SFC reprimands and fines Nine Masts Capital Limited $1.2 million over naked short selling

18 Apr 2019



The Securities and Futures Commission (SFC) has reprimanded and fined Nine Masts Capital Limited (Nine Masts) $1.2 million for failures relating to the short selling of Yuzhou Properties Company Limited (Yuzhou Properties) shares in May 2015 (Note 1).

On 12 May 2015, Yuzhou Properties announced its proposed placing of new shares, subject to the fulfilment of certain conditions.  Yuzhou Properties subsequently made a further announcement after market close on 21 May 2015 that the conditions had been fulfilled and the placing was completed on the same day.  Nine Masts was one of the placees in the placement of Yuzhou Properties shares.

The SFC found that Nine Masts received confirmation on 13 May 2015 from a placing agent that it would be allotted 32 million placing shares of Yuzhou Properties.  Shortly after receiving the verbal confirmation, Nine Masts sold 10,633,000 Yuzhou Properties shares.  At the time of placing the sell order, Nine Masts had no existing Yuzhou Properties shares and the placing had not been completed.  As a result, Nine Masts short sold 10,633,000 shares in Yuzhou Properties (Notes 2 & 3).  

The SFC considers that Nine Masts failed to act with due skill, care and diligence in dealing in the placing shares, and to implement adequate and effective systems and controls to ensure compliance with the short selling requirements.

In deciding the penalty, the SFC took into account all relevant circumstances of the case, including:

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Notes:

  1. Nine Masts is licensed under the Securities and Futures Ordinance (SFO) to carry on business in Type 9 (asset management) regulated activity.
  2. Section 170(1) of the SFO prohibits “naked” or “uncovered” short selling.  It is a criminal offence for a person to sell securities at or through a recognised stock market unless at the time of the sale, he has a presently exercisable and unconditional right to vest the securities in the purchaser of them, or believes and has reasonable grounds to believe that he has such a right.
  3. Prior to the announcement on 21 May 2015 regarding the fulfilment of the conditions and the completion of the placing of Yuzhou Properties shares, the public did not have reasonable grounds to believe that they had presently exercisable and unconditional rights to vest the placement shares in the purchaser of them.

A copy of the Statement of Disciplinary Action is available on the SFC website



Page last updated : 18 Apr 2019