ComplianceOne Newsletter – April 2022
ComplianceOne Newsletter – April 2022
The topics discussed in this monthly newsletter are as follows:
1. JPMorgan Chase Loses Lead Role in IPO because of its negative view of the technology sector.
2. MaiCapital becomes the first licensed asset managers to obtain SFC approval to manage its portfolio of up to 100% in virtual assets
3. Commencement of End-To-End (E2E) Test for HKIDR
4. SFC proposes changes to the Position Limit Regime
5. SFC bans Poon Choi Yung for 20 months for Unauthorized Trading
MARKET NEWS
1. JPMorgan Chase Loses Lead Role on Kingsoft Cloud IPO
J P Morgan Chase was removed as the most senior underwriter for Kingsoft Cloud Holdings' HK stock IPO after its analysts downgraded the ratings on 28 tech companies including Kingsoft Cloud in April., calling the China internet sector as "uninvestable" in the near term on worries about strict Covid Zero policies and a government crackdown on tech companies.
In a statement, Kingsoft Cloud said it could not comment on anything related to the proposed listing, and expressed that the company highly respected “research independence".
Significance:
Despite the demotion could cut fees for JP Morgan, it underscores the tricky path banks must sometimes navigate when their research departments issue downbeat calls on investment-banking clients. It demonstrated to the public how research analysts at global banks are supposed to operate independently of the firms' investment bankers in order to provide to the public a different perspective for consideration.
2. MaiCapital obtains SFC approval to manage its portfolio of up to 100% in virtual assets
Blockchain and virtual assets manager MaiCapital has gained approval from the Hong
Kong SFC to manage portfolios that may comprise up to 100% of virtual assets; provided that MaiCapital is subject to the SFC’s “Proforma Terms and Conditions for Licensed Corporations which Manage Portfolios that Invest in Virtual Assets”.
Concurrently, Wealthking Investment (01140.HK), a traditional investor, has become a new shareholder of the MaiCapital group. MaiCapital intends to further expand its offering of virtual asset fund products and regulated crypto services to investors worldwide and to grow its institutional business to a combined AUM of over USD$200m.
MaiCapital currently partners with regulated exchanges and service providers like Coinbase and OSL.
Significance:
It conveys the message to the market practitioners how the SFC takes a pragmatic view in regulating the virtual assets regime on conditions that the Licensed Corporations can demonstrate to the regulators that they are capable of delivering complex products to the investors in accordance with rules and standards in line with expectation of the regulators.
3. Commencement of End-To-End (E2E) Test for the Hong Kong Investor Identification Regime (“HKIDR”) in May 2022
The E2E Test for systems relating to the HKIDR will commence from 16 May 2022 until 15 July 2022. It is mandatory for all Relevant Regulated Intermediaries1 (“RRIs”) to participate in the E2E Test.
A RRI refers to a licensed corporation which (i) carries our proprietary trading; or (ii) provides securities brokerage services for another person in respect of orders placed through an account maintained for that person. A RRI can be an EP or non-EP.
There will be three rounds of test account registration/update, an RRI must complete its registration/update in any one of the three rounds depending on their readiness in order to participate in the mandatory E2E Test.
To facilitate the E2E Test, SEHK has also published the templates of the five Reporting Forms for RRI’s reference and they are available on HKEX’s HKIDR web corner. RRI should also ensure that their ECP logins for E2E Test are ready for submission purpose in the rehearsal.
4. SFC proposes changes to the Position Limit Regime
The SFC launched a consultation in April 2022 on proposed changes to the position limit regime for listed futures and options contracts, and the public is invited to submit their comments by 27 June 2022.
A key proposal is to set out how the statutory prescribed limits and reporting requirements should be applied to unit trusts and sub-funds under an umbrella fund. Other proposed changes involve reportable positions in contracts traded on holiday trading days and the inclusion of a broader range of contracts which may be authorized by the SFC for excess positions.
“The position limit regime is essential to prevent the build-up of positions which may threaten the stability of the Hong Kong financial market,” said Mr. Ashley Alder, the SFC’s Chief Executive Officer. “The proposed changes will address the needs of the market and better align the regime with the SFC’s regulatory policies and objectives.”
Significance:
It seems coincident with the introduction of BCAN which further enhances the transparency of open positions held by the dominant market participants, and it extends to the unit trust regimes as well. Furthermore, position limit is merely one of factor affecting stability of the markets, bear in mind other parameters like the number of participants, market price spreads, market depths which materially affect the liquidity and thus stability of the markets.
ENFORCEMENT NEWS
5. SFC bans Poon Choi Yung for 20 months for Unauthorized Trading
The SFC has banned Mr. Poon Choi Yung, a former licensed representative of China Tonghai Securities Limited, from re-entering the industry for 20 months from 12 April 2022 to 11 December 2023 for breaches of the SFC’s Code of Conduct.
An SFC investigation which found that between June 2019 and March 2020, Poon effected 1,002 transactions in six clients’ accounts without the clients’ specific authorisations for the trades and/or their written authorisations for him to effect the trades on a discretionary basis.
The SFC considers that Poon has also failed to act with due skill, care and diligence, and in the best interests of the clients when carrying on business activities.
For more details, please click on the title of the topic above.
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