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HKSI LE Paper 3 study materials
HKSI LE Paper 3 study resources

HKSI LE Paper 3: Securities and Futures Markets and Their Participants

HKSI LE Paper 3 · Work through your exam, one topic at a time.

All guide sections

Securities and Futures Markets and Their Participants

This domain tests the structure of the Hong Kong market: who operates it, who may trade on it, how trades are executed and settled, and the special regimes that restrict short selling and protect investors.

Market operators

HKEX is the listed holding company. Its subsidiaries are SEHK (cash market), HKFE (futures and options), HKSCC (securities clearing), SEOCH (options clearing) and HKCC (futures clearing). The SFC supervises HKEX and its subsidiaries; the exchange companies operate the rules of their own markets and administer the Listing Rules with SFC oversight through dual filing.

Participants

  • Exchange Participants may trade on SEHK or HKFE, subject to the relevant licence type (Type 1 or Type 2).
  • Clearing Participants fall into categories such as General Clearing Participant, Direct Clearing Participant and Clearing Agency Participant, depending on their clearing obligations and capital.
  • CCASS houses securities accounts, including Investor Participant accounts for individual investors.

Execution and settlement

  • Trading runs on HKEX's electronic systems, with a Closing Auction Session determining the closing price, and a Volatility Control Mechanism to cool extreme price movements in specified instruments.
  • Securities settle in CCASS on T+2 through novation, with HKSCC becoming counterparty to both sides. Futures are marked to market daily through the clearing house.

Short selling

Only securities on the designated short-selling list may be short sold; the tick rule prohibits selling at a price below the current best bid; naked short selling is prohibited; reportable short positions must be reported to the SFC.

Investor protection and costs

  • The Investor Compensation Fund pays up to HK$500,000 per investor per default of an intermediary.
  • Stamp duty is 0.1% on each side of a Hong Kong stock transfer, and the SFC transaction levy is 0.0027% of consideration.

Worked example

A client instructs a sale of 10,000 shares he does not own, in a stock not on the designated list. Even if he intends to buy them back the same day, the sale is an illegal short sale: designation is a precondition, and the tick rule and reporting obligations would also apply if it were designated.

Traps

  • Believing SEHK disciplines conduct of business; that is the SFC's role.
  • Forgetting the tick rule bars sales below the best current bid, not merely below the last price.
  • Assuming HKSCC settles on T+3; the cycle is T+2.
  • Mixing up the HK$500,000 compensation cap with an unlimited guarantee.