SFC bans Citigroup Global Markets Asia Limited’s former responsible officer Philip John Shaw
Hong Kong’s Securities and Futures Commission (SFC) has banned Philip John Shaw, a former responsible officer (RO), board member and Head of Pan-Asia Execution Services of Citigroup Global Markets Asia Limited (CGMAL), from re-entering the industry for 10 years. The ban is valid from 4 March 2023 to 3 March 2033.
The disciplinary action follows the SFC’s earlier sanctions against CGMAL for serious regulatory breaches and internal control failures in allowing various trading desks under its Cash Equities business to disseminate mislabelled Indications of Interest (IOIs) and make misrepresentations to institutional clients when executing facilitation trades from 2008 to 2018.
The SFC considers that CGMAL’s breaches and failings were attributable to Shaw’s failure to discharge his duties as an RO and a member of CGMAL’s senior management.
Mr Christopher Wilson, the SFC’s Executive Director of Enforcement, said:
“A key concern of the SFC is that Shaw had, through his misconduct, engendered a culture of chasing revenue at the expense of client interests and basic standards of honesty within CGMAL. In the circumstances, his conduct fell far short of the standards expected of a member of senior management of a licensed intermediary and the sanction against him is warranted.”
Specifically, the SFC found that in 2015, Shaw introduced a mechanism to facilitate bulk generation of mislabelled IOIs by CGMAL’s Equities Sales Trading Desk involving some of the most actively traded blue-chip stocks in the market. Such IOIs were not backed by any potential order or interest from specific clients, but they were tagged as “Natural”, “In Touch With” and/or “P:1” with a view to provoking client enquiries. Shaw’s description of such IOIs as “the fakes” and “fake flow” indicated that he did not believe they were correctly labelled.
Although the quality and accuracy of the IOIs had drawn client complaints, Shaw did not stop the dissemination of mislabelled IOIs and represented to the clients that they were classified in accordance with industry standards.
On one occasion, after a trader had told a client that CGMAL advertised facilitation flow using “Natural” IOIs, Shaw instructed the trader to refrain from being honest with clients about the source of liquidity behind such IOIs and made misrepresentations to the client to perpetuate the falsehood created by the mislabelled IOI.
Furthermore, since at least 2015, Shaw had personally committed, and allowed his subordinates to commit misconduct when executing facilitation trades.
These findings demonstrate that Shaw had failed to ensure the maintenance of appropriate standards of conduct and adherence to proper procedures by CGMAL, including ensuring that adequate policies and systems controls were in place to effectively monitor the issuance of IOIs and facilitation activities, and that proper training had been provided to traders.
In deciding the disciplinary sanction, the SFC has taken into account a variety of factors, including the intentional nature of Shaw’s misconduct. Notwithstanding his experience and seniority, Shaw denied any wrongdoing and attempted to shift all the blame to other management personnel and the compliance function of CGMAL, which reflected a lack of understanding of his duties as an RO and a member of the senior management as well as a lack of remorse.
The regulator also notes the necessity to send a clear and strong message to the industry that the SFC will not tolerate misconduct such as his.