Briefing
SFC’s Guidelines for Market Soundings
The Securities and Futures Commission (the SFC) has finalised its Guidelines for Market Soundings (the Guidelines). The Guidelines will come into effect on 2 May 2025 and Market Sounding Intermediaries (see definition below) are expected to have completed the corresponding enhancements to their systems, policies and procedures by then.
The Guidelines are anchored on “confidential information that is entrusted to [a licensed/registered person] by a client, an issuer or an existing shareholder selling or buying in the secondary market” (defined as Market Sounding Information), and a core expectation is for licensed/registered persons to “protect such information and safeguard its confidentiality”, the purpose of which goes towards assessing such person’s fitness and properness.
In our view, the revised proposals set out in the Guidelines are vastly improved from the SFC’s original proposals, and provide much needed clarity to the market. Compared to the SFC’s original proposals, the key changes are that: (i) the scope of application has been narrowed from “non-public information” to certain confidential information (defined as Market Sounding Information); (ii) the restrictions on trading or use of “non-public information” have been dropped; (iii) the Guidelines no longer apply to transactions in debt capital markets and unlisted securities (unless the underlying transaction is price sensitive); (iv) the cleansing requirement for Disclosing Person and the record keeping requirement for Recipient Persons (see definition below) have been dropped; and (v) the required record retention period for Disclosing Persons has been shortened from seven years to two years.
On reflection – noting our year-long conversations with the market in between the SFC’s consultation and its conclusion – we ask ourselves the extent to which the Guidelines are in furtherance of the underpinning of the SFC’s regulatory aims when compared to the state of play before the SFC’s original proposals.
Notwithstanding our reflections, and the SFC’s clarification that the Guidelines are –
“aimed at assisting intermediaries in their compliance with the Code of Conduct”;
“not intended to change, expand or replace the existing insider dealing regime”; and
“principles-based, as such when assessing an intermediary’s compliance with the Guidelines, the SFC will adopt a pragmatic approach, taking into account all relevant circumstances, including the size of the intermediary, and any compensatory measures implemented by its senior management”,
it was our recommendation (when the consultation first came out [1]) and remains our recommendation that regulated intermediaries should conduct a review of their existing controls, policies, and procedures against the Guidelines.
On this note, we have summarised the requirements in the Guidelines in a fact sheet attached to this briefing.
[1] See our 16 November 2023 client briefing here.
