HKSI LE Paper 2 (Dec 2006) - Q&A 21~40 (with explanations):
21(A) - (I) and (II) are the facts and thus (III) and (IV) must be wrong.
22(D) - ATS provider should be either authorized by SFC or licensed by SFC for Type 7. Firms whose business is principal dealing is exempt from being licensed for Type 1. Trust companies registered under Trustee Ordinance are exempt from being licensed for Type 1 when acting as an agent for a collective investment scheme.
23(A) - Without the quotation rules, the share price fluctuations may not fluctuate in an orderly way.
24(D) - (A) is wrong because following the demutualization of SEHK an exchange participant has no longer been required to be a shareholder of SEHK. (B) is wrong because the transfer of exchange participantship is approved by SEHK. (C) is wrong because a SFC licensed corporation should separately make an application for exchange participantship to SEHK.
25(D) - (I) is wrong because individual investors may also open accounts with HKSCC.
26(C) - (C) is incorrect because such marking to market is only required on at least daily basis.
27(C) - (C) is incorrect because some other securities listed on Main Board (e.g. illiquid stocks, warrants) may also not be short sold.
28(D) - (I) is wrong because there is no such requirement. In fact, it would be inconvenient to combine the annual standing authority with the client agreement.
29(B) - (B) is incorrect because such a journalist, even not licensed by SFC, may still be prosecuted by SFC for "disclosure of false or misleading information" (one kind of market misconduct).
30(C) - Both (A) and (B) are unfavorable to the clients without reason. (D) is wrong because such requirement does not exist and is not practical.
31(C) - An approved introducting agent is not subject to the Rules per (I), (II) and (IV) because it would never hold client assets, while contract notes and statements are issued by the execution broker instead.
32(A) - (II) is wrong because the offer and distribution as part of a listing is covered by SEHK's Listing Rules instead. (III) is wrong because not all kinds of securities are covered by CO for offering.
33(D) - (I) is wrong because only eligible an options exchange participant can become a market maker. (III) is wrong because there is no market maker system for equity securities.
34(D) - (D) is wrong because the use of modeling techniques is for risk monitoring, not risk reduction.
35(A) - (III) is wrong because there is no such thing as "independent clearing participant". (IV) is wrong because self-dealing participant can't clear the transactions of other participants.
36(C) - Retaining even the balance of any proceeds after meeting in full the client's obligations is obviously not a reasonable step.
37(B) - (B) is exactly describing the behavior of front-running. (A) is cold calling. (C) is churing. (D) is wash sale.
38(A) - (B) is wrong because the Investment Compensation Fund covers only investors who have suffered from defaults of certain intermediaries. (C) is wrong because an investor has no such right. (D) is wrong because such insurance is not claimed for dealing misconduct.
39(C) - Possession of professional qualifications is not relevant to the misconduct.
40(C) - MMT can only impose civil sanctions and thus imprisonment is not available.
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