Failure to Disclose Notifiable Interests in HK Listed Shares

As announced on 15 Jun 2016, SFC reprimanded and fined Schroder Investment Management (Hong Kong) Limited $1.8 million for failing to disclose all notifiable interests in Hong Kong listed shares.

From Aug 2005 to Jan 2013, Schroder failed to disclose to SEHK and the relevant listed companies all notifiable interests in Hong Kong listed shares held in client portfolios and managed by Schroders plc and certain of its subsidiaries (Schroder Entities) where they did not have or were unable to exercise proxy voting rights. Schroder is responsible for preparing and filing the notices disclosing all notifiable interests in Hong Kong listed shares for the Schroder Entities to SEHK and the relevant listed companies.

Although legal advice obtained by Schroder advised that an "interest" in shares was broadly defined and was not confined to the exercise of a voting right, Schroder failed to properly follow the advice.

According to Schroder, it discovered the disclosure failures in Nov 2012 when it was preparing to implement a new global system for the monitoring and reporting of disclosable interests in shares. In Feb and Mar 2013, Schroder filed a total of 236 substantial shareholders notices to the SEHK to correct the disclosure notices filed for the Schroder Entities from Jul 2010 to Jan 2013.

I am wondering who in Schroder made the decision of disregarding the legal advice.

No Interest is Not the Best Interest

What is the best interest of the client? It is usually manifested when the better interest is neglected.

As announced on 15 Jun 2016, SFC reprimanded and fined State Street Global Advisors Asia Limited (SSGA) $4 million for its failure to comply with regulatory requirements in the management of Tracker Fund of Hong Kong (Fund).

SFC's investigation found that from 1 Dec 2008 to 30 Jun 2013 (Relevant Period), the cash balances of the Fund that were deposited with State Street Bank and Trust Company's (SSBT) demand deposit account did not earn any interest because SSBT's deposit rates on Hong Kong dollars were zero. SSBT was the Fund's trustee and an affiliate of SSGA.

SSGA did not check the rate of interest offered by other banks, while the prevailing commercial interest rates on HKD for a deposit of the same size and term as the Fund's cash balances were above zero during the Relevant Period.

SFC considers that SSGA had failed to ensure that interest received on the Fund's HKD cash balances from its connected person was at a rate not lower than the prevailing commercial rate for a deposit of that size and term as required by the UT Code.

SSGA's internal procedures on the management of the Fund’s cash balances were inadequate. By not following the requirements of the UT Code and the Trust Deed when depositing the Fund's cash balances with SSBT, SSGA had failed to manage and minimise the conflict between the interests of the Fund's investors and the interests of SSGA/SSBT.

SSGA had also wrongly represented in 6 interim and annual reports of the Fund that the Fund’s cash balances were placed in a non-interest bearing current account when in fact the cash was deposited with SSBT in an interest bearing account earning zero interest.

As a result, SSGA agreed to make a voluntary payment of $318,315 into the Fund. It determined such amount by applying an interest rate of 0.01% to the Fund's cash balance for the Relevant Period and from the end of the Relevant Period to the date when the majority of the Fund's cash balance was transferred out of SSBT's demand deposit account.