The Securities and Futures Commission (SFC) has suspended Mr Chung Tung Sau, a former licensed representative of Quam Securities Company Limited (Quam), for seven months from 15 December 2022 to 14 July 2023 and fined him $60,000 (Note 1).
The disciplinary action follows an SFC investigation which found that between 1 and 11 August 2017, Chung had traded in the shares of a listed company (Company A) for himself while executing a client’s good-till-cancel buy order for the same shares (GTC Order) (Note 2).
Although Chung had disclosed to the client that he would potentially trade in Company A shares for himself during the execution of the GTC Order, on 10 occasions he purchased Company A shares for himself at prices below the upper price limit of the GTC Order and, shortly thereafter, he placed almost simultaneous sell orders for the same shares on market at or around the upper price limit of the GTC Order for himself and buy orders for the GTC Order, which resulted in matched transactions between Chung and the client. Chung made a profit of approximately $60,000 from these transactions.
The SFC considers that Chung’s conduct has called into question his fitness and properness to be a licensed person, in that he failed to:
take reasonable steps to avoid conflicts of interest between himself and the client, or ensure the client was fairly treated (Note 3);
comply with Quam’s staff dealing policy and act in the best interests of the client and in the integrity of the market (Notes 4 & 5); and
execute the GTC Order at the best available price and prioritise the execution of the GTC Order over his own orders (Note 6).
In deciding the sanction, the SFC has taken into account all relevant circumstances, including Chung’s otherwise clean disciplinary record.
End
Notes:
Chung is licensed under the Securities and Futures Ordinance to carry on Type 1 (dealing in securities) regulated activity. He was accredited to Quam (now known as China Tonghai Securities Limited) to carry on Type 1 (dealing in securities) regulated activity between 1 April 2003 and 31 August 2017.
The GTC Order was to purchase five million shares of Company A at or below $3.50.
General Principle 6 (Conflicts of interest) of the Code of Conduct for Persons Licensed by or Registered with the SFC (Code of Conduct) requires a licensed person to try to avoid conflicts of interest, and when they cannot be avoided, should ensure that his clients are fairly treated.
The staff dealing policy prohibits (i) cross-trades between staff accounts and clients’ accounts and (ii) transactions by staff members if they know or should reasonably have known that the transaction would likely be detrimental to or have an adverse effect on the interest of a client.
General Principle 2 (Diligence) of the Code of Conduct requires a licensed person to act with due skill, care and diligence, in the best interests of his clients and the integrity of the market.
Paragraph 3.2 (Best execution) of the Code of Conduct requires a licensed person to execute client orders on the best available terms. Paragraph 9.1 of the Code of Conduct (Priority for client orders: order handling and recording) requires orders of clients be given priority over orders for the account of the licensed person.
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