Insider Trading : A Critical Assessment of the Private Right of Action

This article attempts to provide a critical assessment of the new statutory private right of action in Hong Kong. The first part of this article outlines the rationales for the introduction of the statutory private action. The second part critically examines the new statutory regime for private action, identifies its potential problems, and suggests recommendations for reform. It is argued that the private action in Hong Kong is seriously flawed in that it fails to solve the conundrum of causation, and leaves the damages question completely unaddressed. Perhaps more importantly, it fails to define what class of persons, if any, should be entitled to bring such suits. The vague language of section 281 has created significant confusion and difficulties for private claimants, making it unlikely that this route will ever be used. These difficulties include an under-inclusive standing for claimants, the fundamental problem of proving causation, and the lack of a meaningful remedy. As such, this article suggests that the efficacy of the private action can be improved through the express adoption of the contemporaneity requirement. The issue of causation should be addressed with a presumption in a contemporaneous trade that a claimant would not have traded had he known the inside information. The concern with potentially draconian damages should be addressed by damage caps in replacement of the ‘just, fair and reasonableness' requirement