HONG KONG: Conviction for breach of prohibition on naked Hong Kong short selling

Thursday October 31 2013

The Eastern Magistrates’ Court has convicted Mr Chan Chi Yuen of 26 counts of illegal Hong Kong short selling in the shares of Hutchison Whampoa Limited, China COSCO Holdings Company Limited and China Coal Energy Company Limited.

Chan was fined $57,200 and ordered to pay the Securities and Futures Commission’s investigation costs.

Between 23 August 2011 and 16 May 2012, Chan sold shares of Hutchison, China COSCO and China Coal through his personal margin account at Phillip Securities (Hong Kong) Limited; and between 28 November 2011 and 11 April 2012, Chan sold shares of the three companies through his wife’s margin account at Phillip Securities which was beneficially owned by him.

Chan made a profit of $37,665 by buying the shares later at a lower price to cover the short sales, contrary to section 170 of the Securities and Futures Ordinance. Section 170(1) of the SFO prohibits the sale of securities when the person does not have a presently exercisable and unconditional right to sell them.

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