Bursa Malaysia Reprimands and Fines Macquarie and Two Former Heads of Dealing
Bursa Malaysia Securities Berhad (Bursa Securities) has publicly reprimanded and imposed fines of RM50,000, RM25,000 and RM10,000, respectively, on Macquarie Capital Securities (Malaysia) Sdn Bhd (Macquarie); Thomas Chin Yun Phin (Chin); and Hilton Lee (Lee) for inflating trades in several securities over a period of eight months. Chin and Lee were Macquarie’s former Heads of Dealing.
Bursa Securities has ordered to strike off Chin from the Register, if he was still a Registered Person of Bursa Securities. The Exchange has also ordered restrictions on Lee from carrying out activities as a Registered Person, including trading on or through the stock market of Bursa Malaysia, for a period of 18 months from 23 November 2010.
The finding of the breach and imposition of the above sanctions on Macquarie, Chin and Lee were made pursuant to Rule 1301.2 of the Rules of Bursa Securities upon completion of the due process and after taking into consideration all facts and circumstances, including those arising from the investigations carried out. The breach is in relation to dealing activities undertaken at Macquarie in several securities over a period of eight months, which resulted in inflated volumes of trades for the relevant securities in excess of clients’ orders (Inflated Trades). These Inflated Trades also had features of trades with no change in the beneficial ownership (NCBO Trades) as well as shortselling/intra-day shortselling as the client(s) had only made available certain quantities of securities as tradeable balance, resulting in the execution of the remaining sale transactions without the requisite tradeable balance.
Bursa Securities views all breaches involving act(s)/practice(s) tantamount to manipulative/abusive trading seriously. Bursa Securities will not tolerate any acts or practices which create false or misleading appearances with respect to trading activities and will not hesitate to take the appropriate action against anyone who engages in such conducts.
1. Public Reprimand and Fine of RM50,000 against Macquarie
It was found that there was a lack/lapses of supervision in the dealing activities of Macquarie following a series of incidences of Inflated Trades which took place for at least eight months prior to the discovery of the same by Macquarie. In addition, Macquarie failed to ensure the accuracy of information provided to Bursa Securities by not undertaking an independent verification of the details provided to Bursa Securities and had merely relied on representations made by its Heads of Dealing who were the very persons involved in the concerned trades. Arising from these, Macquarie had triggered the provision of Rule 1302.1(1)(a) and breached Rules 404.1(1), 404.1(7)(b)&(c) and 1205.1(4) of the Rules of Bursa Securities (refer to Addendum for the details of the affected Rules).
In imposing the penalties, Bursa Securities took into consideration mitigating factors such as the reporting by Macquarie whereby Macquarie alerted Bursa Securities of some of the Inflated Trades and its undertaking of remedial steps including carrying out a thorough review of its dealing activities.
2. Public Reprimand, Fine and Striking Off/Suspension against Chin and Lee
In regard to the execution of Inflated Trades with features of NCBO Trades, shortselling/intra-day shortselling activities by Chin and Lee, both Chin and Lee had failed to:-
1. ensure the proper execution of the orders in the clients’ accounts so as to ensure compliance with the Rules of Bursa Securities; and/or
2. refrain from engaging in the execution of Inflated Trades which might lead to a false or misleading appearance of active trading in/market for/price of the securities concerned (False/Misleading Appearance for the relevant securities).
Being the personnel/management team of Macquarie in charge of the trading and dealing activities at Macquarie, both Chin and Lee had the responsibility to uphold the Rules of Bursa Securities and to act professionally in their trust/fiduciary positions in the best interest of their clients, to ensure market integrity and to ensure no disorderly dealing activities that could impact the market for/price of the securities traded on the Exchange. Their conduct, by Chin having an arrangement with other party (in this case, the facilitation desk), to execute trades in the relevant securities in such a manner which had the effect of bringing down the Volume Weighted Average Price (VWAP) of the securities in order to fulfil the client’s guaranteed VWAP order and to prevent/reduce the losses incurred in carrying out the trades was not an appropriate conduct of a Registered Person and it was not done in the best interest of the client (the end client).
In an instance of a breach involving a client’s sell order (careful discretion and market VWAP order), Chin had an arrangement with the facilitation desk to carry out inflated volumes of buy and sell orders in the market in excess of the client’s order so that the VWAP could be artificially adjusted closer to the average selling price. In this regard, six (6) sets of buy/sell orders at 500,000 units each were arranged to be entered into Bursa Securities’ trading system by Chin and Lee. This brought about the effect of a lower market VWAP upon completion of the Inflated Trades thus affecting the sale proceeds received by clients. As the client’s sale order was for a certain quantity, the remaining sell orders pre-arranged to be entered into the market were without the requisite tradeable balance and caused oversold positions which were however squared off by the corresponding buys resulting in some NCBO Trades. Macquarie reported to Bursa Securities that the Inflated Trades were due to a communication breakdown between the facilitation desk and Macquarie which gave rise to the crossing of the aforesaid trades in the market. In actual fact, the Inflated Trades were carried out pursuant to the arrangement made by Chin and the facilitation desk.
Premised on the above, Chin and Lee, who were both the Heads of Dealing at Macquarie at the material time of the breach, had triggered the provisions of Rules 1302.1(1)(a) and (g) and breached Rules 401.1(2)&(3), 404.3(1), 401.1(1)(f) and 1205.1(4) of the Rules of Bursa Securities (refer to Addendum for the details of the affected Rules).
In imposing the differing sanctions on Chin and Lee, the roles played by them with regard to the commission of the breaches of the relevant Rules were considered. Chin was found to be the main person who arranged for the trades concerned to be entered into Bursa Securities’ trading system so as to attain the intended/desired effect in violation of the Rules and Lee played a secondary role via him aiding and abetting Chin in the commission of the breach.