SFC Fine Instinet Pacific $8 Million for Reporting Failures

The Securities and Futures Commission (SFC) of Hong Kong has reprimanded and imposed an $8 million fine on Instinet Pacific Limited for failing to comply with reporting requirements set by The Stock Exchange of Hong Kong Limited (SEHK) regarding direct business transactions and cross trades.

An investigation by the SFC revealed that between December 2012 and March 2018, Instinet failed to report 8,817 pairs of cross trades to the SEHK. These trades, involving transactions valued at approximately $25.9 billion, occurred between the firm’s clients and an affiliated company. The omission constituted a breach of the Code of Conduct.

SFC Fine Instinet Pacific $8 Million for Reporting Failures

Further scrutiny by the regulator uncovered that during the relevant period, Instinet lacked any internal policy or procedure to govern, monitor, or require the reporting of cross trades to the SEHK. Additionally, the firm did not carry out any reviews of its trade reporting processes, leaving significant gaps in compliance oversight.

In deciding on the disciplinary action, the SFC took several factors into account. These included the prolonged period over which the reporting failures occurred, the substantial number of unreported trades, and the total value of the transactions involved. The regulator also acknowledged Instinet’s subsequent steps to address the issues, including ceasing the relevant trade flows and cooperating with the SFC in resolving the matter.

SFC emphasized that accurate and timely reporting is critical for maintaining market integrity and investor confidence, noting that the failure to report cross trades undermines transparency and the fair operation of the market.

Also, this enforcement action highlights the SFC’s ongoing commitment to ensuring that market participants adhere to regulatory requirements and serves as a reminder to financial institutions of the importance of robust compliance systems.

Instinet Pacific Limited has expressed its commitment to improving its internal controls and ensuring full compliance with SEHK reporting obligations moving forward.

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