Hong Kong’s securities regulator has banned a former executive of Phillip Securities from the city’s financial services industry for three years for using unauthorised trades on a client’s account to inflate share prices.
The Securities and Futures Commission (SFC) found that on May 30, 2012, Wong Lap-Yin placed several unauthorised bid orders for shares of China Nonferrous Metals Company (CNFM) via a client’s (client A) account.
Each order was placed at a price higher than CNFM’s nominal price and the orders matched exactly with the prevailing best ask price and quantity such that they were executed as soon as they were entered into the market. As a result, the share price of CNFM was artificially raised by 37.3% from $0.075 to $0.103.
At around the same time, Wong carried out a cross-trade to transfer about 5 million CNFM shares at the price of $0.105 from the personal account of another client (client B) to a joint account held by client B and his wife*.
Wong had been pushing up CNFM’s share price to facilitate the subsequent cross-trade between client B’s account and the joint account at a higher price to eliminate the debit cash balance in client B’s personal account.
The SFC considered that Wong’s conduct was not only unfair to client A, but also to other investors, because it interfered with the impartiality and objectivity of the normal process of price formation, and might have affected the trading strategy and investment decision of other market participants.
In deciding the penalty, the regulator took into account all relevant circumstances, including that:
- Wong’s conduct caused financial loss to client A;
- a strong message needs to be sent to the market that Wong’s conduct was unfair and could jeopardise market integrity and undermine market confidence;
- Wong, who had been in the securities industry for about 15 years, should have known that the manner in which he placed the orders could have the effect of artificially raising the nominal price of the shares; and
- Wong had no previous disciplinary record.
At the time of the trading activities mentioned, Wong was licensed to carry on type 1 (dealing in securities), type 2 (dealing in futures contracts), type 4 (advising on securities) and type 9 (asset management) activities.
He was accredited to Phillip Securities (Hong Kong), Phillip Commodities (HK) and Phillip Capital Management (HK) until September 27, 2012. He is currently not licensed by the SFC.
Wong’s ban runs from July 29, 2016 to July 28, 2019.
*Under the trading rules of the Hong Kong Stock Exchange, the price set for direct business cannot be higher than the best offer in the market. Orders are matched on a strict price and time priority basis, so if Wong had not cleared the ask orders at lower price queues first using client A’s account, the cross-trade could not have been carried out at $0.105.