Hong Kong regulator fines China Merchants $3.4 mln for IPO failure

HONG KONG, May 27 (Reuters) - Hong Kong's securities watchdog has fined the local unit of investment bank China Merchants Securities Co Ltd (CMS) 600999.SS HK$27 million ($3.4 million) for breaching its code of conduct on initial public offerings (IPOs) in the city.

The Securities and Futures Commission (SFC) fined CMS for its work as one of the sponsors, or lead underwriters, on the listing application of China Metal Recycling (CMR), a now-defunct scrap merchant, the regulator said.

The latest sanction follows regulatory action taken against the other joint sponsor UBS Group AG UBSG.S for its failures in relation to the listing application of CMR and two other companies, it said in a statement on Monday.

In March, the SFC banned UBS from leading IPOs in the city for a year, while fining it and rivals including Morgan Stanley MS.N a combined $100 million for due diligence failures on a series of share listings.

The watchdog in February this year had also suspended the licence of a former senior banker at CMS for breaching its IPO code of conduct.

In 2009, CMS and UBS sponsored the $231-million IPO of CMR.

CMR in 2013 became the first firm in Hong Kong to be wound up by the SFC, which pushed ahead with the liquidation before it had finished investigating whether the company overstated its financial position in its IPO prospectus, in a bid to take control of CMR's assets.

CMS representatives in Hong Kong did not immediately respond to an emailed request for comment.

The SFC investigation found that CMS and UBS had "failed in their due diligence as joint sponsors to address a number of unusual facts and findings" on CMR and its customers during the listing process, the regulator said in its statement on Monday.

The fine imposed on CMS is the latest in a series of measures taken by the SFC.

The watchdog has been cracking down on investment banks in Asia's financial hub for their work as IPO sponsors, who take the lead in share offerings and collect a larger proportion of fees.

($1 = 7.8493 Hong Kong dollars)

(Reporting by Sumeet Chatterjee; Editing by Tom Hogue)

((sumeet.chatterjee@thomsonreuters.com; +852-2847 2094; Reuters Messaging: sumeet.chatterjee.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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