1. This case concerns the public reprimand and fines imposed upon Moody’s Investors Service Hong Kong Limited (“Moody’s”) for its preparation and publication of a report published on 11th July 2011, entitled “Red Flags for Emerging-Market Companies: A Focus on China” (the “Report”), in breach of section 193(1)(d) of the Securities and Futures Ordinance, Cap. 571 (“SFO”). FACTS 2. In the Report, Moody’s applied a framework of five “red flags” to analyse 61 high-yield non-financial Chinese companies. These 5 “red flags” covered concerns in relation to corporate governance, business models, business strategies, quality of earnings or cash flow, and quality of auditors and financial statements. 49 of these companies were analysed under the framework with relevant figures tabulated. 3. Moody’s made various statements in the Report, including that its “findings show that screens for governance or accounting risks can help identify areas to investigate but cannot serve as mechanisms to rank order credit risk”, and that “[t]he red flags provide further clarity and detail, but do not represent a change in our rating methodologies”. It was also stated that “[t]he identified issues that we flag do not represent a change to our analytical approach”, and that a company’s “tripping of many red flags does not represent an immediate rating concern”. 4. Following its publication, the Report received extensive media attention. The price of the shares of many of the 49 companies covered in the Report fell substantially (well over 10% in some cases). 5. The publication of credit ratings in Hong Kong is an activity regulated by the Securities and Futures Commission (the “SFC”) and subject to a Code of Conduct. The SFC formed the view that, in preparing and subsequently circulating the Report, Moody’s had “failed to have the required procedural safeguards in place to ensure the integrity of the Report and that the Report itself was in a number of material respects misleading, confusing and inaccurate to the extent that the publication was, or was likely to be, prejudicial to the interests of the investing public, including Moody’s own clients, and prejudicial also to the integrity of the market”. Moody’s was therefore found to have failed to live up to the standards to be expected of a licensed Credit Rating Agency (“CRA”), and breached provisions of the relevant Code of Conduct. Moody’s was fined HK$23 million and declared unfit. 6. Moody’s sought a review against SFC’s decision at the Securities and Futures Appeals Tribunal (the “Tribunal”). One of Moody’s arguments was that the publication of the Report was not a regulated activity since it was not a “credit rating” nor was it “an act or omission relating to the carrying on of [a credit rating]” under section 193(1)(d) of the SFO, and therefore cannot possibly constitute misconduct. The argument was rejected, though the fine was reduced to HK$11 million for other reasons. 7. On appeal, the Court of Appeal, while deciding, in disagreement with the Tribunal, that the Report did not constitute a “credit rating”, agreed with the Tribunal that its publication constituted “an activity relating to credit ratings”, since it included “additions and clarifications which were meant to be read together with such classic ratings”. Moody’s brought a further appeal to this Court. ISSUES (1)The meaning and effect of the phrase “relating to” under SFO section 193(1)(d) 8. The main question is whether the preparation and publication of the Report is an act “relating to” the carrying on of the provision of credit rating services. 9. Bokhary PJ had previously commented in Mariner International Hotels Ltd v Atlas Ltd (2007) 10 HKCFAR 1 that “relating to” is a phrase which is, if anything, even wider than “involving”, which is “one of the broadest words of association known to the English language”. Where the legislature used words which are very general in their natural ambit such as “relating to”, it is inappropriate, in the absence of a cogent reason, to give a relatively specific meaning to those words. 10. There are no such reasons to narrow down the meaning of the phrase, especially given how the purpose of this law is to serve the public interest, and aimed at encouraging high standards and penalises substandard work that affects financial markets and investors. (2)Does the Report “relate to” Moody’s credit rating services? 11. The correct approach to determining whether a publication “relates to” credit rating services should be to consider the publication by reference to what it says, reading it in a practical and realistic way in its commercial context, and to decide “how the market would reasonably have been anticipated to treat” it, rather than referring to its compiler’s own thoughts and intentions. In this process, the Tribunal can also take into account how the market actually reacted. 12. Applying this approach, the following factors led this Court to find that the Report is “related to” credit rating. 13. Moody’s is a licensed CRA renowned for its credit rating services. There must be a substantial risk that many people in the market will assume that any report by Moody’s will in some way be related to its credit rating services, especially given that it is concerned with accounting, governance, and quality of earnings. 14. Furthermore, all 61 companies covered by the Report were also the subject of Moody’s existing published credit ratings. The text of the Report also makes frequent references to the credit ratings of some of these companies. The “red flags” were also presented according to “rating category”, and the number of “red flags” tripped by the company in each case were also compared with its credit rating. 15. Moreover, it is telling that the announcement Moody’s made accompanying the Report described it as “supplemental to Moody’s methodological approach to rating non-financial corporates”. If the Report is said to be “supplemental” to credit rating, it would likely also to “relate to” the same. 16. There is also the further external factor of the actual negative reaction of the market, which should have been foreseen by Moody’s given the importance accorded by the market on its ratings. 17. A clear and convincing disclaimer might have changed the view of the public that the Report was related to credit ratings, but there was none. DISPOSITION 18. Accordingly, the appeal was unanimously dismissed, and Moody’s is ordered to pay costs of this appeal to the SFC.