Hong Kong’s SFC Slaps Deutsche Securities Asia with HK$2.45M Fine

Hong Kong’s financial market watchdog, the Securities and Futures Commission (SFC), has continued its bust on market irregularities and reprimanded and fined Deutsche Securities Asia Limited (DSAL) HK$2.45 million.

The company was found to have issued incorrect statements to its prime brokerage (PB) clients and also delayed reporting its failures to the regulator.

DSAL is licensed by Hong Kong’s financial regulator and is authorised to deal with securities and futures contracts. Additionally, it can advise clients on corporate finance.

Thursday’s announcement detailed that the SFC found that DSAL issued incorrect periodic statements to its prime brokerage clients between 2006 and October 2018 due to a design defect of its front office system. The faulty systems were generated when the clients were holding their position of entitlements to bonus shares of listed companies that had not yet become tradable by the clients.

“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 Settlement Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Read this Term dates,” the regulator noted.

The investigation found that one of DSAL’s clients oversold bonus shares issued by three Hong Kong-listed companies based on faulty statements.

Irresponsible Behaviour

Though the company noticed the issued erroneous statements in July 2018 and realized the faults in its systems the following month, it did not report the issue with the SFC until the completion of its internal investigation in February 2019.

“The SFC is of the view that DSAL’s above-mentioned failures constitute breaches of the Code of Conduct,” the regulator stated.

Lately, the SFC had taken action on several market violators. Earlier this year, it revoked the license of IDS Forex HK Limited for its involvement in financial irregularities and banned the two co-CEOs. But, the most notable one remains the $350 million fine imposed on Goldman Sachs for the 1MDB scandal.