The Securities and Futures Commission (SFC) has announced imposing a $2.45 million fine on Deutsche Securities Asia Limited for issuing incorrect statements to its prime brokerage clients and delaying reporting its failures.
The Hong Kong regulator found that from 2006 to 2018 Deutsche Securities issued incorrect periodic statements when the company’s clients were holding positions regarding their entitlements to bonus shares of listed companies that had not yet become tradable. The SFC noted that the issue was related to a defect of Deutsche Securities’ front office system.
The SFC said:
The incorrect statements displayed these bonus shares as settled and tradable as of the ex-entitlement dates when in fact they had not become unconditional for long sale until the settlement dates.
The SFC reported that in July 2018, Deutsche Securities’ prime brokerage clients replied to the incorrect statements and oversold bonus shares issued by three Hong Kong-listed firms.
The regulator revealed that Deutsche Securities discovered the issue within the same month of issuing the incorrect statements and in the following month tracked the problem to a system design defect. However, the firm did not report these failures to the SFC until February 2019 when its internal investigation was complete.
The SFC noted that these breaches lasted for 12 years and that was taken into account in the regulator’s decision on a penalty. The Commission also took into account that the Deutsche Securities cooperated in resolving the issues.
In May, the regulator issued a fine on Ewarton Securities Limited in the amount of $1.5 million for internal control failings and breaches of the SFC’s Code of Conduct. The SFC recently also revoked IDS Forex HK Limited’s license and banned its former co-chief executive officers, Chung Wooman and Ki Bonggan, for life.
