Introduction
If you’re preparing for HKSI examinations, you’ll often encounter questions that test not only your memory of rules but also your ability to apply them to real-world scenarios. In today’s post, we walk through five representative questions, unpack the correct choices, and highlight what examiners look for. Let’s dive in step by step and pull out the key takeaways you can carry into your revision.
Question 1: Margin financing and notification before liquidation
Question
- If an investor uses securities margin financing and cannot meet the margin, does the broker need to notify the investor before selling the collateral?
Answer: D
Explanation
- The rule under the Securities and Futures Ordinance (SFO) allows a broker to liquidate the collateral without prior notice to the investor. However, practitioners typically inform clients before liquidation so they have an opportunity to meet the margin requirements. The official stance is that prior notification is not strictly required, but good practice is to notify.
Learning points for HKSI:
- Know that liquidation can occur without mandatory prior notice, but communication is common practice to manage margins.
- Distinguish between what the statute requires and typical industry practice; always consider the regulatory framework and risk management obligations.
Takeaway tip: In exam scenarios, remember that the legal requirement may differ from operational practices. Read the question’s wording carefully to determine whether it asks for statutory obligation or standard industry practice.
Question 2: Central clearing participants and exchange connectivity (德公司 case)
Question
- A licensed corporation, as an LSE options broker trading participant, which statements are correct? I. It is definitely a CCP (Central Counterparties) participant. II. It is definitely an LME (Stock Exchange) company participant. III. It is definitely not a Options Trading Exchange participant. IV. It can obtain system connectivity rights.
Answer: A (II, III)
Explanation
- Clearing and settlement are independent; the statement I is incorrect because clearing participation is not guaranteed by trading participation alone. Moreover, option IV is incorrect because options broker trading participants generally do not obtain direct system connectivity rights to the exchange.
- Therefore II and III are correct: the firm can be an Exchange Company Participant but not necessarily a CCP; and it is not an Options Trading Exchange Participant by virtue of the scenario described.
Learning points for HKSI:
- Understand the separation between clearing participants and trading participants.
- Know that system connectivity rights are tightly controlled and not automatically granted to all broker types.
Question 3: Responding to rumors of financial fraud for a listed company
Question
- A listed company on the HKEx is rumored to have financial fraud risk; investigations are ongoing. To stabilize the stock price and protect shareholders, what is the appropriate response?
Answer: D (Can suspend trading temporarily)
Explanation
- Since the investigation is ongoing and facts are not yet established, issuing a full clarification is premature and risky. A temporary trading halt (suspension) can be used to stabilize the market while facts are clarified.
Learning points for HKSI:
- In cases of uncertain information, a temporary trading halt can be a prudent mechanism to prevent misinformation and excessive volatility.
- Do not prematurely publish definitive statements when facts are not confirmed.
Question 4: Internal Control Guidelines – data management
Question
- Under the SFC Internal Control Guidelines on data management, which statements are correct? (1) Policies and procedures must ensure all data and documents related to business operations are retained in paper form. (2) Data management must operate in a confidential and monitored environment. (3) Data management documentation should detail the system design specifications and implementation plans. (4) Implement proper and effective electronic data processing and confidentiality policies to prevent insertion, alteration or deletion of data.
Answer: D (2 and 3)
Explanation
- Statement (1) is incorrect: keeping paper documents is not mandatory; retention can be electronic as long as the data is complete, confidential, secure, and reliable.
- Statement (4) is problematic as stated; the correct principle is to prevent unauthorized insertion, alteration, or deletion, i.e., to protect data integrity.
- Therefore, statements (2) and (3) are correct.
Learning points for HKSI:
- Data governance emphasizes confidentiality, monitoring, and explicit documentation of system design and implementation, regardless of the storage medium.
- Focus on data integrity and security measures, not just the format of retention.
Question 5: Suspicious transactions under AML guidelines for licensed corporations
Question
- Regarding suspicious transactions under the AML guidelines for licensed corporations, which statement is not correct? A. Market manipulation activities are suspicious transactions. B. Frequent fund transfers or cheque payments with counterparties that are difficult to verify qualify as suspicious transactions. C. For clients who appear to act on behalf of a client but without sufficient evidence, intermediaries should adopt additional risk controls. D. Employees who are formally authorized by asset managers are usually considered as appearing to act on behalf of clients and should be subject to additional risk controls.
Answer: D
Explanation
- The first part of option D is inaccurate: formally authorized employees of investment banks or asset managers are not typically regarded as “appearing to act on behalf of the client.” The extra risk controls are not generally applied in the same way to these employees.
Learning points for HKSI:
- Be precise about indicators of suspicious activity and the persons involved; not every authorized employee is automatically treated as acting on behalf of clients for AML purposes.
- AML guidelines require risk-based controls, especially for unclear situations, but the categorization of who counts as “appearing to act for the client” must be interpreted carefully.
Closing thoughts
Mastering these explanations helps you not only memorize rules but also understand how they apply in typical market scenarios. In HKSI exams, questions often hinge on subtle distinctions between statutory obligations and customary practice, as well as between different market participants and their roles.
If you found this breakdown helpful, stay tuned for more in-depth explanations and practice questions. Follow HKSIYES for regular updates and expert guidance to strengthen your exam readiness.