Before the enactment of the SF Ordinance, the SFC had drafted various rules and regulations and presented them for public consultation. These regulations, to be enacted as subsidiary legislation, will be the rules of operation for the regime to be established under the SF Ordinance. One important example of such proposed subsidiary legislation was the draft Securities and Futures (Price Stabilising) Rules (the "PS Rules"), issued by the SFC on 8 February 2002.

Hong Kong does not currently have rules on price stabilisation activities conducted by underwriters after a securities offering. With certain narrow exceptions, these activities fall foul of the prohibition against market manipulation and may be illegal under the relevant laws.

Under the SF Ordinance, efforts to create a false market, fix the price of securities or engage in insider dealing are potentially criminal offences. A "safe harbour", however, will be provided by the PS Rules for legitimate price stabilisation. Under the rules, the ambit of permitted post-offering price stabilisation activities is widened but various restrictions are set on how, when and by whom they can be conducted, to ensure stabilisation is carried out in an open, transparent and accountable manner.

The proposed PS rules will apply only to price stabilisation carried out in connection with offers of shares or debentures, satisfying certain requirements as to nature, form and size.

The proposed rules also set out the ways in which stabilisation activities can be carried out. For example, only "upward" stabilisation is allowed whilst efforts to depress the price of specific securities are generally prohibited. There are various limits on the types of transactions that can be entered into for the purposes of stabilisation, on timing, and on the price at which such transactions can be entered into. There are also requirements as to public disclosure and record-keeping by the relevant parties.

Public consultation closed on 8 March 2002 and the market awaits the SFC’s conclusions.

© Herbert Smith 2002

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