Financial Reporting Council
  3. The Securities and Futures Commission's Takeovers Panel
  4. The Hong Kong Monetary Authority

Explanation

The Listing Committee, a committee of the Stock Exchange of Hong Kong, exercises the Exchange's listing approval function. The SFC has a statutory filing and objection role under the Securities and Futures Ordinance but does not grant listing approval itself.

Question 22Hong Kong listing regime and Listing Rules requirements

An applicant seeking a Main Board listing must normally demonstrate a trading record period of how long under the profit test?

  1. Three years Correct answer.
  2. One year
  3. Five years
  4. Two years

Explanation

The profit test requires a trading record period of not less than three financial years, with a profit threshold in the most recent year and aggregate profits over the two preceding years. The three-year track record underpins the eligibility assessment.

Question 23Hong Kong listing regime and Listing Rules requirements

Which document does a Main Board applicant publish to give the public detailed information about its business, financials and risk factors before listing?

  1. An announcement of results
  2. A next day disclosure return
  3. A circular to shareholders
  4. A prospectus Correct answer.

Explanation

A prospectus is the offering and disclosure document registered with the Registrar of Companies that presents the issuer's business, financial information and risk factors. Circulars and results announcements are used by already-listed issuers for specific corporate actions.

Question 24Hong Kong listing regime and Listing Rules requirements

Under the Listing Rules, a connected transaction normally requires which of the following before it can proceed?

  1. Independent shareholders' approval and an independent financial adviser's opinion where thresholds are exceeded Correct answer.
  2. Approval by the Federation of Shareholders' Associations
  3. Approval by the SFC's Enforcement Division
  4. Only a press release issued by the issuer

Explanation

Connected transactions are subject to reporting, announcement and, at higher percentage ratios, independent shareholders' approval with an independent financial adviser's advice to an independent board committee. The connected person must abstain from voting at the general meeting.

Question 25Hong Kong listing regime and Listing Rules requirements

Which of the following best describes the role of a sponsor in a Hong Kong initial public offering?

  1. Acting as the issuer's auditor for the track record period
  2. Underwriting the entire offer at a fixed price
  3. Guaranteeing the issuer's share price for the first year of trading
  4. Conducting due diligence and guiding the issuer through the listing application process Correct answer.

Explanation

A sponsor is appointed to perform reasonable due diligence, assess the issuer's suitability and shepherd the listing application through the Exchange. Sponsors owe duties to the Exchange and must ensure the accuracy of the listing document.

Question 26Hong Kong listing regime and Listing Rules requirements

Under the Listing Rules, which class of securities is normally entitled to vote at general meetings of a listed issuer?

  1. Share options granted to directors
  2. Ordinary shares Correct answer.
  3. Convertible bonds before conversion
  4. Preference shares with no voting rights

Explanation

Ordinary shares carry the residual right to vote at general meetings and to receive dividends. Preference shares, convertible bonds and options do not carry votes until conversion or exercise unless specifically provided.

Question 27Hong Kong listing regime and Listing Rules requirements

An issuer listed on the Main Board wishes to hold its annual general meeting. Within what period after the end of its financial year must the AGM be held?

  1. Within twelve months
  2. Within nine months
  3. Within three months
  4. Within six months Correct answer.

Explanation

The Listing Rules require a Main Board issuer to hold its annual general meeting within six months after the end of the financial year. This aligns with the deadline for publishing the annual results.

Question 28Hong Kong listing regime and Listing Rules requirements

Which of the following statements about the Listing Rules is correct?

  1. They are guidelines issued by the Hong Kong Monetary Authority
  2. They are subsidiary legislation enacted by the Legislative Council
  3. They are regulations made by the Securities and Futures Commission under the Companies Ordinance
  4. They are rules made by the Stock Exchange of Hong Kong governing the admission and conduct of listed issuers Correct answer.

Explanation

The Listing Rules are made by the Stock Exchange of Hong Kong, subject to SFC oversight, and set out admission criteria, continuing obligations and disciplinary powers. They are contractual in nature rather than statutory subsidiary legislation.

Question 29Hong Kong listing regime and Listing Rules requirements

A Main Board issuer proposes to acquire a target whose total assets represent 60% of the issuer's total assets. What classification applies under the size tests?

  1. Share transaction
  2. Very substantial acquisition Correct answer.
  3. Major transaction
  4. Discloseable transaction

Explanation

A percentage ratio of 25% or more but less than 100% on the assets test makes the acquisition a very substantial acquisition, requiring shareholders' approval and an accountants' report on the target. A ratio of 100% or more would be treated as a reverse takeover.

Question 30Hong Kong listing regime and Listing Rules requirements

An issuer's director wishes to buy shares in the issuer. Which restriction applies under the Model Code for Securities Transactions by Directors?

  1. Directors may deal only through the Exchange's closing auction session
  2. Directors may deal freely at any time as long as they disclose the trade
  3. Directors may deal only with the prior written consent of the SFC
  4. Directors must not deal during the blackout period beginning one month before the publication of annual results Correct answer.

Explanation

The Model Code prohibits directors from dealing in the issuer's securities during a blackout period beginning one month before the preliminary announcement of annual results and continuing until publication. Dealing is also barred while in possession of inside information.

Question 31Hong Kong listing regime and Listing Rules requirements

A listed issuer's controlling shareholder proposes to dispose of its entire stake to a new investor. Which Listing Rule concept is most directly engaged?

  1. A share repurchase subject to the share buy-back rules
  2. A connected transaction requiring independent shareholders' approval only
  3. A notifiable transaction requiring only an announcement
  4. A change in control triggering a possible general offer obligation under the Takeovers Code and disclosure under the SFO Correct answer.

Explanation

A transfer of control engages the Takeovers Code mandatory general offer rules and the SFO disclosure of interests regime, alongside any Listing Rule announcement obligations. The Listing Rules alone do not govern the takeover consequences.

Question 32Hong Kong listing regime and Listing Rules requirements

Under the Listing Rules, what is the minimum public float requirement for a Main Board issuer at the time of listing?

  1. 50% of total issued shares
  2. 10% of total issued shares
  3. 25% of total issued shares Correct answer.
  4. 30% of total issued shares

Explanation

Main Board issuers must maintain at least 25% of their total issued shares in public hands at listing, subject to a higher percentage where the issuer has a very large market capitalisation. The public float must be maintained on a continuing basis.

Question 33Hong Kong listing regime and Listing Rules requirements

An issuer's independent non-executive director resigns. What is the issuer's immediate obligation under the Listing Rules?

  1. Notify only the SFC in writing
  2. Suspend trading in its securities for five business days
  3. Take no action until the next annual general meeting
  4. Publish an announcement stating the resignation and the reasons, and confirm whether there are matters to be brought to shareholders' attention Correct answer.

Explanation

A change in directors must be announced promptly, including the reasons for resignation and any matters the director wishes to bring to shareholders' attention. This ensures timely disclosure of board changes to the market.

Question 34Hong Kong listing regime and Listing Rules requirements

Which of the following is a continuing obligation of a listed issuer under the Listing Rules?

  1. Maintaining a minimum share price above HK$1.00
  2. Restricting all share issuances to existing shareholders
  3. Publishing periodic financial reports and disclosing inside information as required Correct answer.
  4. Guaranteeing a minimum dividend each year

Explanation

Listed issuers must publish annual, interim and, where applicable, quarterly results and reports, and disclose inside information under the SFC's inside information provisions. These continuing obligations apply throughout the listing.

Question 35Hong Kong listing regime and Listing Rules requirements

A Main Board issuer proposes a rights issue. Which statement best reflects the Listing Rules position?

  1. Rights issues are generally permitted without shareholders' approval if made pro rata to existing shareholders within the general mandate Correct answer.
  2. Rights issues require SFC approval of the issue price
  3. Rights issues must always be fully underwritten by the sponsor
  4. Rights issues are prohibited within the first year of listing

Explanation

A pro rata rights offer to existing shareholders does not require specific shareholders' approval where it falls within the general mandate or is made on a pro rata basis. The issuer must still comply with announcement and document requirements.

Question 36Hong Kong listing regime and Listing Rules requirements

What is the primary purpose of the Listing Rules' requirement for an issuer to appoint independent non-executive directors?

  1. To satisfy the SFC's licensing requirements for fund managers
  2. To bring independent judgement to board decisions and protect minority shareholders Correct answer.
  3. To replace the role of the company secretary
  4. To increase the issuer's market capitalisation

Explanation

Independent non-executive directors provide independent oversight and challenge to executive management, helping to safeguard minority shareholders. The Main Board requires at least three INEDs, at least one of whom has appropriate professional qualifications.

Question 37Hong Kong listing regime and Listing Rules requirements

An issuer is required to publish an announcement of a discloseable transaction. Which threshold band applies?

  1. A percentage ratio of 25% or more but less than 100%
  2. A percentage ratio of 100% or more
  3. Any percentage ratio below 5%
  4. A percentage ratio of 5% or more but less than 25% Correct answer.

Explanation

A discloseable transaction arises where any percentage ratio reaches 5% or more but is below 25%. It requires an announcement but not shareholders' approval. At 25% or more the transaction becomes a major transaction.

Question 38Hong Kong listing regime and Listing Rules requirements

Which of the following statements about the SFC's statutory role in listing matters is correct?

  1. The SFC may object to a listing application or a listing document within a specified period after receiving it Correct answer.
  2. The SFC directly approves every listing application before the Listing Committee considers it
  3. The SFC acts as the sponsor for small issuers
  4. The SFC sets the listing fee payable to the Exchange

Explanation

Under the Securities and Futures Ordinance the SFC receives listing applications and documents and may object to them within a prescribed period. The Listing Committee still decides on listing approval.

Question 39Hong Kong listing regime and Listing Rules requirements

A listed issuer's subsidiary proposes to grant a loan to a connected person of the issuer. Which Listing Rule treatment most likely applies?

  1. It may be a connected transaction requiring announcement and, depending on the percentage ratios, independent shareholders' approval Correct answer.
  2. It requires approval by the SFC's Takeovers Panel
  3. It is exempt because it is a subsidiary transaction
  4. It is automatically a major transaction only

Explanation

Transactions between a listed issuer's group and a connected person are connected transactions even where entered into through a subsidiary. Reporting, announcement and possibly independent shareholders' approval apply depending on the ratios.

Question 40Hong Kong listing regime and Listing Rules requirements

Which of the following is required for an issuer to be eligible for listing under the market capitalisation/revenue test on the Main Board?

  1. No revenue requirement and market capitalisation of at least HK$200 million
  2. Revenue of at least HK$100 million and market capitalisation of at least HK$1 billion
  3. Revenue of at least HK$50 million and market capitalisation of at least HK$500 million
  4. Revenue of at least HK$500 million in the most recent year and market capitalisation of at least HK$4 billion at listing Correct answer.

Explanation

The market capitalisation/revenue test requires revenue of at least HK$500 million in the most recent audited financial year and expected market capitalisation at listing of at least HK$4 billion. A three-year trading record and management continuity also apply.

Question 41Hong Kong listing regime and Listing Rules requirements

An issuer proposes a very substantial disposal that would effectively transfer its principal business to a connected person. Which concern is most relevant under the Listing Rules?

  1. The transaction is automatically exempt because it is a disposal rather than an acquisition
  2. The transaction requires approval by the SFC's Licensing Division
  3. The transaction requires only the approval of the issuer's auditors
  4. The transaction may be treated as a reverse takeover requiring compliance with the new listing requirements Correct answer.

Explanation

Where a disposal to a connected person results in a change in control or the acquisition of a new business, the Exchange may treat the transaction as a reverse takeover. The issuer must then satisfy the new listing requirements as if it were a fresh applicant.

Question 42Hong Kong listing regime and Listing Rules requirements

An issuer listed on the Main Board has a market capitalisation of HK$10 billion. Its public float has fallen to 22% following a share buy-back. What is the most appropriate consequence under the Listing Rules?

  1. The issuer must delist immediately without any cure period
  2. No action is required because 22% remains above 20%
  3. The issuer must issue new shares to the public within 24 hours
  4. The Exchange may require the issuer to restore the public float to the prescribed level, and may suspend trading if it fails to do so Correct answer.

Explanation

The Exchange may require restoration of the minimum public float and can suspend dealings if the issuer fails to remedy the shortfall within a specified period. The prescribed level depends on the issuer's market capitalisation.

Question 43Hong Kong listing regime and Listing Rules requirements

An issuer's controlling shareholder provides a guarantee of the issuer's bank loan on normal commercial terms. How should this be treated under the Listing Rules?

  1. As a major transaction requiring an accountants' report
  2. As a connected transaction requiring announcement and independent shareholders' approval in all cases
  3. As an exempt transaction because guarantees are outside the Listing Rules
  4. As a continuing connected transaction that may qualify for a de minimis or financial assistance exemption Correct answer.

Explanation

Financial assistance provided by a connected person to the issuer on normal commercial terms or better may be exempt from the connected transaction requirements. If not exempt, it is a continuing connected transaction subject to annual review and disclosure.

Question 44Hong Kong listing regime and Listing Rules requirements

An issuer proposes to change its auditors shortly before the publication of its annual results. What disclosure is required under the Listing Rules?

  1. The issuer must suspend trading until the new auditor completes a full audit
  2. No disclosure is required because auditor changes are internal matters
  3. The issuer must obtain SFC approval before changing auditors
  4. The issuer must announce the change and state whether there are any matters that should be brought to shareholders' attention Correct answer.

Explanation

A change of auditors must be announced, including confirmation of whether there are any disagreements or matters requiring shareholder attention. This protects investors by ensuring transparency about the reasons for the change.

Question 45Hong Kong listing regime and Listing Rules requirements

An issuer's board proposes to grant share options to a director under a share option scheme adopted after the 2023 amendments to the Listing Rules. Which statement best reflects the requirements?

  1. Grants to directors require approval by independent shareholders, and the scheme must have a maximum 10% limit unless refreshed Correct answer.
  2. The scheme may be adopted without shareholder approval if the board resolves
  3. Options may be granted at any price regardless of the market price at grant date
  4. Grants to directors are exempt from any approval requirement

Explanation

Under the current share scheme regime, grants to connected persons including directors require independent shareholders' approval, and the scheme mandate limit is generally 10% of issued shares unless refreshed. The exercise price must be at least the higher of the closing price and the five-day average.

Question 46Hong Kong listing regime and Listing Rules requirements

Under the Listing Rules, what is the maximum period for which a Main Board issuer may grant an option under a share option scheme to a director, if the scheme does not specify a shorter period?

  1. 7 years from the date of grant
  2. 10 years from the date of grant Correct answer.
  3. 5 years from the date of grant
  4. 3 years from the date of grant

Explanation

The Listing Rules require that the exercise period of options granted under a share option scheme must not exceed 10 years from the date of grant, unless the scheme specifies a shorter period. This limit applies to all grantees, including directors, and is a standard term in scheme rules. Issuers may set a shorter period in the scheme document, but the 10-year cap is the maximum permitted.

Question 47Hong Kong listing regime and Listing Rules requirements

A Main Board issuer has a market capitalisation of HK$8 billion. Following a placement, its public float falls to 23%. What is the issuer's position under the Listing Rules?

  1. The public float is acceptable because the issuer's market capitalisation exceeds HK$5 billion, so the minimum is 15%.
  2. The public float is acceptable because the issuer's market capitalisation exceeds HK$10 billion, so the minimum is 10%.
  3. The public float is below the 25% minimum and the issuer must restore it to at least 25% within a reasonable period. Correct answer.
  4. The public float is acceptable because the issuer's market capitalisation exceeds HK$2 billion, so the minimum is 20%.

Explanation

For a Main Board issuer with market capitalisation below HK$10 billion, the minimum public float requirement is 25% of the issued shares. A public float of 23% is therefore non-compliant, and the issuer must take steps to restore the required level within a reasonable period. The lower 15% threshold only applies where the market capitalisation is at least HK$10 billion at the time of listing.

Question 48Hong Kong listing regime and Listing Rules requirements

A listed issuer's subsidiary proposes to acquire a 30% equity interest in a company from an independent third party. The acquisition is classified as a major transaction. Which Listing Rule requirement applies to the circular to shareholders?

  1. The circular must include a valuation report on the acquired business prepared by an independent valuer.
  2. The circular must include a profit forecast for the acquired business for the next financial year.
  3. The circular must include an accountants' report on the acquired business for the three financial years preceding the acquisition. Correct answer.
  4. The circular must include a statement that the acquisition is fair and reasonable from the perspective of the independent shareholders.

Explanation

For a major transaction involving the acquisition of a business or company, the Listing Rules require the circular to include an accountants' report on the acquired business covering the three financial years preceding the acquisition. This allows shareholders to assess the financial track record of the target. The other reports are not mandatory for every major acquisition.

Question 49Hong Kong listing regime and Listing Rules requirements

Under the Listing Rules, what is the threshold for a connected transaction that requires independent shareholders' approval?

  1. When the transaction is a connected transaction that is not exempt Correct answer.
  2. When the transaction is a de minimis transaction
  3. When the transaction is a share transaction
  4. When the transaction is a discloseable transaction

Explanation

Under the Listing Rules, a connected transaction that is not exempt requires independent shareholders' approval, usually by way of a circular and a general meeting where the connected person and its associates abstain from voting. De minimis transactions are exempt, and discloseable or share transactions are separate classifications that do not by themselves trigger the connected transaction approval requirement.

Question 50Hong Kong listing regime and Listing Rules requirements

An issuer listed on the Main Board proposes to repurchase its own shares on the Exchange. Which statement best describes the Listing Rules requirement regarding the repurchase mandate?

  1. The repurchase must be approved by the issuer's controlling shareholder if the repurchase exceeds 10% of the issued shares.
  2. The repurchase must be approved by shareholders by ordinary resolution, either by a general mandate or a specific mandate. Correct answer.
  3. The repurchase must be approved by the issuer's board of directors and disclosed in the next annual report.
  4. The repurchase must be approved by the Exchange before it is carried out.

Explanation

The Listing Rules require an issuer to obtain shareholders' approval, by ordinary resolution, for repurchases of its own shares on the Exchange. This approval may be given as a general mandate (limited to 10% of the issued shares) or as a specific mandate for a particular repurchase. The other options do not reflect the required approval mechanism.