This question assesses the understanding of the ‘Management and supervision’ objective within the SFC’s Internal Control Guidelines (ICG). Statement I is correct because the ICG requires senior management to establish regular communication of control information, including risks, non-compliance, and deviations from business objectives. A quarterly board review of a comprehensive compliance report directly meets this guideline. Statement III is also correct as it exemplifies the principle of establishing clear reporting lines and assigning supervisory responsibilities, which is a core feature of an effective management structure. Statement II is incorrect because it contradicts the guideline requiring detailed definitions of authorities and formal procedures for authorisations. Relying on verbal authority and best-effort documentation for critical functions like trading limits is a significant control weakness. Statement IV is fundamentally incorrect. The ICG explicitly states that senior management must assume full responsibility for the operations and the effectiveness of internal controls. This responsibility cannot be delegated to an external party like an audit firm. Therefore, statements I and III are correct.

According to the SFC’s Code of Conduct for Persons Providing Credit Rating Services (the ‘CRA Code’), a Credit Rating Agency (CRA) and its representatives must maintain objectivity and independence, particularly when dealing with complex instruments like structured finance products. A key provision prohibits representatives involved in the rating process from making proposals or recommendations regarding the design of the product being rated. This rule is in place to prevent conflicts of interest where the CRA could be seen as both an advisor on and an assessor of the product, compromising the integrity of the rating. In contrast, the CRA Code explicitly requires CRAs to disclose the limitations of a rating in a prominent place when it involves a product with limited historical data. Furthermore, CRAs are mandated to encourage the issuer or originator of a structured finance product to publicly disclose all relevant information to enhance market transparency. The CRA’s rating announcement should then state whether the issuer has agreed to do so. Finally, while giving guarantees about a rating before an assessment is prohibited, the CRA Code does not preclude a CRA from developing prospective assessments, which are often a necessary part of the analysis for structured finance transactions.

Under the Securities and Futures Ordinance (SFO), a person must seek prior approval from the Securities and Futures Commission (SFC) before becoming a substantial shareholder of a licensed corporation. A substantial shareholder is generally defined as a person who, either alone or with associates, has an interest in or controls 10% or more of the voting power. However, the SFO provides a defence for individuals who become substantial shareholders without prior knowledge, such as through inheritance. In such cases, the person is not immediately in breach, provided they can demonstrate they were not aware and could not have found out through reasonable diligence. Upon becoming aware of their status, they have a strict obligation to apply to the SFC for approval to continue as a substantial shareholder. This application must be made ‘as soon as reasonably practicable or in any event within three business days’ after they became aware. Section 131 of the SFO also stipulates that until the shareholder receives SFC approval, they are prohibited from exercising any voting rights associated with their shares. If an application is rejected, or if a person remains a non-approved substantial shareholder, the SFC has powers under Section 133 to direct the licensed corporation to restrict the shareholder’s participation in management or voting, and may even direct the person to reduce their shareholding.

Under the Securities and Futures Ordinance (SFO), the SFC has the authority to appoint an auditor if it has reasonable cause to believe a licensed corporation has failed to comply with the Financial Resources Rules (FRR) or other prescribed requirements, such as those in the Accounts and Audit Rules. The SFO grants these appointed auditors extensive powers to facilitate their investigation. A key power is the ability to require and examine, under oath, various individuals associated with the corporation, including its officers, employees, and agents. This power is not limited to passively reviewing documents; it allows for active interrogation to gather necessary information. The scope of the audit can extend to any business carried on by the licensed corporation, provided it is relevant to the investigation. It is important to distinguish the auditor’s investigative powers from the SFC’s direct regulatory and enforcement powers. For instance, actions like suspending a license or issuing a restriction notice are powers vested in the SFC, not its appointed auditors. Furthermore, any person who fails to comply with a requirement from the SFC-appointed auditor, without a reasonable excuse, commits an offence.

Under the Securities and Futures (Financial Resources) Rules (FRR), licensed corporations are subject to stringent notification requirements to ensure the SFC is promptly informed of any potential financial instability. Section 55 of the FRR outlines several events that trigger an immediate notification obligation. One of the most critical early warning triggers is related to the liquid capital buffer. A licensed corporation must notify the SFC in writing within one business day of becoming aware that its liquid capital has fallen below 120% of its required liquid capital. This rule is designed to act as a proactive measure, allowing the regulator to engage with the firm before its financial position deteriorates to the point of breaching the minimum 100% requirement. Other triggers for one-day notification include exceeding borrowing limits, inability to meet repayment demands, or becoming aware that previously submitted information has become materially false or misleading. Simply having an internal plan to rectify the situation does not negate the mandatory and time-sensitive obligation to report the event to the regulator.

Under the Securities and Futures Ordinance (SFO), the SFC must be satisfied that a licence applicant and its associated persons are fit and proper. This assessment is comprehensive.
Statement I is correct. The SFO considers a ‘shadow director’—a person whose instructions the board is accustomed to following—as having significant influence. Therefore, Mr. Wong’s background, character, and financial integrity are material to the SFC’s assessment of Apex Capital’s overall fitness and properness and must be disclosed.
Statement II is correct. According to section 129 of the SFO, an individual’s ‘financial status or solvency’ is a key criterion for fitness and properness. A past bankruptcy, even if discharged, is a significant event that must be disclosed. The SFC will assess the circumstances surrounding it to determine the individual’s current financial integrity and reputation.
Statement III is correct. As part of the application process, the applicant must provide practical details about its operations, including its business address and the location where records required under the SFO and its subsidiary legislation (like the Securities and Futures (Keeping of Records) Rules) will be kept. This is essential for regulatory oversight and inspection purposes.
Statement IV is incorrect. The SFC assesses the ability of individuals to perform their functions competently, honestly, and fairly. For a key role like a Complaints Officer, their educational or other qualifications and experience are relevant to determining their competence to handle the role effectively. The SFC would expect the appointee to be suitably qualified. Therefore, statements I, II and III are correct.

According to the SFC’s Code of Conduct for Persons Providing Credit Rating Services (the ‘CRA Code’), when a Credit Rating Agency (CRA) introduces changes to its rating methodologies, models, or key assumptions, it has specific obligations. The new methodology must be applied to both initial and subsequent ratings. For all existing ratings affected by such a change, the CRA is required to review them as soon as possible, and in any case, within six months of the change. During the period before this review is completed, the CRA must place the affected ratings under observation. Simply waiting for the next annual review is not compliant with the specific timeline for methodology changes. Withdrawing the ratings is a different action (discontinuation) and is not the prescribed initial step for a methodology update. Applying the new model only to future ratings would fail the requirement to apply changes to existing ratings as well.

The SFC’s Fit and Proper Guidelines require a comprehensive assessment of an individual’s character, competence, and financial integrity. Statement I is correct because the guidelines explicitly state that when a person has been involved with an insolvent corporation, the SFC will consider the nature and extent of their involvement and behaviour, rather than applying an automatic disqualification. Statement II is incorrect as it presents an absolute rule; the involvement is a matter for assessment, not automatic rejection. Statement III is correct because the requirement to be fit and proper is not a one-time test at the point of licensing but a continuous obligation that must be maintained throughout the individual’s career as a licensee. Statement IV is incorrect because the SFC’s assessment of a person’s character and reputation is holistic. A disciplinary action by any professional association, even if not directly related to a regulated activity, is relevant to judging an individual’s overall integrity and is a factor the SFC will consider. Therefore, statements I and III are correct.

This question assesses understanding of the specific requirements for Credit Rating Agencies (CRAs) under the SFC Code of Conduct for Credit Rating Agencies, particularly concerning structured finance products. Statement I is incorrect because the CRA Code explicitly prohibits CRAs and their representatives from giving assurances or guarantees about a rating prior to the completion of the rating assessment. Verbally assuring a top-tier rating to win a mandate is a clear violation of this principle. Statement II is incorrect as the Code prohibits representatives involved in rating a structured finance product from making proposals or recommendations about the design of that product to avoid conflicts of interest. Statement III is correct. The Code requires that where a rating involves a financial product with limited historical data (such as an innovative structured product), the CRA must make the limitations of the rating clear in a prominent place. Statement IV is also correct. The Code mandates that a CRA’s rating announcement for a structured finance product must state whether the issuer has informed the CRA that it will publicly disclose all relevant information, enhancing market transparency. Therefore, statements III and IV are correct.

This question assesses the understanding of the practical implementation and enforcement requirements for a Credit Rating Agency’s (CRA) House Code, as mandated by the SFC’s Code of Conduct for Persons Providing Credit Rating Services (CRA Code). The CRA Code requires that a firm’s internal House Code is not merely a repetition of the regulations but a practical, enforceable framework. A key element of this framework is establishing clear internal reporting channels for potential misconduct. The CRA Code specifically obligates the House Code to require employees to report any observed illegal, unethical, or non-compliant conduct to the designated compliance officer or a responsible officer. This report must be made in good faith. Crucially, to foster a culture of compliance and ensure such reports are made, the House Code must also explicitly prohibit any form of retaliation against the person making the report. The existence of an independent compliance function and a protected whistleblowing mechanism are fundamental to demonstrating that the House Code is effectively enforced, thereby addressing potential fitness and properness concerns with the SFC.

Under the Securities and Futures (Accounts and Audit) Rules, a licensed corporation is required to submit specific financial documents to the Securities and Futures Commission (SFC) on an annual basis. This submission must be made within four months after the end of the corporation’s financial year. The core components of this submission are the financial statements, which include the balance sheet and the profit and loss account, that have been formally audited by an independent auditor. Crucially, these audited financial statements must be accompanied by the auditor’s report. This report provides the auditor’s professional opinion on whether the financial statements give a true and fair view of the corporation’s financial position and performance. Submitting unaudited management accounts, board meeting minutes, or filings intended for the Companies Registry does not fulfill this specific regulatory obligation to the SFC.

Under the Securities and Futures Ordinance (SFO), a person who has suffered a pecuniary loss as a result of market misconduct has the right to bring a private civil action to seek compensation in the form of damages. This right is established under sections 281 and 305 of the SFO. Importantly, this civil action is independent of other regulatory or criminal proceedings. However, a finding of market misconduct by the Market Misconduct Tribunal (MMT) can be used as evidence in such a civil lawsuit, which can significantly strengthen the claimant’s case. The court will only award damages if it is deemed ‘fair, just and reasonable’ in the circumstances. It is also a key principle under section 280 of the SFO that transactions are not automatically void or voidable merely because they were entered into as a result of market misconduct. The MMT itself does not award compensation to individual investors for their losses; its powers are focused on other orders such as disgorgement of profits, disqualification of directors, and ‘cold shoulder’ orders.

This question assesses the understanding of the mechanism for adjusting statutory fine levels under the Criminal Procedure Ordinance (Cap 221), specifically Section 113C and Schedule 8. Statement I is correct because the Ordinance explicitly grants the power to amend the fine amounts to the Chief Executive in Council. Statement II is also correct, as the primary reason for this amendment power is to reflect the Chief Executive in Council’s opinion on the effect of inflation on the value of the fines since they were last set. Statement III is incorrect; the power is delegated to the Chief Executive in Council to amend by regulation (a form of subsidiary legislation), which does not require the full process of passing a new bill in the Legislative Council. Statement IV is incorrect because Section 113C explicitly defines ‘excluded fines’ which are not subject to this leveling system. These exclusions include daily fines and daily penalties. Therefore, statements I and II are correct.

Under the Securities and Futures Ordinance (SFO), a corporation applying for a licence, such as for Type 10 regulated activity (Providing Credit Rating Services), must satisfy the SFC that it is a fit and proper person. This includes having a proper business structure and sufficient management resources. A key requirement is the appointment of Responsible Officers (ROs). The SFC mandates that a licensed corporation must have at least two ROs. Furthermore, among these ROs, at least one must be an Executive Director of the corporation, meaning they are actively involved in its day-to-day management. Additionally, to ensure adequate local supervision and accountability, at least one of the ROs must be based in Hong Kong. Any proposed management structure that fails to meet all of these criteria—the minimum number of ROs, the Executive Director requirement, and the Hong Kong residency requirement—will not be considered acceptable by the SFC during the licensing process.

According to the Securities and Futures Ordinance (SFO) and the SFC Disciplinary Fining Guidelines, the SFC considers several factors when determining the severity of a sanction. Misconduct that is intentional or reckless, damages market integrity, or reflects serious systemic weaknesses is viewed more seriously. However, the SFC also considers mitigating factors. A key mitigating factor is the level of cooperation shown by the licensed person or corporation. The SFC’s Guidance Note on ‘Co-operation with the SFC’ outlines that taking a positive approach to resolving the matter can lead to a reduction in the penalty. This includes actions such as promptly self-reporting the misconduct to the SFC, accepting liability at an early stage, taking immediate remedial steps to rectify the problem, and proactively compensating any clients who have suffered losses. A response that is purely internal without engaging the regulator, or one that is reactive rather than proactive, is considered less cooperative and therefore less likely to result in a significant mitigation of the disciplinary sanction.

This question assesses the understanding of market misconduct, specifically false trading under the Securities and Futures Ordinance (SFO). False trading, as defined in section 274 of the SFO, occurs when a person intentionally or recklessly creates a false or misleading appearance of active trading in securities, or of the market for or the price of securities. The SFO specifies certain actions that are presumed to constitute false trading. One such action is a ‘wash trade’, which is a transaction involving the sale and purchase of securities where there is no change in beneficial ownership. In the described scenario, the trader controls both the buying and selling accounts, meaning he is trading with himself, and thus there is no change in the ultimate beneficial owner. When such transactions are executed on a recognized stock market, the SFO presumes that they were carried out for the purpose of creating a false or misleading appearance of active trading. The burden of proof then shifts to the individual to demonstrate that this was not their intention. It is important to distinguish this from price rigging, which involves transactions intended to fix or maintain an artificial price level.

Under section 123 of the Securities and Futures Ordinance (SFO), when a licensed representative ceases to be accredited to a licensed corporation, both the representative and the principal (the licensed corporation) are required to notify the SFC of the cessation. This makes statements I and II correct. The notification must be made within seven business days, not calendar days, after the cessation. Therefore, statement III is incorrect. Furthermore, the SFO stipulates that if the representative has not applied to the SFC for the transfer of their accreditation to another licensed corporation within 180 days after the cessation, their licence is deemed to have been revoked. This makes statement IV correct. Therefore, statements I, II and IV are correct.

The SFC’s Fit and Proper Guidelines require licensed persons to remain fit and proper on a continuous basis. This assessment covers financial status, competence, and character. Statement I is relevant because an unresolved significant judgment debt directly impacts an individual’s financial integrity and solvency, a key criterion. Statement II is relevant as failing to meet CPT requirements demonstrates a lack of ongoing competence, as stipulated by the Guidelines on Continuous Professional Training. Statement IV is highly relevant because a past regulatory reprimand, especially one that was not disclosed, raises serious questions about the individual’s character, reliability, and integrity. Statement III is generally not a primary consideration; while the SFC may consider the fitness of related persons, this typically applies to those with influence over the corporation (like substantial shareholders) or where the conduct is relevant to the regulated activities. A spouse’s minor, non-financial offense would not usually impact the RO’s personal fitness and properness assessment. Therefore, statements I, II and IV are correct.

Under the Securities and Futures Ordinance (SFO), the Market Misconduct Tribunal (MMT) is a civil tribunal established to hear cases of market misconduct. It is crucial to distinguish its powers from those of the criminal courts and the SFC’s disciplinary functions. When the MMT finds a person has engaged in market misconduct, it can impose a range of civil orders under Part XIII of the SFO. These orders are designed to be remedial and protective of the market’s integrity. Key orders include: a disqualification order, which prohibits a person from being a director or taking part in the management of a listed corporation for up to five years; a ‘cold shoulder’ order, which denies a person access to the securities market for a period; a cease and desist order, requiring the person to stop the misconduct; a disgorgement order, which requires the person to pay the government an amount equivalent to the profit gained or loss avoided from the misconduct; and orders to pay the investigation costs incurred by the Government and the SFC. The MMT cannot impose criminal sanctions such as imprisonment or criminal fines; those are exclusively within the jurisdiction of the courts following a criminal prosecution by the Department of Justice. While an MMT finding can lead to the SFC taking disciplinary action, such as revoking a license, the license revocation itself is an administrative action by the SFC, not an order made by the MMT.

This question assesses understanding of the regulatory framework for Credit Rating Agencies (CRAs) in Hong Kong, referencing international standards set by IOSCO. Statement I is correct; a primary function of CRAs, as recognized by the IOSCO Statement of Principles, is to reduce information asymmetry between debt issuers and investors by providing an independent opinion on creditworthiness. Statement II is also correct; the IOSCO Code of Conduct is designed to provide detailed guidance to safeguard the integrity of the rating process, which in turn promotes investor protection and fair market operation. Statement III is incorrect; the SFC’s regulatory oversight specifically applies to credit ratings prepared for public dissemination or distribution by subscription. It does not extend to purely internal credit assessments conducted by a licensed corporation for its own risk management or proprietary activities. Statement IV is incorrect; it reverses the roles of the two key IOSCO documents. The IOSCO Statement of Principles establishes high-level objectives, while the more detailed IOSCO Code provides specific guidance on how those principles can be implemented in practice. Therefore, statements I and II are correct.

Under the Securities and Futures Ordinance (SFO), ‘providing credit rating services’ is defined as Type 10 regulated activity. Any entity conducting this activity must be authorized by the Securities and Futures Commission (SFC). The SFO establishes a distinction in the authorization process based on the type of entity. A standard corporation must obtain a licence from the SFC. However, for an Authorized Financial Institution (AFI), such as a bank regulated by the Hong Kong Monetary Authority (HKMA), the requirement is to be registered with the SFC for the specific regulated activity it intends to conduct. Following registration, the AFI becomes subject to a joint regulatory regime where the HKMA acts as the front-line supervisor for the institution as a whole, while the SFC oversees its compliance with the SFO concerning its regulated activities. There are no general exemptions for AFIs from this requirement when they engage in regulated activities like providing credit ratings to third parties.

Statement I is correct. Under General Principle 1 (Honesty and Fairness) and the Prevention of Bribery Ordinance (PBO), a licensed person acting as an agent must not solicit or accept an advantage without the permission of their principal (the firm) if it could interfere with their duties. This ensures that the representative acts in the client’s best interest without being unduly influenced. Statement II is incorrect. The SFC Code of Conduct explicitly prohibits licensed persons from including any clause in a client agreement that excludes or restricts a client’s legal rights, even if the client agrees to it. Statement III is incorrect. The Code of Conduct requires the client agreement to contain a ‘full description’ of the services and charges. Merely referring to an external document like a website is generally considered insufficient; the core details of the fee structure should be clearly laid out in the agreement itself to ensure transparency. Statement IV is correct. Acting with due skill, care, and diligence (General Principle 2) includes adhering to the specific requirements for client onboarding. The Code of Conduct mandates that the client agreement must be in writing and provided in either Chinese or English, at the client’s option. Therefore, statements I and IV are correct.

Statement I is correct. The Securities and Futures Commission (SFC) is an independent statutory body established under the Securities and Futures Ordinance (SFO). It is not a government department, which ensures its operational independence in regulating the securities and futures markets.

Statement II is correct. The Hong Kong Monetary Authority (HKMA) is involved in the regulatory oversight of credit rating services because Authorized Financial Institutions (AFIs), which are regulated by the HKMA, may engage in providing credit rating services. If an AFI does so, it is conducting Type 10 regulated activity and must be registered with the SFC for this specific activity.

Statement III is correct. The SFO licensing regime applies to those who provide credit rating services, not those who use them. A Type 9 licensed asset manager is a user of credit ratings when it incorporates them into its investment analysis. As it is not issuing the credit rating opinion itself, it is not required to be licensed for Type 10 regulated activity.

Statement IV is incorrect. The SFC’s Licensing department is responsible for processing applications for new licences. The ongoing supervision and monitoring of licensed corporations, including Credit Rating Agencies (CRAs), is the responsibility of the Intermediaries Supervision department. Therefore, statements I, II and III are correct.

According to the SFC’s Management, Supervision and Internal Control Guidelines, a fundamental principle of sound internal control is the segregation of incompatible duties. The compliance function is intended to be an independent oversight and advisory function. Its primary role is to monitor and assess the firm’s adherence to legal and regulatory requirements, as well as internal policies. When the compliance function is given direct supervisory responsibility for an operational unit, such as a trading desk, its independence is fundamentally compromised. This creates a conflict of interest, as the compliance department would essentially be responsible for monitoring its own operational performance. Such an arrangement weakens the system of checks and balances, as errors or misconduct within the operational unit may be overlooked or concealed. The guidelines explicitly state that compliance and internal audit should be separated from and independent of operational functions to ensure objective oversight.

According to the Code of Conduct for Persons Providing Credit Rating Services (CRA Code), the fundamental principle of objectivity requires that a credit rating determination be influenced only by factors relevant to the credit assessment. The CRA Code explicitly prohibits CRAs from considering the potential economic, political, or other effects of a rating on the CRA itself, the rated entity, investors, or any other market participant. This is to ensure that ratings are independent, objective, and free from conflicts of interest. Therefore, pressures related to a company’s financial stability, broader market impact, or the CRA’s commercial relationship with the client must be disregarded in the rating process. The final decision must rest solely on a rigorous and impartial analysis of the entity’s creditworthiness.

Under the Securities and Futures Ordinance (SFO), a person who becomes a substantial shareholder of a licensed corporation must obtain prior approval from the Securities and Futures Commission (SFC). However, a defence is available if a person becomes a substantial shareholder without being aware of it and could not have discovered it through reasonable diligence. Upon becoming aware, this person must apply to the SFC for approval to continue as a substantial shareholder. This application must be made as soon as reasonably practicable, and in any event within three business days of becoming aware. A critical provision, under section 131 of the SFO, is that until the SFC grants this approval, the substantial shareholder is prohibited from exercising any voting rights associated with their shares. Should the application be rejected, the SFC has powers under section 133 of the SFO to direct the person to reduce their shareholding to below the substantial shareholder threshold.

This question tests the understanding of insider dealing as defined under the Securities and Futures Ordinance (SFO). Insider dealing involves both dealing on inside information and tipping it off to others. ‘Inside information’ is specific, non-public information that is likely to materially affect the price of a listed security.

Statement I describes Leo dealing in Innovate Corp shares for his own account after knowingly receiving inside information from a connected person (Chloe). This is a direct violation of the prohibition against insider dealing.

Statement II illustrates counselling or procuring another person to deal. By advising his client to buy based on the confidential knowledge, even without revealing the exact details, Leo is using the inside information to induce a transaction, which constitutes market misconduct.

Statement III involves the disclosure of inside information. By posting the information, even framed as a rumour, Leo is disseminating specific, non-public information to the market with the reasonable expectation that others will act on it. This is a form of tipping-off and is prohibited.

Statement IV describes the proper professional conduct. Upon receiving potential inside information, a licensed person should report it to their supervisor or compliance department (the Responsible Officer) and must not trade on it or disclose it further. This action prevents market misconduct. Therefore, statements I, II and III are correct.

Under the Securities and Futures Ordinance (SFO), a person who has suffered pecuniary loss as a result of market misconduct has a private right of civil action to seek compensation. However, this right is not unconditional. A crucial prerequisite for such a civil claim is that the person alleged to have committed the misconduct must have already been identified and found culpable by a competent body. Specifically, there must be a formal finding by the Market Misconduct Tribunal (MMT) that the person engaged in market misconduct, or a criminal conviction against that person for a market misconduct offence. This prior finding or conviction serves as a statutory basis for the civil claim, allowing the claimant to rely on it as conclusive evidence that the misconduct occurred. The claimant’s main task in the civil proceedings is then to prove their own financial loss and establish a causal link between that loss and the proven misconduct.

All entities licensed by the Securities and Futures Commission (SFC), including Credit Rating Agencies (CRAs), are subject to a multi-layered regulatory framework. While the Code of Conduct for Persons Providing Credit Rating Services (“CRA Code”) sets out specific obligations for the business of credit rating, licensed corporations must also adhere to overarching principles and rules. The general Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission establishes fundamental principles of conduct, including the duty to protect client assets and information and to act with due skill, care, and diligence. An unauthorized disclosure of client information represents a potential breach of these general duties. Furthermore, if the disclosed information constitutes ‘personal data’ as defined by the Personal Data (Privacy) Ordinance (PDPO), the incident falls directly under its jurisdiction. The PDPO imposes strict requirements on data users regarding the security of personal data they hold and outlines steps to be taken in the event of a data breach. Other regulations, such as those concerning anti-money laundering or market misconduct, apply to specific types of activities and would only be the primary concern if the breach involved evidence of such activities. International principles, like the IOSCO Code, inform Hong Kong’s regulations but the direct legal and compliance obligations for an operational incident within Hong Kong stem from local ordinances and SFC codes.

The Securities and Futures Ordinance (SFO) is designed with extraterritorial provisions to protect the integrity of Hong Kong’s financial markets. Specifically, Parts XIII and XIV of the SFO extend its reach beyond the geographical borders of Hong Kong. The legislation covers conduct that occurs overseas but has an effect on the securities or futures markets in Hong Kong. This ensures that individuals or entities cannot evade Hong Kong’s market misconduct regulations simply by executing manipulative schemes from another jurisdiction. The key consideration for the Securities and Futures Commission (SFC) is whether the conduct, regardless of where it took place, impacted securities listed in Hong Kong or the Hong Kong market as a whole.