SFC announced on 23 Sep 2024 that it prohibited Mr Dennis Cheng Chung Sing from re-entering the industry for 6 months because Cheng had acted dishonestly to conceal a trade execution error when he attempted to fix the error.
Between 23 Jul 2018 and 2 Sep 2020, Cheng was a sales trader on Goldman Sachs’ Hong Kong Program Trading Sales Trading Desk (PT Desk). Cheng’s duties included executing client orders.
On 21 Aug 2020, a client placed an order with Goldman Sachs to buy 6,700,000 shares in Company X at volume weighted average price (VWAP), to be executed over 3 days (2,232,000 shares on 24 Aug 2020 and 2,234,000 shares each on 25 and 26 Aug 2020). The client order was routed to the PT Desk for execution.
Cheng picked up the client order for execution on 24 Aug 2020. However, Cheng wrongly inputted 232,000 shares instead of 2,232,000 shares into the system, resulting in an under-execution of 2 million shares.
Cheng was alerted to the error trade by his colleague after market close on the same day. However, Cheng did not immediately report the error trade to Goldman Sachs’ management and compliance department in accordance with Goldman Sachs’ internal policy on error escalation and only reported it 4 days later.
Upon discovery of the error trade, Cheng immediately approached Goldman Sachs’ facilitation desks to arrange a facilitation trade for the shortfall, without obtaining the client’s prior consent.
When booking the two executed trades consisting of: (i) the 232,000 on-exchange executions; and (ii) the facilitation trade to the client’s account on 24 Aug 2020, Cheng did not select the average price for the executed trades in accordance with Goldman Sachs’ booking practice. Instead, Cheng booked the executed trades at the more favourable VWAP which reflected the client’s requested price, and not the average price. As a result of this price error, the client was not disadvantaged by the facilitation trade. However, the price error caused the error trade to be hidden from Goldman Sachs until 28 Aug 2020, when its share trading desk discovered a trading loss from the facilitation trade.
Cheng also made multiple misrepresentations to his colleagues to conceal the error trade including:
- on 24 Aug 2020, Cheng told a colleague on the facilitation desk that he needed to buy the shortfall by client facilitation because of a lack of current liquidity when the real reason was to cover the shortfall which had resulted from the error trade;
- on 24 Aug 2020, immediately before the execution of the facilitation trade, he told another colleague that he had obtained the client’s consent by telephone, notwithstanding he had not done so; and
- on 28 Aug 2020, in response to his supervisor’s query as to why he needed to arrange a client facilitation trade, Cheng told his supervisor that he had spoken to the client after he became aware of the shortfall and the client had asked him to arrange a facilitation trade for the shortfall.
