The Hong Kong Securities and Futures Commission has announced a $4 million fine to reprimand Yuanta Securities, one of its licensed members, over failure to disclose actual execution prices that it marked up in connection with nearly 100 client orders in 256 bond market transactions.
The markups and in some cases markdowns (for short related sales), occurred during a six-month period from July 1 through December 31st 2012, when Yuanta – acting as an agency broker – had made roughly $3.1 million in commissions in connection with the transactions, according to the SFC investigation.
Commission totaled $3.1m
The SFC said that Yuanta failed to properly disclose potential conflicts of interest, treat clients fairly or act in their best interest, and failed to make a number of disclosures regarding fees and actual execution prices, among other charges.
According to the SFC, when Yuanta Securities received a client’s buy order, its financial product team would match the order as an agency with another counterparty, yet mark up the trading price before passing it to the sales team who marked it up even further before passing to the customer. The firm also holds a type 3 license offering leveraged foreign exchange, but that product was not cited in the announcement.
The commissions that the sales teams earned from the trades in question weren’t always properly disclosed (such as in the daily statements sent to clients), although some clients were said to be aware of the commissions, as per the SFC update.
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Yuanta also charged additional fees without clients’ consent, in the SFC’s view, because the markups were not pre-approved by the clients beforehand. The regulator has been active in enforcement, despite the lag in catching up on some cases retrospectively, often several years later, as violations aren’t always detected immediately after they transpire.
In related developments regarding execution and pricing, the Financial Industry National Regulatory Authority (FINRA) that acts as the independent self-regulatory body under the US SEC, just a few days ago received approval on a rule proposal aimed towards requiring greater disclosure with regard to fixed-income securities trading spreads.
“FINRA has found that some individual investors pay considerably more than others for similar trades.
FINRA’s Chairman and CEO said regarding the new rules: “FINRA has found that some individual investors pay considerably more than others for similar trades. Providing meaningful and useful pricing information will assist customers in monitoring costs, promote transparency into firms’ pricing practices, and help enhance investor confidence in the market.”