An old Chinese curse states: “May you live in interesting times.” This proverb is often coupled with a more severe curse: “May you come to the attention of those in authority.” For institutional investors trading in markets in Hong Kong and Mainland China (People’s Republic of China or PRC), these are indeed “interesting” regulatory times. More importantly, an evolving legal and regulatory landscape has significantly increased the likelihood that those traders who are not informed and careful in their research and trading on those markets shall eventually “come to the attention of those in authority.” For a further discussion of regulatory requirements governing establishing a hedge fund manager presence in Asia, see “Primary Regulatory and Business Considerations When Opening a Hedge Fund Management Company Office in Asia (Part Four of Four
),” Hedge Fund Law Report, Vol. 5, No. 3 (Jan. 19, 2012). In a guest article, Michael A. Asaro and Douglas A. Rappaport, both partners at Akin Gump Strauss Hauer & Feld LLP, and Patrick M. Mott, an associate at Akin Gump, examine the provisions of Hong Kong and PRC insider trading law most important to U.S.-based hedge fund managers. For the sake of comparison, the authors also discuss the corresponding provisions of U.S. insider trading law. For a related discussion of U.S. and U.K. insider trading law, see “Perils Across the Pond: Understanding the Differences Between U.S. and U.K. Insider Trading Regulation
,” Hedge Fund Law Report, Vol. 5, No. 42 (Nov. 9, 2012). Importantly, in some instances, the insider trading laws in the PRC and Hong Kong may require hedge fund managers to proceed more cautiously than they would with regard to similarly-situated U.S. issuers. Given that corporate and IR executives in Hong Kong and the PRC may lack the training and vigilance of their U.S. counterparts, it is crucial that hedge fund managers understand the rules applicable to trading on selectively disclosed inside information in these jurisdictions. The risk of civil and criminal liability for foreign investors has increased as regulators push to clean up the laissez-faire
attitude towards inside information that has historically prevailed in the Hong Kong and PRC markets.