The Securities and Futures Commission (SFC) today launched a consultation on proposed guidelines for market soundings. The proposed guidelines would provide clarity on regulatory expectations and assist intermediaries in their compliance with the general principle to conduct their business activities honestly, fairly and in the best interests of their clients and the integrity of the market (Note 1) during market soundings.

Under the proposals, intermediaries would have to implement robust governance and effective policies and internal control procedures to prevent the misuse and leakage of non-public information they are entrusted with during market soundings, keep records of their market soundings, as well as follow specific requirements based on their respective roles (ie, sell-side or buy-side; Note 2).

“Both sell-side brokers and buy-side participants have obligations to uphold market integrity by keeping in strict confidence non-public information entrusted to them and not abusing that information,” said Ms Julia Leung, the SFC's Chief Executive Officer. “Regardless of the level of price sensitivity of any non-public information, undesirable conduct by intermediaries can impact the fairness and orderliness of our markets and undermine investor confidence in them.”

This consultation follows a thematic review of market soundings the SFC commenced in early 2022 (Note 3). In developing the proposed guidelines, the SFC took into consideration local and overseas market practices and regulatory requirements, the Securities and Futures Appeals Tribunal's (SFAT) recent determination in a related case (Note 4), as well as information gathered and preliminary feedback from intermediaries in the thematic review.

Interested parties are invited to submit their comments to the SFC on or before 11 December 2023 via the SFC website (www.sfc.hk), by email to marketsounding_consultation@sfc.hk, by post or by fax to (852) 2284 4660.

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Notes:

1. This refers to General Principle 1 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct).
2. For example, sell-side intermediaries would have to use pre-approved scripts in conducting market soundings and buy-side intermediaries should designate properly-trained personnel for receiving market soundings.
3. The thematic review included surveys and focus group discussions with selected intermediaries to assess the robustness of controls over market soundings.
4. On 29 September 2022, the SFC suspended the licence of a hedge fund manager for two years after the SFAT upheld the SFC’s disciplinary action against him for breaches of the Code of Conduct by dealing in shares based on information obtained during a market sounding call.