Hong Kong’s securities regulator has relaxed its guidelines for market sounding practices after receiving feedback from the hedge fund and banking sectors. The updated rules will take effect on May 2.
The Securities and Futures Commission (SFC) announced the changes in a consultation conclusion released on Thursday. The new guidelines narrow the definition of what constitutes confidential information and specify the types of securities involved.
Industry Pushback
The SFC faced significant pushback from the hedge fund industry and other market participants after proposing stricter rules in October 2023. Global regulators have been working to address issues surrounding the sharing of confidential information before announcing market-moving deals. Market sounding practices allow banks and issuers to gauge demand and set prices before a transaction is made public.
The updated rules come amid an alleged insider trading case involving the well-known hedge fund Segantii Capital Management Ltd.
Changes to the Proposal
Initially, the SFC’s draft proposal covered all non-public information and all types of securities. It applied to both brokers and potential investors licensed in Hong Kong.
Under the new guidelines, the regulations will only apply to confidential information shared by a client, an issuer, or an existing shareholder involved in buying or selling in the secondary market. This adjustment aims to reduce confusion and complexity, as noted by the regulator.
Focus on Listed Shares
Furthermore, the new rules will apply only to listed shares and any other securities that could significantly impact the price of shares listed on an exchange. The SFC stated that it “will keep in view the need for the guidelines to cover more transactions in the future.”
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