The Securities & Futures Commission has reprimanded Sun Hung Kai Investment Services and fined it $4 million for internal control failures that contributed to market misconduct.

Following an inquiry into the dealing in QPL International Holdings shares in 2003 the Market Misconduct Tribunal found on January 22 Sun Hung Kai Investment Services' former responsible officer Chau Chin-hung and its former account executive Cheung Sau-lin engaged in false trading and price rigging from May 6 to June 10, 2003.

The commission found despite policies to segregate proprietary and client trading, Sun Hung Kai gave Chau the authority to conduct both types of trading which gave him the opportunity to misuse information gathered on the client trading side of the business to engage in unlawful activities in a proprietary account.

Sun Hung Kai also allowed Chau and Cheung to place orders at material times in the same dealing room by open "outcry", which was inconsistent with the company's formal policy to physically separate proprietary and client trading functions.

The company did not detect the misconducts by Chau and Cheung for five weeks until the commission notified it.

Commission Executive Director of Enforcement Mark Steward said today Sun Hung Kai had in place appropriate policies segregating client and proprietary trading but they were not properly implemented or policed in this case.

Policies designed to prevent market misconduct must be actively monitored and supervised by senior management, he said, adding the commission will hold firms to account for their failure to ensure their compliance systems are working properly.