Hong Kong Fines BNP Paribas for Leaving Investors in the Dark

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 [e-mail]

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