Below is a simpler British English version of the “Twenty Common Scenarios (Revised Edition)” text. It explains how a broker with a Type 1 licence (regulated by Hong Kong’s Securities and Futures Commission, or SFC) may or may not hold client assets and the implications for various business activities. We distinguish:

• “Small Type 1” licence (細1): Cannot, at any point, hold or handle client assets (money, securities, etc.). This licence may still arrange trades through a third-party that does hold assets, but must not itself ever receive or keep a client’s funds or securities.
• “Big Type 1” licence (大1): May hold client assets. Subdivided into:
  • No Trading Right: Holds client assets but must pass actual trade orders to another broker who has trading rights.
  • With Trading Right: Holds client assets and directly connects to the Stock Exchange (e.g. the Hong Kong Exchange, HKEX) or derivatives exchange to place orders.

Important:

1. In many cases, other licences are also required (e.g. Type 4 for investment advice, Type 6 for corporate finance/sponsorship, Type 9 for asset management).
2. This guide focuses on whether the firm can hold client assets under a Type 1 licence. “Small Type 1” does not hold client assets, but that does not mean they cannot help arrange trades. They simply must never touch client funds or securities at any stage.
3. Always consult professional legal or compliance advisers to ensure you meet the latest SFC regulations.

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Scenario 1: Purely Introducing Clients to Another Broker and Earning an Introduction Fee

• Small Type 1
  • Possible. This is the typical use for a Small Type 1 licence: you act as an “introducing broker,” never handling the client’s funds, and earn a fee or commission share.
  • How:
    1. Sign an introduction agreement with a broker that does hold client assets (e.g. a “Big Type 1” firm).
    2. The client opens an account there and deposits funds or securities with that broker.
    3. Once trades happen, you receive an agreed portion of the commission.
• Big Type 1 (No Trading Right) / Big Type 1 (With Trading Right)
  • Can also do introductions, but since Big Type 1 firms can hold client assets themselves, it’s less common to only do introductions.

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Scenario 2: Helping Clients Buy and Sell Hong Kong Stocks

• Small Type 1
  • Allowed to “arrange” but not to hold money or securities.
  • How:
    1. The client opens an account with a licensed broker that can hold assets (e.g. a Big Type 1).
    2. You (Small Type 1) partner with that broker so the client’s trade instructions and assets remain with the holding broker.
    3. You earn an introduction fee or commission share.
  • If you wanted to personally receive or keep the client’s assets and then place the order, that would be prohibited under a Small Type 1 licence.
• Big Type 1 (No Trading Right)
  • Possible. The Big Type 1 firm can hold client assets, but it must route orders through a broker that has trading rights.
  • How:
    1. The client’s funds go to the Big Type 1 firm’s account.
    2. The Big Type 1 firm has a clearing or agency agreement with a trading-rights broker.
    3. The Big Type 1 handles client reporting, settlement, and account management.
• Big Type 1 (With Trading Right)
  • Possible. The firm itself connects directly to HKEX.
  • How:
    1. Place a HKD 30 million deposit with HKEX plus the required application fees.
    2. Build or outsource a trading system.
    3. Clients deposit funds with you, and you route orders straight to HKEX.

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Scenario 3: Helping Clients Directly Trade US Stocks

• Small Type 1
  • Allowed to introduce or arrange only, must not handle client funds.
  • How:
    1. The client opens an account with a US or international broker that holds assets.
    2. You sign an introducing/agent agreement with that broker, and the client’s money/shares stay there.
    3. You advise or assist, but never hold or control the client’s assets.
• Big Type 1 (No Trading Right)
  • Yes. You can hold the client’s money, then use an agreement with a US broker or a global clearing firm to execute trades in US markets.
• Big Type 1 (With Trading Right)
  • Yes. However, your trading right only directly covers the Hong Kong Exchange. For US stocks, you still need a US broker or clearing link. Many Big Type 1 firms combine HK direct access with US trading via an overseas partner.

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Scenario 4: Offering Margin Financing

• Small Type 1
  • Not allowed to give margin loans, since you would need to hold or control the client’s funds and securities.
  • You can introduce them to a broker that does offer margin, but you cannot be the lender.
• Big Type 1 (No Trading Right)
  • Allowed, subject to SFC rules on margin lending, collateral coverage, forced liquidation, etc.
  • How:
    1. The client deposits funds/securities with you as collateral.
    2. You lend them money to buy more securities.
    3. Execution is carried out through a trading-rights broker.
• Big Type 1 (With Trading Right)
  • Allowed. Same concept, but you can place trades directly on the exchange yourself.

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Scenario 5: Providing Asset Management (e.g. managing client portfolios)

• Small Type 1
  • If “asset management” requires holding client funds or executing trades on their behalf, that is not possible under Small Type 1.
  • If it is purely giving advice, you might need a Type 4 or Type 9 licence. A pure Type 1 (Small) does not let you “manage” assets if you have to hold them.
• Big Type 1 (No Trading Right)
  • Possible. You can accept the client’s money, keep it in your account, then place trades via a broker who has trading rights, effectively managing the portfolio.
  • Often also requires Type 4 or Type 9, depending on how the service is structured.
• Big Type 1 (With Trading Right)
  • Also possible. You can hold client money, and place trades directly on the exchange with your own platform.
  • True “asset management” typically also involves a Type 9 licence if you are fully managing a client’s portfolio.

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Scenario 6: Underwriting or Placing a Hong Kong IPO

• Small Type 1
  • Not allowed to do actual underwriting or placing if it involves holding subscription money from clients.
  • You could only introduce potential investors to a Big Type 1 underwriter.
• Big Type 1 (No Trading Right)
  • Allowed. A Big Type 1 licence covers underwriting or placing. For final listing and share allocation, you will rely on a broker that has direct exchange access.
• Big Type 1 (With Trading Right)
  • Allowed, plus you can handle everything in-house, including direct dealings with the exchange.

If you want to be the “Sponsor” for an IPO, you need a separate Type 6 licence.

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Scenario 7: Underwriting or Arranging Overseas Bonds (e.g. USD bonds)

• Small Type 1
  • Not allowed to underwrite or handle actual subscription funds, only to introduce parties.
• Big Type 1 (No Trading Right)
  • Allowed to arrange or underwrite foreign bonds, provided you comply with overseas clearing or custody rules. You can hold client funds and arrange the bond offering.
• Big Type 1 (With Trading Right)
  • Allowed. However, your trading right is for HKEX. If the bond is not listed on HKEX, you still need links to international custodians.

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Scenario 8: Providing Access to European Stock Markets

• Small Type 1
  • Can assist by introducing the client to a European or global broker that holds the assets.
  • You must not handle any client money or shares yourself.
• Big Type 1 (No Trading Right)
  • Possible. You accept the client’s deposit, then instruct an EU broker or bank to handle the trade.
• Big Type 1 (With Trading Right)
  • Possible, but your direct trading right is for HKEX. For European markets, you also need an overseas partner.
  • You might combine them in one overall system for your clients.

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Scenario 9: Creating an Online Retail Brokerage Platform (similar to Futu or Tiger)

• Small Type 1
  • Cannot hold clients’ funds or securities, so you cannot provide a fully integrated brokerage platform.
  • You could build a front-end for trade placement, but the client’s actual account and money would sit with another broker that holds assets, which typically does not deliver the one-stop user experience of a Futu/Tiger.
• Big Type 1 (No Trading Right)
  • Possible. Clients deposit money with you, but actual execution is done through a separate broker that has trading rights.
  • You can brand your own front-end or app.
• Big Type 1 (With Trading Right)
  • The most common approach for an online retail platform: you directly connect to HKEX and offer fast order execution and real-time service on your own app.

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Scenario 10: High-Frequency/Quantitative Trading (on behalf of clients)

• Small Type 1
  • Not possible to hold client funds or have a direct trading link. High-frequency trading needs very low latency, and you cannot manage or keep client assets.
  • You can only introduce them to a suitable HFT-capable broker.
• Big Type 1 (No Trading Right)
  • Possible, but you rely on a third-party’s infrastructure to place orders, which may cause extra latency.
• Big Type 1 (With Trading Right)
  • Ideal. You can directly connect to the HKEX’s low-latency interfaces (FIX/OMD) and manage high-frequency or quant trades.

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Scenario 11: Pure Introduction of Funds (Mutual Funds, Unit Trusts)

• Small Type 1
  • Yes to purely introducing investors to a fund manager or distributing funds, provided you do not handle any subscription money.
  • The fund manager or another licensed entity holds the client’s cash and fund units.
• Big Type 1 (No Trading Right)
  • Yes, you can receive the client’s money and help them subscribe to the fund. The actual fund settlement typically goes through the fund’s administrator.
• Big Type 1 (With Trading Right)
  • Also yes. If the fund is exchange-listed, you can buy it on the exchange directly; if not, you still coordinate with the fund manager.

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Scenario 12: Proprietary Trading (the firm trading its own capital)

• Small Type 1
  • If you only trade your own funds (no client money involved), it could be possible. Holding a Small Type 1 licence primarily means you do not handle anyone else’s money, but you can place trades for yourself via a third-party broker.
  • Rare in practice, but legally feasible.
• Big Type 1 (No Trading Right)
  • Yes, use your own capital and place trades through a broker with trading rights.
• Big Type 1 (With Trading Right)
  • Easier. You can place orders directly on the exchange, especially convenient for large or automated proprietary trading.

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Scenario 13: Sponsor Services (helping a company list on HKEX)

• Small Type 1
  • Not allowed. A Sponsor must hold a Type 6 licence (Corporate Finance).
• Big Type 1 (No Trading Right) / Big Type 1 (With Trading Right)
  • Also not allowed to do sponsor work purely under a Type 1 licence. You need Type 6 for that.

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Scenario 14: Helping Clients Open Margin Accounts and Instantly Trade HK Stocks

• Small Type 1
  • Not possible to personally open margin accounts or provide margin to the client. You cannot hold or handle their assets.
  • You can only introduce them to a margin-capable Big Type 1 broker.
• Big Type 1 (No Trading Right)
  • Yes, hold the client’s funds and securities as collateral, then place trades through a third-party broker with trading rights.
• Big Type 1 (With Trading Right)
  • More convenient. Everything can happen on your own platform—clients deposit funds, take margin, and place orders directly to the exchange.

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Scenario 15: Virtual Asset Brokerage (helping clients trade cryptocurrencies)

• Small Type 1
  • Not allowed to hold client virtual assets or funds. Even if you do “introducing,” it depends on specific SFC regulations for virtual assets.
  • Hong Kong’s rules for virtual asset trading platforms or token issuers are stringent. A basic Type 1 licence alone is insufficient.
• Big Type 1 (No Trading Right) / Big Type 1 (With Trading Right)
  • Traditional Type 1 wanting to do crypto brokerage must meet the SFC’s new framework (often called “virtual asset licence” or “VA licence”).
  • Even as a Big Type 1, you must comply with the relevant rules, possibly requiring an additional application or extension.

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Scenario 16: Introducing US Stock Services to Hong Kong Investors

• Small Type 1
  • Yes as an “introducing broker,” you direct local investors to a US or Hong Kong Big Type 1 broker that can handle US markets and hold funds.
  • The money and securities remain with that other broker.
• Big Type 1 (No Trading Right) / Big Type 1 (With Trading Right)
  • Similarly can do introductions, but they can also hold clients’ money and access US markets via a partner. If they only do introductions, they are not making full use of their ability to hold assets.

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Scenario 17: Helping Clients Allocate to Bonds

• Small Type 1
  • May assist with introductions or provide information about bond investments, but must not hold any client assets or handle bond settlement.
  • The client invests through a broker or bank that holds the assets.
• Big Type 1 (No Trading Right)
  • Yes. You can hold the client’s funds, then trade or settle bonds via a partner broker or overseas institution.
• Big Type 1 (With Trading Right)
  • Yes. If the bonds are listed on HKEX, you can trade them directly. If they are over-the-counter or international, you will connect to an international custodian (e.g. Euroclear).

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Scenario 18: Helping Clients Buy and Sell Stock Options

• Small Type 1
  • Possible only as an introducing agent, never holding clients’ margin or options. The actual positions and funds must sit with a broker that has a direct relationship with the options market.
  • You cannot handle margin or premium payments yourself.
• Big Type 1 (No Trading Right)
  • Yes. You can hold client money, but must route options orders through a broker that has market access for options.
• Big Type 1 (With Trading Right)
  • Yes. You can connect directly to Hong Kong’s options market (subject to the required “trading right” for derivatives).

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Scenario 19: Corporate Finance Advisory

• Small Type 1
  • May provide purely introductory or matchmaking advisory, as long as you do not hold client funds or securities.
  • If a transaction involves underwriting, escrow, or holding subscription money, that is not allowed under Small Type 1.
• Big Type 1 (No Trading Right) / Big Type 1 (With Trading Right)
  • Yes, you can do a fuller range of corporate finance transactions: arranging bond or stock issuance, underwriting, handling subscription money, etc.
  • If you want to be a sponsor for an IPO or do major M&A, you likely need Type 6 or other licences.

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Scenario 20: Assisting Companies with M&A Deals Involving Share Exchanges

• Small Type 1
  • Can only handle basic introductions. If M&A involves issuing new shares or exchanging securities (where you must hold assets), you cannot do it under Small Type 1.
  • You cannot be in possession of the newly issued shares or the payment from one party to another.
• Big Type 1 (No Trading Right)
  • Yes to some extent. You can handle, for example, new share issuance or private placements as part of an M&A. But if you must act as a sponsor or deep financial adviser, you often need Type 6.
• Big Type 1 (With Trading Right)
  • Same. Even if you have direct market access, certain aspects of M&A or sponsor roles need Type 6 or other qualifications.

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Summary

1. Small Type 1 (cannot hold client assets)
   • Never touches client money or securities at any stage.
   • Mainly used for “introducing broker” or “arranging” deals.
   • Low capital requirements, but restricted capabilities. Few new licences are granted nowadays.
2. Big Type 1 (No Trading Right)
   • Can hold client assets and provide margin, underwriting, asset management, etc.
   • Must place orders via a separate broker who has the trading right.
   • Has higher capital requirements than Small Type 1, but lower than Big Type 1 with trading rights.
3. Big Type 1 (With Trading Right)
   • Can directly connect to HKEX or HKFE (for futures/options), plus hold client assets.
   • Typically requires HKD 30 million deposit with HKEX, plus robust systems and higher costs.
   • Ideal for retail online brokerages, high-frequency trading, proprietary dealing, or building your own branded platform.

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Final Notes

• Not Holding Client Assets ≠ Unable to Assist in Trading
  Small Type 1 simply means you cannot ever receive or control a client’s money or securities. You can still introduce or arrange trades with a separate licensed firm that does hold the assets.
• Often Multiple Licences are Needed
  If you plan to provide investment advice (Type 4), sponsor an IPO (Type 6), or manage assets (Type 9), you need those additional licences.
• General Reference Only
  Before launching any regulated business, seek professional legal or compliance advice to ensure you meet SFC and other legal requirements.

We hope this revised text helps clarify that a Small Type 1 licence just cannot hold client assets, but can still introduce or arrange certain services, while Big Type 1 (whether with or without trading rights) can handle a broader scope of securities dealing activities. Best of luck with your business endeavours!