Rat-traders and broker suspended

TWO dealer's representatives have been suspended for rat-trading and their employer's registration has been suspended for seven days, the Securities and Futures Commission (SFC) says.

It said Peter Yip Moon-chi's registration was suspended for two years, and Terry Lau Kam-man was suspended for 11/2 years.

Both worked for Lawsons Securities Co, and the registration of their employer, Law Siu-kong was suspended for seven days for failure to have adequate internal controls.

'These suspensions are indicative of the very serious view which the commission takes of malpractice by registered persons,' the SFC's executive director of enforcement, Gerald McMahon, said.

All registered intermediaries must act honestly and fairly and in the best interests of their clients and the market, he said.

Otherwise the SFC would take strong regulatory action against them.

'Brokers must also closely monitor the activities of their staff and ensure proper controls are in place that will prevent or assist in the detection of trading malpractices,' he said.

The SFC action arose from an investigation from January 1, 1993 to December 9, 1994, when both Mr Yip and Mr Lau were dealers representatives of Mr Law, working as his floor traders.

The investigation found the floor traders jointly engaged in, and profited from rat-trading through the unauthorised use of a client's account, the SFC said.

In five sample months examined during the period, the pair made a profit of $137,440.99.

The pair also sold short 40,000 Bank of East Asia warrants issued by Peregrine on January 14, 1994, and Mr Yip had made misleading statements to SFC staff during the investigation, it said.

In an unrelated investigation, Mr Yip was convicted in Western Magistracy of having sold short 50,000 All Pantronic Holdings warrants on April 29, 1994, the SFC said.

It concluded the activities of Mr Yip and Mr Lau were prejudicial to the interests of the investing public.

It said the rat-trading was facilitated by Mr Law's failure to properly monitor their activities and by the lack of internal controls.

Rat-trading occurs when a broker receives an order to buy or sell a share at a certain price.

If, for example, a trader is ordered to buy a share but believes the price will drop, he waits and then buys the share at the lowest possible price, selling it back to the client at the original price while pocketing the difference.