[August 2015]




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Review of the related regulations about
Inside Information

Written by: Ms. Winnie Leung - Risk Manager

Starting from January 2013, listed companies are required to disclose to the public, as soon as reasonably practicable, any inside information that has come to its knowledge as required by Securities and Futures Ordinance. Even though this has been implemented for more than 2 years, there is still a doubt that what information needs to be disclosed under the statutory regime. To be more specific, Securities Futures and Commission (“SFC”) has issued a newsletter to provide more guidance on this topic. In this newsletter, we are going to highlight the issues raised.


Previously disclosed inside information
A New listed company: SFC advises the company to issue an inside information announcement if the company considers there has been a significant change in the facts and circumstances after the issuance of prospectus, such as suspension of factory operations which is not generally known to the public. SFC also adds that the company should clarify the extent to which the information in the announcement differs from previously disclosed information.

An Existing Listed Company: SFC warns that repeated disclosure in announcements described as profit warnings or alerts can be problematic. For example, the absence of one-off gain which was included in the prior year is a common reason for the decline in profits in current year. The company may be considered as having made a misleading statement if the company highlights the absence of a one-off event and intends to hide the impact of other factors on its financial performance.


Inside information generated by internal developments and disclosure of investment portfolio performance
SFC has provided a non-exhaustive, indicative list of events or circumstances for the company to consider if the disclosure obligation arises. However, there are other situations which give rise to the creation of inside information. SFC suggests a number of factors which a company should consider:


Inside information generated by internal developments

Disclosure of investment portfolio performance


The company should be aware when they are providing the market with precise figures for expected long-term earnings. They are not required to know the level of profit for a period to the nearest dollar before deciding that its trading performance amounts to inside information. Instead, they should assess if there is any apparent change in results which may just be a short-term effect or indicative of a longer-term trend. In addition, increased profits arising from strong customer orders should not be ignored since there is no absolute certainty that the customers will place orders at the same rate in the future.

If the gains or losses are sufficiently material to be considered as inside information, the company should consider disclosing even the amount has not been confirmed by an auditor.


The company should consider how the results are consistent with market expectations. Normally, it would be treated as inside information if trading profits for the period were substantially lower than the previous period. But it would not be treated as inside information if the company has already warned investors that the income is expected due to the loss of a significant contract.

If the investment portfolio of listed shares held by a company, which has been previously disclosed, changed and now has a very different valuation from an unchanged portfolio, the company should consider disclosing the details.


This may not be sufficient to justify as inside information if the trading result in a month is higher than expected. Instead, if sales figures of a month are of particular importance, then the performance in that month can be the difference between a good year and a bad year. A single-month figure can be of such significance that a trading update would be appropriate.

If an investment portfolio significantly affects the financial performance of a company, the company should consider disclosing the details of the portfolio regularly. While a company disposes of an investment at a significant gain over the previous book valuation, but not previously disclosed, in early January, the company should disclose the fact immediately instead of in the interim results announcement for the period to June if the amount is material.


With precise guidance, we believe it can help the company to determine easily if the incident is considered as inside information. Hence, the cost of listing would be reduced.

Reference: SFC - Corporate Regulation Newsletter ISSUE NO. 2 APRIL 2015

If there are any aspects which we may assist, please do not hesitate to contact:

Partner in charge - Mr. Roy Lo
roy.lo@shinewing.hk (Tel. 3583 8048) or

Senior Risk Manager - Ms. Gloria So
gloria.so@shinewing.hk (Tel. 3583 8517)


SHINEWING Risk Services Limited

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T. (852) 3583 8000

F. (852) 3583 8532

W. www.shinewing.hk

E. risk@shinewing.hk


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