Introduction
Preparing for the HKSI exam? Real questions often mix market mechanics with regulatory concepts and even language nuance. In this post, we walk through five sample questions, unpack the reasoning behind the correct answers, and highlight the key takeaways you can apply in your studies.
1) HKEx market makers: which statement is incorrect?
Question: The following statements about HKEx market makers are not all correct. Which one is incorrect?
Options:
- [A] The market maker mechanism exists to increase liquidity.
- [B] Options brokers cannot apply to act as a market maker for a specific option class; only regular market makers can.
- [C] Before licensing, HKEx may require applicants to demonstrate and obtain consent that they are fit to engage in market making activities within the option contracts.
- [D] HKEx maintains a register recording all approved market makers and the option classes they act as market makers for.
Answer: B
Explanation: Option B is incorrect. In fact, both primary market makers and general market makers can serve as market makers; the statement restricting to general market makers is not accurate.
Takeaways for HKSI: Know the types of market makers (primary vs general) and that both may participate in market making activities. The goal of the market maker mechanism is to improve liquidity and trading efficiency.
2) A broker with exchange trading rights: what privilege do they have?
Question: A securities broker with the HKEx trading right has what privilege?
Options:
- [A] Can invest in stocks.
- [B] Can invest in futures.
- [C] Can directly use OTP-C.
- [D] Can directly access the electronic trading system.
Answer: C
Explanation: All HKEx securities trading must be executed via OTP-C. The OTP-C system is provided for access to trading by exchange participants (e.g., brokers). This is a security feature, not an ordinary privilege to bypass checks.
Takeaways for HKSI: Remember OTP-C as the access mechanism for exchange trading; it is the system used by participants to place trades.
3) Remedies for negligent directors: which is correct?
Question: Which remedy is correct for misconduct by directors who breach their duties?
Options:
- [A] An injunction can be obtained to stop the offending conduct.
- [B] All breaches of duties simply lead to damages on a per-director basis, not joint liability.
- [C] If a director obtains an improper benefit from disposing of company assets, shareholders cannot require a disclosure due to shareholder approval alleviating liability.
- [D] If a director does not disclose personal interests in a contract, the company may demand compensation from the director.
Answer: A
Explanation: When directors breach duties, they may be liable to the company both jointly and severally for damages. Injunctions can be used to stop improper conduct. Options B, C, and D are incorrect.
Takeaways for HKSI: Directors' duties include duties to disclose conflicts and liability that can be joint and several; injunctions are a valid remedy.
4) Grammar in context: This is the house where I was born.
Question: This is the house where I was born.
Options:
- [A] which
- [B] that
- [C] where
- [D] when
Answer: C
Explanation: Where is used to refer to a place in a relative clause (the house is a place).
Takeaways for HKSI: Expect questions on regulatory language as well as grammar. Understand relative clauses by place vs time.
5) A false description of market participants: which is incorrect?
Question: Which statement about participants in the securities industry is incorrect?
Options:
- [A] A custodian holds assets for investors.
- [B] Traders trade in their own name or on behalf of their firm.
- [C] Brokers execute trades for clients.
- [D] The SFC is entrusted by the HKMA to regulate the securities and futures industry.
Answer: D
Explanation: The SFC has powers of investigation, correction and disciplinary action under the SFO. It operates independently from the HK government, funded mainly through transaction levies and licensing fees. The HKMA is the banking supervisor, not the body entrusted with regulating the entire securities and futures industry.
Takeaways for HKSI: Distinguish between the roles of the SFC and the HKMA, and know the SFC’s authority under the SFO.
Final thoughts
The HKSI exams test not just memorization, but how well you apply statutory language, market structure concepts, and regulatory roles to practical questions. Practice with similar items, focus on mechanisms like OTP-C and market makers, and reinforce your understanding of directors’ duties and SFC powers.
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