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Hong KongThe six types of market misconduct in Hong Kong
Hong Kong recognises six types of market misconduct: insider dealing, false trading, price rigging, disclosure of information about prohibited transactions, disclosure of false or misleading information inducing transactions, and stock market manipulation. Each exists twice over, as civil misconduct under Part XIII of the Ordinance and as a criminal offence under Part XIV.
Six. Not five, not seven, and nothing that is merely improper gets added to the list because it deserves to be there. Fixing the count is the first step, because a common question format offers you four behaviours and asks which one is not statutory market misconduct.
What are the six types of market misconduct?
| Behaviour | What it is | The giveaway in a question stem |
|---|---|---|
| Insider dealing | Dealing while in possession of relevant information about a corporation that is not generally known and would materially affect the price if it were | A person with access to unpublished, price-sensitive information trades or tips someone |
| False trading | Creating a false or misleading appearance of active trading, or of the market for or price of securities or futures contracts | Activity designed to make a stock look busier or more liquid than it is |
| Price rigging | Wash sales and similar transactions that do not change beneficial ownership, or artificial transactions maintaining or moving a price | Trades between accounts under the same control, with no real change of owner |
| Disclosure of information about prohibited transactions | Disclosing that a prohibited transaction has occurred, where the discloser receives or expects a benefit | Someone is paid, or expects to be paid, for revealing that misconduct happened |
| Disclosure of false or misleading information inducing transactions | Putting out information likely to induce dealing, knowing or being reckless as to its falsity | A false announcement, rumour or research note that moves people to trade |
| Stock market manipulation | A series of transactions designed to move the price of securities and induce others to deal | A pattern of trades, not one trade, aimed at pulling other buyers in |
Read the third column again before your sitting. Questions rarely name the behaviour; they describe it and ask you to classify it, which means the mapping from facts to label is what you actually need.
How do false trading, price rigging and manipulation differ?
This trio is where marks are lost, because all three involve trading that distorts the market and the boundaries feel blurry on a first reading. Separate them by what the conduct produces.
- False trading produces a false appearance. The mischief is the impression created: that a market is active, or that a price means something it does not.
- Price rigging produces a transaction with no economic reality. A wash sale changes nothing about who owns the stock; an artificial transaction exists only to hold or shift a price.
- Stock market manipulation produces a series of transactions with a purpose beyond themselves: to move the price and draw other people into dealing.
One clean discriminator: manipulation requires a series. A single transaction can be false trading or price rigging. It is a poor fit for manipulation, which is defined around a pattern.
Why does each behaviour exist twice?
Because the Ordinance attacks market misconduct through two parallel regimes. Part XIII deals with the civil route, where the SFC institutes proceedings before the Market Misconduct Tribunal with the consent of the Secretary for Justice. Part XIV creates criminal offences covering the same six behaviours, prosecuted in the ordinary courts.
The behaviours do not change between the Parts. The standard of proof does: balance of probabilities before the Tribunal, beyond reasonable doubt in a criminal court. So does the consequence. The Tribunal can disqualify, cold shoulder, order a person to cease and desist, order disgorgement and award costs, but it cannot fine or imprison. The criminal route can do both.
We refer to Part XIII and Part XIV by name rather than quoting section numbers. The pairings between the civil and criminal provisions are not settled across our sources, and getting them wrong is worse than not stating them. If a section number matters for your answer, read the current text on e-Legislation.
What is not on the list?
Plenty of conduct that feels like it should be. Churning a client's account to generate commission. Front running a client order. Rat trading, where profitable fills are allocated to a favoured account after the fact. Parking positions in another name. Bucketing, where a client order is never sent to market and the firm trades against it instead.
All five are serious. All five are dealt with under the Code of Conduct and through SFC discipline, and any of them can amount to a criminal offence on its particular facts. None of them is one of the six. The paper tests that boundary in almost every set.
A worked question
Over three weeks, a trader places a coordinated series of purchases in a thinly traded stock, pushing the price steadily higher so that retail investors notice the rise and begin buying. He then sells into their demand. This is best described as:
- Price rigging
- Stock market manipulation
- False trading
- Front running
How to memorise the six
Group them. Two are about information: insider dealing, and disclosure of false or misleading information inducing transactions. Two are about trading that misleads: false trading and price rigging. One is about a pattern: manipulation. One is the odd one out that candidates always forget: disclosure of information about prohibited transactions, which catches the person paid to reveal that misconduct occurred.
That last one is the mark most often dropped. It has an awkward name, it does not appear in newspaper stories, and it slides out of memory in the week before the exam. Write it on its own card.
The concession: naming all six is not the same as classifying a scenario, and the classification is what the paper actually asks. Reciting the list is a starting point, not the finish. Work through described scenarios until the mapping is automatic, then read our insider dealing guide for the behaviour that carries the most questions on its own.
Common questions
What are the six types of market misconduct in Hong Kong?
Insider dealing, false trading, price rigging, disclosure of information about prohibited transactions, disclosure of false or misleading information inducing transactions, and stock market manipulation. Each is both civil misconduct under Part XIII of the Securities and Futures Ordinance and a criminal offence under Part XIV.
What is the difference between false trading and price rigging?
False trading is about creating a false or misleading appearance of active trading or of the market or price. Price rigging is about transactions with no change of beneficial ownership, such as wash sales, or artificial transactions that maintain or move a price.
What makes conduct stock market manipulation rather than false trading?
Manipulation is defined around a series of transactions designed to move a price and induce other people to deal. A single transaction can be false trading or price rigging but is a poor fit for manipulation, which requires a pattern with a purpose beyond the trades themselves.
Is churning one of the six market misconduct offences?
No. Churning, front running, rat trading, parking and bucketing are improper trading practices dealt with under the Code of Conduct and through SFC discipline. On particular facts they may also amount to offences, but none of them is one of the six statutory behaviours.
Which Parts of the SFO deal with market misconduct?
Part XIII creates the civil regime, with proceedings before the Market Misconduct Tribunal on the balance of probabilities. Part XIV creates the parallel criminal offences, prosecuted in the ordinary courts and requiring proof beyond reasonable doubt.
Can the same conduct be pursued under both Parts?
No. Where criminal proceedings have been brought or could still be brought, Tribunal proceedings for the same conduct are barred, and the bar operates in both directions. The SFC chooses one route, usually according to the strength of the evidence.