According to Rule 8.08 of the Main Board Listing Rules, a listed issuer must maintain a minimum public float of 25% of its total issued share capital at all times. The ‘public’ is defined as persons who are not core connected persons of the issuer. Core connected persons include directors, chief executives, substantial shareholders (holding 10% or more), and their respective close associates. A ‘close associate’ of an individual includes their spouse. In the scenario presented, the shares were initially held by a substantial shareholder who was part of the public. When these shares are transferred to the spouse of the Chief Executive Officer, they are no longer considered to be in public hands because the CEO’s spouse is a close associate of a director and therefore a core connected person. This transaction directly reduces the company’s public float. Since the initial float was exactly 25%, the transfer of a 6% stake to a non-public party would cause the float to drop to 19%, which is below the prescribed minimum. This creates an immediate compliance obligation for the listed company to inform the Hong Kong Stock Exchange and take remedial action to restore the public float.

This question assesses the understanding of documentation requirements for different types of corporate actions under the Hong Kong Listing Rules. Statement I is correct; a capitalization issue, which involves allotting new shares to existing shareholders from reserves or profits without monetary payment, must be supported by a circular to shareholders that complies with Chapter 11. Statement II is also correct; an issue of securities as consideration for an acquisition is known as a consideration issue, and the primary disclosure requirement is a public announcement, distinguishing it from actions that require a shareholder circular. Statement III is correct; an open offer, a method of raising capital from existing shareholders, must be supported by a listing document, typically a circular, that adheres to the provisions of Chapter 11. Statement IV is incorrect; a scrip dividend scheme is explicitly defined as a form of capitalization issue, and therefore it is not exempt and must be supported by a shareholder circular compliant with Chapter 11. Therefore, statements I, II and III are correct.

According to Chapter 17 of the Main Board Listing Rules, while a board of directors can typically grant options under a pre-approved share option scheme, there are specific limits for grants to individual participants. If a proposed grant of options to a participant would result in the total value of securities issued and to be issued to that person under all of the issuer’s schemes in any 12-month period exceeding HK$5 million, that specific grant must be approved by the issuer’s shareholders in a general meeting. The value is calculated based on the closing price of the securities at the date of each grant. In this scenario, the value of the first grant to Mr. Chan was 1,000,000 shares HK$4.00 = HK$4,000,000. The value of the proposed second grant is 500,000 shares HK$3.00 = HK$1,500,000. The cumulative value of grants within the 12-month period (from 1 June 2023 to 1 March 2024) would be HK$4,000,000 + HK$1,500,000 = HK$5,500,000. As this total exceeds the HK$5 million threshold, the proposed second grant requires specific shareholder approval before it can be made. While the grant must be within the overall scheme limit and may be reviewed by INEDs, the overriding requirement triggered by exceeding the individual value cap is shareholder approval. Furthermore, grants under a Chapter 17 compliant scheme are generally exempt from the connected transaction rules.

This question assesses the specific listing requirements applicable to PRC issuers under the Hong Kong Listing Rules. Statement I is correct. According to Rule 19A.07 of the Listing Rules, if the authorized representatives of a PRC issuer are expected to be frequently outside Hong Kong, the Compliance Adviser must act as the issuer’s principal channel of communication with the Exchange. Statement II is incorrect. While Rule 8.17 generally requires a company secretary to be ordinarily resident in Hong Kong, there is a specific relaxation for PRC issuers, who are not subject to this residency requirement provided the individual meets the necessary qualifications and experience. Statement III is incorrect. Rule 19A.10 allows PRC issuers to prepare their accounts in accordance with either Hong Kong Financial Reporting Standards (HKFRS) or International Financial Reporting Standards (IFRS). It also permits them to present financial information conforming with PRC accounting rules, provided any material differences from HKFRS or IFRS are explained. Statement IV is correct. Rule 19A.13 explicitly requires a PRC issuer to appoint and maintain, throughout its listing period, a person authorized to accept service of process and notices on its behalf in Hong Kong. Therefore, statements I and IV are correct.

Statement I is incorrect. According to GEM Rule 11.12, a new applicant must have a focused line of business and not engage in more than one disparate business. An artificial intelligence research business and a fashion retail chain are considered disparate, which would likely disqualify the applicant. Statement II is correct. GEM Rule 11.12 requires that a new applicant must have been under substantially the same management and ownership over the period of active business pursuits. A complete change of both senior management and the controlling shareholder shortly before listing would violate this continuity requirement. Statement III is correct. GEM Rule 11.14 allows the Exchange to accept listing applicants with less than the standard track record of active business pursuits under exceptional circumstances, which includes newly-formed ‘project’ companies such as those developing infrastructure like a major data centre. Statement IV is correct. As per GEM Rule 11.13, if an applicant’s active business is carried out by a subsidiary, the applicant must control the board of that subsidiary and hold an effective economic interest of not less than 50%. Holding a 51% stake and demonstrating board control satisfies this rule. Therefore, statements II, III and IV are correct.

According to the Corporate Finance Adviser Code of Conduct, a firm must establish, maintain, and enforce a clear policy on personal account dealings for its employees. This policy is crucial for managing potential and actual conflicts of interest, especially when the firm is involved in sensitive transactions like an Initial Public Offering (IPO). The policy should specify the conditions under which employees may deal in securities, including those of a client, the necessary pre-approval procedures, the designated persons who can grant such approval, and subsequent reporting requirements. When acting as a sponsor for an IPO, the adviser has an overarching responsibility to ensure the public offer is conducted in a fair, timely, and orderly manner. Allowing employees to trade without proper controls could compromise the integrity of the offering and breach the firm’s duty to act in the client’s best interests. Therefore, the primary and most appropriate course of action is always to consult and adhere to the firm’s internal compliance framework governing personal dealings.

A listing by introduction is an application for the listing of securities that are already in issue and are so widely held that their marketability can be assumed without the need for marketing arrangements. Statement I is correct because the core definition under the Listing Rules (Rule 7.13) allows for an introduction if the securities are widely held, making it a potential option for Client A. Statement II is correct as a listing by introduction is explicitly cited as a normal and appropriate method for companies whose securities are already listed on another recognized stock exchange, which applies to Client B. Statement III is correct because the Listing Rules mandate that any listing by introduction must be supported by a listing document that complies with the relevant content requirements (Chapter 11). Statement IV is incorrect because it uses the term ‘automatically disallowed’. The rules state that an introduction will only be permitted in ‘exceptional circumstances’ if there has been a promotion of the shares in Hong Kong within the six months prior to the proposed introduction. This implies it is not an absolute prohibition but a high hurdle to overcome. Therefore, statements I, II and III are correct.

Statement I is correct. According to the Introduction of the Codes on Takeovers and Mergers and Share Repurchases, it is a key responsibility of financial and other professional advisers to use all reasonable efforts to ensure their clients understand and abide by the requirements of the Codes. Statement II is incorrect. The Codes are non-statutory in nature. While non-compliance can lead to serious sanctions, such as public censure or the withdrawal of market facilities (a ‘cold shoulder’ order), it does not typically result in criminal prosecution under the Securities and Futures Ordinance. Sanctions are administered by the Executive and the Takeovers Panel. Statement III is correct. The Codes are explicitly not concerned with the financial or commercial advantages or disadvantages of a transaction. Their purpose is to ensure fair treatment of all shareholders and to provide an orderly framework for takeovers, mergers, and share repurchases, not to evaluate the business merits of the deal. Statement IV is incorrect. The application of the Codes is not determined solely by the location of the primary listing. The Executive applies an economic or commercial test to determine if a company is a ‘public company in Hong Kong’. This test considers factors like the number of Hong Kong shareholders and the extent of local share trading, meaning the Codes can apply even to companies with a primary listing overseas if they have a significant connection to the Hong Kong market. Therefore, statements I and III are correct.

According to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, a sponsor has several key responsibilities. Statement I is correct as the sponsor is the principal channel of communication between the listing applicant and the Exchange. Statement II is correct because conducting reasonable due diligence to ensure the accuracy and completeness of the listing document is a fundamental obligation of a sponsor. Statement IV is also correct; sponsors must be closely involved in preparing the listing documents to ensure compliance and proper disclosure. However, Statement III is incorrect. A sponsor’s role is to ensure that the applicant is suitable for listing and that adequate disclosure is made; they do not provide any guarantee of the applicant’s future commercial success or profitability. That is a risk borne by investors. Therefore, statements I, II and IV are correct.

According to the Listing Rules of the Hong Kong Stock Exchange, convertible debt securities are hybrid instruments. For them to be listed, they must satisfy the requirements applicable to both the debt securities for which listing is sought and the underlying equity securities into which they can be converted. This makes statement I correct. Furthermore, the underlying equity securities must either be a class of securities already listed or a class that will become listed at the same time as the convertible debt securities. This makes statement II correct. Statement III is incorrect because it wrongly suggests that only the debt component’s rules apply, ignoring the critical requirements for the underlying equity. Statement IV is incorrect because the primary regulatory body for approving the listing of securities, including convertible bonds, is the Hong Kong Stock Exchange, not the Securities and Futures Commission (SFC). While the SFC is the overarching regulator, the Exchange manages the listing application and approval process. Therefore, statements I and II are correct.

Under the Companies Ordinance (Cap. 622) and general principles of corporate governance, a member of a company entitled to attend and vote at a general meeting is entitled to appoint another person as their proxy to attend and vote instead of them. The rights of the proxy are derived from and are no greater than the rights of the member they represent. The authority of the proxy is tied to the specific shares held by the member. If a member holds different classes of shares with varying rights, the proxy’s ability to act is determined by the rights attached to each specific class. For shares that are explicitly ‘non-voting’, this means they do not carry the right to vote on resolutions at general meetings. This characteristic is fundamental to the share itself and is not altered by the appointment of a proxy. Therefore, a proxy cannot vote using non-voting shares. Conversely, for shares that do carry voting rights, such as ordinary shares, the proxy can exercise those voting rights fully on behalf of the member. A proxy has the same right as the member to speak at the meeting.

A listing by introduction is a method for bringing securities that are already widely held to the Exchange without an accompanying marketing or fundraising exercise. Statement I is correct; according to Rule 7.13 of the Main Board Listing Rules, an introduction is a normal route for companies whose securities are already listed on another recognized stock exchange. Statement II is also correct; the Exchange will only permit an introduction in exceptional circumstances if there has been marketing or promotion of the company’s shares in Hong Kong within the six months prior to the proposed listing. This rule prevents companies from circumventing the more stringent requirements of an IPO after generating local market interest. Statement III is incorrect; the requirement for an issue to be fully underwritten is a typical condition for a rights issue (Rule 7.18), not for an introduction, as no new funds are being raised from the public. Statement IV is incorrect; despite no marketing arrangements being required, an introduction must be supported by a listing document that complies with the relevant provisions of Chapter 11 of the Listing Rules. Therefore, statements I and II are correct.

According to the GEM Listing Rules, the minimum number of public shareholders required at the time of listing is contingent on the applicant’s operating history. For an issuer that can demonstrate a track record of at least 24 months of active business pursuits, the requirement is a minimum of 100 public shareholders as stipulated in GEM Rule 11.23(2)(b). However, for an applicant that meets the listing eligibility criteria based on a shorter track record of only 12 months of active business pursuits, the Exchange imposes a more stringent requirement. Under GEM Rule 11.12(3)(c), such an applicant must have a minimum of 300 public shareholders at the time of listing. In the given scenario, the company’s 18-month operating history is greater than 12 months but less than 24 months, meaning it does not qualify for the lower shareholder threshold.

The Hong Kong Exchanges and Clearing Limited (HKEx) has a structured process for handling listing matters. The Listing Division is responsible for the day-to-day administration and initial assessment of listing applications. If an applicant disagrees with a decision made by the Listing Division, there is a formal appeal mechanism. The first level of review or appeal is handled by the Listing Committee, which has the authority to hear appeals against the Listing Division’s decisions. Should the applicant be dissatisfied with the Listing Committee’s decision, a further appeal can be made to the Listings Appeals Committee, which serves as the final level of appeal within the HKEx’s framework.

Under Chapter 17 of the Hong Kong Main Board Listing Rules, a share option scheme is subject to a general mandate limit. The total number of securities that can be issued upon the exercise of all options granted under the scheme (and any other schemes) must not exceed 10% of the relevant class of securities in issue as of the date the scheme was approved by shareholders. This is often referred to as the ‘10% scheme mandate limit’. Options that have lapsed are not counted towards this limit. If a listed issuer wishes to grant options that would result in this 10% limit being exceeded, it cannot do so unilaterally. The Listing Rules provide a specific mechanism for this situation: the issuer must seek separate approval from its shareholders in a general meeting. A key condition for this approval is that the proposed grantees (the participants who will receive the options in excess of the limit) must be specifically identified before the approval is sought. The company must issue a circular to shareholders containing details of the proposed grant, including the identity of the participants and the number of options to be granted. While refreshing the 10% limit at an AGM is a common practice to create new capacity, it is a separate process from seeking approval for a specific grant that exceeds the existing limit.

According to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (Main Board Listing Rules), a listed issuer must maintain a minimum percentage of its total issued shares in the hands of the public at all times. The standard requirement is 25%. The ‘public’ for this purpose excludes directors, chief executives, substantial shareholders (those holding 10% or more of the voting rights), and their respective close associates. In the scenario presented, the initial public float is 28%, which is compliant. The non-public holdings are the CEO (40%), a substantial shareholder (15%), and other directors/associates (17%), totaling 72%. When the CEO’s investment firm, a non-public entity, acquires 5% of the company’s shares from the public market, these shares are no longer considered to be in public hands. This directly reduces the public float from 28% to 23%. A public float of 23% is below the prescribed minimum of 25%, constituting a breach of a fundamental continuing listing obligation for the company. While the acquisition might also trigger a mandatory general offer obligation for the CEO under the Takeovers Code (as the holding increases by more than 2% within 12 months while being between 30-50%), the question asks for the most immediate regulatory concern for the company itself. The failure to maintain the public float is a direct breach of the Listing Rules by the company, which could lead to a trading suspension if not rectified promptly. A waiver is not an automatic remedy and is typically considered for very large market capitalization issuers at the time of listing, not to cure a post-listing breach of this nature. The transaction itself does not require pre-approval from the SFC, although subsequent filings under the Securities and Futures Ordinance (SFO) and the Takeovers Code would be necessary.

Statement I is correct. Under Part XV of the Securities and Futures Ordinance (SFO), a director of a listed corporation is deemed to be interested in the shares of that corporation held by another corporation if he is entitled to exercise or control the exercise of one-third or more of the voting power at the general meetings of that other corporation. Since Mr. Lo controls 35% of the voting power in Prosperous Investments, he is deemed to have an interest in the HKEX-listed shares it holds. Statement II is also correct. Section 270 of the SFO defines insider dealing to include situations where a person connected with a corporation has information they know is relevant information (i.e., non-public price-sensitive information) and counsels or procures another person to deal in the corporation’s listed securities. Mr. Lo’s instruction to the fund manager at Prosperous Investments to sell the shares based on the undisclosed negative trial results falls squarely within this definition. Statement III is incorrect. The SFO provides for both civil and criminal regimes for market misconduct. The SFC can refer a matter of suspected insider dealing to the Market Misconduct Tribunal (MMT) for civil proceedings under Part XIII of the SFO, or the matter can be prosecuted as a criminal offence by the Department of Justice under Part XIV. The two are not mutually exclusive, and the choice of which route to take depends on the specifics and severity of the case. Statement IV is incorrect. ‘Relevant information’ under the SFO is information that is not generally known to the persons who are accustomed or would be likely to deal in the listed securities of the corporation but would if it were generally known to them be likely to materially affect the price of the securities. The negative clinical trial results are highly material and price-sensitive, regardless of whether a formal press release has been drafted or scheduled. The lack of a formal announcement is what makes it inside information. Therefore, statements I and II are correct.

This question tests the understanding of the specific document submission timelines leading up to a Listing Committee hearing as stipulated by the Hong Kong Listing Rules. Statement I is correct because the draft memorandum and articles of association must be lodged with the Exchange at least 20 clear business days before the expected hearing date. As the hearing is only 18 business days away, this deadline has already passed. Statement II is correct because the formal declaration on other business activities (Form B/H/1) must be lodged at least 15 clear business days before the hearing. With 18 days remaining, the applicant has a 3-day window to submit this document to meet the deadline. Statement III is incorrect. According to Listing Rule 9.08, publicity material that requires review by the Exchange relates to the issue of securities. Material that solely promotes the applicant and its business, such as a corporate branding video, is generally excluded from this pre-vetting requirement. Statement IV is incorrect because the documents have different submission deadlines. The draft profit forecast is due at least 15 clear business days before the hearing, whereas the draft formal notice is due at least 10 clear business days before the hearing. They are not submitted together. Therefore, statements I and II are correct.

Statement I is correct. According to the Model Code for Securities Transactions by Directors of Listed Issuers (Appendix 10 of the Main Board Rules), a director must not deal in the securities of the listed issuer during the period commencing one month immediately preceding the earlier of the date of the board meeting for the approval of the results or the deadline for publishing the results. The proposed sale on May 15th is within one month of the June 5th board meeting, and is therefore within the prohibited ‘blackout period’. Statement II is also correct. The transformative government contract is information that is not public and would likely materially affect the price of the securities. This constitutes unpublished price-sensitive information (PSI). A director must not deal in securities when in possession of such information. Statement III is incorrect. The obligation to disclose price-sensitive information as soon as reasonably practicable is a mandatory requirement under Main Board Rule 13.09. It is not a Recommended Best Practice under the Corporate Governance Code subject to the ‘comply or explain’ principle. Statement IV is incorrect. The requirement for a listed issuer to adopt a code of conduct for directors’ securities transactions on terms no less exacting than the Model Code is a mandatory requirement under the Listing Rules, not a voluntary provision of the Corporate Governance Code. Therefore, statements I and II are correct.

According to the Hong Kong Listing Rules, specific documents must be lodged with the Exchange after the Listing Committee hearing but on or before the date of issue of the listing document. Statement I is correct as Rule 9.14 requires the submission of four copies of the listing document, one of which must be signed by every director and the company secretary. Statement III is also correct as the original signed sponsor’s declaration is another key document required at this stage. Statement II is incorrect; submitting six copies of the final proof of the listing document is a pre-hearing requirement under Rule 9.12, not a post-hearing one. Statement IV describes a requirement for prospectuses under the Companies Ordinance, where documents for authorization for registration are lodged with the Exchange by 11 am on the intended authorization date, which is a separate procedural step from the general post-hearing document submission under Rule 9.14. Therefore, statements I and III are correct.

This question assesses the understanding of Rule 26 of the Hong Kong Code on Takeovers and Mergers, specifically the concept of ‘persons acting in concert’ and the trigger for a mandatory general offer (MGO). The Takeovers Code defines persons acting in concert as individuals or companies who, pursuant to an agreement or understanding, actively cooperate to obtain or consolidate control of a company. When determining if the MGO threshold has been crossed, the holdings of all persons acting in concert are aggregated. The primary trigger for an MGO is when a person, or a group of persons acting in concert, acquires 30% or more of the voting rights of a company. In the scenario presented, the private equity fund and the company’s founder have a clear agreement to cooperate in exercising control, which establishes them as a concert party. By aggregating their acquisitions, their combined holding crosses the 30% threshold, thereby triggering the obligation under Rule 26 to make a general offer to all other shareholders. The offer must be made at a price not less than the highest price paid by any member of the concert party for shares in the target company during the six months prior to the offer.

This question assesses the understanding of the delisting procedures under the Hong Kong Listing Rules, specifically Rule 13.24 and the associated Practice Note 17. Rule 13.24 requires a listed issuer to maintain a sufficient level of operations or assets of sufficient value to warrant its continued listing. When an issuer, like Innovate Holdings Ltd., ceases its main business and becomes a ‘cash shell’, the Exchange will initiate procedures to assess its suitability for continued listing. Statement I is correct as the initial stage of the delisting procedure involves the Exchange monitoring the issuer’s developments, typically for a six-month period after suspension. Statement II is also correct; this represents a later stage (the third stage) where, if the issuer fails to remedy the situation, the Exchange will publicly name the issuer and set a deadline (usually six months) for it to submit a viable proposal to resume its listing. Statement IV is correct as it describes the final outcome if the issuer fails to provide a suitable resumption proposal by the stipulated deadline; the Exchange will proceed to cancel the listing. Statement III is incorrect because the Exchange requires a substantive and viable resumption proposal. A token acquisition of an unrelated, non-viable business simply to meet the letter of the rule would likely be deemed insufficient to warrant a continued listing. The Exchange focuses on the long-term viability and substance of the business operations. Therefore, statements I, II and IV are correct.

Statement I is correct. According to Main Board Listing Rule 7.27A(1), if a rights issue would increase the issued share capital or market capitalisation of the issuer by more than 50%, it must be conditional on approval by shareholders in a general meeting. The resolution must be passed by a vote on which any controlling shareholders, directors (excluding independent non-executive directors), and the chief executive of the issuer and their respective associates abstain from voting in favour. Statement II is correct. As per Listing Rule 7.20, the Exchange will normally allow a rights issue by a very substantial company to proceed on a non-underwritten basis, facilitating their fundraising activities. Statement III is incorrect. Listing Rule 7.19(2) explicitly requires that if an underwriter is entitled to terminate the underwriting agreement upon the occurrence of force majeure after dealings have commenced in the rights in nil-paid form, the listing document must contain full disclosure of that fact. It is a material term that must be disclosed to investors. Statement IV is incorrect. All rights issues must be supported by a listing document which complies with the relevant provisions of Chapter 11 of the Listing Rules, regardless of the fact that the offer is made to existing shareholders. Therefore, statements I and II are correct.

Under the revised Chapter 17 of the Hong Kong Listing Rules, the definition of eligible participants for share option schemes has been broadened. The new rules define ‘eligible participants’ as employees, directors, and other individuals who have contributed or will contribute to the issuer or any of its subsidiaries (‘service providers’). Statement I refers to a full-time employee, who is a traditional and still valid category of eligible participant. Statement II describes a marketing consultant providing strategic advice, which falls squarely under the expanded definition of a ‘service provider’ contributing to the company’s growth. Statement III refers to a supplier of goods (hardware), which is generally not considered a ‘service provider’ in the context of Chapter 17, as the rule focuses on individuals or entities providing services, not physical goods. Statement IV describes a connected person (the spouse of a director) who has no professional relationship with the company; their relationship alone does not make them an eligible participant. Therefore, statements I and II are correct.

This question assesses the understanding of the prospectus vetting and registration process for companies listing on The Stock Exchange of Hong Kong Limited (the Exchange). To avoid regulatory duplication, certain functions previously held by the SFC under the Companies Ordinance (CO) were transferred to the Exchange. Statement I is incorrect; the Exchange’s issuance of an authorization certificate under section 38D(5) or 342C(5) of the CO is a procedural step that permits registration, but it explicitly does not constitute a confirmation that the prospectus fully complies with all requirements of the CO. The ultimate responsibility and liability for the prospectus content, including any misstatements, remain with the issuer and its directors. Statement II is correct; once the Exchange issues the authorization certificate, the onus is on the issuer to deliver the prospectus and other required documents to the Companies Registry for formal registration. Statement III is correct; the Exchange’s review is comprehensive, covering compliance with both its own Listing Rules (as per Chapter 11A) and the relevant provisions of the Companies Ordinance concurrently. Statement IV is correct; Part II of Schedule 3 to the Companies Ordinance specifically mandates the inclusion of an accountant’s report and, where relevant, a valuation report for the company’s assets within the prospectus. Therefore, statements II, III and IV are correct.

Statement I is correct. According to Rule 2 of the Code on Share Buy-backs, an off-market share repurchase must be approved by the Executive of the SFC before it is made. Statement II is also correct. The Executive’s approval for an off-market repurchase is normally conditional upon approval by shareholders holding at least 75% of the voting rights at a general meeting, with the vendor and its concert parties abstaining from voting. Statement III is incorrect. An ’employee share repurchase’ is a specific type of exempt share repurchase and can only be made from employees or past employees of the company or its subsidiaries. It cannot be used for a transaction with an external institutional investor. Statement IV is correct. Under Rule 32 of the Takeovers Code, a share repurchase can increase the percentage of voting rights held by a shareholder. If this increase results in a shareholder’s holding crossing a trigger threshold (e.g., from below 30% to 30% or more), it may trigger a mandatory general offer obligation for that shareholder. Therefore, statements I, II and IV are correct.

Statement I is correct. Under the Securities and Futures Ordinance (SFO), a person may have a defence against an allegation of insider dealing if they can prove that the purpose for which they dealt in the securities was not to make a profit or avoid a loss by using inside information. In this scenario, acquiring shares to consolidate control and block a hostile takeover could constitute such a defence. Statement II is correct. One of the orders the Market Misconduct Tribunal (MMT) can make under section 257 of the SFO is to require a person to pay the Government an amount up to the profit gained or loss avoided as a result of the market misconduct. Statement III is incorrect. Section 307 of the SFO explicitly states that no criminal proceedings may be brought against a person for market misconduct if proceedings before the MMT in respect of the same conduct are pending. The two proceedings are mutually exclusive at any given time. Statement IV is incorrect. While the MMT can prohibit a person from dealing in securities, the maximum period for such a prohibition under section 257 of the SFO is five years, not ten. Therefore, statements I and II are correct.

This question tests the understanding of a Responsible Officer’s (RO) duties regarding delegation and supervision under the SFC’s regulatory framework. Statement I is correct because according to the Code of Conduct and the Management, Supervision and Internal Control Guidelines, delegation of a function does not absolve the RO or senior management of their ultimate responsibility for that function’s proper execution. Statement II is correct as effective supervision requires the establishment and maintenance of adequate controls and procedures to monitor the delegated tasks. This is a cornerstone of an RO’s supervisory role. Statement IV is correct because clear documentation of delegated authority, responsibilities, and reporting lines within the firm’s policies and procedures (like a compliance manual) is essential for good corporate governance and regulatory compliance. Statement III is incorrect. While tasks can be delegated, core compliance functions should be handled by qualified and competent individuals. Delegating such a critical function to an unlicensed staff member, regardless of their general industry experience, would likely be viewed by the SFC as a failure in maintaining adequate internal controls and supervision. Therefore, statements I, II and IV are correct.

This question tests the understanding of the rules governing securities transactions by directors of GEM-listed issuers, specifically the Model Code and the role of the Compliance Officer. According to the Model Code for Securities Transactions by Directors of Listed Issuers (as set out in Appendix 9 of the GEM Listing Rules), a director must not deal in any securities of the listed issuer during the 30 days immediately preceding the publication of the quarterly results (and until the results have been published). Mr. Chan’s proposed sale, two weeks (14 days) before the board meeting to approve the results, falls squarely within this prohibited ‘blackout period’. Therefore, statement I is correct. The designated Compliance Officer of a GEM issuer (under GEM Rule 5.19) is responsible for ensuring the company’s compliance with the GEM Rules. A key part of this role is to advise directors on their obligations, including the dealing restrictions. Advising Mr. Chan against the prohibited transaction is a fundamental duty of the Compliance Officer. Therefore, statement II is correct. Statement III is incorrect because obtaining clearance from the chairman does not override the absolute prohibition during a blackout period, except in truly exceptional circumstances (like severe financial hardship), which are not implied here. Statement IV is incorrect because the Model Code on director dealings is a mandatory requirement that issuers must adopt. It is not a ‘Code Provision’ from the Code on Corporate Governance Practices that can be deviated from on a ‘comply or explain’ basis. Therefore, statements I and II are correct.

This question assesses understanding of key corporate actions under the Hong Kong Listing Rules: reverse takeovers, connected transactions, and share repurchases.

Statement I is correct. An acquisition that is very large in relation to the size of the listed issuer and results in a fundamental change to its business is classified as a reverse takeover (RTO). The Hong Kong Stock Exchange treats an RTO as if it were a new listing application. Consequently, the enlarged group resulting from the acquisition must be able to satisfy all the requirements for a new listing on the Main Board, including financial tests and track record requirements.

Statement II is incorrect. The son of a chief executive is defined as an ‘associate’ of that chief executive under the Listing Rules. A company controlled by an associate is considered a ‘connected person’. Therefore, the sale of a subsidiary to this company constitutes a connected transaction. Such transactions are not automatically exempt and are subject to reporting, announcement, and potentially independent shareholder approval requirements, depending on the transaction’s size as determined by the percentage ratios.

Statement III is incorrect. The general mandate for share repurchases, which must be approved by shareholders, allows a listed issuer to repurchase a maximum of 10% of its total issued shares at the time the mandate was granted. A 15% limit is not permitted under the rules.

Statement IV is correct. The Listing Rules provide for ‘de minimis’ exemptions for certain connected transactions. A transaction is fully exempt from all reporting, announcement, and shareholder approval requirements if the consideration is below HK$3 million and all applicable percentage ratios are less than 5%. Since the scenario states the consideration is HK$2 million and the ratios are below 1%, the transaction qualifies for this full exemption. Therefore, statements I and IV are correct.