Securities Regulation

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SFC proposes guidelines for intermediaries conducting and receiving market soundings in securities and capital market transactions.

By Simon Hawkins and Adrian Fong

On 11 October 2023, the Securities and Futures Commission (SFC) issued a consultation paper (Consultation Paper) proposing new “Guidelines for Market Soundings” (Guidelines) for Hong Kong intermediaries conducting market soundings for securities and capital market transactions (such as private placements and block trades). Market participants will welcome this development, as the absence of specific guidance on market soundings has caused some inconsistencies in market practice, as the SFC noted following its thematic review of market soundings in 2022. 

SFC-licensed intermediaries should review the Guidelines and consider whether and to what extent their existing market sounding procedures should be adjusted to comply with the Guidelines.

The ruling confirms that courts will consider substance over form when assessing collective investment scheme arrangements and exemptions under securities law.

By Simon Hawkins and Adrian Fong

On 2 August 2023, the Hong Kong Court of Appeal handed down judgment in the case of 律政司司長 (Secretary of Justice) v. IPFUND Asset Management Limited [2023] HKCA 925 (Judgment), a case which has been the subject of litigation since 2014. The court considered the issue of whether certain commercial property investment arrangements marketed and operated by the defendants constituted “collective investment schemes” (CIS) and “securities” under the Securities and Futures Ordinance (SFO).

The Judgment provides additional guidance on the factors to be considered when assessing whether arrangements constitute CIS under the SFO, and how an exemption from the definition of “securities” should be interpreted.

The amendments have a substantial impact on private fund managers.

By Laura N. Ferrell, Aaron Gilbride, Michael Milazzo, Jamie Lynn Walter, Mike Hart-Slattery, and Haley Hohensee

On August 23, 2023, the Securities and Exchange Commission (SEC) adopted a final rule package (each a Rule, and together, the Rules) that modifies the regulation of private fund advisers under the US Investment Advisers Act of 1940, as amended (the Advisers Act).

Among other things, the Rules require…

The HKMA and the SFC permit relaxation of suitability and other regulatory requirements while dealing with high-net-worth and experienced investors.

By Simon Hawkins and Adrian Fong

On 28 July 2023, the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) issued a joint circular (Joint Circular) outlining a new streamlined approach for compliance with the suitability and related obligations when dealing with sophisticated professional investors, alongside guidance and FAQ on how to apply the new approach.

By Laura Ferrell, Marlon Q. Paz, Nabil Sabki, Stephen P. Wink, Naim Culhaci, and Deric Behar

On March 28, 2022, the US Securities and Exchange Commission (SEC) proposed rules (Proposing Release) that would require securities market participants that engage in dealer-like activities — such as a proprietary trading firm that engages in a routine pattern of buying and selling securities that has the effect of providing liquidity to other market participants — to register with the SEC, become a member of a self-regulatory organization (SRO), and comply with federal securities laws and regulatory obligations.

The amended definition could provide a new means for the SEC to regulate crypto platforms.

By Stephen P. Wink, Marlon Q. Paz, Naim Culhaci, Ian Irlander, and Deric Behar

We previously published a blog post on the set of proposed amendments (Proposal) issued on January 26, 2022, by the Securities and Exchange Commission (SEC) regarding the regulation of alternative trading systems (ATSs) that would, among other things, substantially expand the activities covered by the definition of an “exchange” as interpreted by Rule 3b-16 under the Exchange Act to capture “Communication Protocol Systems”. Whereas we previously offered our general views on the proposed expansion of definitions and resulting potential impact on the securities industry, now we turn specifically to the potential impact of the Proposal on platforms trading digital assets.

Updated on May 9, 2022.

The proposal would require certain systems and platforms currently not subject to any registration requirements to register as broker-dealers and ATSs.

By Stephen P. Wink, Marlon Q. Paz, Naim Culhaci, and Deric Behar

On January 26, 2022, the Securities and Exchange Commission (SEC) issued a set of proposed amendments (Proposal) regarding the regulation of alternative trading systems (ATSs) that would, among other things, substantially expand the definition of an “exchange” as interpreted by Rule 3b-16 under the Securities Exchange Act of 1934 (the Exchange Act) to capture “Communication Protocol Systems.” Specifically, Rule 3b-16’s interpretation of the “exchange” definition would be broadened in several meaningful aspects, including by removing the current requirement that a platform needs to bring together “firm orders” to be deemed an “exchange.”

The expansion would include Shenzhen Stock Exchange and potentially European stock exchanges, and would permit overseas issuers to raise capital in China through CDR listings.

By Chris Horton, James Inness, Anna Ngo, Terris Tang, Cathy Yeung, and Johannes Poon

On 17 December 2021, the China Securities Regulatory Commission (CSRC) launched a consultation that proposes a major expansion to the scope of the Shanghai London Stock Connect programme. The Stock Connect currently allows eligible companies listed on the Shanghai Stock Exchange or the London Stock Exchange to list depositary receipts on the other exchange that can be traded under local rules in the local time zone.

The Proposal would have a significant impact on current practices surrounding the use of Rule 10b5-1 plans by public companies and insiders.

By Joel H. Trotter, Stephen P. Wink, Naim Culhaci, and Deric Behar

On December 15, 2021, the Securities and Exchange Commission (SEC) issued a set of proposed amendments (the Proposal) regarding the adoption of trading plans that qualify for the affirmative defense against liability for trading on the basis of material non-public information (MNPI) under Rule 10b5-1 under the Securities Exchange Act of 1934 (the Exchange Act). These proposed changes would impose additional requirements on public companies and insiders.

Significantly, the Proposal would require a waiting period or “cooling off period” of 120 days for the director or officer of a company (or 30 days for the company itself) between the adoption of a plan or an amendment to the plan and the effecting of trades under such plan. Moreover, the Proposal would prohibit the use of multiple overlapping plans. The Proposal would also introduce additional disclosure requirements regarding 10b5-1 plans and the charitable gifting of securities by insiders. In explaining its rationale for issuing the Proposal, the SEC stated that it aims “to address apparent loopholes in the [current] rule that allow corporate insiders to unfairly exploit informational asymmetries.”

This post provides a high-level summary of some of the changes that are being proposed.