The Securities and Futures Commission (SFC) has reprimanded and fined Mr Chang Chyi, an employee of Core Pacific – Yamaichi International (HK) Limited (Core Pacific), $50,000 for breach of the SFC’s Code of Conduct.
The SFC’s investigation into suspected uncovered short selling of the shares of China Agri-Products Exchange Limited (China Agri-Products) found that Chang had incorrectly represented to a customer that shares allocated by China Agri-Products through a rights issue could be sold before 4:00pm on 21 March 2014 without violating the short selling restriction under section 170 of the Securities and Futures Ordinance, when in fact, that was not the case.
Relying on Chang’s misrepresentation, the customer placed an order to sell 320,000 rights shares and bonus shares on 21 March 2014 before 4:00pm, which were subject to conditions until 4:00pm that day and could not be sold at that time.
The SFC considers it is important that all licensed representatives understand the short selling restriction because short selling may carry serious consequences for the uncovered short seller.
Chang did not have an adequate understanding of the short selling restriction and had failed to take reasonable steps to verify the date on which the relevant rights issue would become unconditional.
In deciding the sanction, the SFC considers that Chang’s misconduct had subjected the customer to legal and regulatory risks and fell short of the standard expected of a licensed representative under the Code of Conduct.