HKSI LE Paper 2 Past Paper (1)

HKSI has recently released also the past paper (December 2006) of licensing examination Paper 2, which is usually taken by people who intend to become a responsible officer for Types 1/4/8 regulated activities. Again, I provide my explanations of the answers here.

HKSI LE Paper 2 (Dec 2006) - Q&A 1~20 (with explanations):

1(A) - Even a stock has been suspended for trading, those transactions completed before the suspension should be settled as usual. There is not such thing called Securities & Futures (Suspension of Trading) Rules. Nobody is entitled to any compension due to trading suspension.

2(C) - (I), (II) and (IV) are correct based on common senses of law. (III) is wrong because PDPO does not require the provision of access to personal data free of charge.

3(A) - (C) and (D) are too serious to pass the fit and proper standards. When comparing (A) and (B), obviously (A) is less adverse.

4(A) - Listing of companies is covered by Listing Rules. Issue of contract notes is covered by Securities & Futures (Contract Notes, Statements of Account and Receipts) Rules.

5(D) - Institutional investor is typically subject to less investor protection under SFO and thus not protected by Securities & Futures (Investor Compensation - Claims) Rules.

6(C) - (A) is wrong because annual audited accounts must be submitted to SFC within 4 months of the financial year end. (B) is wrong because appointment of an auditor must be notified to SFC within 7 business days. (D) is wrong because financial year end must be notified to SFC within 1 month.

7(B) - In (I), (II) and (III), the client can confirm that the intermediary has received his assets in an alternative way, thus issue of a receipt by the intermediary is exempted by the Rules.

8(B) - For records which are orders and instructions from clients, the record retention period required by the Rules is only 2 years, while 7 years is applicable to all other records.

9(A) - (I) is incorrect because the Fund would not cover certain professional investors and clients of certain intermediaries. (II) is incorrect because the Fund cover all securities traded on SEHK.

10(B) - (I) is wrong because contract notes must be issued within T+2. (IV) is wrong because the two intermediaries must agree in writing as to who will provide contract notes to the client.

11(C) - Segregation of client money within 1 business day is specified by the Rules.

12(D) - It is not practical for the licensed person to notify the client before dealing in options through another intermediary, thus (D) would not be included in the options client agreement.
13(B) - (B) is correct because such goods and services are of demonstrable benefits to the clients.

14(A) - "Prompt execution" and "best execution" are obviously related to the broker's level of diligence.

15(C) - The dealer has failed to fulfil the "prompt execution" requirement under the diligence principle under the Code.

16(C) - (III) is a requirement under Securities & Futures (Client Securities) Rules and thus can't be waived.

17(D) - (D) is wrong because tape records must be kept for at least 3 months.

18(D) - (I) is wrong because a guideline can never override the Code.

19(A) - Simply speaking, there are no such requirements as (III) and (IV) in the Listing Rules.

20(A) - Exchange traded options are traded on the Hong Kong Futures Automated Trading System (HKATS).