Kelvin Kwok on Rethinking the Antitrust-Securities Interface (American Business Law Journal)

"Rethinking the antitrust-securities interface"
Kelvin Kwok
American Business Law Journal, Summer 2026, pp. 151-175
Published online: May 2026

Abstract: This article proposes a new theoretical framework for resolving conflicts between antitrust law and securities regulation, which is distinctive in four respects. First, it eschews the traditional approach of resolving antitrust-securities conflicts through implied antitrust immunity, which unjustifiably prioritizes securities regulation above antitrust law. Second, it argues for a narrow definition of conflict, encompassing only conduct presently authorized or required by the securities regime that also has likely and significant anticompetitive effects; practices that are illegal under both antitrust law and securities regulation are thereby excluded. Third, this article builds on the literature on the antitrust-intellectual property interface to recommend a structured, rule-of-reason framework for resolving conflicts at the antitrust-securities interface. Unlike implied antitrust immunity, which automatically allows securities regulation concerns to trump antitrust concerns, the rule of reason seeks to strike a proper balance. The analysis begins by asking whether the securities practice has likely and significant anticompetitive effects. It then inquires into the securities regulation concerns behind the conduct and whether there is a less restrictive means of addressing those concerns. Fourth, a two-stage procedure is proposed for implementing the rule of reason to resolve antitrust-securities conflicts in rulemaking and adjudication, involving the collaboration of the Securities and Exchange Commission, the Department of Justice, and the courts.

Please click here to read the full article on SSRN.

Stefan Lo on Liabilities of Controlling Shareholders for a Company’s Torts: A Reform Proposal (C&SLJ)

"Liabilities of Controlling Shareholders for a Company’s Torts: A Reform Proposal"
Stefan Lo
Company and Securities Law Journal, Volume 41
Published in March 2025

Abstract: There are inefficiencies and moral objections to controlling shareholders being able to avoid bearing liability for a company’s torts while being able to profit from the company’s tortious activities. This article argues for a statutory model of liability for controlling shareholders in respect of corporate torts which lead to personal injury or death and puts forward a concrete model for reform, to impose liability on shareholders with control of a company and who can be regarded as being at fault in respect of the company’s torts. Existing concepts of control and due diligence in the law are analysed and adapted to provide the basis of the proposed model provisions on liability. The model provides a workable solution that promotes accountability of corporate controllers, while at the same time ensuring that ordinary investors and minority shareholders who do not wield real control over a company are still protected by limited liability.

Syren Johnstone on Regulation of Takeovers and Share Buy-backs in Hong Kong (HKSI eStudy Manual)

"Regulation of Takeovers and Share Buy-backs"

Syren Johnstone

Hong Kong Securities and Investment Institute

Published on 19 November 2021

Introduction: The monograph is produced at the request of the Securities and Futures Commission (SFC) to provide an approved and recognized syllabus for the SFC’s new regime for corporate finance advisers wishing to advise on takeovers or share buy-back transactions. This monograph should become the go-to secondary source for issuers and their advisers seeking to understand the applicable legal and regulatory requirements.  To download the e-copy for a fee, please visit here.

Maisie Ooi on Choice of Law in the Shifting Sands of Securities Trading (new book chapter)

"Choice of Law in the Shifting Sands of Securities Trading"
Maisie Ooi
in A Conflict of Laws Companion, ed. by Andrew Dickinson and Edwin Peel, (Oxford University Press, June 2021), Chapter 8

Abstract: The author examines how the conflict of laws has approached the task of determining the law applicable to issues relating to securities, and whether that approach is suitable for determining the law applicable to the proprietary aspects of securities created or traded through the use of distributed ledger technology (DLT), including cryptosecurities, and other new forms of securities holding and trading.

Response to IOSCO Consultation on Use of AI and Machine Learning by Market Intermediaries and Asset Managers (FTAHK & LITE Lab@HKU)

In October 2020, the FinTech Association of Hong Kong and LITE Lab@HKU submitted a joint written response to the International Organization of Securities Commission (IOSCO)'s public consultation on the use of artificial intelligence (AI) and machine learning (ML) by market intermediaries and asset managers. The response strongly agrees with IOSCO that the use of AI and ML by market intermediaries and asset management firms creates novel opportunities and risks, with an overall need to foster trust in AI and financial markets. The risks should be appropriately mitigated by proportionate regulation that fosters responsible innovation and promotes market integrity, fairness and investor protection, financial stability, competition and innovation. It should also support financial inclusion and combat financial crime. The response draws attention to four important themes: (1) Encouraging the use of AI/ML in RegTech; (2) Addressing unintended consequences that may discourage innovation; (3) Guidance on Proportionality Factors (especially for Customer and Client Disclosure); and (4) Human-In-The-Loop approach to address AI fairness, accountability and transparency.  The joint response can be accessed here.

Maisie Ooi on Re-enfranchising the Investor of Intermediated Securities (J of Private Int'l L)

"Re-enfranchising the investor of intermediated securities"
Maisie Ooi
Journal of Private International Law, 

April 2020, Vol 16, Issue 1, pp 69-111

Abstract: Efforts to devise a choice-of-law rule for intermediated securities in the last two decades have almost entirely been centred on issues of property and title. Intermediation of securities does not, however, give rise to issues of property alone, even as they are mostly represented as such. The Court of Appeal’s decision in Secure Capital SA v Credit Suisse AG (hereinafter referred to as “Secure Capital”) signals a possibly larger problem of the disenfranchisement of the investor of intermediated securities. Consideration of Secure Capital and its implications on choice-of-law have however been curiously sparse. This article seeks to bring the debate which still continues for issues of property to the issues of disenfranchisement, and to demonstrate why they are no less problematic, complex and in urgent need of a viable solution.

Syren Johnstone and Frederick Long on Environment and Governance: HKEX Guidance and Consultation (HK Lawyer)

"Environment and Governance: HKEX Guidance and Consultation"

Syren Johnstone and Frederick J. Long

Hong Kong Lawyer

September 2020

On 24 July 2020, HKEX announced two important initiatives. The first moves toward resolving a shortcoming in the regime for new listing applicants. The second aspires to improve Hong Kong’s environmental practices via a paperless listing regime. Both reflect a continuation of the environmental global leadership HKEX has shown, the most recent initiative being HKEX’s Sustainable and Green Exchange - STAGE. While both proposals set a directionally positive tone, there are some devils in the details.

Updated Guidance for New Listing Applicants

To date, it has been an anomaly that a listing applicant is not required to make disclosures in their listing documents as to their practices or standards regarding corporate governance (CG) or environmental, social and governance (ESG) (save in relation to certain conflicts of interests). This anomaly was the subject of recommendation C4.7.1 of the HKICPA’s Report on Improving Corporate 

     Governance in Hong Kong (December 2017). It proposed the listing applicant be required to make a statement about its CG practices in the prospectus in view of the listing rule (LR) provisions it will be subject to upon being listed. There is a strong argument that CG and ESG standards would be fostered, and investors better informed, by requiring a listing applicant to consider and disclose its practices prior to listing being granted. 

     Updated Guidance Letter HKEX-GL86-16 now requires applicants to have in place mechanisms that put them in compliance with CG and ESG “requirements” upon listing. Given that many provisions in LR Appendices 14 (re CG) and 27 (re ESG) are merely “comply or explain” not mandatory requirements, the guidance falls short of the more comprehensive progress envisaged by recommendation C4.7.1. In particular, it does not appear to procure “explain” disclosures that would deliver more meaningful information increasingly expected by responsible investors. More remains to be done.

A Paperless Listing Document and Subscription Regime

Despite international acceptance among regulators that electronic access equals delivery, Hong Kong’s penchant for printed prospectuses is environmentally wasteful and unnecessary. The present authors suggested in an earlier edition of this journal that Hong Kong already has a paperless prospectus regime that nevertheless needs modernising to properly accommodate electronic public offering and application processes (Hong Kong’s Paperless Prospectus Law, January 2020).

     One key hurdle is the Companies (Winding-up and Miscellaneous Provisions) Ordinance (Cap. 32) (CWUMPO), which prohibits a form of  application being issued otherwise than being “issued with a prospectus”. Per the SFC/HKEX 2010 Joint Consultation Conclusions, this is “commonly interpreted” as requiring a paper-based application form to be accompanied by a printed prospectus. An avenue for electronic prospectuses and printed application forms was subsequently provided by the Mixed Media Offering (MMO) introduced in 2010. Although a wholly paperless offering is possible under CWUMPO, Alibaba’s secondary listing in November 2019 took place subject to waivers from LR that posed uncertainties regarding printing requirements (see Hong Kong’s Paperless Prospectus Law, January 2020). 

     The HKEX Consultation Paper seeks to facilitate electronic-only offerings by proposing (i) the LR require listing documents to be published "solely in an online environment and cease printed form", and (ii) new listing subscriptions are “to be made through electronic channels only” (except MMOs). Item (i) envisages the LR being amended to recognise only electronic listing documents. HKEX expects CWUMPO’s prohibitions will deliver item (ii) – while the Exchange is statutorily empowered to make rules covering applications for the listing of securities, that does not appear to extend to matters concerning the offering of and application for securities. However, the proposal synchronises poorly with the law. Public offers are regulated by CWUMPO, which is silent, ie permissive save for the prohibition already noted, as to the medium of a prospectus or application form. Since the proposed changes to the LR have no bearing on the provisions of CWUMPO, listing applicants would in theory remain free to bulk-print a CWUMPO-compliant IPO prospectus and submit an online listing document cum prospectus to the Exchange. Futther, the CWUMPO prohibition applies to the issue of application forms, not vice versa, suggesting electronic subscription may also remain possible. 

     While such an outcome may seem absurd, and frustrates the intent of the proposal, the failure of the MMO to cause a shift away from bulk-printing prospectuses could be prognostic: will the proposed LR changes be sufficient to alter a cultural preference for printed prospectuses? Listing applicants and underwriters may be reluctant to tamper with customary IPO practices that have proven successful if they still have a choice when, commercially, environmental responsibility is typically a secondary consideration.

     To the extent the proposed changes to the LR, which are non-statutory and operate by way of contract, seek to remove the printed medium (albeit falling short of guaranteeing that outcome) they could be construed as an improper attempt to in practice negate what is legally permitted under CWUMPO. If so, it might cause difficulties for the SFC to approve the rule change having regard to its statutory responsibilities.

    For these reasons, the Consultation Paper may have overshot the mark by seeking to “outlaw” a printed option and going beyond international standards that enable, not restrict. Why not undertake a less ambitious clarification of the LR that simply removes the need for waivers? Absent a change in the permissive and media-neutral laws currently enjoyed by Hong Kong, re-aligning endemic practices and preferences with environmental aspirations may rely on regulators providing stronger incentives. A little pushing at the envelope of regulation may nevertheless be necessary to help practices modernise, and to lead. 

A fuller discussion of the above and other issues is provided in our Submission to the Consultation, which can be found at the author’s page at SSRN.com/ abstract=3670542.

Joint Submission to HKEX's July 2020 Consultation Paper on Paperless Listing 

Syren Johnstone, Faculty of Law, University of Hong Kong; Asian Institute of International Financial Law
Frederick J. Long, Olympus Capital Asia, Hong Kong
Date Written: September 1, 2020 

Abstract On 24 July 2020, HKEX announced two important initiatives. The first moves toward resolving a shortcoming in the regime for new listing applicants. The second aspires to improve Hong Kong’s environmental practices via a paperless listing regime. While both proposals set a directionally positive tone, there are some devils in the details. The first represents a small step with more to be done to implement recommendations made in a report by the HKICPA in December 2017. The second synchronises poorly with the law, may not bring about the desired outcome and may have overshot the mark as to what could have been more simply done.

On 18 December 2020, the HKEX released its Consultation Conclusions in a document titled "Proposals to Introduce a Paperless Listing & Subscription Regime, Online Display of Documents and Reduction of the Types of Documents on Display".  The document cited and quoted extensively from Johnstone and Long's Joint Submission (at paras 129-130, 132-134, 136 & 138) and approved of their arguments to move towards a paperless regime.

Maisie Ooi on Rethinking the Characterisation of Issues Relating to Securities (J of Private Int'l L)

"Rethinking the characterisation of issues relating to securities"

Maisie Ooi

Journal of Private International Law

Published online on 16 Dec 2019

Abstract: This article contends that there is a pressing need to rethink the characterisation of issues relating to securities, both complex and plain vanilla. It will demonstrate that the less than coherent choice-of-law process that exists for securities today is a consequence of courts utilising characterisation categories and rules that had not been designed with securities in mind and applying them in disregard of the new dimensions that securities and their transactions bring to characterisation. These have resulted in rules that do not provide certainty and predictability to participants in the securities and financial markets.

     The thesis that this article seeks to make is that a new characterisation category is required that is specific to securities which will encompass both directly held and intermediated securities (possibly also crypto-securities), and address issues of property, contract and corporations together. This will have its own choice-of-law rules which will be manifestations of the lex creationis, the law that created the relevant res or thing that is the subject-matter of the dispute. The convergence of issues traditionally dealt with by separate categories and rules will simplify and make for more coherent choice-of-law for securities.

Syren Johnstone & Frederick Long on Hong Kong’s Paperless Prospectus Law (HK Lawyer)

"Hong Kong’s Paperless Prospectus Law"

Syren Johnstone & Frederick Long

Hong Kong Lawyer

Published in January 2020

Introduction: With limited exceptions, companies seeking a listing for their equity shares in Hong Kong will normally also engage in a public offering that invokes the prospectus provisions of the Companies (Winding-up and Miscellaneous Provisions) Ordinance (Cap. 32) (CWUMPO). In addition to the requirements of the CWUMPO, it will be necessary to comply with the non-statutory listing rules of The Stock Exchange of Hong Kong Limited (SEHK), which require a listing document to be produced - this will be combined with the CWUMPO-compliant prospectus into a single document (together, the prospectus). While the prospectus is typically produced in a physical print run of around three to five thousand copies that are made available at banks and other financial services providers, Alibaba’s recent secondary listing (26 November 2019) and public offer was achieved on a paperless basis – the prospectus and the application forms were only made available electronically.

      As a wholly paperless public offering is a first for the Hong Kong market, this article explores the underlying legal and regulatory requirements and considers whether Hong Kong must remain wedded to paper when competitor markets are not. It queries the necessity of the waivers obtained by Alibaba to go paperless and suggests that regulatory clarity - and regulator proaction - is required to facilitate Hong Kong more clearly moving forward to a paperless system that reflects the modernisation of public offering and placement processes. This has become essential in view of developments internationally, commercial and environmental considerations, and local realities... Click here to read the full text. 

Syren Johnstone and Frederick Long on Alibaba, HKEX & ESG: Missed Leadership Opportunities (Int'l Fin L Rev)

"Alibaba, HKEX & ESG: Missed leadership opportunities"

Syren Johnstone and Frederick Long

International Financial Law Review

5 December 2019, Winter 2019/2020

Introduction: To meet rising investor expectations, Alibaba and HKEX must both provide roadmaps to deeper engagement with environmental, social and governance issues. Alibaba Group's secondary listing on the Hong Kong Stock Exchange (HKEX) on November 26 2019, raising over US$11 billion (around 2.3% of Alibaba's market cap), represents the most significant offering on the bourse this decade. It opens up an important pathway for Chinese issuers listed in New York and London who may now be looking to Hong Kong SAR as a venue for tapping into pools of Chinese capital. However, the high-profile listing also raises important questions related to environmental. social and governance (ESG) concerns... 

Martin Kwan (PCLL) on Should There Be a Limitation Period for Section 214 of the Securities and Futures Ordinance? (HKLJ

"Should There Be a Limitation Period for Section 214 of the Securities and Futures Ordinance?" 

Martin Kwan (PCLL)

Hong Kong Law Journal, Volume 48, Part 3, pp. 883-898

published in December 2018

Abstract: Section 214 of the Securities and Futures Ordinance is commonly deployed by the Securities and Futures Commission (SFC) to deal with misconduct within listed companies. A usual remedy sought by the SFC is disqualification orders against the misbehaved directors. However, there isn't an express provision regarding the limitation period for s 214. This article explores the vital questions on whether there is and whether there should be a limitation period, especially given its complicated nature of being in effect a combination of an unfair prejudice petition and a director disqualification petition. The courts have recognised unfair prejudice actions as burdensome and disqualification orders as being drastic in interfering with the rights of directors. Furthermore, s 214 has wide policy implications concerning the financial markets. It is submitted that there are three equally tenable but conflicting views regarding the applicable limitation period. Therefore, there is a pressing need for full consideration and reform.

Syren Johnstone Quoted on Regulating Initial Coin Offerings (The Regulatory Review)

"Regulating Initial Coin Offerings"
Bobby Chen
The Regulatory Review
25 December 2018

“Only the rich” benefit from securities regulation in the cryptocurrency space, said CEO Erik Voorhees in a recent tweet.

     Voorhees, the head of the cryptocurrency exchange Shapeshift, issued his tweet after messaging startup Telegram’s decision to cancel its initial coin offering (ICO), a new way to raise capital enabled by blockchain technology. According to Voorhees, fear of regulatory scrutiny by the U.S. Securities and Exchange Commission (SEC) drove Telegram to abandon its ICO and opt for private financing instead—taking its capital acquisition out of the purview of securities regulations but also beyond the reach of everyday investors.

      Syren Johnstone at the University of Hong Kong Faculty of Law echoes Voorhees’s concern, worrying that companies’ concerns that ICOs will be regulated under traditional securities laws may frustrate those laws’ primary purpose.

     According to Johnstone, the big-picture purpose of the Securities Act of 1933—one of the foundations of U.S. securities regulation—is to encourage capital flows away from fraudulent securities offerings and toward “honest business.” But since larger startups such as Telegram can avoid many of the burdens of securities regulation through exemptions that allow them to raise capital through private financial backers, Johnstone worries that only smaller startup companies will make use of public ICOs.

     Because everyday investors largely cannot participate in private fundraising, though, they would only be able to invest in smaller companies’ ICOs. “Yet these are the startups that may be statistically more likely to fail,” Johnstone writes. Rather than limiting generally accessible investment opportunities to these risky options, Johnstone would not apply securities regulation to ICOs and instead protect investors by other means.

     To Johnstone, incompatibility between ICOs and the design of existing securities law creates a tension between what he argues is the 1933 Act’s purpose—accessible and efficient allocation of capital—and its purported effect of suppressing public access to investment opportunities such as Telegram’s planned ICO...   Click here to read the full text. 

HKU Law Colleagues Comment on the Cathay Pacific Data Leak (SCMP)

"‘Cathay Pacific should have alerted shareholders earlier about massive data leak’: calls for Hong Kong stocks regulator to probe matter"

South China Morning Post

4 November 2018

Airline only reported case to stock exchange as ‘inside information’ when approached by the Post Disclosure questioned under Securities and Futures Ordinance, especially since announcement was made after Cathay’s interim results in August.

     The five-month delay by Cathay Pacific Airways in notifying 9.4 million passengers about a data leak has sparked questions over whether the airline should have alerted its shareholders more promptly.

     ...

    Syren Johnstone, executive director of the LLM (compliance and regulation) programme at the University of Hong Kong’s law school, said in general, while a case of data hacking might not necessarily be inside information, it also depended on what had been accessed and the implications for a company’s security system as a whole. Johnstone said Cathay’s delay to inform the market was a concern that required further investigation by regulators to establish facts. He said he expected the Securities and Futures Commission (SFC) to take a closer look at why the hacking was announced after Cathay’s interim results in August [3], “when the data breach had been confirmed internally but not publicly”.

    “Directors should have been aware of the data breach long before their August board meeting to announce the interim results,” Johnstone added. 

    “If they were not aware, it suggests they may not have appropriate safeguards in respect of their disclosure obligations, which is itself a breach of the Securities and Futures Ordinance.” ... Click here to read the full text. 

"Hong Kong’s Cathay Pacific faces first collective legal action over massive data breach, with 200 customers poised to make claims"
South China Morning Post
30 October 2018

Cathay Pacific Airways is facing its first collective legal action in the wake of a massive data breach after about 200 customers expressed their intention to make claims over the leak, the Post has learned.

 ...

    Gary Meggitt, an expert in professional liability and the director of the Asian Institute of International Financial Law at the University of Hong Kong, warned that passengers ran the risk of having to pay legal costs for a claim in the English courts even if they have a “no win-no fee” deal with their lawyers. 

     “If the airline wins, its legal costs could still be on the passengers bringing the claim” he said. There could be “after-the-event” insurance for the passengers to cover these costs but they may still have to pay something. 

     Although successful claimants with “no-win-no fee” deal typically do not have to pay their lawyers’ fees in England, because the loser pays, passengers might still have to pay their own lawyers’ “success fee or bonus”, depending on the how the deal was structured, Meggitt said. Alternatively, it was possible in England for a third party company to fund the claim, but he wasn’t aware if this was the situation here. 

      And while Hong Kong runs a similar common law system to England, he said, passengers should be aware that the actual operation of evidence, lawyer-client confidentiality or the trial could still vary. ... Click here to read the full text. 

Emily Lee on Equity Crowdfunding in Hong Kong (J Corp L Studies)

"Equity crowdfunding in Hong Kong: potential, challenges and investor protection"
Emily Lee
The Journal of Corporate Law Studies
July 18 2018, published online

Abstract: Equity crowdfunding is a relatively new investment format that allows investors to purchase unlisted securities from a company that does not meet listing requirements for an initial public offering. Equity crowdfunding offers investment rewards but also has risks of fraud, herding, insolvency and dilution of shareholder equity. Regulation is a natural response to negative externalities like systemic risk caused by asymmetric information, adverse selection and lemon problems. While the US and the UK have extensive crowdfunding regulations, Hong Kong does not, although crowdfunding is not specifically banned under the Securities and Futures Ordinance. This article focuses on the current state of equity crowdfunding in Hong Kong but draws inspiration from legal requirements for equity crowdfunding in the US, the UK and Singapore, as well as the Korea Startup Market in South Korea. The author makes regulatory suggestions for consideration by Hong Kong’s law-makers and policy-makers.

Alexa Lam on Regulatory Responses to Crowdfunding and the Hong Kong Model (HKLJ)

"Less is More? Different Regulatory Responses to Crowdfunding and Why the Hong Kong Model Stacks Up Well" 
Alexa Lam
Hong Kong Law Journal
2018, Vol. 48, Part 1, pp. 191-232

Abstract: This article debunks the myth that securities regulation in Hong Kong is less accommodating to crowdfunding (CF) activities when compared to regulation in other international financial centres. While the Securities and Futures Commission has been less proactive in responding to calls for lighter regulation on CF, this article shows that Hong Kong’s existing securities regulation does not lag behind in providing gateways for CF activities. Among the gateways available, while the small-size offering exemption threshold is lower than those provided in other jurisdictions such as the United Kingdom or Singapore, when it comes to raising capital from accredited investors — the type of investors most coveted by entrepreneurs and start-ups — the Hong Kong regime is more friendly. In fact, it is arguably broadly on the same page as the accredited investor exemption regime in the United States. This article examines how the key exemptions to securities regulation in Hong Kong can be fully utilised in the context of CF, especially after the recent Court of Final Appeal decision in Securities and Futures Commission v Pacific Sun Advisors Ltd. As it appears that the market has not fully grasped the purport of Pacific Sun, this article attempts to untangle the regulatory thicket. Hopefully, small and emerging companies will see the potentials of Hong Kong as a platform for capital raising via the Internet.

Martin YC Kwan on Restoring Transactions Unknowingly Tainted by Insider Trading (Common Law World Review)

"Restoring transactions unknowingly tainted by insider trading: A Hong Kong case"
Martin YC Kwan (PCLL candidate)

Common Law World Review

First published online on May 11, 2018

Abstract: In the Hong Kong Court of Appeal decision The Securities and Futures Commission v Young Bik Fung and others, the Court applied s. 213(2)(b) of the Securities and Futures Ordinance (SFO) to restore two transactions of shares entered into by an investor who invested based on ‘information, advice or tips’ given by an insider, despite the investor did not know that the advice was based on inside information and was not guilty of insider trading. Nevertheless, the investor was ordered to repay the profits made as if the transactions had not been made. It is suggested that the restoration order in Hong Kong has the widest scope of application among the major common law jurisdictions, because Hong Kong is the only jurisdiction where a person who has not committed any market conduct can nevertheless be subject to a restoration order. The Court justified such wide scope of application with reference to the paramount policies of minimizing market misconduct and ensuring no benefits is obtained from insider dealing by anyone. By a comparative law analysis, it is argued that s. 213(2)(b) SFO has been wrongly interpreted. The paramount policies should not be blindly applied without giving proper consideration to other established principles of law, such as the fundamental right to property of the unknowing investor.

Alexa Lam on Enforcement of Hong Kong’s Securities Law: The Underpinning Philosophy (new book chapter)

"Enforcement of Hong Kong’s Securities Law: The Underpinning Philosophy" 

Alexa Lam
in Robin Hui Huang & Nicholas Calcina Howson (eds), Enforcement of Corporate and Securities Law: China and the World (CUP, 2017), pp. 359-368

Introduction: Enforcement of the securities law is an important function in serving the communities we live in. Demand for enforcement is not always matched by an increase in resources. In Hong Kong, the securities regulator – the Securities and Futures Commission (SFC), increased its resourcing in terms of headcount by 40 per cent since 2007. But the regulator’s workload also increased. Their investigation workload increased by 240 per cent, and litigation work increased by over 500 per cent. And just for the year 2014, their investigation caseload increased by over 50 per cent. This is certainly an exponential increase in demand for enforcement services. In addition, there are also limitations to what the law by itself can achieve. Existing laws and regulation do not always provide the perfect solutions and tools that policy makers and regulators desire. The regulator simply cannot afford to wait for the perfect powers to be available, if they ever will be, before it does the job it is expected to do. Legal reform and new legislation take time and resources, not to mention the challenges of overcoming the political hurdles and getting the requisite support to pass a bill at the Hong Kong legislative body. Despite the challenges, this must be right, because there is no guarantee that even an all-powerful regulator with far-reaching powers can achieve its mandate or be able to avoid unintended consequences. In this chapter, I will explore my belief that it is less of a question of how much power you have, and more about how you use what you have to achieve a fair and balanced result of protecting investors and market integrity. The regulator should have a very clear idea of what exactly it wishes to achieve based on a good understanding of the industry it regulates. The technical challenge for enforcement is how it can continue to be effective without getting bogged down when the workload outstrips its resourcing capacity and how to avoid delays that cause its work to simply be out of time and thus irrelevant. The trite saying that justice delayed is justice denied continues to ring true. In my view, much can be achieved within the legal confines of the regulatory framework with the judicious use of strategic thinking, creativity and determination. Hong Kong has quite effectively put this into practice. This is my main takeaway.

Xianchu Zhang on Class Action in China (new book chapter)

"A Question of Class Action in China"
Xianchu Zhang
in Robin Hui Huang (ed.), Enforcement of Corporate and Securities Law: China and the World (Cambridge University Press, Aug 2017), pp.123-137

Introduction: Public investor protection has been a serious concern in China's security market.  The recently initiated overhaul of the Securities Law has triggered a new round of debate on introducing class action as a legal mechanism into China to improve the condition of investor protection.  Although the idea was raised a long time ago, and a promise was made in as early as 2005 by Shang Fulin, the then chairman of China Securities Regulatory Commission (CSRC) to establish such a system by 2010, the latest draft amendment submitted to the national legislature seems to retreat from the commitment.  Some experts have warned that failure to adopt class action rules this time would be self-defeating to the very purpose of the amendment.  This chapter will briefly examine the practice, policy and debate in this regard in the past two decades and reflect the difficulties and institutional challenges concerning the introduction.

Alexa Lam on Crowdfunding in Hong Kong (HK Lawyer)

"Crowdfunding in Hong Kong - there are Sufficient Gateways"
Alexa Lam
Hong Kong Law Journal
March 2018, pp. 36-38

As start-ups and small businesses continue to crowdfund through the Internet, governments and regulators have had to respond.  The United States created a tailored regime for crowdfunding.  The United Kingdom and Singapore publicly consulted and clarified their regulatory approaches.  The Hong Kong regulator has been less proactive, thus inviting criticisms that Hong Kong has fallen behind in enabling financial innovation and entrepreneurship.
     Are these criticisms fair and accurate?  Not necessarily so.  In my latest research paper, I ventured to show that gateways for crowdfunding already exist in Hong Kong.  If these exemptions were fully utilised, Hong Kong would be broadly on a par with, or even ahead of, other international financial centres in allowing entrepreneurs to tap capital from professional (accredited) investors - the investor pool most coveted by entrepreneurs.
     With a strong political will to create jobs and promote growth after the global financial crisis, the United States was the most ardent in enacting legislation to enable crowdfunding.  The Jumpstart Our Business Startups Act ('Jobs Act') was passed in 2012 against this background...
   The HKCFA's clarification of the application of s.103(3)(k) has potentially far-reaching implications.  There are 200,000 high net worth individuals in Hong Kong holding US$1.1 trillion in wealth.  Start-ups will likely prefer a smaller number of keen professional investors to a large number of random retail investors.  It has been reported that angel investors tend to stay away from companies that have crowdfunded from retail - a company with too many investors is difficult to manage.   The HKCFA decision will make it easier for issuers to locate and connect with these business angels.  There is speculation that the authorities may consider legislating to reverse the HKCFA decision.  That would be regrettable.  As Fok PJ succinctly explained in his judgment in the Pacific Sun case, "if the investment products are not in fact sold or intended to be sold to the general public and instead are sold or intended to be sold only to professional investors, there is no necessity for protection to be afforded to the general public since they are not exposed to any material risk."  ...

     The HK$5 million small-scale offer exemption is slightly lower than the US$1.07 million small-scale offering exemption in the United States.  The Hong Kong regime however comes with a lighter touch.  There is effectively no particular disclosure requirement (subject however to provisions in the SFO governing false or misleading statements).  One should not underestimate the potential of this exemption for small or initial capital-raising, such as seed funding.  Note however that the exemption is available to companies only.  This exemption is not available to projects that are structured in the form of a non corporate CIS or a structured project.
     As demonstrated, Hong Kong is not falling behind in the gateways there are available for securities crowdfunding.    Yet, because the prohibitions and exemptions in the securities offering regime are fraught with difficulties, and the penalties for contravention severe, market players have been hesitant in making full use of the exemptions.
       We have heard endless debates on why and how the Hong Kong regulatory rules should kick-start their projects by making purposeful use of existing exemptions.  As the market starts to mature, regulators will have a fuller sense of how best to facilitate and regulate the crowdfunding space.  In the meanwhile, there is sufficient room for going forward. Click here to read the full text. 

Syren Johnstone on ICO Utility Tokens and the Relevance of Securities Law (HK Lawyer)

"ICO Utility Tokens and the Relevance of Securities Law"
Syren Johnstone
Hong Kong Lawyer

March 2018, pp. 30-33

     Abraham Lincoln famously posited that if one calls a tail a leg it doesn't mean that a dog has five legs. Similarly, a blockchain-based token offered in an initial coin offering ('ICO') may, irrespective of how it is called, be a security subject to securities laws applicable to the primary market as well as secondary market activities. ICOs are an example of how new technology is changing the way the public capital market is accessed by business, typically start-ups, in need of capital.

    The legal treatment of tokens remains unclear in my jurisdictions, which is increasingly problematic as ICO activity has ballooned from around US$300 million during 2013 to 2016 to well in excess of US$5 billion in 2017. As Hong Kong is now considering its potential status as an ICO hub, it is essential that regulatory agencies and market professionals come to grips with a better understanding of how tokens are, or may be, regulated.
     A focus of this article is "utility tokens"...The nature of a utility token is to permit the holder to access a service provided by the user's platform. This is typically a pre-sale made by a start-up seeking capital to develop the promised service. ...
    The law applying to the offering of securities and their marketing in Hong Kong, as set out in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) and the Securities and Future Ordinance ('SFO') (Cap. 571), is in general consistent with best international practices that prohibit accessing public capital unless registration or authorisation requirements are complied with it a relevant exemption applies. Tokens that are securities may also be subject to laws concerning regulated activities and the operation of exchanges and automated trading services. However, whether a specific token is a security will require careful consideration. ...
     First, because Howey has been applied to tokens by the U.S. SEC...
     Second, because of potential similarities to elements in the definition of CIS that align with, though are not identical to, the concept in Howey of a common enterprise in which the efforts of another are key.
    However, applying existing law to tokens is inherently problematic because blockchain has enabled fundamental changes in the ease and manner of accessing public capital, the cost and time of doing so, the willingness of the public to purchase tokens and the ease of trading them.
     Hong Kong practitioners will therefore need to exercise some caution when advising on the nature of a proposed token issuance and how it is undertaken.
     The increasing awareness that tokens can be subject to securities laws that possess uncertainties in their potential scope of application has had an impact on practices in the industry. ...
     While best practices have been developed to promote self-regulation of the industry, they have not always been observed in practice...

     Legal practitioners will be well aware that avoidance and evasion are quite different matters...

    While that distinction may be clear-cut in principle, the characteristics of a utility token that might cause it to be regarded as a security are less clear...
     The overarching purpose of securities laws is to regulate investments, irrespective of the form or name they assume ...
     One might point to the development of structured product regulation as a lesson in the failure of looking at how a product fits into a pre-existing set of categories, rather than considering its function in the market...
    New challenges may require regulatory agencies to interpret the law with one eye firmly fixed on regulatory intent...
   Care needs to be taken that purposive flexibility is not applied by regulators in a way that creates uncertainty...
     Returning to Abraham Lincoln, he was wrong semantically. If a tail is called a leg then it can be said that a dog has five legs. And if utility token issuances put public capital at risk, expose consumers to fraud, and behave similarly to an investment in established classes of securities, then perhaps that is enough to render it a security within the original intent of the legislature. Practitioners call it "the smell test". Indeed, the SFO provides that "interests, rights or property...commonly known as securities" are to be regarded as securities. On the other hand, calling a security a utility token does not change its nature. Click here to read the full text.