What Constitutes Insider Dealing?

What Constitutes Insider Dealing?

What Constitutes Insider Dealing? 1400 788 Hauzen

As mentioned in Insider Dealing, insider dealing is defined under the SFO to arise under the three circumstances and under each circumstance, inside information may originate from two kinds of sources:

  • someone connected with a corporation or
  • someone involved with a proposed take-over offer for a corporation

For ease of explanation in the below, the first source will be referred to as ‘company information’ and the second source as ‘take-over information’. Note however that the SFO does not use these specific terms.

I. Dealing or counselling on the basis of inside information

a. Dealing on the basis of company information or counselling another to deal
Insider dealing takes place when a connected person who has information which he knows is inside information in relation to the corporation with which he is connected, deals in the listed securities of the corporation or their derivatives, or in the listed securities of a related corporation of the corporation or their derivatives.

Insider dealing also takes place when a connected person who has information which he or she knows is inside information in relation to the corporation with which he or she is connected, counsels or procures another person to deal in the listed securities of the corporation or their derivatives, or in the listed securities of a related corporation of the corporation or their derivatives, knowing or having reasonable cause to believe that the other person will deal in them.

S 249 SFO regards a person as dealing in listed securities or their derivatives if, whether acting as a principal or agent, he sells, purchases, exchanges or subscribes for, or agrees to sell, purchase, exchange or subscribe for, any listed securities or their derivatives or acquires or disposes of, or agrees to acquire or dispose of, the right to sell, purchase, exchange or subscribe for, any listed securities or their derivatives.

References:
SFO, s 270(1)(a)
SFO, s 291(1)

b. Dealing on the basis of take-over information or counselling another to deal
Insider dealing takes place when a take-over bidder, who knows that the information that the offer is contemplated or is no longer contemplated is inside information in relation to the corporation, deals or counsels or procures another to deal in the listed securities of the corporation or their derivatives or in the listed securities of a related corporation of the corporation or their derivatives, other than for the purpose of the take-over.

References:
SFO, s 270(1)(b)
SFO, s 291(2)

II. Disclosing inside information (tipping off)

a. Disclosing company information
Insider dealing takes place when a connected person who has information which he or she knows is inside information in relation to the corporation with which he or she is connected, discloses the information, directly or indirectly, to another person, knowing or having reasonable cause to believe that the other person will make use of the information for the purpose of dealing, or of counseling or procuring another person to deal, in the listed securities of the corporation or their derivatives, or in the listed securities of a related corporation of the corporation or their derivatives.

References:
SFO, s 270(1)(c)
SFO, s 291(3)

b. Disclosing take-over information
Insider dealing takes place when a take-over bidder, who knows that the information that an offer is contemplated or is no longer contemplated is inside information in relation to the corporation, discloses such information, directly or indirectly, to another person, knowing or having reasonable cause to believe that the other person will make use of the information for the purpose of dealing, or of counseling or procuring another person to deal, in the listed securities of the corporation or their derivatives, or in the listed securities of a related corporation of the corporation or their derivatives.

References:
SFO, s 270(1)(d)
SFO, s 291(4)

III. Receiving inside information and dealing (being a ‘tippee’)

a. Receiving company information and dealing or counseling another to deal
Insider dealing takes place when a person who has information which he or she knows is inside information in relation to the corporation and which he or she received, directly or indirectly, from a person whom he or she knows is connected with the corporation and whom he or she knows or has reasonable cause to believe held the information as a result of being connected with the corporation, deals, or counsels or procures another person to deal in the listed securities of the corporation or their derivatives, or in the listed securities of a related corporation of the corporation or their derivatives.

References:
SFO, s 270(1)(e)
SFO, s 291(5)

b. Receiving take-over information and dealing or counseling another to deal
Insider dealing takes place when a person, having received, directly or indirectly, from a person whom he or she knows or has reasonable cause to believe is contemplating or is no longer contemplating making a take-over offer for the corporation, information to that effect which he or she knows is inside information in relation to the corporation, deal, or counsels or procures another person to deal, in the listed securities of the corporation or their derivatives, or in the listed securities of a related corporation of the corporation or their derivatives.

References:
SFO, s 270(1)(f)
SFO, s 291(6)

IV. Facilitating a dealing on an oversea market based on inside information

Insider dealing takes place when a person who has information which he knows is inside information in relation to the corporation in any of the circumstances set out above, counsels or procures another person to deal in the listed securities of the corporation or their derivatives, or in the listed securities of a related corporation of the corporation or their derivatives, knowing or having reasonable cause to believe that the other person will deal in such listed securities or derivatives outside Hong Kong on a stock market other than a recognised stock market.

Insider dealing also takes place when a person who has information which he knows is inside information in relation to the corporation in any of the circumstances set out above, discloses the insider information to another person knowing or having reasonable cause to believe that he or some other person will make use of the inside information for the purpose of dealing, or of counselling or procuring any other person to deal, in the listed securities of the corporation or their derivatives, or in the listed securities of a related corporation or their derivatives, outside Hong Kong on a stock market other than a recognised stock market.

References:
SFO, s 270(2)
SFO, s 291(7)


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