SECURITIES INDUSTRY ACT (Adequacy of penalties to deter market rigging and related offences)

Assoc. Prof. Walter Woon asked the Minister for Finance whether the penalties provided in the Securities Industry Act for market rigging and related offences are adequate to deter such behaviour and to ensure that manipulators are deprived of the proceeds of their crimes.

Assoc. Prof. Walter Woon (Nominated Member): Sir, before I ask the Question, I want to make a declaration of interest. I have been asked to advise in two cases which may involve market manipulation. Question No. 5, Sir.

Dr Richard Hu Tsu Tau: Under our legislation, a person convicted of market rigging and related offences is liable to a fine not exceeding $50,000 or to imprisonment for a term not exceeding seven years. The penalty for a corporate body is a fine up to $100,000. In addition, the convicted person or corporate body is liable to forfeit the ill-gotten gains, compensate the parties who have suffered losses as well as to bear the cost of the investigations. These penalties, in particular the 7-year imprisonment term, are at the moment considered adequate to deter such behaviour. Government has always taken swift and effective action against securities offenders. We will continue to monitor the industry closely and to act swiftly to weed out any bad practice. If necessary, the penalties will be increased and further measures introduced to protect the interest of investors.

Assoc. Prof. Walter Woon: Is it not true that when you are talking of compensation for the victims of the crime, it depends on the victims starting an action against the manipulators, and that under the Securities Industry Act, such an action can only be commenced after a successful prosecution? Does the Minister consider that this is sufficient to protect the victims, considering that no such prosecution may be brought?

Dr Richard Hu Tsu Tau: As I understand it, it is a case where the offender has been convicted, and subsequently, the person affected may then take action to recover damages. Is that the question?

Assoc. Prof. Walter Woon: May I clarify, Mr Speaker?

Mr Speaker: Yes.

Assoc. Prof. Walter Woon: Under section 105 of the Act, you can sue for civil compensation but only if there has been a conviction for market manipulation or related offences. If there is no conviction, for example, if the manipulator is charged under the Penal Code instead, the victims of the crime do not have a right to compensation under the Act. So there is a link between compensation and conviction. If the conviction does not come, the victims get no compensation. And for various reasons, there may be no conviction, if you follow what I am saying. I wonder if the Minister consider that is sufficient to protect the people.

Dr Richard Hu Tsu Tau: For the moment, we have not in fact come across any case of this type. Is there a pending case he is concerned with, on the principle?

Assoc. Prof. Walter Woon: I am concerned, precisely. If indeed there is market manipulation, it again seems rather unjust that a few manipulators should be let go before we discover the loopholes. I am merely raising this for the Minister's consideration. Will he consider amending the Act?

Dr Richard Hu Tsu Tau: We will look into this, although I am not familiar with the case where a conviction is not possible and yet a civil action may be possible.

Assoc. Prof. Walter Woon: This is precisely my point. If there is no conviction, there cannot be a civil case.

Dr Richard Hu Tsu Tau: Right.

Assoc. Prof. Walter Woon: Therefore, a person who is cheated by market manipulation depends upon a conviction before he can claim compensation.

Dr Richard Hu Tsu Tau: Indeed, I would have thought that in order to prove a claim, you would in fact need to have some support from the prosecution side. Otherwise, in the absence of any proven case that a criminal offence has taken place, how would you put together a case for civil compensation?

Assoc. Prof. Walter Woon: May I quote an example? In the Pan Electric case, for example ---

Mr Speaker: Order. Can I advise the Member that this is Question Time and he should put his points in the form of questions?

Assoc. Prof. Walter Woon: Yes, Sir.

Dr Richard Hu Tsu Tau: I suggest that the Member write in to us and give us examples, and we will look into this.

Assoc. Prof. Walter Woon: Thank you.

Dr Kanwaljit Soin: Sir, does the Minister think it is feasible to have a small watchdog committee that will monitor the transactions daily and alert the relevant authorities if there is any possible irregularity?

Dr Richard Hu Tsu Tau: Such a committee, if it really can exist, would be ideal, but I cannot imagine a committee trying to anticipate problems. There is no way. There are thousands of transactions taking place every minute, every day. How would such a committee operate? I do not think it is a practical proposal, although, theoretically, of course, if you can have it, it will be fine.