MARKET MISCONDUCT
UNDER THE SECURITIES AND FUTURES ORDINANCE
LIABILITY OF OFFICERS OF A CORPORATION
Duty of Officers
Section 279 of the SFO imposes a duty on all officers of
a corporation to take reasonable measures to ensure that
proper safeguards exist to prevent the corporation from
acting in a way which would result in the corporation perpetrating
any market misconduct. This is an extension of the duty
contained in the S(ID)O. Under the SFO the duty applies
to all forms of market misconduct and not just insider dealing.
The definition of an 'officer of a corporation' is also
broader than under the S(ID)O. It includes a director (including
a shadow director and any person occupying the position
of a director), manager or secretary of, or any other person
involved in the management of, the corporation. The last
category (ie. any other person involved in management) was
not included in the S(ID)O definition and could, in principle,
catch supervisors and anyone else with management responsibilities.
Under Section 258, where a corporation has been identified
as having been engaged in market misconduct and the market
misconduct is directly or indirectly attributable to a breach
by any person as an officer of the corporation of the duty
imposed on him by Section 279, the MMT may make one or more
of the orders detailed above in respect of that person even
if that person has not been identified as having engaged
in market misconduct himself. However, a breach of the Section
279 duty will not expose a person to civil suits by third
parties unless he has been identified as having engaged
in market misconduct.
Civil Liability
As described above, the SFO clearly provides that anyone
who suffers financial loss as a result of market misconduct
or a Part XIV offence has a right of civil action to seek
compensation. As noted above, an officer of a corporation
which perpetrated market misconduct is taken to have committed
market misconduct himself, if the corporation perpetrated
the misconduct with his consent or connivance.
Criminal Liability
Under Section 390 of the SFO, where it is proved that an
offence committed under Part XIV was aided, abetted, counselled,
procured or induced by, or committed with the consent or
connivance of, or attributable to the recklessness of, any
officer of the corporation, or any person purporting to
act in any such capacity, that person, as well as the corporation,
is guilty of the offence and liable to be punished accordingly.
Disciplinary Proceedings
Under Part IX of the SFO, any regulated person who is guilty
of misconduct or who, in the opinion of the SFC, is not
a fit and proper person to be or to remain the same type
of regulated person, is subject to a widened range of disciplinary
procedures. 'Misconduct' is defined to include any contravention
of the SFO or of the terms of any licence issued or registration
made under it. The SFC may revoke or suspend a person's
licence in respect of all or any part of the regulated activities
for which he is licensed. In addition, or alternatively,
the SFC may impose a fine not exceeding the greater of $10
million or 3 times the amount of the profit gained or loss
avoided by the regulated person as a result of his misconduct,
or such other conduct which led to the SFC's opinion that
he is not fit and proper. The SFC may also impose prohibition
orders preventing an offending person from, among other
things, applying to be registered or licensed under the
SFO. Approvals granted to 'responsible officers' may also
be suspended or revoked. Persons covered by these provisions
include corporations licensed under the SFO, their responsible
officers and persons involved in their management. Significantly,
authorised financial institutions (now required to be registered
with the SFC if carrying out certain regulated activities),
their executive officers, persons involved in the management
of their regulated business and individuals named in their
register as carrying out a regulated activity, are also
now subject to the SFC's disciplinary regime.
MISCELLANEOUS
Safe Harbour Rules
To allow for future business practices, the SFO allows the
SFC to make rules creating defences to the market misconduct
civil and criminal provisions, subject to prior consultation
with the Financial Secretary (Sections 282 and 306). A safe
harbour has been established for price stabilisation in
public offerings over $100 million under the Securities
and Futures (Price Stabilising) Rules.
This note is intended as a summary of the provisions
of the SFO as they relate to market misconduct. Specific
legal advice should be sought in relation to any particular
situation.
