HKSI Paper 4 flashcards

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

SFC statutory role

The Securities and Futures Commission is Hong Kong's statutory regulator of securities and futures markets, responsible for licensing, market supervision, enforcement and investor protection under the SFO.

Type 1 regulated activity

Dealing in securities, including executing client orders and marketing securities, requires a Type 1 licence or registration with the SFC.

Type 9 regulated activity

Asset management, meaning discretionary management of a portfolio of securities or futures contracts for another person, requires a Type 9 licence from the SFC.

Responsible Officer requirement

A licensed corporation must have at least two Responsible Officers, each approved by the SFC, who are responsible for supervising the regulated activity.

Market Misconduct Tribunal

A civil tribunal convened by the SFC that determines whether market misconduct such as insider dealing occurred and may impose disqualification, cold shoulder and cease-and-desist orders and fines.

Investor Compensation Fund cap

The Investor Compensation Fund compensates investors for losses caused by the default of a licensed intermediary in exchange-traded products, subject to a cap of HK$500,000 per investor.

Main Board profit test

A Main Board applicant must show aggregate profit of at least HK$75 million in the most recent two years, with at least HK$35 million in the most recent year.

Minimum public float

A Main Board issuer must have at least 25% of its issued shares in public hands, or 15% if its expected market capitalisation at listing exceeds HK$10 billion.

General mandate limit

A general mandate authorises an issue of new shares up to 20% of the issuer's issued share capital as at the date of the shareholders' resolution.

Placing discount limit

A placing under a general mandate must be priced at a discount of no more than 20% to the benchmarked price, unless a specific mandate is obtained.

Connected transaction approval

A connected transaction between a listed issuer and a connected person generally requires independent shareholders' approval and a circular when the percentage ratios exceed the de minimis thresholds.

Very substantial acquisition

A transaction with a percentage ratio of 100% or more is a very substantial acquisition, requiring shareholders' approval and a circular to shareholders.

Prospectus authorisation

A prospectus must be registered with the Registrar of Companies and authorised by the SFC, and must contain the information needed for an informed investment assessment.

Share repurchase mandate

A listed issuer may repurchase its own shares only under a general mandate from shareholders and in compliance with the buy-back rules; repurchased shares must be cancelled.

UT Code authorisation

SFC authorisation of a collective investment scheme under the Code on Unit Trusts and Mutual Funds is not a recommendation or guarantee of the scheme's performance.

NAV per unit formula

Net asset value per unit equals total assets minus total liabilities, divided by the number of units outstanding; forward pricing uses the next valuation point after a valid application.

Fund Manager Code of Conduct

The SFC code requires fund managers to act in the fund's best interests, manage conflicts, allocate investment opportunities fairly and maintain proper custody and valuation arrangements.

MPF scheme regulation

Mandatory Provident Fund schemes are regulated by the MPFA under the MPF Schemes Ordinance; approved trustees, custodians and investment managers are subject to MPFA approval and supervision.

Professional investor threshold

An individual professional investor must have a portfolio of at least HK$8 million and provide written consent; institutional investors also qualify under the SFO definition.

Private fund offering

Private funds are generally not SFC-authorised and may only be offered to professional investors under the professional investor exemption in the SFO and the Professional Investor Rules.

Futures versus forwards

Futures are exchange-traded, standardised and centrally cleared; forwards are OTC, customised and carry counterparty credit risk.

Call option payoff

A long call's payoff at expiry equals max(S − K, 0) minus the premium paid; a short call's payoff equals the premium minus max(S − K, 0).

Put option payoff

A long put's payoff at expiry equals max(K − S, 0) minus the premium paid; a short put's payoff equals the premium minus max(K − S, 0).

Put-call parity

For European options with no dividends, C + K/(1+r)^T = P + S; a violation of this relationship allows an arbitrage trade.

Option Greeks

Delta measures price sensitivity to the underlying, gamma measures change in delta, theta measures time decay, vega measures volatility sensitivity and rho measures interest-rate sensitivity.

Equity-linked note structure

An equity-linked note typically combines a bond with an embedded short put, producing a coupon but exposing the investor to downside risk if the underlying falls below the strike.

Derivative warrant

A derivative warrant gives the holder the right to buy (call warrant) or sell (put warrant) the underlying at a specified price; issuers must comply with HKEX structured product rules.

Suitability obligation

A licensed intermediary must ensure a recommendation or solicitation is suitable for the client given the client's financial situation, investment experience and investment objectives.

Client asset segregation

Client assets must be held in segregated accounts with a licensed custodian or in a client account with a bank, with proper records and regular reconciliation.

Record retention period

SFC licensees must keep records of client orders, transactions and communications for at least seven years, readily accessible and retrievable.

Conflicts of interest disclosure

An intermediary must avoid or manage conflicts of interest, disclose their nature and extent, and must not place its own interests ahead of the client's.

KYC and CDD

Anti-money laundering rules require identification and verification of the client's identity, beneficial ownership, and source of funds and wealth before establishing a business relationship.