U.S. – FINRA Fine CS Options Reports

On 16 May, FINRA fined Credit Suisse $200k for option reports.

  • Bank fined $200k, of which $75k payable to FINRA and install compliance controls.
  • For reporting options positions to large options positions reporting (LOPR) system.
  • Alleged Violations
  • Bank failed to report over the counter (OTC) options positions to the LOPR system.
  • Reported positions with inaccurate tax ID or tax type fields in millions of instances.
  • Failure to report, effected opening trades in single security for customer accounts,
    acting in concert that exceeded position limit on both sides of market for 107 days.

Hong Kong – SFC Deutsche Short Fine

On 13 March, HK SFC fined Deutsche Bank HK$8.3mn for short sales.

  • Fined Deutsche Bank and its wholly-owned subsidiary Deutsche Securities Asia.
  • Re short position reports, unlicensed activities and segregation of client money.

Short Positions

  • Breach of reporting requirements, led to a failure to report 792 short positions.
  • Short position at close of trading on HKEX, must be reported in set timeframe.

Research Reports

  • Published 49 research reports on futures contracts, without Type 5 registration.
  • Firm that distribute research on futures is required to be registered or licensed
    with the SFC to carry on Type 5 advising on futures contracts regulated activity.

Client Money

  • Did not segregate client monies in 117 incidents between January 2010 and 2014.
  • Required to pay client money into a segregated account, within day of receipt.

Sanctions

  • Under the resolution, SFC publicly reprimanded and fined bank total of $8.3mn.
  • SFC took into account self-reporting and cooperation in resolving SFC concerns.
  • Remedial measures to strengthen internal controls, to avoid similar recurrence.
  • Undertaking to provide report prepared by internal audit team after 12 months.

Hong Kong – SFC Nomura Takeover Code

On 5 March 2018, HK SFC publicly criticized Nomura on takeover research.

  • Criticized Nomura International (HK) Limited, for breaches of HK takeover code.
  • Also cited Lee Yuen Yee, whilst acting as financial adviser to West China Cement.
  • Lee is a licensed representative of Nomura Hong Kong, for the regulated activity.
  • Work done in relation to possible mandatory offer for the shares of the company.
  • Nomura fell within the definition of “associate” of offeree company, for purposes
    of HK takeovers code on engagement as West China financial adviser November 2015.

Alleged Violations

  • Bank did not comply with limits on issuance and distribution of research reports.
  • On publishing five credit commentaries, and three weekly wraps, on West China.
  • Research contained profit forecasts, which were not reported by Lee as required.
  • Note 4 to Rule 8.1 of takeovers code provides that a financial adviser to offeree
    company should stop issuing research reports on it, except if SFC prior consent.
  • Any research reports with profit forecasts must comply with reporting per code.

Enforcement

  • Regulator cited public criticism of Nomura HK for their breach of takeovers code.
  • In determining sanction, SFC took account of Nomura HK and Lee’s cooperation.
  • As well as self-reporting of the breach, and the remedial measures implemented.

Finland – FINFSA Afarak Takeover Fine

On 21 February, FINFSA fined Danko Koncar, obliged it bid for Afarak.

  • FINFSA obliged Danko Koncar to launch takeover bid for Afarak Group Plc shares.

Alleged Violation

  • FINFSA considered Koncar acted in concert with Hino Resources Co. Ltd, Finaline
    Business Limited and his spouse Jelena Manojlovic, to exercise control in Afarak.
  • Violated provision of the Securities Markets Act protecting minority shareholders.
  • Voting rights of persons acting in concert have exceeded bid obligation threshold.
  • Conduct was long-standing, systematic, investors unaware, voting rights 41.56%.

Fine Imposed

  • Imposed running conditional fine to enforce the obligations stated in the decision.
  • Imposed running conditional fine, decision not yet legally binding, right of appeal.
  • Bid consideration at least the highest price paid by the party under the obligation
    during six months preceding obligation, minimum share price for bid to be €2.50.

Effectiveness

  • Koncar must publish mandatory bid, within month of service of FIN-FSA decision.
  • Not yet served with decision as required by law and the period is not yet running.

Nasdaq Notice

  • On 22 February, Nasdaq issued notice, Afarak shares moved to observation segment.

Hong Kong – SFC Fines Credit Suisse $39mn

On 8 February, HK SFC fined Credit Suisse $39.3mn for regulatory breach.

  • Followed self-reporting of breaches, agreed independent reviews, and investigation.
  • Failures in segregating client securities, and reporting direct business transactions.
  • Complying with short selling, electronic trading requirements, contract note rules.
  • Failures in internal controls to ensure suitable investment products sold to customers.
  • Co-operation expedited resolution, otherwise sanctions would be substantially higher.

U.S. – CFTC Issues $350k Fine Large Trade Reports

On 2 November, CFTC fined Morgan Stanley $350k for large trade reports.

  • Morgan Stanley, an FCM, is required to submit large trader report data to CFTC.

Alleged Violations

  • From 2007-17, firm omitted inclusion of mandatory derivatives data in reports.
  • Omissions resulted from four problems with the proprietary reporting software.
  • As of 2015, 25,000-line items reported daily, from 8.3mn underlying positions.
  • Deficiencies were mainly in two designated contract markets: CME, and MGEX.
  • After first two software issues had been corrected, a third glitch was corrected.
  • 2017, bank discovered and reported, a problem with coding of active accounts.
  • Some positions were not correctly aggregated and therefore were not reported.

U.S. – SEC Millennium Short Sales

On 31 October, SEC fined Millennium $300k for short sales pre-offerings.

  • Millennium Management LLC agreed to pay over $630,000 to settle SEC charges.

Alleged Violations

  • Company violated the anti-manipulation provisions of the federal securities laws.
  • Firm shorted US stocks in companies which were planning for follow-on offerings.
  • After shorting, the firm then illegally bought the shares in the follow-on offering.
  • By illegally purchasing shares in follow-on offerings, company made $286k profit.
  • Accounts participated in public offerings despite other firm accounts being short.

Rule 105 Violations

  • SEC Rule 105 prohibits short selling an equity security during a restricted period.
  • Restricted period generally for five business days before covered public offerings.
  • Rule bans subsequent purchase of same security as shorted, through an offering.

Sanctions

  • Pay disgorgement $286k, interest of $51k and penalty of $300k for total of $637k.

U.K. – FCA Merrill Lynch EMIR Fine

On 23 October, FCA issued £35mn fine to Merrill Lynch for EMIR failings.

  • Fined Merrill Lynch International £34,524,000 for breach of Principle 3, Art 9 EMIR.
  • MLI agreed to settle at an early stage and qualified for the 30% Stage 1 discount.
  • Without the discount, FCA would have imposed a financial penalty of £49,320,000.
  • MLI breached Art 9 EMIR by failing to report 68.5mn exchange traded derivatives.
  • Also failed in adequate oversight, failed to test its reports, lacked human resources.
  • FCA considered breach particularly serious as MLI breached reporting rules before.

Background

  • MLI’s trading data system did not record market leg of ETD transactions separately.
  • It therefore had to be artificially generated by EMIR reporting system used by MLI.
  • System required additional coding and embedded data to identify ETD transactions.
  • On implementation in February 2014, error with static data table failed to work properly.
  • Error meant that non-EU third party brokers were not be identified on market side.
  • As result reports not made to trade repository on market side leg until February 2016.

Netherlands – AFM Fine Bank Trade Report

On 20 September, AFM fined ABM Amro Bank, Clearing for trade reports.

  • In July 2017, imposed 2 administrative fines of €400k and €500k on ABN Amro.
  • Fines were imposed because banks failed to notify transactions to AFM in time.
  • Constituted violation of S, 4:90e(3) of the Financial Supervision Act, that firms
    performing transactions in listed financial instruments notify the AFM of details.
  • Report should be done as quickly as possible, latest at end of next working day.
  • FM uses transactions reported, to identify market abuse and promote efficiency.

Violations

  • From 2010 – 2015, failed to notify AFM in time of details of 86,796 transactions.
  • Violations from January 2013, as should have had trade reporting in order by then.
  • With aid of instruction issued by AFM during an audit it carried out end of 2010.
  • AFM had advised ABN Amro to create a better overview of transaction reporting.
  • From September 2014 -April 2016, ABN Amro Clearing also failed to report to AFM in
    time, concerning 11,911 transactions, mainly conducted on Stuttgart Exchange.
  • AMRO Clearing had received a constructive letter on compliance with standards.

Sanctions

  • Basic fine for violating obligation to report transactions, is normally at €500,000.
  • Reduced fine to ABN Amro to €400,000, as discovered violation, notified to AFM.
  • Took account of improvements ABN Amro implemented in transaction reporting.
  • AFM considers a fine as per the basic amount appropriate for ABN Amro Clearing.
  • ABN Amro and ABN Amro Clearing have not lodged objection to decision on fine.

Hong Kong – SFC Takeovers Code Enforcement

On 30 August, SFC issued censure of Yeung Wing Yee for code breaches.

  • Covers public censure and 24-month cold shoulder order against Mr Yeung Wing Yee.
  • For breaching mandatory general offer obligation under Rule 26.1 of Takeovers Code.
  • Mr Yeung to be denied access to Hong Kong securities market for a 24 month period.

Background

  • Mr Yeung invested in Union Asia Enterprise Holdings Limited held 23.13% by July 2016.
  • In August 2016 he increased his shareholding to 31.13% and then later on to 32.87%.
  • Directors notified Mr Yeung that his interest required him to make a mandatory offer.
  • Mr Yeung advised directors via his lawyer that he had no intention of making the offer.
  • Found that Mr Yeung was sincerely apologetic and was ignorant of the Takeovers Code.
  • But that Rule 26.1 was one of the most fundamental provisions of the Takeovers Code.
  • Mr Yeung had fallen short of standards expected of him and conduct merited censure.