HKSI LE Paper 3 flashcards

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

SFC legal status

The Securities and Futures Commission is a statutory body established under the Securities and Futures Ordinance, not a government department, and reports to the Financial Secretary.

SFO regulatory objectives

SFO Part I objectives include maintaining fairness, efficiency, competitiveness, transparency and orderliness of the securities and futures industry, and protecting investors.

Securities and Futures Appeals Tribunal

A statutory tribunal that hears appeals against specified SFC decisions, including licensing and disciplinary decisions, and may affirm, vary or set aside the decision.

Code of Conduct status

The Code of Conduct for Persons Licensed by or Registered with the SFC is not subsidiary legislation; breach is not itself an offence but may be considered in disciplinary proceedings.

Ten regulated activities

SFO Schedule 5 defines Types 1 to 10 regulated activities, including dealing in securities, advising on securities, asset management and providing credit rating services.

Responsible officer requirements

A responsible officer must meet the fit and proper test, have at least three years of relevant industry experience in the preceding six years, and pass an approved examination.

Executive director requirement

A licensed corporation must have at least two responsible officers, at least one of whom is an executive director available at all times to supervise the regulated activity.

Fit and proper test

The SFC considers financial status, education and qualifications, experience, criminal record, disciplinary history and past regulatory compliance when assessing fitness.

Sponsoring corporation

A licensed representative must be sponsored by a licensed corporation and may act only for that sponsoring corporation in carrying on regulated activities.

Suitability obligation

Before recommending a product, a licensed or registered person must assess the client's financial situation, investment experience and objectives and ensure the recommendation is suitable.

Client asset segregation

Client assets must be held in designated accounts and client securities registered in the client's name or in an SFC-approved nominee company.

Conflicts of interest

Conflicts must be avoided, disclosed and managed; inducements must be disclosed and must not impair the intermediary's duty to act in the client's best interests.

Record retention period

Client records and transaction records must be retained for at least seven years under the SFO and the Code of Conduct.

Order handling rules

Client orders must be executed on the best available terms, allocated fairly and promptly, and must not be front-run by the intermediary.

Insider dealing

A person connected with a corporation who uses inside information to deal, or counsels or procures another to deal, in the corporation's securities commits insider dealing.

Market Misconduct Tribunal

The MMT determines whether market misconduct has occurred and may impose civil sanctions, including disqualification, cold shoulder orders and cease and desist orders.

SFC disciplinary fine

The SFC may fine a licensed person up to HK$10 million or three times the profit gained or loss avoided, whichever is higher.

Section 213 orders

SFO section 213 allows the SFC to seek court orders, including injunctions and disgorgement, against persons who have contravened the SFO.

False information offence

A person who knowingly or recklessly provides false or misleading information to the SFC commits an offence under SFO section 384.

Stock Exchange of Hong Kong

The SEHK operates the securities market and is owned by HKEX; it is supervised by the SFC and applies the Listing Rules.

HKEX ownership

Hong Kong Exchanges and Clearing Limited owns the SEHK, the HKFE and the clearing houses, and is itself supervised by the SFC.

GEM market

GEM is a listing market designed for smaller growth companies and has lower listing requirements than the Main Board.

Stock Connect

Stock Connect links Hong Kong and mainland Chinese markets; eligible securities and quotas are set by the relevant authorities.

Short selling rules

Short selling is permitted only for designated securities and must comply with the SFC's short position reporting and tick rule requirements.

Prospectus authorisation

An offer of securities to the public in Hong Kong requires a prospectus authorised by the SFC under the Companies (Winding Up and Miscellaneous Provisions) Ordinance.

Professional investor exemption

Offers to professional investors, offers to not more than 50 persons, and offers with a minimum denomination of HK$500,000 are exempt from prospectus authorisation.

Takeovers Code

The Takeovers Code and the Code on Share Buy-backs are administered by the SFC's Takeovers and Mergers Panel and apply to public companies in Hong Kong.

Listing Rules

The Listing Rules are issued by HKEX and set out admission requirements, continuing obligations and disclosure requirements for listed issuers.

AMLO customer due diligence

CDD measures include identifying the customer, verifying identity, identifying the beneficial owner, and understanding the purpose and intended nature of the business relationship.

Politically exposed persons

Enhanced due diligence is required for politically exposed persons, correspondent relationships and higher-risk jurisdictions under the AML/CFT regime.

Suspicious transaction report

Suspicious transaction reports must be filed with the Joint Financial Intelligence Unit; tipping off the customer about a report is an offence.

AML record retention

CDD and transaction records must be retained for at least five years after the end of the business relationship under the AMLO.