Recently, the Hong Kong Securities and Futures Commission (SFC) issued a notice censuring Deutsche Securities Asia LIMITED (Deutsche Securities Asia LIMITED) and imposing a fine of $2.45 million, Deutsche Securities issued incorrect statements to its prime brokerage clients and delayed reporting its deficiencies to the SFC. 

The SFC found that between 2006 and October 2018, due to a design flaw in Deutsche Securities' front office system, Deutsche Securities issued incorrect periodic statements to prime brokerage clients when their positions involved bonus shares of listed companies that were not yet available for trading.

The erroneous statements indicated that the bonus shares had been allocated and were available for trading since the date of ex-vesting, when in fact the shares could not be traded unconditionally until the date of allotment.

A major brokerage client of Deutsche Securities appears to have relied on the aforementioned erroneous statement to oversold bonus shares issued by three Hong Kong-listed companies in July 2018. Deutsche Securities discovered that it had issued an incorrect statement to the client in the same month and learned the following month that the error was caused by a design flaw in the system, but did not report the deficiencies to the SFC until its internal investigation was completed in February 2019.

The SFC is of the view that these omissions by Deutsche Securities constitute a breach of the Securities and Futures Commission Code of Conduct for Licensees or Registrants.

The SFC has taken into account all relevant circumstances in deciding to take the above action, including the fact that Deutsche Securities' failings have lasted for 12 years, the remedial actions taken by Deutsche Securities, and its cooperation with the SFC to address its concerns.