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Prohibited Trading Conduct

We would like to bring your attention to Prohibited Trading Conduct under section 197 and 198 of the Securities and Futures Act ("SFA") which prohibits any person from creating or doing anything that is intended or likely to create a false or misleading appearance of active trading in any securities on a securities market, or with respect to the market for, or the price of such securities.

SFA 197. False Trading and Market Rigging Transactions

Wash Sales and Pre-arranged Trades could have the effects of creating such false or misleading appearances.

Wash Sales

A "wash sale" is a purchase or sale of any securities that does not involve a change in the beneficial ownership of those securities.

Under Section 197(3) read with Section 197(4) of the SFA, a person engaging in wash sales in securities is deemed to have created a false or misleading appearance of active trading in securities market unless the person establishes that the purposes for which he conducted the wash sales was not, or did not include, the purpose of creating a false or misleading appearance of active trading in securities on a securities market.

Section 197(2) of the SFA also prohibits maintaining, inflating, depressing or causing fluctuations in the market price of any securities by means of wash sales.

Pre-arranged Trades ("Matching Orders")

Transactions where both buy and sell orders are entered at about the same time, with the same price and quantity by different but colluding parties.

SFA 198. Securities Market Manipulation

In addition to Wash Sales and Pre-arranged Trades, a perpetrator may also use genuine transactions to create artificial market conditions.

The following are various types of market manipulation:

Breaking the Market

Repetitive orders to buy or sell the precise volume at the best bid or offer, or which would trade with the entire best bid or offer volume and part of the bid or offer at the next price step.

Marking the Close ("Window Dressing")

Buying or selling securities at the close of the market in an effort to alter the closing price of the security.

Layering of Bids

Placing buy orders at various price steps below the market to create a false appearance of buying demand (or vice versa).

Advancing the Bid

Increasing the bid for a security, which may be intended to support or increase the price of the security, despite absence of legitimate demand and order flow.

Fictitious Orders

Entering large disclosed or undisclosed entries just below the best bid or above the best ask. Fictitious orders may also be the amendment or cancellation of an order just when it looks like the order may be matched

We would advise our client to be mindful of the above when placing orders Online as persons found to have contravened the SFA will be subjected to civil or criminal proceedings.