Introduction
If you’re revising for the HKSI exams, it helps to connect each question to its core concepts rather than just memorize answers. Below, we walk through five representative questions, unpack the ideas behind them, and highlight how the correct choice fits into the bigger picture of HKSI knowledge. Consider this a quick diagnostic run to sharpen your understanding of bonds, trading systems, client asset rules, warrants, and AML considerations.
Question 1: Bond with a fixed coupon
Question (paraphrased): What do you call a bond whose coupon rate remains constant from issuance to maturity?
Answer: B. Fixed-rate bond (定息债券)
Why this is correct: A fixed-rate bond pays a constant coupon throughout its life. The coupon rate does not depend on market movements for the term of the bond. This is the defining feature of fixed-rate bonds.
Why the other options aren’t right:
- A. Floating-rate bond: coupon varies with a reference rate (e.g., benchmarks like SOFR, LIBOR).
- C. Zero-coupon bond: pays no periodic coupons; the return comes from the difference between purchase price and maturity value.
- D. Fixed-income bond: while true in broad terms, the standard and precise label for a bond with a constant coupon is fixed-rate bond; this option is less specific.
Takeaway: In HKSI context, distinguish fixed-rate (constant coupons) from floating-rate, zero-coupon, or general “fixed-income” phrasing. This helps you parse exam questions quickly.
Question 2: HKEx trading systems – the incorrect statement
Question (paraphrased): Which statement about HKEx trading systems is incorrect?
Answer: D. HKATS electronic trading system can only be used to trade Futures Exchange products (the statement is incorrect).
Why this is correct: HKATS is HKEx’s electronic trading system that handles trading for a range of HKEx products, including futures, options, and other exchange-traded contracts. It is not limited to only certain products. The correct description is that HKATS supports the trading of HKEx products including exchange-traded derivatives.
Why the other options are correct:
- A. The current frontline trading platform is OTP-C (Order Transmission Platform - Connex/OTP-C) used by OTP-C.
- B. The OTP-C structure allows brokers to connect their own systems directly and process client orders electronically.
- C. OTP-C can handle bonds alongside other listed products, depending on system configuration and product eligibility.
Takeaway: Know the names and roles of HKEx’s major trading platforms (OTP-C and HKATS) and what each system is capable of handling. This helps avoid misstatements in questions about market infrastructure.
Question 3: Handling clients’ securities and a related intermediary
Question (paraphrased): Among the actions taken by a broker after obtaining a client’s securities or collateral, which one is incorrect?
Answer: D. The firm uses an enduring (permanent) authorization to transfer the client’s securities to a related entity, placing them into a trust-like account.【This is incorrect】
Why this is correct: The client securities rules generally permit oral or written directions to sell or settle such sales, but using an enduring authorization to move securities to a related entity or affiliate (even if “trust account” terminology is used) is not typically permitted. This can bypass appropriate control and custody safeguards.
Why A, B, C are acceptable under rules (with caveats):
- A. The client may verbally authorize selling securities, and the broker may execute.
- B. A written instruction to divest during unfavorable market conditions could be interpreted as selling, depending on the client’s mandate.
- C. An administrator or broker may move collateral to an affiliated entity under certain controlled arrangements, provided all regulatory requirements and client consent rules are observed.
Takeaway: Remember the boundaries around client consent, custody, and transfers—permanent or sweeping transfers to related entities typically require stricter control and client authorization, not a blanket grant of enduring rights.
Question 4: What is a derivative warrant?
Question (paraphrased): Which option correctly describes a derivative warrant?
Answer: C. A warrant that bets on the performance of a third-party asset, issued by a third party (e.g., an investment bank) and traded on HKEx.
Why this is correct: Derivative warrants are (i) issued by a third party, not the company whose stock underlies the warrant; (ii) they are leveraged derivatives that confer a payoff contingent on the price movement of a reference asset; (iii) they are traded on the exchange (HKEx). Specifically, they are used to speculate on or hedge the underlying asset’s direction.
Why the other options are not warrants:
- A. RSUs or stock-settled employee stock options issued by a listed company are not warrants; they are employee compensation instruments.
- B. A rights issue (or placement) by an investment bank is not a derivative warrant.
- D. A plain-vanilla stock call option traded via an ATS (Alternative Trading System) is not a warrant; warrants have a distinct issuer and often different terms than standard market options.
Takeaway: Distinguish between warrants (third-party issued, exchange-traded, with attached terms) and other instruments like employee stock options or ordinary exchange-traded options.
Question 5: AML considerations for a licensed company employee
Question (paraphrased): Among several employee status descriptions, which one is least likely to indicate money laundering risk, i.e., which is not a red flag? (Choose the option that is not likely suspicious.)
Answer: A. Zhang has recently become acquainted with a powerful boss whose funds moved from other banks to equity trading, leading to Zhang’s strong performance.
Why this is correct: The scenario suggests a large performance spike tied to unrelated external funds, which could be a red flag, but the question notes that the book indicates unusual or above-expected sales/targets may indicate AML risk when it lacks context. The description in A does not explicitly imply unusual behavior by Zhang beyond performance tied to external funds; the risk signal is weaker here relative to the other options, which describe conspicuous spending, unusual laziness, or unusual mail-address-based activity. Thus, A is the “least likely” to suggest money laundering directly according to the referenced guidance.
Why the other options raise AML concerns:
- B. Miss Li’s sudden large spending and investments without a clear source of funds can be a AML signal.
- C. Mr. Du, a finance manager who is lazy but never takes leave, could indicate control risks or undisclosed activities.
- D. Ms. Gao’s family address being used for client mail could be a front for misdirection or information asymmetry.
Takeaway: When evaluating AML risk in employees of a licensed entity, look for unusual funding sources, unexplained wealth, or unusual patterns of living or employment norms. Some signals are stronger indicators than others, so context matters.
Final thoughts
These five items illustrate the breadth of knowledge you’ll encounter in the HKSI exams—from bond mechanics and market infrastructure to custody, derivatives, and AML risk indicators. The more you connect each question to its underlying principles, the faster you’ll recognize the right choice under exam conditions.
If you found this breakdown helpful, consider following HKSIYES for more topic-led explanations, practice questions, and practical insights drawn from HKSI materials and market practice. Stay tuned and happy studying!