- a person, in Hong Kong or elsewhere, does anything
or causes anything to be done, with the intention that,
or being reckless as to whether, it creates, or is likely
to create, a false or misleading appearance -
- of active trading in securities or futures contracts
traded on an exchange or through an ATS in Hong Kong;
or
- with respect to the market for, or the price of,
securities or futures contracts traded on an exchange
or through an ATS in Hong Kong. Such conduct by a
person in Hong Kong which has a similar effect on
securities or futures traded on an overseas market
may also amount to false trading.
- a person, in Hong Kong or elsewhere, is involved,
directly or indirectly, in one or more transactions
(whether or not any of them is a dealing in securities
or futures) with the intention that, or being reckless
as to whether, they create or maintain, or are likely
to create or maintain, an artificial price for securities
or futures contracts traded on an exchange or through
an ATS in Hong Kong.
Again, the same conduct but by a person in Hong Kong which
has a similar effect on securities or futures traded on
an overseas market may also constitute false trading.
It is not necessary for the transaction or transactions
concerned to be in securities or futures. These provisions
therefore prohibit a range of conduct that occurs off
a market that affects prices on a securities or futures
market, most importantly cross-market manipulation (ie.
conduct in one market which has a manipulative effect
in another market) and cornering (ie. monopolising or
restricting supply of an asset so as to manipulate its
price).
A person who engages in an on-market 'wash sale' or 'matched
order' is presumed to have intended, or been reckless as
to whether, his conduct creates or is likely to create a
false or misleading appearance of active trading, the market
for, or price of, the securities (S274(5) and S295(5)).
He will have a defence if he can establish that the purposes
for which he engaged in the transaction did not include
the purpose of creating such a false or misleading appearance
(S274(6) and S295(7)). The presumption applies only to 'on-market'
wash sales and matched orders – that is they are recorded
on the relevant exchange or ATS or have to be reported to
the exchange or ATS operator under the rules governing the
exchange or ATS. For off-market wash sales and matched orders,
the prosecution will need to prove the mental element.
'Wash sales' are trades in which a person buys or sells
securities without there being a change of beneficial ownership
(Sections 274(5)(a) and 295(5)(a)).
A 'matched order' is where a person offers to sell or buy
securities at a price that is substantially the same as
the price at which he has made or proposes to make, or he
knows an associate of his has made or proposes to make,
an offer to buy or sell the same or substantially the same
number of securities (Sections 274(5)(b) and (c) and 295(5)(b)
and (c)).
Where the offence in question involves conduct in Hong Kong
which affects securities or futures traded on an overseas
market, the prosecution must prove that such conduct is
also unlawful in the country in which the market is situated
(Sections 282(3) and 306(3)). The same applies to price
rigging and stock market manipulation where the conduct
in question takes place in Hong Kong but affects securities
or futures traded on an overseas market.
An 'associate' is defined to include a person's spouse or
reputed spouse, brother, sister, parent, step-parent, natural
or adopted child or step-child, any corporation of which
a person is a director, any partner or employee of a person
and in the case of a corporation, each of its directors
and its related corporations and each director or employee
of any of its related corporations.
