Hong Kong’s Securities and Futures Commission (SFC) has reprimanded and fined SFM HK Management (SFM) HK$1.5 million ($190,000) for a short selling incident for a fund that it managed.
SFM is the Hong Kong unit of Soros Fund Management, the family office of billionaire George Soros.
The short selling incident was in relation to the shares of Great Wall Motor Company and dated over three years back.
On 28 August 2015, Great Wall announced its proposed bonus issue of shares, which was subject to the fulfilment of certain conditions and were expected to be despatched on 13 October 2015.
At end-September 2015, SFM was notified by its custodian that it was entitled to 1.62 million bonus shares of Great Wall as a result of the fund’s pre-existing holding of 808,000 Great Wall shares.
Due to human error, SFM’s trade support team booked the 1.62 million bonus shares into SFM’s trading system without segregating them into a restricted account within the system, as required by SFM’s internal policy.
As a result, the system indicated that a total of 2.42 million shares of Great Wall were available for trading when in fact only 808,000 shares were available for trading at that point in time.
On 2 October 2015, based on the erroneous information shown in the system, one of the fund’s portfolio managers placed an order to sell 2.42 million Great Wall shares on behalf of the fund.
The disposal caused the fund to become short by 1.62 million shares in Great Wall.
The SFC said SFM not only failed to act with due skill, care and diligence in dealing in the bonus shares, but also failed to diligently supervise its staff members and implement adequate and effective systems and controls to ensure compliance with the short selling requirements.
SFM is licensed to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contracts) and Type 9 (asset management) regulated activities.