Newsletter – May 2014

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Newsletter – May 2014
  1. SFC reprimands and fines Deutsche Bank Aktiengesellschaft HK$1.6 million for regulatory breaches
  2. Court orders EY to produce accounting records to SFC
  3. SFC resolves concerns over Citigroup’s algorithmic trading system
  4. SFC reprimands and fines Kaiser HK$1.7 million for conducting unauthorized financial activities offshore
  5. SFC reprimands and fines ICBC International Capital Limited and ICBC International Securities Limited HK$12.5 million each for failures related to IPO shares subscription
  6. C.L. Management Services Limited and its director fined HK$1.5 million for unlicensed activities
  7. SFC obtains court orders for GOME to receive HK$420 million compensation from founder and wife over breaches in share repurchase
  8. SFC bans Helen Chow Hoi Ching and Choy Cheuk Tung for life
  9. Futures manipulator sentenced to community service

1. SFC reprimands and fines Deutsche Bank Aktiengesellschaft HK$1.6 million for regulatory breaches

The Securities and Futures Commission (SFC) has reprimanded and fined Deutsche Bank Aktiengesellschaft (Deutsche Bank) HK$1.6 million for regulatory breaches and internal control failings.

Background

Deutsche Bank is a registered institution under the Securities and Futures Ordinance (SFO) to carry on Type 1 (dealing in securities), Type 4 (advising in securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities. Deutsche Bank is also an authorized institution under the supervision of the Hong Kong Monetary Authority.

The disciplinary action follows an SFC investigation into the failure of Deutsche Bank to disclose to Stock Exchange of Hong Kong Limited (SEHK) the changes to its percentage holdings in the issued share capital of Up Energy Development Group Limited on 27 occasions from 21 January 2011 to 25 August 2011. Three of these 27 occasions involved trading activity by Deutsche Bank; the remainder involved increases to the listed company’s total issued share capital.

Although Deutsche Bank had implemented an electronic position monitoring system to capture and monitor its positions globally, the system did not automatically capture equity positions that were processed and settled under the settlement system used in Singapore in its fixed income division. Deutsche Bank was aware of this limitation but failed to implement adequate procedures or training to guide the relevant business groups at Deutsche Bank to identify and report those equity positions that did not automatically feed into its electronic position monitoring system.

Disciplinary actions

Taking into account Deutsche Bank reported the matter to the SFC and has since strengthened its internal controls on the monitoring and disclosure of its equity positions in Hong Kong listed companies, SFC reprimanded and fined Deutsche Bank Aktiengesellschaft HK$1.6 million for regulatory breaches.

Comments

Readers are reminded that under Section 310(1) of the SFO provided that where a person acquires an interest in or ceases to be interested in shares comprised in the relevant share capital of a listed corporation; or where any change occurs affecting a person’s existing interest in shares in a listed corporation’s share capital, then in the circumstances specified in section 313(1), he comes under a duty of disclosure.

The notifiable percentage level for notifiable interests is 5% and the specified percentage level for changes to notifiable interests is 1%.

Where a person comes under a duty of disclosure under section 310, he should give notification to the listed corporation concerned and SEHK of the interests which he has, or ceases to have, in the shares of the listed corporation. The notification should be given at the same time or, if not practicable, one immediately after the other.

Recently, SFC had announced several enforcement actions on similar nature that some firms failed to meet with the regulatory reporting requirement such as on Large and Open Position Reporting. We recommend licensed firms should run regular testing on their compliance on this area such as short positing reporting compliance testing etc.

For details, please refer to the SFC article:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=14PR59

2. Court orders EY to produce accounting records to SFC

On 23 May 2014, the Court of First Instance ordered EY must produce specified accounting records relating to its work as the reporting accountant and auditor for Standard Water Limited (Standard Water) to the Securities and Futures Commission (SFC).

Background

Standard Water applied for listing to the Stock Exchange of Hong Kong (SEHK) on 9 November 2009. In March 2010, EY informed the SEHK of its resignation as reporting accountants and auditors of Standard Water upon discovery of certain inconsistencies in documentation provided by the company. Shortly afterwards, Standard Water also withdrew its listing application. During an SFC investigation into the proposed listing of Standard Water, EY failed to provide the specified accounting records to the SFC citing they could not be produced as EY was not in possession of the records and that they could not be produced because of restrictions under PRC law.

The SFC subsequently brought the proceedings against EY in 2012 to compel the production of the specified records.

The Court of First Instance rejected the cited arguments of EY and ordered them to produce the required material to the SFC. Further, EY has been ordered to pay the SFC costs on an indemnity basis.  Auditors should not withhold information that is in their possession and sought by the SFC in connection with suspected misconduct in Hong Kong’s markets.

Comments

Readers are reminded that, under the Securities and Futures Ordinance (SFO), the SFC is empowered to request information from persons whom it believes may have information relevant to an investigation.  If a person fails to comply with such a request without a reasonable excuse, the SFC can bring proceedings under the SFO which empowers the Court of First Instance to inquire into the circumstances of non-compliance. The court can order the person to comply with the SFC’s request if it is satisfied that the person does not have any reasonable excuse for not complying. Readers are also reminded about the obligations of an accounting firm, or any other company based in Hong Kong to comply with requirements under Hong Kong law.

For details, please refer to the SFC article:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=14PR60

3. SFC resolves concerns over Citigroup’s algorithmic trading system

On 14 May 2014, the Securities and Futures Commission (SFC) has reprimanded Citigroup Global Markets Asia Limited (Citigroup) for its failure to ensure that certain securities orders executed through its algorithmic trading system between April 2009 and May 2010 would not cause undue price impact to the market in resolving the SFC’s concerns over Citigroup’s algorithmic trading system.

Background

Citigroup is licensed under the Securities and Futures Ordinance to carry on business in Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), Type 5 (advising on futures contracts), Type 6 (advising on corporate finance) and Type 7 (providing automated trading services) regulated activities.

The SFC’s investigations into Citigroup’s use of algorithmic trading system to execute client orders on four occasions found that Citigroup’s execution in those cases resulted in a material increase or decrease in the price of the relevant stocks within a very short period of time, before the stock prices returned quickly to their original levels.

Disciplinary actions

Taking into account that the Citigroup co-operated with the SFC in resolving the its concerns and that the Citigroup had agreed to engage an independent reviewer to conduct a forward-looking review of its algorithmic trading system to ensure compliance with the new regulation on electronic trading which came into force on 1 January 2014. The SFC had decided against imposing a heavy fine on Citigroup. A public reprimand was issued against Citigroup for its failure to ensure that certain securities orders executed through its algorithmic trading system.

Comments

Readers are reminded that Chapter 18 and Schedule 7 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct) on electronic trading came into effect on 1 January 2014. Licensed corporation should, among other things, effectively manage and adequately supervise the design, development, deployment and operation of its electronic trading system and ensure the system’s integrity, including security as stated under paragraph 1.2.4 of Schedule 7, which stresses the necessity of appropriate operating controls to prevent and detect unauthorized intrusion, security breach and security attack.

Licensed corporations should, as a matter of priority, review their existing internet trading systems, related policies, procedures and practices and make enhancements where needed, so as to establish and maintain a proper IT security management framework given that the SFC rules on electronic trading has taken effect since 1 January 2014.

For details, please refer to the SFC article:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=14PR38

4. SFC reprimands and fines Kaiser HK$1.7 million for conducting unauthorized financial activities offshore

On 7 May 2014, the Securities and Futures Commission (SFC) has reprimanded Kaiser Securities Limited (Kaiser Securities) and Kaiser Futures Limited (Kaiser Futures) (collectively referred to as Kaiser) and fined them a total of HK$1.7 million for conducting unauthorized financial activities in breach of the laws of Macau. Kaiser Securities and Kaiser Futures were fined HK$1 million and HK$700,000 respectively.

Background

Kaiser Securities is licensed under the SFO to carry on Type 1 (dealing in securities) regulated activity.  Kaiser Futures is licensed under the SFO to carry on Type 2 (dealing in futures contracts) regulated activity.

Between 2004 and 2011, Kaiser conducted securities business in Macau at the premises of Unified Securities (Macau) Limited (Unified) and provided services to clients in respect of their trading in securities, futures and options in the Hong Kong market in Macau through Unified.

Under the arrangement between Kaiser and Unified, Unified introduced Macau clients to Kaiser and provided general assistance to the clients in engaging Kaiser’s services. When clients in Macau wish to open accounts with Kaiser, Kaiser would send its licensed representatives to Unified to handle the account opening. In conducting trades in their accounts, the clients placed securities trading orders with Kaiser through internet, telephone or Unified’s staff, and received account statements from Kaiser on a regular basis.

Kaiser’s conduct contravened Article 118(1) of the Financial System Act of Macau because Kaiser did not have any authorization to carry on such a business in Macau. In July 2013, the Monetary Authority of Macao announced the decision of the Secretary for Economy and Finance of Macau to sanction Kaiser Securities and Kaiser Futures for their breach of the Financial System Act. Kaiser Securities was fined MOP 1,500,000 and Kaiser Futures was fined MOP 150,000 by the Macau authority.

Disciplinary action

Kaiser’s contravention of the laws of Macau cast doubt on their reputation, character and reliability and constitutes a breach of paragraph 12.1 of the Code of Conduct. The SFC publicly reprimanded Kaiser and fined them a total of HK$1.7 million pursuant to section 194 of the Securities and Futures Ordinance (SFO) for conducting unauthorized financial activities in breach of the laws of Macau. Kaiser Securities and Kaiser Futures were fined HK$1 million and HK$700,000 respectively.

Comments

Readers should note that the duty of a licensed person to demonstrate the qualities of sound reputation, character and reliability is not only restricted to their conduct in the Hong Kong market. It is also imperative for them to respect and comply with rules of relevant regulatory authority and laws of relevant jurisdictions, particularly those where Kaiser conduct their business activities.

Paragraph 12.1 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct) provides that a licensed person should comply with, and implement and maintain measures appropriate to ensuring compliance with, the law and relevant regulatory requirements.

Readers are further reminded that a licensed corporation having employees or agents conducting business activities on its behalf in other jurisdictions (irrespective of whether such persons are licensed under the Securities and Futures Ordinance), is likely to be regarded by the Commission as responsible for their conduct. If these persons are not licensed under the laws or regulations of such other jurisdictions when they should be, or they otherwise conduct themselves in an improper manner, this may constitute a breach of paragraph 12.1 of the Code of Conduct and may also call into question the fitness and properness of such a corporation and/or individual to be, or remain, licensed under the Securities and Futures Ordinance.

For details, please refer to the SFC article:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=14PR49

5. SFC reprimands and fines ICBC International Capital Limited and ICBC International Securities Limited HK$12.5 million each for failures related to IPO shares subscription

The reprimand and fine follows ICBC International Capital Limited (ICBCI Capital) and ICBC International Securities Limited (ICBCI Securities) (collectively ICBCI) an investigation into the practice and procedure adopted by ICBCI in relation to their role in the initial public offering of Powerlong Real Estate Holdings Limited (Powerlong) in 2009.

Background

An SFC investigation found that ICBI had, among others:

  • failed to conduct customer due diligence and perform ongoing scrutiny of accounts of certain placees referred by Powerlong (Placees) to ensure that the transactions being conducted were consistent with its knowledge of the Placees, taking into account their source of funds;
  • turned a blind eye to the lack of independence of Placees for the subscription of Powerlong’s shares allotted through its listing (the Offer Shares) on The Stock Exchange of Hong Kong Limited (SEHK); and
  • failed to use reasonable efforts to ensure that submissions to the SEHK were true, accurate and not misleading.

An SFC investigation revealed that the Placees were referred to ICBCI Capital by ICBCI Securities which had been referred to them by Powerlong. The subscriptions of the Placees for the Offer Shares were accepted without conducting know-your-client due diligence to either ascertain their financial situation or confirm their independence from Powerlong.

The Offer Shares were re-priced due to insufficient demand. Thereafter, subscriptions of the Placees suddenly increased by as much as tenfold. ICBCI Securities failed to perform ongoing scrutiny to ensure that the Placees’ subscriptions were consistent with its knowledge of their financial situation. Further, no inquiry was made by ICBCI Capital to ascertain whether this was the case or the relationship between the Placees and Powerlong after a staff member of ICBCI Capital voiced suspicions.

Although the subscriptions of some of the Placees exceeded their declared net worth, ICBCI Capital nevertheless allocated the Offer Shares to them. As a result, massive debit balances were triggered after the Offer Shares were booked into their accounts. Margin financing of as much as 50%, which was not generally granted in international primary placings, was then extended by ICBCI Securities to certain Placees.

When some Placees raised questions regarding third-party settlement of their subscriptions, instead of questioning the reasons behind them, personnel of ICBCI Securities advised them to settle their allotment by various methods which ensured that the identity of the third-party depositors could not be traced.

Disciplinary Action

Further to the reprimand and fine of ICBCI, ICBCI has agreed to accept the disciplinary action and has committed to engage a firm of independent reviewers to undertake a comprehensive review of its systems and controls and to implement the recommendations made by the reviewer to the satisfaction of the SFC.

For details, please refer to the SFC article:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=14PR58

6. C.L. Management Services Limited and its director fined HK$1.5 million for unlicensed activities

The Eastern Magistrates’ Court convicted C. L. Management and its director, Ms. Clarea Au Suet Ming (Au), on three counts of holding out as providing advisory services on corporate finance without a licence from the SFC after they pleaded not guilty.

Background

A Securities and Futures Commission (SFC) investigation found that between October 2010 and January 2012, C.L. Management had entered into service agreements with three companies for advising on their listing applications. The Eastern Magistrates Court accepted that the scope of services under these service agreements constituted advising on corporate finance and by entering into these service agreements, C.L. Management represented itself as being prepared to advise these three companies on their listing applications.

Comments

Readers are reminded that under the Securities and Futures Ordinance (SFO), advising on corporate finance is a regulated activity which requires a Type 6 (advising on corporate finance) licence from the SFC and under section 114(1)(a) and 114(8) of the SFO, a person commits an offence when the person, without reasonable excuse, carries / carried on a business in a regulated activity without a licence.

For details, please refer to the SFC article:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=14PR57

7. SFC obtains court orders for GOME to receive HK$420 million compensation from founder and wife over breaches in share repurchase

On 5 May 2014, the Court of First Instance granted orders sought by the Securities and Futures Commission (SFC) in its proceedings against the former Chairman of GOME Electrical Appliances Holding Limited (GOME), Mr. Wong Kwong Yu and his wife, Ms. Du Juan, a former director of GOME, for them to compensate GOME HK$420 million and interest for their breaches of directors’ duties in certain share repurchases GOME conducted between 22 January and 5 February 2008 (Share Repurchase).

Background

The SFC commenced proceedings against Wong, Du and two companies in August 2009 alleging that Wong and Du organized a share repurchase, which took place between 22 January and 5 February 2008, to raise cash to repay a HK$2.4 billion personal loan to a financial institution which was due by 11 February 2008.

The Court of First Instance granted an interim injunction to freeze assets of up to HK$1,655,167,000 in August 2009. The injunction against the two companies was later discharged on 8 September 2009 upon deposit with the court of share certificates representing 779,255,678 shares of GOME and the injunction against Du was discharged on 2 March 2011.

Wong directed GOME to repurchase the majority of the 136,937,000 shares originally held by him which constituted approximately 70% of the total number of shares repurchased by GOME in the Share Repurchase.

Wong and Du have failed to ensure the share repurchase was properly authorized by GOME’s board. Wong did not make full disclosure of such personal interest as he may have had in the share repurchase as a seller of the GOME shares. Wong further admitted that he should not have participated in the meeting of the executive directors that authorized the Share Repurchase nor should he have participated in implementing the Share Repurchase.

For the purposes of resolving the SFC’s proceedings and seeking ratification from the minority shareholders, Wong and Du have agreed that they have breached their directors’ duties to GOME to act properly and in the best interests of GOME and to avoid making any unauthorized or improper gain at the expense of GOME.

Wong and Du agreed to pay GOME an aggregate amount of HK$420,608,765.75, representing the gains, together with accrued interest, received by Wong as a result of his sale of GOME shares to GOME as part of the share repurchase and the loss incurred by GOME

Wong and Du have also agreed to requisition a special general meeting of the Company (SGM) and to prepare a notice of meeting to be sent to all shareholders of GOME in which they will seek shareholders’ resolutions to ratify the share repurchase and their breaches of directors’ duties to the Company.

On 17 April 2014, independent shareholders passed resolutions at the SGM to ratify the Share Repurchase and Wong’s and Du’s associated breaches of directors’ duties; and the payment of compensation to GOME by Wong and Du in return for releasing Wong, Du and any others from all liabilities and claims arising from the Share Repurchase and breaches of duties.

Court order

The injunction to freeze assets of Wong up to the value of HK$1,655 million in order to secure assets to meet any compensation order was discharged by the court.  HK$420 million paid by Wong and Du into court for the purposes of compensating GOME was also released to GOME together with interest.

Hon Mr. Justice Harris of the Court of First Instance further ordered the undertakings of Shinning Crown Holdings Inc (Shinning Crown) and Shine Group Ltd (Shine Group), two companies through which Wong held his shares in GOME, be released. 779 million GOME shares the two companies deposited with the court used to satisfy any liability of Du is to be returned to Shinning Crown and Shine Group also.

Comments

Readers are reminded that under Rule 2 of the SFC’s Codes on Takeovers and Mergers and Share Buy-backs, a board of shareholders which receives an offer, or is approached with a view to an offer being made, must in the interests of shareholders, establish an independent committee of the board to make a recommendation (i) as to whether the offer is, or is not, fair and reasonable and (ii) as to acceptance or voting. As soon as reasonably practicable, the board must retain a competent independent financial adviser to advise the independent committee in writing in connection with the offer and in particular as to whether the offer is, or is not, fair and reasonable and as to acceptance and voting. The independent committee must approve the appointment of any independent financial adviser before the appointment is made.

Readers are further reminded that subject to the provisions of the Code on Share Repurchases, an issuer may purchase its shares on the HKEX. All such purchases must be made in accordance with rule 10.06. Rules 10.06(1), 10.06(2)(f) and 10.06(3) apply only to issuers whose primary listing is on the HKEX while the rest of rule 10.06(2) and rules 10.06(4), (5) and (6) apply to all issuers. The Code on Share Repurchases must be complied with by an issuer and its directors. Any breach of the Code by an issuer will be a deemed breach of the Exchange Listing Rules and the HKEX may in its absolute discretion take action to penalize any breaches.

Under Rule 10.06(2) of the Rules Governing the Listing of Securities on the HKEX, an issuer shall not purchase its shares on the HKEX for a consideration other than cash or for settlement otherwise than in accordance with the trading rules of the Exchange from time to time. Furthermore, an issuer shall not knowingly purchase its shares from a connected person and a connected person shall not knowingly sell shares to the issuer.

Readers should also take note that under section 213 of SFO, the Court of First Instance may grant an interim injunction to freeze assets of any person who contravened the SFO on the application of the SFC.

For details, please refer to the SFC article:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=14PR52

8. SFC bans Helen Chow Hoi Ching and Choy Cheuk Tung for life

On 7 May 2014, the Securities and Futures Commission (SFC) has, in two separate actions, banned Ms. Helen Chow Hoi Ching, a former employee of The Royal Bank of Scotland N.V. (formerly known as ABN AMRO Bank N.V.), and Ms. Choy Cheuk Tung, a former employee of Standard Chartered Bank (Hong Kong) Limited, from re-entering the industry for life.

Background

Between January 2009 and March 2009, Chow transferred monies totaling HK$28,876,653 from four customers’ accounts without their authorizations to other customers’ accounts by forging the customers’ signatures on bank instruction forms. To conceal the unauthorized transfers, Chow changed the correspondence address of two of the customers by forging their signatures on bank instruction forms and sent false bank statements to one of them.

In July 2012, Choy misappropriated a total of HK$750,000 from a bank customer by forging the customer’s signature and made three transfers from the customer’s account into her husband’s account, and subsequently transferred a total of HK$700,000 into her own account.

Conviction and disciplinary actions

Chow was sentenced to imprisonment of four years by the District Court following conviction on one count of fraud on 11 September 2013.

Choy was sentenced to imprisonment of 18 months by the District Court following convictions of three counts of theft and three counts of dealing with property known or reasonably believed to represent proceeds of an indictable offence on 5 December 2013.

The SFC considers Chow and Choy are not fit and proper persons as a result of their convictions. Subsequently, they were banned from re-entering the industry for life.

Comments

Readers should note that under Section 71 of the Crimes Ordinance, a person who makes a false instrument, with the intention that he or another shall use it to induce somebody to accept it as genuine, and by reason of so accepting it to do or not to do some act to his own or any other person’s prejudice, commits the offence of forgery and is liable on conviction on indictment to imprisonment for 14 years.

Under Section 16A of the Theft ordinance, any person by any deceit and with intent to defraud induces another person to commit an act which results either in benefit to any person other than the second-mentioned person, he or she person commits the offence of fraud and is liable on conviction upon indictment to imprisonment for 14 years.

Furthermore, under Section 25 of the Theft ordinance, a person commits an offence if, knowing or having reasonable grounds to believe that any property in whole or in part directly or indirectly represents any person’s proceeds of an indictable offence, he or she deals with that property. A person who commits this offence is liable on conviction upon indictment to a fine of HK$5,000,000 and to imprisonment for 14 years; or on summary conviction to a fine of HK$500,000 and to imprisonment for 3 years.

Readers are once again reminded that it is the duty of a licensed person to abide by the General Principles of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct). Paragraph 7.1 of the Fit and Proper Guidelines provides that a person may not be fit and proper if that person was found to be of poor reputation, character or reliability, lacking in financial integrity, or dishonest, which may be evidenced by that person’s being found by a court for fraud, dishonesty or misfeasance, or by his being convicted of a criminal offence which is of direct relevance to fitness and properness.

Readers should also note that SFC’s disciplinary actions against Chow and Choy are empowered by sections 194 to 196 of the Securities and Futures Ordinance, which provide that the SFC may revoke the license of a regulated person if he is found to be guilty of misconduct or is not fit and proper to be or to remain the same type of regulated person.

For details, please refer to the SFC article:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=14PR50

9. Futures manipulator sentenced to community service

On 14 May 2014, the Eastern Magistrates’ Court today sentenced a futures trader, Mr Ernest Fan Kwong Hung, to 200 hours of community service and fined him HK$59,430 for manipulating the final calculated opening prices (COP) of index futures contracts in the futures market.

Background

Fan has been a licensed representative to carry on Type 1 (dealing in securities) and Type 2 (dealing in futures contracts) regulated activities under the Securities and Futures Ordinance and was accredited to Sanfull Securities Limited and Sanfull Futures Limited respectively since 20 November 2008.

Fan was charged with the offences of manipulating the final COP of Mini-Hang Seng Index futures contracts during the morning Pre-Market Opening Period on six trading days between 25 January 2010 and 31 March 2010 following an investigation by the Securities and Futures Commission (SFC).

A COP is calculated during the Pre-Market Opening Period and serves as the market opening price for the corresponding product. A COP will be calculated only if the highest bid price of the limit orders entered into the Automated Trading System of the Exchange (HKATS) is greater than or equal to the lowest ask price of the limit orders. If more than one price satisfies this criterion, the COP will be calculated according to the established formula set forth in Rule 4.8.4 of Trading Procedures for Stock Index Futures and Stock Index Options Traded on HKATS.

Conviction

The Eastern Magistrates’ Court found Fan guilty on 30 April 2014 of six counts of false trading. On each of the six trading days, Fan placed a series of limit and auction orders in the Mini-Hang Seng Index futures contracts during the morning Pre-Market Opening Period with the intention, or being reckless as to whether, they had the effect of creating a false or misleading appearance with respect to its final COP.

The Magistrate also made a cold shoulder order against Fan, prohibiting him from directly or indirectly, in any way acquire, dispose of or otherwise dealing in any futures contracts in Hang Seng Index or Mini-Hang Seng Index in the Pre-Market Opening Period for six months without the leave of the court in Hong Kong.

Comments

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 details, please refer to the SFC article:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=14PR55

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

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