The Securities and Futures Ordinance (SFO): objectives, definitions, market infrastructure, offers of investments, investigations, discipline, inside information and disclosure of interests. These are original practice notes, not documents of the HKSI Institute or the SFC, based on the texts in force at 1 January 2027. Investor Compensation Fund limits may change: check the version in force.
1. Which ONE of the following is a regulatory objective of the Securities and Futures Commission under section 4 of the Securities and Futures Ordinance?
Section 4(d) of the SFO makes it a regulatory objective of the Commission “to minimize crime and misconduct in the securities and futures industry”. Acting as lender of last resort is a central-bank function, not an SFC objective. Section 4(c) speaks of protection for members of the public investing in financial products, not a guarantee against losses, and the Hong Kong dollar exchange rate is a monetary matter outside section 4(a) to (f).
2. The Securities and Futures Ordinance (Cap. 571), which came into operation in 2003, was enacted mainly to do which ONE of the following?
The SFO consolidated and modernised ten earlier ordinances on the securities and futures markets into one statute. It did not merge the SFC with the Monetary Authority, which remain separate regulators. It did not establish the exchange, because Part III only provides for the recognition of an exchange company (section 19), and it did not replace company law, which stays in the company legislation.
3. Under Schedule 1 to the SFO, which ONE of the following falls within the definition of “securities”?
Paragraph (a) of the definition of securities in section 1 of Part 1 of Schedule 1 covers “shares, stocks, debentures, loan stocks, funds, bonds or notes” of, or issued by, a body or a government or municipal government authority, so government bonds qualify. Gold bullion, a savings deposit and a freehold shop are not shares, debentures, bonds or notes, nor interests in them, and so fall outside the definition.
4. Under Schedule 1 to the SFO, a “futures contract” includes which ONE of the following?
Paragraph (a) of the definition of futures contract in Schedule 1 covers “a contract or an option on a contract made under the rules or conventions of a futures market”, so an option on a futures-market contract is included. A right to subscribe for shares is a security under paragraph (b) of the definition of securities, and a debenture falls under paragraph (a) of that definition. A bank time deposit is not a contract made under the rules of a futures market.
5. Under the SFO, an “intermediary” means which ONE of the following?
The SFO defines an intermediary as “a licensed corporation or a registered institution”. A licensed corporation together with a licensed representative is the definition of a licensed person, not an intermediary. An associated entity is not an intermediary, and a responsible officer and a licensed representative are individuals who work for a licensed corporation, not intermediaries in their own right.
6. Which ONE of the following is an element of the definition of a “collective investment scheme” in Schedule 1 to the SFO?
Paragraph (a)(i) of the definition requires arrangements under which the participating persons “do not have day-to-day control over the management of the property”. The definition does not require the property to be held by a licensed corporation or the units to be listed on a stock market. Authorisation under section 104 is a separate step, and an unauthorised arrangement can still be a collective investment scheme.
7. Which ONE of the following falls within the definition of a “professional investor” in Schedule 1 to the SFO by reason of its status, with no portfolio test?
Paragraph (c) of the definition of professional investor in Schedule 1 covers “any authorized financial institution”, so it qualifies by status. A solicitor, a director and an introducing agent are not in the status categories of the definition. An individual can be a professional investor only if the rules made under the SFO prescribe it, which depends on a portfolio test.
8. Harbourview Growth Pool collects money from 40 investors in Hong Kong. Its manager invests the money as a whole, the investors have no say in day-to-day investment decisions, and the profits are shared among them. No application has been made to the SFC. Which ONE of the following statements is MOST LIKELY correct?
The facts match paragraph (a) of the definition of a collective investment scheme in Schedule 1: no day-to-day control by participants, property managed as a whole, and pooled profits shared with participants. Authorisation under section 104 is a separate step that does not create the status. Listing and the voluntary decision of investors to join are not part of the definition.
9. Mr Chan is not licensed. He telephones members of the public and urges each to place an order to buy shares in a listed company through his friend. He never makes or accepts an order himself. Under the SFO definition of “dealing” in securities, which ONE of the following statements is MOST LIKELY correct?
The definition of dealing in relation to securities covers, whether as principal or agent, “inducing or attempting to induce another person” to enter into an agreement for acquiring securities. Mr Chan therefore falls within it without making or accepting an order himself, and the conduct is caught from the attempt, not only once a buyer completes a purchase. Listed shares are securities, so listing does not take the conduct outside the definition.
10. Harbourview Funds Limited is unlicensed. It prints brochures inviting the general public in Hong Kong to buy units in a collective investment scheme and keeps them ready for distribution. It knows what the brochures say, the SFC has not authorised their issue, and no exemption in section 103 applies. None has been handed out and no unit has been sold. Which ONE of the following statements is MOST LIKELY correct?
Section 103(1) of the SFO catches a person who issues, or “has in his possession for the purposes of issue”, an invitation to the public to acquire an interest in a collective investment scheme, unless the issue is authorised under section 105(1). Possession for issue is enough, so the offence does not wait for the first brochure to be handed out or for a unit to be sold. A statement that the scheme is not authorised is not one of the exclusions in section 103(2) or (3).
11. Assume that the SFC has not authorised the issue and that no other exclusion applies. Which ONE of the following advertisements is excluded from the prohibition in section 103(1) of the SFO?
Section 103(3)(k) of the SFO excludes advertisements for interests in a collective investment scheme “disposed of only to professional investors”, or intended to be. An advertisement aimed at the public is not excluded by a risk warning, and authorisation overseas does not exclude it either, since only authorisation by the Commission under section 105(1) lifts the prohibition. A social media post is open to the public, so it falls within the prohibition.
12. What is the maximum penalty on conviction on indictment for an offence under section 103(1) of the SFO, leaving aside any daily fine?
Section 103(4)(a) of the SFO provides for a fine of HK$500,000 and imprisonment for 3 years on conviction on indictment, with a further daily fine for a continuing offence. HK$1,000,000 and 2 years is the penalty in section 19(5)(a) for operating a market without recognition, and HK$1,000,000 and 7 years is that in section 107(2)(a) for fraudulent or reckless inducement. HK$200,000 and 1 year appears in neither section.
13. A collective investment scheme is authorised under section 104 of the SFO. The approved person's email address changes. Within how long must the Commission be informed of the change?
Section 104(2)(b)(ii) of the SFO requires the Commission to be informed of any change in the contact details of the approved person “within 14 days after the change takes place”. The periods of 3, 7 and 30 days do not appear in section 104(2).
14. Which ONE of the following statements about the authorisation of a collective investment scheme by the SFC under section 104 of the SFO is CORRECT?
Authorisation under section 104 of the SFO is a regulatory step that the Commission takes where it considers it appropriate, and it may refuse where authorisation is not in the interest of the investing public (section 104(5)). Paragraph 1.10 of the Overarching Principles Section of the SFC Handbook states that SFC authorization “is not a recommendation or endorsement of a product” and does not guarantee its commercial merits or performance, so it gives no guarantee of capital. It does not oblige the SFC to compensate investors, since the Investor Compensation Fund deals with an intermediary's default, and it does not require a listing.
15. Which ONE of the following is NOT a matter to which the SFC must have regard under section 6(2) of the SFO in pursuing its regulatory objectives?
Section 6(2) of the SFO lists the international character of the industry and Hong Kong's status as a competitive international financial centre, the desirability of facilitating innovation, the principle that competition should not be impeded unnecessarily, transparency and “the need to make efficient use of its resources”. Maximising Government revenue is not among them.
16. Under section 107 of the SFO, which ONE of the following is NOT a fraudulent misrepresentation?
Under section 107(3)(a)(iii), a forecast is a fraudulent misrepresentation only if, when made, it is to the knowledge of its maker “not justified on the facts then known to him”. A forecast that was justified at the time but later proved wrong is therefore not one. A promise never meant to be kept, a statement known to be false and an intentional omission of a material fact are covered by section 107(3)(a)(ii), (i) and (iv).
17. Which ONE of the following types of misrepresentation can give rise to civil liability for damages under section 108 of the SFO but is NOT covered by the criminal offence in section 107?
Section 108(1) imposes liability to pay damages for “fraudulent misrepresentation, reckless misrepresentation or negligent misrepresentation”, whereas the offence in section 107(1) covers only fraudulent and reckless misrepresentation. Negligent misrepresentation is therefore the civil-only category. Fraudulent and reckless misrepresentation are covered by both sections, and innocent misrepresentation appears in neither.
18. A recognized exchange company submits proposed amendments to its rules to the SFC for approval under section 24(2)(a) of the SFO. In the ordinary case, within what period must the SFC give or refuse its approval?
Section 24(3) of the SFO requires the Commission, “not later than 6 weeks after the receipt of a submission”, to give or refuse approval by notice in writing. The period can be extended with the exchange company's agreement under section 24(5), or by the Financial Secretary under section 24(6). Periods of 1, 2 and 4 weeks do not appear in the section.
19. Which ONE of the following statements about recognition under Part III of the SFO is CORRECT?
Section 59(2) allows the Commission to recognize an exchange controller only “with the consent in writing of the Financial Secretary”. For a clearing house, section 37(1) requires only consultation with the Financial Secretary, and for an exchange company, section 19(2) requires consultation with the public and then the Financial Secretary. In each case the SFC, not the Financial Secretary or the Monetary Authority, makes the recognition.
20. Under section 101B of the SFO, to which authority must a prescribed person report an OTC derivative transaction that is specified in the reporting rules?
Section 101B(1) states that a prescribed person “must report an OTC derivative transaction to which subsection (2) applies” to the Monetary Authority, in accordance with the reporting rules. It is not reported to the SFC or to the exchange group. The Joint Financial Intelligence Unit receives suspicious transaction reports under the anti-money laundering legislation, which is a different matter.
21. A proposed open-ended fund company is to be registered under Part IVA of the SFO before it is incorporated. Which ONE of the following statements is CORRECT?
Under section 112D(1) of the SFO the Commission may register a proposed company, and under section 112D(3) the registration “takes effect on the day on which a certificate of incorporation is issued” by the Registrar of Companies under section 112C(3)(b). The Registrar incorporates the company on the documents delivered under section 112C(1), so the Registrar does not register it first, and the SFC does not choose its own effective date. The Monetary Authority has no role in registering an open-ended fund company.
22. Which of the following are functions of the Securities and Futures Commission under section 5(1) of the SFO? I. To promote and develop an appropriate degree of self-regulation in the securities and futures industry II. To co-operate with and assist regulatory authorities, whether in Hong Kong or elsewhere III. To act as the central counterparty for the clearing of trades on a recognized exchange IV. To set the minimum commission that licensed corporations may charge clients
Section 5(1)(c) gives the SFC the function “to promote and develop an appropriate degree of self-regulation in the securities and futures industry”, and section 5(1)(h) requires it to co-operate with and assist regulatory authorities in Hong Kong or elsewhere. Acting as central counterparty is the role of a recognized clearing house, which the SFC supervises. A minimum commission is not set by the SFC, and the former minimum commission has been abolished.
23. Which of the following are duties of a recognized exchange company under section 21 of the SFO? I. To ensure, so far as reasonably practicable, an orderly, informed and fair market in the securities traded on its stock market II. To ensure that the interest of the public prevails where it conflicts with the interest of the company III. To formulate and implement procedures for ensuring that its exchange participants comply with its rules IV. To ensure orderly, fair and expeditious clearing and settlement arrangements for transactions in securities
Section 21(1)(a)(i) requires an orderly, informed and fair market, section 21(2)(b) makes the public interest prevail over the company's own interest, and section 21(4) requires procedures for ensuring that exchange participants comply with its rules. The duty to ensure orderly, fair and expeditious clearing and settlement arrangements belongs to a recognized clearing house under section 38(1)(a), not to an exchange company.
24. Which of the following advertisements, invitations or documents are excluded from the prohibition in section 103(1) of the SFO by section 103(2)? I. One made by the Government in respect of securities issued by it II. One made by a credit union in respect of shares in the credit union III. One made by a corporation, in respect of its own securities (other than structured products), to its employees IV. One made by a recognized exchange company in respect of the provision of its services
Section 103(2)(f) excludes issues by the Government of its own securities, section 103(2)(g) those of a credit union in respect of its shares, section 103(2)(e)(iii) those of a corporation to its employees about its own securities other than structured products, and section 103(2)(d) those of a recognized exchange company about its services. All four propositions are therefore correct.
25. Which of the following statements about controllers of a recognized exchange company under Part III of the SFO are CORRECT? I. Subject to the exceptions in the SFO, a person may not become or continue to be a controller unless the person is a recognized exchange controller II. A person who unknowingly becomes a minority controller without approval must notify the SFC within 3 business days of becoming aware III. An attempt to increase or decrease a recognized exchange controller's interest in an exchange company without the SFC's written approval is void IV. The approval of a person as a minority controller is given by the Financial Secretary alone
Section 59(1) restricts controllers to recognized exchange controllers, and section 60(b) makes an attempt to increase or decrease the controller's interest without the Commission's written approval void. The notice in section 61(6) must be served “not later than 14 days after becoming aware”, not within 3 business days. Approval of a minority controller under section 61(1)(a) is given by the Commission after consultation with the Financial Secretary, not by the Financial Secretary alone.
26. Under section 180 of the SFO, for what purpose may an authorised person of the SFC enter the approved premises of a licensed corporation and inspect its records at any reasonable time?
Section 180(1) of the SFO allows an authorized person to enter and inspect records at any reasonable time to ascertain whether an intermediary is complying, or is likely to be able to comply, with the Ordinance, its licence conditions and the SFC codes, so no prior suspicion is needed. Investigating a suspected offence is the separate power in section 182; Investor Compensation Fund claims are dealt with under the Claims Rules; a winding-up petition is a Part X remedy under section 212.
27. What is the maximum pecuniary penalty the SFC may order under section 194(2) of the SFO against a regulated person guilty of misconduct?
Section 194(2) of the SFO caps the penalty at the greater of $10,000,000 and 3 times the profit gained or loss avoided as a result of the misconduct. The HK$1 million, HK$5 million and HK$20 million floors do not appear in the section. The penalty is payable to the Commission within 30 days after the order takes effect (section 194(4)).
28. Which ONE of the following is a “regulated person” for the purposes of section 194 of the SFO?
Section 194(7) of the SFO defines a regulated person as a licensed person, a responsible officer of a licensed corporation, or a person involved in the management of the business of a licensed corporation. A client, an auditor and an ordinary shareholder of a listed corporation fall into none of those three categories.
29. Before the SFC revokes the licence of a licensed representative under section 194 of the SFO, which ONE of the following must it do?
Section 198(1) of the SFO prohibits the SFC from exercising its section 194(1) or (2) powers without first giving the person a reasonable opportunity of being heard. No court order or Financial Secretary consent is required; the Monetary Authority must be consulted only for sections 196 and 197 (section 198(2)); and the SFAT reviews a decision only after it has been made.
30. A licensed representative is served with written notice of an SFC decision to suspend his licence. Within how many days must he apply to the Securities and Futures Appeals Tribunal for a review, unless the Tribunal extends the time?
Section 217(3) of the SFO requires an application for review of a specified decision to be made within 21 days after the notice of the decision is served; the Tribunal may extend the time for good cause under section 217(4) and (5). The 30 days in section 194(4) is the period for paying a pecuniary penalty, and 7 and 14 days appear nowhere in section 217.
31. At what percentage of the issued voting shares of a listed corporation does a person first have a notifiable interest under Part XV of the SFO, unless another percentage is prescribed?
Section 315(1)(a) of the SFO sets the notifiable percentage level at 5%, subject to any other percentage prescribed by regulations. The 1% figure is the specified percentage level for short positions under section 315(2)(a), while 10% and 30% are not the Part XV notifiable level.
32. Ms Wong is a client of Harbourview Securities Limited, a corporation licensed for Type 1 regulated activity. The firm defaults in 2027 and she loses listed shares worth HK$800,000 that it held for her. Assuming her claim is admitted, what is the most she may receive from the Investor Compensation Fund for that default?
Under section 3(1) and 3(3)(b) of the Securities and Futures (Investor Compensation—Compensation Limits) Rules (Cap. 571AC), the total compensation payable to a claimant for a default in relation to listed securities may not exceed $500,000 where the default date is after 31 December 2019, as at 1 January 2027, so the Fund does not make good her full HK$800,000 loss. HK$150,000 was the limit for defaults before 1 January 2020 and is out of date; HK$1,000,000 wrongly adds the separate limit for futures defaults in section 3(2), which does not apply to a securities loss.
33. Under section 216 of the SFO, who must be the chairman of the Securities and Futures Appeals Tribunal, which sits with 2 other members?
Section 216(3) of the SFO provides that the chairman of the Tribunal shall be a judge and that the 2 other members shall not be public officers. A senior SFC executive, a senior HKMA official and a member of the Legislative Council are not given that role by the section.
34. Which ONE of the following is a required element of “inside information” in relation to a listed corporation under section 307A of the SFO?
Section 307A(1) of the SFO defines inside information as specific information about the corporation, its shareholder or officer, or its listed securities or their derivatives, that is not generally known to persons accustomed or likely to deal in the securities but would, if known, be likely to materially affect the price. It is not limited to profit figures, and board approval or prior reporting to the Exchange is not an element.
35. Under section 307B of the SFO, when must a listed corporation disclose inside information that has come to its knowledge?
Section 307B(1) of the SFO requires a listed corporation to disclose inside information to the public as soon as reasonably practicable after it has come to its knowledge. No fixed 1-day deadline exists; 3 business days is the Part XV notification period under section 325(1), not the Part XIVA rule; and waiting for a general meeting would defeat the equal and timely access required by section 307C(1).