Trading, order handling and market conduct
What this domain tests
This domain tests the operational and conduct rules that sit around order flow: order types, execution quality, allocation fairness, short selling and the market's mechanical safeguards.
Core rules
- Client orders must be handled fairly and promptly, with client orders taking priority over proprietary orders and no front-running of known client flow. Allocation policies for IPOs and placings must be written, applied consistently and not favour connected persons.
- Best execution means taking reasonable steps to obtain the best available outcome for the client, considering price, cost, speed, likelihood of execution and settlement, not simply the last traded price.
- Hong Kong has a pre-opening session, continuous trading and a closing auction session with a random closing time. The Volatility Control Mechanism applies to constituent stocks of the Hang Seng Index, the Hang Seng China Enterprises Index and the Hang Seng TECH Index: a 10% move within five minutes triggers a five-minute cooling-off period with trading confined to a 10% band.
- Short selling is permitted only in designated securities and must be covered; naked short selling is prohibited and short positions must be reported.
- A person with a 5% or greater notifiable interest in a listed company must notify the SFC and the company under Part XV of the SFO.
Worked example
A dealer holds a large buy order for a client and wants to buy the same stock for the firm's book first. Executing the proprietary order first would be front-running: the firm must execute the client order first, and its written allocation policy must be applied to any aggregated order.
Traps that cost marks
Assuming a market order guarantees a price; ignoring that the cooling-off period restricts trading to a band rather than halting it; thinking short selling is allowed in every listed stock; and mixing the 5% disclosure threshold with takeover thresholds.