HONG KONG: SFC Reprimands and Fines Brilliance Asset Management Limited $3.15m over Short Position Reporting Failures

Monday February 22 2021

The Securities and Futures Commission (SFC) has reprimanded Brilliance Asset Management Limited (Brilliance) and fined it $3.15 million over failures to ensure short position reports (SPRs) for four collective investment schemes (CISs) under its management were accurate and compliant with the requirements under the Securities and Futures (Short Position Reporting) Rules (SPR Rules).

Reporting Requirements

Under rule 4(2) of the SPR Rules, a person who has a reportable short position in any specified shares at the close of trading on The Stock Exchange of Hong Kong Limited (SEHK) on the last trading day of each week must notify the SFC of the position within two business days.

Rules 3(1) and 3(2)(b) of the SPR Rules further stipulate that a person has a reportable short position if the net short position value the person holds in a specified share is equal to or more than the lower of (i) HK$30 million; and (ii) 0.02% of the value of the total number of the specified shares issued.

“Specified shares” are defined under rule 2 of the SPR Rules as shares in a company which are listed or admitted to trading on SEHK.

Summary of Facts

Following two self-reports by Brilliance, the SFC conducted an investigation which found that Brilliance had prepared and submitted SPRs to the SFC for these four CISs between 8 July 2016 and 30 August 2019, but a total of 7,814 short positions held respectively by these CISs were either misstated or omitted in these reports.

The errors found in the SPRs prepared by Brilliance were the result of the followings:

• Since Brilliance failed to incorporate the code of a new prime broker in its automated programme, short positions held through the broker were omitted in its calculations of the total short positions set out in the SPRs;
• Brilliance mistakenly calculated the short positions held by all CISs under its management on an aggregated basis, and reported all such short positions under the name of one of the four CISs; and
• Brilliance erroneously used data sources that included the market capitalisation of A-shares and non-listed shares of the issuers in calculating whether the net short positions held by the CISs exceed the 0.02 per cent reportable threshold instead of only using the market capitalisation of Hong Kong-listed shares as required by the SPR Rules in making the calculation.

The SFC determined that Brilliance had failed to act competently to ensure the SPRs it prepared would be accurate and compliant with the applicable requirements under the SPR Rules.

In determining the sanction, the SFC took into account all relevant circumstances, including Brilliance’s prompt remedial actions and cooperation with the SFC in resolving the SFC’s concerns and its otherwise clean disciplinary record.

Click on the above link for further information.