HKSI Paper 6 Misconduct question: portfolio manager at Peak Harbour Asset Management Ltd

HKSI Paper 6Misconduct

Ivy Lam, a portfolio manager at Peak Harbour Asset Management Ltd, hears from a placing agent's salesperson, whom she knows is working on the deal, that Lotus Ridge Ltd, a listed company, will announce a deep-discount placing. She has her fund sell its Lotus Ridge shares before the announcement, with no personal gain. What is her position?

A She has engaged in insider dealing, but only Peak Harbour can be sanctioned, as she acted as its agent
B She can rely on s.271(3), because her purpose was to protect the fund's investors rather than to benefit herself
C She has not engaged in insider dealing, because the news came from the placing agent rather than from Lotus Ridge
D She has engaged in insider dealing by procuring the fund to deal, even though only the fund avoided a loss

Show the answer and explanation

Answer: D. She has engaged in insider dealing by procuring the fund to deal, even though only the fund avoided a loss

The salesperson is connected with Lotus Ridge because the placing agent's business relationship with it gives him access to inside information (s.247(1)(c)). Ivy knows he is connected and has reasonable cause to believe he holds the news because of that connection, so she is a tippee, and procuring the fund to deal is insider dealing (s.270(1)(e)(ii)). The source need not be the company itself. The s.271(3) defence applies only where the purposes did not include securing a profit or avoiding a loss 'for himself or another'; avoiding a loss for the fund is such a purpose. Ivy is answerable for her own conduct, so sanctions are not confined to Peak Harbour, and the agent defence in s.271(4) fails because she selected the shares. Source: SFO (Cap. 571) s.245(2), s.247(1)(c), s.270(1)(e), s.271(3)-(4) (as at October 2026).

Common mistake

Thinking that dealing for clients, or hearing the news from a broker rather than the issuer, takes a fund manager outside insider dealing.

Practise more Paper 6 Misconduct questions

Exam-style questions with worked answers, then full timed mocks. Free to start.

Start practising →

Study note: Misconduct: market misconduct, unsolicited calls and improper trading by fund managers HKSI Paper 6 practice questions & mock exams

Related HKSI Paper 6 questions

In confidential talks, Jade Summit Capital Ltd learns that Coral Gate Holdings Ltd, a listed company, will win a major contract. It buys 3 million Coral Gate shares for its fund directly from Coral Gate's chairman, who knows the same news, by private agreement without a broker, so the deal need not be recorded on or notified to the Exchange. Which statement is correct?On each quarter's last trading day, Ben Cheng, a fund manager, buys his fund's thinly traded holdings minutes before the close, to lift their closing prices and so the fund's NAV and his performance fee. Which form of market misconduct is this most likely to be?Through two broker accounts held for the same fund, Celia Ho sells and buys 400,000 shares of a small listed company on the Exchange at a price above the last trade. The fund's beneficial ownership never changes, and the share price rises. Which statement is correct?

Build a daily practice habit — a few exam-style questions a day, with worked answers. Free to start.

Start practising →

Original study material mapped to the public HKSI Paper 6 syllabus. Unofficial, not endorsed by HKSI Institute or the SFC. Verify figures and rules against current guidance before relying on them.