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The Eastern Magistrates’ Court today convicted Mr Pak Wing Yiu, a retail investor, after he pleaded guilty to 10 counts of false trading in the shares of Huabao International Holdings Limited (Huabao). The court adjourned sentencing to 12 December 2013.
An SFC investigation found that between 16 November 2010 and 10 January 2011, Pak placed both bid and ask orders simultaneously during the pre-opening session (POS). On nine occasions, Pak raised the final indicative equilibrium price (IEP) by artificially placing limit bid orders at high prices and large auction bid orders just before the close of the Pre-order Matching Period during the POS. His orders raised the final IEPs by 0.7% to 10.6% and he sold Huabao shares on a net basis at prices that were artificially high. On another occasion, Pak pulled down the final IEP by 5.3% by artificially placing limit ask orders at a lower price and large auction ask orders just before the close of the Pre-order Matching Period. He bought Huabao shares on a net basis at an artificially low price (Notes 1 & 2).
The SFC alleged that Pak’s order placing activities made no economic sense and would lead to wash sales as a result of him maintaining both bid and ask orders simultaneously. Pak’s orders created an artificial price of Huabao shares on each of the 10 days and he obtained illicit gains of $155,940 from the trades (Note 3).
Notes:
1. During the material time, the POS commenced at 9:30 am on each trading day and comprised four periods:
(i) Order Input Period (9:30 am to 9:45 am)
(ii) Pre-order Matching Period (9:45 am to 9:50 am)
(iii) Order Matching Period (9:50 am to 9:58 am)
(iv) Blocking Period (9:58 am to 10:00 am)
2. The IEP is the price during the POS at which the maximum number of shares could be traded if order matching occurred at that time.
3. Wash sales are transactions that do not involve any change in beneficial ownership.
