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HKSI PrepStudyingPaper 1
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LE Paper 8 · Topic 1
Topic 1 sets the scene for the rest of Paper 8, and the examiners use it for quick marks: which board a company belongs on, what Stock Connect lets each side buy, how A, B and H shares differ, which way a rate rise or a weaker currency pushes prices, and how the Hang Seng Index is built and calculated. Expect a few statement lists on Stock Connect and the Hang Seng family, a negative stem or two on index facts, and short calculations: an index move, a capped weight, a quota balance or a real return. Learn the figures in the tables; the rest is applying them to one investor's facts.
17 min read7 sections
Checked 11 October 2026: HKEX Stock Connect Information Book for Investors (version 6 July 2026); HKEX Trading Hours, Rules of the Exchange Chapter 5 (Rule 501A), Severe Weather Trading, GEM, Listing on the Main Board, fees and FAQ pages; HKEX GEM Listing Reforms consultation paper (September 2023) and conclusions (December 2023); HKEX Milestones (hkexgroup.com); HKEX Information Services notice MDD/26/416 (21 August 2026); HSIL Index Methodology General Guide v1.19 (May 2026), Index Operation Guide (section 6, free float) and methodologies for the HSI, HSCEI, HSCI (v2.5, September 2025) and Hang Seng TECH Index (v1.5, October 2026); HKMA Linked Exchange Rate System pages; IRD press release (15 November 2023); SSE and SZSE English websites; Nikkei, JPX, SGX, LSEG FTSE Russell, S&P Dow Jones Indices and Deutsche Börse/STOXX index descriptions. Independent prep, not endorsed by HKSI Institute or the SFC.
Three markets make up the securities industry. In the equity market you buy part-ownership of a company. In the debt market you lend to an issuer. In the derivatives market you trade contracts whose value comes from another asset, index or rate. In Hong Kong all three sit under Hong Kong Exchanges and Clearing Limited (HKEX): SEHK runs the stock market (including stock options, derivative warrants and CBBCs), the Hong Kong Futures Exchange (HKFE) runs futures and index options, and HKSCC clears and settles SEHK trades.
| Equity (ordinary shares) | Debt (bonds, notes) | Derivatives (futures, options) | |
|---|---|---|---|
| What you hold | Ownership; votes; residual claim | A loan to the issuer | A contract on an underlying asset, index or rate |
| Income | Dividends, at the board's discretion | Contractual interest (coupon), or a discount for zero-coupon bonds | Gain or loss as the underlying moves |
| Ranking in a winding-up | Last, after all creditors | Ahead of shareholders | Not applicable |
| Price sensitivity | Earnings, rates, sentiment | Falls when market interest rates rise |
Every note. Every question. One pass.
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| Geared to the underlying |
| Hong Kong examples | SEHK Main Board and GEM shares | Exchange Fund paper, government and corporate bonds | HSI futures and options on HKFE; stock options on SEHK |
How HKEX came about (HKEX Milestones, hkexgroup.com): SEHK was incorporated in 1980 to unify Hong Kong's four stock exchanges, and trading began at Exchange Square in April 1986. On 6 March 2000 SEHK, HKFE and HKSCC became wholly owned subsidiaries of HKEX, which listed its own shares (stock code 388) on 27 June 2000. Other markers: first H share (Tsingtao Brewery) 15 July 1993; first ETF (Tracker Fund) 1999; CBBCs 2006; Bond Connect 2017.
| Hedging a share portfolio | Position | Why |
|---|---|---|
| Fear of a market fall | Sell HSI futures (or buy index puts) | Futures gains offset portfolio losses |
| Expect to buy shares later | Buy HSI futures | Locks in today's market level |
Trap: treating a bondholder as an owner. A bondholder is a creditor: paid interest by contract and repaid before shareholders in a winding-up, but with no vote and no share of extra profit.
Takeaway: Shares = ownership and a residual claim; bonds = a loan ranking first; derivatives = a contract on something else. A short hedger sells index futures.
SEHK is a wholly owned subsidiary of HKEX. Trading runs Monday to Friday on the Orion Trading Platform, with these sessions on a full day (HKEX Trading Hours page, October 2026):
| Session | Time |
|---|---|
| Pre-opening Session (auction) | 9:00 a.m. - 9:30 a.m. |
| Morning Session (continuous trading) | 9:30 a.m. - 12:00 noon |
| Extended Morning Session | 12:00 noon - 1:00 p.m., only for Extended Trading Securities designated by SEHK (Rules of the Exchange, Rule 501A); ordinary shares break for lunch |
| Afternoon Session (continuous trading) | 1:00 p.m. - 4:00 p.m. |
| Closing Auction Session | 4:00 p.m. to a random close between 4:08 and 4:10 p.m. |
| Feature | Rule | Source and date |
|---|---|---|
| Settlement | Exchange trades settle between HKSCC and brokers on T+2; day trading (buy and sell the same day) is allowed | HKEX FAQ, Overview of the listed market (October 2026) |
| Severe Weather Trading | Since 23 September 2024 the securities and derivatives markets keep trading, clearing and settling in severe weather (for example, when Typhoon Signal No. 8 is hoisted) | HKEX Severe Weather Trading page; SEHK circular 16 September 2024 |
| HKD-RMB Dual Counter Model | Launched June 2023: designated shares trade and settle in either an HKD counter or an RMB counter | HKEX Milestones |
| New listing routes | 2018: weighted voting rights and pre-revenue biotech (Chapter 18A, stock names end in B); 2022: SPACs | HKEX Milestones |
| Stamp duty | 0.1% of the consideration on each of buyer and seller (rounded up to the dollar), from 17 November 2023; previously 0.13% | IRD press release 15 November 2023; HKEX fees page |
| Price colours | Hong Kong screens show rising prices in green and falling prices in red; the Mainland does the reverse | HKEX FAQ |
Trap: assuming typhoons still close the market. Since 23 September 2024 trading, clearing and settlement all continue in severe weather.
Takeaway: Pre-open 9:00-9:30; trade 9:30-12:00 and 1:00-4:00; closing auction to 4:08-4:10. Settle T+2. Trading continues in typhoons.