The Eastern Magistrates’ Court today convicted Mr Wong Pok Wang of 13 counts of manipulating the indicative equilibrium price (IEP) for eight derivative warrants and callable bull/bear contracts (CBBCs) during the Pre-opening Sessions between 15 October 2010 and 14 February 2011 (Notes 1 & 2).
The case is adjourned to 5 August 2014 for sentencing pending community service order report.
The Securities and Futures Commission (SFC) alleged that Wong created price ranges for the final IEP for the eight derivative warrants and CBBCs by placing high priced at-auction limit buy orders of small sizes (usually a single board lot) and low priced at-auction limit sell orders (of significant sizes) during the Order Input Period. Within five seconds before the close of the Pre-order Matching Period, he placed at-auction buy orders (of relatively large sizes) for the derivative warrants or CBBCs, pushing the final IEPs to the upper end of the price range by 9% to 39% on nine occasions. Wong sold the derivative warrants and CBBCs on a net basis at prices that were artificially high and profited from the trades (Notes 3 to 5).
On two occasions, Wong created price ranges during the Order Input Period in a similar manner, but he did not place any large at-auction buy orders just before the close of the Pre-order Matching Period because there were no auction buy orders from other investors in the market to whom Wong could sell the derivative warrants or CBBCs. In other words, there was no need for Wong to raise the final IEP.
On another occasion, Wong placed a high priced at-auction limit buy order but did not place any other order during the Pre-opening Session. Subsequently, Wong inputted a matching sell order to fill the buy order when the market opened, and this resulted in a wash trade at an artificial high price (Note 6).
The SFC alleged that Wong’s order placing activities made no economic sense and he obtained illicit gains of $16,320 from his manipulative trades in the derivative warrants and CBBCs.
Notes:
1. Wong was licensed under the Securities and Futures Ordinance to carry on Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities. He was accredited to Mayfair Pacific Financial Group Limited between 7 January 2011 and 15 April 2011. Wong is currently not licensed by the Securities and Futures Commission.
2. An IEP is the price during the Pre-opening Sessions at which the maximum number of shares could be traded if order matching occurred at that time. An IEP is calculated and determined by the orders inputted by investors during the Pre-opening Sessions.
3. At the material times, the Pre-opening Sessions commenced at 9:30 am on each trading day and comprised four periods:
(i) Order Input Period (9:30 am to 9:45 am) during which only at-auction orders and at-auction limit orders are accepted, modified or cancelled;
(ii) Pre-order Matching Period (9:45 am to 9:50 am) during which only at-auctions orders are accepted and no existing order can be modified or cancelled;
(iii) Order Matching Period (9:50 am to 9:58 am) during which no input, modification or cancellation of orders are allowed and orders are matched at the IEP; and
(iv) Blocking Period (9:58 am to 10:00 am) during which no matching would take place.
4. An at-auction order is an order with no specified price and is entered into the trading system for execution at the final IEP. An at-auction limit order on the other hand is an order with a specified price. An at-auction order enjoys higher order matching priority than an at-auction limit order and will be matched in time priority at the final IEP. An at-auction limit buy order with a specified price at or higher than the final IEP may be matched at the final IEP subject to availability of eligible matching order on the sell side. Similarly, an at-auction limit sell order with a specified price at or lower than the final IEP may be matched at the final IEP subject to availability of eligible matching order on buy side.
5. The derivative warrants and CBBCs were :
(i) MB-CMB@EC1012 (Stock Code 22449)
(ii) CS-CMB@EC1012B (Stock Code 24378)
(iii) CT-L&F@EC1101 (Stock Code 21659)
(iv) MB-SHK P@EC1102 (Stock Code 23687)
(v) SG#HWL RC1105B (Stock Code 65733)
(vi) SG-CK(H)@EC1102B (Stock Code 24420)
(vii) JP#HSI RP1102Q (Stock Code 65995)
(viii) BP-CK(H)@EC1103 (Stock Code 24990)
6. Wash sales are transactions that do not involve any change in beneficial ownership.