Market misconduct
Tribunal decision


In the past few years, the Securities and Futures Commission (SFC) – the primary regulator of the local securities and futures market – has actively pursued those alleged to have committed market misconduct in Hong Kong. The SFC has a number of enforcement tools at its disposal, including commencing civil proceedings in the High Court pursuant to Section 213 of the Securities and Futures Ordinance (Cap 571), initiating civil proceedings in the Market Misconduct Tribunal and assisting with investigations prior to criminal proceedings.(1)

The recent Citron Research decision marks a rare ruling by the Market Misconduct Tribunal regarding the disclosure of false or misleading information inducing transactions contrary to Section 277 of the ordinance.(2)


In December 2014 the SFC instituted civil proceedings before the tribunal naming Andrew Left of Citron Research (a trading name) as a 'specified person' in connection with alleged contraventions of Section 277 of the ordinance.

Against a background of receiving an anonymous package with draft analysis relating to a company listed on the Hong Kong Stock Exchange (called Evergrande Real Estate Group Limited), Citron Research published a research report in June 2012 which questioned the solvency of the company.

Prior to publication of the report, the specified person was alleged to have short sold shares in the company. This apparently led to a significant increase in the trading volume of the company's shares and a significant drop in the share price on the day. The specified person was stated to have made a profit of HK$1,596,240 from the short selling.

Market misconduct

In short, a person contravenes Section 277 if he or she discloses false or misleading information as to material facts about a listed company, knowing the information to be false or misleading, or being reckless or negligent as to whether it is so, where that information is likely to induce others to deal in the securities of the company.

Tribunal decision

The tribunal decision was released in August 2016 and its orders were formally handed down on November 10 2016.(3)

In two of its main findings the tribunal found that in publishing the report, the specified person had been reckless or negligent as to whether the report's content was false or misleading as to the inclusion, or through the omission, of material facts.

In its decision, the tribunal ordered that the specified person:

  • be banned from trading listed securities in Hong Kong for the maximum period of five years without prior permission of the court (a so-called 'cold shoulder' order);
  • refrain from engaging in conduct so as to contravene Section 277 (a so-called 'cease and desist' order);
  • disgorge the profit said to have been made from short selling the shares of the company and repay the same to the government (together with interest for a specified period); and
  • pay the government's and the SFC's substantial legal costs (which far exceeded the amount of the disgorged profit).

The tribunal's decision to order the maximum period for a cold shoulder order says something about its opinion regarding the specified person's degree of culpability. It is also an offence for someone to aid and abet in the avoidance of a cold shoulder order. Cease and desist orders are not subject to a time limit.

Subsequent to the release of the tribunal's decision, certain press reports suggested that the specified person intends to appeal the decision.(4) Unless the Court of Appeal grants permission to appeal on a question of fact, an appeal against a finding of the tribunal is limited to a point of law.

The fact of an appeal does not operate to stay the tribunal's decision. In the event of an appeal, any stay granted by the Court of Appeal is likely to be subject to a condition that the appellant lodge a substantial sum of money with the tribunal or the court by way of security.

In the meantime, the tribunal's orders can be registered with the High Court (whereupon they become orders of the court) while the SFC considers how best to enforce them, given that the specified person is not in Hong Kong.


In determining whether the information disclosed was false or misleading as to material facts (or through the omission of material facts), the tribunal declined to allow the specified person access to the internal documents of the company.(5) Whether information is false or misleading is judged by reference to the information that is publicly available to the party disclosing the information at the relevant time.

The tribunal's decision confirms that, besides recklessness, market commentators and analysts also owe a duty of care to avoid including false or misleading information as to material facts (a wider test than recklessness). Similarly, relevant legal and compliance officers of financial institutions should be extra careful to screen commentaries for any false or misleading information before they are published.

The tribunal's decision in this case should also be seen in the wider context of regulators' efforts to use a broad range of regulatory tools to challenge market participants who transgress in connection with the trading of shares listed in Hong Kong.(6)

For further information on this topic please contact Adrian Chang or David Smyth at Smyth & Co in association with RPC by telephone (+852 2216 7000) or email ([email protected] or david.smyth The RPC website can be accessed at


(1) For further details please see "Regulator's use of civil proceedings casts a wide net" and "Securities and Futures Ordinance: breach of disclosure requirements and damages claims".

(2) See

(3) Tribunal decision dated November 10 2016, details of which were released on or about October 20 2016. In this case, the tribunal's proceedings took less than two years to wrap up and were presided over by the chairman (a much-respected retired High Court judge).

(4) Pursuant to Section 266 of the ordinance, an appeal from the tribunal is to the Court of Appeal.

(5) Tribunal decision dated October 27 2015.

(6) For example:

  • the SFC's use of Section 213 civil proceedings with respect to transactions involving locally listed shares (eg, re Asia Tiger Management LLC) and shares listed in other jurisdictions (eg, SFC v Young Bik Fung, supra note 1);
  • the SFC's first disciplinary action against a credit rating agency (re Moody's Investors Service Hong Kong Ltd, subject to appeal); and
  • the SFC's first use of tribunal proceedings to enforce the price-sensitive inside information disclosure provisions in Section 307B(1) of the Securities and Futures Ordinance (re AcrossAsia Ltdsupra note 1 and the tribunal's findings on November 7 2016).

Among all of this, the SFC is not shy of using the assistance of overseas regulators in its investigations.