HKSI Paper 1 Business conduct and client relations question: Client identity rule: who gave the order?

HKSI Paper 1Business conduct and client relations

Peel Street Securities Ltd executes SEHK trades for the Harbour Growth Fund, a unit trust managed with full discretion by Kam Tin Investment Management Ltd. Mr Lau, the largest unitholder, overrides Kam Tin and directs a purchase through Peel Street. Under paragraph 5.4, whose details must Peel Street record?

A Only the fund's and Kam Tin's, because paragraph 5.4 never requires a broker to look through a collective investment scheme to its unitholders
B Mr Lau's, because he overrode the manager's discretion and originated this instruction
C Every unitholder's, because each unitholder stands to gain the economic benefit of every trade made for the unit trust
D Only the trustee's, because the trustee is the legal owner of the fund's assets and therefore the client for the trade

Show the answer and explanation

Answer: B. Mr Lau's, because he overrode the manager's discretion and originated this instruction

Paragraph 5.4(d) says that for a collective investment scheme or discretionary account, the 'entity' for paragraph 5.4(a) is the scheme or account and its manager, not those holding a beneficial interest such as unitholders. So in normal trading the broker records the fund and Kam Tin, not every unitholder. Schedule 2 explains the exception: the firm must record information about a beneficiary rather than the manager if that beneficiary has overridden the manager's discretion and originated the instructions for a transaction. Mr Lau did exactly that, so his details are needed. 'Never' overstates the carve-out, every unitholder is not required, and the trustee's legal title does not make it the originator. Source: SFC Code of Conduct (33rd edn, Jan 2026) para 5.4(a) and (d) and Schedule 2 (as at October 2026).

Common mistake

Candidates learn the unitholder carve-out as absolute. It falls away when a beneficiary overrides the manager and originates the order.

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Related HKSI Paper 1 questions

Shouson Hill Securities Ltd is a Hong Kong subsidiary of a Singapore group. To save costs, it keeps its paragraph 5.4 client identity records for HKFE futures orders only on a Singapore server. Which ONE of the following statements is INCORRECT?Mrs Cheung asks Lockhart Road Securities Ltd to buy US-listed shares for her. The firm will hold them through its New York sub-custodian, not in Hong Kong. What must it do under paragraph 11.1 of the Code of Conduct?Ocean Pearl Ltd, a company incorporated in the British Virgin Islands, opens an account with Hollywood Road Capital Ltd to trade SEHK-listed shares. Mr Ho, 'just a director', phones in its orders. Which of the following statements are CORRECT under paragraph 5.4?

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Original study material mapped to the public HKSI Paper 1 syllabus. Unofficial, not endorsed by HKSI Institute or the SFC. Verify figures and rules against current guidance before relying on them.