HKSI Paper 6 Misconduct question: Jade Summit Capital Ltd learns

HKSI Paper 6Misconduct

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?

A Jade Summit has no defence, because the off-market defence applies only where the seller is not connected with Coral Gate
B Jade Summit has a defence only if the fund's investors approved the purchase in writing before it was made
C Jade Summit has no defence, because a fund manager dealing for a fund cannot rely on the statutory defences
D Jade Summit can rely on a defence, as it dealt off-market and directly with a counterparty who knew the information

Show the answer and explanation

Answer: D. Jade Summit can rely on a defence, as it dealt off-market and directly with a counterparty who knew the information

Jade Summit is connected with Coral Gate through its staff in the talks (s.247(1)(c), (2)), and the unannounced contract is inside information. Under s.271(5), a person is not regarded as engaging in insider dealing if the dealing did not have to be recorded on a recognized stock market or notified to the Exchange, the parties dealt directly with each other, and the counterparty knew or ought reasonably to have known the inside information. All three are met, and Jade Summit must establish them. The defence does not depend on the counterparty being unconnected, investor approval is not an element, and nothing excludes fund managers from the statutory defences. Source: SFO (Cap. 571) s.247(1)(c), (2), s.270(1)(a), s.271(5) (as at October 2026).

Common mistake

Missing the defence for direct off-market deals where both sides hold the same information, or thinking a connected counterparty defeats it.

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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

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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.