The Hong Kong Securities and Futures Commission has released new guidelines for market sounding as a high-profile insider dealing scandal continues its way through the courts.
The guidelines, which will be effective from 2 May 2025, have been developed amid the ongoing criminal case regarding insider dealing at Segantii Capital Management. Director and chief investment officer Simon Sadler and former trader Daniel La Rocca are accused of insider dealing the shares of Esprit Holdings Limited, a HKEX-listed company, before a July 2017 block trade.
Four core principles make up the guidelines, the first outlining the responsibilities of the market sounding intermediary. This figure should be in place to safeguard market sounding information, preventing disclosure, misuse or leakage.
Considering the handling of information, the guidelines state that the intermediary will be responsible for staff compliance, ensuring that market sounding information standards of conduct are maintained, information sharing principles and processes are followed, and that information is segregated, physically and functionally, to keep information on a ‘need-to-know’ basis. Reviews of communications, trade surveillance and cases of unauthorised access to such information must be carried out regularly.
Policies and procedures around market soundings, specifying the way in which they should be conducted, must be developed and enforced by the intermediary.
Robust governance and oversight arrangements around market soundings must be put in place, the SFC continued, but senior management must assume overall responsibility for market soundings oversight. The arrangements relate primarily to communications and workflows, with a committee or individual put in place to monitor market surroundings, managerial and supervisory processes. Control measures should be developed to ensure information is delivered directly to senior management and relevant parties.
Those disclosing information will be required to follow a set of guidelines before conducting market soundings, determining the standard set of information that will be disclosed, an appropriate time to conduct the sounding, and the smallest number of recipients and potential investors who will be contacted with the information.
Communications should use a standardised script, take place through authorised channels and be recorded. Records around market soundings should be kept for at least two years, and be easily accessible.
Recipients must inform the disclosing participant whether they want to receive market soundings and, if the disclosing party does not specify whether a communication is a market sounding, should “use reasonable effort” to determine whether it is in possession of such information.
The Hong Kong District Court has adjourned the Segantii Capital case to 19 December. Sadler and La Rocca have not yet made their pleas.
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