Hong Kong's securities regulator on Monday fined a unit of BNP
Paribas SA for misconduct related to its dark pool operations.
The Securities and Futures Commission fined BNP Paribas
Securities (Asia) Limited 15 million Hong Kong dollars (US$1.9
million) for failing to "operate as represented in materials
provided to clients," the regulator said in a statement.
Dark pools are electronic private trading venues that are
generally operated by big banks and are designed to let investors
buy and sell shares anonymously.
The SFC said the BNP Paribas unit told clients that orders for
its dark pools trading service would be matched and executed based
on price priority. Instead, between November 2009 and April 2011,
they were matched based on order sizes, the regulator said.
Some clients who paid higher order prices expecting to get
faster execution ultimately didn't receive it, according to the
SFC.
The BNP Paribas unit suspended its dark pool service in April
2011 and it didn't become functional again until seven months
later. The SFC said BNP Paribas didn't report the suspension until
January 2013, a breach of rules.
"No one should dive into dark water without knowing what is
hidden," said Mark Steward, the SFC's head of enforcement.
"Operators must have clear rules and procedures in place for
operating dark pools, and equally important, they should operate
consistently with representations to clients whose consent to enter
the dark pool is clear and well-informed."
In addition to the fine, BNP Paribas will "engage an independent
reviewer" to assess the operation of the dark pool.
"BNP Paribas Securities (Asia) Limited has cooperated with the
Commission throughout the investigation and has conducted a
thorough review of the matter," a bank spokeswoman said in an
emailed statement. She said the division has "taken steps…to
prevent the problems from happening again and to deliver enhanced
quality services to its clients."
Regulators around the world have increasingly focused on dark
pool operations. In January, UBS Group AG agreed to pay US$14.4
million to settle U.S. Securities and Exchange Commission
allegations regarding its own dark pool. The SEC said UBS didn't
adequately explain to all clients how the dark pool worked,
creating an uneven playing field. UBS neither admitted nor denied
the allegations and said it had fixed the issues that led to the
charges.
Write to Julie Steinberg at julie.steinberg@wsj.com
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