Global Regulatory Brief: Trading and markets, November edition | Insights | Bloomberg Professional Services

Hong Kong SFC consults on market sounding guidelines

The Hong Kong Securities and Futures Commission (SFC) published proposed guidelines for market soundings to clarify regulatory expectations and assist intermediaries with their compliance obligations. 

In summary: Under the proposals, intermediaries would have to implement robust governance and effective policies and internal control procedures to prevent the misuse and leakage of non-public information they are entrusted with during market soundings. 

• They would also have to keep records of their market soundings, as well as follow specific requirements based on their respective roles. 

What are market soundings: Market sounding is an established mechanism widely adopted by market participants to communicate information with potential investors, prior to the announcement of a transaction.

Wider context: The proposals follow a review of market soundings conducted by the SFC in early 2022 and are intended to reinforce international best practice, with regard to the need to conduct business activities fairly, honestly and in the best interests of clients and market integrity. 

• In recent years, the SFC has observed an increasing number of cases regarding trading activities ahead of placings and block trades that indicate some intermediaries might have taken advantage, or unfairly exploited information received during market soundings
• The SFC is concerned that firms have made unjustified profits on the back of information that was not generally available to the rest of the market

Next steps: The SFC is proposing to provide a six-month transition period for the industry to update their internal procedures and controls after the proposed guidelines are finalized.

Comments on the consultation are due by December 11, 2023.