Archive for category: Newsletter

1. SFC reprimands and fines Guotai Junan Securities (Hong Kong) Limited HK$1.3 million
2. SFC reprimands and fines SynerWealth Financial Limited HK$2.7 million
3. SFC obtains disqualification orders against former senior executives of China Best Group Holding Limited
4. SFC issues Restriction Notice to a broker to stop a client from withdrawing shares and transferring money connected with suspected insider dealing
5. Court rules on appeals over unlicensed activities
6. SFC reprimands and fines Schroder Investment Management (Hong Kong) Limited HK$1.8 million for disclosure failures
7. SFC reprimands and fines State Street Global Advisors Asia Limited HK$4 million over management of Tracker Fund

1. SFC reprimands and fines Guotai Junan Securities (Hong Kong) Limited HK$1.3 million

On 30 May 2016, Guotai Junan Securities (Hong Kong) Limited (“Guotai Junan”) was reprimanded and fined HK$1.3 million by the SFC for non-compliance with the regulatory requirements in relation to ascertaining client identity.

Background

In July 2014, the SFC requested Guotai Junan to provide details of the ultimate clients of certain transactions it effected for an intermediary client in Korea. Guotai Junan was unable to provide the requested information within two business days of the request pursuant to the Client Identity Rule Policy, due to the intermediary client’s failure to comply with its obligation under its client agreement.

The intermediary client informed the SFC and Guotai Junan on 1 August 2014 that as a matter of Korean law, it could not provide the requested client identity information without its clients’ written consent.  It was not until January 2015 that Guotai Junan provided the requested information to the SFC.

Notwithstanding this, Guotai Junan continued to effect more than 8,000 transactions for the intermediary client between August 2014 and January 2015 despite having been reminded by the SFC of its obligation to refuse the business of those who are not prepared to provide ultimate client information to the regulators.

In the circumstances, the SFC found that at the time when Guotai Junan effected those transactions, it could no longer be satisfied on reasonable grounds that it would be able to make available the ultimate client information in relation to such transactions to the SFC on request, which is in contravention of the Client Identity Rule Policy.
In deciding the sanctions, the SFC took into account all relevant circumstances, including, Guotai Junan:

• co-operated with the SFC in resolving the disciplinary proceedings; and
• has agreed to conduct an independent review of its systems and controls in respect of its compliance with the regulatory requirements on ascertaining client identity.

Comments

Guotai Junan is licensed to carry on Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities under the Securities and Futures Ordinance (SFO).

Reader is reminded that, under paragraph 5.4 of the Code of Conduct for Persons Licensed by or Registered with the SFC, the Client Identity Rule Policy explains the client identity rule, and the general approach the SFC will take in enforcing the client identity rule.

Under its client agreement with Guotai Junan, the intermediary client:
(a) agreed to provide ultimate client information to the SFC, the Stock Exchange of Hong Kong and/or the Hong Kong Futures Exchange (“the Regulators”), within two business days of a request; and
(b) confirmed that they and their clients have waived the benefit of any law which prohibited the provision of ultimate client information to the Regulators.

The Client Identity Rule Policy stipulates that a licensed person must refuse the business of those who are not prepared to provide client identity information to the Regulators upon request (paragraph 23).  The Client Identity Rule also stipulates that if a licensed person has been put on notice that some intermediary in the chain of intermediaries involved in a transaction might not comply with its agreement in relation to that transaction so that the licensed person could no longer be satisfied on reasonable grounds that the information would be available to the Regulators on request and continued to deal with that intermediary, the SFC would consider taking disciplinary action against the licensed person (paragraph 27).

For a copy of the statement of disciplinary action, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/openAppendix?refNo=16PR49&appendix=0

For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=16PR49

2. SFC reprimands and fines SynerWealth Financial Limited HK$2.7 million

On 31 May 2016, SynerWealth Financial Limited (“SynerWealth”) was reprimanded and fined HK$2.7 million for internal control failures relating to short selling orders and for failing to report the deficiencies of its trading system to the SFC in a timely manner as required under the SFC’s Code of Conduct.

Background

The SFC’s investigation found that from November 2012 to January 2014, there were at least 65 instances of short sales executed by SynerWealth which resulted from its failure to put in place effective internal control procedures to detect and prevent short selling.

The SFC also found that SynerWealth identified deficiencies in its self-developed trading system as early as January 2013, but it failed to report the material errors or defects of the system to the SFC.
In deciding the disciplinary sanction, the SFC took into account all relevant circumstances of the case, including that:

• adequate and effective internal control systems are fundamental to the fitness and properness of a licensed corporation;
• SynerWealth’s failures lasted for about 14 months; and
• SynerWealth had an otherwise clean disciplinary record.

Comments

SynerWealth is licensed to carry on business in Type 1 (dealing in securities) regulated activity under the Securities and Futures Ordinance (SFO).

Reader is reminded that, under paragraph 12.5 of the Code of Conduct for Persons Licensed by or Registered with the SFC, a licensed or registered person is required to report to the SFC immediately on the happening of any material failure, error or defect in the operation or functioning of its trading, accounting, clearing or settlement systems or equipment.

For a copy of the statement of disciplinary action, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/openAppendix?refNo=16PR50&appendix=0

For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=16PR50

3.  SFC obtains disqualification orders against former senior executives of China Best Group Holding Limited

On 31 May 2016, the SFC obtained disqualification orders in the Court of First Instance against three former senior executives of China Best Group Holding Limited (“China Best”) for breaching their directors’ duties in handling a proposed acquisition of interests in a coal mine in 2008.

Background

The Court earlier found that that Mr. Wang Jian Hua, former advisor to the board of China Best, had diverted to himself the corporate opportunity of a proposed acquisition of 60% of the equity interest in ChongHou Energy Resources Limited from Asset Rich International Limited (“Asset Rich”), a company ultimately owned by a nominee of Wang and therefore not third parties independent of China Best.

Wang was also found to have devised a scheme to conceal his personal benefit in the proposed acquisition at the expense of China Best and failed to disclose his interest to China Best’s board and in the issue of two false and misleading announcements dated 3 March and 3 December 2008.

The Court also found that Wang’s wife, Ms. Ma Jun Li, former chairman and executive director of China Best, and Mr. Zhang Da Qing, former chief executive officer and executive director of China Best, had failed to make reasonable enquiries in respect of Asset Rich’s and its ultimate beneficial shareholder’s background and connection with Wang and had wrongfully authorized the issue of the two announcements.

The Court has ordered be disqualified Wang from being a director or being involved in the management of any listed or unlisted company in Hong Kong, without leave of the Court, for 10 years. Ma and Zhang were both disqualified for six years.

In making the disqualification orders, the Court considered the gravity of Wang’s misconduct, his role as part of the senior management of the company and the fact that the proposed acquisition was a very substantial acquisition for China Best under the Listing Rules of the Stock Exchange of Hong Kong. The disqualification period imposed for Ma and Zhang took into account their failure to make enquiries and inform themselves about the company’s affairs and to exercise care and diligence in the proposed acquisition.

Comments

Wang was the chairman and an executive director of China Best until he resigned with effect from 25 November 2005. Notwithstanding his resignation, Wang held a position of advisor to the board of China Best and remained part of the senior management at material times. Ma was appointed as an executive director of China Best on 29 August 2003 and was elected as the chairman on 25 November 2005. Zhang was appointed as China Best’s chief executive officer and an executive director on 5 June 2007.  Both Ma and Zhang had resigned from China Best with effect from 4 October 2011.

China Best was listed on the Main Board of the Stock Exchange of Hong Kong Limited on 26 March 1996.  The principal activities of China Best’s associates and subsidiaries were coal processing, international air and sea freight forwarding and the provision of logistics services as well as trading of securities.

Readers are reminded that, Under section 214 of the SFO, the Court may make orders disqualifying a person from being a company director or being involved, directly or indirectly, in the management of any corporation for up to 15 years, if the person is found to be wholly or partly responsible for the company’s affairs having being conducted in a manner involving defalcation, fraud or other misconduct.

For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=16PR52

The article is for general information purpose only and is not intended to constitute legal or other professional advice.

For enquiries, please email: [email protected] or call at +852-3487 6903.
To subscribe, update your email address or unsubscribe, please email [email protected] 

1. SFC bans Yuen Siu Lun for seven years
2. SFC suspends Ernest Ho Gar Fai for four months
3. SFAT affirms SFC decision to reprimand and fine Moody’s over Red Flags Report
4. SFC commences MMT proceedings against Yorkey Optical International (Cayman) Limited, its CEO and Financial Controller for late disclosure of inside information
5. SFC bans Andrew Chow Ho Cheung for life
6. SFC formally adopts initiatives to enhance fund authorization process after pilot-run
7. Defendants acquitted of unlicensed dealing

1. SFC bans Yuen Siu Lun for seven years

On 24 March 2016, Yuen Siu Lun was banned by the SFC for seven years following investigation of him obtaining rebates and causing loss to his company by amending transaction data for the purposing of benefitting clients.           

Background

The SFC has banned Mr. Yuen Siu Lun, a former responsible officer of Bright Smart Forex Limited (BS Forex) and head of the bullion operations of Bright Smart Global Bullion Limited (BS Bullion), from re-entering the industry for seven years from 24 March 2016 to 23 March 2023 for abusing the access right granted to him and making order amendments to bullion contracts as a means of obtaining a personal financial benefit.

The disciplinary action follows an investigation by the SFC which found that, from April to October 2014, Yuen amended the data of approximately 300 bullion transactions in the accounts of seven clients even though there were no genuine error trades which called for amendment.  Such amendments, which were made without the knowledge and approval of Yuen’s ex-employer, benefited certain clients at the expense of BS Bullion.  Yuen caused a total loss of approximately HK$1.26 million to BS Bullion which comprised of profits and rebates arising out of all the orders placed in the accounts of the relevant clients.

According to an oral agreement with the clients, Yuen received rebate for each completed trade and gained a personal financial benefit in a total sum of approximately HK$180,000.  Although the SFC does not regulate gold bullion business, it considers that Yuen is not a fit and proper person to remain licensed under the Securities and Futures Ordinance (SFO).

Comments

Yuen was licensed under the SFO to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contract), Type 3 (leveraged foreign exchange trading) and Type 9 (asset management) regulated activities.  Apart from BS Forex, he was also accredited to Bright Smart Securities International (H.K.) Limited, Bright Smart Futures & Commodities Company Limited and Bright Smart Asset Management Limited from 22 September 2014 to 9 October 2014.  Yuen is currently not licensed by the SFC.

Readers should refer to section 129 of the SFO for the SFC’s criteria used to assess whether a person is fit and proper to be licensed/registered.

For a copy of the statement of disciplinary action, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/openAppendix?refNo=16PR30&appendix=0

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR30

 
2. SFC suspends Ernest Ho Gar Fai for four months

On 24 March 2016, Ernest Ho Gar Fai was suspended by the SFC for four months following investigation of him allowing a client to trade futures contracts through his mother’s account and thus casted doubt on his fitness and properness as a licensed person.

Background

The SFC has suspended Mr Ernest Ho Gar Fai for four months from 24 March 2016 to 23 July 2016.

The SFC investigation found that from September to December 2013, Ho allowed a client, who is his mother’s friend, to trade in futures contracts through his mother’s account held with Fulbright Futures Limited (Fulbright Futures).  He also failed to properly receive and keep records of the client’s order instructions.

Although Ho’s mother allowed the client to trade through her futures account, it is inexcusable for Ho to have allowed the trades to be conducted in such a way.  Ho’s conduct falls short of the standard set out in the Code of Conduct and casts doubt on his fitness and properness as a licensed person.

In deciding the sanction, the SFC took into account all relevant circumstances, including that Ho had no previous disciplinary record with the SFC.

Comments

Ho is licensed under the Securities and Futures Ordinance to carry on Type 1 (dealing in securities) and Type 2 (dealing in futures contracts) regulated activities, and has been accredited to Fulbright Securities Limited for Type 1 regulated activity and Fulbright Futures Limited for Type 2 regulated activity since 2007.

Readers are reminded that the General Principle 2 (diligence) of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission provides that a licensed person should act with due skill, care and diligence in conducting business activities.  Among others, paragraph 3.9 provides that licensed person should record and immediately time stamp records of order instruction particulars, and paragraph 5 provides a licensed person should take steps to establish the true and full identity of each client, and before effecting a transaction, be satisfied on reasonable grounds as to the identity of the person ultimately responsible for originating transaction instructions and the identity of the person who stand to gain the commercial or economic benefit and/or bear the commercial or economic risk of the transaction.

For a copy of the statement of disciplinary action, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/openAppendix?refNo=16PR31&appendix=0

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR31

 
3.  SFAT affirms SFC decision to reprimand and fine Moody’s over Red Flags Report

On 5 April 2016, Moody’s was reprimanded and fined HK$11 million for various preparation and publication errors in relation to its Red Flag Report and thus breaching the Code of Conduct.

Background

The SFC has reprimanded Moody’s Investors Service Hong Kong Limited (Moody’s) and fined it HK$11 million for various failures relating to its preparation and publication of the special comment report entitled “Red Flags for Emerging-Market Companies: A Focus on China” published on 11 July 2011 (the Report).

The SFC’s action against Moody’s follows the determination of the Securities and Futures Appeals Tribunal (SFAT) which confirms the SFC’s jurisdiction over Moody’s in this case.

The SFAT has affirmed the SFC’s findings that, Moody’s, in preparing and publishing the Report which purportedly identified risk factors of Mainland rated issuers:

• failed to provide sufficient explanations for the red flags assigned by it to the rated companies and to set out relevant justifications to the red flags in the Report, and had, as a result, painted an unfair, unclear and misleading picture of the companies;
• chose to list the red flags assigned to each company and to highlight six companies with the largest number of flags in the Report as “negative outliers” to make the Report “actionable” despite the assessment performed by its analysts showed that there was no significant correlation between the number of red flags and the companies’ credit risk; and
• failed to ensure the accuracy of the red flags assigned to the companies.

The SFAT found that in the preparation and publication of the Report, Moody’s was carrying on its regulated activity of providing credit rating services.  The SFAT also found that there were substantive breaches of General Principles 1 and 2 of the Code of Conduct.  The SFAT has determined that Moody’s should be subject to a public reprimand and a pecuniary penalty of HK$11 million.

The SFC’s Chief Executive Officer, Mr Ashley Alder, said, “The Code of Conduct sets general principles and standards of conduct that all licensed or registered persons, including credit rating agencies, must follow.  The purpose of the Code of Conduct is to maintain high standards of conduct by intermediaries and to ensure intermediaries remain fit and proper.”

Comments

Moody’s is licensed under the Securities and Futures Ordinance to carry on business in Type 10 (providing credit rating services) regulated activity.

In the Report, Moody’s assessed 49 non-financial Chinese entities against 20 warning signs it called “red flags” to identify possible corporate governance and accounting risks. The Report highlighted and discussed six companies which received the highest number of red flags among the other rated peers, and they were identified as “negative outliers”.  The Report also displayed the number and type of red flags assigned to each of the 49 companies in various tables.

Readers are reminded that General Principle 1 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct) requires that a licensed or registered person should act honestly, fairly, and in the best interest of its clients and the integrity of the market in conducting its business activities.

The SFC’s findings under General Principle 1 are limited to Moody’s failure to act fairly, in the best interests of its clients, and the integrity of the market. In its Reasons for Determination, the SFAT also made it clear that there are no findings of dishonest conduct or intention to mislead by Moody’s.

Readers are also reminded that General Principle 2 of the Code of Conduct requires that a licensed or registered person should act with due skill, care and diligence, in the best interests of its clients and the integrity of the market in conducting its business activities.

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR34

The article is for general information purpose only and is not intended to constitute legal or other professional advice.

For enquiries, please email: [email protected] or call at +852-3487 6903.
To subscribe, update your email address or unsubscribe, please email [email protected] 

1. SFC publicly censures Goldman Sachs for breaches of the Takeovers Code
2. HKMA and SFC release conclusions on introducing mandatory clearing and expanding mandatory reporting for OTC derivatives market
3. SFC bans Chow Chi Keung for life
4. SFC issues third-quarter report
5. SFC bans Alice Yim Ping for three years
6. SFC bans Jia Zhen for 10 months
7. SFC concludes on expanding scope of short position reporting
8. Arrest warrant issued for alleged insider dealer
9. SFC reprimands and fines Yuanta Securities (Hong Kong) Company Limited HK$4 million

1. SFC publicly censures Goldman Sachs for breaches of the Takeovers Code

On 2 February 2016, Goldman Sachs was publicly censured for failing the expected standards of a financial advisor under the Takeovers Code.

Background

The SFC has publicly censured Goldman Sachs (Asia) L.L.C. (Goldman Sachs) for breaches of the Code on Takeovers and Mergers (“Takeovers Code”) whilst acting as a financial advisor to Wing Hang Bank, Limited (Wing Hang Bank) in relation to a voluntary general offer for the bank.

Goldman Sachs’ conduct fell far short of the standards expected of a financial advisor under the Takeovers Code in that between 8 November 2013 and 6 January 2014:

• Goldman Sachs executed 111 trades in the securities of Wing Hang Bank without making the requisite dealing disclosures and no prior consent was obtained as required for 26 of these trades; and
• Goldman Sachs failed to comply with the restrictions on issue and distribution of research reports in relation to the research reports it published on Wing Hang Bank.

In deciding the sanction, the SFC took into account Goldman Sachs’ cooperation and self-reporting of the breaches.

Comment

Goldman Sachs is an institution licensed to carry out Type 1 (dealing in securities), Type 4 (advising on securities), Type 5 (advising on futures contracts), Type 6 (advising on corporate finance), Type 7 (providing automated trading services) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance.

Goldman Sachs fell within the definition of “associate” of Wing Hang Bank for the purposes of the Takeovers Code immediately upon the verbal engagement of Goldman Sachs by Wing Hang Bank on 8 November 2013. The Takeovers Code defines an “associate” to include “any bank and financial and other professional adviser … to the offeree company”. Goldman Sachs was therefore under an obligation according to Rule 22 of the Takeovers Code which requires parties to an offer and their associates to disclose in this case the dealings in the relevant securities of Wing Hang Bank during the offer period either publicly or privately.

Goldman Sachs also fell foul of Rule 21.5 of the Takeovers Codes which forbids the purchase of offeree company shares or the dealing in convertible securities, warrants, options or derivatives in respect of such shares by a financial adviser to an offeree company during the offer period.

The principle behind the disclosure obligations and dealing restrictions under Rule 21.5 and 22 of the Takeover Codes was to maintain a high degree of transparency to the efficient functioning of the market in an offeree company’s shares during the critical period of an offer or possible offer. It also prevents abuse by advisers who are connected to an offeree company.

Practitioners and parties who wish to take advantage of the securities markets in Hong Kong are reminded by the SFC to conduct themselves in accordance with the Takeovers Codes in matters relating to takeovers, mergers and share buy-backs.

In the Executive Statement of this case issued by the SFC, it is stated that Goldman Sachs Investment Banking Team failed to inform Goldman Sachs Control Room of the commencement of the offer period for Wing Hang Bank. Goldman Sachs Control Room did not take any appropriate action even after it became aware of the verbal engagement of Goldman Sachs. Neither did it make any further enquiry with Goldman Sachs Investment Banking Team. Despite wide press coverage on the possible offer for Wing Hang Bank, Goldman Sachs Control Room still failed to follow up with Goldman Sachs Investment Banking Team to verify whether an offer period had commenced for Wing Hang Bank. The above reflected that there is a deficiency in terms of Goldman Sachs’ compliance policies and procedures in relation to takeovers in Hong Kong.

For a copy of the executive statement, please refer to:

http://www.sfc.hk/web/EN/files/CF/pdf/Public_censure/Public%20Censure%20(ENG).pdf

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR7

2. HKMA and SFC release conclusions on introducing mandatory clearing and expanding mandatory reporting for OTC derivatives market

On 5 February 2016, HKMA and SFC published the consultation conclusion in relation to the proposals on introducing mandatory clearing and expanding mandatory reporting for OTC derivatives market.

Background

The Hong Kong Monetary Authority (HKMA) and the SFC published conclusions to the proposals made in a joint consultation on introducing mandatory clearing and expanding mandatory reporting for the second stage of the over-the-counter (OTC) derivatives regulatory regime. The conclusions paper sets out the revised proposals after taking into account market comments and feedback and seeks to further consult on the initial list of financial services providers.

Highlights

Introducing mandatory clearing (phase 1 clearing)

• deferring commencement of phase 1 clearing from 1 July 2016 to 1 September 2016, subject to the legislative process;
• defining “financial services provider” by reference to a list of entities to be published in the Government Gazette and seeking views on the initial list of financial services providers by 29 February 2016;
• having a single clearing threshold which applies to all prescribed persons, whether they are incorporated locally or overseas;
• excluding both deliverable FX forwards and deliverable FX swaps from the clearing threshold calculation;
• providing a mechanism for exiting from the clearing obligation;
• exempting from the clearing obligation certain transactions resulting from a multilateral portfolio compression cycle;

Expanding mandatory reporting (phase 2 reporting)

• further deferring commencement of phase 2 reporting from 1 January 2017 to 1 July 2017, subject to the legislative process;
• narrowing the backloading requirement for transactions reported prior to phase 2 reporting so that it does not apply to transactions maturing before 1 July 2018; and
• excluding from the reporting obligation FX forwards which are entered into for the purposes of buying or selling securities in a foreign currency and which are settled within the settlement cycle for the securities.

Central counterparties who are authorized to provide automated trading services will be subject to mandatory reporting in its current form (phase 1 reporting) from 1 September 2016 to align with the commencement of phase 1 clearing.

A separate conclusions paper on the specific data fields to be completed under phase 2 reporting will be issued shortly.

Comments

On 30 September 2015, the HKMA and the SFC issued a joint consultation paper on introducing mandatory clearing and expanding mandatory reporting. The consultation paper included drafts of the proposed subsidiary legislation namely the Securities and Futures (OTC Derivative Transactions – Clearing and Record Keeping Obligations and Designation of Central Counterparties) Rules (Clearing Rules); and the Securities and Futures (OTC Derivative Transactions – Reporting and Record Keeping Obligations) Rules (Reporting Rules).

The current phase of mandatory reporting, covering only certain interest rate swaps and non-deliverable forwards (phase 1 reporting), was implemented on 10 July 2015. The next phase (phase 2 reporting) is intended to cover other asset classes as well so as to align with the regulatory reform objectives of the G20 commitments.

The HKMA and SFC are concerned that a staggered approach will unreasonably delay full implementation of mandatory reporting in Hong Kong, particularly as most market participants are unlikely to be active in all five key asset classes. As an alternative, it is proposed in the consultation conclusion to defer the commencement of phase 2 reporting to 1 July 2017 (which is over 12 months from the day of enactment, instead of 6 months as previously proposed). This will allow an extended period for setting up and testing necessary systems and system connections.

For a copy of the consultation conclusions, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/consultation/conclusion?refNo=15CP4

For a copy of the consultation paper, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/consultation/openFile?refNo=15CP4

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR8

3.  SFC bans Chow Chi Keung for life

On 11 February 2016, the SFC banned Chow Chi Keung for life for misappropriation of client monies, forgery and conduct of unauthorized transactions.

Background

The SFC has banned Mr Chow Chi Keung, a former licensed representative of Wocom Securities Limited (Wocom), from re-entering the industry for life for misappropriating client monies, forging client signatures and conducting unauthorized transactions in client accounts.

The disciplinary action follows a SFC investigation which found that, between 2010 and 2012, Chow, in order to conceal his trading losses in client accounts:

• forged client signatures on 13 Wocom payment instruction forms to facilitate the withdrawal or transfer of client monies from nine client accounts to his or his wife’s personal accounts or other client accounts maintained at Wocom. The total sum in the payment instruction forms amounted to more than HK$2.5 million; and
• sold securities in five client accounts without their authorization and transferred the sale proceeds to other client accounts.

Chow’s misconduct calls into question his fitness and properness to be a licensed person. In deciding the penalty, the SFC took into account that Chow’s conduct was gravely dishonest and seriously jeopardised the interests of Wocom’s clients and the integrity of the market.

Comments

Readers are reminded that General Principle 1 of the Code of Conduct requires a relevant individual to act honestly, fairly, and in the best interests of its clients, when conducting the business of regulated activities. Chow’s conduct was dishonest and thus breached General Principle 1 (honesty and fairness) of the Code of Conduct.

For a copy of the statement of disciplinary action, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/openAppendix?refNo=16PR9&appendix=0

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR9

8. Arrest warrant issued for alleged insider dealer

On 25 February 2016, the Court issued an arrest warrant for alleged insider dealer who failed to appear at Court regarding insider dealing charges laid by the SFC.

Background

The Eastern Magistrate’s Court issued an arrest warrant for Ms Tang Xian, a Mainland resident, who did not appear at Court to answer three insider dealing charges laid by the SFC.

On 18 May 2011, China Wireless Technologies Limited (China Wireless) issued a profit warning announcement.  On 19 May 2011, China Wireless’ share price fell 28.9%.

The SFC alleges that Tang, a then manager of the finance department of Yulong Computer Telecommunication Scientific (Shenzhen) Co Ltd, a wholly owned subsidiary of China Wireless, knew that China Wireless recorded a significant decline in profit earnings for the months of January, February and March 2011.

The SFC alleges that, between 11 March and 27 April 2011, Tang traded whilst she knew of information that was price sensitive and was not public until China Wireless disclosed it.  Tang made a total profit of about HK$130,000 from the exercise of 48,000 share options and from the subsequent sale of the converted shares and also avoided a loss of about HK$192,000 from the sale of 140,000 China Wireless shares she already owned.

The SFC told the Court that Tang resides in the Mainland and that she had not returned to Hong Kong since 26 November 2011 after the SFC’s investigation started.

Upon the SFC’s application, Mr Chu Chung Keung, Magistrate of the Eastern Magistracy, issued an arrest warrant against Tang.

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR16

9. SFC reprimands and fines Yuanta Securities (Hong Kong) Company Limited HK$4 million

On 29 February 2016, Yuanta Securities was reprimanded and fined HK$4 million for failing to set out actual execution prices to clients and disclose its gains adequately.

Background

The SFC has reprimanded and fined Yuanta Securities (Hong Kong) Company Limited (Yuanta Securities) HK$4 million for failing to disclose the actual execution price and properly and adequately disclose the financial gains it made whilst handling bond transactions for its clients.

An SFC investigation found that from 1 July to 31 December 2012, Yuanta Securities, acting as its clients’ agent, made approximately HK$3.1 million in commission by marking-up or marking-down the execution prices in some of the 256 bond transactions for 96 clients without making proper and accurate disclosure to the clients.

After receiving a client’s buy order, Yuanta Securities’ financial product team would buy the product through a counterparty and mark-up the trading price before passing it to the sales team which would further mark-up the price before selling it to a client. The same approach was used in executing sell orders by marking down the trading prices.

Whilst some of the clients appeared to be aware of the amount of the commission the sales team earned from the trades, such commission was not always properly disclosed in the trading instruction form and was not mentioned in the daily statements sent to the clients. Furthermore, the clients were charged additional fees by Yuanta Securities without their knowledge and consent since they were not informed of the financial product team’s mark-up/mark-down.

The SFC concluded that Yuanta Securities failed to:

• properly avoid and disclose conflicts of interest and treat its clients fairly or act in their best interests;
• provide accurate information to the clients regarding the actual execution price and the full extent of the fees or charges it made in respect of the transactions; and
• set out the actual execution price and the commission and charges in the daily statements sent to clients as required under the law.

Comments

Yuanta Securities is licensed under the Securities and Futures Ordinance to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contract), Type 3 (leveraged foreign exchange trading), Type 4 (advising on securities), Type 5 (advising on futures contracts), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities.

Readers are reminded that, under section 5(1) of Securities and Futures (Contract Notes, Statements of Account and Receipts) Rules, licensed corporations which enter into securities transactions with or on behalf of clients are required to prepare and provide contract notes to the clients. Such contract notes must include the information as stipulated under sections 5(3) and (4) of the Rules, including the price of the securities, the rate or amount of commission and charges payable in respect of the transaction.

The SFC stressed that it is a fundamental duty of a licensed person to act in the best interests of its clients and to treat clients fairly by providing them with relevant material information about their transactions. Yuanta Securities failed to provide accurate information to its clients regarding the trading price and its commission charges when trading debt securities for its clients. Its practices of making undisclosed financial gains from the bond transactions at the clients’ expense were unfair to the clients.

For a copy of the statement of disciplinary action, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/openAppendix?refNo=16PR17&appendix=0

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR17

The article is for general information purpose only and is not intended to constitute legal or other professional advice.

For enquiries, please email: [email protected] or call at +852-3487 6903.
To subscribe, update your email address or unsubscribe, please email [email protected] 

1. SFC signs MoU with ESMA on cooperation arrangements and exchanges of information on derivatives contracts reported to trade repositories
2. Market Misconduct Tribunal hands down decision on Asia TeleMedia Limited case
3. SFC proposes to expand short position reporting
4. SFC issues second-quarter report
5. SFC publishes consultation conclusions on client agreement requirements
6. Court dismisses appeal by a substantial shareholder against convictions for failing to make disclosure of interests
7. SFC obtains interim court orders against Maxim Trader
8. SFC reprimands and fines three JP Morgan entities a sum of HK$30 million for regulatory breaches
9. SFC authorizes first batch of funds under Mainland-Hong Kong Mutual Recognition of Funds initiative
10. Takeovers Panel rules on general offer obligation for The Cross-Harbour (Holdings) Limited
11. SFC bans Suen King Shan for four years
12. SFC signs MoU with CFTC to enhance supervision of Cross-Border Regulated Entities
13. SFC suspends Fabiano Hugues Joseph Mascolo for three months

1. SFC signs MoU with ESMA on cooperation arrangements and exchanges of information on derivatives contracts reported to trade repositories

On 19 November 2015, the SFC signed a Memorandum of Understanding (MoU) with the European Securities and Markets Authority (ESMA).

Background

The SFC has entered into a MoU with the ESMA to facilitate information exchange in relation to information on derivative contracts held in trade repositories in Hong Kong and the European Union.

The MoU allows the SFC and ESMA to have indirect access to information on derivatives contracts in order to fulfil their respective responsibilities and mandates.

For a copy of the memorandum, please refer to:

http://www.sfc.hk/web/TC/files/ER/PDF/ESMA-SFC%20indirect%20access%20to%20TR%20data.PDF

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR115

2. Market Misconduct Tribunal hands down decision on Asia TeleMedia Limited case

On 26 November 2015, the Market Misconduct Tribunal (MMT) held that the former executives of Asia TeleMedia Limited (ATML) had not engaged in insider dealing.

Background

The MMT handed down its decision that three former executives of ATML (now known as Reorient Group Limited), Mr. Yiu Hoi Ying, Ms. Marian Wong Nam and Ms. Cecilia Ho King Lin, had not engaged in insider dealing in the shares of ATML in 2007.

The MMT also decided that it was not possible to decide whether ATML’s former chairman, Mr. Lu Ruifeng, had engaged in insider dealing as, owing to evidence of acute illness, he was not given a reasonable opportunity of being heard.

The SFC is studying the report.

The MMT will later hear from the parties as to the costs of the proceedings.

For a copy of the MMT’s report, please refer to:

http://www.mmt.gov.hk/eng/reports/Report_of_ATML_e.pdf

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR116

3.  SFC proposes to expand short position reporting

On 27 November 2015, the SFC launched a consultation on the scope of short position reporting with a proposal to expand the regime.

Background

The SFC launched a consultation on the scope of short position reporting, which the SFC proposes to extend to all securities that can be short sold under the rules of The Stock Exchange of Hong Kong Limited (SEHK).

Under the proposed expanded regime, which will also cover collective investment schemes (CIS), the reporting threshold for stocks will remain unchanged, while the threshold for CIS will be set at HK$30 million.

“We have seen growth in short selling since the short position reporting regime was introduced in 2012. The expanded regime will help improve monitoring and enhance market transparency, and this will be conducive to the long-term development of the industry,” said Mr. Ashley Alder, the SFC’s Chief Executive Officer.

The public is invited to submit their comments to the SFC by 31 December 2015. Written comments may be submitted online via the SFC website (www.sfc.hk), by email to [email protected], by post or by fax to 2521 7917.

Comment

Readers should note that the Securities and Futures (Short Position Reporting) Rules at present apply to constituents of the Hang Seng Index and Hang Seng China Enterprises Index as well as other financial stocks specified by the SFC.

For a copy of the consultation paper, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/consultation/openFile?refNo=15CP6

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/consultation/doc?refNo=15CP6

8. SFC reprimands and fines three JP Morgan entities a sum of HK$30 million for regulatory breaches

On 15 December 2015, the SFC reprimanded and fined three JP Morgan entities for failing to comply with rules and regulations in relation to short selling activities, client facilitation and principal trading business, and operation of dark liquidity pool trading services. 

Background

The SFC has reprimanded J.P. Morgan Broking (Hong Kong) Limited (JPMBHK), J.P. Morgan Securities (Asia Pacific) Limited (JPMSAP) and J.P. Morgan Securities (Far East) Limited (JPMSFE) (collectively “JP Morgan”), and fined them HK$15 million, HK$12 million and HK$3 million respectively for various regulatory breaches and/or internal control failings.

An SFC investigation revealed that JP Morgan had failed to implement adequate systems and controls in its institutional equities business in Hong Kong to ensure compliance with the rules and regulations applicable to the following areas:

• short selling activities;
• client facilitation and principal trading business; and
• operation of dark liquidity pool trading services.

• co-operated with the SFC in resolving the SFC’s concerns;
• has taken steps to rectify the concerns raised by the SFC;
• agreed to engage an independent reviewer to conduct a forward-looking review of the internal controls and systems of JP Morgan in respect of the areas mentioned above; and
• has a clean disciplinary record in relation to its regulated activities.

For a copy of the statement of disciplinary action, please refer to:

http://www.sfc.hk/web/EN/regulatory-functions/intermediaries/licensing/register-of-licensees-and-registered-institutions.html

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/openAppendix?refNo=15PR123

9. SFC authorizes first batch of funds under Mainland-Hong Kong Mutual Recognition of Funds initiative

On 18 December 2015, the SFC granted authorization for the first batch of four Mainland funds under the Mainland-Hong Kong Mutual Recognition of Funds (MRF) initiative for public offering in Hong Kong.

Background

The SFC granted authorization for the first batch of four Mainland funds under the Mainland-Hong Kong Mutual Recognition of Funds (MRF) initiative for public offering in Hong Kong.

The SFC also welcomes the approval by the China Securities Regulatory Commission (CSRC) of the first batch of three Hong Kong funds for public offering on the Mainland market.

The MRF initiative is a major breakthrough in the opening up of the Mainland’s funds market to offshore funds. It will open up a new frontier for the Mainland and Hong Kong asset management industries and make available a wider selection of fund products to investors in both markets.

The SFC and the CSRC have been accepting MRF applications since 1 July 2015. The approval of the first batch of funds under the MRF is a milestone in the implementation of this important cross-border cooperation initiative.

Comment

As of 18 December 2015, the SFC has received over 30 applications of Mainland funds under the MRF initiative, and the CSRC has received 17 applications of Hong Kong funds under the MRF initiative.

For a list of the Mainland funds authorized by the SFC for public offering in Hong Kong under MRF, please refer to:

http://www.sfc.hk/productlistWeb/searchProduct/UTMF.do

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR124

10. Takeovers Panel rules on general offer obligation for The Cross-Harbour (Holdings) Limited

On 21 December 2015, the Takeovers and Mergers Panel ruled that Mr. Cheung Chung Kiu (Mr. Cheung) will become subject to a general offer obligation if he proceeds acquiring controlling shareholder interest in The Cross-Harbour (Holdings) Limited.

Background

The Takeovers and Mergers Panel (the Panel) has ruled that a general offer obligation under the Takeovers Code will arise if Mr. Cheung proceeds with the possible acquisition of a controlling shareholder interest in The Cross-Harbour (Holdings) Limited. The Panel also agreed with the Takeovers Executive that a waiver of such general offer obligation should not be granted.

The Takeovers Executive received an application for a ruling regarding the possible acquisition and referred the matter to the Panel as there were particularly novel, important or difficult points at issue. The Panel met on 7 December 2015 to consider the referral.

For a copy of the Panel’s decision, please refer to:

http://www.sfc.hk/web/EN/files/CF/pdf/Panel%20Decision/The%20Cross-Harbour%20-%20Panel%20Decision%20(Eng)%2020151221.pdf

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR125

11. SFC bans Suen King Shan for four years

On 22 December 2015, the SFC banned Mr. Suen King Shan (Suen) from re-entering the industry for four years until 21 December 2019 over breaches of the SFC’s Code of Conduct.

Background

The SFC found that Suen had failed to perform proper account opening procedures in relation to the accounts (Nominee Accounts) opened in the names of his mother, his aunt and his cousin-in-law (Nominees) at his then employer, Ko’s Brother Securities Company Limited (Ko’s Brother Securities). Despite being their account executive at the material time, he did not conduct know-your-client procedures with the Nominees and left the account opening matters to his wife, who was not a staff member of Ko’s Brother Securities. He also falsely declared on his mother’s account opening forms that he had witnessed her signature and explained the contents of the risk disclosure statement to her.

Moreover, Suen was found to have executed his wife’s instructions to place orders in the Nominee Accounts without verifying whether the transactions were authorized by the Nominees. Suen’s wife did not have the required authorization to operate the Nominee Accounts at the material time.

Furthermore, Suen was found to have conducted personal trading in the Nominee Account opened in the name of his cousin-in-law. In doing so, he concealed his beneficial interest and personal trading activities in this account, in breach of the employee code of share trading of Ko’s Brother Securities.

The SFC is of the view that Suen’s conduct was in breach of the Code of Conduct and called into question his fitness and properness to be a licensed person.

In deciding the penalty, the SFC took into account all relevant circumstances, including that:

• Suen’s conduct was dishonest and he had abused the trust that Ko’s Brother Securities had placed in him;
• his conduct had made it possible for his wife to open the Nominee Accounts and carry out personal trading in them;
• he was an experienced practitioner and as such, he either knew or ought to have known that his conduct was improper;
• his misconduct was serious even though no reported loss was suffered by the clients; and
• he had no previous disciplinary record with the SFC.

Comment

General Principles 1 and 2 of the Code of Conduct require licensed persons to act honestly, fairly, with due skill, care and diligence, and in the best interests of their clients and the integrity of the market, in conducting their business activities; licensed persons are required under paragraph 5.1 of the Code of Conduct to take all reasonable steps to establish the true and full identity of their clients and their financial situation, investment experience and investment objectives; at the material time, under paragraph 7.1 of the Code of Conduct, a licensed person should not effect a transaction for a client unless before the transaction is effected the client, or a person designated by the client, has specifically authorized the transaction, or the client has authorized in writing the licensed or registered person to effect transactions for the client without the client’s specific authorization. (Paragraph 7.1 of the Code of Conduct has been amended since 1 December 2012).

For a copy of the statement of disciplinary action, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/openAppendix?refNo=15PR126&appendix=0

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR126

12. SFC signs MoU with CFTC to enhance supervision of Cross-Border Regulated Entities

On 23 December 2015, the SFC signed a memorandum of understanding (MoU) with the Commodity Futures Trading Commission (CFTC) to enhance supervision of cross-border regulated entities in Hong Kong and in the United States.

Background

The SFC has entered into a MoU with the CFTC regarding cooperation and the exchange of information in the supervision and oversight of regulated entities that operate on a cross-border basis in Hong Kong and in the United States.

Through the MoU, which covers regulated markets and organised trading platforms, central counterparties, intermediaries, dealers and other market participants, the SFC and the CFTC express their willingness to cooperate with each other in the interest of fulfilling their respective regulatory mandates.

For a copy of the memorandum of understanding, please refer to:

http://www.sfc.hk/web/EN/files/ER/PDF/MOU/MOU_U.%20S%20Commodity_Dec%202015.pdf

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR127

13. SFC suspends Fabiano Hugues Joseph Mascolo for three months

On 23 December 2015, the SFC announced that Mr. Fabiano Hugues Joseph Mascolo who breached the Code of Conduct has been suspended for three months.

Background

The SFC has suspended Mr. Fabiano Hugues Joseph Mascolo for three months from 21 December 2015 to 20 March 2016.

The disciplinary action follows a SFC investigation which found that in October 2013, Mascolo, who was an employee of BTIG Hong Kong Limited at the material time, received order instructions from a client via WhatsApp messaging on his mobile phone. In doing so, Mascolo was in breach of BTIG’s internal control policy.

The SFC also found that between April 2010 and September 2013, Mascolo allowed a friend, who was a licensed representative of another firm, to use his personal securities account at a brokerage firm to conduct personal trades without obtaining prior written consent from his friend’s then employers.

Mascolo’s conduct, in breach of the Code of Conduct, made it difficult for his employer to properly monitor his trading activities and to ensure compliance with regulatory requirements.
His conduct also made it impossible for his friend’s employers to identify and effectively monitor his friend’s personal trading activities to ensure there were no conflicts of interests or other malpractices arising from his personal trading.

Comment

General Principle 2 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission provides that in conducting its business activities, a licensed or registered person should act with due skill, care and diligence, in the best interests of its clients and the integrity of the market.

Paragraph 12.2(c) of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission requires that a licensed or registered person should not knowingly deal in securities or futures contracts for another licensed or registered person’s employee unless it has received written consent from that licensed or registered person.

For a copy of the memorandum of understanding, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/openAppendix?refNo=15PR128&appendix=0

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR128

The article is for general information purpose only and is not intended to constitute legal or other professional advice.

For enquiries, please email: [email protected] or call at +852-3487 6903.
To subscribe, update your email address or unsubscribe, please email [email protected] 

1. Joint HKMA-SFC consultation on mandatory clearing and reporting for OTC derivatives market
2. SFC obtains disqualification orders against former chairmen and chief executive officer of First China Financial Network Limited
3. SFC bans Wong Chun for eight years over false trading
4. SFC launches pilot initiatives to enhance fund authorization process
5. SFC bans Chan Chi Yuen for 18 months
6. SFC bans Masashi Yonezawa for 30 months
7. SFC bans Ko Shu Chuan for six years
8. SFC bans Wong Sze Yiu for six months

1. Joint HKMA-SFC consultation on mandatory clearing and reporting for OTC derivatives market

On 30 September 2015, the Hong Kong Monetary Authority (“HKMA”) and the Securities and Futures Commission (“SFC”) jointly issued a consultation on introducing the first phase of mandatory clearing and the second phase of mandatory reporting under the new over-the-counter (“OTC”) derivatives regime.

Background

The joint consultation paper aims to consult the market on: (1) introducing mandatory central clearing to mandate the clearing of certain standardised interest rate swaps entered into between major dealers; and (2) expanding the existing mandatory reporting regime so that it covers all OTC derivatives, and requires the reporting of certain additional transaction information.

The first phase of mandatory clearing aims to mandate the clearing of certain standardised interest rate swaps entered into between major dealers. The key proposals identify: (1) the types of transactions that will be subject to mandatory clearing; (2) the persons who will be subject to the clearing obligation and in what circumstances; (3) the exemptions and reliefs that may apply and (4) the process for designating central counterparties for the purposes of the clearing obligation

The second phase of mandatory reporting aims to expand the existing reporting regime. Our key proposals include requiring the reporting of transactions in all OTC derivative products, widening the scope of transaction information to be reported, including requiring the reporting of daily valuations and identifying the specific data fields to be completed under the expanded reporting regime.

Interested parties are invited to submit comments to the HKMA or the SFC by:

1. 31 October 2015 in respect of matters other than the proposed data fields, and
2. 30 November 2015 in respect of the proposed data fields.

2. SFC obtains disqualification orders against former chairmen and chief executive officer of First China Financial Network Limited

On 2 October 2015, the SFC obtained disqualification orders in the Court of First Instance (the “Court”) against three former directors of First China Financial Network Holdings Ltd (“First China”): Mr Wang Wenming (“Mr Wang”), former Chairman, Mr Lee Yiu Sun (“Mr Lee”), former Chief Executive Officer, and Mr Richard Yin Yingneng (“Mr Yin”), Mr Wang’s predecessor.

Background

Mr Wang, Mr Lee and Mr Yin have been disqualified from being a director or being involved in the management of any listed or unlisted corporation in Hong Kong, without leave of the Court, for seven, five, and four years respectively. The disqualification order made against Mr Wang and Mr Lee took effect on 21 October 2015. The disqualification order made against Mr Yin took effect on 30 September 2015.

The SFC alleged that Mr Wang, Mr Lee and Mr Yin dishonestly breached their duties to First China by either concocting or lending support for the concoction of a non-existent oral agreement called the mutual understanding and agreement (“MUA”) that purportedly required First China to distribute a dividend of RMB18,692,000 to Fame Treasure Ltd, the seller of a company acquired by First China in 2007, which Mr Wang was a majority shareholder.

The Court made the disqualification orders after finding that the MUA was a concoction and that the clarification announcement issued by First China on 16 December 2008 which stated that the MUA requiring the distribution was false or misleading in a material particular.

Earlier this year the Court ordered that Mr Wang, Mr Lee and Mr Yin to repay First China a total sum of RMB18,692,000, being the amount they caused First China to distribute to Fame Treasure Limited on the basis that the MUA existed. First China has received this money from Mr Wang.

Comment

Under section 214 of the Securities and Futures Ordinance (“SFO”), the SFC can apply to the Court by petition for an order if it appears that corporation had conducted its business or affairs in a manner involving defalcation, fraud or other misconduct. Upon conviction, the Court may make orders disqualifying a person from being a company director or being involved, directly or indirectly, in the management of any corporation for up to 15 years, if the person is found to be wholly or partly responsible for the company’s affairs.

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR93

3.  SFC bans Wong Chun for eight years over false trading

On 8 October 2015, the SFC has banned Mr Wong Chun (“Mr Wong”), a former licensed representative, from re-entering the industry for eight years following his earlier conviction and sentencing for false trading in the shares of Sino-Tech International Holdings Limited (“Sino-Tech”).

Background

Between December 2010 and January 2011, Mr Wong created a false or misleading appearance of active trading in shares of Sino-Tech, using matched trades and some wash trades between his own account and the accounts of two other investors he was able to control to grossly inflate trading volume by more than 400%. As a result, the securities accounts controlled by Wong were able to off-load more than 200 million shares, making a gross profit of more than $2 million that he would otherwise not be able to do so.

Comment

Market manipulation commonly includes the release of false or misleading information; the taking up of wash sales from one another within a certain trading period to increase the turnover of the stock or distort the actual share price; the placing of purchase orders at slightly higher prices or sale orders at lower prices to drive up or suppress the price of the securities when the market just opened (marking the open) and the drying up of stocks supply to exert undue upward price pressure on the stocks (cornering shares).

False trading takes place when a person does anything or causes anything to be done with the intention to create a false or misleading appearance of active trading in securities or futures contracts traded on a relevant recognized market, or by means of authorized automated trading services.

Readers should note that false trading is a form of market manipulation. It is a criminal offence and is a category of market misconduct under the SFO subject to severe punishment. Any SFC licensee found to have taken part in market manipulation may have their license suspended or revoked.

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR95

4.  SFC launches pilot initiatives to enhance fund authorization process

http://www.sfc.hk/edistributionWeb/gateway/EN/circular/openFile?refNo=15EC50.

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR96

5.  SFC bans Chan Chi Yuen for 18 months

For a copy of the statement of disciplinary action, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/openAppendix?refNo=15PR94&appendix=0

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR94

6. SFC bans Masashi Yonezawa for 30 months

For a copy of the statement of disciplinary action, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/openAppendix?refNo=15PR99&appendix=0

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR99

7. SFC bans Ko Shu Chuan for six years

For a copy of the statement of disciplinary action, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/openAppendix?refNo=15PR100&appendix=0

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR100

8. SFC bans Wong Sze Yiu for six months

On 26 October 2015, the SFC has banned Mr Wong Sze Yiu, a former account executive of Core Pacific-Yamaichi International (H.K.) Limited (“CPYI”), from re-entering the industry for six months from 26 October 2015 to 25 April 2016 for failures in relation to managing a client’s account on a discretionary basis.

Background

The disciplinary action follows an investigation by the SFC which found that, from around February or March 2012 until September 2014, Wong conducted discretionary trading in a client’s account without obtaining her written authorization, and without the knowledge and approval of his employer.

Although the client verbally authorized Wong to trade in her account on a discretionary basis, the absence of written authorization prevented monitoring and supervision by Wong’s employer. The SFC considers that Wong’s conduct resulted in non-compliance with the regulatory requirements on the authorization and operation of a discretionary account under the Code of Conduct.

In deciding the sanction, the SFC took into account that Wong’s misconduct lasted for two and a half years, his clean disciplinary record and his cooperation with the SFC.

Comment

Under the Code of Conduct, a discretionary account is defined as client account in respect of which the client has authorized the licensed or registered person or any person employed by it (who must in turn be a licensed or registered person) to effect transactions on behalf of the account without the client’s prior approval for each transaction. The discretion may be absolute or subject to conditions.

Readers should take note that the Code of Conduct imposes the following requirements on the establishment and operation of discretionary accounts:

1. the client’s authority must be in writing;
2. the authority should specify the person who is authorized to operate the account, stating that the person is an employee or agent of the licensed or registered person, if the authority is granted to such person;
3. the terms of the authority should be explained by the licensed or registered person or a person employed by it to the client if the authority is given to such persons to operate the account;
4. the authority should be confirmed annually by the licensed or registered person with the client – for this purpose, it is permissible for the licensed or registered person to notify the client before the expiry date that it will be automatically renewed unless the client specifically revokes it before the expiry date;
5. the account should be designated as a discretionary account;
6. senior management should approve the opening of the account; and
7. internal control systems should be installed to ensure that the operation of the account is properly supervised.

For a copy of the statement of disciplinary action, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/openAppendix?refNo=15PR102&appendix=0

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR102

The article is for general information purpose only and is not intended to constitute legal or other professional advice.

For enquiries, please email: [email protected] or call at +852-3487 6903.
To subscribe, update your email address or unsubscribe, please email [email protected]