HK SFC Reprimands and Fines Three UBS Employees $1.8 million
The Securities and Futures Commission (SFC) has publicly reprimanded Mr Frank Hu, Ms Peony Ng and Ms Jenny Chang Pui Chun of UBS AG Hong Kong (UBS) and fined them $800,000, $600,000 and $400,000 respectively, for negligence in handling a client’s trade orders (Note 1).
An SFC investigation found that Hu, Ng, and Chang, were negligent in relation to a series of trades that they carried out on behalf of one of their clients at UBS which constituted wash sales and may have misled the market (Note 2).
Both Hu and Ng are executive directors at UBS and Chang is an associate director.
In February 2008, the client, who was facing margin calls from UBS decided to transfer part of his portfolio at UBS (Note 3) to his account at Morgan Stanley Asia Ltd (Morgan Stanley) in order to ease his margin position with UBS.
This could have been achieved through a simple delivery versus payment arrangement, such as by using the Central Clearing and Settlement System. Instead, a series of on-exchange matched sales and purchases (Note 4) was coordinated among Hu, Ng and Chang at UBS and the client’s account executive and her assistants at Morgan Stanley (Note 5) between 28 February and 26 March 2008.
In deciding the penalty for Hu, Ng and Chang, the SFC took into account that the three individuals had not carried out the matched trades with manipulative intent to interfere with the market, that they had sought internal compliance advice at UBS but failed to follow the advice due to misunderstanding, that they had co-operated with the SFC, and that each of them has a clean disciplinary record.
1. Hu, Ng and Chang are relevant individuals registered with the Hong Kong Monetary Authority. Hu and Chang are authorized to carry out Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities whilst Ng is authorized to carry out Type 1 regulated activities.
2. Wash sales are transactions that do not involve any change in beneficial ownership. In this case, the sell orders of UBS and the buy orders of Morgan Stanley were matched on 82 occasions where there was no change in beneficial ownership of the shares involved.
3. The securities involved in the transfer were Fosun International Ltd (stock code 656), Tiangong International Company Ltd (stock code 826), Centron Telecom International Holding Ltd (stock code 1155), and Kingsoft Corporation Ltd (stock code 3888).
4. Upon receiving the client’s instructions, Chang would input sell orders on The Stock Exchange of Hong Kong. She would then inform the account executives handling the client’s account at Morgan Stanley by telephone immediately of the volume and price of the orders who would then arrange for Morgan Stanley, on behalf of the client, to purchase from the market similar quantity of the same stock at the same prices or at prices lower than UBS’ sell orders.
5. The SFC has also taken disciplinary action against the account executive at Morgan Stanley (See SFC press release dated 17 August 2009).