Hong Kong’s securities regulator has fined Credit Suisse Securities (Hong Kong) HK$1.6 million ($206,077) for regulatory breaches and internal control failings relating to position limits.
A Securities and Futures Commission investigation of Credit Suisse’s holdings in Industrial and Commercial Bank of China stock options found the bank in breach of a position limit of 50,000 contracts on October 27, 2011, December 14, 2011 and December 15, 2011.
Credit Suisse also failed to put effective internal controls in place to ensure all open positions and stock options contracts with extensions granted were in compliance with position limits.
The firm had a compliance system that provided regular reports, including a warning report to signal when positions reached 75% of the available limit. However, excess position limits approved by the Stock Exchange of Hong Kong, and the expiry dates of the excess limits, were not shown in the warning reports. This left traders to rely on their memories in monitoring compliance, the SFC said.
These three position limit breaches were caused by “the traders’ mistaken belief that an approved excess limit which had expired in June 2011 remained available”.
After a warning report was introduced in April 2011, the traders “raised issues about the limitations of the warning report with Credit Suisse but no steps to rectify them were taken until after the position limit breaches in December 2011”.
The SFC notes that Credit Suisse’s disciplinary record is clean, that it has since strengthened its internal controls for monitoring compliance with the position limits and that it fully cooperated with the investigation.
The bank agreed to allow an independent reviewer to review its systems and controls in future.