Member Article

Hong Kong prohibits naked short selling. Section 170 of the Securities and Futures Ordinance (SFO) makes it an offence for a person to sell securities at or through a recognized stock market (the Stock Exchange of Hong Kong (SEHK)) unless at the time he or she sells them:

1. he or she has or, where selling as an agent, his or her principal has; or
2. he or she believes and has reasonable grounds to believe that he or she has or, where selling as an agent, that his or her principal has,

a presently exercisable and unconditional right to vest the securities in the purchaser of them. A breach of section 170 is a criminal offence which carries a maximum penalty of $100,000 fine and two years of imprisonment upon conviction.

On 25 July 2013 a retail investor pleaded guilty in the Magistrates Court to illegal short selling and was fined HK$3,000 and ordered to pay costs. The investor sold excess rights shares of a company listed on the SEHK after he had applied for them, but before he had received the shares or received confirmation as to the quantity of excess rights shares that would be issued to him. The Securities and Futures Commission (SFC) is also prosecuting another individual and a company for illegal short selling in connection with the same rights issue.