Type 1 Securities Sales Representative Examination flashcards

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

Regulated activities

Ten categories of activity under the SFO that require an SFC licence or registration, including dealing in securities, advising on securities, asset management, and securities margin financing.

Fit and proper criteria

SFC standards a licensee must meet: financial soundness, competence, no adverse regulatory or criminal record, and no disqualification order.

Manager-In-Charge regime

Requires licensed corporations to designate individuals responsible for core functions such as overall management, compliance, risk management, and AML/CFT, and notify the SFC.

Main Board profit test

Listing eligibility requiring HK$35 million aggregate profit over three years, with at least HK$4.5 million in the most recent year.

Public float requirement

At least 25% of an issuer's shares must be held by the public at listing, reduced to 15% where market capitalisation exceeds HK$10 billion.

Cornerstone investor lock-up

Cornerstone investors in an IPO must hold their shares for six months after listing and are subject to disclosure requirements.

Modified duration

Macaulay duration divided by (1 + yield/n); measures the percentage change in bond price for a small change in yield.

Clean versus dirty price

Clean price excludes accrued interest; dirty price equals clean price plus accrued interest, which compensates the seller for interest earned since the last coupon.

Investment grade

A credit rating of BBB−/Baa3 or above, indicating lower default risk; below this level is high yield or speculative grade.

Put-call parity

For European options on a non-dividend stock, C − P = S − K × e^(−rT), linking call, put, underlying and strike prices.

Option delta

The change in an option's price for a one-unit change in the underlying price; call deltas are positive, put deltas negative.

Derivative warrant

A listed instrument issued by a third party giving the holder the right to buy or sell the underlying at a strike price before expiry.

Collective investment scheme

An arrangement pooling contributions, holding property, sharing profits with participants, and where participants lack day-to-day control.

ETF creation and redemption

Participating dealers create or redeem ETF units in creation units in exchange for the underlying basket, keeping the ETF price close to NAV.

Leveraged and inverse products

ETPs that reset daily to deliver a multiple or inverse of an index's daily return; returns diverge from the multiple over longer periods.

Best execution

A duty to take reasonable steps to obtain the best available terms for clients, considering price, cost, speed, and likelihood of execution and settlement.

Covered short selling

Short selling in Hong Kong is permitted only for designated securities and must be covered by an existing borrowing arrangement; naked short selling is prohibited.

Front-running

Dealing ahead of or against a client order to profit from the anticipated price impact, which is prohibited market conduct.

Professional investor threshold

An individual with a portfolio of at least HK$8 million, or a corporation with a portfolio or total assets of at least HK$40 million.

Suitability obligation

A recommendation or solicitation must be reasonably suitable for the client given their financial situation, investment objectives, risk tolerance and knowledge.

Risk profiling

Classifying a client's risk tolerance through a questionnaire and matching it to a product risk rating before recommending an investment.

Customer due diligence

Identifying and verifying the customer and beneficial owner, understanding the purpose of the relationship, and conducting ongoing monitoring.

Politically exposed person

An individual entrusted with a prominent public function; relationships require senior management approval, source of wealth checks and enhanced monitoring.

Suspicious transaction report

A report to the Joint Financial Intelligence Unit when a firm knows or suspects money laundering or terrorist financing; tipping off the customer is an offence.

Code of Conduct principles

Nine SFC general principles covering honesty, diligence, capability, client information, conflicts of interest, compliance, client assets and senior management responsibility.

Client asset segregation

Client money and securities must be held separately from the firm's own assets in designated accounts and reconciled regularly.

Inducements

Benefits offered to or accepted by a firm that could conflict with the client's best interests; they must be disclosed and managed.

Personal account dealing

Staff trading in their own accounts is restricted by pre-clearance, minimum holding periods and prohibitions on front-running client orders.

Inside information

Specific information about a corporation, not generally known, that would likely materially affect its securities price if generally known.

Insider dealing

A connected person dealing in securities while in possession of inside information, disclosing it, or procuring another to deal.

Market Misconduct Tribunal

A civil tribunal hearing insider dealing and market misconduct cases; it can impose disqualification, cold shoulder, cease-and-desist orders and fines.

Disclosure of inside information

Under Part XIVA of the SFO, a listed corporation must disclose inside information to the public as soon as reasonably practicable.