Hong Kong’s SFC imposes $2.1M fine on Credit Suisse for breaches of e-trading requirements
Hong Kong’s Securities and Futures Commission (SFC) today announces that it has reprimanded Credit Suisse Securities (Hong Kong) Limited (CSSHK) and fined it HK$2.1 million. The penalties stem from the company’s regulatory breaches related to failures in its electronic trading systems.
The regulator found that between 09:39 and 09:47 on 28 February 2019, CSSHK submitted 16,935 erroneous market making quotes to the market, resulting in the execution of 8,042 stock options trades at prices that deviated from the then prevailing market prices.
The incident was caused by a logic error in the symbol mapping program used by CSSHK, in its capacity as a stock options market maker, in generating market making quotes.
The SFC considers that CSSHK’s internal controls and regular tests in place at the time failed to prevent or promptly detect the incident, and these failures constitute breaches of electronic trading requirements under the Code of Conduct.
Let’s note that Paragraph 18.5 (Adequacy of system) of the Code of Conduct requires a licensed person to ensure the integrity of the electronic trading system it uses, including the system’s reliability, security and capacity, and have appropriate contingency measures in place.
Schedule 7 to the Code of Conduct further sets out specific requirements on a licensed person conducting electronic trading of listed securities and futures contracts. In particular, paragraph 1.2.2 of Schedule 7 requires a licensed person to ensure that the electronic trading system it uses and all modifications to the system are tested before deployment and are regularly reviewed to ensure that the system and modifications are reliable.
In determining the sanction, the SFC considered a variety of factors, including the prompt remedial actions taken by CSSHK following the incident. CSSHK’s cooperation with the SFC in resolving the regulatory concerns was also taken into account.