These are real Hard Mode questions from HKSI Prep: the long, multi-statement scenario questions that actually test how concepts combine in the HKSI LE Paper 1 exam. Answers and worked explanations are shown. No sign-up needed — see the difficulty for yourself.
Under the SFO, which of the following statements about the status of HKEX and its subsidiaries are correct? I. HKEX is a recognised exchange controller. II. The Stock Exchange and the Futures Exchange are recognised exchange companies. III. HKSCC is a recognised exchange company. IV. OTC Clear is a recognised clearing house.
Why: Under SFO Part III, HKEX is the only recognised exchange controller (statement I). Its wholly owned subsidiaries The Stock Exchange of Hong Kong and Hong Kong Futures Exchange are recognised exchange companies (statement II). HKSCC, SEOCH, HKCC and OTC Clearing Hong Kong are recognised clearing houses (statement IV), so HKSCC is a clearing house, not an exchange company (statement III is wrong). Each status brings SFC oversight, including the need for SFC approval of the entity's rules. Source: SFO (Cap. 571) Part III; HKEX corporate information (hkex.com.hk); SFC 'Approved or authorised entities' (sfc.hk) (as at October 2026).
On 1 March 2026, while already unable to pay its debts, Cheung Fat Trading Ltd grants a properly registered floating charge to an unconnected supplier for HK$4 million of old invoices, with no new value given. Its winding up commences on 15 October 2026. Which of the following statements are CORRECT? I. The charge is invalid, as it was created within 12 months before the winding up while the company was unable to pay its debts. II. Had the supplier advanced HK$4 million of new money when the charge was created, it would be valid to that extent, plus interest. III. Being properly registered, the charge cannot be invalidated in the liquidation. IV. Had the charge been granted to a connected person, the look-back period would be only 6 months.
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Why: Statement I is correct: under s.267A(2) of Cap. 32, a floating charge in favour of an unconnected person is created at a relevant time if made within 12 months ending with the commencement of the winding up while the company was unable to pay its debts, and s.267(2) then makes it invalid except for new value. Statement II is correct: s.267(3) saves the charge to the extent of money paid, or goods or services supplied, at or after its creation, together with interest on that amount. Statement III is wrong: registration perfects a charge against creditors but does not protect it from s.267. Statement IV is wrong: for connected persons s.267A(1) extends the period to 2 years, whether or not the company was then insolvent. Source: Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) ss.267, 267A (as at October 2026).
Which of the following correctly describe how recognition is granted under Part III of the SFO? I. The SFC recognises an exchange company after consulting the public and then the Financial Secretary II. The SFC recognises a clearing house after consulting the Financial Secretary III. The SFC recognises an exchange controller only with the Financial Secretary's written consent IV. The Financial Secretary, not the SFC, recognises an investor compensation company
Why: Each Part III recognition is made by the SFC by written notice, but the external step differs. Section 19(2): an exchange company is recognised after consultation with the public and then the Financial Secretary. Section 37(1): a clearing house is recognised after consultation with the Financial Secretary. Section 59(2): an exchange controller is recognised with the Financial Secretary's written consent. Section 79(1): an investor compensation company is recognised by the SFC after consultation with the Financial Secretary. So statements I, II and III are correct, and IV is wrong because the SFC, not the Financial Secretary, grants that recognition. Source: SFO (Cap. 571) ss.19(2), 37(1), 59(2), 79(1) (as at October 2026).
Derek Wong is a licensed representative whose licence anniversary is 15 March. He did not submit the annual return due by 15 April 2026 and still has not, despite written SFC notice of the consequences given over 10 business days before any suspension. Which of the following statements are CORRECT? I. His annual return was due within one month after his licence anniversary date. II. His licence is deemed suspended if the return is not submitted within 3 months after the due date. III. If the failure is not remedied within 30 days after the suspension takes effect, his licence is deemed revoked. IV. He must also pay a 10% surcharge for the first month the return is late.
Why: Statement I is true: s.138(4) requires the annual return within one month after each licence anniversary, here by 15 April 2026 (SFC Licensing Handbook (July 2025) para 9.12.1). Statement II is true: s.195(4)(b) deems the licence suspended if the return is not submitted within 3 months after that date, provided the SFC has given at least 10 business days' written notice under s.195(5). Statement III is true: under s.195(6), if the failure is not remedied within 30 days after the suspension takes effect, or a longer period the SFC allows, the licence is deemed revoked. Statement IV is false: the surcharge under s.138(3) applies to unpaid annual fees, not to late returns (para 9.11.2). Source: SFO (Cap. 571) s.138(2)-(4), s.195(4)-(6); SFC Licensing Handbook (July 2025) paras 9.11.2, 9.12.1-9.12.2 (as at October 2026).
Ma On Shan Securities Ltd agrees to act for Mr Ho only to effect a one-off disposal of shares he was allotted in an IPO. Which of the following must the client agreement contain at minimum under paragraph 6.4? I. Mr Ho's full name and address, verified by a retained copy of an official identity document II. The firm's name and business address, its SFC licensing status and its CE number III. A description of the remuneration Mr Ho will pay, such as commission and other charges IV. Undertakings by both parties to notify each other of any material change to the information provided
Why: Paragraph 6.4 of the Code of Conduct lets a client agreement be limited where services are limited, and gives one-off disposals of securities in connection with initial public offerings as its example: the agreement then only needs paragraphs 6.2(a), (b), (d) and (e). Statement I is required by 6.2(a). Statement II is required by 6.2(b). Statement III is required by 6.2(e), the remuneration and basis of payment. Statement IV is not required: the mutual undertakings to notify material changes come from 6.2(c), which is not on the list. A description of the services under 6.2(d) is also needed, but the suitability clause and Schedule 1 risk disclosures are not. Source: SFC Code of Conduct (33rd edn, Jan 2026) paras 6.1, 6.2 and 6.4 (as at October 2026).
Ms Lam, a portfolio manager at Island Futures Advisers Ltd, holds HSI futures and HSI options for herself and has discretion over the HSI futures of several clients at two brokers. Which of the following statements are CORRECT? I. For the HSI prescribed limit, her long and short futures in different contract months are netted. II. Her HSI options are converted to futures equivalents using their delta and added to her futures positions. III. Positions at two different brokers are each tested separately against the prescribed limit. IV. Client positions she has trading discretion over count as positions she controls.
Why: Statement I is true: the SFC Guidance Note on Position Limits and Large Open Position Reporting Requirements (July 2025) para 2.2 explains that prescribed limits for stock index futures are calculated on a net basis for all contract months combined. Statement II is true: para 2.3 says the futures-equivalent position in index options, being the delta set by HKFE multiplied by the number of contracts, is added to the futures positions. Statement III is false: the limits apply to all positions a person holds or controls, and para 2.9 lets HKFE require reductions where the aggregate across accounts at several participants exceeds the limit. Statement IV is true: para 2.6 treats a person who may trade positions without the owner's day-to-day direction as controlling them. Source: Securities and Futures (Contracts Limits and Reportable Positions) Rules (Cap. 571Y) s.4, Sch. 1; SFC Guidance Note on Position Limits and Large Open Position Reporting Requirements (July 2025) paras 2.2-2.9 (as at October 2026).
Ap Lei Chau Foods Ltd applies to list on the Main Board under the profit test. Its profit attributable to shareholders was HK$20 million in year 1, HK$22 million in year 2 and HK$40 million in year 3, the latest; expected market capitalisation is HK$700 million. Which of the following statements are CORRECT? I. Its latest-year profit of HK$40 million meets the most-recent-year requirement. II. It fails the profit test, as years 1 and 2 total HK$42 million, below the required HK$45 million. III. Its HK$82 million three-year total suffices on its own, as it exceeds HK$80 million. IV. Its expected market capitalisation of HK$700 million meets the profit-test minimum.
Why: Main Board Listing Rules r.8.05(1)(a) requires profit attributable to shareholders of at least HK$35 million in the most recent year and at least HK$45 million in aggregate for the two preceding years. Statement I is true: HK$40 million exceeds HK$35 million. Statement II is true: HK$20 million plus HK$22 million is HK$42 million, below HK$45 million, so the application fails. Statement III is false: HK$80 million is just the sum of the two limbs, and each limb must be met separately. Statement IV is true: HK$700 million satisfies the market capitalisation requirement in r.8.09(2), but that cannot rescue the profit shortfall. Source: Main Board Listing Rules r.8.05(1), r.8.09(2) (as at October 2026).
Crestmark Holdings Ltd is preparing a general offer for Riverstone Ltd, a listed company. Before the offer is announced, Crestmark builds a stake in Riverstone for the offer, and its finance director, aware of the plan, buys Riverstone shares for himself. Which purchase is insider dealing?
Why: Section 270(1)(b) of the SFO makes it insider dealing for a person contemplating a take-over offer, who knows that this is inside information, to deal in the target's listed securities otherwise than for the purpose of the take-over. Crestmark's stake-building is for the purpose of the offer, so it falls outside that limb. The finance director deals for his own benefit on information received from the would-be offeror, which s.270(1)(f) catches (and he is likely connected through Crestmark's business relationship as well). Information that an offer is contemplated is inside information before any offer is actually made. Source: SFO (Cap. 571) s.270(1)(b), (f) (as at October 2026).
