(Oct 31): Hong Kong’s securities watchdog toned down its guidelines for so-called market sounding practices after incorporating feedback from the hedge fund and banking industry. 

The new rules, which will take effect on May 2, narrowed the scope of what constitutes as confidential information and the types of securities involved, according to a consultation conclusion released by the Securities and Futures Commission (SFC) on Thursday. 

The SFC faced push back from the hedge fund industry and other market participants after it released a proposal in October 2023. Global regulators have been working to resolve problematic confidential information sharing before market-moving deals being announced. These market sounding practices allow banks and issuers to estimate demand and set price before the transaction comes into open. 

The rollout of such rules comes amid the alleged insider trading case featuring a high-profile hedge fund firm, Segantii Capital Management Ltd.

When the Hong Kong regulator first released its draft, the proposal covered all non-public information and all securities, and applied to both brokers and potential investors that are licensed in the city. 

The latest guidelines will only apply to confidential information that is entrusted by a client, an issuer or an existing shareholder selling or buying in the secondary market. It was refined from the initial proposal to address concerns over inadvertent uncertainty and complexity, the regulator said.

In addition, the new rules only cover listed shares and “any other securities which are likely to materially affect the price of shares that are listed on an exchange”, the SFC said.

The regulator “will keep in view the need for the guidelines to cover more transactions in the future”, according to the statement. 

Uploaded by Tham Yek Lee