HONG KONG: SFC Reprimands and Fines Credit Suisse for Short Selling Breaches

Friday February 9 2018

On 8th February 2018, the Securities and Futures Commission (SFC) announced it had  resolved its concerns with Credit Suisse (Hong Kong) Limited (CSHK), Credit Suisse Securities (Hong Kong) Limited (CSSHK) and Credit Suisse AG (CSAG) (collectively, Credit Suisse) over internal control failures.

Under the resolution, the SFC reprimanded and fined Credit Suisse a total of $39.3 million for regulatory breaches, including failures in segregating client securities, reporting direct business transactions, complying with short selling requirements, electronic trading requirements and contract notes rules as well as failures in internal controls designed to ensure that investment products sold to customers were suitable.

The SFC’s disciplinary action followed independent reviews agreed by the SFC and Credit Suisse and an SFC investigation, which found that CSHK:

• failed to ensure compliance with short selling requirements following the restructuring of certain trading books, resulting in 159 oversold transactions between December 2014 and July 2015, of which 94 transactions were uncovered short sell orders; and
• failed to comply with the short position reporting requirements, which resulted in a failure of itself and three affiliate companies to report over 1,200 reportable short positions to the SFC between June 2012 and October 2014.

The SFC considers that Credit Suisse’s systems and controls were inadequate and failed to ensure compliance with the Securities and Futures (Client Securities) Rules, Securities and Futures (Short Position Reporting) Rules, Securities and Futures (Contract Notes, Statements of Account and Receipts) Rules, short selling provisions of the Securities and Futures Ordinance, Trading Rules of the SEHK, and various provisions of the Code of Conduct.

Click on the above link for further information.