SFC seeks return of shares from broker
Hundreds of Whole Win Securities clients left in the lurch after regulator suspends all trading activity
The Securities and Futures Commission is to seek a court order to appoint an administrator to return shares to clients of troubled broker Whole Win Securities but the move may not come in time to save clients' Bank of China shares which will still be under restriction when the stock debuts on Thursday.
The watchdog's restriction notice - which was issued on the broker on Friday - prohibits Whole Win from dealing or moving clients' assets without the commission's consent, effectively tying up the shares of 446 clients.
The stock exchange yesterday suspended Whole Win from using the exchange trading or settlement systems.
The SFC said it found suspicious entries in its latest financial reports and later the management admitted the broker had a liquid capital deficit of $28 million.
The SFC investigation sparked 270 inquiries yesterday and during the weekend from investors desperate to know the state of their portfolios following the restriction.
Whole Win Securities had 446 active clients at the end of April comprising 198 cash clients and 248 margin clients.
While the fate of the brokerage still hangs, some nervous shareholders have already submitted claims to the Investor Compensation Company, which handles the compensation fund for clients of collapsed brokers. Claims are capped at $150,000 per investor.
'The SFC wants to emphasise that there is evidence that the matter is a conduct issue and is not related to the recent market correction. The SFC has not received any report from broker firms of material withdrawal or account closing requests from clients,' the commission said.
Its investigation found that the firm relies on repledging its margin clients' collateral to obtain bank loans, putting these clients at high risk in the event the broker is unable to repay the loan.
Frederick Ma Si-hang, Secretary for Financial Services and the Treasury, said the SFC had plans to tighten the regulations around repledging by brokers.
'Whole Win case is related to the individual firm's integrity problem which could not be prevented by stricter regulation,' Mr Ma said. 'If we have a policy that is too tight, it could force securities firms out of business, putting many employees out of work and seriously affecting their livelihoods. The SFC has to find a right balance.'
Hong Kong Stockbrokers Association chairman Tony Espina said Whole Win was too small to affect other brokerages. 'It will be business as usual for the other brokers today,' he said.
In a separate case, the Court of Appeal yesterday rejected an appeal by Yick Ming-kit, a director of collapsed brokerage Foreground Securities, against an SFC decision to revoke his licence. Mr Yick was also seeking compensation.
The court said there was no reasonable cause of action. 'It would have been an abuse of process to permit the claims to continue,' it added.