HSBC Securities submitted a licence application to carry on business in Type 7 (providing automated trading services) regulated activity for its provision of matching and crossing services in Hong Kong (Crossing Service) in May 2010. During the licence application process, HSBC Securities represented to SFC that existing clients would be given the option of "opting in", by signing "opt in letters", if they wished to participate in the Crossing Service (the "opt in" approach). SFC granted HSBC Securities a Type 7 licence in Mar 2011.
In Jul 2011, the media reported that HSBC proposed to launch the Crossing Service to its retail clients, and that an "opt out" approach would be adopted, whereby clients would effectively be assumed to consent to their trades being matched and crossed on the Crossing Service unless they took the initiative to notify HSBC otherwise. This is contrary to the representations that HSBC Securities had made to SFC during the licence application process.
SFC's investigation found that:
- A preliminary decision by HSBC to change the enrolment approach for retail clients from "opt in" to "opt out" was made in mid-Oct 2010 but as a result of internal miscommunication, when SFC specifically queried HSBC Securities in Nov 2010 whether the "opt in" approach would apply to retail clients, HSBC Securities misrepresented to SFC that this would be the case.
- When the decision to change from "opt in" to "opt out" approach for retail clients was confirmed in around Dec 2010, HSBC Securities failed to notify SFC about the change as required by the S&F (Licensing and Registration) (Information) Rules.
SFC considers that HSBC Securities' failure to ensure the accuracy of information submitted to SFC in support of its licence application and its failure to notify SFC about the change from "opt in" to "opt out" approach for retail clients called into question its fitness and properness as a licensed person.
Change from "opt in" to "opt out" is too material to be ignored!
