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Hong Kong fines Merrill Lynch in Asia $15 million

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Staff Writer |
Merrill Lynch
Banking   Internal control failures

The Securities and Futures Commission (SFC) of Hong Kong has resolved its concerns with Merrill Lynch Far East Limited (MLFE) and Merrill Lynch (Asia Pacific) Limited (MLAP) over internal control failures.

Under the resolution, the SFC reprimanded and fined them a total of $15 million for breaches of the Code of Conduct and the Internal Control Guidelines.

In the last quarter of 2016, the SFC, MLFE and MLAP jointly engaged an independent reviewer to review MLFE’s and MLAP’s internal controls related to its reporting of Large Open Positions (LOP), electronic trading systems, distribution of research reports involving futures contracts, and disclosure of market making activities in research reports.

MLFE failed to ensure compliance with requirements for LOP reporting under the Securities and Futures (Contracts Limits and Reportable Positions) Rules and the Rules of the Hong Kong Futures Exchange in some instances since May 2006.

In respect of the electronic trading system for trading in futures contracts, MLFE failed to:

- put in place formal governance including key policies and procedures when the electronic trading regulations under the Code of Conduct came into effect on 1 January 2014;

- effectively manage, adequately supervise and keep proper records on the design, development, deployment and operation of the electronic trading system; and

- ensure the integrity and reliability of the electronic trading system, and that the algorithmic trading system and trading algorithms are adequately tested to ensure they operate as designed.

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