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Screenshot of a breaking news alert e-mail from Q2 2017
The Securities and Futures Commission (SFC) has resolved its concerns with Morgan Stanley Hong Kong Securities Limited (MSHK) over its internal control failures. Under the resolution, the SFC reprimanded and fined MSHK $18.5 million for breaches of the Code of Conduct.
The internal control failures of MSHK related to avoidance of conflicts of interest; comprehensive documentation of its electronic trading systems; disclosure of short selling orders; compliance with position limits and reporting of Large Open Positions; and execution of client instructions in connection with futures and stock options contract reporting obligations.
Specifically, the SFC’s investigations found that MSHK failed to:
- adequately avoid conflicts of interest between principal and agency trading and obtain client consent for a facilitation execution in June 2013;
- comprehensively document the design and operation of the price checks and controls applied to orders executed through its electronic trading systems after the electronic trading provisions in the Code of Conduct took effect in January 2014;
- ensure compliance with the disclosure requirement in relation to approximately 29,000 short selling orders between January and November 2014;
- ensure compliance with the position limits, which resulted in one stock option contract exceeding the limit by more than 300 contracts on a trading day in February 2015;
- report the reportable Large Open Positions of two of its affiliate companies to the Exchange between December 2010 and December 2015;
- keep positions held on a gross basis in accordance with the instructions of a client from April 2012 to December 2015; and
- follow the instruction of an asset manager to report the Large Open Positions on a delegated basis from June 2012 to March 2016.
In reaching this resolution, the SFC took into account that:
- MSHK co-operated with the SFC in resolving regulatory concerns;
- MSHK agreed to engage an independent reviewer to conduct a forward-looking review of its internal controls to ensure compliance with the relevant regulatory requirements; and
- MSHK has no disciplinary record in respect of the present failures.
To see the full statement click here.