HKSI LE Paper 7 key terms

Authorisation from Hong Kong's Securities and Futures Commission allowing a firm to deal in securities, including executing client orders and market making. It is the core licence for brokers and equity trading desks.

Authorisation permitting a firm to provide asset management services to clients, including discretionary portfolio management and managing collective investment schemes. It underpins fund management activity in Hong Kong.

Rules requiring intermediaries to keep client assets segregated from house assets, deposit them in designated accounts, and maintain proper records. They protect clients if the intermediary becomes insolvent.

Mutual market access linking Hong Kong and mainland Chinese exchanges, letting investors trade eligible shares in the other market through local brokers and clearing houses. Trading quotas and eligibility lists apply.

Shares of a mainland-incorporated company listed in Hong Kong and denominated in Hong Kong dollars. They are subject to both mainland company law and Hong Kong listing requirements.

Ordinary shares of mainland Chinese companies listed on Shanghai or Shenzhen exchanges and quoted in renminbi. Access by overseas investors is limited and typically routed through controlled channels.

A company incorporated outside mainland China but with substantial mainland business interests, listed in Hong Kong. Its structure differs from H-shares, which are mainland-incorporated.

Standard cycle in which a securities trade is settled, with cash and securities exchanged, two business days after execution. Hong Kong equity trades normally settle on this basis.

Hong Kong's central counterparty and settlement infrastructure for securities, operated by HKEX. It novates trades, manages counterparty risk and holds securities in nominee form.

Selling securities the seller does not own, usually by borrowing them, with the aim of buying them back cheaper. Hong Kong permits it only for designated securities and under strict conditions.

Arrangement in which an owner temporarily transfers securities to a borrower in exchange for collateral and a fee. It supports short selling and settlement fails.

The single annual return an investor earns by holding a bond to redemption, assuming all coupons are reinvested at that same rate. It links price, coupon and remaining maturity.

A measure of a bond's price sensitivity to interest rate changes, expressed in years. A higher duration means a larger percentage price move for a given change in yield.

The extra yield a bond offers over a comparable risk-free government bond, compensating investors for default and liquidity risk. Widening spreads signal deteriorating credit confidence.

An independent agency's opinion on an issuer's or issue's ability to meet debt obligations on time. Ratings grade creditworthiness from high investment grade down to speculative levels.

Short-term debt instruments issued by the Hong Kong Monetary Authority on behalf of the Exchange Fund. They absorb interbank liquidity and serve as a benchmark for short-term money market rates.

The benchmark interest rate at which banks lend to each other in the Hong Kong dollar interbank market. It is quoted for several maturities and underpins many floating-rate products.

The HKMA mechanism that lets banks borrow overnight funds against collateral or place surplus funds, within the Convertibility Undertaking. It steadies very short-term interbank rates.

Hong Kong's currency board arrangement that holds the Hong Kong dollar within a band against the US dollar through the HKMA's convertibility undertaking and interest rate adjustments.

The price at which one currency is exchanged for another for settlement within a short standard period, usually two business days. It contrasts with forward rates for later delivery.

An agreed rate today for exchanging currencies on a future date. It reflects the spot rate adjusted for the interest rate difference between the two currencies.

Principle that the difference between spot and forward exchange rates equals the interest rate differential between two currencies, preventing riskless arbitrage. It links money markets and foreign exchange.

A standardised exchange-traded agreement to buy or sell an asset at a set price on a future date. It is margined daily and cleared through a central counterparty.

The price a buyer pays for an option, representing the right but not obligation to trade the underlying at a strike price. It reflects intrinsic value and time value.

The change in an option's price for a one-unit change in the underlying asset's price. It also approximates the equivalent underlying position the option represents.

The volatility level that, when entered into an option pricing model, reproduces the option's observed market price. It reflects market expectations of future price swings.

Collateral a clearing member or client must post when opening a futures or cleared derivatives position, covering potential future losses. It is topped up through variation margin.

Agreement between two parties to exchange periodic interest payments, typically one fixed and one floating, calculated on a notional principal. It manages interest rate exposure without exchanging principal.

Arrangement pooling money from many investors to invest in a portfolio, where investors lack day-to-day control and profits or gains are shared. Hong Kong regulates the marketing of such schemes.

A collective investment scheme approved for public sale in Hong Kong under the SFC's code on unit trusts and mutual funds. Authorisation covers structure, disclosure and dealing safeguards, not performance.

Written authority letting a portfolio manager decide investments for a client's account without prior approval for each trade. It requires suitability assessment and clear investment guidelines.

Dividing a portfolio among asset classes such as equities, bonds and cash to balance risk and return against the investor's objectives. Strategic and tactical versions differ in how actively weights change.

A licensed firm that prepares a company for listing, conducts due diligence and submits the listing application to the exchange. It owes duties to the exchange and to investors.

The rulebook governing admission, disclosure and continuing obligations of issuers on Hong Kong's exchange. It is administered by HKEX and backed by SFC oversight.

One financial eligibility route for listing in Hong Kong, requiring a minimum aggregate profit over the most recent trading period. Alternative routes include market capitalisation and revenue tests.

Sale of securities to selected investors, often institutions, rather than to the public at large. It can be used for an IPO or to raise further capital for a listed issuer.

Offer of new shares to existing shareholders in proportion to their holdings, usually at a discount. Shareholders may take up the offer, sell the rights or let them lapse.