How to establish an effective procedure of wall-crossing as a compliance officer of buy-side?

Wall-crossing is a widely accepted market practice in the Hong Kong financial market. Wall-crossing activities are increasing among listed companies and financial institutions, especially asset managers, we usually call them buy sides, seeking to build a solid base of investors before public offering. Compliance officer, as requested by the regulator, is responsible for setting the policies and procedures for adherence to legal and regulatory

requirements in the jurisdiction(s) where an financial institution operates, monitoring an financial institution’s compliance with these policies and procedures and reporting on compliance mattes to the board and senior management. How to balance regulatory requirements with business development and develop a set of effective wall-crossing procedure is a problem that a compliance officer of buy side must consider.


Neither the legislation of Hong Kong nor Hong Kong financial regulators define “wall-crossing”. The Securities and Futures Commission (“SFC”) only in its Question 7 (Are “wall crossings” permitted?) of FAQ of Corporate Finance Adviser Code of Conduct mention about wall-crossing.  The answer delivered by the SFC is:-

“The Commission accepts that corporate finance information may sometimes be legitimately disclosed by persons within a firm’s corporate finance business unit to staff on the non-private side of a Chinese Wall and sometimes even to other clients, for example, to conduct "market soundings" in a placing – commonly described as a "wall crossing" or bringing someone "over the wall".  However, such disclosures must be subject to proper controls, and must not be made if such staff or client has expressly or impliedly refused to be brought across the wall.  In particular, this must be done on a "need to know" basis (e.g. because the recipients’ views on a transaction are needed) and the recipients must be subject to a duty of confidentiality such that they cannot use or disclose the information for their own or others benefit until the information becomes public or otherwise ceases to be price-sensitive.  Firms should keep proper records of such wall crossings.”

Accordingly, subject to the following conditions, a wall-crossing is permitted:

  1. Disclosures are under proper controls;
  2. The targeted recipients have expressly agreed to be wall-crossed;
  3. Must be done on a “need to know” basis;
  4. The recipients must be subject to a duty of confidentiality until the information become public or otherwise cases to be price-sensitive; and
  5. Proper record-keeping.

The SFC doesn’t provide any further guidelines on above five conditions.


In The report of the Market Misconduct Tribunal into dealings in the shares of Bank of China Limited and China Construction Bank Corporation on and between 19 December 2008 to 13 January 2009, the Market Misconduct Tribunal (“MMT”) defines the nature of purpose of wall crossing as “the act of making a third party an ‘insider’ by providing that third party with information which is considered by the person giving it, invariably a market professional, to constitute inside information.  It is a widely accepted market practice in the international financial market.  It is however much more than a mere convenience.  Invariably, especially on the part of and among institutional investors, confidential soundings take place in advance of financial exercise which seek to raise capital in order to gauge interest in, or seek support for, an identified financial transaction including, where relevant, its potential pricing.  Wall crossing is therefore an important tool in ensuring the efficient operation of financial markets.  It is a tool built on trust.  In agreeing to be wall crossed, a market practitioner accepts that that will be given information considered – invariably by another market practitioner – to be non-public prince sensitive information, that is, inside information.  As such, in agreeing to be wall crossed, a market practitioner accepts obligations of strict confidence in respect of the information passed to him.  He further accepts that he may not deal (or otherwise act) on the basis of the information given to him until that information has clearly moved into the public domain.” In this case, Tiger Asia Management LLC (“Tiger Asia”), and two of its senior officers, Mr Bill Sung Kook Hwang and Mr Raymond Park were determined by the MMT that they have engaged in market misconduct in Hong Kong. Tiger Asia, after agreed to be wall-crossed by the investment banks with two proposed placements of shares in China Construction Bank Corporation (“CCB”) and Bank of China (“BOC”), Tiger Asia short sold and long sold the shares of CCB and BOC prior to placement.  The SFC contended that these short and long sales of shares in CCB and BOC constituted insider dealing and false trading in securities.

In additional to the five conditions as mentioned above, one of key control measures of wall crossing is the recipients should be prohibited to deal (or otherwise act) on the basis of the information given to them until that information has clearly moved into the public domain. Moreover, the wall-crossing in Hong Kong shall be subject to the insider dealing provisions of the Securities and Futures Ordinance (“SFO”).


In practice, busy-side firms have already developed its own written wall crossing procedures. However, due to the lack of detailed regulatory guidelines, it is often doubtful whether these procedures are effective. From the above approach of SFC and MMT, as well as our practical experience, we can at least should adopt the following measures to improve the wall-crossing procedures of buy side:

  1. Set up effective Material Non-public Information (MNPI) policy and procedure in accordance with SFC’s Guidelines on Disclosure of Inside Information;
  2. Provide regular train to staff to ensure that they understand their obligations and liabilities in respect of insider dealing and wall-crossing;
  3. Securities regarding which inside information is received should be subject to a trading feeze until the information is announced publicly or otherwise ceases to be price-sensitive;
  4. Effective pre-trade control and post-trade checking to ensure the feezed securities are not traded;
  5. Effective personal dealing checking to ensure staffs don’t trade the feezed securities; and
  6. All records of wall-crossing, e.g., communications with investment banks, are proper kept.

Solicitor (admitted in Australia), Barrister and Solicitor (admitted in New Zealand), Arbitrator, In-house Counsel of Asset Manager

Lecturer, Department of Management, The Hang Seng University of Hong Kong