Five trading representatives fined, suspended for creating false market
The Disciplinary Committee (DC) of the Singapore Exchange
(SGX) has slapped fines ranging from S$35,000 to S$180,000 on five trading
representatives (TRs) for their respective roles in the creation of a false
market in the trading of Far East Group and Zhongmin Baihui Retail Group
(ZMBH).
Comments
R Sivanithy
22 February 2017
The Disciplinary Committee (DC) of the Singapore Exchange (SGX) has slapped fines ranging from S$35,000 to S$180,000 on five trading representatives (TRs) for their respective roles in the creation of a false market in the trading of Far East Group and Zhongmin Baihui Retail Group (ZMBH).
In its accompanying Regulator's Column, SGX also said the market should not automatically assume that all cases of "layering" or pre-arranged trading would lead to regulatory action, and gave details of the factors it considers when deciding when it should take action relating to a false market, among which is a guideline of whether the volume involved exceeds 30 per cent of the total order or traded volume, and whether the activity lasts for a prolonged period.
In the case involving trading of Far East's shares, SGX said Alex Kok Wei Jian of OCBC Securities and Marvin Ang Kok Pin of RHB Securities had arranged for the execution of pre-arranged trades between Feb 16 and Dec 4 , 2015, in relevant accounts belonging to them or their clients, the objective being to avoid forced sales.
"The typical pre-arranged trade would begin with a sell order being entered in a relevant account, which has a position due for settlement. To gain priority over other market participants, the sell order would be priced lower than the prevailing best ask price," said SGX.
"Almost immediately thereafter, a buy order or several buy orders would be entered into another relevant account for the same quantity and price to ensure an exact match. This process would be repeated when the buyer's position was due for settlement."
The exchange said that on 46 days during the relevant period, the two TRs accounted for 96 per cent of volume traded in Far East. They and their clients "were essentially passing a parcel of shares among themselves regularly and the same parcel changed hands whenever it was due for settlement".
On Oct 27, 2016, Mr Kok was fined S$70,000 and suspended three months and Mr Ang was fined S$60,000 and suspended two months.
In a statement on Tuesday to BT, OCBC Securities managing director Raymond Chee said that Mr Kok was no longer a remisier there and the findings of the SGX Disciplinary Committee did not relate to the brokerage or any of its employees.
"We expect our trading representatives including remisiers to uphold the highest professional standards, and we organise periodic training sessions to educate them on what constitutes market misconduct," said Mr Chee.
In the ZMBH case, Lim Kok Tong (KT Lim), Yeo Lay Hoon and Lim Pei Woon (PW Lim), all TRs from CIMB Securities who worked as a team, executed cross trades among their clients in the stock for the period between Jan 2 and Aug 24, 2015, which had the effect of artificially maintaining the share price. On Feb 5, 2016, SGX's Surveillance Department issued a general warning to exercise caution when trading in ZMBH shares.
The modus operandi was to go in between the spread by placing a "buy" above the best bid price or a "sell" below the best ask price and crossing it with a corresponding order on the opposite side of the order book.
These cross trades occurred on 150 of the 156 active days during the relevant period. They were largely executed at prices between S$1.825 and S$1.84, where they accounted for 90 per cent of market volume. ZMBH was last traded at S$0.89 on Feb 9 this year.
SGX said that the pre-arranged trading was evidenced by the systematic execution of "round-robin" transactions which involved a block of shares being passed among 17 of the three TRs' clients. "The 'round-robin' transactions enabled the ZMBH shares to be retained within the group of 17 clients and prolonged their holding period, consequently maintaining the price at an artificial level."
In his Regulator's Column, SGX chief regulatory office Tan Boon Gin also referred to an earlier case where a TR placed buy orders at as many as 12 price levels, orders that accounted for 90 per cent of the buy order volume so as to create the impression of significant demand.
"The TR deleted these buy orders, without them being filled, once market participants had been induced to enter the market and enter orders that matched the sell orders that the TR had placed on the other side or the order book," said Mr Tan.
"In other words, our assessment did not stop at the fact that the TR was layering as placing orders at multiple levels is not by itself wrong, but went on to consider whether the way he was layering and his conduct post-layering as a whole created a false market."
He added that the exchange looks at these factors when deciding on enforcement action - duration of the misconduct, the number of alleged breaches, whether the misconduct was systemic or indicative of a pattern of non-compliance with the rules, the amount of benefit gained or detriment caused and the impact, including whether public confidence in the market has been damaged.
"SGX adopts a holistic and risk-based approach in deciding whether to take enforcement action. Market participants should not jump to the conclusion that we will take action simply because there has been layering, or even pre-arranged trading."