Self-Matching Transactions

As announced on 9 Jan 2014, SFC resolved its compliance concerns with Cheong Lee Securities Limited. Under the resolution, SFC reprimands and fines Cheong Lee $2 million for internal control failures relating to self-matching transactions in breach of SFC’s Code of Conduct.

SFC's investigation into Cheong Lee’s client securities trading activities revealed that Cheong Lee allowed its clients to adopt a master account and sub-accounts structure. During the period from Dec 2008 to Nov 2011, more than 1,500 transactions were identified to be traded between the sub-accounts operated by different traders for the same master account.

Cheong Lee failed to put in place effective internal control procedures to detect and prevent self-matching transactions between the sub-accounts which SFC considers not to be in the best interest of market integrity.

Use of master account and sub-accounts structure is not uncommon, but securities firms should put in place the proper surveillance system to detect self-matching transactions (equivalent to wash trades).