Type 1 Securities Sales Representative Examination key terms

Under Hong Kong's Securities and Futures Ordinance, the regulated activity of dealing in securities, which requires a licence or registration before a person may carry it on as a business.

The Securities and Futures Ordinance (Cap. 571), the primary Hong Kong statute covering licensing, market misconduct, disclosure of interests and enforcement across the securities and futures markets.

Authorisation granted by the Securities and Futures Commission allowing a corporation or individual to carry on one or more regulated activities, subject to conditions and conduct requirements.

An individual licensed under the SFO to carry on a regulated activity on behalf of a licensed corporation, having met competence, qualification and fit-and-proper criteria.

A licensed individual approved by the SFC to supervise a regulated activity of a licensed corporation; at least two must be appointed for each regulated activity.

The assessment of integrity, competence, financial soundness and reliability applied to licence applicants and continued licence holders, including criminal, regulatory and disciplinary history.

The SFC's Code of Conduct for Persons Licensed by or Registered with the SFC, setting general principles and detailed requirements on fair dealing, suitability, conflicts and client assets.

A licensed corporation engaged by an issuer to manage a listing application, conduct due diligence on the issuer and ensure the accuracy of prospectus disclosure to the exchange and investors.

An initial public offering: the first sale of shares by a company to the public, accompanied by listing on an exchange and typically marketed through a prospectus and bookbuilding.

The disclosure document issued for a public offer of securities, containing information investors need to make an informed assessment, with liability for misstatements under companies and securities legislation.

The process of gathering indications of interest from institutional investors at various price levels to help set the offer price and allocate shares in an offering.

A large investor who commits before listing to subscribe for a fixed amount of shares at the offer price, often subject to a lock-up, signalling confidence in the offering.

A contractual restriction preventing controlling shareholders, pre-IPO investors or cornerstone investors from selling shares for a set period after listing.

A sale of securities to selected investors rather than the public, often used to raise capital quickly or to place shares with institutions under a mandate.

An offer of new shares to existing shareholders in proportion to their holdings, usually at a discount, protecting them against dilution through pre-emption rights.

The investigation a sponsor, underwriter or adviser performs on an issuer's business, finances, legal affairs and management to verify disclosure and assess risk before an offering.

A debt instrument by which an issuer borrows capital from investors, promising periodic coupon payments and repayment of principal at maturity.

The annualised total return an investor earns by holding a bond to maturity, assuming all coupons are reinvested at that same rate and the issuer does not default.

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

An independent agency's opinion of an issuer's or debt issue's creditworthiness, expressed on a letter scale from investment grade to speculative grade.

The difference in yield between a corporate bond and a comparable government bond, reflecting the extra compensation investors demand for credit and liquidity risk.

A financial contract whose value derives from an underlying asset, rate, index or event, such as a future, option, swap or structured note.

A listed instrument giving the holder the right, but not the obligation, to buy or sell an underlying asset at a set price before expiry, issued by a third-party financial institution.

The volatility level for an underlying asset that, when entered into an option pricing model, produces the option's current market price; it reflects market expectations of future movement.

An investment combining a derivative with a deposit or note to create tailored risk and return profiles, often with capital protection, income features or exposure to an underlying index.

Collateral a client must deposit or maintain with a broker when trading leveraged products, covering potential losses and subject to calls if the account falls below required levels.

An arrangement pooling investor money to invest in a portfolio managed as a whole, where investors do not control day-to-day management and returns depend on the scheme's performance.

A collective investment scheme approved by the SFC for retail sale in Hong Kong, meeting requirements on structure, disclosure, custody and management.

An exchange-traded fund: a listed collective investment scheme whose units trade intraday on an exchange and typically track an index, with creation and redemption by authorised participants.

The document, such as a prospectus or product key facts statement, that gives investors essential information about a fund or product, including risks, fees and dealing terms.

Funds held by a licensed intermediary on behalf of clients, which must be segregated from the firm's own money and handled under strict client asset rules.

The duty to take reasonable care to obtain the best available outcome for client orders, considering price, speed, likelihood of execution and settlement, and order size.

The internal rules and controls governing how client orders are received, recorded, prioritised and executed, ensuring fair allocation and preventing misuse of order information.

The process of collecting and verifying a client's identity, financial situation, investment experience and objectives before providing services or advice.

The requirement to ensure a recommended investment is reasonably suitable for the client in light of their known circumstances, objectives, risk tolerance and financial capacity.

An evaluation of how much investment loss and volatility a client can financially and psychologically bear, used to match clients with appropriate products.

The review a firm performs on an investment product's structure, risks, fees, liquidity and underlying assets before recommending or distributing it to clients.

The written contract between an intermediary and a client setting out services, fees, trading terms, risk disclosures and the basis on which the relationship operates.

The framework of laws, rules and procedures requiring firms to identify customers, monitor transactions and report suspicious activity to prevent laundering of criminal proceeds.

A confidential report filed with the financial intelligence unit when a firm knows or suspects that funds or activity are linked to crime, with tipping-off prohibited.

An individual entrusted with prominent public functions, or a close associate or family member, who presents higher money-laundering risk and requires enhanced due diligence.

Additional identity verification, source-of-funds checks and senior approval applied to higher-risk customers such as politically exposed persons or those in high-risk jurisdictions.

Disclosing to a suspect that a suspicious transaction report has been or may be made, which is itself a criminal offence because it can prejudice an investigation.

Situations where a firm's or employee's own interests, or duties to another client, could improperly influence the advice or service given to a client.

An internal information barrier separating teams such as corporate finance and sales or research, preventing price-sensitive information from flowing between them.

Trading ahead of a known client order to profit from the expected price impact, which abuses confidential order information and constitutes market misconduct.

Specific information about a listed issuer or its securities that is not generally known but would, if known, materially affect the price of those securities.

Trading or procuring others to trade in securities while in possession of inside information, or disclosing such information improperly; a civil and potentially criminal offence.

Prohibited conduct under the SFO including insider dealing, false trading, price rigging, disclosure of false information and stock market manipulation.

A body convened by the SFC to hear civil market misconduct proceedings and impose sanctions such as disgorgement, fines, disqualification and cold-shoulder orders.