HKSI Paper 1 Market misconduct and improper trading practices question: Connected person: substantial shareholder

HKSI Paper 1Market misconduct and improper trading practices

Four individuals hold interests linked to Orchid Retail Holdings Ltd, a listed company. None of them is a director, employee or adviser of Orchid. Which of them is connected with Orchid for insider dealing purposes because of the shareholding alone?

A Ms Chow, who holds 9% of a private company that supplies Orchid
B Mr Lam, who holds 3% of Orchid's issued voting shares in a margin account
C Mr Yip, who holds 4.8% of Orchid's issued voting shares
D Mrs Patel, who holds 5.2% of Orchid's issued voting shares

Show the answer and explanation

Answer: D. Mrs Patel, who holds 5.2% of Orchid's issued voting shares

Under s.247(1)(b) of the SFO an individual is connected with a corporation if he is a substantial shareholder of it or of a related corporation, and s.247(3) defines a substantial shareholder for this purpose as a person with an interest in 5% or more of the relevant share capital. Mrs Patel at 5.2% crosses the line. Mr Yip at 4.8% and Mr Lam at 3% fall below it, and holding shares on margin changes nothing. Ms Chow's stake is in a supplier, not in Orchid or a related corporation, so it does not make her connected by shareholding. Source: SFO (Cap. 571) s.247(1)(b), s.247(3) (as at October 2026).

Common mistake

Using the wrong threshold. For insider dealing, a substantial shareholder means an interest in 5% or more.

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