Futures Trader Acquitted of Price Rigging Charges

In recent years, SFC initiated a number of criminal prosecutions against stock market manipulators. Last week the Eastern Magistracy acquitted a futures trader, Mr Tsoi Bun, of five charges of manipulating the calculated opening prices (COP) of index futures contracts in the futures market. This was the first criminal prosecution for market manipulation in Hong Kong's futures market under SFO.

A COP is calculated during the Pre-Market Opening Period and serves as the market opening price for the corresponding product. It is calculated only if the highest bid price of the limit orders entered into the Automated Trading System of the Exchange (HKATS) is greater than or equal to the lowest ask price of the limit orders. If more than one price satisfies this criterion, the COP will be calculated according to the established formula set forth in Rule 4.84 of Trading Procedures for Stock Index Futures and Stock Index Options Traded on HKATS.

Tsoi was charged of manipulating the COP of HSCEI futures contracts and HSI futures contracts during the morning Pre-Market Opening Period on five trading days between February and September 2007.

The Deputy Magistrate ruled that there was insufficient evidence to prove beyond reasonable doubt that Tsoi had manipulated the calculated opening price on each of the trading days in question. SFC is reviewing the ruling to determine whether there should be an appeal and will continue to pursue civil proceedings against Tsoi.

In addition to the criminal charges, SFC has on 21 July 2009 sought orders in the High Court under section 213 of SFO stopping him from placing orders on the futures market during the Pre-Market Opening Period. In response to that application, Tsoi gave the court an undertaking that he would not place any order held in his name or in the name of another person on the futures markets during the Pre-Open Allocation Sessions. The undertaking remains in force.

The civil proceedings against Tsoi contains additional allegations that were not part of the criminal trial including allegations that Tsoi continued to manipulate the COP after the commencement of the SFC’s criminal proceedings.

I am quite interested to know how the evidence provided by SFC was insufficient to prove beyond reasonable doubt that Tsoi had manipulated the futures market.