Monday March 27 2017

News Source: Global Disclosures

Focus: Major Shareholdings

Type: General

Country: Hong Kong




The Securities and Futures Commission (SFC) has fined Merrill Lynch Far East Limited (MLFE) and Merrill Lynch (Asia Pacific) Limited (MLAP) a total of HK $15 million for breaches of the Code of Conduct and the Internal Control Guidelines, including Large Open Position Reporting (LOP) failures.

In the last quarter of 2016, the SFC, MLFE and MLAP jointly engaged an independent reviewer to review MLFE’s and MLAP’s internal controls related to its reporting of Large Open Positions (LOP), electronic trading systems, distribution of research reports involving futures contracts, and disclosure of market making activities in research reports.

The review concluded:

  • MLFE failed to ensure compliance with requirements for LOP reporting under the Securities and Futures (Contracts Limits and Reportable Positions) Rules and the Rules of the Hong Kong Futures Exchange in some instances since May 2006

The LOP reporting rules require any HKFE Participant / Options Exchange Participant holding positions exceeding the reporting level for its own account or for any client to:

  • file a LOP report with HKFE/SEHK (as the case may be) via ECP no later than 12:00 noon of the next business day after the positions are opened or accumulated, and
  • continue to file a LOP report for if the HKFE Participant / Options Exchange Participant holds positions in excess of the Reporting Level.

Additionally, any HKFE Participant, with open positions held for its own account or any client exceeding 60% of the position limit of stock index futures and options products with the same underlying index, is required to:

  • report all outstanding positions in the products concerned to HKFE, including those positions that are below the LOP Reporting Level.

In reaching this resolution, the SFC considered the fact that MLFE and MLAP:

  • self-reported to the SFC the unlicensed activity and non-disclosure of market making activities in its research reports;
  • involved their senior management in the liaison with the SFC about the regulatory concerns at an early stage; and (among other considerations)
  • took the initiative to bring this matter to an early conclusion by fully and frankly discussing the regulatory concerns with the SFC.

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