Wall-crossing in Hong Kong: Risk Management Issues

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In the UK, there has recently been significant media coverage of market abuse in the context of “wall-crossing”, the process by which a securities offering is selectively pre-marketed to potential investors before the deal is publicly announced. The UK Financial Services Authority (“FSA”) has stepped up enforcement on market participants for breaching the market abuse regime under section 118 of the UK’s Financial Services and Markets Act 2000 (“FSMA”) by inappropriately disclosing or trading on inside information in this context.

In Hong Kong, what are the parameters for such activities, and how will the Securities and Futures Commission (“SFC”) and the Market Misconduct Tribunal (the “Tribunal”) approach them? The position became clearer in late May 2012, with two Tribunal decisions that offer guidance on information that will fall within the insider dealing regime, the imputing of knowledge to recipients, the regulatory reach of the SFC, and hence protective measures that companies and other market participants should take.

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