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SFC reprimands and fines Deutsche Securities Asia Limited $2.45 million over incorrect prime brokerage client statements

Issue date: 2021-06-24 16:47:21

The Securities and Futures Commission (SFC) has reprimanded Deutsche Securities Asia Limited (DSAL) and fined it $2.45 million for issuing incorrect statements to its prime brokerage (PB) clients and delaying reporting its failures to the SFC (Note 1).

The SFC found that between 2006 and October 2018, due to a design defect of its front office system, DSAL issued incorrect periodic statements to its PB clients when they were holding positions regarding their entitlements to bonus shares of listed companies that had not yet become tradable by the clients.

The incorrect statements displayed these bonus shares as settled and tradable as of the ex-entitlement dates when in fact they had not become unconditional for long sale until the settlement dates.

It appears that one of DSAL’s PB clients relied on the incorrect statements and oversold bonus shares issued by three Hong Kong-listed companies in July 2018.  Although DSAL discovered within the same month that incorrect statements had been issued to this client and became aware in the following month that the errors were caused by a system design defect, it did not report the failures to the SFC until February 2019 when its internal investigation was complete.

The SFC is of the view that DSAL’s above-mentioned failures constitute breaches of the Code of Conduct (Notes 2 & 3).

In deciding the sanction, the SFC took into account all relevant circumstances, including the finding that DSAL’s failures lasted for 12 years, DSAL’s remedial actions and cooperation with the SFC in resolving the SFC’s concerns.

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Notes:

1. DSAL is licensed under the Securities and Futures Ordinance to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contracts) and Type 6 (advising on corporate finance) regulated activities.
2. Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct).
3. Please refer to the Statement of Disciplinary Action for the relevant provisions of the Code of Conduct.

Source: SFC