Hong Kong’s SFC imposes $1.5m fine on SFM HK Management Limited over naked short selling

Maria Nikolova

The failures relate to the short selling of Great Wall Motor Company Limited shares in 2015 on behalf of a fund SFM managed.

The Hong Kong Securities and Futures Commission (SFC) announces that it has reprimanded and fined SFM HK Management Limited (SFM) $1.5 million for failures relating to the short selling of Great Wall Motor Company Limited shares in 2015 on behalf of a fund it managed.

On August 28, 2015, Great Wall announced its proposed bonus issue of shares, which was equivalent to 200% of its existing issued shares and was subject to the fulfillment of certain conditions. The settlement date of the bonus shares was expected to be on October 13, 2015.

The SFC investigation found that on September 30, 2015, the fund’s custodian notified SFM’s trade support department of SFM’s entitlement to 1,616,000 bonus shares as a result of the fund’s pre-existing holding of 808,000 Great Wall shares.

SFM’s trade support team booked the 1,616,000 bonus shares into SFM’s trading system on September 30, 2015 without segregating them into a restricted account as required by SFM’s internal policy. As a result, the system indicated that a total of 2,424,000 shares of Great Wall were available for trading when in fact only 808,000 shares were available for trading at that point in time.

Based on the erroneous information shown in the system, one of the fund’s portfolio managers placed an order to sell 2,424,000 shares of Great Wall on October 2, 2015, causing the fund to become short by 1,616,000 shares in Great Wall.

Section 170(1) of the SFO prohibits “naked” or “uncovered” short selling. It is a criminal offence for a person to sell securities at or through a recognized stock market unless at the time of the sale, he has a presently exercisable and unconditional right to vest the securities in the purchaser of them, or believes and has reasonable grounds to believe that he has such a right.

Also, prior to the settlement date, Great Wall did not make any public announcement regarding the fulfillment of the conditions. The public did not have reasonable grounds to believe that they had presently exercisable and unconditional rights to vest the bonus share in the purchaser of them before the settlement date.

The SFC finds that SFM failed to act with due skill, care and diligence in dealing in the bonus shares, but also failed to diligently supervise its staff members and implement adequate and effective systems and controls to ensure compliance with the short selling requirements.

In making its decision about the sanctions against SFM, the regulator took into account a range of circumstances including that:

  • there is no evidence to suggest that SFM had acted in bad faith in short selling the bonus shares;
  • this incident is the second occurrence of a similar kind over a period of five years;
  • SFM has taken remedial measures to strengthen its internal controls and systems; and
  • SFM has an otherwise clean disciplinary record.

Read this next

Metaverse Gaming NFT

Astar Network’s ad features 329 top brands to support Web3 in Japan

Blockchain innovation hub Astar Network is making strides in promoting the Web3 adoption worldwide. In yet another milestone, the smart contracts platform has run a national newspaper ad in Japan that set a new global record with participation from 329 blue-chip firms.

Digital Assets

Pyth Network welcomes onchain data from crypto market maker Auros

“By sharing our high-frequency trading data with a truly onchain decentralized network, we aim to foster innovation that will lead to better financial solutions for all participants.”

Digital Assets

Tokeny integrates Ownera to boost liquidity of tokenized assets

“The adoption of FinP2P will result in higher liquidity and better access to capital and assets by providing regulated firms with one secure point of connection to multiple digital asset networks across the globe.”

Digital Assets

BingX launches subsidy vouchers to cover user losses in copy trading

“With the introduction of copy trade subsidy vouchers, new users can easily try out trading strategies without incurring losses.”

Digital Assets

Talos expands sales team: Frank van Zegveld, Matt Houston, Hillary Conley

“The extensive leadership and industry expertise of these new hires will enable us to build long-lasting relationships as we continue to build out our global presence in EMEA and beyond.”

Executive Moves

FX and CFD broker Emporium Capital hires industry veteran Robert Woolfe as COO

His past experience within the FX and CFD industry includes top roles at Capital Index, London Capital Group, GKFX, ETX Capital, and IG.  “I’m delighted to be part of the Emporium Capital team and spearheading the brokerages global expansion plans”, he said about the appointment.

Retail FX

Hantec Markets wins six categories at Global Retail Forex Awards 2022

Hantec Markets has recently rebranded with a new website and a renewed growth strategy that features the #TimeToStrike hashtag to signify a time of renewed growth for the broker.

Industry News

Nexo sued for operating crypto brokerage without license and lying about it

“Nexo violated the law and investors’ trust by falsely claiming that it is a licensed and registered platform. Nexo must stop its unlawful operations and take necessary action to protect its investors.”

Industry News

Apex Group launches EU Taxonomy Solution as part of ESG offering

“Enabling our in-scope clients to demonstrate alignment with the EU Taxonomy is only the beginning – with over twenty green taxonomies in place, in development or under discussion worldwide it is crucial that investors act to understand and report taxonomy alignment data sooner, rather than later.”

<