SFC reprimands and fines China Rise Securities Asset Management Company Limited $6.3 million for regulatory breaches and internal control failures
The Securities and Futures Commission (SFC) has reprimanded China Rise Securities Asset Management Company Limited (China Rise), formerly known as China Rise Securities Company Limited, and fined it $6.3 million for internal control failures and regulatory breaches related to short selling orders, cross trades and keeping of records.
The SFC found that China Rise’s then chief executive officer and responsible officer, Mr Sammy Shiu Kin Keung, placed 199 illegal short selling orders on listed securities for his personal account and a client’s discretionary account from January to May 2014 unbeknown to China Rise.
China Rise was not aware of the short selling orders placed by Shiu until the Hong Kong Exchange and Clearing Limited made enquiries about some of the transactions. Nevertheless, even after receiving the enquiries, China Rise still failed to detect and prevent further short selling activities in Shiu’s account.
Shiu was eventually convicted on 8 June 2017 for illegal short selling in the shares of three listed companies between April and May 2014.
China Rise also executed a number of cross trades between the account of a member of its senior management (X) and a client’s discretionary account pursuant to X’s instructions, with the result that the transactions were executed at a price to X’s advantage and to the client’s detriment when compared with the nominal price at the time of the transactions.
The SFC’s investigation revealed that China Rise failed to:
- put in place adequate system and control procedures to detect and prevent illegal short selling by its staff;
- implement effective internal controls to monitor cross trades between its staff members and clients that gave rise to conflicts of interest, and ensure fair treatment of clients; and
- report the relevant cross trades to The Stock Exchange of Hong Kong Limited (Exchange) in compliance with the Rules of the Exchange on four occasions.
Furthermore, the SFC found that China Rise failed to maintain proper records of order instructions and its compliance checks. Specifically, China Rise failed to locate the dealing tickets in relation to at least 100 orders placed by X from January to May 2014 and keep records of order instructions for over 1,000 client orders between February and August 2016.
The SFC is of the view that China Rise was in breach of the Code of Conduct and the Management, Supervision and Internal Controls Guidelines.
In deciding the sanction, the SFC took into account all relevant circumstances of the case, including that China Rise:
- has taken steps to remediate some of the above internal control deficiencies;
- cooperated with the SFC in accepting the SFC’s findings and resolving the disciplinary proceedings;
- has an otherwise clean disciplinary record.