Market misconduct, insider dealing and enforcement
What this domain tests
This domain tests the SFO Part XIII market misconduct regime, the elements of insider dealing, the difference between civil and criminal routes, and the SFC's enforcement toolkit.
Core rules
- Part XIII identifies six types of market misconduct: insider dealing; false trading; price rigging; disclosure of false or misleading information inducing transactions; stock market manipulation; and disclosure of inside information (the listed corporation's own duty under Part XIVA).
- Inside information is specific, not generally known, and would materially affect the price if known. Insider dealing covers connected persons who deal, counsel or procure another to deal, or disclose the information.
- Civil route: the SFC brings proceedings before the Market Misconduct Tribunal, which can impose cold-shoulder orders, disqualification orders, cease-and-desist orders and fines up to three times the profit gained or loss avoided.
- Criminal route: insider dealing and false trading can be prosecuted, with penalties up to HK$10 million and 10 years' imprisonment.
- The SFC may investigate (s.182), seek court orders under s.213 for injunctions and restitution, and discipline licensed persons by suspension, revocation or fines.
Worked example
A director learns of an imminent takeover, tells a friend, and the friend buys shares. The friend is a tippee and the director has disclosed inside information. No profit needs to be proved for the MMT to find insider dealing; a dealing while in possession of inside information suffices, and the director faces both regulatory and criminal exposure.
Traps that cost marks
Believing insider dealing requires a completed profitable trade; confusing MMT civil proceedings with criminal prosecution; and overlooking the separate listed-company disclosure obligation under Part XIVA.