Introduction
If you’re gearing up for HKSI exams, you’ll encounter a mix of questions on market structure, trading desks, and the regulatory framework. Rather than jumping straight to the answers, let’s walk through five representative questions to reveal the reasoning and the HKSI concepts they test. Each item links to common topics you’ll see in the HKSI syllabus, including market microstructure, the role of exchanges, privatization implications, macro-to-market channels, and the responsibilities of HK regulatory bodies.
Question 1: Distinguishing trading desk roles
Question: What is the biggest difference between a Market Making/Trading Desk (sitting on the book) and a Liquidity Trader (flow trader)?
Options: [A] Holding period [B] Source of income [C] Experience requirements [D] Track record of performance
Answer: B
Explanation (in brief):
- Liquidity traders (flow traders) are typically part of client-related businesses; their income primarily comes from the bid-ask spread and the price difference realized when dealing with clients.
- Market makers sit on their own or their firm’s inventory with the aim of profiting from market movements, not just from client trades.
HKSI takeaways:
- Understand different desk types and their revenue models—this is a core topic in market structure and trading operations.
- Know how inventory management and client flows feed into profitability, a common exam theme.
Question 2: Describing HKEX’s role
Question: Which statement about the Hong Kong Exchanges and Clearing (HKEX) is correct?
Options: [A] HKEX is a non-profit organization. [B] HKEX is responsible for the trading of Main Board securities. [C] HKEX is listed on the Stock Exchange of Hong Kong (SEHK). [D] HKEX operates the Central Clearing and Settlement System (CCASS).
Answer: C
Explanation (in brief):
- HKEX is a listed company; historically, it was listed on the SEHK on 27 June 2000. This option reflects the corporate status rather than the functions, while CCASS is operated by a different arm and is part of the HKEx group’s clearing activities.
HKSI takeaways:
- Clarify the distinction between market operator (exchange) vs. clearing system vs. corporate structure.
- Remember key facts about HKEX’s listing history and what CCASS does, which often appear in regulatory and governance questions.
Question 3: Public sector privatization descriptions
Question: Which description about privatizing public enterprises is incorrect?
Options: [A] Privatization can encourage shareholder oversight and improve governance. [B] Privatization can raise efficiency. [C] Privatization can reduce government debt. [D] Privatization reduces financing channels.
Answer: D
Explanation (in brief):
- Privatization typically creates new financing channels and opportunities, rather than reducing them. The incorrect statement is that privatization reduces financing channels.
HKSI takeaways:
- Grasp the typical governance and financing implications of privatization, a topic that can appear under corporate finance and public policy questions.
Question 4: Macro-market linkage and options strategy
Question: An economist argues that if the US raises rates, Hong Kong stocks will fall. If the current yield curve in the US is positive, which actions should investors consider?
Options: [A] I, III (Buy stocks and stock call options) [B] I, IV (Buy stocks and stock put options) [C] II, III (Sell stocks and stock call options) [D] II, IV (Sell stocks and stock put options)
Answer: D
Explanation (in brief):
- If the stock market is expected to fall, selling stocks and buying put options (which benefit from declines) can maximize profits.
HKSI takeaways:
- Understand how macro signals (like rate moves and yield curves) influence equity markets and how derivatives (puts) can be used for hedging or speculation—important for both macro and derivatives topics.
Question 5: Hong Kong financial regulation and agency responsibilities
Question: Which of the following statements about HK’s financial regulation and related bodies is incorrect?
(1) The FX Reserve Advisory Committee is a supervisory body of the HKMA. (2) The SFC can disclose confidential information to groups rather than individuals only. (3) The SFC’s Regulation and Enforcement Division is responsible for supervising and monitoring the Investors’ Compensation Fund. (4) The SFC’s Takeovers and Mergers Committee is independent of the SFC.
Options: [A] (1)(2) [B] (1)(3) [C] (1)(2)(3) [D] (2)(3)(4)
Answer: D
Explanation (in brief):
- Statement 2 is inaccurate: disclosures by the SFC are restricted to certain groups (government officials, statutory and regulatory bodies, and overseas regulators) rather than to individuals.
- Statement 3 is inaccurate: the responsible unit is the Market Surveillance Department, not a “Regulation and Enforcement Division” in that context.
- Statement 4 is inaccurate: the Takeovers and Mergers Committee is not independent of the SFC.
HKSI takeaways:
- Be clear on the roles of the SFC, HKMA, and related committees, and the distinctions between enforcement, market oversight, and corporate actions like takeovers.
Conclusion and next steps
These five questions illustrate how HKSI exams test your understanding of market structure, exchanges and clearing, privatization and governance, macro-micro linkages, and regulatory frameworks. Building a solid grasp of these concepts will help you navigate similar questions with confidence. For more practical explanations, exam tips, and study resources tailored to HKSI, follow HKSIYES for regular updates and in-depth articles.
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