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Published: 17:39, November 02, 2022 | Updated: 17:53, November 02, 2022
Hui: HK well-equipped with regulations on short selling
By Wang Zhan
Published:17:39, November 02, 2022 Updated:17:53, November 02, 2022 By Wang Zhan

Secretary for Financial Services and the Treasury Christopher Hui Ching-yu gives an interview with China Daily on Aug 30, 2022. (CALVIN NG/CHINA DAILY)

HONG KONG - The Hong Kong Special Administrative Region government is equipped with a series of risk management measures to monitor short selling activities and maintain the orderly operation of the financial markets, Secretary for Financial Services and the Treasury Christopher Hui Ching-yu said on Wednesday.

The SFC proactively initiated probes into suspected illegal short selling activities detected through its internal surveillance mechanism, said Secretary for Financial Services and the Treasury Christopher Hui Ching-yu , adding that of the 13 investigations initiated by the SFC in the past five years, one was successfully prosecuted

In a written reply to a query at the Legislative Council, Hui said “the government has been working closely with the financial regulators to enhance the regulation of financial markets, and prepare and put in place contingency plans for coping with various risks.”

He said the Securities and Futures Commission received 85 complaints from January 2018 to September 2022 regarding short selling. A majority of them involved SFC-licensed companies, listed companies and their substantial shareholders.

After assessment of the 85 cases, the SFC considered that there was sufficient prima facie evidence to begin detailed investigations into six. Four of them were completed with no market misconduct found, while the remaining two investigations were ongoing, Hui added.

The SFC also proactively initiated probes into suspected illegal short selling activities detected through its internal surveillance mechanism, said Hui, adding that of the 13 investigations initiated by the SFC in the past five years, one was successfully prosecuted.

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Rules and regulations on short selling

The secretary also noted that the Securities and Futures Ordinance (Cap. 571) prohibits "naked" or "uncovered" short selling conducted at or through a recognized stock market.

“Short sale could not be conducted if the seller has not yet borrowed the stock or obtained a confirmation that the lender has the stock available to lend out,” Hui pointed out.

This undated file photo shows the logo of the Securities and Futures Commission of Hong Kong. (PHOTO PROVIDED TO CHINA DAILY)

Hui said that the SFC's short position reporting regime was expanded in March 2017 to cover all securities eligible for short selling to further enhance the commission's monitoring of short selling activities and improve market transparency

In June 2012, the SFC introduced a short position reporting regime under which reportable short positions must be reported to the SFC on a weekly basis. The aggregated short positions reported would also be published by the SFC. 

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He added that the short position reporting regime was expanded in March 2017 to cover all securities eligible for short selling to further enhance the SFC's monitoring of short selling activities and improve market transparency.

Hui said the Rules of the Stock Exchange of Hong Kong require that covered short selling is permitted only for certain designated securities with high liquidity, and must be executed only on its trading system at or above the best current ask price. 

The Hong Kong Securities Clearing Company Limited (HKSCC) has also implemented measures to prevent brokers from late delivery. If a broker fails to deliver securities to settle its short transactions on the settlement day, the HKSCC will execute compulsory buy-in.

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“The SFC is empowered by the Securities and Futures Ordinance to carry out investigations, including inspecting books and records of listed companies where misconduct is suspected, and cooperating as necessary with enforcement agencies and regulatory bodies in and outside Hong Kong in investigations,” Hui said.


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