Paper 3 Exam Study Guide (2026)
Everything the HKSI LE Paper 3: Regulation of Derivatives tests, topic by topic: what each section covers, the facts that come up most, and how to study it. Pair it with the free 15-question practice test.
The exam at a glance
| Questions | 40 multiple-choice questions |
|---|---|
| Time | 60 minutes |
| Passing score | 70% |
| Format | Closed book, computer-based |
| Certifying body | Hong Kong Securities and Investment Institute (HKSI Institute) |
| Test provider | HKSI Institute computer-based test centre in Hong Kong, or Prometric centres outside Hong Kong |
Mind map: the whole exam on one screen
Read the complete Paper 3 study notes for “Regulatory Framework”
Our first full set of comprehensive notes, about 10 minutes of reading: What counts as a derivative · The SFC · The HKEX group · Other regulators and influences · International futures exchanges and clearing houses · Differences when dealing in international futures, a worked exam example, the traps examiners use and a one-minute recap. Create a free account to read it and see how premium notes work before you decide.
1. Regulatory Framework
How Hong Kong defines derivatives and who regulates them, plus the overseas exchanges and clearing houses in scope.
Key facts
- The Securities and Futures Ordinance (Cap. 571) is the principal law for securities and futures markets.
- The SFO's definition of futures contract is not limited to Hong Kong: dealing in overseas-listed futures for clients is still a regulated activity. OTC derivatives have their own reporting and clearing regime.
- The SFC is the statutory regulator: it licenses intermediaries, sets conduct standards through codes and enforces the law.
- HKEX group: HKFE runs the futures exchange; HKCC clears HKFE trades; SEOCH clears stock options; HKSCC settles securities through CCASS.
- HKEX is the front-line regulator of its participants under the HKFE Rules; the SFC supervises HKEX as recognized exchange controller.
- Other influences: the HKMA (banks as registered institutions, and the Hong Kong Trade Repository), the FSTB (policy) and the Chief Executive in Council (subsidiary legislation).
Flashcards
Exam tip: Draw the HKEX group chart once: exchange, clearing houses and settlement, and which regulator sits above each.
2. Licensing and Registration
Who needs a licence or registration to deal in or advise on futures, and the competence and reporting requirements.
Key facts
- Schedule 5 SFO: Type 2 is dealing in futures contracts; Type 5 is advising on futures contracts.
- Corporations carrying on regulated activities need an SFC licence; individuals acting for them must be licensed representatives.
- A licensed corporation needs at least two Responsible Officers to supervise each regulated activity it carries on.
- Banks are registered institutions: registered with the SFC, supervised day to day by the HKMA, with executive officers approved by the HKMA.
- Fit and proper criteria under s.129 SFO include financial integrity, competence, reputation and reliability.
- Carrying on a regulated activity without a licence is a criminal offence under s.114 SFO.
Flashcards
Exam tip: Types 2 and 5 are the heart of this paper; keep them straight and the licensing questions fall into place.
3. Client Securities and Money
Segregation and trust rules that protect client money and client securities held by intermediaries.
Key facts
- Client money must be held on trust and paid into designated client accounts at authorized institutions in Hong Kong.
- The firm's own money must never sit in client accounts, and client money must not be used for the firm's business.
- Client securities must be kept safely, usually deposited with CCASS, and used only for the client or as the rules permit with consent.
- Client accounts must be reconciled regularly so shortages surface quickly.
- Breach of the Client Securities Rules or Client Money Rules is an offence and triggers SFC disciplinary action.
- The Investor Compensation Fund pays up to HK$500,000 per investor when a licensed intermediary fails, covering both securities and futures.
Flashcards
Exam tip: Answer with segregation and trust: anything that mixes client assets with the firm's own is wrong.
Test yourself on these topics
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4. Conduct of Business
The Code of Conduct, internal controls, AML/CFT, discipline and market misconduct rules that govern daily behaviour.
Key facts
- The Code of Conduct sets general principles: honesty and fairness, due skill care and diligence, information about clients and compliance with law.
- Futures accounts need know-your-client information plus a signed client agreement and risk disclosure statement.
Flashcards
Exam tip: Choose the option a careful, client-focused broker would follow; when discipline is in play, remember the HK$10 million or 3x profit ceiling.
5. Record Keeping and Reporting
Records, contract notes, statements and receipts intermediaries must keep and send, plus contracts limits and reportable positions.
Key facts
- The Keeping of Records Rules require intermediaries to keep records of futures business for a statutory minimum period and make them available to the SFC.
- Contract notes for futures transactions must be despatched by the end of the second business day after the transaction day.
Flashcards
Exam tip: Two business days for contract notes is a favourite exam number; do not confuse it with settlement timing.
6. Futures Trading and Settlement
Becoming an HKFE Participant, clearing through HKCC, margining and settling futures trades.
Key facts
- HKFE Participants must hold an SFC licence (typically Type 2) and be approved by HKEX; clearing participants of HKCC must also meet HKCC's requirements.
- The HKFE Rules cover trading conduct, know-your-client and margin collection from clients.
Flashcards
Exam tip: Initial margin opens and protects the position; variation margin settles daily profit and loss.
7. OTC Derivatives Trading, Reporting and Clearing
Reporting, clearing, conduct and margin rules for OTC derivative transactions.
Key facts
- The OTCD Reporting Rules require specified persons, such as licensed corporations and authorized institutions, to report specified OTC derivative transactions to the Hong Kong Trade Repository, operated by the HKMA.
- Reported transactions must also be kept as records under the reporting rules.
Flashcards
Exam tip: OTC questions turn on 'specified persons' and 'specified transactions': learn who reports, what is cleared and what is margined.
How to pass
- 40 questions in 60 minutes is 90 seconds each; keep moving and come back.
- 70% means 28 correct out of 40, so you can afford 12 wrong.
- Learn the HKEX group once: HKFE trades, HKCC clears futures, SEOCH clears stock options, HKSCC settles shares.
- Types 2 and 5 run through the whole paper: match each rule to dealing in futures versus advising on futures.
Frequently asked questions
How long should I study for the Paper 3 exam?
Most working candidates need 4 to 8 weeks at 45 to 60 minutes a day. Book your exam once your Readiness Score has stayed at 80 or higher for about a week.
Can I take the Paper 3 exam online?
Yes. Paper 3 can be taken at the HKSI Institute's computer-based test centre in Hong Kong or, for candidates outside Hong Kong, at a Prometric centre (higher fee). Format: closed book, computer-based. Check the HKSI Institute's current candidate information for the rules.
What score do I need to pass the Paper 3 exam?
70%. The exam has 40 multiple-choice questions and a time limit of 60 minutes.
What are the most tested topics?
The outline covers regulatory framework, licensing and registration, client securities and money, conduct of business, record keeping and reporting, futures trading and settlement, otc derivatives trading, reporting and clearing. Use the free practice test to see which ones you need most.
The premium Paper 3 study path
Premium Paper 3 prep is studied one topic at a time. Each step starts with that topic's key notes and flashcard deck, then its own question sets of 25, so you master one topic before you move to the next. When every topic is strong, the 6 full mock exams show you're ready.
Your step-by-step study path
- 1Regulatory Framework9 key notes, 115 flashcards, then 450 practice questions in 18 sets of 25Notes free with an account
- 2Licensing and Registration9 key notes, 115 flashcards, then 425 practice questions in 17 sets of 25Premium
- 3Client Securities and Money9 key notes, 115 flashcards, then 425 practice questions in 17 sets of 25Premium
- 4Conduct of Business9 key notes, 115 flashcards, then 425 practice questions in 17 sets of 25Premium
- 5Record Keeping and Reporting8 key notes, 115 flashcards, then 425 practice questions in 17 sets of 25Premium
- 6Futures Trading and Settlement8 key notes, 115 flashcards, then 425 practice questions in 17 sets of 25Premium
- 7OTC Derivatives Trading, Reporting and Clearing8 key notes, 110 flashcards, then 425 practice questions in 17 sets of 25Premium
- Final step: 6 full mock exams50 questions each, timed like test day. Pass them, then book your exam.Premium
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Summarized from the HKSI Institute's official candidate information and the rules cited, checked October 2026. Confirm current requirements with Hong Kong Securities and Investment Institute (HKSI Institute).