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Welcome to ComplianceAsia News

We aim to offer all of the latest developments we think are relevant to compliance professionals dealing with issues in financial regulation with a focus on the Asian region. Many of the articles are from the  the US and the UK because these are the principal locations that effect how firms operate in Asia outside of the regulator that is closest to your Asian operation.

Entries in SFC (7)

Tuesday
Mar022010

Short reporting for Hong Kong

Whether Hong Kong needs it or not, and we would suggest it does not need it, short position reporting is coming to Hong Kong.  The following was on the SFC website today:

SFC to adopt new short-position reporting regime

In a set of consultation conclusions released today, the Securities and Futures Commission (SFC) announced that after taking into account industry feedback and the domestic market situation, it will introduce a short-position reporting regime to enhance transparency of short-selling activities in Hong Kong.

The SFC received 21 responses from market participants to its 31 July 2009 consultation paper on increasing short-selling transparency which discussed two possible approaches: enhancing the existing transactional reporting regime and implementing a new short-position reporting model.

“A build-up of large short positions may be potentially disruptive to market stability,” said the SFC’s Chief Executive Officer Mr Martin Wheatley. “A short-position reporting regime will not only complement Hong Kong’s robust short-selling regulatory framework but will also provide a more complete picture of short-selling activities in our market.”

Under the proposed regime, the reporting obligation will be triggered if a short position is equal to or exceeds, 0.02% of the issued share capital of a listed company, or a market value of $30 million, whichever is lower. Weekly reports must be submitted to the SFC until the short position falls below both trigger levels. The SFC will publish aggregated short positions of each stock on an anonymous basis a week later.

The proposed short-position reporting regime will only be applicable to constituent stocks of the Hang Seng Index, the H-shares Index, financial stocks and other stocks specified by the SFC. Derivatives will not be included.

The new reporting model will be implemented by a new subsidiary legislation, on which the SFC will be consulting the public in due course.

The consultation paper conclusions reached by the SFC are sad in that they really did not address the issue of the cost of the information that is going to be provided and whether that cost will be of any benefit to Hong Kong.  If the rules were in place tomorrow a short position of more than HK16m (just over US2m) in Esprit Holdings (essentially a fashion brand) would need to be reported each week to the HK SFC.  The SFC would aggregate the reports and publish them after on an aggregated basis.

The world will clearly be a much safer place with well known fashion brands safe from nasty short sellers and industry participants will pay a tax on their operations to report positions and keep our world peachy.

It must be remembered that Hong Kong already has a strong and functioning short selling process and short selling was not an issue that effected Hong Kong in any adverse way during the financial crisis.

This is not the SFC's finest hour and we hope that future changes are given a bit more thought than this one.

Legislation will be needed and it will take time for that to be drafted and passed.

 

Friday
Jan292010

Another sanction in HK for market manipulation

The Hong Kong SFC website reported as follows:

SFC bans Edmond Chau Chin Hung for life

 

The Securities and Futures Commission (SFC) has publicly reprimanded Mr Edmond Chau Chin Hung, fined him $2 million and prohibited him for life from re-entering the industry for engaging in market misconduct (Note 1).

The disciplinary action follows the Market Misconduct Tribunal’s (MMT) determination that Chau, a former responsible officer of Sun Hung Kai Investment Services Ltd (SHKIS), and three other parties had engaged in market misconduct by false trading and price rigging in the shares of QPL International Holdings Ltd (QPL). The MMT made certain orders against Chau, including recommending that the SFC take disciplinary action against him (Note 2).

During the period from 6 May to 10 June 2003, Chau engaged in scaffolding activities by placing numerous buy orders for QPL shares and subsequently cancelling, reducing these orders or allowing them to lapse in order that two SHKIS clients could sell their holdings of QPL shares more actively and quickly.

Not only was Chau in breach of SHKIS’s internal policies, he also abused his senior position as responsible officer by procuring the assistance of or conniving with his subordinate to conduct these unlawful activities.

When he attended interviews with the SFC during the investigation, he denied having conducted any scaffolding activities or engaged in any market misconduct. However, during the MMT proceedings, he admitted that he had done so.

In deciding upon the sanctions against Chau, the SFC took into account that Chau:

  • played a primary role in perpetrating the market misconduct for five weeks and his misconduct was only put to an end by the intervention of the SFC with its inquiry into the trading of QPL shares;
  • abused his senior position at SHKIS by procuring the assistance of his subordinate to conduct unlawful activities;
  • co-operated with the SFC by consenting to the disciplinary action; and
  • has a clear disciplinary record with the SFC.


End

Notes:

  1. Chau was licensed under the Securities and Futures Ordinance to carry on business in Type 1 (dealing in securities), Type 2 (dealing in futures contracts) and Type 3 (leveraged foreign exchange trading) regulated activities. He was a responsible officer of Bali Securities Co Ltd, SHKIS, Sun Hung Kai Commodities Ltd, and Sun Hung Kai International Commodities Ltd. He ceased to be a licensed person and the approval for him to act as a responsible officer was revoked on 27 February 2009.
  2. The MMT’s press release and report (http://www.info.gov.hk/gia/general/200903/18/P200903180162.htm) can be found on the MMT’s website (www.mmt.gov.hk).
Tuesday
Nov242009

Mr Allen Lam Kar Fai banned for life by SFC

On 23rd November 2009 The Securities and Futures Commission (SFC) reported that it had banned Mr Allen Lam Kar Fai from re-entering the industry for life. This follows the revoking of his licence in 2006.  (Note 1).

The disciplinary action follows Mr Lam’s conviction for insider dealing in July 2009 at the District Court (Note 2). He was sentenced to six months’ imprisonment and ordered to pay a fine of HK$69,000.

Mr Lam was investigated after he gave confidential and price sensitive information to a fund manager before it was public. The fund manager, Ryan Fong,  then took advantage of the information. Mr Fong has been sentenced to 1 year imprisonment and order to pay a fine of nearly HK$1.4 million. There has been no comment on any action taken by SFC to penalise or ban Mr Fong.


Mr Mark Steward, the SFC’s Executive Director of Enforcement  said “The SFC expects licensees will safeguard confidential, price sensitive information, not exploit it. Lam’s conduct violated the trust expected of him as a licensee. There is no place for licensees who misuse confidential information and enter into arrangements like this to deceive the market,”

Notes:

1. Lam was licensed under the Securities and Futures Ordinance to carry on Type 6 (advising on corporate finance) regulated activity and had been accredited to CLSA Equity Capital Markets Ltd (CLSA) since 2001. His licence was revoked in June 2006 and he does not currently hold an SFC licence.
2. Please see SFC press releases dated 7 July 2009 and 20 July 2009.

 

For the full details please use the following Mr Allen Lam Kar Fai

Thursday
Oct152009

Hong Kong SFC fines Sun Hung Kai Investment Services for compliance failure

According to the SFC website the Securities and Futures Commission (SFC) has publicly reprimanded Sun Hung Kai Investment Services Ltd (SHKIS) and fined it $4,000,000 for internal control failures that contributed to market misconduct (Note 1).  The offences relate to a failure to enforce controls relating to the separation of agency and proprietary trading.

The amount of the fine, HK$4 million (or USD514,000), is high for this type of offence and reflects the overall trend of increasing fines against corporates in Hong Kong where the SFC determines that a breach has occurred.

The SFC website reports as follows:

Following an inquiry into dealing in the shares of QPL International Holdings Ltd in 2003, the Market Misconduct Tribunal (MMT) found on 22 January 2009 that Mr Edmond Chau Chin Hung (a former responsible officer of SHKIS) and Ms Connie Cheung Sau Lin (a former account executive of SHKIS) engaged in false trading and price rigging, contrary to the Securities and Futures Ordinance, for the period from 6 May to 10 June 2003.

The MMT further found that:

  • the misconduct of Chau was attributable to SHKIS of whom he was an executive director and responsible officer, and to Cheeroll Ltd (now renamed Sun Hung Kai Strategic Capital Ltd) for whom Chau was authorised to trade; and
  • SHKIS was vicariously liable for the misconduct of Cheung.


On 25 February 2009, the MMT made certain orders including recommending that disciplinary action be taken by the SFC against SHKIS, Chau and Cheung (Note 2).

The SFC found that there were internal control failures at SHKIS that contributed to the market misconduct because:

  • despite policies to segregate proprietary trading and client trading, SHKIS gave Chau the authority to conduct both types of trading which gave him the opportunity to misuse information gathered on the client trading side of the business to engage in unlawful activities in a proprietary account;
  • at material times, SHKIS allowed Chau and Cheung to place orders in the same dealing room by open “outcry”, which was inconsistent with SHKIS’ formal policy to physically separate proprietary and client trading functions; and
  • SHKIS did not detect Chau and Cheung’s misconduct for five weeks until brought to its attention by the SFC.


In deciding on this outcome, the SFC took into account that:

  • Chau and Cheung acted without SHKIS’ sanction and in breach of its internal policies;
  • SHKIS did not profit from Chau and Cheung’s actions;
  • SHKIS co-operated with the SFC by entering into a settlement resolution; and
  • SHKIS has made improvements to its framework of controls and reporting in the period since.


Mr Mark Steward, the SFC’s Executive Director of Enforcement, said: “Sun Hung Kai Investment Services Ltd had in place appropriate policies segregating client and proprietary trading which, in this case, were not properly implemented or policed. Policies designed to prevent market misconduct must be actively monitored and supervised by senior management and the SFC will hold firms to account for their failure to ensure their compliance systems are working properly.”

End

Notes:

  1. SHKIS is licensed under the Securities and Futures Ordinance to carry on business in Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities.
  2. The MMT’s press release and report can be found on the MMT’s website www.mmt.gov.hk

(see http://www.info.gov.hk/gia/general/200903/18/P200903180162.htm)

Tuesday
Aug252009

Progress of the HKMA's investigations in Lehman-Brothers-related cases

The biggest issue in financial services in Hong Kong over the last 12 months has been the collapse of Lehman Brothers and the knock on effect it had in relation to various structured notes purchased by members of the public in Hong Kong. After street demonstrations, formal inquiries and various investigations a process of settling the claims of disgruntled investors and referring specific cases of alleged misselling to regulators is well underway. The following press release from the HKMA (who regulate banks in Hong Kong) was released on 21 August:

Click to read more ...

Monday
Aug242009

SFC seeks court orders to freeze assets of Tiger Asia Management LLC

In an unusually strong action (for Hong Kong) the Hong Kong SFC announced on 20 August that they had "commenced proceedings in the [Hong Kong] High Court against Tiger Asia Management LLC, a New York-based asset management company, and three of its senior officers, Mr Bill Sung Kook Hwang, Mr Raymond Park and Mr William Tomita (Notes 1 and 2). The SFC has applied for an injunction order to freeze assets of Tiger Asia and the three senior officers, including those located overseas, up to $29.9 million pending final orders that the SFC is seeking. The amount is equivalent to the notional profit made by Tiger Asia in alleged insider dealing and market manipulation activities.

Click to read more ...

Saturday
Jun132009

SFC prosecution relating to offshore / onshore activities

On June 2, the SFC published a release stating that it had disciplined a trio for unlicensed leveraged forex trading. The SFC website stated: The Securities and Futures Commission (SFC) has taken disciplinary actions against three individuals of Hantec Group for their involvement in an unlicensed leveraged foreign exchange trading operation following a determination of the Securities and Futures Appeals Tribunal (SFAT) (Note 1). The SFC has: revoked the licence of Ms Ng Chiu Mui and prohibited her from re-entering the industry for 10 years; suspended the licence of Mr Law Kai Yee for two years and three months (Note 3); and prohibited Ms Tang Yuen Ting from re-entering the industry for nine months and fined her $1,455,496

Click to read more ...