SFC Reprimands and Fines Ardon Maroon Fund Management (Hong Kong) Limited $800,000 for Cross Trade Related Failures

sfcThe Securities and Futures Commission (SFC) has reprimanded and fined Ardon Maroon Fund Management (Hong Kong) Limited (Ardon Maroon) (now known as China Silver Asset Management (Hong Kong) Limited) $800,000 for cross-trade related failures in managing the Ardon Maroon Asia Master Fund (AM Fund) (Note 1).

The SFC found that Ardon Maroon gave instructions to a brokerage to execute a cross trade for 15 million shares of a listed company on the Stock Exchange of Hong Kong on 8 August 2014, which resulted in the AM Fund conducting a wash trade.  Ardon Maroon then instructed another brokerage to deliver the relevant shares to settle the wash trade.

A cross trade that does not involve any change of beneficial ownership is a wash trade which is presumed to be manipulative under the Securities and Futures Ordinance (SFO) and is not in the best interests of market integrity (Note 2).  The wash trade conducted by the AM Fund was also not in the best interests of the holders of the fund because by doing so, the fund incurred undue transaction costs of over $133,000.

By instructing the cross trade, Ardon Maroon failed to exercise due skill, care and diligence in managing the AM Fund (Note 3).

In deciding the disciplinary sanction, the SFC took into account:

  • the Disciplinary Fining Guidelines;
  • the cross trade was an isolated incident;
  • Ardon Maroon has an otherwise clean disciplinary record with the SFC;
  • Ardon Maroon did not benefit from the cross trade;
  • a clear message needs to be sent to fund managers that the SFC would not tolerate conduct that is not in the best interests of the clients and market integrity; and
  • Ardon Maroon’s financial situation (Note 4).

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Notes:

  1. Ardon Maroon changed its name to China Silver Asset Management (Hong Kong) Limited in November 2015.  It is licensed under the SFO to carry on Type 9 (asset management) regulated activities.
  2. Sections 274 and 295 of the SFO provide that a person who enters into any transaction of sale and purchase of securities that does not involve a change of beneficial ownership shall be regarded to have created a false and misleading appearance of active trading in the securities unless the transaction is an off-market transaction.
  3. General Principle 2 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission requires licensed corporations to act with due skill, care and diligence, in the best interests of its clients and the integrity of the market.
  4. But for the firm’s financial position, the SFC would have imposed a heavier fine against it.