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SFC bans Citigroup Global Markets Asia Limited’s former responsible officer Philip John Shaw for 10 years

Issue date: 2023-03-06 16:52:34

The Securities and Futures Commission (SFC) has banned Mr 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 from 4 March 2023 to 3 March 2033 (Note 1).

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 (Notes 2 to 4).

The SFC is of the view 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.”

“The disciplinary action against Shaw also underscored the SFC’s determination to hold errant senior management accountable for their firms’ failures.  This is imperative for driving changes in the culture and behaviour of intermediaries,” Mr Wilson added.

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 (Note 5);
• 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 (Note 6); and
• 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, the following misconduct when executing facilitation trades (Note 7):

• gave factually incorrect information to the client or took positive steps to conceal the principal nature of the trade;
• made misleading statements that could be interpreted by the client as indicating that the trade would be executed on an agency basis, or sometimes remained silent notwithstanding some indication of the client’s belief that the trade was an agency trade; and/or
• remained silent or were not explicit with the client about the involvement of the Facilitation Desk and failed to obtain client’s consent before routing the client’s order to the Facilitation Desk for execution.

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 all relevant circumstances, including:

• Shaw’s misconduct was intentional, dishonest and contrary to a licensed person’s overarching duty to act in clients’ best interests;
• CGMAL’s serious internal control failures and regulatory breaches could not have prevailed for over 10 years had he properly discharged his management and supervisory responsibilities;
• notwithstanding his experience and seniority, he 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;
• it is necessary to send a clear and strong message to the industry that the SFC will not tolerate misconduct such as his; and
• his otherwise clean disciplinary record.

End

Notes:

1. Shaw was licensed to carry on Type 1 (dealing in securities) and Type 2 (dealing in futures contracts) regulated activities under the Securities and Futures Ordinance.  He was accredited to CGMAL as a licensed representative from 12 June 2007 to 8 July 2016 and approved as its RO from 8 July 2016 to 22 March 2019.  Shaw is currently not licensed by the SFC.
2. CGMAL was reprimanded and fined $348.25 million by the SFC.  Please refer to the SFC’s press release dated 28 January 2022.
3. An IOI is a widely used form of advertisement or representation made by licensed corporations to clients as a way to source potential clients with an interest in trading.
4. In an agency trade, the licensed corporation acts as agent to find a counterparty (ie, natural liquidity) to cross with the client’s order.  In a facilitation trade, the licensed corporation acts as principal and fulfils the client’s order by buying or selling the securities from/to the client using the firm’s capital.
5. The Facilitation Desk of CGMAL would step in to provide liquidity when traders failed to source natural liquidity on an agency basis upon client enquiry.
6. Since early 2017, CGMAL and Shaw represented to clients that the AFME/IA Framework for Indications of Interest (AFME Framework) issued by the Association for Financial Markets in Europe and the Investment Association was adopted in classifying its IOIs.  According to the AFME Framework, “P:1” or “In Touch With” IOIs could be issued where there was a reasonable expectation of interest from a specific client and resulting trades were expected to be of a riskless nature.
7. The SFC has not reviewed any facilitation trades prior to 2014 since CGMAL no longer retained audio records for such period.

News captured as of:2023-03-06 16:52:35

Source: SFC