Hong Kong: HK$800,000 Fine Issued for Naked Short Selling

Monday September 17 2018

The Securities and Futures Commission (SFC) has reprimanded and fined Huatai Financial Holdings (Hong Kong) Limited (Huatai Financial) HK$800,000 for failures relating to the short selling of Great Wall Motor Company Limited (Great Wall) shares in 2015.

In August 2015, Great Wall announced its proposed bonus issue of shares, which was equivalent to 200 per cent of its existing issued shares and was subject to the fulfilment of certain conditions. The settlement date of the bonus shares was expected to be on 13 October 2015.

The SFC considers that Huatai Financial failed to act with due skill, care and diligence in dealing in the bonus shares and to diligently supervise its staff members and implement adequate and effective systems and controls to ensure compliance with the short selling requirements.

In deciding the sanctions against Huatai Financial, the SFC took into account that:

• the dealing in the bonus shares involved a single, unintentional short sale;
• Huatai Financial self-reported the regulatory breach to the SFC;
• there is no evidence to suggest that Huatai Financial had acted in bad faith in short selling the bonus shares;
• Huatai Financial has taken remedial measures to strengthen its internal controls and systems;
• Huatai Financial has cooperated with the SFC in resolving the SFC’s concerns; and
• Huatai Financial has an otherwise clean disciplinary record.

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