Court of Final Appeal Quashes Convictions for Market Manipulation

The Court of Final Appeal (the "CFA") has unanimously allowed an appeal by two traders (the "Appellants"), quashing their convictions for creating a false appearance of active trading in securities pursuant to s. 295(1) and s. 295(6) of the Securities and Futures Ordinance (the "SFO") and setting aside their prison sentences.

On 24 May 2012, the CFA held that that the requirements for the defence set out at s.295(7) SFO had been met. Although the Appellants' conduct (buying and selling derivatives warrants to one another – known as "matched orders" or "circular trading") had in fact created a false appearance of active trading in securities, it was not the purpose of the Appellants' conduct to do so.

The requirements for the offence of creating a false or misleading appearance of active trading pursuant to s.295 of the SFO were analysed in detail. The CFA also commented on the role of expert witnesses in market misconduct cases.

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