SFC reprimands and fines KTF Capital Management Limited $400k for breaching Financial Resources Rule

The Securities and Futures Commission (SFC) has reprimanded and fined KTF Capital Management Limited (KTFCM) (formerly known as Forchn International Asset Management Co. Limited and Rega Technologies Limited) $400,000 for failures to comply with the Securities and Futures (Financial Resources) Rules (FRR) (Notes 1 and 2).

The SFC found that KTFCM failed to maintain its required liquid capital of approximately $2.8 million between 13 and 18 December 2018 and notify the SFC when it became aware of its inability to comply with the financial resources requirements. It transpired that the almost $20 million deficit in KTFCM’s liquid capital was the result of an oversight in that it failed to anticipate its proprietary trading in shares would trigger adverse implications to its liquid capital calculation under the FRR (Notes 3 and 4). The SFC is of the view that KTFCM’s conduct was in breach of the Code of Conduct (Note 4). In deciding the sanction, the SFC took into account all relevant circumstances, including:

• The FRR regime represents significant statutory safeguards for the interests of the investors in the market;

• KTFCM’s liquid capital deficit was significant in light of its operations but lasted for only a short period of time;

• KTFCM misrepresented to the SFC that it maintained sufficient liquid capital during the relevant period by backdating a relevant agreement;

• KTFCM’s cooperation with the SFC in resolving the disciplinary proceedings;

• KTFCM’s financial situation; and

• KTFCM’s otherwise clean disciplinary record.

End

Notes:

1. KTFCM is licensed under the Securities and Futures Ordinance to carry on Type 4 (advising on securities) and Type 9 (asset management) regulated activities.

2. The SFC originally proposed to fine KTFCM $800,000. Having considered KTFCM’s financial position, the SFC decided to reduce the fine to $400,000.

3. Pursuant to rule 27(1)(a) of the FRR (Proprietary positions of licensed corporations), a licensed corporation must include in its liquid assets listed shares that it beneficially owns at market value, less the haircut amounts in relation to the securities concerned.

4. Pursuant to rule 44(1)(a) and (g) of the FRR (Concentrated proprietary positions), where a licensed corporation holds for its own account listed shares and the net market value of any such securities which are of the same description equals 25% or more of its required liquid capital, it must include in its ranking liabilities, where the net market value is 51% or more of its required liquid capital, 10% of such net market value.

5. Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.