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Hong Kong’s Market Soundings Rules Draw Concerns from Hedge-Fund Association

 |  January 4, 2024

One of the world’s largest hedge-fund associations has raised concerns about Hong Kong’s proposed rules on “market soundings,” suggesting that they may impose an undue compliance burden on companies and individuals licensed in the city.

The Alternative Investment Management Association (AIMA), representing hedge and private credit fund members with a collective oversight of over US$3 trillion, has expressed apprehensions that the draft guidelines could put Hong Kong at odds with other major jurisdictions. Kher Sheng Lee, Asia-Pacific co-head of AIMA, noted that while the Securities and Futures Commission (SFC) has good intentions in enhancing oversight, the proposed rules would disadvantage licensees, particularly in cross-border deals.

The SFC’s October consultation paper introduced the idea that, during market soundings, both brokers and potential investors licensed in Hong Kong should ensure the confidentiality of non-public information. This category is broader than the “price-sensitive inside information” currently adopted by markets such as the European Union and the UK.

Lee expressed his concerns, stating, “Overall, this creates a material risk that some international capital markets activity can no longer be conducted from Hong Kong by licensed persons.” He highlighted the potential shift of international market participants conducting market soundings and price discovery outside of Hong Kong to avoid additional burdens and regulatory uncertainty.

The AIMA representative emphasized that these proposed regulations could disrupt the global capital market landscape and urged the SFC to reconsider the potential impact on Hong Kong’s competitiveness in the financial sector.

The Securities and Futures Commission concluded its consultation on December 11, and as of now, it is reviewing the responses received. The outcome of this review will shed light on whether the proposed rules will be amended or implemented as initially suggested. The global financial community will be closely watching for updates on this matter, given the potential ramifications for Hong Kong’s role in international capital markets.

Source: Business Times