Hong Kong’s financial watchdog fines China Merchants Securities HK$27 million for ‘failed’ IPO sponsor duty

The Hong Kong subsidiary of one of China’s largest brokerages has been fined by the Securities and Futures Commission for its sponsor work related to the listing of China Metal Recycling

The fine comes after joint sponsor UBS was disciplined for substandard sponsoring work

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The Securities and Futures Commission issued a reprimand against China Merchants Securities (HK) Co on Monday for ‘failing to discharge its obligations as a joint sponsor in relation to the listing application of China Metal Recycling’. Photo: Dickson Lee

Published: 8:39pm, 27 May 2019Updated: 10:38pm, 27 May 2019

Hong Kong’s securities regulator on Monday fined China Merchants Securities (HK) Co HK$27 million (US$3.4 million) for failing in its duty as an initial public offering (IPO) sponsor for the 2009 listing of China Metal Recycling, one of the largest listing frauds in the city.

The latest action by the Securities and Futures Commission (SFC) against the Hong Kong subsidiary of one of China’s largest brokerages follows its earlier punishment of Swiss investment bank UBS, which jointly sponsored the listing of China Metal Recycling with China Merchants Securities (CMS).

“The SFC’s investigation revealed that CMS and UBS had respectively failed in their due diligence as joint sponsors to address a number of unusual facts and findings on China Metal and its customers during the listing process,” the financial watchdog said in a statement.

In March, the SFC fined UBS HK$375 million and barred it from leading IPOs for a year. The censure was related to three problematic listings UBS sponsored, however the SFC did not name the China Metal Recycling deal at the time because the investigation was ongoing.

The financial watchdog has stepped up its efforts to discipline investment banks for neglecting their responsibilities. Thomas Atkinson, executive director of enforcement at the SFC, said in a public presentation last October that its sponsor team had investigated 30 cases of suspected sponsor misconduct involving 28 sponsor firms and 39 listing applications.

Thomas Atkinson, executive director of enforcement at the SFC, said in a public presentation last October that its sponsor team had investigated 30 cases of suspected sponsor misconduct involving 28 sponsor firms and 39 listing applications. Photo: Jonathan Wong

“From what we are seeing, the quality of sponsor work appears to have much room for improvement, and we will continue to focus on this area until standards have improved,” Atkinson said.