By Trond Vagen
Hong Kong's securities regulator has faced much criticism from the legal and financial industry for its controversial use of Section 213 of the territory's securities law to obtain court injunctions against perceived market misconduct. The provision under the Securities and Futures Ordinance (SFO) was recently used by the Securities and Futures Commission (SFC) to obtain redress for investors who had bought into the initial public offering of Chinese sportswear maker Hontex, but some have said the SFC's use of it goes against the intention of the SFO.
Speaking in a panel debate at the third annual Thomson Reuters Pan-Asian Regulatory Summit in Hong Kong on Wednesday, Mark Steward, the SFC's head of enforcement, said it was extraordinary that the city's legal community had not seen the regulator's use of this section coming.
"This is a very important provision," Steward said. "Section 213 is in many ways like having a time machine that allows the court to wind the time back to before a contravention occurred and try to put everyone back in that position they were in as if the contravention did not occur. It is quite extraordinary that lawyers in Hong Kong somehow missed that this provision existed."
Section 213 under the SFO provides that where a person has contravened any relevant provision of the SFO, the Court of First Instance has power to "make a number of orders, including injunctions and orders requiring the person to take such steps as the court directs to restore the parties to any transaction to the position in which they were before the transaction was entered into".
Some of the legal community have criticised the SFC's use of the section to go after wrongdoers, and some have complained that it conflicts with the two available prosecution routes for the SFC — through the Market Misconduct Tribunal (MMT) or through criminal proceedings.
Steward said the Hontex case provided a powerful narrative of what Section 213 was designed to do. "It is very unclear exactly what the defence lawyers are complaining about. It is a process that lawyers should be familiar with," he said.
He said the effect of MMT proceedings is that a person who is subject to them is immunized from criminal proceedings in relation to the same matter. "That's really what the heat about section 213 is about. We are not granting these alleged wrongdoers the immediate automatic immunity from criminal proceedings," Steward said.
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