Published On: Thu, Jan 9th, 2014

HK SFC Resolves Compliance Concerns with Cheong Lee Securities

Mark Steward HK SFC Enforcement

Mark Steward HK SFC Enforcement

The Securities and Futures Commission (SFC) has resolved its compliance concerns with Cheong Lee Securities Limited (Cheong Lee) (Note 1). Under the resolution, the SFC reprimands and fines Cheong Lee $2 million for internal control failures relating to self-matching transactions in breach of the SFC’s Code of Conduct (Note 2).

An SFC investigation into Cheong Lee’s client securities trading activities revealed that Cheong Lee allowed its clients to adopt a master account and sub-accounts structure. During the period from December 2008 to November 2011, more than 1,500 transactions were identified to be traded between the sub-accounts operated by different traders for the same master account.

The SFC found that Cheong Lee failed to put in place effective internal control procedures to detect and prevent self-matching transactions between the sub-accounts which the SFC considers not to be in the best interest of market integrity.

In deciding the disciplinary sanction, the SFC took into account all relevant circumstances of the case, including:
• adequate and effective internal control systems are fundamental to the fitness and properness of a licensed corporation;
• Cheong Lee’s failures lasted for more than three years;
• Cheong Lee has a clean disciplinary record; and
• Cheong Lee co-operated in resolving these disciplinary proceedings.

1. Cheong Lee is licensed under the Securities and Futures Ordinance to carry on business in Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities) and Type 5 (advising on futures contracts) regulated activities.
2. Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission
3. A copy of the Statement of Disciplinary Action in relation to the matter is available on the SFC website.

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