HKSI LE Paper 2 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

SFC statutory regulator

The Securities and Futures Commission is the statutory body regulating Hong Kong's securities and futures markets under the Securities and Futures Ordinance, Cap. 571.

HKMA bank supervision

The Hong Kong Monetary Authority supervises registered institutions (banks) conducting securities business, under a delegation arrangement with the SFC.

Regulated activity types

The SFO defines regulated activities including Type 1 dealing in securities, Type 2 dealing in futures, Type 4 advising on securities, Type 6 advising on corporate finance, and Type 9 asset management.

Responsible officer experience

A responsible officer must have at least three years of relevant industry experience in the previous six years, plus two years of management experience.

Minimum paid-up capital

A Type 1 dealing licensed corporation (not introducing) must maintain paid-up capital of at least HK$5 million and liquid capital of 5% of adjusted liabilities, subject to a HK$3 million floor.

Substantial shareholder approval

A person holding 10% or more of the voting power of a licensed corporation, and any change of 10% or more, requires SFC approval.

Fit and proper criteria

The SFC assesses financial status, education, experience, criminal record, and regulatory history to determine whether an applicant is fit and proper.

Licence revocation powers

The SFC may revoke or suspend a licence, impose fines, issue restriction notices and prohibition orders, and publicly reprimand licensed persons for breaches.

Mandatory general offer trigger

A person acquiring 30% or more of a company's voting rights must make a mandatory general offer for all outstanding shares not already held.

Offer document timing

The offer document must be published within 21 days of the announcement of a firm intention to make an offer, and the offer must remain open for at least 21 days.

Highest price rule

A mandatory general offer must be at the same price as the highest price paid by the offeror or concert parties in the preceding six months.

Sponsor appointment timing

A sponsor must be appointed at least two months before the listing application and must conduct reasonable due diligence on the listing applicant.

Connected transaction approval

A connected transaction exceeding de minimis thresholds requires independent shareholders' approval and an independent financial adviser's opinion in the circular.

Insider dealing definition

Insider dealing occurs when a person in possession of inside information deals, counsels or procures another to deal, or discloses the information.

Market Misconduct Tribunal

The MMT hears market misconduct cases referred by the SFC and can impose disgorgement, cold shoulder orders, disqualification, and fines up to three times profit gained.

Type 6 licence scope

Type 6 covers advising on corporate finance, including advice on the Takeovers Code, Listing Rules, share offers, and other corporate transactions.

Type 9 licence scope

Type 9 covers discretionary management of securities or futures contracts; a licence is required for managing a portfolio but not for managing a private company's own assets.

Type 9 capital requirement

A Type 9 licensed corporation must maintain paid-up capital of at least HK$1 million and liquid capital of 5% of adjusted liabilities, with a HK$100,000 floor for non-custodial managers.

Fund Manager Code

The Fund Manager Code of Conduct requires Type 9 managers of collective investment schemes to segregate client assets, ensure best execution, and manage conflicts of interest.

SFC fund authorisation

A retail collective investment scheme must be authorised by the SFC under the SFO, meeting criteria on management company, trustee, and offering document disclosure.

Code on Unit Trusts

The Code on Unit Trusts and Mutual Funds sets out authorisation requirements for retail funds, including investment restrictions, valuation, and disclosure.

Professional investor threshold

An individual with a portfolio of at least HK$8 million is a professional investor; offers to professional investors may be exempt from SFC authorisation.

Private fund exemption

A private fund with fewer than 50 investors, or with a minimum investment of HK$1 million per investor, may be exempt from SFC authorisation.

Manager-In-Charge regime

Type 9 managers must designate individuals responsible for core functions including overall management, risk management, compliance, and fund management, and notify the SFC.

Code of Conduct principles

The SFC Code of Conduct has 12 general principles including honesty and fairness, diligence, capability, information about clients, client assets, and conflicts of interest.

Suitability obligation

A licensed person must establish the client's financial situation, investment experience and objectives, and ensure a recommendation is suitable for that client.

Anti-money laundering duty

Customer due diligence must be performed before establishing a business relationship, under the AMLO and the SFC's AML/CFT Guideline.

Client asset segregation

Client securities must be registered in the client's name or an approved nominee company, and client money must be held in a designated trust account.

Conflicts of interest

A licensed person must avoid or manage conflicts of interest, disclose actual or potential conflicts, and not put its own interests ahead of the client's.

Order handling rules

Order handling requires fair and timely execution, no front-running, no trading ahead of client orders, and fair and transparent trade allocation.

Record-keeping period

Licensed corporations must keep records of client orders, transactions, and communications for at least seven years, maintaining an audit trail.

Complaints handling

A licensed corporation must handle complaints fairly and promptly under a written policy, and notify the SFC of material breaches and staff misconduct.