HKSI Paper 1 (Fundamentals of Securities and Futures Regulation)

The Securities and Futures Commission (SFC) in Hong Kong is the primary regulatory body responsible for overseeing and regulating activities related to securities and futures trading. It ensures the fair and orderly operation of the securities and futures markets, protects investors’ interests, and promotes market transparency. The SFC achieves this through various means such as licensing intermediaries, enforcing regulations to combat market misconduct, and enhancing market surveillance. Therefore, option (b) is the correct answer.

Option (a) is incorrect because the SFC aims to prevent market manipulation rather than promote it. Option (c) is incorrect as the SFC does not have the authority to issue currency; that is the role of the Hong Kong Monetary Authority. Option (d) is also incorrect as taxation policies fall under the jurisdiction of the Inland Revenue Department, not the SFC.

In Hong Kong, the Securities and Futures Commission (SFC) is responsible for regulating and overseeing activities related to securities and futures trading, including investigating and taking enforcement actions against fraudulent activities and market manipulation. The SFC has the authority to conduct investigations, impose sanctions, and prosecute individuals or entities involved in violating securities laws and regulations. Therefore, in the scenario described, the SFC would be the most appropriate organization to investigate and take enforcement actions against the investment firm.

Option (a) is incorrect as the Hong Kong Monetary Authority (HKMA) primarily oversees monetary policy, banking stability, and the stability of the financial system, rather than securities regulation. Option (c) is incorrect because while the Hong Kong Police Force may assist in investigations, the primary responsibility for securities regulation lies with the SFC. Option (d) is incorrect as the Consumer Council of Hong Kong focuses on consumer rights and protection, which is not directly related to securities regulation and enforcement.

The Executive Director of Intermediaries within the Securities and Futures Commission (SFC) is responsible for overseeing the licensing and supervision of intermediaries operating in the securities and futures markets. This includes brokers, investment advisors, and other financial institutions. The role involves ensuring compliance with regulatory requirements, conducting inspections, and taking enforcement actions against misconduct. Therefore, option (a) is the correct answer.

Option (b) is incorrect because managing the budget and financial resources of the SFC falls under the purview of the Chief Financial Officer or a similar position, not the Executive Director of Intermediaries. Option (c) is incorrect as representing Hong Kong in international securities regulatory forums would typically be the responsibility of senior management or commissioners of the SFC, not specifically the Executive Director of Intermediaries. Option (d) is incorrect because drafting legislation related to securities trading would involve policymakers and legal experts, rather than an executive director within the SFC.

When a brokerage firm fails to comply with regulatory requirements such as maintaining adequate records of client transactions, the Securities and Futures Commission (SFC) in Hong Kong typically imposes monetary fines as a disciplinary measure. These fines serve as a deterrent and encourage firms to adhere to regulatory standards. The amount of the fine may vary depending on the severity of the violation and any mitigating factors. Therefore, option (c) is the correct answer.

Option (a) is incorrect because issuing a warning letter may be appropriate for minor infractions or as a precursor to more severe penalties, but it is unlikely to be the sole response to a violation involving record-keeping failures. Option (b) is incorrect as temporarily suspending a brokerage firm’s license is a significant enforcement action typically reserved for serious violations that pose a threat to investors or market integrity. Option (d) is incorrect because referring the matter to the Hong Kong Police Force for criminal prosecution would be more appropriate for cases involving fraud or criminal activity, rather than regulatory compliance issues related to record-keeping.

According to the Securities and Futures Ordinance (SFO) in Hong Kong, the SFC has broad investigative powers, including the authority to request documents, records, or information from licensed individuals or entities. Refusal to cooperate with an SFC investigation can lead to disciplinary actions, including fines or suspension of licenses. This authority is granted to the SFC to ensure market integrity and investor protection.

Option B) is incorrect because the SFC can request documents without a court order under its investigative powers.

Option C) is incorrect because licensed individuals are obliged to cooperate with SFC investigations, regardless of whether formal charges have been made.

Option D) is incorrect because the SFC’s authority to request documents is independent of the employer’s approval.

The primary function of the Hong Kong Exchanges and Clearing Limited (HKEX) is to facilitate the trading of securities, derivatives, and commodities in the financial market. HKEX operates the stock and derivatives markets in Hong Kong, providing a platform for investors to buy and sell various financial instruments. Additionally, HKEX provides clearing and settlement services to ensure the smooth execution of trades. Therefore, option (b) is the correct answer.

Option (a) is incorrect because regulating financial institutions falls under the jurisdiction of regulatory bodies such as the Securities and Futures Commission (SFC) rather than HKEX. Option (c) is incorrect as HKEX does not provide insurance services; its primary focus is on exchange and clearing activities. Option (d) is incorrect as setting interest rates is the responsibility of central banks or monetary authorities, not HKEX.

To address sudden and significant price movements in listed securities, the Hong Kong Exchanges and Clearing Limited (HKEX) employs circuit breakers. Circuit breakers are mechanisms that temporarily halt trading in a particular security or the entire market to prevent excessive volatility and maintain market stability. By pausing trading during periods of extreme price fluctuations, circuit breakers allow investors to reassess their positions and prevent panic selling or buying. Therefore, option (a) is the correct answer.

Option (b) is incorrect because margin trading involves borrowing funds to purchase securities and is not directly related to addressing volatile market conditions. Option (c) is incorrect as dark pools are alternative trading venues for executing large orders without impacting market prices and do not address volatility in the same way as circuit breakers. Option (d) is incorrect because securities lending involves temporarily transferring securities for a fee and is not a mechanism for maintaining market stability during volatile trading sessions.

The role of the Hong Kong Exchanges and Clearing Limited (HKEX) in corporate governance primarily involves enforcing compliance with accounting standards for listed companies. HKEX establishes listing rules and regulations that require listed companies to adhere to recognized accounting standards, such as International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP), to ensure transparency and integrity in financial reporting. Therefore, option (a) is the correct answer.

Option (b) is incorrect because while HKEX may encourage corporate social responsibility initiatives, it does not set regulations in this regard. Option (c) is incorrect as overseeing the nomination and election of company directors is typically the responsibility of shareholders and regulatory bodies rather than HKEX. Option (d) is incorrect because providing training programs for corporate executives is not a core function of HKEX related to corporate governance.

When a listed company in Hong Kong announces significant corporate events such as acquisitions, the information is typically disseminated to investors and the public through disclosures on the company’s website and financial reports. Listed companies are required to promptly disclose material information that may affect their stock prices to ensure transparency and provide equal access to information to all investors. Therefore, option (c) is the correct answer.

Option (a) is incorrect because while HKEX may play a role in disseminating regulatory information, it does not issue press releases on behalf of listed companies regarding their corporate activities. Option (b) is incorrect as regulatory filings with the Securities and Futures Commission (SFC) primarily relate to compliance with securities laws and regulations rather than corporate announcements. Option (d) is incorrect because advertisements in local newspapers are not commonly used to disseminate corporate announcements to investors in the digital age.

As the Chairman of the Compliance Committee, Mr. Lee’s primary role is to oversee and ensure the firm’s compliance with all relevant laws, regulations, and internal policies. This includes monitoring trading activities, conducting regular compliance reviews, and implementing necessary measures to mitigate compliance risks. Mr. Lee is not involved in executing daily trading activities (Option A), making investment decisions (Option C), or advising clients on investment strategies (Option D).

In the Hong Kong financial market, a key distinction between brokers and dealers lies in their roles and responsibilities. Brokers act as intermediaries between buyers and sellers, executing orders on behalf of clients and earning a commission or fee for their services. On the other hand, dealers engage in trading securities from their own inventory, buying and selling securities for their own account rather than on behalf of clients. Therefore, option (a) is the correct answer.

Option (b) is incorrect because providing investment advice is not a primary function of either brokers or dealers; that role typically falls under the purview of investment advisors. Option (c) is incorrect because both brokers and dealers can be involved in various types of trading, including derivatives and equities, depending on their business focus. Option (d) is incorrect because both brokers and dealers operating in the Hong Kong financial market are regulated by the Securities and Futures Commission (SFC), not the Hong Kong Monetary Authority (HKMA).

When an individual seeks assistance in constructing a diversified portfolio of stocks without the expertise to select specific securities, a fund manager is the most appropriate intermediary. Fund managers manage investment funds such as mutual funds or exchange-traded funds (ETFs), pooling investors’ funds to invest in a diversified portfolio of securities based on specified investment objectives. By investing in a fund managed by professionals, the individual can gain exposure to a diversified portfolio without the need for selecting individual securities themselves. Therefore, option (d) is the correct answer.

Option (a) is incorrect because brokers execute trades on behalf of clients but do not typically offer portfolio management services. Option (b) is incorrect because dealers trade securities from their own inventory rather than managing client portfolios. Option (c) is incorrect because while investment advisors provide personalized investment advice, they may not directly manage client portfolios as fund managers do.

In the Hong Kong financial market, the primary role of a custodian bank is to safekeep and administer clients’ securities and funds. Custodian banks act as guardians of investors’ assets, holding securities in custody, processing corporate actions such as dividend payments and stock splits, and ensuring compliance with regulatory requirements related to asset custody. They play a crucial role in safeguarding investors’ assets and maintaining the integrity of the financial system. Therefore, option (c) is the correct answer.

Option (a) is incorrect because executing buy and sell orders on behalf of clients is typically the role of brokers rather than custodian banks. Option (b) is incorrect because providing financing for margin trading activities is typically the role of financial institutions such as banks or brokerage firms, not custodian banks. Option (d) is incorrect because offering investment advice is the responsibility of investment advisors rather than custodian banks.

A market maker’s primary function in securities trading is to provide liquidity to the market by quoting bid and ask prices for specific securities. Market makers continuously stand ready to buy or sell securities at publicly quoted prices, thereby facilitating trading and ensuring that there is a market for securities even in periods of low trading activity. By providing liquidity, market makers contribute to the efficiency and stability of the market. Therefore, option (b) is the correct answer.

Option (a) is incorrect because executing trades on behalf of clients is typically the role of brokers rather than market makers. Option (c) is incorrect because advising clients on investment opportunities is the role of investment advisors rather than market makers. Option (d) is incorrect because offering financing for margin trading activities is typically the role of financial institutions such as banks or brokerage firms, not market makers.

The Enforcement Division of the SFC is responsible for investigating potential breaches of securities laws and regulations, such as insider trading, market manipulation, and fraudulent activities. Monitoring market transactions is one of the key methods used by the Enforcement Division to identify suspicious activities and initiate investigations. Options B, C, and D are not functions of the Enforcement Division. Option B pertains to investor education initiatives, Option C relates to product approval, and Option D involves regulatory compliance audits.

In evaluating Mr. Chan’s defense regarding unauthorized trading, the Securities and Futures Commission (SFC) would consider various factors, including the clarity and adequacy of the authorization procedures implemented by his brokerage firm for client trading activities. The SFC places importance on ensuring that proper authorization procedures are in place to protect investors and maintain market integrity. If the brokerage firm’s procedures were unclear or inadequate, it may mitigate Mr. Chan’s culpability to some extent. However, ultimately, the responsibility lies with the licensed individual to ensure compliance with regulatory requirements.

Option A is incorrect because while the performance of clients’ investment portfolios may be relevant, it does not address the central issue of whether proper authorization was obtained for the trading activities in question.

Option B is incorrect because Mr. Chan’s level of experience and expertise, while important, does not absolve him of the responsibility to obtain proper authorization for client trades, regardless of their understanding of trading practices.

Option D is incorrect because while market conditions and volatility may provide context, they do not excuse unauthorized trading or negate the need for proper authorization procedures.

The Securities and Futures Commission (SFC) in Hong Kong is responsible for enforcing regulations related to client suitability and appropriateness assessments. Licensed individuals are required to assess the suitability of derivative products for their clients based on factors such as the client’s financial situation, investment objectives, and risk tolerance. Failure to comply with these regulations can result in disciplinary actions by the SFC. According to the Securities and Futures Ordinance (SFO), the SFC has the authority to impose fines and suspend licenses as penalties for such breaches, aiming to uphold market integrity and investor protection.

Option A is incorrect because failing to comply with client suitability and appropriateness assessments warrants more than a warning letter and additional training. It reflects a failure to meet regulatory requirements that necessitate stronger disciplinary actions.

Option C is incorrect because the resolution of disciplinary matters related to regulatory breaches typically falls within the jurisdiction of the SFC, rather than an independent ethics committee.

Option D is incorrect because while compensating affected clients may be necessary, it is not the primary disciplinary action taken by the SFC. Penalties such as fines and license suspension are more directly related to enforcing compliance with regulatory requirements.

The correct answer is option (a). In response to past regulatory problems such as market manipulation scandals, regulatory authorities are likely to implement measures aimed at increasing transparency requirements for market participants. Enhanced transparency helps to deter market manipulation by providing clearer visibility into market activities and transactions. This measure aligns with the objectives of investor protection and market integrity outlined in the Securities and Futures Ordinance (SFO) and other relevant regulations.

Option (b) regarding relaxing enforcement actions to foster market innovation is not a suitable response to regulatory problems. Regulatory enforcement is essential for maintaining market discipline and ensuring compliance with established rules and standards.

Option (c) concerning reducing the frequency of regulatory inspections is counterintuitive to addressing regulatory problems. Regular inspections and oversight are crucial for detecting and preventing misconduct in financial markets.

Option (d) regarding lowering the standards for financial disclosure would undermine investor confidence and increase the risk of fraudulent activities. Strengthening financial disclosure requirements is typically a response to regulatory problems to enhance market transparency and accountability.

When determining the appropriate disciplinary action for market manipulation, the Securities and Futures Commission (SFC) considers various factors. These include the severity of the offense, the extent of the individual’s cooperation during the investigation, and their level of awareness of regulatory requirements. In Ms. Lee’s case, her involvement in wash trades to manipulate market prices is a serious violation that undermines market integrity. The SFC may consider mitigating factors such as her cooperation during the investigation but would primarily focus on the severity of the offense when determining the disciplinary action.

Option B is incorrect because an individual’s personal financial situation is generally not a primary consideration when imposing disciplinary actions for market manipulation. The severity of the offense and the need to maintain market integrity typically take precedence.

Option C is incorrect because the opinions of colleagues and clients regarding Ms. Lee’s reputation are subjective and not directly relevant to the disciplinary process conducted by the SFC.

Option D is incorrect because while the impact of disciplinary action on an individual’s career prospects may be a concern, it is not the primary factor considered by the SFC when determining the appropriate penalties for market manipulation.

The correct answer is option (c). The Legislative Council (LegCo) in Hong Kong plays a crucial role in the regulation of securities and futures markets by formulating and amending financial legislation. As the legislative body of the Hong Kong Special Administrative Region (HKSAR), LegCo is responsible for enacting laws, including those related to financial services and market regulation. Legislative initiatives such as amendments to the Securities and Futures Ordinance (SFO) and other relevant regulations are deliberated and passed by LegCo to ensure an effective regulatory framework for the securities and futures industry.

Option (a) regarding setting monetary policy objectives is incorrect. Monetary policy in Hong Kong is primarily formulated and implemented by the Hong Kong Monetary Authority (HKMA) in accordance with the Linked Exchange Rate System, and it is not within the purview of LegCo.

Option (b) concerning enforcing market conduct regulations is incorrect. Enforcement of market conduct regulations falls under the jurisdiction of regulatory authorities such as the Securities and Futures Commission (SFC) rather than LegCo.

Option (d) regarding supervising banking institutions is incorrect. The supervision of banking institutions is primarily carried out by the HKMA, while LegCo focuses on legislative functions related to financial legislation rather than direct supervision of institutions.

The correct answer is option (b). To protect retail investors when investing in complex derivative products, regulatory measures often require financial institutions to conduct suitability assessments. These assessments ensure that investments align with the investor’s risk tolerance, investment objectives, and financial situation. By assessing suitability, financial institutions can help prevent retail investors from purchasing products that may be unsuitable or too risky for their circumstances. Such requirements are outlined in regulatory guidelines issued by authorities such as the Securities and Futures Commission (SFC) in Hong Kong, aiming to enhance investor protection and market integrity.

Option (a) regarding imposing restrictions on the sale of derivative products to retail investors is not as effective as suitability assessments in ensuring investor protection. Restricting access may limit investor choice without addressing whether the investment is suitable for individual investors.

Option (c) concerning mandating a minimum investment threshold is not directly related to ensuring investor protection or suitability. Minimum investment thresholds may be implemented for various reasons but do not address the need for suitability assessments.

Option (d) regarding providing tax incentives is unrelated to regulatory measures aimed at investor protection. Tax incentives are designed to incentivize certain behaviors but do not directly address the risk assessment and suitability requirements for derivative products.

The correct answer is option (b). Market transparency plays a crucial role in achieving the objectives of Hong Kong’s regulatory framework by enhancing market efficiency and liquidity. Transparency allows investors to make informed decisions, promotes fair pricing of securities and futures contracts, and reduces information asymmetry. By providing access to timely and accurate information, market transparency fosters investor confidence, facilitates fair competition, and contributes to the overall efficiency and liquidity of financial markets. These objectives are aligned with the principles outlined in the Securities and Futures Ordinance (SFO) and other relevant regulations.

Option (a) regarding fostering speculative trading activities is incorrect. While transparency may impact trading behaviors, the primary objective is to promote market efficiency and investor protection rather than speculative activities.

Option (c) concerning restricting market access to institutional investors only is not consistent with the principles of market accessibility and inclusivity promoted by Hong Kong’s regulatory framework. Transparency aims to benefit all market participants by providing equal access to information and opportunities.

Option (d) regarding maximizing profits for market participants is not the primary objective of market transparency. While transparency may facilitate fair competition and efficient price discovery, the goal is to ensure market integrity and investor protection rather than maximizing profits for specific participants.

The correct answer is option (d). In response to past regulatory problems such as market manipulation scandals, regulatory authorities may implement measures to enhance market surveillance and detection capabilities, such as implementing real-time trade reporting requirements. Real-time trade reporting enables regulatory authorities to monitor market activities more effectively, detect suspicious trading patterns, and respond promptly to potential misconduct. By enhancing transparency and visibility into market transactions, real-time reporting helps to deter market manipulation and improve overall market integrity. This measure is aligned with the objectives of investor protection and market fairness outlined in the Securities and Futures Ordinance (SFO) and other relevant regulations.

Option (a) regarding increasing transaction costs for investors is not directly related to enhancing market surveillance capabilities and may have unintended consequences for market efficiency and liquidity.

Option (c) concerning relaxing disclosure obligations for listed companies contradicts the principles of transparency and accountability in financial markets. Enhanced disclosure requirements are typically implemented to improve transparency and investor confidence.

Option (b) regarding reducing regulatory oversight on market participants would undermine efforts to address regulatory problems and enhance market integrity. Regulatory oversight is essential for maintaining market discipline and protecting investor interests.

Insider trading is a serious violation of securities regulations in Hong Kong. According to the Securities and Futures Ordinance (SFO) and the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, individuals found guilty of insider trading can face severe penalties. The SFC has the authority to impose fines and suspend or revoke the license of the guilty party as disciplinary measures to uphold market integrity and investor confidence.

Option A is incorrect because insider trading warrants more than a cautionary letter and compliance training. It is a breach of trust and market fairness that requires stronger disciplinary actions.

Option C is incorrect because the resolution of disciplinary matters related to insider trading typically falls within the jurisdiction of the SFC, rather than an independent arbitration panel.

Option D is incorrect because requiring a public apology and compensation may be part of the consequences of insider trading, but they do not constitute disciplinary actions by the SFC.

The correct answer is option (c). In Hong Kong’s government hierarchy, the Executive Council (ExCo) plays a role in advising the Chief Executive on policy matters, including those related to the regulation of securities and futures markets. ExCo is a key advisory body comprising appointed officials and senior government figures responsible for deliberating on policy proposals and providing recommendations to the Chief Executive. While ExCo may discuss regulatory policies and initiatives concerning financial markets, the drafting and passing of financial legislation fall within the purview of the Legislative Council (LegCo). ExCo’s advisory role contributes to the formulation of effective regulatory strategies and initiatives to ensure the stability, integrity, and competitiveness of Hong Kong’s securities and futures markets.

Option (a) regarding drafting and passing financial legislation is incorrect. Legislative functions, including the drafting and passing of legislation, are the responsibility of the Legislative Council (LegCo), not the Executive Council (ExCo).

Option (b) concerning conducting market surveillance and enforcement actions is incorrect. Market surveillance and enforcement activities are typically carried out by regulatory authorities such as the Securities and Futures Commission (SFC) rather than ExCo.

Option (d) regarding representing Hong Kong in international financial forums is not a primary role of ExCo. While ExCo may contribute to policy discussions related to international financial matters, representation in international forums is often carried out by government officials and agencies specializing in international affairs and financial diplomacy.

The correct answer is option (d). In Hong Kong, regulatory measures mandate the disclosure of key information through offering documents to ensure that investors receive fair and accurate information about investment products. Offering documents, such as prospectuses or offering circulars, contain essential details about investment opportunities, including risks, fees, and terms and conditions. By mandating comprehensive disclosure, regulators aim to promote transparency, facilitate informed decision-making by investors, and enhance investor protection. This requirement aligns with the principles outlined in the Securities and Futures Ordinance (SFO) and other relevant regulations, emphasizing the importance of disclosure in maintaining market integrity and investor confidence.

Option (a) regarding requiring financial institutions to provide biased investment advice contradicts the principles of fair and impartial guidance. Regulatory measures aim to promote unbiased and suitable advice to investors rather than favoring specific investment products or strategies.

Option (b) concerning implementing strict confidentiality policies for financial transactions is unrelated to disclosure requirements for investment products. While confidentiality may be important for certain aspects of financial transactions, it should not compromise the transparency and disclosure obligations mandated by regulators.

Option (c) regarding allowing financial institutions to withhold relevant information from investors is inconsistent with investor protection objectives. Transparency and disclosure requirements aim to ensure that investors have access to all relevant information necessary to make informed investment decisions, thereby reducing the asymmetry of information between investors and financial institutions.

The correct answer is option (c). The regulatory framework in Hong Kong contributes to fostering market confidence and stability by ensuring fair and orderly market operations. Regulatory authorities, such as the Securities and Futures Commission (SFC), implement rules and regulations aimed at maintaining market integrity, preventing market abuse, and protecting investor interests. By enforcing compliance with regulatory requirements, addressing market misconduct, and promoting transparency, regulators instill confidence in the fairness and reliability of the securities and futures markets. This fosters investor trust, encourages participation, and contributes to the overall stability and vibrancy of Hong Kong’s financial markets.

Option (a) regarding imposing excessive regulatory burdens is not conducive to fostering market confidence and stability. While regulations are necessary for investor protection and market integrity, excessive burdens may hinder market efficiency and innovation.

Option (b) concerning promoting market manipulation and insider trading is contrary to the objectives of the regulatory framework. Regulatory measures aim to deter and prevent such activities to maintain market fairness and integrity.

Option (d) regarding restricting market access contradicts the principles of market inclusivity and accessibility promoted by Hong Kong’s regulatory framework. Regulatory efforts focus on balancing market access while ensuring investor protection and market integrity, rather than imposing restrictive barriers based on investor type.

The correct answer is option (b). In response to instances of inadequate risk management practices in financial institutions, regulatory authorities may implement measures to mitigate systemic risks, such as implementing capital adequacy requirements. Capital adequacy requirements mandate that financial institutions maintain a sufficient level of capital relative to their risk exposure to absorb potential losses and withstand adverse market conditions. By ensuring that financial institutions have adequate capital buffers, regulators aim to enhance financial stability, reduce the likelihood of insolvency, and safeguard the broader financial system. This measure aligns with international regulatory standards and guidelines, including those established by the Basel Committee on Banking Supervision, and contributes to the resilience and soundness of the financial sector.

Option (a) regarding allowing financial institutions to operate without regulatory oversight is not a viable solution to mitigate systemic risks. Regulatory oversight is essential for identifying and addressing risk factors that could jeopardize financial stability and investor confidence.

Option (c) concerning relaxing reporting obligations for financial transactions is counterproductive to risk management efforts. Enhanced reporting requirements enable regulators to monitor market activities, assess risk exposures, and detect potential vulnerabilities in the financial system.

Option (d) regarding facilitating cross-border capital flows without supervision may exacerbate systemic risks by increasing the interconnectedness of financial markets without adequate regulatory oversight. Cross-border transactions should be subject to appropriate regulatory scrutiny to mitigate potential risks to financial stability.

In Hong Kong, the Securities and Futures Ordinance (SFO) empowers the Securities and Futures Commission (SFC) to take disciplinary actions against licensed individuals or entities found guilty of misconduct. Fabricating evidence during disciplinary proceedings constitutes a serious offense. According to Section 194 of the SFO, the SFC can impose fines and revoke licenses permanently as penalties for such misconduct. This action serves as a deterrent against dishonest behavior within the securities industry.

Option A is incorrect because providing false information and submitting fabricated evidence are serious breaches that warrant more than a warning letter and temporary license suspension.

Option C is incorrect because while the SFC has the authority to refer cases involving criminal offenses to law enforcement agencies, such as the police, this option does not directly address the disciplinary actions within the regulatory framework.

Option D is incorrect because additional training and education are insufficient responses to deliberate misconduct that undermines the integrity of the securities market.

The correct answer is option (c). In Hong Kong’s government hierarchy, the Financial Services and the Treasury Bureau (FSTB) plays a crucial role in the regulation of securities and futures markets by formulating financial policies and legislation. As a government department responsible for financial services and treasury matters, the FSTB oversees the development and implementation of policies related to the regulation and operation of financial markets, including securities and futures markets. The FSTB collaborates with other relevant authorities, such as the Securities and Futures Commission (SFC), to ensure that regulatory frameworks are effective, responsive to market developments, and aligned with international standards. The formulation of financial policies and legislation by the FSTB contributes to the stability, competitiveness, and integrity of Hong Kong’s financial sector.

Option (a) regarding enforcing market conduct regulations is incorrect. Market conduct regulations are typically enforced by regulatory authorities such as the Securities and Futures Commission (SFC) rather than the FSTB.

Option (b) concerning conducting monetary policy operations is not within the purview of the FSTB. Monetary policy in Hong Kong is primarily formulated and implemented by the Hong Kong Monetary Authority (HKMA) rather than the FSTB.

Option (d) regarding advising the Chief Executive on policy matters is a broader function of government departments, including the FSTB, but does not specifically relate to the regulation of securities and futures markets. The primary role of the FSTB in this context is the formulation of financial policies and legislation.