Breach of Chinese Walls

"Chinese Walls" are information barriers implemented by firms to restrict the flow of inside information from certain departments (e.g. ECM) to other "public side" departments (e.g. sales and trading) within the firm. The major purpose of Chinese Walls is of course prevention of insider dealing.

Chinese Walls become vulnerable when certain employees (e.g. analysts) are "wall crossed" by the firm to provide assistance to those sensitive departments. In this situation, restrictions should be imposed on the business activities of the wall crossed employees, e.g. they should not discuss or recommend those companies of which they have inside information, until such information becomes public or immaterial. Compliance officers should also closely monitor the flow of information from the sensitive department to the wall crossed employee. The employee's personal account trading of the relevant stock should be prohibited.

SFC recently banned Mr Ho King Man Justin, a former licensed representative of J.P. Morgan Broking (Hong Kong) Ltd, from re-entering the industry for four months. Ho was a staff member of the equity sales department of JPMorgan.

In March 2006, after he was "wall crossed" by his employer in relation to a listed company, Ho:

• disclosed information about the listed company to his colleagues in the equity sales department without authorisation from his employer; and
• continued to recommend the listed company to his clients.

SFC remarked that "there was no trading based on this information". Does it mean that even Ho's colleagues and clients had not traded by relying on such inside information? My further questions are:

• Why was Ho, as an equity sales, wall crossed by JPMorgan?
• How did SFC find out Ho's breaches of Chinese Walls?