Bursa Malaysia Securities Berhad (Bursa Securities) publicly reprimanded, imposed a fine of RM100,000 and ordered to strike off Lee Beng Huat (Lee) from the Register, if he was still a Registered Person of Bursa Securities for false trading and market manipulation. These sanctions were imposed by Bursa Securities after assessing all facts and circumstances of the matter, which included analysing extensive trading data, conducting investigation with the relevant parties, and upon due process being accorded to Lee. In this regard, it was noted that Lee had carried out false trading and market manipulation in his dealing activities in the shares of Axis Incorporation Bhd (Axis) of approximately 41 million shares out of the market turnover of 104 million Axis shares for 87 trading days (the relevant period) in 2006-2007.
During the relevant period, Lee, who was a Commissioned Dealer’s Representative (CDR) of Kenanga Investment Bank Berhad, had dealt in Axis shares predominantly through the accounts of 10 clients (10 Accounts). He had entered buy and sell orders which were manipulative in nature and which had led to false or misleading appearance of active trading in, or market for, Axis shares and tantamount to stock market manipulations (“False Trading and Market Manipulations”).
- The breach by Lee which resulted in False Trading and Market Manipulations had the following
characteristics:-
The undertaking of dealing activities in Axis shares by Lee via the 10 Accounts, which were the top buyers and sellers during the relevant period, had the following characteristics:-- Entry of orders by Lee which were several bids lower than the last done price with no real intention to have the buy orders matched.
- Lee also engaged in order splitting, entering a series of buy orders in succession through any one of the 10 Accounts with the same price. These buy orders gave rise to and created an impression of continuous demand for Axis shares which led to false or misleading appearance of active demand/market for Axis shares.
- The buy and sell orders executed in the 10 Accounts:-
- had cross trades which were matched among each other for approximately 12 million units of Axis shares involving Lee as their common CDR in carrying out dealing activities in Axis shares in their accounts;
- resulted in the buy and the sell transactions of Axis shares in the 10 Accounts without any change to the beneficial ownership of Axis shares (NCBO trades) and during the relevant period, there were 65 NCBO trades involving 385,800 units of Axis shares;
- were frequently matched with the corresponding orders keyed in by another CDR from another broker which indicated that there were some form of pre-arrangements for these trades to be matched;
- resulted in trades which were rolled-over periodically with the same or almost the same block of Axis shares which gave rise to the manipulative trading activities; and
- had trades which were subsequently amended to other clients’ accounts resulting in a change of the original party to the contract which are non-permissible contract amendments.
By engaging in False Trading and Market Manipulations, Lee managed to sell about 72% of the sell orders entered for the 10 Accounts (i.e., 40.98 million out of 56.67 million units of sell orders for Axis shares entered for the 10 Accounts) and bought approximately 55% of the buy orders entered for the 10 Accounts (i.e., 41.6 million out of 76.14 million units of the 10 Accounts’ buy orders).
The higher volume and percentage of the buy orders which were subsequently cancelled and/or lapsed due to the orders being lower than the market/last done price resulting in lower percentage of buy orders matched, gave an impression of and created an inflated demand for Axis shares and led to a false or misleading appearance of active demand/market for Axis shares.
Instead of refraining himself from engaging or participating in the clients’ irregular trading patterns which were also manipulative in nature, Lee:-
- actively participated/engaged in the trading activities in Axis shares in the 10 Accounts during the relevant period;
- failed to take heed of the concerns raised by Bursa Securities on his irregular trading activities in Axis shares in the 10 Accounts; and
- continued to trade in the irregular/manipulative manner after Bursa Securities raised its concerns to Lee.
As a CDR, Lee should have:-
- exercised/acted with due care and diligence so as not be a party to any possible irregular trading activities of Axis shares and to avoid becoming a party to, or getting involved in, the False Trading and Market Manipulations operated or engaged by the clients; and
- undertaken due inquiries, raised concerns and refrained himself from engaging or participating in the clients’ irregular trading patterns which were also manipulative in nature, lack due regard to market orderliness and gave a false and misleading appearance of active trading/market for Axis shares.
Lee, at the material time of the breach, triggered the provisions of Rules 1302.1(1)(a) and (g) of the Rules of Bursa Securities and breached Rules 401.1(3) and 404.3(1)(a) & (c) of the Rules of Bursa Securities [Please refer to the Addendum for the details of the affected Rules].
As Registered Persons, all CDRs dealing in securities must carry out their duties efficiently and in a manner which contributes to the maintenance of a fair and orderly market and to ensure a fair dealing in the observance of the professional standard of integrity.
The need to maintain a fair and orderly market is imperative and Bursa Securities will not
tolerate any acts or practices which might lead to False Trading and Market Manipulations and which
may affect the integrity of the market. Bursa Securities believes that the market should reflect
genuine supply and demand. Bursa Securities will not hesitate to take the appropriate action
including striking off a Registered Person from the Register or imposition of substantial fine
which commensurate with the severity of the breach against anyone for violation of rules which
hampers the maintenance of a fair and orderly market.
ADDENDUM
Rules 401.1(3), 404.3(1)(a) & (c) and 1302.1(1)(a) & (g) of the Rules of Bursa Securities (the Rules) state, amongst others, that DRs shall :-
- avoid any act or practice which might:- (i) lead to a false or misleading appearance of active trading in any securities on the stock market of the Exchange or a false or misleading appearance with respect to the market for, or the price of, any such securities; or (ii) directly or indirectly be tantamount to stock market manipulations, and shall not participate in any operation by others which might have the same result;
- at all times observe professional standards of integrity and fair dealing; and conduct their business in a manner which contributes to the maintenance of a fair and orderly market;
- not commit a breach of or violate any of the Rules; and
- perform their duties efficiently, honestly and fairly.
