University: University of Wollongong
Supervisor: Alex Frino

Research Question:

• What are the effects of insider trading and market manipulation on Hong Kong Stock Exchange, an order-driven market?

Research Motivation:

Illegal trading in stock market is a significant issue for an exchange in maintaining and enhancing a fair and informed market where stock prices reflect genuine supply and demand. Investors are thus able to exercise their judgments about the value of stocks and transact easily at low cost. However, market mechanism can be severely distorted by illegal trading, in particular issues in relation to insider trading and market manipulation. Insider trading is trading in listed securities using privileged non-public information about the relevant companies, while market manipulation refers to a deliberate attempt to interfere with the operation of the market and create artificial or false appearances with respect to the price of listed securities (Harris, 2003). Although illegal trading is forbidden in many countries, for example in Hong Kong there are prison terms and fines, insider dealing and manipulation cases still prevail over the world stock exchanges.

Given its significance, there has been significant academic research in the area of illegal trading in equity markets. However much of this literature has focused exclusively on dealer markets which are quote-driven, such as the OTC markets and the Nasdaq. This research aims to fill the gap in the literature on the impact of market abuse on order-driven markets.

High-level Research Design:

This dissertation focuses on two studies in the area of illegal trading: insider dealing and market manipulation, aiming to examine the market abuse on the Hong Kong Stock Exchange (HKEx), which operates a purely order-driven mechanism.