Restoring transactions unknowingly tainted by insider trading: A Hong Kong case

• Published in: Common law world review Vol. 47; no. 2; pp. 150 - 159
• Main Author: Kwan, Martin YC
• Format: Journal Article
• Language: English
• Published: London, England SAGE Publications 01.06.2018
• Subjects: Capitalists and financiers; Insider trading in securities; Law and legislation; Securities; HONG KONG; insider dealing; investor; restitution; restoration; market misconduct; inside information
• ISSN: 1473-7795; 1740-5556
• DOI: 10.1177/1473779518773646

In the Hong Kong Court of Appeal decision 'The Securities and Futures Commission v Young Bik Fung and others', the Court applied section 213(2)(b) of the 'Securities and Futures Ordinance' (SFO) to restore two transactions of shares entered into by an investor who invested based on ‘information, advice or tips’ given by an insider, despite the investor did not know that the advice was based on inside information and was not guilty of insider trading. Nevertheless, the investor was ordered to repay the profits made as if the transactions had not been made. It is suggested that the restoration order in Hong Kong has the widest scope of application among the major common law jurisdictions, because Hong Kong is the only jurisdiction where a person who has not committed any market conduct can nevertheless be subject to a restoration order. The Court justified such wide scope of application with reference to the paramount policies of minimizing market misconduct and ensuring no benefits is obtained from insider dealing by anyone. By a comparative law analysis, it is argued that section 213(2)(b) SFO has been wrongly interpreted. The paramount policies should not be blindly applied without giving proper consideration to other established principles of law, such as the fundamental right to property of the unknowing investor.