Under the Securities and Futures Ordinance (SFO), the definition of ‘securities’ is broad and includes interests in a Collective Investment Scheme (CIS). When a fund is structured as a CIS, its shares or units are considered securities, irrespective of the nature of the underlying assets held by the fund. Therefore, even if a CIS invests exclusively in virtual assets that are not themselves defined as securities, any entity managing the assets of that CIS or dealing in its units is engaging in regulated activities. Specifically, managing the portfolio of the CIS falls under Type 9 (Asset Management) regulated activity, and marketing, distributing, or dealing in the units of the CIS falls under Type 1 (Dealing in Securities) regulated activity. Consequently, the entity must be licensed by the Securities and Futures Commission (SFC) for these activities. The regulatory focus is on the structure of the investment product (the CIS) rather than solely on the classification of its underlying investments.

Statement I is correct. A fundamental requirement under Paragraph 11.1 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission is the segregation of client assets. Licensed corporations must ensure that client assets are separated from the firm’s own house assets to protect clients in the event of the firm’s insolvency. This principle is also central to the Fund Manager Code of Conduct (FMCC) to safeguard the assets of a collective investment scheme.

Statement II is incorrect. The Corporate Finance Adviser Code of Conduct (CFA Code) and the general Code of Conduct do not impose an automatic prohibition in such a scenario. Instead, they require the firm to manage, disclose, and mitigate such conflicts of interest. The firm would need to have robust internal controls, such as information barriers (Chinese Walls), and make appropriate disclosures to all relevant parties. Resignation is a last resort if the conflict cannot be effectively managed.

Statement III is correct. This reflects a core duty of a corporate finance adviser under Paragraph 5 of the CFA Code and General Principle 2 (Diligence) of the Code of Conduct. A firm advising on a corporate finance transaction, such as an IPO, has a responsibility to conduct thorough and adequate due diligence on its client to ensure that information disclosed to the market is accurate and not misleading.

Statement IV is incorrect. The FMCC requires that the valuation of fund assets be performed independently. However, this independence can be achieved by a function within the fund management company that is functionally separate from the investment management and dealing functions. While appointing an external third party is one way to achieve this, it is not a mandatory requirement. The key principle is functional independence, not necessarily external appointment. Therefore, statements I and III are correct.

This question assesses the understanding of the Securities and Futures (Client Securities) Rules regarding the handling and depositing of client assets.

Statement I is incorrect. The rules require an intermediary to deal with client securities ‘as soon as reasonably practicable’ after receipt. It does not prescribe a fixed deadline of one business day. This flexible standard accounts for various operational circumstances.

Statement II is incorrect. Client securities must be segregated from the intermediary’s own assets. Depositing them into a general house account would constitute a breach of the segregation requirement, which is a fundamental principle of client asset protection under the Securities and Futures Ordinance.

Statement III is correct. The Securities and Futures (Client Securities) Rules provide specific flexibility for handling securities collateral. It can be deposited into a segregated client account (similar to client securities) or, alternatively, into an account maintained in the intermediary’s own name with an Authorized Financial Institution (AFI), an approved custodian, or another Type 1 licensed intermediary.

Statement IV is incorrect. The rules strictly define where client assets can be deposited. A parent company that is a property investment firm is not an AFI, an approved custodian, or another intermediary licensed for Type 1 regulated activity. Therefore, statement III is correct.

According to the Main Board Listing Rules (MBLR), a sponsor must advise a listing applicant on the most suitable method for admitting its securities to listing. The choice depends on several factors, including whether the company needs to raise new capital and the anticipated level of public interest. The primary methods for an initial public offering are an offer for subscription, an offer for sale, a placing, and an introduction. An ‘offer for subscription’ involves the company issuing new shares to raise capital and must be fully underwritten. A ‘placing’ involves offering securities to selected professional or institutional investors. A key restriction under the Listing Rules is that a listing by placing only is generally not permitted if there is likely to be significant public demand for the securities. In such cases, a public offer component is typically required to ensure that retail investors have an opportunity to participate. An ‘introduction’ is a method of listing existing shares where no new capital is raised and no marketing of the securities is undertaken. This method is suitable for companies that already have a broad shareholder base and are seeking a listing to enhance their corporate profile or provide a trading market for existing shareholders.

According to the SFC’s Code of Conduct and related guidelines on Over-the-Counter Derivative (OTCD) activities, a licensed corporation’s duties are clearly defined when dealing with clients and group affiliates. A fundamental principle is that a licensed person must always act in the best interests of its client. This obligation is paramount and is not diluted when the transaction involves a related party, such as a group affiliate. Furthermore, licensed corporations are required to apply consistent and robust risk management standards to all counterparties, irrespective of whether they are independent third parties or connected persons. Relaxing these standards for intra-group transactions is not permissible. The regulatory framework also mandates that licensed corporations establish and agree upon clear policies and procedures with their counterparties for handling disputes, particularly concerning the valuation of non-centrally cleared OTCDs. These procedures should outline how a discrepancy is identified as a formal dispute and the steps for its resolution.

This question assesses the candidate’s knowledge of the specific functions and operational structures of the various clearing houses under the Hong Kong Exchanges and Clearing Limited (HKEX).
Statement I is correct. The Hong Kong Securities Clearing Company Limited (HKSCC) is the designated clearing house for the cash market (i.e., securities transactions) on the Stock Exchange of Hong Kong (SEHK). It operates the Central Clearing and Settlement System (CCASS) for this purpose.
Statement II is correct. The HKFE Clearing Corporation Limited (HKCC) is responsible for clearing derivatives traded on the Hong Kong Futures Exchange (HKFE), such as Hang Seng Index futures. It utilizes the Derivatives Clearing and Settlement System (DCASS) as its clearing platform.
Statement III is correct. The SEHK Options Clearing House Limited (SEOCH) handles the clearing of options contracts traded on the SEHK. Importantly, it also uses the DCASS platform, which serves as a common system for both HKCC and SEOCH.
Statement IV is incorrect. While OTC Clearing Hong Kong Limited (OTC Clear) is designated for clearing certain OTC derivatives, it is not a wholly-owned subsidiary of HKEX. HKEX is the majority shareholder (holding approximately 84.14%), but other financial institutions also hold shares, making the ‘wholly-owned’ description inaccurate. Therefore, statements I, II and III are correct.

This question assesses the understanding of the rules governing regulated short selling on The Stock Exchange of Hong Kong Limited (SEHK). According to the Rules of the Exchange, several conditions must be met. Firstly, short selling is only permitted for specific securities designated by the SEHK, known as ‘Designated Securities’. Secondly, ‘naked’ short selling is prohibited. This means that before executing a short sale, the seller must have a presently exercisable and unconditional right to vest the securities in the purchaser by the settlement date. This is typically fulfilled by entering into a legally binding securities borrowing and lending agreement (SBLA). It is not necessary for the borrowed shares to be physically credited to the seller’s account before the order is placed, but the arrangement to borrow must be in place. Thirdly, all short selling orders must adhere to the price rule, often referred to as the ‘tick rule’. This rule stipulates that a short sale order cannot be entered into the trading system at a price below the best current ask price. This rule replaced the former ‘uptick rule’ which was based on the last traded price. Finally, all short sell orders must be properly flagged as such when submitted to the SEHK’s trading system to ensure market transparency.

This question tests the understanding of a licensed person’s duties under both the Prevention of Bribery Ordinance (POBO) and the SFC Code of Conduct when faced with a potential conflict of interest.

Statement I is correct. Section 9 of the POBO makes it an offence for an agent (the licensed representative) to solicit or accept an advantage without the permission of his principal (the client) as an inducement for or reward for doing any act in relation to his principal’s affairs. The priority IPO allocation is a clear ‘advantage’ intended to influence the representative’s decision on where to execute the client’s trade. Accepting it without the client’s explicit permission would be a potential breach of s.9 POBO.

Statement II is correct. General Principle 2 of the Code of Conduct requires a licensed person to act with due skill, care, and diligence, in the best interests of the client. Paragraph 3.2 specifically mandates the duty of ‘best execution,’ which means executing client orders on the best available terms. By allowing the personal advantage to influence the choice of counterparty, the representative is failing to prioritize the client’s best interests and is no longer focused solely on achieving the best possible execution terms available in the market.

Statement III is incorrect. While disclosing such an offer to the firm’s compliance department or Responsible Officer is a necessary internal control procedure, it does not satisfy the legal requirement under POBO. Section 9 of POBO specifically requires the permission of the principal (i.e., the client), not the representative’s employer, to make the acceptance of the advantage lawful.

Statement IV is incorrect. The definition of ‘advantage’ in the POBO is extremely broad and is not limited to monetary payments. It includes any gift, loan, fee, reward, office, employment, contract, service, or favour. A valuable and sought-after IPO allocation clearly falls within this definition. Therefore, statements I and II are correct.

The SFC’s Management, Supervision and Internal Control Guidelines emphasize the critical importance of segregating duties to mitigate operational risks. Specifically, functions that are potentially conflicting should be performed by different individuals or departments. In a financial institution, trade execution is a front-office activity, while trade reconciliation and settlement are back-office or middle-office functions. The primary purpose of this separation is to create a system of checks and balances. If the same individual who initiates a transaction is also responsible for verifying and recording it, there is a significant opportunity for errors (both accidental and deliberate) to go undetected. This individual could potentially conceal unauthorized trades, hide trading errors, or misappropriate assets, as there is no independent verification of their activities. The reconciliation process is designed to be an independent control to confirm that all transactions executed are legitimate, correctly recorded, and properly settled. Combining these roles effectively removes this crucial control, creating a major internal control weakness.

The risk-based approach (RBA) requires a licensed corporation to identify, assess, and understand its money laundering and terrorist financing (ML/TF) risks and apply commensurate resources and measures to mitigate them. Statement I is correct because the core principle of the RBA is to focus greater compliance efforts and resources, such as enhanced monitoring and specialized training, on areas identified as having a higher risk. Statement III is also correct as investing in and calibrating technology based on risk levels is a key part of implementing an effective RBA. Automated systems can be adjusted to be more sensitive to transactions involving high-risk clients, products, or jurisdictions, thereby allocating technological resources efficiently. Statement II is incorrect because it describes a uniform, one-size-fits-all approach, which is the opposite of an RBA. An RBA specifically requires differentiated controls based on varying risk levels. Statement IV is incorrect because compliance resource allocation under an RBA must be driven by ML/TF risk assessment, not by the revenue generated by a client or business line. While high-revenue clients might also be high-risk, the primary driver for resource allocation must be the risk itself. 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 (General Principle 7 and paragraph 12.2), senior management of an intermediary has the primary responsibility for establishing and maintaining an effective compliance function. Statement I is correct because this function must be independent of all operational and business functions and report directly to senior management to avoid conflicts of interest and ensure its objectivity. Statement II is correct as compliance staff must be provided with full access to all necessary records and documentation to effectively monitor the firm’s activities. Statement IV is also correct; intermediaries are explicitly required to establish anti-bribery policies that adopt the statutory definition of ‘advantages’ as stated in section 2(1) of the Prevention of Bribery Ordinance (Cap. 201). Statement III is incorrect because merging the compliance function with a business-generating department like sales and having it report to the Head of Sales creates a severe conflict of interest and fundamentally undermines the independence required of the compliance function. Therefore, statements I, II and IV are correct.

This question assesses the understanding of the operational rules and eligibility criteria for ETFs under the Southbound Stock Connect scheme.

Statement I is correct. The daily trading quota for both Northbound and Southbound trading is calculated on a ‘net buy’ basis. This means the quota is consumed by buy orders minus sell orders. Consequently, sell transactions increase the available quota for other investors to place buy orders.

Statement II is incorrect. Under the Stock Connect scheme, the trading of eligible ETFs and eligible stocks shares the same daily quota. There is no separate or distinct quota specifically for ETFs. For Southbound trading, the daily quota is RMB 42 billion for each of the Shanghai and Shenzhen links, which covers both stocks and ETFs.

Statement III is correct. A fundamental principle of the Stock Connect quota system is that it only limits buy orders. Investors are always permitted to sell their existing cross-boundary securities, regardless of whether the daily quota has been exhausted. This ensures investors can manage their positions and exit the market when needed.

Statement IV is incorrect. The eligibility criteria for an SEHK-listed ETF to be included in Southbound Connect specifies a minimum daily average Assets Under Management (AUM) of HKD 550 million over the preceding six months, not RMB 550 million over three months. The currency and the time frame are both incorrect in the statement. Therefore, statements I and III are correct.

This question assesses the fundamental ‘suitability’ obligation under the SFC Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. General Principle 2 requires a licensed person to act with due skill, care, and diligence, in the best interests of its clients. Paragraph 5.2 of the Code specifically elaborates on this by stating that a licensed person should, when making a recommendation or solicitation, ensure the suitability of the recommendation for that client is reasonable in all the circumstances. To achieve this, the licensed person must have an adequate understanding of the client’s financial situation, investment experience, and investment objectives. Simply providing product information or ensuring risk disclosures are signed, while important procedural steps, do not fulfill the core duty of assessing suitability. The primary obligation is to match the product recommendation to the client’s specific profile. Acting in the firm’s commercial interest at the expense of the client’s best interest is a direct violation of the Code.

Statement I is correct. For registered institutions (like banks), the Hong Kong Monetary Authority (HKMA) is responsible for supervising and monitoring their compliance with the requirements set out by the Securities and Futures Commission (SFC), including the Guidelines on Continuous Professional Training (CPT). Statement II is also correct. Failure to comply with CPT requirements is a serious matter that can cast doubt on a person’s competence and, consequently, their fitness and properness to remain registered to conduct regulated activities. The HKMA may take disciplinary action based on such failures. Statement III is incorrect. The requirement is that a registered institution must appoint at least two executive officers for each regulated activity it conducts. While at least one must be available at all times to supervise, the minimum number of appointed officers is two, not one. Statement IV is incorrect. The HKMA is the regulatory body that would initiate disciplinary proceedings against the staff (including executive officers and relevant individuals) of a registered institution. The SFC takes such action against licensed corporations and their staff (responsible officers and licensed representatives). Therefore, statements I and II are correct.

The Securities and Futures (Open-ended Fund Companies) Rules establish a comprehensive framework for the operation and governance of OFCs in Hong Kong. A critical component of this framework is the role of the custodian, which is tasked with the safekeeping of the OFC’s assets, referred to as ‘scheme property’. A fundamental duty of the custodian is to take the scheme property into its custody or under its control. Furthermore, to protect investors and ensure the integrity of the fund’s assets, the rules explicitly require the custodian to segregate the scheme property from its own assets and from the assets of its other clients. This segregation ensures that the OFC’s assets are clearly identifiable and are protected in the event of the custodian’s financial distress. The custodian’s role is distinct from that of the investment manager, who is responsible for making investment decisions. While the custodian may provide data to the fund administrator for valuation purposes, the ultimate responsibility for NAV calculation lies with the OFC’s board and is typically delegated to the administrator. Pooling scheme property with the investment manager’s assets is strictly prohibited as it would violate the core principle of asset segregation.

Directors of a Hong Kong company are subject to a range of duties, both statutory under the Companies Ordinance and at common law. A core set of these are fiduciary duties, which require a director to act in good faith and in the best interests of the company. A key fiduciary duty is the obligation to avoid conflicts of interest, meaning a director must not put their personal interests ahead of the company’s interests. This includes the strict ‘no-profit’ rule, which prohibits a director from using their position, corporate property, or confidential information obtained as a director to make a personal, undisclosed profit. This duty is separate from, though often related to, the duty to exercise reasonable care, skill, and diligence, which pertains to the standard of competence in their work. While a director’s actions might also breach other regulations, such as those concerning market misconduct under the Securities and Futures Ordinance, the duties owed directly to the company itself are governed primarily by the Companies Ordinance and common law principles.

Under Part XIVA of the Securities and Futures Ordinance (SFO), a listed issuer has a statutory duty to disclose inside information to the public as soon as reasonably practicable. Information about a material acquisition, especially a connected transaction involving a new controlling shareholder, is highly likely to be considered inside information. The Main Board Listing Rules (specifically Rule 13.09) also require issuers to avoid the establishment of a false market in their securities. When price-sensitive information arises during trading hours, the correct procedure to prevent information leakage and ensure a fair market is to request an immediate trading halt. This halt provides a brief period for the issuer to prepare and release a formal announcement detailing the transaction. A trading halt is intended to be short, typically lasting no more than two trading days, after which trading resumes or it becomes a suspension if the issue is not resolved. Simply waiting until the end of the day risks a false market if the information leaks, while a suspension is a more drastic measure for longer-term issues, not for pending announcements. Consulting other regulators is important but does not replace the immediate obligation to manage market disclosure.

The Volatility Control Mechanism (VCM) is a market integrity measure designed to prevent extreme price volatility for specific securities and derivatives. When a VCM-eligible instrument’s potential trade price deviates more than a predefined percentage from its reference price (the last traded price five minutes ago), a five-minute cooling-off period is triggered for that specific instrument only. It is crucial to understand that the VCM does not halt trading entirely. Instead, it allows trading to continue within a restricted price band during this cooling-off period. This mechanism is instrument-specific and does not affect the entire market. The VCM is active during the Continuous Trading Session (CTS) but is specifically excluded during the first 15 minutes of both the morning and afternoon sessions, and the final 15 minutes of the afternoon session.

Statement I is correct. According to the SFC’s regulatory requirements for Alternative Liquidity Pools (ALPs), a fundamental control is to manage conflicts of interest. This includes implementing robust information barriers to ensure that any person responsible for originating the firm’s proprietary orders does not have access to any trading and transaction information within the ALP, which could be used to their advantage. Statement II is also correct. An ALP operator must maintain proper records, which includes keeping a detailed log of all staff members permitted to access the ALP, the specific information they can access, and the justification for granting such access. The SFC must be kept informed of these details. Statement III is incorrect. The Personal Data (Privacy) Ordinance (PDPO) applies to all personal data collected from living individuals. While collecting data for regulatory compliance is a valid purpose, it does not grant a blanket exemption from the PDPO’s data protection principles, such as data security, accuracy, and retention. Statement IV is incorrect. The SFC requires ALP operators to provide timely notification of any material changes to the ALP’s operation or any significant breaches. Waiting for an annual review is insufficient and would be a compliance failure. Therefore, statements I and II are correct.

According to the SFC’s Management, Supervision and Internal Control Guidelines, a licensed corporation must establish an effective audit and review function. The internal audit function should be independent, free from operational duties, and report to senior management or an audit committee. Its scope and objectives should be clearly defined in its terms of reference. While senior management defines the role of the internal audit, their ability to direct external auditors is different. External auditors have a statutory duty to shareholders, regulators, and clients, which cannot be limited by senior management through prescribed terms of reference for the statutory audit. However, management can engage external auditors to perform additional, specific reviews outside the scope of the statutory audit. Furthermore, a collaborative relationship between internal and external auditors is encouraged, where external auditors may rely on the work of the internal audit team, but only after satisfying themselves of the internal team’s competence and independence.

Under the Securities and Futures Ordinance (SFO), specifically section 160, the SFC has the authority to appoint an auditor to investigate a licensed corporation if it receives a written application from a client who alleges, with good reason, that the corporation has failed to account for client assets or has not acted in accordance with instructions, leading to avoidable losses or unaccounted profits. The auditor appointed by the SFC is granted extensive powers to facilitate a thorough investigation. These powers include the ability to question officers, employees, and agents of the licensed corporation, potentially under oath. Furthermore, the auditor’s authority to demand records is not limited to the licensed corporation itself. It extends to other relevant entities such as recognised exchange companies and clearing houses, as well as any person holding client assets on behalf of the corporation. This ensures the auditor can trace transactions and verify information across the entire process chain. The investigation can also be extended to the business of related corporations if it is deemed relevant to the audit.

A detailed analysis of each statement is required to determine compliance with Hong Kong’s short selling regulations. Statement I is correct because holding immediately convertible bonds grants the seller a ‘presently exercisable and unconditional right to vest’ the shares in the purchaser, which satisfies the condition for a covered short sale under Section 170(1) of the Securities and Futures Ordinance (SFO). Statement III is also correct as having a confirmed stock borrowing arrangement is the standard mechanism for covering a short sale, ensuring the seller can deliver the securities upon settlement. Statement II describes a situation that is explicitly exempted from being treated as a short sale under SFO Section 170(3)(b). Since unconditional instructions have been issued to obtain the security, the transaction is not classified as a short sale at all, and therefore cannot be a ‘covered short sale’. Statement IV is incorrect because it misrepresents the Securities and Futures (Short Position Reporting) Rules. These rules mandate the reporting of a ‘net short position’ that meets a specific threshold (the lower of 0.02% of the issuer’s market capitalization or HK$30 million), not the reporting of every individual short sale transaction. The reporting obligation is on the position holder, not a condition for executing the sale itself. Therefore, statements I and III are correct.

According to the SFC’s Guidelines on Continuous Professional Training (CPT), a Responsible Officer (RO) is required to complete a minimum of 12 CPT hours per calendar year. This is a higher requirement than the 10 hours for a licensed representative. Within this 12-hour total, there are specific minimums for certain topics. All individual practitioners must complete at least 2 hours on topics relating to ethics or compliance. Furthermore, individuals approved as Takeovers Code Responsible Officers (TCROs) must undertake at least 2.5 hours of CPT on topics directly related to the Codes on Takeovers and Mergers and Share Buy-backs. It is important to understand that these specific topic requirements are part of the total 12 hours, not in addition to them. Therefore, the TCRO’s obligation is to ensure that within their 12-hour annual CPT, at least 2.5 hours are dedicated to Codes-related matters and at least 2 hours are dedicated to ethics or compliance.

Under the Companies Ordinance (CO), a company’s articles of association define the rights attached to different classes of shares. Ordinary shares represent the fundamental ownership or equity of a company. Their holders bear the ultimate risk and stand to gain the highest rewards. In a winding-up or liquidation scenario, there is a strict order of priority for the distribution of a company’s assets. Creditors (including debenture holders) are paid first, followed by preference shareholders (if their shares grant them such priority). Only after these claims are fully satisfied are the remaining (residual) assets distributed among the ordinary shareholders. This means ordinary shareholders are the last to be paid and risk receiving nothing if the assets are insufficient. The CO allows companies, particularly private ones, significant flexibility to create different classes of shares with varied rights concerning voting, dividends, and capital distribution, as long as these are clearly defined in the articles of association. The concept of ‘one-share, one-vote’ is a guiding principle, primarily for publicly listed companies, but the Listing Rules now permit dual-class share structures for certain issuers under specific conditions (Chapter 8A), and the CO itself does not prohibit such structures for private companies.

Under the Securities and Futures Ordinance (SFO), ‘advising on securities’ is a Type 4 regulated activity. It involves giving advice on whether to acquire or dispose of securities, which securities to acquire or dispose of, the time at which to do so, or the terms and conditions for such transactions. The commentator’s statement about Company XYZ’s stock being undervalued and a ‘good buying opportunity’ falls squarely within this definition. However, the SFO provides specific exemptions to avoid licensing individuals like financial journalists or commentators. One such exemption applies to advice given through a newspaper, journal, or other publication made available to the public (which includes subscription-based electronic publications). As the commentator’s advice is disseminated through his blog to subscribers and not personalized to individual financial situations, his activities are generally covered by this exemption. Therefore, he would not be required to be licensed for a Type 4 regulated activity. This distinguishes his role from that of a licensed representative who provides tailored advice to specific clients. The activity does not constitute ‘dealing in securities’ (Type 1) as he is not executing trades or acting as an intermediary.

This question assesses the understanding of a licensed corporation’s obligations under the SFC’s regulatory framework for electronic trading, specifically Paragraph 18 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission and the associated guidelines. A key requirement is that firms must have effective controls to manage the risks of electronic trading. In the event of a system malfunction that generates erroneous orders, the primary responsibility is to contain the potential market impact immediately. This involves having mechanisms, often referred to as a ‘kill switch’, to instantly stop the system from sending new orders and to cancel any existing, unexecuted orders on the market. Following this immediate containment action, the firm has a duty to promptly report any material system interruption or incident to the SFC. While investigating the technical cause, communicating with clients, and conducting an internal review are all important subsequent steps, the most critical initial actions are to halt the problematic activity to protect market integrity and to fulfill the regulatory reporting obligation.

Under the Securities and Futures (Professional Investor) Rules, a corporation can be classified as a Corporate Professional Investor through several criteria. Statement I is correct because a corporation with total assets of not less than HK$40 million qualifies. HK$45 million exceeds this threshold. Statement II is correct because a corporation that acts principally as an investment holding company and is wholly owned by an Individual Professional Investor also qualifies. An individual with a personal portfolio of HK$12 million meets the HK$8 million threshold to be an Individual PI. Statement III is incorrect; the rules require the corporation itself to have a portfolio of at least HK$8 million or total assets of at least HK$40 million. The rules do not permit the aggregation of portfolios between a parent and its subsidiary to meet this requirement. Statement IV is incorrect because the threshold for a trustee company to qualify as a Professional Investor is having total assets of not less than HK$40 million under its trust, not HK$30 million. Therefore, statements I and II are correct.

This question assesses the understanding of the respective powers of the Securities and Futures Commission (SFC) and The Stock Exchange of Hong Kong Limited (SEHK) regarding trading suspensions, delistings, and disciplinary actions.

Statement I is correct. Under the Securities and Futures (Stock Market Listing) Rules, the SFC has the authority to direct the SEHK to suspend dealings in a security if it believes that the issuer has provided false, incomplete, or misleading information in its listing application or subsequent public disclosures. The overstated revenue projections in the IPO prospectus fall into this category.

Statement II is correct. According to the Main Board Listing Rules (specifically, Rule 13.24), the SEHK may cancel a listing if it determines that the issuer does not maintain a business with a sufficient level of operations or assets to warrant its continued listing. The cessation of operations at the primary manufacturing plant, which generates the vast majority of revenue, is a clear indicator of insufficient operations.

Statement III is correct. The Main Board Listing Rules (specifically, Rule 6.01A(1)) grant the SEHK the power to cancel the listing of any securities that have been suspended from trading for a continuous period of 18 months. As the company’s shares have been suspended for over a year, this rule would become applicable once the 18-month threshold is reached.

Statement IV is incorrect. The Listing Committee’s disciplinary powers are not limited to the listed issuer. They explicitly extend to specified persons, which include the company’s directors, senior management, and substantial shareholders, who may be held accountable for breaches of the Listing Rules. Therefore, statements I, II and III are correct.

The Securities and Futures Commission (SFC) is structured into several operational divisions, each with a distinct mandate. The Investment Products Division is primarily responsible for matters related to the authorisation and ongoing supervision of investment products offered to the public. This includes developing the regulatory framework (codes and guidelines) for these products and authorising them for public sale, as described in statement I. Conversely, the Enforcement Division is the SFC’s disciplinary and investigative arm. Its role includes monitoring trading activities for irregularities and investigating potential market misconduct, such as manipulation, as correctly identified in statement II. Statement III is incorrect because the development of codes and guidelines for product disclosure, such as what must be included in a prospectus, is a function of the Investment Products Division, not the Enforcement Division. Statement IV is also incorrect; while the Investment Products Division monitors ongoing compliance of authorised products, the power to formally discipline licensed corporations or individuals for misconduct is a core function of the Enforcement Division. Therefore, statements I and II are correct.

This question assesses understanding of the SEHK’s disciplinary review process. Statement I is correct; the Listing Review Committee serves as the final level of review for decisions made by the Listing Committee. Statement II is incorrect; the Securities and Futures Appeals Tribunal (SFAT) is the appellate body for decisions made by the SFC or the Hong Kong Monetary Authority, not for decisions made by the SEHK’s Listing Committee. The proper channel for the company is to request a review by the Listing Review Committee. Statement III is correct; the SFC has the statutory power to request the Listing Review Committee to review any decision of the Listing Committee, including disciplinary actions. This oversight function is a key part of the dual-filing regime. Statement IV is incorrect; it describes the opposite of the actual rule. If the SFC initiates a review and the Listing Review Committee modifies the original decision against the company, the company is granted a right to a further review by a newly constituted Listing Review Committee. This ensures fairness to the party affected by an SFC-initiated change. Therefore, statements I and III are correct.