Hong Kong's Securities And Futures Commission Reprimands And Fines Wan Xing $200,000

The Securities and Futures Commission (SFC) has reprimanded and fined Ms Wan Xing $200,000 for breach of the SFC’s Code of Conduct (Notes 1 & 2).

The SFC investigation found that shortly after BYD Company Limited announced on 23 May 2014 a placement of shares to be listed on the Stock Exchange of Hong Kong, Wan incorrectly represented to some placees that the placing shares allotted to them through the placement could be sold on 28 May 2014 without violating the short selling restriction under the Securities and Futures Ordinance (Notes 3 & 4). 

Three placees proceeded to sell a total of 2,300,000 placing shares before completion of the placement when the shares were still subject to conditions and could not be sold until 30 May 2014.

The SFC considers it is imperative that all licensed representatives understand the short selling restriction because short selling may carry serious consequences for the uncovered short seller. 

Wan did not have an adequate understanding of the short selling restriction and had failed to ascertain when the placement would become unconditional such that the placing shares could legitimately be sold by the placees. 

In deciding on the sanction, the SFC considers that Wan’s misconduct had subjected the placees to legal and regulatory risks and fell short of the standard expected of a licensed representative under the Code of Conduct. The SFC also took into account that Wan showed remorse for her conduct (Note 5).

Notes:

1. Code of Conduct for Persons Licensed by or Registered with the SFC. 
2. Wan Xing is licensed under the Securities and Futures Ordinance (SFO) to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contracts) and Type 7 (providing automated trading services) regulated activities, and is accredited to UBS Securities Asia Limited for Type 1 and Type 2 regulated activities and UBS Securities Hong Kong Limited for Type 1 and Type 7 regulated activities.
3. Section 170(1) of the SFO provides that a person shall not sell securities at or through a recognized stock market unless at the time he sells the securities, he or his principal has, or believes and has reasonable grounds to believe that he or his principal has, a presently exercisable and unconditional right to vest the securities in the purchaser of them. Illegal short selling is a criminal offence which carries a maximum penalty of $100,000 fine and two years imprisonment upon conviction. 
4. The SFC issued a press release titled “Premature selling of placing shares may constitute illegal short selling” on 1 August 2013 to remind the public that persons could face criminal prosecution for illegal short selling under the SFO if they sell placing shares before completion of a placement. 
5. General Principle 2 (Diligence) of the Code of Conduct provides that a licensed person should act with due skill, care and diligence in conducting business activities.