Under the Securities and Futures Ordinance (SFO), there are specific statutory defences against allegations of insider dealing. One such defence applies to persons acting in specific professional capacities, such as a liquidator, receiver, or trustee in bankruptcy. For this defence to be successfully invoked, three cumulative conditions must be met. First, the person must have acquired the listed securities in the performance of their function in that specific capacity. Second, the purpose of the dealing must not be to make a profit or avoid a loss by using the relevant inside information. Instead, the dealing should be part of the proper execution of their duties, such as realizing assets for the benefit of creditors. Third, and critically, the individuals who actually carry out or make the decision to deal in the securities must not themselves be in possession of the relevant inside information. This is often managed within firms through the use of effective ‘Chinese Walls’ or information barriers, which separate the team possessing inside information from the team executing trades.

Under the Securities and Futures Ordinance (SFO), insider dealing is a serious offence. The definition of ‘inside information’ is crucial; it refers to specific information that is not generally known to the public but would, if it were known, be likely to materially affect the price of the listed securities. In a takeover scenario, details such as the offer price, the identities of the parties, and the fact that negotiations are occurring are classic examples of inside information.

The SFO prohibits not only dealing in securities while in possession of inside information but also disclosing such information to another person (often called ‘tipping’) or counselling or procuring another person to deal. An offence is committed if a person connected to a corporation discloses inside information to another, knowing or having reasonable cause to believe that the other person will use the information to deal. It is not a defence that the tipper did not personally trade or profit from the transaction. Furthermore, the information disclosed does not need to be exhaustive; providing a strong hint or suggestion based on inside information that leads another person to trade can be considered counselling or procuring. The key element is the use of non-public, price-sensitive information to encourage a transaction. This is distinct from the requirements under Part XV of the SFO, which governs the disclosure of substantial shareholdings by directors, chief executives, and substantial shareholders, and is not directly related to the act of tipping.

According to the Hong Kong Main Board Listing Rules, specifically Rule 8.05, a listing applicant must demonstrate continuity of ownership and control, as well as continuity of management, for a defined track record period. Statement I describes a significant change in ownership within the most recent audited financial year of the track record period. The sale of a 40% stake by a controlling shareholder to an unrelated party fundamentally alters the control structure and would be considered a breach of the continuity of ownership requirement. Statement II describes the departure of both the CEO and CFO, two of the most critical senior management positions, shortly before the listing application. The loss of such key personnel constitutes a failure to maintain ‘substantially the same’ management throughout the track record period. Statement III, regarding an acquisition, does not affect the applicant’s own senior management continuity. Statement IV describes a common pre-IPO reorganization for estate planning purposes that does not alter the ultimate beneficial ownership or control, and is therefore generally acceptable to the Exchange. Therefore, statements I and II are correct.

This question assesses the candidate’s understanding of the fundamental differences between the Main Board and the Growth Enterprise Market (GEM) of the Hong Kong Stock Exchange.

Statement I is correct. The Main Board is intended for larger, more established companies that can meet stringent financial requirements, including profitability tests. In contrast, GEM is designed as a market for smaller, emerging, and high-growth companies that may not have a profit history but have strong growth potential.

Statement II is correct. The Main Board Listing Rules require applicants to meet one of three financial standards: the Profit Test, the Market Cap/Revenue/Cash Flow Test, or the Market Cap/Revenue Test. The Profit Test is the most common. GEM has more flexible financial eligibility criteria, focusing on cash flow and not requiring a track record of profitability, which aligns with its mission to cater to growth-stage companies.

Statement III is incorrect. There is no ‘automatic’ or ‘simplified’ graduation mechanism. A GEM-listed company wishing to transfer to the Main Board must submit a formal application and must be able to satisfy all the listing requirements for the Main Board at the time of the transfer, including the financial tests and track record requirements. It is a rigorous process, not an automatic one.

Statement IV is correct. Due to the higher-risk profile and less mature nature of GEM companies, the Listing Rules impose a longer mandatory period for the sponsor (or another approved firm) to act as a compliance adviser. For GEM, this period typically extends until the company publishes its financial results for the second full financial year after listing. For the Main Board, the period is generally until the publication of results for the first full financial year after listing. Therefore, statements I, II and IV are correct.

Under the Securities and Futures Ordinance (SFO), insider dealing occurs when a person connected to a listed corporation possesses specific, non-public information that is price-sensitive and uses that information to deal in the corporation’s securities or their derivatives, or counsels/procures another person to do so. In a takeover scenario, information such as the offer price is highly price-sensitive. A corporate finance adviser and their employees are considered ‘connected persons’. The prohibition on insider dealing applies not only to direct trading by the insider but also extends to ‘tipping’—disclosing the information to another person with the knowledge or reasonable cause to believe that they will use it to deal. The offence is committed when the dealing or tipping occurs while the information is still confidential. Once the information is made public through official channels, it ceases to be inside information, and trading based on it is permissible.

According to the Hong Kong Codes on Takeovers and Mergers and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, a resolution to delist an offeree company following a general offer is subject to stringent shareholder protection measures. The offeror and any parties acting in concert with it are considered to have a conflict of interest and are therefore barred from voting on the delisting resolution. The approval process is designed to ensure that the decision is made by truly independent, or ‘disinterested’, shareholders. The resolution must satisfy three distinct conditions. First, it requires a high approval threshold: at least 75% of the votes cast by disinterested shareholders at the meeting must be in favour. Second, there is a mechanism to prevent a small group of active shareholders from pushing through a resolution against the interests of a silent majority; the number of votes cast against the resolution must not exceed 10% of the total voting rights attached to all disinterested shares (whether they are voted or not). Third, the delisting is conditional upon the offeror gaining a level of control that permits it to exercise its rights of compulsory acquisition, which typically requires acceptance of the offer in respect of 90% of the disinterested shares. This final condition ensures a complete and fair exit for all remaining minority shareholders.

This question tests the understanding of the specific listing requirements for convertible bonds under the Hong Kong Stock Exchange’s Listing Rules.
Statement I is correct. A fundamental principle for listing convertible debt securities is that they must comply with two sets of requirements: those applicable to the debt securities for which listing is sought, and those applicable to the underlying equity securities into which they can be converted.
Statement II is incorrect. The Listing Rules provide flexibility. The underlying equity securities can either be an existing class of listed securities or a class that will become listed at the same time as the convertible debt securities. The statement incorrectly suggests they must be listed prior to the bond issuance.
Statement III is correct. The Exchange has discretion. It may permit the listing of convertible debt securities even if the underlying equity is not listed, provided it is satisfied that the bondholders will have access to sufficient information to form a reasoned opinion on the value of those underlying securities.
Statement IV is correct. The Listing Rules explicitly state that the rule requiring the Exchange to be satisfied about information availability for valuing underlying assets does not apply to an issue of convertible debt securities by a state or a supranational entity. Therefore, statements I, III and IV are correct.

This question tests the understanding of ‘frustrating actions’ under Rule 4 of the Hong Kong Code on Takeovers and Mergers. During an offer period, the board of the offeree company must not, without the approval of shareholders in a general meeting, take any action which could effectively result in any bona fide offer being frustrated or in the shareholders being denied an opportunity to decide on its merits.

Statement I is a classic example of a frustrating action. Issuing a significant number of new shares, particularly to a friendly party (a ‘white squire’ defence), can dilute the offeror’s potential shareholding and make the acquisition more difficult or expensive. This requires prior shareholder approval.

Statement II describes an action that is not considered frustrating. The payment of a dividend that was already properly approved by shareholders before the offer period began is generally considered to be an action in the ordinary course of business and is permissible.

Statement III describes the disposal of a major asset, often referred to as a ‘crown jewel’ defence. Selling a significant part of the company’s business fundamentally alters the nature of the company that the offeror is attempting to acquire. This is a clear frustrating action under Rule 4 and requires shareholder approval.

Statement IV is not a frustrating action. On the contrary, the board of the offeree company is obligated under the Takeovers Code to appoint an independent financial adviser to provide advice to the independent board committee and the shareholders on the merits of the offer. This is a necessary step to protect shareholder interests. Therefore, statements I and III are correct.

Under the Listing Rules of the Stock Exchange of Hong Kong (SEHK), the Listing Committee has a range of disciplinary powers it can exercise against a sponsor firm found to be in breach of its obligations. These sanctions include issuing a private reprimand (Statement I) for less severe breaches, or a public censure (Statement II) for more serious misconduct to alert the market. The Committee can also impose a suspension of the firm’s eligibility to act as a sponsor for a specified period (Statement IV), which is a significant penalty impacting the firm’s business. However, the authority to revoke a firm’s license to conduct regulated activities, such as a Type 6 license for advising on corporate finance, rests solely with the Securities and Futures Commission (SFC) under the Securities and Futures Ordinance (SFO). The SEHK does not have the power to revoke an SFC license (Statement III is incorrect). Therefore, statements I, II and IV are correct.

According to the Listing Rules of the Hong Kong Stock Exchange, when a rights issue is not fully underwritten, specific disclosures are mandatory in the listing document. Statement I is correct because the fact that the issue is not fully underwritten must be disclosed prominently on the front cover of the listing document. Statement II is correct as the document must contain a statement on the intended application of the net proceeds, which may vary depending on the final level of subscriptions. Statement III is also correct; the issuer must disclose whether each substantial shareholder has undertaken to take up their entitlement, in full or in part. Statement IV is incorrect because the requirement to disclose force majeure clauses and consequential risks applies specifically to rights issues that are underwritten, where the underwriter has the right to terminate the agreement after dealings in nil-paid rights have commenced. Since this scenario involves a non-underwritten issue, this disclosure is not applicable. Therefore, statements I, II and III are correct.

The Code on Share Buy-backs (often referred to as the Share Repurchase Code) applies to all public companies in Hong Kong and companies with a primary listing of their equity securities in Hong Kong. Its scope is broad and is intended to ensure fair treatment of shareholders when a company buys back its own securities. A ‘share repurchase’ under the Code is not limited to simple on-market buy-backs. The definition explicitly encompasses more complex corporate reorganizations where the ultimate effect is the company acquiring its own shares from shareholders. This includes privatizations that are structured as a scheme of arrangement under the Companies Ordinance, as such a scheme results in the company repurchasing its equity from the public shareholders. Other corporate actions, such as the distribution of profits via dividends or the raising of new capital through the issuance of shares, are governed by different sets of regulations (e.g., the Companies Ordinance for dividends, the Listing Rules for share placements) and do not constitute a share repurchase. Similarly, a company using its funds to invest in the shares of another, unrelated entity is an acquisition or investment activity, not a repurchase of its own shares.

This question assesses understanding of the General Principles of the Hong Kong Codes on Takeovers and Mergers and Share Buy-backs, particularly the duties of an offeree company’s board after receiving a bona fide offer.

Statement I describes a ‘frustrating action’. According to General Principle 9, once a board has reason to believe a bona fide offer is imminent, it must not take any action that could frustrate the offer or deny shareholders the opportunity to decide on its merits, without the approval of shareholders in a general meeting. Issuing a large block of shares to a friendly party is a classic example of such a prohibited action. Therefore, statement I is impermissible.

Statement II violates General Principle 3, which requires that information be made available to all shareholders and not just a select few. Selectively briefing some shareholders with material non-public information creates an unfair information advantage and is strictly prohibited. Therefore, statement II is impermissible.

Statement III contravenes General Principle 8, which mandates that directors must act in the interests of shareholders as a whole and not have regard to their personal interests, such as continued employment. Their advice must be based on the merits of the offer for the collective body of shareholders. Therefore, statement III is impermissible.

Statement IV describes a permitted action. General Principle 3 contains an explicit exception allowing an offeree company to furnish information in confidence to a bona fide potential offeror. This is a standard part of the due diligence process in a takeover and is permissible, provided it is managed under appropriate confidentiality agreements. Therefore, statement IV is correct.

Statement I is correct. According to the Listing Rules, the Listing Division of the Hong Kong Exchanges and Clearing Limited (HKEx) is responsible for all day-to-day listing matters, which includes the initial review and processing of a new applicant’s documentation. Statement III is also correct. The Listing Committee holds the authority to approve all new applications for listing on both the Main Board and GEM. Statement II is incorrect. The appeal hierarchy dictates that a decision made by the Listing Division is first appealed to the Listing Committee, not the Listing Appeals Committee. The Listing Appeals Committee is the next level of appeal after the Listing Committee. Statement IV is incorrect. The Listing Appeals Committee is the body that considers appeals on decisions made by the Listing Committee. The Securities and Futures Appeals Tribunal (SFAT) is a statutory body that hears appeals against decisions made by the Securities and Futures Commission (SFC), not the HKEx’s Listing Committee. Therefore, statements I and III are correct.

Statement I is correct. The Takeovers Panel is a committee of the Securities and Futures Commission (SFC), established under the authority of section 8(1) of the Securities and Futures Ordinance (SFO). Statement III is also correct. A primary function of the Panel is to hear disciplinary matters and adjudicate on breaches of the Codes on Takeovers and Mergers and Share Buy-backs. Statement II is incorrect because the Panel’s membership is deliberately diverse, comprising individuals from various sectors of the financial and investment community in Hong Kong, not exclusively SFC executives. This ensures a broad range of market expertise. Statement IV is incorrect because the Panel’s sanctions are non-statutory in nature. While it can impose sanctions such as public censure, requiring compensation, or issuing a ‘cold shoulder’ order, it does not have the power to impose criminal penalties like imprisonment or statutory fines, which are matters for the courts. Therefore, statements I and III are correct.

This question assesses the interplay between the Takeovers Code and other key regulations, particularly the Listing Rules. Statement I is correct because a takeover offer is an acquisition for the offeror. Depending on its size relative to the offeror’s own size (calculated using the five percentage ratios under Chapter 14 of the Listing Rules), it can be classified as a discloseable, major, or very substantial acquisition, triggering specific announcement and shareholder approval requirements. Statement II is correct as a fundamental requirement under the Takeovers Code (Rule 2.1 and Rule 25) is that the offeree company’s board must issue a circular to its shareholders containing its recommendation on the offer, along with the opinion of an independent financial adviser. Statement III is incorrect; the Takeovers Code and the Listing Rules are separate regulatory regimes that apply concurrently. An offeror must comply with its obligations under both, and compliance with the Takeovers Code does not provide an exemption from the Listing Rules’ notifiable transaction requirements. Statement IV is correct. Under Rule 3.7 of the Takeovers Code and the Listing Rules, if there is undue movement in the share price or trading volume, or significant market speculation prior to a formal announcement, the parties may be required to issue a holding announcement or request a trading suspension to prevent the formation of a false market. Therefore, statements I, II and IV are correct.

This question assesses the understanding of managing conflicts of interest within a licensed corporation, a key principle under the SFC’s Code of Conduct and specifically the Corporate Finance Adviser Code of Conduct. A ‘Chinese Wall’ is an internal information barrier designed to prevent the transmission of confidential, price-sensitive information between different departments of a financial institution. In the given scenario, the corporate finance team advising on the acquisition possesses material non-public information. The wealth management team has a duty to its own client, who is involved in the same potential transaction. The primary purpose of the Chinese Wall is to physically and electronically segregate these two teams to ensure that information from the advisory side does not leak to the wealth management side, which could lead to insider dealing or the firm improperly using information to the detriment of one client. This control is fundamental to upholding General Principle 6 (Conflicts of Interest) of the Code of Conduct, which requires a licensed person to avoid conflicts and ensure clients are treated fairly. While reporting conflicts to the SFC or ensuring best terms for clients are also important duties, they are not the primary function of the information barrier itself. The wall is a procedural safeguard to manage the conflict by controlling information flow, not a mechanism for documenting it for regulators or for negotiating commercial outcomes.

The SFC’s Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission and the Code of Conduct for Corporate Finance Advisers require licensed corporations to establish and maintain effective ‘Chinese walls’. These are functional barriers designed to prevent the flow of confidential and price-sensitive information between different departments, particularly between corporate finance (the ‘private’ side) and other areas like sales, trading, or research (the ‘public’ side). The primary goal is to manage conflicts of interest and prevent insider dealing. An effective system typically includes three key components: physical separation (different locations or restricted access areas), personnel separation (different staff and reporting lines), and information system segregation (separate servers, firewalls, and access controls). Assigning an individual from a public-side department, such as asset management, to work on a private-side project, even temporarily, constitutes a severe breach of the personnel separation principle. This action directly exposes an individual who is not ‘over the wall’ to non-public, price-sensitive information, creating a significant risk of misuse and undermining the entire purpose of the barrier. In contrast, implementing physical separation, conducting compliance audits, and managing personnel transitions with care are all elements of maintaining, rather than breaching, an effective Chinese wall.

According to Chapter 17 of the Hong Kong Listing Rules, a listed issuer must disclose specific details about its share option schemes in its annual and interim reports. Statement I is correct because the rules require the disclosure of the closing price of the securities immediately before the date on which the options were granted, providing context for the grant’s value. Statement II is also correct as the rules mandate reporting the number of options exercised and the weighted average closing price of the securities immediately before the exercise dates, which helps shareholders understand the value realized by participants. Statement III is incorrect; the Listing Rules require individual disclosure for each director, Chief Executive, and substantial shareholder to ensure a high degree of transparency and accountability, not aggregate figures for this group. Statement IV is incorrect because while the basis for determining the exercise price must be disclosed, there is no requirement for it to be set at a discount. The price can be at market value, at a premium, or at a discount, subject to the rules governing the scheme. Therefore, statements I and II are correct.

This question assesses the specific duties and procedural requirements for Compliance Advisers engaged by PRC issuers under the Hong Kong Listing Rules. Statement I is correct as it reflects the obligation under Listing Rule 6.11A, which requires the Compliance Adviser to keep the PRC issuer updated on changes to the Listing Rules and other applicable Hong Kong laws and regulations. Statement II is also correct. As per the modified Listing Rule 3A.26 for PRC issuers, the issuer cannot terminate its Compliance Adviser until a replacement has been appointed, ensuring continuous compliance oversight. Statement III is incorrect; while the sponsor handles initial training, the overall compliance culture, which the Compliance Adviser supports, necessitates understanding beyond just the board level. The Listing Rules guidance emphasizes that training should extend to relevant staff, such as middle management in the accounts department, who are crucial for preparing financial information. Statement IV is incorrect because the modified Listing Rule 3A.27 explicitly requires both the PRC issuer and the resigning/terminated Compliance Adviser to immediately notify the Exchange, stating the reasons for the change. Therefore, statements I and II are correct.

In Hong Kong’s corporate finance regulatory framework, the Securities and Futures Commission (SFC) and The Stock Exchange of Hong Kong Limited (SEHK) operate under a ‘dual filing’ system. The SEHK acts as the primary frontline regulator for matters governed by the Listing Rules. This includes reviewing transaction circulars, ensuring compliance with shareholder approval requirements, and vetting announcements for listed companies. The SFC, as the statutory regulator, holds an oversight function. Under the Securities and Futures (Stock Market Listing) Rules, the SFC has the power to object to a listing application or a proposed transaction if it believes it is not in the interest of the investing public or if the public interest is prejudiced. Furthermore, the SFC is the principal authority for enforcing the provisions of the Securities and Futures Ordinance (SFO), which includes investigating and prosecuting market misconduct such as insider dealing or the dissemination of false or misleading information. Therefore, their roles are complementary: the SEHK focuses on compliance with its Listing Rules, while the SFC provides a statutory backstop and polices broader market integrity and conduct.

According to the Hong Kong Listing Rules (specifically Main Board Rule 3A.10 and GEM Rule 6A.10), when a new applicant appoints more than one sponsor, it must inform the Exchange which sponsor is the primary channel for communication. Statement I is therefore correct. The rules also state a preference that the sponsor acting as the primary channel of communication should be independent (Rule 3A.10 / GEM Rule 6A.10). Since Summit Partners HK is independent, the Exchange would normally expect it to be designated as the primary channel. Statement II is therefore correct. Rule 3A.10 explicitly states that each of the sponsors shares responsibility for ensuring the obligations under the listing rules are fully discharged, and Rule 3A.11 requires each sponsor to conduct reasonable due diligence. The idea that only one sponsor bears this responsibility is incorrect. Statement III is therefore incorrect. Finally, the listing document must disclose the independence status of each sponsor (Rule 3A.10 / GEM Rule 6A.10). Statement IV is therefore correct. Therefore, statements I, II and IV are correct.

According to the Hong Kong Listing Rules (specifically Main Board Rule 3A.10 and GEM Rule 6A.10), when a new applicant appoints more than one sponsor, each sponsor retains full responsibility for ensuring all obligations under the rules are discharged. The designation of one sponsor as the ‘primary channel of communication’ is an administrative arrangement to streamline interaction with the Exchange. It does not create a hierarchy of responsibility or diminish the duties of the other sponsor(s). All appointed sponsors are collectively and individually responsible for the due diligence, the content of the listing documents, and addressing matters raised by the Exchange. Furthermore, while the Exchange normally expects the primary communication sponsor to be independent, the rules require that at least one sponsor must be independent (Rule 3A.07 / GEM Rule 6A.07), and the independence status of each must be disclosed.

According to the Listing Rules (specifically Rules 6.11 and 6.12), when a listed issuer decides to withdraw its listing, such as in the case of a voluntary winding-up, it must adhere to specific procedures designed to protect shareholder interests. A fundamental requirement is to obtain shareholder approval for the withdrawal. Crucially, the issuer must provide shareholders with a notice period of at least three months before the proposed date of listing withdrawal. The primary purpose of this notice period is to ensure that shareholders have an adequate and fair opportunity to sell their shares on the open market before the company’s securities become unlisted and, consequently, illiquid. While a trading suspension may occur at some point, the rules explicitly provide for this notice period to facilitate an orderly exit for investors. The process is distinct from a compulsory winding-up initiated by a court or a privatisation offer, which would have different procedural requirements.

According to the Hong Kong Listing Rules, a rights issue that would increase the issuer’s issued share capital or market capitalization by more than 50% (on its own or aggregated with other offers in the past 12 months) must be made conditional on approval by shareholders in a general meeting. In such a resolution, any controlling shareholders and their associates are required to abstain from voting. Furthermore, there are specific rules governing the disposal of securities not subscribed by shareholders. If an issuer makes arrangements for a director, chief executive, or substantial shareholder (or their associate) to underwrite or sub-underwrite the rights issue, and no other arrangements are made for the disposal of unsubscribed shares (such as through excess application forms or sale in the market), then this specific underwriting arrangement must be separately approved by shareholders. Persons who are materially interested in the arrangement, such as the underwriting director, must abstain from voting on this matter.

This question assesses the understanding of the distinct roles and functions of the key regulatory bodies in Hong Kong’s securities market, specifically the Securities and Futures Commission (SFC) and Hong Kong Exchanges and Clearing Limited (HKEx).

Statement I is correct. One of the SFC’s six statutory regulatory objectives, as outlined in the Securities and Futures Ordinance (SFO), is to reduce systemic risks in the securities industry and to assist the Financial Secretary in maintaining the financial stability of Hong Kong. This reflects its role as a macro-prudential regulator.

Statement II is incorrect. The SFC is the regulator, not the operator. Hong Kong Exchanges and Clearing Limited (HKEx) is the actual operator of the stock and futures exchanges and their associated clearing houses. The SFC supervises HKEx’s operations.

Statement III is correct. HKEx, as the operator of the exchange, has the primary, front-line responsibility for developing and maintaining market integrity. This includes its function as the primary regulator for listing matters, ensuring the quality of listed companies.

Statement IV is incorrect. While the Corporate Finance Division is the principal division for corporate finance activities, it is not the sole division involved. The SFO grants powers that are exercised by various divisions. For instance, the Enforcement Division investigates misconduct related to corporate finance, and the Intermediaries Division licenses and supervises firms engaged in corporate finance advisory work. Therefore, statements I and III are correct.

The Hong Kong Code on Takeovers and Mergers is a non-statutory code. This means it is not a piece of legislation passed by the Legislative Council. The SFC has maintained this approach because it allows for flexibility and responsiveness in a dynamic market. However, the Code’s non-statutory nature does not mean it lacks enforcement power. A critical enforcement mechanism is the ‘cross-default’ provision found in the SEHK Listing Rules. Specifically, Listing Rule 14.78 states that any breach of the Takeover Code will be considered a breach of the Listing Rules. Consequently, the Stock Exchange of Hong Kong can impose sanctions on a listed issuer or its directors for a breach of the Takeover Code. These sanctions can be severe and are outlined in Listing Rules 2A.09 and 2A.10. While Hong Kong courts have affirmed that decisions by the Takeovers Panel can be subject to judicial review, this review focuses on procedural fairness rather than enforcing the Code as if it were a statute.

According to the Listing Rules applicable to PRC issuers, specific arrangements are required when the issuer’s authorized representatives are expected to be frequently outside Hong Kong. In such cases, the issuer must appoint a Compliance Adviser to serve as the primary point of contact and communication with the Hong Kong Stock Exchange. This ensures that the Exchange has a reliable and accessible channel for all official correspondence. The Compliance Adviser must provide the Exchange with contact details for its own officers who will manage this communication. Furthermore, the rules provide certain accommodations for PRC issuers. For instance, the company secretary is not required to be ordinarily resident in Hong Kong, provided they possess the necessary qualifications and experience as stipulated in the rules. Regarding financial reporting, PRC issuers may prepare their accounts using International Financial Reporting Standards (IFRS) or Hong Kong Financial Reporting Standards (HKFRS). They are also permitted to include financial information prepared under PRC accounting standards in a separate section of their reports, as long as any material differences from IFRS/HKFRS are clearly explained. Lastly, a PRC issuer must appoint a person or firm in Hong Kong to accept the service of legal process and notices on its behalf, but this role is distinct from that of the authorized representatives.

According to the Code on Takeovers and Mergers, proceedings before the Takeovers and Mergers Panel are designed to be efficient and less formal than court hearings. The meetings are held in private, and there are no formal rules of evidence. A party involved in a review has specific rights regarding representation. The party may present its own case directly to the Panel. Alternatively, it can have its case presented by its financial adviser. While a party is permitted to bring its solicitor to the meeting, the primary presenters are typically the party itself or its financial adviser. If a party wishes to be represented in any other manner, it requires the prior consent of the meeting’s Chairman, which is granted only in exceptional circumstances. The Panel generally does not permit more than two representatives from the financial adviser or the solicitor to attend.

This question tests the understanding of key provisions under Chapter 17 of the Main Board Listing Rules regarding share option schemes.

Statement I is correct in identifying a breach. According to Rule 17.03(9), the exercise price of a share option must be at least the higher of: (a) the closing price of the securities on the date of grant; and (b) the average closing price of the securities for the five business days immediately preceding the date of grant. Using a ten-day average does not comply with this rule and is therefore a breach.

Statement II is correct in identifying a breach. Rule 17.05(1) prohibits the grant of options during the one-month period immediately preceding the earlier of the date of the board meeting for the approval of the issuer’s results and the deadline for the issuer to publish its results announcement. Granting options on 15th August, just before the 30th August results announcement, falls within this prohibited blackout period.

Statement III correctly states a requirement. According to Rule 17.04(1), any grant of options to a director, chief executive, or substantial shareholder of the listed issuer (or any of their respective associates) must be approved by the independent non-executive directors (INEDs). As the Chief Executive Officer is a director, this approval is mandatory.

Statement IV incorrectly describes the rule. The 10% scheme mandate limit, as per Rule 17.03(3), is calculated based on the number of securities in issue as at the date of approval of the scheme by shareholders, not as at the date of each individual grant of options. Therefore, statements I, II and III are correct.

According to the SFC’s licensing requirements, an applicant must submit a comprehensive business plan that clearly outlines its proposed business activities. A key component is the statement of business objectives, which must demonstrate a ‘focused line of business’. This means the applicant must clearly define the nature and scope of its intended regulated activities. Statement I is correct because identifying the target clientele (e.g., institutional, professional, or retail investors) is fundamental to defining the business scope and ensuring the firm has appropriate systems and controls. Statement II is also correct as specifying the investment strategies and asset classes is crucial for a Type 9 (Asset Management) applicant to demonstrate its expertise and operational focus. Statement III, while part of a broader business plan, is not a primary element of the statement of business objectives defining the regulated activity’s scope; the SFC is more concerned with the viability and control framework than with specific financial targets. Statement IV is an operational detail concerning implementation, not a core strategic objective that defines the business’s focus for licensing purposes. Therefore, statements I and II are correct.