Nine Masts Capital, a Hong Kong-based hedge fund, has been fined by the local Securities and Futures Commission (SFC). The group is allegedly in violation of “naked short selling,” reports Financemagnates.
The past is back to haunt
Apparently, the situation is from back in 2015, where Nine Masts Capital sold a share before it was publicly available. The share in question was of Yuzhou. Nine Masts Capital is being fined HK$1.2 million or $152,000 for the violation.
Delving deeper into the scenario, Yuzhou Properties revealed a new set of shares on May 12 in 2015. From there, the planned selling of shares was to take place a little over a week later. However, Nine Masts was aware it should have access to 32 million shares on the 13th.
Nine Masts sold 10,633,000 of these shares before they were actually acquired by the company, however. Essentially, they jumped the gun.
Second times’ the charm
According to a press release via the SFC, this is the second time Nine Masts Capital did this sort of thing:
“This incident is the second occurrence of a similar kind – Nine Masts’ systems and controls for preventing naked short selling did not improve despite an advisory letter by the SFC in August 2013 for a similar incident whereby placing shares were sold before the completion of a placement in June 2010”
However, Nine Masts did report the issue to the SFC themselves. But, they do receive some points for complying with the commission after the fact. That and the group has a “clean disciplinary record” otherwise.
But, the hedge fund is in violation of Section 170(1) of the Securities and Futures Ordinance. This is a “criminal offence (sic)” as the exchange did “sell securities at or through a recognised stock market” at a time before sale.
This allowance violated the trust of Nine Masts’ consumers and put them in a situation they had little to no control over. It’s the exact opposite of what you should do as a stock trading platform.