Hong Kong regulator fines Ardon Maroon over cross trade related misconduct
The SFC finds that a cross trade instructed by Ardon Maroon was a wash trade presumed to be manipulative.
The Hong Kong Securities and Futures Commission (SFC) today announces that it has imposed a fine of HK$800,000 on Ardon Maroon Fund Management (Hong Kong) Limited, now known as China Silver Asset Management (Hong Kong) Limited. The penalty comes after the SFC has found that Ardon Maroon failed to exercise due skill, care and diligence in managing the Ardon Maroon Asia Master Fund (AM Fund) and failed to act in the best interests of the AM Fund and the integrity of market.
On August 8, 2014, Ardon Maroon gave instructions to one of its brokerages to execute a cross trade for 15 million shares of a listed company on the Stock Exchange of Hong Kong, which resulted in the AM Fund conducting a wash trade and incurring transaction costs totaling $133,056. Ardon Maroon then instructed another brokerage, which received 48 million shares of the same company, to deliver 15 million of such shares to settle the wash trade.
According to Ardon Maroon, the cross trade was conducted for the purposes of moving shares between the two brokerages in order to reduce margin requirement at the brokerage receiving the 48 million shares and achieve better financing at the brokerage conducting the cross trade.
The SFC says that the cross trade instructed by Ardon Maroon was not in the interest of market integrity and was, in fact, a wash trade presumed to be manipulative under the SFO. Sections 274 and 295 of the SFO state that a person who enters into any transaction of sale and purchase of securities that does not involve a change of beneficial ownership shall be regarded to have created a false and misleading appearance of active trading in the securities unless the transaction is an off-market transaction. In respect of the cross trade ordered by Ardon Maroon, the AM Fund was both the buyer and seller of the relevant shares.
The cross trade conducted by the AM Fund was also not in the best interests of the holders of the fund because shares can be moved between the accounts of the two brokerages without the cross trade and the associated transaction costs, the SFC explains.
The regulator considers that the wash trade, which was not in the best interests of the AM Fund and market integrity, resulted from Ardon Maroon’s failure to exercise due skill, care and diligence in managing the AM Fund.
In making its decision about the disciplinary action, the SFC has taken into account the fact that the cross trade was an isolated incident, that Ardon Maroon did not benefit from the cross trade and that Ardon Maroon has an otherwise clean disciplinary record with the SFC. The regulator also noted that but for the firm’s financial position, the SFC would have imposed a heavier fine against it.