HK SFC Reprimands and Fines Sun Hung Kai Investment Services Limited
On 8 September 2011, an account executive of SHKIS received an order from a client to buy 25,000 shares of China Life at $18.82. The account executive, however, mistakenly inputted “2,500,018,000” shares as the order quantity. The dealing system of SHKIS automatically split the erroneous order into 834 smaller orders which were then sent to the market. SHKIS’s real-time credit controls failed to filter the erroneous order due to an incorrect setting in the credit rules.
The SFC’s investigation revealed various weaknesses in SHKIS’ internal controls which contributed to the incident. In particular:
• SHKIS’ system did not impose a limit on the maximum number of splits allowed for large orders;
• amendments or changes to the credit rules were not migrated from the testing environment to the production environment directly, but were manually entered into the production environment by a staff member of the Credit Department, increasing the likelihood of input errors; and
• there was a lack of segregation of duties between the “maker” and the “checker” for changes to the credit rules/policies. In implementing the new credit rules on 29 August 2011, the relevant credit officer deployed, checked, as well as approved the changes. No post-deployment validation was performed by any independent third party to ensure the changes were implemented accurately and completely.
In deciding the disciplinary sanction, the SFC took into account that SHKIS has:
• informed the SFC about the error trade in a timely manner;
• promptly investigated the incident to ascertain the factors which contributed to the error trade, and engaged an external audit firm to independently conduct a review and give recommendations for system and control enhancements;
• taken remedial actions to prevent the same incident from re-occurring in the future;
• cooperated with the SFC in resolving the disciplinary action; and
• agreed to further engage an independent reviewer to review its order entry risk controls in relation to its cash equities dealing, and to implement all recommendations to be made by the reviewer.