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CFA curtails ambit of the "innocent purpose defence" to insider trading

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21 November 2018

In Securities and Futures Commission v Yiu Hoi Ying Charles and Others[1], the Court of Final Appeal (CFA) curtailed the ambit of the “innocent purpose defence” to insider dealing under s271(3) of the Securities and Futures Ordinance (SFO). That defence states that a person will not be guilty of insider trading if their purpose for trading was not to profit or avoid a loss by using the inside information (the “relevant information”).

The CFA held, by a 4-1 majority, that for the purpose of the defence “using relevant information” simply means making one’s decision to buy or sell at the market price while knowing that price to be either artificially high or low because the relevant information is not known to the public. Unfortunately the CFA did not take the opportunity to clarify (obiter) the application of the defence in a margin loan enforcement context. 

[1] (FACV 5/2018)​

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