Paper 2 Exam Study Guide (2026)
Everything the HKSI LE Paper 2: Regulation of Securities 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 2 study notes for “Regulatory Framework”
Our first full set of comprehensive notes, about 10 minutes of reading: The SFO and the regulatory framework · The SFC · Other regulators and the exchanges · The licensing regime and regulated activities · Fit and proper, competence and CPT · Governance and reporting to the SFC, 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
The SFO, the SFC, the other regulators and the licensing regime for securities intermediaries.
Key facts
- The Securities and Futures Ordinance (Cap 571) is the principal ordinance; it commenced in April 2003 and consolidated earlier securities laws.
- The SFC is an independent statutory body funded by fees and levies; it licenses, supervises and disciplines intermediaries.
- HKEX and the SEHK are the front-line regulators of listing and trading; HKSCC clears and settles securities.
- Banks doing securities business are registered institutions: the HKMA supervises them prudentially and the SFC covers conduct.
- Regulated activities for this paper: RA1 dealing in securities, RA4 advising on securities, RA8 securities margin financing.
- Licensed individuals must meet fit and proper and competence requirements and complete at least 10 CPT hours each calendar year.
Flashcards
Exam tip: Learn who does what: the SFC licenses and supervises intermediaries, the HKMA covers banks, and HKEX runs the market.
2. Subsidiary Legislation Requirements
The FRR, client money and client securities rules, contract notes, records, compensation and OTC derivative rules.
Key facts
- The FRR sets minimum paid-up capital and liquid capital requirements that licensed corporations must maintain at all times.
- Client Money Rules: client money must go into a segregated client trust account within 1 business day after receipt.
- Client Securities Rules: client securities must be segregated, safekept and properly recorded.
- Contract Notes Rules: contract notes must be issued within 2 business days after the transaction.
- Records must be kept for 7 years; accounts must be audited annually under the Accounts and Audit Rules.
- The Investor Compensation Fund pays up to HK$500,000 per investor on default; licensed corporations must also maintain insurance cover.
- The CLRP Rules impose reportable positions and prescribed limits, and OTC derivative transactions must be reported to HKMA-regulated trade repositories.
Flashcards
Exam tip: The numbers cluster here: 1 day for client money, 2 days for contract notes, 7 years for records, HK$500,000 for the ICF.
3. Management and Supervision
Responsible officers' duties, the Code of Conduct, internal controls and AML/CFT obligations.
Key facts
- Responsible officers are individually licensed and can be disciplined by the SFC; senior management bears ultimate responsibility for compliance.
- Code of Conduct general principles: honesty and fairness, diligence, capability, information about clients, handling client assets, conflicts of interest and compliance.
- Know Your Client and suitability apply when a licensed person solicits a transaction or gives advice.
- The Management, Supervision and Internal Control Guidelines (ICG) require controls over management oversight, operations, compliance, risk management and audit.
- AML/CFT: the AMLO (Cap 615) requires customer due diligence and record keeping on a risk-based approach; suspicious transactions are reported to the JFIU under OSCO and related ordinances.
- Tipping off a client that a suspicious transaction report has been filed is an offence; the SFC's AML guideline also covers virtual asset activities.
Flashcards
Exam tip: Code of Conduct questions dominate this topic: memorize the general principles and when KYC and suitability obligations are triggered.
Test yourself on these topics
Take the free 15-question Paper 2 test, then save your results to unlock your Readiness Score and the mistakes bank.
4. Dealing on the SEHK
Market participants, trading and settlement on the Stock Exchange of Hong Kong, and transaction costs.
Key facts
- Only SEHK Exchange Participants holding trading rights can trade directly on the exchange.
- HKSCC operates CCASS and acts as the central counterparty to every cleared trade; settlement is on a T+2 basis.
Flashcards
Exam tip: Know the chain: broker participant, HKSCC as central counterparty, CCASS settlement, and the T+2 timetable.
5. Other Securities Activities
Introducing agents, margin financing, short selling, stock lending, advising, ALPs, ATS, offers, cross-border trading and virtual assets.
Key facts
- An approved introducing agent introduces clients to an overseas or international broker under a limited scope of business.
- Securities margin financing is RA8; margin clients must meet the firm's margin requirements and face margin calls.
Flashcards
Exam tip: For each activity, ask three questions: which licence is needed, which rules apply, and what extra conduct requirements attach.
6. Exchange Traded Options and OTC Derivatives
SEHK stock options, SEOCH clearing and margin, and OTC derivative licensing and reporting.
Key facts
- Stock options are listed on the SEHK and cleared and settled by SEOCH.
- Position limits apply to each stock option class, and large open positions must be reported.
Flashcards
Exam tip: Do not mix up the three clearing houses: HKCC for futures, SEOCH for stock options, HKSCC for shares.
7. Market Misconduct and Improper Practices
The six types of market misconduct, the MMT, unsolicited calls and SFC fining principles.
Key facts
- Six types of market misconduct: insider dealing, false trading, price rigging, disclosure of information about prohibited transactions, disclosure of false or misleading information inducing transactions, and stock market manipulation.
- The same conduct can be pursued civilly before the Market Misconduct Tribunal or criminally in the courts, but not both.
Flashcards
Exam tip: Learn the six types of market misconduct and the civil/criminal split; examiners love asking what the MMT can and cannot order.
How to pass
- 40 questions in 60 minutes is 90 seconds each.
- You need 70%: 28 out of 40, so you can only miss 12.
- Learn the numbers that repeat: stamp duty 0.1% each side, ICF HK$500,000, client money into trust accounts within 1 business day, contract notes by the end of the second business day, most records kept 7 years.
- Know the six types of market misconduct and the split between civil MMT proceedings and criminal prosecution; the MMT cannot impose imprisonment.
Frequently asked questions
How long should I study for the Paper 2 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 2 exam online?
Yes. Paper 2 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 2 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, subsidiary legislation requirements, management and supervision, dealing on the sehk, other securities activities, exchange traded options and otc derivatives, market misconduct and improper practices. Use the free practice test to see which ones you need most.
The premium Paper 2 study path
Premium Paper 2 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
- 2Subsidiary Legislation Requirements9 key notes, 115 flashcards, then 425 practice questions in 17 sets of 25Premium
- 3Management and Supervision9 key notes, 115 flashcards, then 425 practice questions in 17 sets of 25Premium
- 4Dealing on the SEHK9 key notes, 115 flashcards, then 425 practice questions in 17 sets of 25Premium
- 5Other Securities Activities8 key notes, 115 flashcards, then 425 practice questions in 17 sets of 25Premium
- 6Exchange Traded Options and OTC Derivatives8 key notes, 115 flashcards, then 425 practice questions in 17 sets of 25Premium
- 7Market Misconduct and Improper Practices8 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).