Hong Kong Fines BNP Paribas for Breaking Dark-Pool Trading RulesEduard Gismatullin
Hong Kong’s financial regulator fined BNP Paribas SA’s local unit HK$15 million ($1.9 million) for breaching rules that set out how its dark pool should operate.
BNP Internal Exchange, the French bank’s dark pool, failed to give priority to higher priced orders, even though it claimed to do so in materials provided to clients, the Securities and Futures Commission said in a statement on Monday. The brokerage treated all orders as having equal priority between November 2009 and April 2011, when it suspended operations, the SFC said.
“No one should dive into dark water without knowing what is hidden,” Mark Steward, the SFC’s executive director of enforcement, said in the statement. “Operators must have clear rules and procedures in place for operating dark pools.”
BNP did not fully resume trading on the dark pool until seven months after it had suspended activity, and it only notified the SFC in January 2013, the regulator said. That breached the terms of BNP Paribas Securities (Asia) Ltd.’s license to run automated trading services.
The bank also failed to obtain client consent to execute orders in the dark pool, a second breach of its license. The SFC found it difficult to assess the impact of the rule breaches because BNP Paribas kept insufficient trading records for its dark pool.
BNP Paribas co-operated with the SFC in the investigation and examined what had happened, Christine Chan, a Hong Kong-based spokeswoman at the bank, wrote in an e-mail. The bank told the SFC that it would hire an independent outsider to review how the dark pool operates.
Hong Kong will get a tougher regime for dark pools from December 1. Bank-operated trading venues provide the only alternative to Hong Kong Exchanges & Clearing Ltd., which enjoys a monopoly over on-exchange equity trading.
The SFC fined the Hong Kong-based unit of Nomura Holdings Inc. HK$4.5 million last month for failing to report significant misconduct by a former trader in a timely manner.
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