Hong Kong's Securities And Futures Commission Reprimands And Fines Hung Lai Ping For Managerial And Supervisory Failures

The Securities and Futures Commission (SFC) has issued a reprimand to Ms Hung Lai Ping, a former responsible officer of Delta Asia Securities Limited (Delta Asia), and fined her $150,000 for managerial and supervisory failures (Notes 1 & 2).

The SFC found that during the period from January 2010 to February 2013, Delta Asia used shares belonging to clients and held in segregated client accounts at the Central Clearing and Settlement System (CCASS) to settle transactions for its other clients who did not have sufficient shares in their accounts to discharge their respective settlement obligations on the settlement date.

This occurred without the consent or authorization of the clients whose shares were used for settlement in contravention of the Securities and Futures (Client Securities) Rules on 36 occasions during the period (Notes 3 & 4).

The SFC also found that Delta Asia failed to implement proper controls to safeguard client securities and to supervise the staff of Delta Asia in discharging its settlement function, thus allowing the unauthorized transfers of client securities from Delta Asia’s CCASS segregated client accounts to its CCASS clearing account to have gone unchecked for more than three years (Note 5).

The SFC is of the view that Delta Asia’s settlement malpractice and failures were attributable to negligence on the part of Hung.

Hung was responsible for overseeing the compliance function and all front and back office operations of Delta Asia, including its settlement functions. In her capacity as a responsible officer and a member of senior management, Hung bore primary responsibility for ensuring the maintenance of appropriate standards of conduct and adherence to proper procedures by Delta Asia, for properly managing the risks associated with the business of Delta Asia, and for supervising diligently persons employed or appointed by Delta Asia to conduct business on its behalf.

Hung has failed to fulfil such responsibility and her failure has manifested itself in the failures that Delta Asia, under her management, has displayed. In deciding the sanctions, the SFC took into account that Hung has accepted the SFC’s findings.

Safe custody of client assets is a fundamental obligation of licensed corporations. Any transgression of this obligation, even if the relevant clients are made whole again, cannot be tolerated.

End

Notes:

1. Delta Asia is licensed under the Securities and Futures Ordinance (SFO) to carry on Type 1 (dealing in securities), Type 3 (leveraged foreign exchange trading) and Type 4 (advising on securities) regulated activities.
2. Hung is licensed under the SFO to carry on Type 4 (advising on securities) and Type 9 (asset management) regulated activities. During the period from April 2007 to June 2012, Hung was accredited to Delta Asia and approved to act as its responsible officer.
3. Sections 6 and 10 of the Securities and Futures (Client Securities) Rules respectively specifies the circumstances in which intermediaries may withdraw or otherwise deal with client securities received or held on behalf of clients and requires intermediaries to take reasonable steps to ensure that client securities are not deposited, transferred, etc, except in the manner specified in the rules.
4. In addition, the SFC found that on two occasions during the period, Delta Asia had transferred shares belonging to clients and held in the CCASS segregated client accounts to its CCASS clearing account, with a view to settling the transactions for Delta Asia’s other clients who did not have sufficient shares in their accounts to discharge their respective settlement obligations on the settlement date. However, the transferred shares were eventually not sent to the Hong Kong Securities Clearing Company Limited for settlement purpose as a result of the netting of Delta Asia’s positions in the same security on the same day. This occurred without the consent or authorization of the clients whose shares were transferred and were in breach of the Securities and Futures (Client Securities) Rules notwithstanding that the transferred shares were eventually not used for settlement purpose.
5. The SFC has also taken disciplinary action against Delta Asia as a result of the same investigation. Please see the SFC’s press release dated 4 June 2014.