Although Beijing's statement was released after the market had closed for the day, the Hang Seng Index had mysteriously begun a precipitous fall earlier that day, dropping 176 points.

Unfortunately for the reputation of Hongkong's stock exchange, there have been many such recent examples of unusual market clairvoyance.

Yet according to the Securities and Futures Commission (SFC), these cases - as in the case of the sharp rally in the stock market in early July 1991, when an agreement on the new airport had been signed but not announced - are ''macro-economic'' issues that are outside of the investigatory scope of the Securities (Insider Dealing) Ordinance.

Little, in fact, seems to come under the scope of the Ordinance. Over the past 15 years, the Insider Dealing Tribunal has found only two cases of insider trading. And incredibly, despite the dramatic growth in volume and changes in the composition of Hongkong's markets, the last insider-dealing conviction was in 1986.

It is imperative that we begin a comprehensive re-evaluation of the existing rules and regulations to ensure that the laws to discourage the fraudulent use of inside information actually have teeth.

If it is determined that the present regulations are failing to deter the use of inside information, then we must take action to give substance to the Securities Ordinance.

This review should focus on whether criminal penalties are needed in addition to the present civil penalties and also on whether the existing definition of insider trading is too narrow.

Section 9 of the Ordinance defines insider dealing as: ''When a person connected with a corporation who is in possession of information which he knows is relevant information in relation to that corporation deals in any listed securities of that corporation . . .'' Insider trading takes place when an individual who has access to privileged information, and who is obliged not to use or disclose this information instead buys or sells shares or futures based on that knowledge. Importantly, all other shareholders or potential investors who do not have access to the same information are hurt.

At this time, the definition of insider trading does not encompass the use of privileged political information. This is despite the fact that the Hongkong stock market has recently been dominated by political statements which have had the effect of moving the market substantially one way or another.

Over the past decade, the Hongkong-China relationship has changed dramatically. Our markets, too, have been in transition. The SFC was set up after the stock market crash in October 1987, to promote user confidence in the efficiency and fairness of Hongkong's securities and futures markets.

To this end, significant progress has been made, but our system still does not offer the same protection for small and minority shareholders from the potential abuses of the majority shareholders that is offered in most other developed markets.

As our economy becomes even more integrate with that of China, the closeness of that relationship could well become a competitive disadvantage.

Although China is making tremendous strides towards joining the world financial community, the mainland is not yet close to instituting what we would know as the rule of law.

There are, however, encouraging signs. China has tacitly acknowledged that insider trading is a serious threat to competitiveness and is now in the process of drafting laws to curb insider dealing.

Still, it is unlikely these laws will come into effect soon and if the graft that is still rampant in China is transferred to Hongkong's markets, the potential for damage is dangerously high.

Ideally, we would guard against insider trading by increasing the transparency of the markets, and thus the amount of information available to investors. But this is quite difficult to do.

Many Hongkong companies are complex due to an impenetrable web of nominees, invisible shareholders and shell companies.

The number of mainland state-owned enterprises now applying for listing on Hongkong's bourse, or through backdoor listings, is expanding exponentially.

Clearly, the combination of Hongkong's unstable political situation and these new listings has significantly amplified the potential for insider trading.

At this critical point, there is a pressing need to ensure that, along with the welcome prosperity that China's vast market is bringing to Hongkong, we do not also import unwelcome - and possibly destructive - business practices.

Some individuals have maintained that the insider trading is already so widespread that there is no realistic hope of stemming it, or alternatively, that the prevalence of insider trading in fact contributes to Hongkong's business success. Both of these views are fallacious.

Preserving Hongkong's status as an international business centre is the best protection for our future. Should we fail to create disincentives to importing corrupt business practices, it will surely cost us our place in the international business community, and, just as surely, our prosperity.

At present, Hongkong has only civil penalties to discourage inside dealing. Criminal sanctions, though proposed, were never brought into force because of strong opposition from vested interests and well-known businessmen who had previously had run afoul of the insider dealing regulations.

Most countries now have both civil and criminal penalties to deter insider trading.

For Tuesday's Legco Panel on Finance, Taxation and Monetary Affairs meeting, I have asked the SFC to review the existing criteria for the investigation of insider trading with a view to evaluating whether the existing civil penalties are inadequate, and thus legislation proposing criminal penalties should be introduced.

I will also ask whether insider trading with political information should be prohibited in the same way that insider trading with company-specific information is.

In the process of assessing our laws, we should emphasise that Hongkong's markets must be as open and transparent as possible, so that when there is manipulation, corruption or insider trading, it will be plain for all to see.

We need a system of laws backed by substantive penalties that lets potential inside traders know that they are not wanted in Hongkong, and which conversely, lets free and fair traders know that they are welcome.

Dr Huang Chen-ya is economic spokesman for the United Democrats of Hongkong and a democratically elected Legislative Councillor