Under the SFC’s Fund Manager Code of Conduct, a licensed corporation may enter into soft dollar or soft commission arrangements only if the goods and services received are of demonstrable benefit to its clients. The core principle is that these arrangements must not be used to cover the firm’s general operating expenses but must instead directly assist the firm in its investment decision-making process. Acceptable services typically include substantive research, market data, and specialized analytical software for portfolio management. Conversely, services that are considered general corporate or administrative overhead are not permissible. This includes items like general office equipment, standard office software, employee salaries, professional membership dues, or travel and entertainment expenses. The critical test is whether the service enhances the quality of investment management for the client, rather than simply reducing the business costs of the fund manager.

This question assesses the understanding of a licensed corporation’s obligations to disclose information to its clients under the SFC Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, specifically paragraphs 8.1 and 8.4. Statement I is correct because paragraph 8.1 requires a licensed person to promptly provide the client with a confirmation for transactions executed on their behalf. Statement II is correct as paragraph 8.1(c) explicitly states that a licensed person should, upon request, provide the client with a copy of its most recent audited financial statements. Statement III is incorrect because paragraph 8.4 places a proactive obligation on the licensed person to inform the client of corporate actions related to their securities; it is not contingent on the client making a specific inquiry. Statement IV is incorrect because while a contract note is required, the specific timeframe is governed by the Securities and Futures (Contract Notes, Statements of Account and Receipts) Rules, which stipulate issuance no later than the end of the second business day after the transaction (T+2), not a blanket ‘within 24 hours’. Therefore, statements I and II are correct.

According to paragraph 8.1 of the SFC Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, a licensed or registered person should provide clients with adequate and relevant information in a timely manner. Statement I is correct as firms must provide prompt confirmation of transactions, including all essential information. Statement II is correct because firms are required to inform clients about corporate actions, such as dividends, related to securities held on their behalf. Statement IV is correct as it is crucial, especially within a large financial services group, to provide clear information about which company the individual representative is acting for to avoid client confusion. Statement III is incorrect; the Code requires a licensed person to provide its latest audited financial statements to a client upon request, not its internal audit reports, which are confidential internal documents. Therefore, statements I, II and IV are correct.

The SFC Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission requires licensed corporations to make adequate disclosure of relevant material information in their dealings with clients. This principle of transparency is fundamental. Specifically, paragraph 8.1(a) mandates that a firm must provide clients with adequate information about its business, including the identity and status of employees acting on its behalf. When dealing with a financial services group comprising multiple legal entities, it is crucial to provide clear information about which company the individual contact is representing. This prevents any ambiguity for the client regarding which entity is providing the service or product. Furthermore, paragraph 8.1(b) stipulates that a licensed corporation should, upon a client’s request, provide a copy of its latest audited financial statements. This allows clients to assess the financial health and stability of the firm they are dealing with.

According to the Fund Manager Code of Conduct (FMCC), a fundamental principle governing personal account dealings is that staff must always give priority to the funds they manage. To enforce this, fund managers must establish clear house rules. A key provision is that ‘relevant persons’ (such as directors, employees involved in investment decisions, or those with access to pre-trade information) must obtain prior written approval before conducting a personal trade. Even after this pre-clearance is granted, a critical restriction applies: the relevant person is prohibited from buying or selling an investment for their personal account on any day when the fund manager has a similar pending order for a fund it manages. This rule is designed to prevent conflicts of interest, such as the staff member’s trade competing with or taking advantage of the fund’s trading activity. The pre-clearance itself is typically valid for a short period, not exceeding five trading days, to ensure the approval is based on current market conditions and the firm’s trading intentions.

According to Part I of the Fund Manager Code of Conduct (FMCC), the senior management of a licensed fund management company bears the ultimate responsibility for the firm’s overall operations and its compliance with all relevant legal and regulatory requirements. This responsibility is foundational and cannot be fully delegated. Senior management must ensure that the firm establishes, implements, and maintains adequate and effective policies, procedures, and internal controls. These systems are designed to manage risks, prevent conflicts of interest, and ensure adherence to all applicable laws, rules, codes, and guidelines issued by the SFC and other relevant authorities. While specific operational tasks, such as trade execution or compliance monitoring, are carried out by various staff or even outsourced, the senior management must maintain active oversight to ensure these functions are performed properly. Guaranteeing investment returns is not a regulatory requirement and is generally prohibited as it can be misleading to investors. The level of supervision required is strategic and systemic, focusing on the adequacy of the overall framework rather than micromanaging individual transactions.

According to the SFC’s Fit and Proper Guidelines and the Code of Conduct for Persons Licensed by or Registered with the SFC, a licensed corporation must have adequate internal controls and qualified staff on an ongoing basis. Statement I is deficient because supervisory staff must have at least three years of ‘relevant’ experience. Experience in financial journalism, while related to finance, is not directly relevant to the supervision of portfolio management activities. Statement II is deficient because compliance policies and procedures must be tailored to the firm’s specific business activities and risks; a generic, non-customized manual is inadequate. Statement III describes a conflict of interest and a lack of competence. The compliance function should be independent and staffed by qualified personnel; assigning it to a CFO focused on cost control with no compliance experience undermines its effectiveness. Statement IV is deficient because the CPT Guidelines require that training must be relevant to the individual’s professional duties. A firm must not only track hours but also ensure and be able to demonstrate the relevance of the training undertaken by its licensed staff. Since all four arrangements fail to meet the required regulatory standards, they would all be considered deficient. Therefore, all of the above statements are correct.

According to the SFC’s Code on Unit Trusts and Mutual Funds, a management company seeking to manage an authorized fund must satisfy the Commission that it has adequate human resources and internal controls. A key part of this assessment involves the experience of its key personnel. The SFC expects these individuals to have at least five years of demonstrable experience managing public funds with investment strategies and asset classes similar to the proposed fund. Experience in other related fields, such as managing private discretionary accounts or wealth management portfolios, may not be considered directly equivalent for this specific requirement. The SFC’s focus is on ensuring that the team has a proven track record in the public, regulated fund environment to protect the interests of the investing public. The duration and the specific nature (i.e., public funds) of the experience are both critical criteria in the SFC’s evaluation.

This question assesses the application of General Principle 6 (Conflicts of Interest) and Paragraph 11.2 of the SFC Code of Conduct concerning client priority in the allocation of orders. When a licensed person aggregates orders for clients with orders for its own or its employees’ accounts and a partial fill occurs, client orders must be given absolute priority. Statement I is correct because the Code of Conduct mandates that client orders must be satisfied before any allocation is made to the licensed person’s or its employee’s own account. Statement III is also correct; under General Principle 6, when a conflict of interest arises (as it does here), the firm must ensure fair treatment of clients, which includes disclosing the conflict and the basis of allocation. Statement II is incorrect because applying a pro-rata allocation that includes the manager’s personal account would dilute the allocation available to clients, violating the client priority rule. The manager’s account must be subordinated. Statement IV is incorrect because the specific rule on allocation priority in aggregated orders overrides the general principle of handling orders chronologically. The status of the account (client vs. staff) is the determining factor for allocation priority, not the time of order receipt. Therefore, statements I and III are correct.

This question assesses the understanding of how different SFC codes apply to a Collective Investment Scheme (CIS) based on its legal structure and target investors. For a fund to be authorised by the SFC in Hong Kong, it must comply with the relevant codes. The Code on Unit Trusts and Mutual Funds (UT Code) is the primary regulation for any CIS offered to the retail public. It sets standards for disclosure, operations, and marketing to protect public investors. Separately, the Open-ended Fund Company (OFC) is a specific corporate structure for investment funds established under Hong Kong law. The SFC has a dedicated OFC Code that governs the establishment, key operators (like directors and custodians), and corporate governance of funds using this structure. When a fund is both structured as an OFC and intended for public distribution, it falls under the purview of both regulatory frameworks. It must meet the structural and governance requirements of the OFC Code while also satisfying the investor protection and operational standards of the UT Code to gain SFC authorisation for a public offering. Other codes, such as the Code on REITs, apply to entirely different types of specialised investment products.

According to Chapter 9 of the Code on Unit Trusts and Mutual Funds (UT Code), a Collective Investment Scheme (CIS) that is not based in Hong Kong and whose management company is also based outside Hong Kong must appoint a representative in the city. This representative acts as the local point of contact and performs several key functions on behalf of the CIS and its management company. These duties are primarily administrative and facilitative, ensuring that Hong Kong investors have local access to services and information. Key responsibilities include processing applications and redemptions, acting as a channel for notices and correspondence, and providing investors with documents such as financial reports. A crucial transparency requirement is that the representative must make the scheme’s constitutive documents (e.g., the trust deed or articles of incorporation) available for public inspection in Hong Kong, free of charge. The representative’s role does not extend to core management functions like making investment decisions or calculating the fund’s value, which are the responsibilities of the management company and fund administrator, respectively. Nor does the representative assume liability for the fund’s investment outcomes.

According to the SFC’s Code on Unit Trusts and Mutual Funds, the offering documents of an authorised collective investment scheme must contain specific disclosures to ensure investor protection and transparency. Statement I is correct; a standard disclaimer must be included stating that SFC authorisation does not imply an official recommendation or endorsement of the product. Statement II is also correct; if a performance fee is charged, the basis for its calculation must be clearly and fully disclosed to investors. Statement IV is correct; the offering document must specify the method by which unitholders will be notified of any material changes to the scheme, such as alterations to its investment objectives or fee structure. Statement III is incorrect; while the offering document must detail the methodology for calculating the Net Asset Value (NAV) and the frequency of valuation, it cannot state the exact NAV for the next dealing day, as this value is forward-looking and determined by market movements. Therefore, statements I, II and IV are correct.

According to the SFC’s Code on Unit Trusts and Mutual Funds, specific rules govern the composition of money market funds. Statement I is non-compliant because the weighted average maturity (WAM) of the portfolio must not exceed 60 days; a WAM of 75 days is a clear breach. Statement II is compliant because the maximum remaining maturity for Government and other public securities is two years (24 months), and 18 months is within this limit. Statement III is compliant because while the general single-entity limit is 10%, it is increased to 25% for a substantial financial institution. Statement IV is non-compliant because the aggregate value of a fund’s investments in entities belonging to the same group may not exceed 20% of its total NAV; an investment of 25% exceeds this limit. Therefore, statements I and IV are correct.

This question tests the understanding of the governance and operational requirements for an Open-ended Fund Company (OFC) in Hong Kong, specifically concerning the roles and independence of its directors and the licensing of its investment manager, as stipulated in the SFC’s Code on Open-ended Fund Companies.

Statement I is correct. The OFC Code requires the board to have at least one independent director. A key criterion for this independence is that the individual must not be a director or an employee of the OFC’s custodian. This rule is designed to prevent conflicts of interest in the oversight of the fund’s assets.

Statement II is correct. A fundamental duty of the OFC’s directors is to oversee the activities of key delegates, including the investment manager and the custodian. The OFC Code mandates that such activities must be subject to a formal written agreement between the OFC and the relevant party, ensuring clear terms of engagement and accountability.

Statement III is correct. To ensure investor protection and proper regulatory oversight, an OFC must delegate its investment management function to an investment manager that is licensed by or registered with the SFC to carry out Type 9 (asset management) regulated activity.

Statement IV is incorrect. This statement describes a common misconception. While the independent director must be independent of the custodian, the OFC Code explicitly allows the independent director to be affiliated with the investment manager (e.g., by being a director or employee of the investment manager). The independence requirement is focused on the custodian relationship. Therefore, statements I, II and III are correct.

This question assesses the ability to identify various red flags for potential money laundering, terrorist financing, or other illicit activities as outlined in the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations). Each statement represents a recognized indicator that should trigger further scrutiny.

Statement I describes a classic money laundering technique known as ‘layering’ or ‘structuring’. Small cash purchases are made to avoid detection thresholds, and then consolidated and sold. Directing the proceeds to an unrelated third party, especially overseas, is a significant red flag for obscuring the trail of funds.

Statement II highlights a risk associated with the deposit of physical securities. This can be a method to introduce assets of illicit origin into the financial system or could be related to market manipulation schemes, especially if the stocks are illiquid. The lack of a clear economic reason for the deposit warrants investigation.

Statement III points to employee-related red flags. An unexplained, dramatic increase in performance, coupled with a lavish lifestyle and a reluctance to take holidays (which might allow another person to review their activities), can indicate fraudulent activity, unauthorized trading, or collusion with clients in illicit schemes.

Statement IV describes the suspicious use of an account as a repository for funds. A trading account holding a large, idle cash balance for an extended period without any trading activity is unusual and could suggest the funds are being parked pending transfer, which is inconsistent with the stated purpose of the account.

All four scenarios present circumstances that deviate from normal client or employee behaviour and align with indicators of potential financial crime, requiring the licensed corporation to conduct further due diligence and possibly file a Suspicious Transaction Report (STR). Therefore, all of the above statements are correct.

According to the SFC’s Code on Unit Trusts and Mutual Funds (UT Code), the management company of a Collective Investment Scheme (CIS) has several core duties to protect the interests of scheme holders. One of the most critical duties is timely financial reporting. The UT Code specifies distinct deadlines for interim and annual reports. For interim reports, which cover the first six months of the financial year, the management company must prepare and publish them to all holders within two months of the end of the period. For annual reports, the deadline is extended to four months from the financial year-end. It is also a requirement that a copy of both the annual and interim reports be filed with the SFC at the time they are published. This is a notification requirement, not a request for pre-approval. Furthermore, while the management company has an ongoing duty to ensure the custodian is qualified and discharging its obligations, this due diligence process is separate from the rigid deadlines for financial reporting and would not typically require the suspension of fund dealings unless a severe issue is uncovered.

According to the SFC’s Code on Unit Trusts and Mutual Funds and the Advertising Guidelines for Collective Investment Schemes, all information provided to investors must be clear, fair, and not misleading. Statement I is correct because while the use of simulated performance data is highly restricted, it may be permitted if it is based on the performance of a fund with a substantially similar investment objective and policy managed by the same group. Statement II is correct as any projection or forecast, such as a target dividend yield, must be accompanied by a clear disclosure of the calculation basis and a prominent warning that it is not guaranteed. This ensures investors understand the speculative nature of such figures. Statement III is correct because performance data must be calculated net of fees and charges to reflect the actual return an investor would receive. Presenting gross performance would be misleading. Statement IV is incorrect. While offering documents like the prospectus and KFS are submitted to the SFC for authorization, the SFC does not pre-approve every specific performance figure or chart in marketing materials. The responsibility for ensuring all content is compliant with regulations rests with the fund management company. The SFC conducts post-vetting and can take enforcement action if materials are found to be non-compliant. Therefore, statements I, II and III are correct.

According to the SFC’s Code on Pooled Retirement Funds (PRF Code), the principal brochure is the primary disclosure document for potential participants. Its fundamental purpose is to provide sufficient, clear, and balanced information to enable a person to make an informed judgement about the PRF and its underlying investment portfolios. This includes details on investment objectives, risk factors, fees and charges, and the operational aspects relevant to the participant. While the brochure may mention past performance, its main role is not purely promotional. The detailed legal and operational governance is contained within the constitutive documents, such as the trust deed or policy document, not the principal brochure. Similarly, specific, detailed internal compliance procedures of the provider are generally not the focus of a document intended for scheme participants.

According to the SFC’s Code on Unit Trusts and Mutual Funds, a pricing error of 0.5% or more of the Net Asset Value (NAV) per unit triggers specific obligations. Statement I is correct because the 0.6% error exceeds this threshold, requiring the management company to immediately inform both the SFC and the trustee/custodian. Statement II is correct as the code stipulates that any losses sustained by the collective investment scheme itself must be compensated, typically by the management company. Statement III is also correct; the code requires that losses to individual investors of more than HK$100 (or a lesser amount set by the management company) must be compensated. Investors who redeemed at an understated NAV were underpaid and thus suffered a loss that requires compensation if it exceeds the threshold. Statement IV is incorrect because while the trustee approves the compensation method, its discretion is not absolute. In cases where the trustee considers the standard compensation rules inappropriate, it is required to justify its reasons to the SFC, indicating it does not have final, unconsulted authority. Therefore, statements I, II and III are correct.

The SFC’s Fund Manager Code of Conduct (FMCC) provides specific guidance on the use of soft dollars or commission-sharing arrangements. The core principle is that any goods or services received by a fund manager through such arrangements must be of demonstrable benefit to the clients of the fund whose transactions generated the credits. The services must directly assist the fund manager in its investment decision-making process. Acceptable services typically include investment research, economic analysis, portfolio valuation tools, and market data services. Conversely, services that relate to the general operating overhead of the fund management company are considered unacceptable. This includes items like general office equipment, staff salaries, membership fees, and travel or entertainment expenses, as these costs should be borne by the fund manager from its own resources, not indirectly by its clients through trading commissions.

Under Part IV of the Securities and Futures Ordinance (SFO), specifically Section 104A, the authorisation of a structured product by the SFC is subject to certain conditions. One critical requirement is that for every authorised structured product, there must be an individual who is formally approved by the SFC to act as the designated recipient for any notices and decisions served by the Commission. The issuer must provide the contact details of this person to the SFC. The SFC holds the power to grant this approval and also to withdraw it. In practice, the SFC generally requires this designated individual to be a person licensed or registered for a relevant regulated activity, most commonly Type 1 (dealing in securities) or Type 4 (advising on securities), to ensure they are familiar with the regulatory landscape and obligations. While this person may also be a Responsible Officer or have legal qualifications, the specific requirement is SFC approval for this designated role, which is typically linked to holding a relevant SFC license.

According to the SFC’s Code on Unit Trusts and Mutual Funds (UT Code), a management company seeking authorisation for a public fund must meet several key requirements. Statement I is correct because the SFC requires the management company to identify at least two key personnel who have a demonstrable and satisfactory investment track record in managing public funds. Statement III is also correct; as Orion Capital is a firm established and operating in Hong Kong, it must be licensed by the SFC for the relevant regulated activity, which is Type 9 (Asset Management), to manage a collective investment scheme. Statement II is incorrect because while a management company can delegate investment management functions, it cannot delegate its ultimate responsibilities and obligations to the holders of the fund. The management company retains full responsibility and must supervise any delegate. Statement IV is incorrect because the provision for being regulated in an acceptable overseas jurisdiction applies to management companies that are based outside Hong Kong and do not carry on a regulated activity in Hong Kong. Since Orion Capital is a Hong Kong-based firm, it must be licensed directly by the SFC. Therefore, statements I and III are correct.

According to the SFC’s Management, Supervision and Internal Control Guidelines, a licensed corporation must establish and maintain adequate and effective internal control procedures. A fundamental component of this is ensuring that all staff are thoroughly aware of and understand the firm’s internal policies and procedures. This obligation involves more than just passive dissemination of documents. Firms are expected to provide structured and comprehensive training that is suitable for the specific duties of the staff member. This training should cover critical areas such as the firm’s internal control framework, operational procedures, restrictions on personal account dealing, and the secure handling of client and firm information. While obtaining signed acknowledgements, providing IT security training, and facilitating ongoing CPT are all important compliance activities, the primary initial responsibility is to embed a clear understanding of the firm’s specific rules and control environment through dedicated, role-specific training. This ensures that new staff can perform their duties competently and in a compliant manner from the outset, safeguarding both the firm and its clients.

This question assesses the candidate’s understanding of a fund manager’s core duties regarding trade execution and allocation under the Fund Manager Code of Conduct (FMCC). Statement I is correct because the FMCC requires that when a fund manager aggregates orders for multiple funds, the allocation of the executed trades must be done in a fair and equitable manner. Pro-rata allocation based on the original order size is a commonly accepted and fair method. Statement II is incorrect as it describes a clear breach of the fund manager’s fiduciary duty. Prioritizing one fund over others to boost its performance violates the principle of treating all clients fairly and managing conflicts of interest. Statement III is correct and reflects the fundamental duty of best execution. The FMCC obligates a fund manager to execute transactions on the best available terms for the fund, considering the ‘total consideration’ which includes not just the price but also commissions, speed, and likelihood of execution and settlement. Statement IV is incorrect and represents a serious conflict of interest. A fund manager must not give preferential treatment to their own or staff accounts over client accounts. Allocating the best-priced executions to a personal account is a direct violation of this principle. Therefore, statements I and III are correct.

According to paragraph 8.1 of the SFC Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, a licensed or registered person is required to provide clients with adequate and relevant information about its business. This includes its contact details, the services it provides, and crucially, the identity and status of the employees acting on its behalf. When the licensed person is part of a larger financial group with multiple entities, it is a specific requirement to provide clear information about which company the individual contact is acting for. While information like audited financial statements must be provided upon request, it is not a mandatory upfront disclosure. Similarly, transaction confirmations are provided after a transaction has occurred, not at the initial stage of establishing the relationship. Disclosures related to specific services, like discretionary management, are relevant but do not cover the fundamental requirement of identifying the firm and the representative’s capacity.

This question assesses the ability to distinguish between virtual assets that are considered ‘securities’ under the Securities and Futures Ordinance (SFO) and those that are not. According to the SFC’s regulatory framework, a virtual asset is treated as a security if it possesses characteristics of traditional financial instruments like shares, debentures, or interests in a Collective Investment Scheme (CIS).

Statement I describes a token that grants ownership rights and a share of profits, which is functionally equivalent to a ‘share’ or equity interest. Therefore, it falls under the SFO.

Statement II describes a token whose primary function is to serve as a medium of exchange or a store of value, without offering ownership or debt claims. Such assets, like many mainstream cryptocurrencies, are typically not considered securities and would instead be regulated under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) when traded on a licensed Virtual Asset Service Provider (VASP) platform.

Statement III describes a token that represents a debt owed by the issuer to the token holder, promising repayment of principal with interest. This structure is analogous to a ‘debenture’ and is therefore classified as a security under the SFO.

Statement IV describes a structure where investors’ funds are pooled and managed collectively to invest in an underlying asset (a property development project) with the expectation of profit. This arrangement meets the definition of a Collective Investment Scheme (CIS), and interests in a CIS are defined as securities under the SFO. Therefore, statements I, III and IV are correct.

According to the SFC’s Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (GAML), licensed corporations and licensed Virtual Asset Service Providers must adopt a Risk-Based Approach (RBA). This involves conducting two distinct types of assessments. The first is an institutional risk assessment, which evaluates the overall ML/TF risks the firm faces based on its business nature, size, complexity, products, services, and customer base. This high-level assessment is foundational for designing the firm’s entire AML/CFT system. Key regulatory requirements for the institutional risk assessment include that it must be approved by senior management and be subject to a periodic review, which should occur at least every two years or more frequently if significant changes occur in the business. The second type is the customer risk assessment, which is conducted for each individual business relationship to determine the appropriate level of customer due diligence. This assessment is performed within the framework established by the institutional assessment. It is crucial to distinguish between the firm-wide (institutional) assessment and the client-specific (customer) assessment.

The MPFA’s Code on Disclosure for MPF Investment Funds sets out specific requirements for trustees to ensure scheme members receive clear and adequate information. Statement I is correct as the Code mandates the preparation and availability of a Fund Fact Sheet for each constituent fund at least on a semi-annual basis. Statement II is correct because disclosing fund performance against an appropriate benchmark is a key requirement to help members assess the fund’s performance in context. Statement III is also correct; the Fund Expense Ratio (FER) is a standardized measure of a fund’s operating costs and its disclosure is mandatory to ensure transparency on fees and charges. Statement IV is incorrect. While trustees are required to disclose the top holdings (e.g., top 10), the Code does not mandate the disclosure of the full list of portfolio holdings on a monthly basis in the Fund Fact Sheet; this level of detail and frequency is not a standard requirement under this specific code. Therefore, statements I, II and III are correct.

Under the Securities and Futures Ordinance (SFO), certain professionals such as solicitors, certified public accountants (CPAs), and trustees are exempt from needing a license for regulated activities like asset management (Type 9) if these activities are ‘wholly incidental’ to their professional practice. The concept of ‘wholly incidental’ is crucial. It implies that the securities-related service must be a subordinate or necessary component of the primary professional service being offered, rather than a distinct business activity in itself. Key factors to consider include the basis of remuneration, whether the professional holds discretionary authority over the client’s assets, and how the service is marketed. For instance, providing advice on the tax consequences of holding certain securities is a typical part of a CPA’s tax advisory role. Similarly, valuing a portfolio for estate purposes is a standard function. However, when a professional takes on discretionary power to manage a client’s portfolio and charges a recurring fee based on the value of the assets managed, this activity ceases to be incidental. It becomes the primary service of asset management, which requires a Type 9 license from the SFC.

This question assesses the understanding of the specific regulatory requirements for closed-ended funds under Chapter 8.11 of the SFC’s Code on Unit Trusts and Mutual Funds (UT Code). A key characteristic of a closed-ended fund is that it has a fixed number of units in issue after its initial public offering, and these units are traded on a stock exchange. Unlike open-ended funds, their market price is determined by supply and demand, which means they can trade at a price different from their Net Asset Value (NAV) per unit—this is known as trading at a premium or a discount. To ensure market transparency and allow investors to assess this premium or discount, the UT Code mandates that the fund manager must calculate and publish the NAV per unit at least once a month. In contrast, the obligation to redeem units daily at NAV is a core feature of traditional open-ended funds. There is no regulatory rule that limits the deviation between the market price and the NAV for a closed-ended fund. Finally, a high allocation to cash or short-term deposits is a characteristic of a money market fund, not a general requirement for a closed-ended fund.