(Bloomberg) — Hong Kongs financial regulator fined BNP Paribas SAs local unit HK$15 million ($1.9 million) for breaching rules that set out how itsdark poolshould operate.
BNP Internal Exchange, the French banksdark 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 intodarkwater without knowing what is hidden, Mark Steward, the SFCs executive director of enforcement, said in the statement. Operators must have clear rules and procedures in place for operatingdarkpools.
BNP did not fully resume trading on thedark pooluntil 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 thedark 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 itsdark 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 thedark pooloperates.
Hong Kong will get a tougher regime fordarkpools 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.
