The Securities and Futures Commission (SFC) found that HSBC Securities Brokers submitted incorrect information involving 3.4m orders and 4.2m cross-border trades in relation to 92 clients to the Hong Kong Stock Exchange between September 2018 and September 2021. The SFC fined the firm HK$6.3m ($807,000).
The company made multiple errors in the assignment of the broker-to-client assigned number (BCAN) to its clients who traded A-shares eligible for trading under the northbound trading link of stock connect, in the mapping of client identification data to the BCAN, and in the tagging of BCAN to its clients’ order.
“The errors were due to deficiencies in [the firm]’s client onboarding and BCAN assignment processes, including the use of multi-layered data structures that involved multiple systems in the maintenance of BCAN information, and the manual nature of the account creation procedures and the use of manual processes in updating data between the systems,” said the regulatory watchdog in a statement.
The SFC also found that the company had oversold 100 A-shares under stock connect in nine incidents between February and June 2019, leading to settlement failures in 30 of them.
Seven of the overselling incidents were caused by various deficiencies in the broker’s order management and algorithmic trading systems and “demonstrate that HSBC Securities did not have adequate controls to prevent the overselling orders”.
Further, the regulator found that the company erroneously self-matched 370 warrant orders in 2020 after its market making engine restarted during the lunch trading break.
HSBC Securities had assumed that all live orders would be automatically cancelled by a functionality offered by the Hong Kong stock exchange and by a built-in logic in the engine during the system restart, but the uncancelled orders were matched with new orders placed to the market after the market resumed.
“The SFC is of the view that HSBC Securities Brokers has failed to act with due skill, care and diligence in conducting its business, and to implement adequate and effective systems and controls to ensure compliance with the code of conduct and the requirements of the rules of the exchange,” added the commission in the statement.
After the incident, the company self-reported the regulatory breaches and failings to the SFC and took remedial actions to strengthen its internal controls and systems following the self-reports, including engaging independent reviewers to review its internal controls and processes in relation to compliance with the BCAN requirements.
The firm also took the initiative to bring this matter to an early conclusion and cooperated with the SFC in resolving the regulatory concerns, the SFC noted.