HKSI LE Paper 8 Guide: Securities | 40 Questions Fully Explained + Study Tips

Topic 1: Overview of Securities Investments

Understand the major global stock indices and their characteristics: FTSE 100 (UK), Dow Jones Industrial Average (Dow Jones, price-weighted), S&P 500, NASDAQ, Nikkei 225, and the MSCI index family. Gain in-depth knowledge of China's mainland stock markets -- the Shanghai Stock Exchange (A-shares and B-shares) and the Shenzhen Stock Exchange. Master the composition and calculation methodology of the Hang Seng Index and the Hang Seng family of indexes.

Fundamental investment concepts: compound interest calculations, the difference between nominal and real interest rates, and the three types of yield curves (positive/normal, negative/inverted, and flat). Key market-influencing factors: interest rate changes, exchange rate fluctuations, inflation, economic cycles, and political factors.

High-frequency exam topics: Dow Jones as a price-weighted index, differences between A-shares and B-shares, three yield curve types, compound interest calculations, nominal vs. real interest rates

Topic 2: SEHK Primary and Secondary Markets

Primary Market -- the IPO listing process: the role of the Sponsor -- prepares applicants for listing and ensures compliance with the Listing Rules; the function of the Underwriter -- organizes the issuance of securities, forms syndicates, and shares or assumes risk. Supporting professionals: accountants (must be qualified and independent), legal advisers, and valuers. Prospectus requirements: must be published in both English and Chinese, directors are responsible for its content, and profit forecasts must be adequately supported.

Secondary Market -- common order types: Market Order, Limit Order, Stop-loss Order, Stop-gain Order, and Discretionary Order. Bonus Issues -- free shares distributed proportionally to existing shareholders; Rights Issues -- shares offered to existing shareholders at below market price. Reporting requirements: directors' reports, annual accounts, and interim reports.

High-frequency exam topics: Sponsor vs. Underwriter roles, prospectus requirements, difference between bonus issues and rights issues, characteristics of each order type

Topic 3: Participants in the Markets

Brokers: act as intermediaries, charge commissions, must be SFC-licensed, and the distinction between discretionary and non-discretionary accounts. SFC licensing requirements and processes. Types of Traders: Flow Traders (handle large orders) and Proprietary Traders (trade based on market movements).

Share Registrars: maintain shareholder registers, distribute dividends, and handle share transfers. HKEx structure: the Stock Exchange, Futures Exchange, Clearing Company, Options Clearing House, and HKFE Clearing Corporation. The SFC's five regulatory objectives: maintain competitive markets, educate the public, protect investors, minimize misconduct, and reduce systemic risk.

High-frequency exam topics: Brokers vs. Traders, discretionary vs. non-discretionary accounts, five SFC objectives, HKEx structure

Topic 4: Types of Securities

Options: Call Options -- the holder has the right to buy at the strike price, the buyer has no obligation and pays a premium; Put Options -- the holder has the right to sell at the strike price, option value = intrinsic value + time value. Factors affecting option prices: spot price, strike price, interest rates, volatility, time to expiry, and dividends.

Warrants: Equity Warrants (issued by the company) vs. Derivative Warrants (independently issued by third parties). Margin Financing: borrowing using securities as collateral, amplifying both gains and losses. Unit Trusts (trust structure, trustee holds assets) vs. Mutual Funds (company structure).

Bond pricing: the present value of future coupons plus the present value of the face value. Duration: the percentage change in bond price per 1% change in yield; longer maturity equals higher duration.

High-frequency exam topics: Call vs. Put option rights and obligations, six factors affecting option prices, equity vs. derivative warrants, bond duration concept, unit trusts vs. mutual funds structural differences

Topic 5: Stock Market Administration

Orion Trading Platform (OTP-C): replaced AMS/3 (Third Generation Automatic Order Matching and Execution System) in February 2018. Order types by trading session: Pre-opening Session -- At-auction Orders and At-auction Limit Orders; Continuous Trading Session -- Limit Orders, Enhanced Limit Orders, and Special Limit Orders.

Stock Connect: Northbound daily quota of RMB 52 billion, Southbound daily quota of RMB 42 billion, calculated on a net-buy basis. Central Clearing and Settlement System (CCASS) clearing process: T day provisional settlement, T+1 final settlement with Continuous Net Settlement (CNS) offsetting, T+2 settlement, T+3 money settlement. Transaction costs: brokerage commissions (negotiable), SEHK levies, stamp duty (0.1%), and transfer fees.

High-frequency exam topics: OTP-C replacing AMS/3 timing, order types by session, Stock Connect Northbound/Southbound quotas, CCASS settlement timeline (T/T+1/T+2/T+3), stamp duty rate of 0.1%

Topic 6: Securities Analysis

Fundamental Analysis: Top-down vs. Bottom-up approaches, industry analysis, and competitive analysis. Liquidity ratios: Current Ratio, Quick Ratio, Inventory Turnover, and Debtors' Turnover.

Equity valuation methods: Dividend Discount Model (DDM) -- formula P = D(1+g)/(r-g); Dividend Growth Model; Price-to-Earnings (P/E) Ratio analysis; Capital Asset Pricing Model (CAPM) -- formula R = Rf + beta(Rm - Rf). Technical Analysis: analysis based on historical data, charts, trend lines, and technical indicators.

High-frequency exam topics: DDM formula and application, CAPM formula and beta calculation, Current Ratio vs. Quick Ratio, Top-down vs. Bottom-up analysis approaches, P/E ratio application