HKSI LE Paper 1 Past Paper (4)

HKSI LE Paper 1 (Dec 2006) - Q&A 46~60 (with explanations):

46(D) - The function of stock borrowing & lending is similar to money borrowing & lending.

47(C) - (I) is right because over-concentration of securities collaterals is a margin control risk. (II) is wrong because the written agreement must be completed before the provision of margin service. (III) and (IV) are standard requirements for securities margin financing.

48(B) - (A), (C) & (D) are wrong as there are no such requirements under the rules of SEHK.

49(C) - (A), (B) & (D) are the functions performed by the clearing house. Market maker's role is to provide market liquidity by quoting both bid & ask prices.

50(D) - All options are services provided by the HKSCC.

51(C) - Offer for sale is not a recognized method of listing for already listed securities.

52(C) - Meetings of the Takeovers & Mergers Panel are definitely not open to public. The role of Takeovers Appeals Committee is to review disciplinary rulings of the Takeovers and Mergers Panel for determining whether any sanction imposed is unfair or excessive, rather than setting aside the entire proceedings of the Panel. The Takeovers Appeals Committee is a regulatory committee under the SFC, thus not independent.

53(C) - (A) is wrong as both codes have no force of law. (B) is wrong as both codes have impact on a person's fitness & properness in case of non-compliance. (D) is wrong as the Code on REITs has been promulgated by the SFC instead of the HKMC.

54(A) - Management of mutual funds, collective investment schemes and discretionary portfoliios are all related to asset management (Type 9 regulated activity). Securities margin financing is only Type 8 regulated activity.

55(B) - Recognized counterparty is not regarded as a "client" of a leveraged foreign exchange trader. This is an exemption under the SFO.

56(D) - All options are within the 6 Data Protection Principles under the Personal Data (Privacy) Ordinance.

57(B) - Covered short selling is not a misconduct. Corporate misgovernance is a misconduct but not market misconduct. (I) & (III) are market misconducts defined under the SFO.

58(C) - Rat trading and churning are misconducts but they are not defined under the SFO. (III) & (IV) are market misconducts defined under the SFO.

59(A) - Actually only price rigging is an offence of market misconduct in those options, but the answer "(II) only" is not available. This question is wrongly designed by treating also (I) as a market misconduct.

60(D) - By common sense all options are examples of good internal control measures.