Hong Kong’s SFC Fines Instinet Pacific $1 Million for Cross Trade Reporting Failures

Key Takeaways

• Penalty: The Securities and Futures Commission (SFC) fined Instinet Pacific $1 million (HK$8 million) for failing to report cross trades to the Stock Exchange of Hong Kong (SEHK).
• Scale of Breach: Between December 2012 and March 2018, Instinet failed to report 8,817 pairs of cross trades worth about $25.9 billion (HK$202 billion).
• Governance Failures: The SFC found that Instinet lacked internal policies, procedures, or reviews to govern cross-trade reporting, breaching its Code of Conduct obligations.
• Enforcement Considerations: The regulator took into account the long duration of the failure, the large transaction values, and the firm’s eventual cooperation.

Deep Dive

Hong Kong’s Securities and Futures Commission (SFC) has reprimanded and fined Instinet Pacific Limited $1 million (HK$8 million) after uncovering a years-long failure to comply with reporting requirements for cross trades on the Stock Exchange of Hong Kong (SEHK).

The regulator’s disciplinary notice revealed that between December 2012 and March 2018, Instinet failed to report 8,817 pairs of cross trades worth approximately $25.9 billion (HK$202 billion). These trades, conducted between Instinet’s clients and an affiliated company, should have been reported to the SEHK as direct business transactions.

The SFC found that Instinet lacked any internal policy or procedure for reporting cross trades during the period in question and did not conduct reviews of its trade reporting processes, breaching the Code of Conduct for Persons Licensed by or Registered with the SFC.

In determining the penalty, the SFC cited the prolonged nature of the misconduct, the sheer number of unreported trades, and the large transaction values involved. However, it also acknowledged that Instinet ceased the problematic trading flows and cooperated with the investigation.

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