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The Securities and Futures Commission (SFC) has issued a reprimand to China Securities Holdings Limited (China Securities); fined it $1.3 million and banned its responsible officer, Ms Stephanie Liu Suk Wai, for a period of 27 months effective from 15 August 2013 to 14 November 2015 (Notes 1 & 2).
The decision follows an SFC investigation into the affairs of China Securities from 2007 to 2011 in which a number of serious deficiencies were found in relation to order record keeping, employment of unlicensed dealing staff and supervision of its dealing functions.
The SFC found that China Securities employed staff who were unlicensed as dealers to take order instructions from clients and to execute them on behalf of clients and permitted its dealing room to be operated by two unlicensed dealers without a responsible officer to supervise the dealing functions (Notes 3 & 4).
The SFC also reviewed the dealing records of China Securities from November 2009 to June 2011 and found that most if not all of China Securities’ order tickets were not time stamped. As a result, the incomplete order records failed to enable trade executions to be traced through China Securities’ system to identify for whose accounts those trades were executed (Note 5).
China Securities ceased business on 31 December 2012. But for the firm ceasing business, the SFC would have revoked its licence given the sustained, serious and deliberate nature of its misconduct.
The failures of China Securities were attributed to Liu who was one of the three responsible officers of China Securities at the relevant time. She was seldom at the office and neglected her management responsibility. Her failure was serious in that she connived the unlicensed activities.
In determining Liu’s penalty, the SFC took into account that she was no longer licensed and that she did not dispute the SFC’s findings. Had Liu remained licensed, her licence would have been revoked.
The SFC’s investigation into the roles of other members of the management team at China Securities is continuing.
Notes:
- China Securities (formerly known as Vermont Securities Company Limited) is licensed under the Securities and Futures Ordinance (SFO) to carry on business in Type 1 (dealing in securities) regulated activity.
- Liu was a former representative and responsible officer of China Securities and was licensed under the SFO to carry on Type 1 (dealing in securities) regulated activity. She is currently not a licensed person.
- Section 114 of the SFO prohibits any person from performing any regulated function except a licensed representative. Regulated function means any function performed for a licensed corporation related to a regulated activity, other than work ordinarily performed by an accountant, clerk or cashier.
- Paragraph 4.2 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct) further provides that a licensed person should ensure that it has adequate resources to supervise diligently and does supervise diligently persons employed or appointed to conduct business on its behalf.
- Among other things, the Securities and Futures (Keeping of Records) Rules requires a licensed corporation to keep records that are sufficient to explain its business operation, including all orders and instructions. The required records have to enable an executed trade to be traceable through the licensed corporation’s trading system. Paragraph 3 of the Code of Conduct requires order instructions to be time stamped and trade executions to be fairly allocated to clients.
- A copy of the Statement of Disciplinary Action in relation to the matter is available on the SFC website.
