Offences, market misconduct and disciplinary regime
Domain 6 tests the two-track liability system: civil market misconduct before the Market Misconduct Tribunal and criminal offences before the courts, plus SFC discipline of intermediaries.
Market misconduct
Part XIII of the SFO defines 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 MMT also hears breaches of the Part XIVA obligation to disclose inside information.
Insider dealing
It covers dealing, counselling or procuring dealing, and disclosure of inside information by a person connected with a listed corporation. Inside information must be specific, not generally known, and material enough to affect the price if known. Defences include the information barrier (Chinese wall) for corporations, and acting without using the information in limited circumstances.
MMT powers
The MMT sits with a High Court judge as chairman and two members, applying the civil standard of proof. It may disqualify a person from being a director for up to five years, make a cold shoulder order, order a person to cease and desist, order payment of the profit gained or loss avoided, and order costs. For breach of the inside-information disclosure requirement it may also impose a fine of up to HK$8 million. There is no criminal record.
Criminal and disciplinary track
Insider dealing is also a criminal offence carrying imprisonment. Unlicensed dealing is punishable on indictment by a fine of HK$5 million and seven years' imprisonment. The SFC may prosecute summary offences. Separately, s.194 discipline applies to licensed corporations and registered institutions.
Worked example
A director buys shares before an announcement. The SFC takes the case to the MMT, which finds insider dealing, orders disgorgement of the profit, disqualifies him for four years and orders costs. Had the SFC prosecuted criminally, the outcome would have been a conviction and imprisonment.
Traps
Assuming the MMT imposes fines in every case; forgetting the disclosure fine; confusing MMT disqualification with s.214 court disqualification; thinking civil proceedings bar criminal prosecution.