Hong Kong’s securities regulator has fined BNP Paribas Securities (Asia) HK$15 million ($1.9 million) for failures in the operation of its dark pool.
The Securities and Futures Commission yesterday announced the results of its investigation into BNPP Securities' dark liquidity pool trading services, known as the BNP Internal Exchange (BIX).
The SFC found that BIX did not operate as represented in materials provided to clients. While the bank said larger orders would be given priority in processing, in reality all orders were treated as having equal priority between November 2009 and April 2011, when it suspended operations. The SFC said this potentially affected all BIX auctions.
“No one should dive into dark water without knowing what is hidden,” said Mark Steward, the SFC’s executive director of enforcement. “Operators must have clear rules and procedures in place for operating dark pools, and equally important, they should operate consistently with representations to clients whose consent to enter the dark pool is clear and well-informed.”
After BNPP Securities suspended BIX in April 2011, services were not fully restored until seven months later and the SFC was not informed of the suspension until 21 months later in January 2013. The regulator said this constituted a breach of BNPP Securities' licensing conditions.
The bank also failed to obtain positive client consent before orders were sent to BIX for matching, as per the terms of its licence. Client orders intended for execution on the Hong Kong Stock Exchange were automatically enabled on the BIX without BNPP Securities seeking positive client consent, and the SFC was not notified about BNPP’s changed business plan.
BNP Paribas issued a statement in response: “BNP Paribas Securities (Asia) Limited has cooperated with the Commission throughout the investigation and has conducted a thorough review of the matter. It has taken steps to strengthen the BNP Internal Exchange (BIX) so as to prevent the problems from happening again and to deliver enhanced quality services to its clients.”
On July 30 the SFC announced it had reprimanded and fined Nomura International (Hong Kong) HK$4.5 million for failing to report significant misconduct by a former trader in a timely manner.