Proposed Price Stabilisation Rules in Hong Kong

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...