Since the introduction of the LE in Jun 2003, the HKSI has been closely monitoring the performance of candidates in each examination paper, in particular LE Paper 1. Figures 1 and 2 show the pass rates and average pass rates of LE Paper 1 in 2003 and 2004 respectively.

  
     Figure 1. Exam results distribution for Paper 1 - Nov 2004

  
     Figure 2. Pass rates of LE Paper 1: Jan 2004 - Dec 2004

As shown in figures 1 and 2, the performance of candidates in LE Paper 1 improved significantly in 2004. The pass rate in the September 2004 examination of 61% was the highest recorded to date and the pass rate for the 7 months from June to December 2004, stabilised at approximately 50%. At the same time, the average pass rate for the twelve months ended December 2004 was 44%, an increase of 20 percentage points (or an 83% increment) over the average pass rate of 24% for the seven months ended 2003.

Well-performed subjects

Our analysis of the examination results shows that candidates, in general, performed satisfactorily in a number of subject areas in 2004. These included:
 • Money laundering;
 • Functions of financial regulators; and
 • General principles of the Code of Conduct for Persons Licensed by or Registered with the SFC.

Poorly performed subjects

Although the performance of candidates improved in 2004, there were a number of subject areas in which candidates still experienced difficulty. These included:
 • Exclusions from regulated activities;
 • The Fund Manager Code of Conduct and activities related to asset management;
 • The Code of Conduct for Corporate Finance Adviser and activities related to corporate finance; and
 • Participants of the exchanges and clearing houses.

Details of these subject areas can be found in Topics 4, 5 and 7 of the Study Manual for LE Paper 1.

In particular, many candidates failed to grasp that individuals in certain professions and/or in certain circumstances may be exempted from licensing requirements for specific regulated activities. Candidates also had difficulty understanding the essence of the Fund Manager Code of Conduct as well as the structure of participants in the trading and clearing mechanisms and the rules of the exchanges and clearing houses in Hong Kong. Candidates are advised to pay particular attention to these subject areas in the future.

Examination Results Statistics for LE Paper 1 in Dec 2004
 
The pass rate for Paper 1 held on 18 Dec 2004 was 52%. Figure 3 shows the distribution by scores of the exam results. As in the past, the number of marginal cases remains a distinct feature of the scores in this examination.

  
     Figure 3. Exam results distribution for Paper 1 - Dec 2004

Highlights of the Month

1. Topical Correctness

Figure 4 shows the overall topical correctness achieved in the examination, i.e. how well candidates have performed in each topic.

   
     The score system of topical correctness provides a performance score for each topic,
     ranging from 0 to 1. When all questions relating to the same topic are answered correctly
     by all candidates, the topical correctness score will be 1. Conversely, if all questions
     relating to the same topic are answered incorrectly by all candidates, the topical
     correctness score will be 0.
     Figure 4. Topical correctness for Paper 1 - Dec 2004

The December 2004 exam results show a noticeable improvement in the correctness levels of Topic 8 (Other SFC Regulated Activities) and Topic 9 (Market Misconduct, Improper Trading Practices and Compliance), but the correctness rate of Topic 5 shows a substantial decline. These results are almost an exact reverse of the performance of candidates in the previous month!

2. Well Performed and Poorly Performed Subjects

Our analysis indicates that candidates performed well in a number of subject areas:
 • Internal Control Guidelines;
 • Fundamental concepts of traded options; and
 • Code of Conduct for Persons Licensed by or Registered with the SFC.

Candidates are performing less well in the subject areas relating to exclusions from regulated activities and the Code of Conduct for Corporate Finance Adviser. Candidates wishing to revise for these subject areas should read carefully paragraph 1.8 of Topic 4 and section 4 of Topic 5 in the Study Manual for Paper 1.

The Licensing Examination in 2005

In the coming year, the HKSI is planning to expand its statistical analyses of exam results to include other LE Papers such as Papers 2 and 6. In addition, the HKSI will continue to update the LE Study Manuals on an ongoing basis and to revise the examination questions whenever necessary to reflect changes in regulations and market practices. The HKSI welcomes feedback from candidates at any time and remains committed to the implementation of all practical measures to ensure the quality of the LE.