Hong Kong's Securities And Futures Commission Reprimands And Fines Standard Chartered Securities (Hong Kong) Limited $2.6 Million

The Securities and Futures Commission (SFC) has reprimanded and fined Standard Chartered Securities (Hong Kong) Limited (SCSHK) $2.6 million for internal control failures relating to short selling orders and breach of the Securities and Futures (Financial Resources) Rules (FRR) (Note 1).

The SFC found that, from January 2014 to August 2015, SCSHK failed to put in place adequate system and control procedures that resulted in at least 61 instances of regulatory breaches involving short sales executed by 11 traders from different trading desks.

The SFC also found that SCSHK mis-interpreted and breached the FRR by incorrectly including the amounts receivable from its clearing agent, Standard Chartered Bank (Hong Kong) Limited (SCBHK), as liquid assets in its financial returns for January to September 2015. As at 31 August 2015, SCSHK had a required liquid capital deficit of $2 billion when the receivables from SCBHK were excluded from its liquid assets (Note 2).

The SFC is of the view that SCSHK was in breach of the Code of Conduct and the Management, Supervision and Internal Controls Guidelines (Notes 3 & 4).

In deciding the sanction, the SFC took into account all relevant circumstances of the case, including:

• the duration and extent of SCSHK’s failures;
• SCSHK’s cooperation with the SFC in resolving the disciplinary proceedings;
• SCSHK has taken immediate steps to rectify the FRR breach and other remedial measures;
• SCSHK has improved its short selling internal control systems; and
• SCSHK’s otherwise clean disciplinary record.

Notes:

1. SCSHK is licensed under the Securities and Futures Ordinance (SFO) to carry on business in Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), Type 5 (advising on futures contracts) and Type 6 (advising on corporate finance) regulated activities.
2. On 15 January 2015, SCSHK appointed SCBHK as a Third Party Clearing Participant to perform clearing and settlement functions under the Central Clearing and Settlement System in relation to SCSHK’s transactions executed on The Stock Exchange of Hong Kong Limited.Under the FRR, the amounts receivable from SCBHK, as a general clearing participant (GCP), could not be admitted as liquid assets and the amounts receivable from and payable to the GCP could not be set off.
3. Code of Conduct for Persons Licensed by or Registered with the SFC (Code of Conduct).
4. The Management, Supervision and Internal Controls Guidelines for Persons Licensed by or Registered with the SFC published under the SFO.