THE SECURITIES AND FUTURES COMMISSION v. TSOI BUN

HCMP 1377/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO1377 OF 2009

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D E C I S I O N

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1.  I have before me an application by way of an amended originating summons whereby the plaintiff, the Securities and Futures Commission, seeks relief under section 213 of the Securities and Futures Ordinance, Cap 571 against the defendant, Mr Tsoi Bun.

2.  It is no longer in dispute that the defendant has contravened sections 295 and 296 of the Ordinance by engaging in false trading and entering into fictitious or artificial transactions for the purpose of price-rigging in the futures market.  He did so by placing orders, in a specific pattern, to buy and sell futures contracts, including Hang Seng Index futures contracts, in the futures market operated by the Hong Kong Futures Exchange Company Limited.  That allowed him to buy futures contracts at a depressed price or sell futures contracts at an inflated price to his financial benefit, and to the financial detriment of his counterparties in the relevant trades.

3.  It is unnecessary for me to set out the facts in any detail because, after the defendant was convicted of five counts under sections 295 and 296 in January 2012, he had come to agreement with the Commission in relation to these civil proceedings and signed a statement of agreed facts, which will be appended to my decision this morning when it is reduced into writing.  The facts on the basis of which the Commission seeks relief are wholly contained in that statement.

4.  Based on those admitted facts the Commission seeks an order under section 213(2)(b) of the Ordinance that the defendant pay appropriate sums to compensate his counterparties in the trades in question up to a total sum of HK$13,688,950 and, for that purpose, an order appointing administrators to implement the process by taking custody of the funds, identifying and verifying the counterparties, and distributing the funds to them.  Alternatively, the Commission seeks an order under section 213(8) for damages to be paid by the defendant to the counterparties.

5.  On this application the defendant, through his counsel Mr Derek Chan, accepts that on the basis of the facts outlined in schedules 1 and 2 to the statement of agreed facts, the court can be satisfied that he had contravened section 295(1)(b) and section 296(1)(b) of the Ordinance on the dates in question.

6.  The defendant further accepts that it is appropriate for the court to grant the relief sought by the Commission and supports the submissions made by Mr Abraham Chan, counsel for the Commission. Accordingly, the present application is wholly uncontested.

7.  I am satisfied that the defendant has contravened relevant provisions of the Ordinance within the meaning of section 213(1).  That brings into play the range of orders that the court can make under section 213.  In particular, section 213(2)(b) provides that the court may make:

“where a person has been, or it appears that a person has been, is, or may become involved in any of the matters referred to in subsection (1)(a)(i) to (v), whether knowingly or otherwise, an order requiring the person to take such steps as the Court of First Instance may direct, including steps to restore the parties to any transaction to the position in which they were before the transaction was entered into.”

8.  In the course of his submissions Mr Abraham Chan drew to my attention the decision of the English Court of Appeal in Securities and Investments Board v Pantell SA (No 2) [1993] Ch 256.  There, the court was concerned with, inter alia, section 6(2) of the Financial Services Act 1986, which was in these terms:

“If on the application of the Secretary of State the court is satisfied that a person has entered into any transaction in contravention of section 3 above, the court may order that person and any other person who appears to the court to have been knowingly concerned in the contravention to take such steps as the court may direct for restoring the parties to the position in which they were before the transaction was entered into.”

9.  Scott LJ, with whom Neill LJ agreed, took the view that section 6(2) empowered the court to direct steps resulting in full restitution in specie so that if, for example, the relevant transaction was a sale and purchase of shares, the shares would have to be given back in return for repayment of the price.

10.  On this point, however, Steyn LJ took the view that the purpose of an order under section 6(2) was to restore the parties to the relevant transaction to the financial position in which they were before the transaction took place and that the impossibility of rescission, for example, because the victims of the wrongdoing had already sold the shares they purchased from the wrongdoer, did not bar that statutory remedy (see page 283D).  Counter-restitution could be achieved by a financial adjustment taking account of the value of the securities the victims acquired.

11.  It seems to me that the position regarding section 213(2)(b) of the Ordinance is distinguishable from the statutory context of section 6(2) of the Financial Services Act 1986.  The language of section 213(2)(b) is wider than section 6(2).  Whereas section 6(2) empowers the court to direct that steps be taken:

“... for restoring the parties to the position in which they were before the transaction was entered into”,

section 213(2)(b) simply enables the court to make an order requiring the relevant person or persons:

“... to take such steps as the Court of First Instance may direct including steps to restore the parties to any transaction to the position in which they were before the transaction was entered into.”

12.  The breadth of this language is striking and while the nature of the steps that may be required may be limited by the spirit and intendment of the statute and the content and purpose of the application under section 213, I see no reason why they are confined to making full restitution in specie.  There appears to me to be no basis for reading such restriction into the provision.  As Mrs Justice Le Pichon said in Securities and Futures Commission v C [2009] 4 HKLRD 315 at paragraph 36, this point not being affected by the decision of the Court of Final Appeal in that case:

“Section 213(2)(b) enables an order to be made that would restore all the parties to the transaction to their respective former positions. In other words, it is restitutionary in nature and, in conjunction with an order under 213(2)(c) would provide compensation to those who have sustained losses through the wrongdoing in question, in the present case, insider-dealing.”

13.  In my view, the section permits an order to be made requiring restoration of the parties to their relevant financial position prior to the transaction impugned.  In the circumstances of this case, in terms of section 213(4), I am satisfied that it is desirable that the order sought be made and that the order will not unfairly prejudice any person.

14.  There will accordingly be an order under section 213(2)(b) as sought, subject to the amendments which I shall now discuss with counsel.

(Godfrey Lam) Judge of the Court of First Instance High Court

 

Appendix

HCMP 1377 /2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1377 OF 2009

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BETWEEN

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Statement of Agreed Facts

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Introduction

1.   On 21 July 2009, the Plaintiff filed an originating summons to commence proceedings against the Defendant seeking, among other things, the following relief:-

(1) a declaration under section 213(2) of the Securities and Futures Ordinance, Cap.571 (“SFO”) that the Defendant contravened section 295(1)(b) and/or section 296(1)(b) of the SFO on eleven (11) separate dates;

(2) a permanent injunction under section 213(2) of the SFO prohibiting or restraining the Defendant from trading or placing any order on the futures market operated by the Hong Kong Futures Exchange Company Limited in respect of any kind of index futures contract including Hang Seng China Enterprises Index Futures Contract and Hang Seng Index Futures Contract during the time from 9:15 am to 9:45 am and from 2:00 pm to 2:30 pm on any day, through any trading account held in his name or in the name of another person;

(3) An interim injunction under section 213(6) of the SFO prohibiting or restraining the Defendant from trading or placing any order on the futures market operated by the Hong Kong Futures Exchange Company Limited in respect of any kind of index futures contract including Hang Seng China Enterprises Index Futures Contract and Hang Seng Index Futures Contract during the time from 9:15 am to 9:45 am and from 2:00 pm to 2:30 pm on any day, through any trading account held in his name or in the name of another person until trial or further order of the court.

2.   On 17 September 2009, the Plaintiff filed an Amended Originating Summons to seek a declaration under section 213(2) of the SFO in respect of eighteen (18) additional dates (“Amended OS”).

3.   In the meantime, on 28 August 2009, at the conclusion of a hearing of a summons taken out by the Plaintiff on 31 July 2009 for an interim injunction against the Defendant, the Defendant through his counsel undertook to the Court that he would not place any order on the futures market operated by the Hong Kong Futures Exchange Company Limited in respect of any kind of index futures contract including Hang Seng China Enterprises Index Futures Contract and Hang Seng Index Futures Contract during the time from 9:41am to 9:42:59 am and from 2:26 pm to 2:27:59 pm inclusive on any day, through any trading account held in his name or in the name of another person until after judgment in this action or further order of the court in the meantime.  The Court adjourned the hearing of the summons.

4.   In December 2009 and November and December 2011, the Defendant was tried in a criminal court for five (5) offences, contrary to section 296(1)(b) & (4) of the SFO, for entering into or carrying out, directly or indirectly, an artificial transaction or device, i.e. placing or causing to be placed on the futures market operated by the Hong Kong Futures Exchange Company Limited his orders concerning certain kinds of futures contracts during the morning Pre-Market Opening Period in a specific pattern, with the intention that, or being reckless as to whether, the transaction or device had the effect of increasing or, in one case, reducing the calculated opening price.

5.   In January 2012, the Defendant was convicted of five (5) offences, sentenced to six (6) months’ imprisonment in respect of each offence to be suspended for two years and to be served concurrently, fined a total of $500,000 and ordered that he shall not, without leave of any court in Hong Kong, directly and indirectly in any way, acquire, dispose of or otherwise deal in any futures contracts during the pre-market opening period, or an interest in any futures contract during the pre-market opening period, for one year.

6.   On 20 February 2013, with a view to restoring these proceedings, the Plaintiff filed a Notice of Intention to Proceed.

Purpose

7.   A schedule is herewith produced in order to provide the Court with the facts that are not disputed in relation to the allegations relied on by the Plaintiff, for the purpose of disposing of these proceedings summarily (“Schedule 1”).  An extract from Chapter 4 of the Trading Procedures for Stock Index Futures and Stock Index Options Traded on the Automated Trading System of the Exchange is produced in Schedule 2 hereto.

8.   The facts set out in Schedule 1 and Schedule 2 are agreed between the Plaintiff and the Defendant on the basis that these proceedings against him will be disposed of summarily without the need for a full trial.  If the Court is of the view that a full trial is appropriate or necessary, no admission herein made shall be referred to or relied upon by any party against the other at any subsequent hearing without the written consent of all the parties hereto.

9.   The Defendant does not dispute the facts set out in Schedule 1 and Schedule 2 solely for the purposes of these proceedings.

10.   Solely for the purpose of resolving these proceedings summarily, the Defendant accepts that, by reference to the facts which are not in dispute, the Court can be satisfied that he has contravened section 295(1)(b) and/or section 296(1)(b) of the SFO on each of twenty-nine (29) dates stated in the Amended OS in the circumstances to be particularized in Schedule 1, and that it would be appropriate for the Court to grant the relief sought by the Plaintiff as described in paragraph 11 below.

Unopposed Orders

11.   The Defendant does not oppose the following relief to be sought by the Plaintiff, namely-

(a) Under section 213(2)(b) of the SFO, an order to restore each of those counterparties to the Defendant’s trades conducted on any of the aforesaid twenty-nine (29) days that are listed in the Amended OS in respect of the relevant futures contracts particularized in exhibits CKW-27 and CKS-SS04 of the Plaintiff’s filed evidence and in Schedule 1 by paying each of them, in proportion to his, her or its notional losses which arose as a result of the Defendant’s artificial transactions/device to be outlined in Schedule 1, an appropriate sum for such notional losses up to a total sum of HK$13,688,950 for all those counterparties in aggregate by 31 December 2013.

(b) At the costs of the Defendant, an order to appoint an administrator under section 213(2)(d) to administer the identification and verification of the aforesaid counterparties and their trades and properly distribute the sum of HK$13,688,950 among them.

(c) In the alternative to (a), damages under section 213(8) in the total sum of HK$13,688,950 to be distributed and paid to the aforesaid counterparties, in proportion to each counterparty’s notional losses, by 31 December 2013.

12.   The Defendant has also agreed to pay the Plaintiff’s costs of, and expenses incurred in, its preparation and conduct of these proceedings, including the costs of this application and the costs of its two expert witnesses up to a maximum of HK$1,261,000 by 31 December 2013.

13.   In the event of the Court deciding to dispose of these proceedings summarily on the facts set out in Schedule 1 and Schedule 2, the Plaintiff and the Defendant agree that they will jointly apply for a direction that Schedule 1 and Schedule 2 be annexed to the Court’s judgment.

Schedule 1

The futures market

14.   The facts in question concern various orders placed by the Defendant to buy and sell futures contracts in the futures market operated by the Hong Kong Futures Exchange Company Limited (“HKFE”).  Those futures contracts were Hang Seng Index futures contracts (“HSI”) and Hang Seng China Enterprises futures contracts (“HHI”), which were and still are traded on the futures market through a trading platform of the HKFE called the Hong Kong Futures Automated Trading System (“HKATS”).

15.   Any broker who has been admitted by the HKFE as an Exchange Participant (“EP”) can place on the futures market orders in respect of HHI and HSI on behalf of its clients through a HKATS workstation installed at its office.  A licensed futures dealer, i.e. a broker, who wishes to place orders directly into the HKATS must be an EP and must use a trading terminal provided by the HKFE.  An individual who deals in futures contracts for or on behalf of a licensed futures dealer must be licensed with the Plaintiff to carry out his regulated functions in respect of Type 2 Regulated Activity and be an accredited representative of the licensed futures dealer.

16.   Any investor who wishes to buy or sell futures contracts should open a trading account with a broker.  Having done so, the investor may place his orders with a licensed representative of the broker in person, by telephone or through the internet.

Relevant futures contracts

17.   Both HSI and HHI futures contracts have a stock index as their underlying references.  A futures contract is an agreement between a buyer and a seller to buy and sell the underlying stock index at a particular price on a stipulated future date.  Each futures contract is distinguished by the contract month to which it relates; the current trading month being called the “spot month” and the following months are designated as spot+1, spot+2 and so on.

18.   The contract value of each of HHI and HSI futures contracts is equal to the contract price of the futures contract multiplied by the contract multiplier of $50 per index point.  For example, if a HHI futures contract has a contract price of 10,000 index points, its contract value will be ($50 x 10,000 =) $500,000.

Pre-Market Opening Period

19.   Trading in HSI and HHI on the futures market is divided into the following periods –

(i) a Pre-Market Opening Period in the morning from 9:15 a.m. to 9:44:59 a.m.;

(ii) normal trading hours from 9:45 a.m. to 12:30 p.m.;

(iii) a Pre-Market Opening Period in the afternoon from 2:00 p.m. to 2:29:59 p.m.; and

(iv) normal trading hours from 2:30 p.m. to 4:15 p.m..

20.   A Pre-Market Opening Period consists of three stages, each of which is governed by different rules –

(i) a Pre-Opening Session, from 9:15 a.m. to 9:40:59 a.m. and from 2:00 p.m. to 2:25:59 p.m., during which both auction and limit orders may be placed onto the HKATS;

(ii) a Pre-Open Allocation Session, from 9:41 a.m. to 9:42:59 a.m. and from 2:26:00 p.m. to 2:27:59 p.m., during which an investor may place one or more auction orders onto the HKATS to create a new trading position or adjust (or even completely offset) an existing one;

(iii) a Open-Allocation Session, from 9:43:00 a.m. to 9:44:59 a.m. and from 2:28:00 p.m. to 2:29:59 p.m., during which no investor may place or cancel any order whilst the algorithm operates to generate a final Calculated Opening Price (“COP”) and match the existing orders according to the relevant rules designed by the HKFE.

21.   Only two types of orders can be placed onto the HKATS during the Pre-Opening Session and the Pre-Open Allocation Session.  The first type of order is an auction order, which specifies the number of contracts to be bought (a “buy” or “bid” order) or sold (a “sell” or “ask” order) but which does not specify a purchase or sale price.  The second type is a limit order, which specifies the price as well as the number of contracts sought.

22.   During a Pre-Opening Session, an investor may place, vary or cancel any order; whereas during the Pre-Open Allocation Session, only auction orders may be placed but none can be varied or cancelled (although an existing position can be completely offset by an auction order in the opposite direction that matches the size of the existing position).  Auction orders are given priority for matching during an Open Allocation Session and represent the trader’s commitment to accept execution of those orders at the final COP as determined by the algorithm, and as such are ranked in the order in which they are inputted.  For this reason, the earlier an auction order is placed in the Pre-Opening Session or the Pre-Open Allocation Session, the more assured one can be of gaining priority for its execution in an Open Allocation Session.  A limit order can only be matched during the Open Allocation Session after all auction orders have first been matched and it is also ranked by its price and given priority according to the time at which it is inputted.

23.   Essentially, a Pre-Market Opening Period is designed to achieve an orderly price discovery process.  It is very different from the normal trading period.  At the end of each Pre-Market Opening Period, the HKATS applies an algorithm to calculate a final COP for the matching of orders.

24.   The aforesaid algorithm has been designed in such a way as to take account of the overall supply and demand in respect of each type of futures contracts in question, as reflected by the trading data and information on the prices, sizes and distribution of the orders placed that have already been fed into or captured by the HKATS at the commencement of an Opening Allocation Session.   During a Pre-Opening Session and Pre-Open Allocation Session, the aforesaid algorithm is also operated continuously by the HKATS to generate a reference price, known as an indicative COP, to inform the investing public of each possible final COP.

The Defendant

25.   The Defendant was first registered with the Plaintiff as a dealer’s representative under the repealed Commodities Trading Ordinance, Cap. 250, on 1 June 1995.  Over a period of 11 years, the Defendant has worked for seven different brokers.  However, his licence as a representative under the new licensing regime implemented in April 2003 was suspended on 12 October 2006 and he has not yet applied to the Plaintiff for restoration.

Relevant trading accounts

26.   On or about 1 February 2007, the Defendant’s mother, Yeung Mei Chuen (“Yeung”), set up a trading account with a broker called Kaiser Futures Limited (“Kaiser”).  On or about 2 June 2006, the Defendant’s wife, Kwok Wai Chun (“Kwok”), set up a trading account with Timber Hill Securities Hong Kong Limited (“Timber Hill”) and on or about 7 March 2007, she set up a trading account with OSK Asia Futures Limited (“OSK”).  These three trading accounts were set up for the purposes of trading and dealing in HSI and HHI on the futures market.

27.   There was a standing arrangement through which the Defendant had an exclusive use of certain trading facilities of Kaiser to place orders on the futures market during the Pre-Market Opening Periods.  From the beginning, i.e. 1 February 2007, the Defendant has been authorized by Yeung to operate her account with Kaiser.  From that date onwards, only the Defendant operated Yeung’s account with Kaiser, and every order placed on the futures market during the Pre-Market Opening Periods through Yeung’s account was in fact placed by the Defendant.

28.   In addition, between February and October 2007, the Defendant also placed orders on the futures market during a few Pre-Market Opening Periods in the morning through Kwok’s accounts at OSK and Timber Hill.  During that period, only the Defendant operated Kwok’s accounts with OSK and Timber Hill, and every order placed on the futures market during those Pre-Market Opening Periods through Kwok’s account at OSK or Timber Hill was in fact placed by the Defendant.

Trader ID

29.   To effectively regulate the futures market, the HKFE requires each employee or representative of an EP who is given the task of inputting orders onto the HKATS to be identified by a unique identification number called Broker ID or Trader ID.  It is a four-digit number by which the HKFE can identify the person who places any particular order on the futures market through the HKATS.  On or about 19 July 2002, the HKFE assigned Broker/Trader ID “8370” to Mr. Lo Chung Kwan of Kaiser. On or about 7 February 2007, it assigned Broker/Trader ID “8371” to Mr. Lo Chung Kwan of Kaiser. On or about 9 July 2008, it assigned Broker/Trader ID “8352” to Mr. Yuen Ka Fai of Kaiser. On or about 9 July 2008, it assigned Broker/Trader ID “9352” to Mr. Yuen Ka Fai of Kaiser.

30.   From 1 February 2007 to 10:08 a.m. on the morning of 27 February 2007, the Defendant had authorization from Kaiser to log on the HKATS with Broker/Trader ID “8370”, and since 10:12 a.m. on 27 February 2007, Kaiser authorized the Defendant to log on with another Broker/Trader ID “8371” to the exclusion of any other person placing orders onto the HKATS at Kaiser.

31.   That means whenever the Defendant logged on to the HKATS using any one of three sets of User Identifications (“User ID”) and Passwords provided by Kaiser for him to place an order under the aforesaid arrangements, the HKATS would automatically identify the person who placed the order, i.e. the Defendant in each case, as Broker/Trader ID “8370”, “8371”, “8352” or “9352” and make a record of it in the HKATS.  By looking for the applicable Broker/Trader IDs, the Defendant’s orders placed during a Pre-Market Opening Period can be identified from the records of the HKFE.

Transmission of trading data

32.   There was an arrangement between the HKFE and the Plaintiff for the HKFE to provide the Plaintiff, on a daily basis, with the trading data and information captured by the HKATS during the day.  As soon as the Plaintiff received the trading data and information, its computer could generate a report to list each input of order, alteration, cancellation and matching with the identities of the traders involved (by his Broker/Trader ID) and other essential information, etc..

Contraventions

33.   Since September 2002, the Hong Kong Exchanges and Clearing Limited (“HKEx”), which is the holding company of the HKFE, has referred a significant number of cases to the Plaintiff concerning cases of suspected manipulation by the Defendant of the final COP in the Pre-Market Opening Period in respect of HHI and HSI.  In consequence of the Plaintiff’s investigation, the Plaintiff took disciplinary action against the Defendant in 2006, commenced prosecution against the Defendant in 2007 and made the present application in 2009 to restrain the Defendant from committing any further contravention and seek other relief. 

34.   The Defendant has contravened section 295(1)(b) and/or section 296(1)(b) of the SFO in each of the following days in the circumstances to be outlined in more detail in the sections below.  In essence, the Defendant’s wrongful conduct on each occasion comprised the following stages:

(1) As stated in paragraph 23, the final COP would be determined by a pre-set algorithm (see paragraph 4.8 of  chapter 4 of the Trading Procedures for Stock Index Futures and Stock Index Options Traded on the Automated Trading System of the Exchange in Schedule 2 hereto) which was designed to take account of the overall supply and demand in respect of each type of futures contracts as reflected by the prices, sizes and distribution of the orders placed during the Pre-Opening Session and Pre-Open Allocation Session.  Therefore, any artificial interference with the genuine supply and demand in respect of a particular kind of futures contracts by inputting an order of significant quantity a few seconds before the calculation of the final COP would likely distort the process of such calculation and other traders would not have an adequate opportunity to respond.

(2) First, he placed a series of orders during the Pre-Opening Session and/ or Pre-Open Allocation Session through the HKATS in order to build up a large number of orders in a particular direction, either “bid/buy” or “ask/sell”. 

(3) Second, very shortly before the end of the Pre-Open Allocation Session (within just a few seconds), he placed a series of large size orders in the opposite direction (which may be referred to as “squeezing orders”).

(4) As the overall supply and demand was an essential factor that determined the COP, the entering of a number of sell orders reduced demand for the futures contracts thereby deflating the COP while the entering of a number of buy orders increased demand, thereby inflating the COP.  If the squeezing orders were “bid/buy” orders the COP would be driven up whereas the COP would be driven down following “ask/sell” squeezing orders.

(5) The squeezing orders were entered at a very late stage in a smaller quantity than and in opposite direction to the pre-squeezing orders previously inputted by the Defendant.  There was no economic incentive for the Defendant’s trading where he was both buyer and seller of the same contract at the same time, which involved very substantial costs (e.g. the fees and levies payable on each transaction).  Those squeezing orders were placed in the market to shore up or depress the final COP.  The combination of a small squeezing order and a larger pre-squeezing order in an opposite direction would ensure that the final COP went in a direction that was beneficial to the Defendant.

(6) Third, by ensuring that the total number of squeezing orders are significantly less than the total number of pre-squeezing orders, the Defendant would at market opening be left with a substantial number of “net orders” in the same direction as the pre-squeezing orders.

(7) Those net orders would be matched automatically by the HKATS at market opening or otherwise squared off by the Defendant shortly afterwards.  By reason of the final COP being inflated or deflated as described above, the net orders would result in substantial profit to the Defendant.

14 Feb 07 re HHI H7

35.   On 14 February 2007, the Defendant logged onto the HKATS using Broker/Trader ID “8370” at the office of Kaiser and placed orders in respect of HHI futures contracts for the contract month of March 2007 (“HHI H7”).  Between 09:20:10 and 09:40:57, the Defendant placed various buy and sell orders to gain priority and information about the distribution and depth of orders placed by other traders.  To enable the determination of an indicative COP at a desired level, at 09:31:30, the Defendant placed both a buy order and sell order at 10,050.  To facilitate the rigging of the final COP, at 09:31:49, the Defendant, through Kwok’s account at Timber Hill, placed an order to buy 1 contract at 10,080.  He had no genuine intention to buy 1 contract at 10,080. But he placed that order to expand the range of prices within which the final COP could be fixed.

36.   As at 09:42:54, i.e., 6 seconds before the end of the Pre-Open Allocation Session, the Defendant was holding a short position.  To rig the final COP so that he could sell futures contracts more dearly, at 09:42:55, the Defendant placed an order to buy 30 contracts.  Immediately before his input of that buy order, the indicative COP was at 9,935.  As a result of that buy order, the indicative COP shot up to 10,080.  In the absence of any other order placed within the remaining 5 seconds, the final COP was calculated at 10,080. The Defendant managed to buy and sell 30 and 81 contracts simultaneously (i.e., he net sold 51 contracts).  He made a notional profit of HK$369,750 (= the number of contracts net sold x $50 x and (10,080-9,935)).

14 Feb 07 re HHI G7

37.   On the morning of 14 February 2007, the Defendant deployed a similar trading strategy in respect of HHI futures contracts for the contract month of February 2007 (“HHI G7”).  Throughout the entire morning Pre-Market Opening Period, the Defendant kept a long position.  It would be to his advantage that the final COP be determined at a lower level.  At 09:42:55, the indicative COP was at 9,897.  To rig the final COP so that he could buy more cheaply, the Defendant placed an auction order to purportedly sell 20 contracts.  As a result, the final COP was calculated at 9,883, 14 points down from 9,897 at which the indicative COP had stood before he placed the sell order.  The Defendant net bought 30 futures contracts and obtained a notional profit of HK$21,000 (=$50 x 14 x 30).

22 Aug 07 re HSI U7

38.   On 22 August 2007, the Defendant placed orders during the morning Pre-Market Opening Period in respect of HSI for the contract month of September 2007 (“HSI U7”).  As at 09:26:35, the Defendant maintained a short position, i.e., the number of contracts to be sold was larger than the number of contracts to be bought.  To rig the final COP in his favour, so that he could sell futures contracts more dearly, at 09:37:20, the Defendant, through Kwok’s account at OSK, placed an order to purportedly buy 1 contract at 22,000 and at 09:42:57, i.e., 3 seconds before the determination of the final COP, the Defendant placed an order to purportedly buy 15 contracts.  As a result, the indicative COP immediately rose from 21,978 to 22,076.  Eventually, the final COP was calculated at 22,038.  But for the Defendant’s artificial buy orders placed at 09:37:20 and 09:42:57, the final COP would have been calculated at a lower level.  The Defendant net sold 40 contracts during the Open Allocation Session and produced a notional profit of HK$120,000 (=$50 x 40 x 60).

22 Aug 07 re HSI Q7

39.   The Defendant traded HSI futures contracts for the contract month of August 2007 (“HSI Q7”) during the morning Pre-Market Opening Period on 22 August 2007.  As at 09:29:36, the Defendant established a long position (i.e., the number of buy contracts was larger than the number of sell contracts).  To rig the final COP so that he could buy HSI Q7 futures contracts more cheaply, between 09:42:56 and 09:42:57, the Defendant placed a series of five (5) orders to sell a total of 100 futures contracts.  At the time when he placed the first of those five sell orders, the indicative COP was 21,850.  Those sell orders artificially increased the supply of HSI Q7 futures contracts and as a result, the final COP was calculated at 21,726, which was 124 index points lower than the indicative COP before the Defendant placed the first of those five sell orders.  The Defendant net bought 50 futures contracts and made a notional profit of HK$310,000 (=$50 x 50 x 124).

24 Aug 07 re HHI U7

40.   The following orders in respect of HHI futures contracts for the contract month of September 2007 (“HHI U7”), which were placed by the Defendant during the morning Pre-Market Opening Period, are relevant.  As at 09:42:56, the Defendant had a short position, i.e., he was going to sell futures contracts.  To rig the final COP so that he could sell futures contracts more dearly, at 09:42:57, he placed three orders in quick succession to buy 20, 20 and 10 contracts respectively.  Those buy orders were placed to artificially generate a larger demand for HHI U7 futures contracts.  As a result, the indicative COP immediately rose from 12,618 to 12,950.  An unrelated trader placed an auction buy order shortly after and that raised the indicative COP further to 12,982.  The final COP settled at 12,982 at which the Defendant net sold 20 contracts.  The Defendant produced a notional profit, arising from his artificial orders, of HK$332,000 (=$50 x (12,950-12,618) x 20).

24 Aug 07 re HHI Q7

41.   The following orders, which were placed by the Defendant during the morning Pre-Market Opening Period on 24 August 2007, are relevant.  From 09:41:39 onwards, the Defendant maintained a long position in HHI Q7 futures contracts.  To rig the final COP so that he could buy futures contracts more cheaply, he placed two orders to sell a total of 40 futures contracts at 09:42:57.  He meant to use those sell orders to artificially create more supply of HHI Q7 futures contracts.  As a result of those sell orders, the indicative COP dropped from 12,758 to 12,740.  Because of other unrelated orders, the final COP dropped a lot more to 12,651.  The Defendant net bought 60 futures contracts.  The notional profit, as a result of the Defendant’s artificial transactions, is estimated at HK$54,000 ($50 x 60 x (12,758-12,740)).

24 Sept 07 re HHI V7

42.   On 24 September 2007, the Defendant placed orders during the morning Pre-Market Opening Period in respect of HHI for the contract month of October 2007 (“HHI V7”).  Since 09:17:03, when the Defendant placed an auction order to sell 5 contracts, he had maintained a short position.  At 09:34:50, the Defendant placed an order to buy 1 contract at 15,950 through his wife’s account elsewhere.  At that time, the best buy order in the market was to buy at 15,754.  The Defendant did not really want to buy 1 contract at this price. But this buy order would facilitate the HKATS to calculate a higher indicative COP. At 09:42:58, when the indicative COP was 15,785, the Defendant placed an order to buy 20 contracts.  As a result, the indicative COP rose to 15,855.  At the end of that Pre-Market Opening Period, the final COP was calculated at 15,858 and the Defendant net sold 80 HHI V7 futures contracts.  In terms of notional profits, he made a total of HK$280,000 ($50 x 80 x (15,855-15,785)).

24 Sept 07 re HHI U7

43.   On 24 September 2007, the Defendant also dealt in futures contracts for the contract month of September 2007 (“HHI U7”) during the morning Pre-Market Opening Period.  Since he first placed a buy order at 09:19:53, the Defendant has always maintained a net long position.  At 09:42:57, when the indicative COP was at 15,800, the Defendant placed an order to sell 25 contracts.  He did so to artificially increase the supply of HHI U7 futures contracts so that the algorithm would operate to produce a lower indicative COP.  In fact, the indicative COP moved down from 15,800 to 15,752 immediately.  At 09:42:58, he placed an order to sell 25 and 20 contracts.  The indicative COP retreated further to 15,726.  As a result of the Defendant’s sell orders, the final COP was fixed at 15,726.  The Defendant net bought 80 contracts.  He made a notional profit of HK$296,000 (=$50 x 80 x 74 (i.e., 15,800-15,726)).

25 Sept 07 re HHI V7

44.   On 25 September 2007, the Defendant placed orders during the morning Pre-Market Opening Period in respect of HHI for the contract month of October 2007 (“HHI V7”).  Since 09:15:07, the Defendant consistently maintained a long position.  He also placed a few limit orders to sell HHI V7 futures contracts at a low price through his wife’s account.  At 09:32:46, he placed an order to sell 1 contract at 16,100.  At that time, no indicative COP was formed and the best buy order was at 16,101.  Immediately after the input of this order, an indicative COP was set at 16,100.  This limit order was cancelled in three minutes’ time.   At 09:33:06, the Defendant placed another limit order to sell 1 contract at 16,200.  This order was maintained throughout the morning Pre-Market Opening Period.  Between 09:42:57 and 09:42:58, when the Defendant’s cumulative trading position was to net buy 255 contracts, he placed three orders to sell a total of 150 contracts.  The purpose of those three orders was to rig the final COP in his favour.  Those three orders successfully lowered the indicative COP from 16,344 to 16,251.  Eventually, the final COP was calculated at 16,254.  That was the price at which the Defendant net bought 105 contracts.  Without any of those three orders, the final COP would most probably have been kept at 16,344.  Under those circumstances, the Defendant obtained notional profits of HK$488,250 ($50 x 105 x 93 (i.e., 16,344-16,251).

25 Sept 07 re HHI U7

45.   On 25 September 2007, the Defendant also placed orders, during the morning Pre-Market Opening Period, in respect of HHI for the contract month of September 2007 (“HHI U7”).  Since 09:17:11, the Defendant had maintained a short/sell position throughout the remaining of the Pre-Market Opening Period. To rig the final COP in his favour, at 09:42:57, he placed two buy orders for a total of 100 contracts.  The indicative COP moved up from 16,258 to 16,300 at which the final COP was eventually fixed.  The Defendant net sold 100 contracts and he produced a notional profit of HK$210,000 (= $50 x 100 x (16,300-16,258)).

46.   As shown above, the last-seconds orders placed by the Defendant on 14 February, 22 August, 24 August, 24 September and 25 September 2007 typically drove up or down the final COP, whereby he net sold or net bought a large number of the relevant futures contracts at the price distorted by him.  Where he ended an Open Allocation Session having sold a number of futures contracts (at a price artificially raised by him) he realized his profit by buying back during the normal trading hours the same number of futures contracts that he had sold, but at a price level corrected by genuine market forces.  In the same way, where he ended the Open Allocation Session having bought a number of futures contracts (at a price artificially depressed by him), he again realized his profit by selling those futures contracts during the normal trading hours after the price had returned to its normal trading level.

17 Dec 08 re HHI Z8 & HSI Z8

47.   On 17 December 2008, the Defendant placed orders in respect of HSI and also HHI for the contract month of December 2008 (“HSI Z8” and “HHI Z8”) during the morning Pre-Market Opening Period.  In respect of HSI Z8 futures contracts, the following orders placed by the Defendant are relevant.  At 09:41:03, 09:41:09 and 09:42:56, he placed an order to buy 82, 78 and 50 contracts respectively.  Three seconds before the end of the Pre-Open Allocation Session, i.e., at 09:42:57, the Defendant placed five (5) orders by each of which he offered to sell 30 contracts.  The Defendant placed those sell orders to depress the indicative COP so that he could buy HSI Z8 futures contracts more cheaply.  As a result, the final COP was calculated at 15,431, which was 169 points down from 15,600 where the indicative COP had been before he placed the first of those five (5) sell orders, and the Defendant net bought 60 contracts at a depressed final COP.  He made a notional profit of HK$507,000 (i.e., $50 x 60 x 169).

48.   In respect of HHI Z8 futures contracts, the following orders placed by the Defendant are relevant.  At 09:41:25, the Defendant placed an order to sell 62 contracts.  Six seconds later, at 9:41:31, he placed another order to sell 38 contracts.  At 9:42:57, he placed three (3) orders by each of which he offered to buy 20 contracts.  It was the Defendant’s intention to sell HHI Z8 futures contracts at the final COP during the Open Allocation Session.  But he placed those three buy orders in order to rig the final COP in his favour.  As a result, the final COP rose from 8,306 (where the indicative COP was before he began to place those three orders) to 8,372 and the Defendant net sold 40 contracts during the Open Allocation Session.  He made a notional profit of HK$132,000 (i.e., $50 x 40 x (8,372-8,306)).

24 Dec 08 re HHI Z8 & HHI F9

49.   On 24 December 2008, the Defendant placed orders during the Pre-Market Opening Period in respect of HHI for the contract months of December 2008 (“HHI Z8”) and January 2009 (“HHI F9”).  In respect of HHI Z8 futures contracts, the Defendant was going long, i.e. a buyer, in the morning Pre-Market Opening Period on 24 December 2008 and the following orders are relevant.  As at 09:41:44, he was holding a long position.  At 9:42:58, the Defendant placed an order to buy another 30 contracts.  To rig the final COP in his favour, he also placed three orders to sell a total of 80 contracts at the same time and one second later, he placed two more orders to sell a total of 50 contracts.  The Defendant placed those sell orders to artificially increase the supply of HHI Z8 futures contracts.  As a result, the indicative COP dropped from 7,633 to 7,473 and the final COP was calculated at 7,473.  The Defendant net bought 100 contracts at a depressed COP and made a notional profit of HK$800,000 (being $50 x 100 x 160).

50.   In respect of HHI F9 futures contract for the contract month of January 2009, the following orders placed by the Defendant are relevant.  As at 09:42:57 a.m., the Defendant acquired a short position.  To rig the final COP in his favour, at 9:42:58, the Defendant placed 2 orders to buy a total of 28 contracts.  As a result, the final COP was calculated at 7,622, which was 47 index points above 7,575 at which the indicative COP had stood before he placed the aforesaid buy orders at 09:42:58.  The Defendant net sold 100 futures contracts and made a notional profit of HK$235,000 (=$50 x 47 x 100).

29 Dec 08 re HSI F9, HHI F9, HHI Z8

51.   On 29 December 2008, the Defendant placed orders during the Pre-Market Opening Period in respect of HSI futures contract for the contract month of January 2009, HHI futures contract for contract month of December 2008 and HHI futures contract for the contract month of January 2009.

52.   In respect of HSI futures contracts for the contract month of January 2009 (“HSI F9”), the following orders are relevant.  As at 09:42:57, the Defendant acquired a long trading position.  At 09:42:58, the Defendant placed a total of four (4) sell orders offering to sell a total of 120 futures contracts.   As a result, the indicative COP dropped from 14,130 to 14,000 where the final COP was set.  The Defendant net bought 80 futures contracts and made a notional profit of HK$520,000 (=HK$50 x 130 x 80).

53.   In respect of HHI Z8 futures contracts, the Defendant rigged the final COP by placing an auction order to sell 20 futures contracts at 09:42:57.  As a result, the indicative COP dropped from 7,708 to 7,630 where the final COP was set.  He net bought 30 futures contracts and made profits of HK$117,000 (=HK$50 x 78 x 30).

54.   In respect of HHI F9 futures contracts, the Defendant rigged the final COP by placing a total of three orders to buy a total of 80 futures contracts between 09:42:57 and 09:42:58.  As a result, the final COP settled at 7,750, which was 70 index points more than 7,680 where the indicative COP had stood before he placed the first of three buy orders to artificially increase the demand for HHI F9 futures contracts.  The Defendant net sold 70 contracts and obtained a notional profit of HK$245,000 (=HK$50 x 70 x 70).

31 Dec 08 re HHI F9

55.   On 31 December 2008, the Defendant placed orders during the Pre-Market Opening Period in respect of HHI F9 futures contracts.  Within a few seconds of the end of the Pre-Open Allocation Session, the Defendant accumulated a long position.  To rig the final COP in his favour, at 09:42:57, he placed 2 orders to sell a total of 100 contracts.  Immediately, the indicative COP fell from 7,987 to 7,855 and the final COP was calculated at 7,852.  The Defendant bought 50 contracts at the opening of the market and made notional profits of HK$330,000 (=HK$50 x 50 x 132).

7 Jan 09 re HSI F9

56.   On 7 January 2009, the Defendant placed orders during the Pre-Market Opening Period in respect of HSI for the contract month of January 2009 (“HSI F9”).  Between 09:15:50 and 09:42:28, the Defendant set up a short/sell position in respect of HSI F9 futures contracts.  To rig the final COP in his favour, so that he could sell HSI F9 futures contracts more dearly, at 09:42:58, the Defendant placed 3 orders to buy a total of 130 futures contracts.  As a result, the indicative COP rose from 15,776 to 15,850, where the final COP was determined. The Defendant net sold 70 futures contracts at the end of the morning of the Pre-Market Opening Period and produced a notional profit of HK$259,000 (=$50 x 70 x 74).

25 Feb 09 re HSI G9

57.   On 25 February 2009, the Defendant placed orders during the Pre-Market Opening Period in respect of HSI futures contracts for contract months of February and March 2009 (“HSI G9” and HSI H9”) and HHI futures contracts for the contract month of February 2009 (“HHI G9”).

58.   In respect of HSI G9 futures contracts, between 09:15:25 and 09:41:39, the Defendant built up a long/buy trading position.  To rig the final COP in his favour, so that he could buy HSI G9 futures contracts more cheaply, at 09:42:56 and 09:42:57, the Defendant placed 3 orders to sell a total of 150 futures contracts.  As a result of these artificial transactions, the indicative COP suddenly dropped from 13,043 to 12,952.  The final COP was determined at 12,952 and the Defendant net bought 150 futures contracts at that price.  He produced a notional profit of HK$682,500 (=HK$50 x 91 x 150).

25 Feb 09 re HSI H9

59.   In respect of HSI H9 futures contracts, the Defendant had a net short/sell position as at 09:41:11.  To rig the final COP in his favour, at 09:42:56, the Defendant placed 3 orders to buy a total of 150 contracts.  As a result, the indicative COP rose from 12,921 to 12,981.  The final COP was fixed at 12,981 and the Defendant net sold 150 contracts at the end of the Pre-Market Opening Period.  He made a notional profit of HK$450,000 (=$50 x 150 x 60).

25 Feb 09 re HHI G9

60.   In respect of HHI G9 futures contracts, by 09:41:55, the Defendant was set to sell HHI G9 futures contracts at the end of the morning of Pre-market Opening Period.  To rig the final COP in his favour, so that he could sell futures contracts more dearly, at 09:42:57, the Defendant placed 3 orders to buy a total of 80 futures contracts.  As a result, the final COP was fixed at 7,220, which was 65 index points more than the indicative COP at 7,155 before he placed the first of those three buy orders, and the Defendant net sold 30 contracts.  He made a notional profit of HK$97,500 (=$50 x 30 x 65).

26 Mar 09 re HHI H9

61.   On 26 March 2009, the Defendant placed orders during the Pre-Market Opening Period in respect of HHI futures contracts for contract months of March and April 2009 (“HHI H9” and “HHI J9”).

62.   In respect of HHI H9 futures contracts, at 09:15:26 and 09:15:34, the Defendant placed two orders to buy 64 and 49 contracts respectively.  To rig the final COP in his favour, so that he could buy futures contracts more cheaply, at 09:42:57, he placed 2 orders to sell a total of 63 futures contracts.  As a result, the final COP was determined at 8,230, which was 10 index points below where it would have been without his artificial sell orders, and the Defendant, who net bought 50 contracts at the opening of the market, made a notional profit of HK$25,000 (=$50 x 50 x 10).

26 Mar 09 re HHI J9

63.   In respect of HHI J9 futures contracts, by 09:42:57, i.e. 3 seconds before the end of the Pre-Open Allocation Session, the Defendant has established a net short position for a substantial number of futures contracts.  To rig the final COP in his favour, so that he could sell futures contracts more dearly, at 09:42:58, the Defendant placed 7 orders to buy a total of 100 contracts.  As a result, the final COP was determined at 8,277, up 164 points from where the indicative COP had been before the Defendant placed the first of those seven (7) buy orders.  The Defendant sold 50 contracts at the opening of the market and he made a notional profit of HK$410,000 (=$50 x 50 x 164).

14 Apr 09 re HHI J9

64.   On 14 April 2009, the Defendant placed orders during the Pre-Market Opening Period in respect of HHI J9 futures contracts.  Between 09:27:30 and 09:41:50, the Defendant established a short position for a substantial number of futures contracts.  To rig the final COP in his favour, so that he could sell futures contracts more dearly, the Defendant placed 4 orders to buy a total of 40 contracts at 09:42:58.  At 09:42:59, he placed 3 more orders to buy a total of 50 contracts.  As a result, the final COP was fixed at 9,118, 117 points up from the indicative COP before he began to place the first of those buy orders.  The Defendant net sold 60 futures contracts and made profits of HK$351,000 (=$50 x 117 x 60).

27 Apr 09 re HSI J9

65.   On 27 April 2009, the Defendant placed orders during the Pre-Market Opening Period in respect of HSI for contract months of April and May 2009 (“HSI J9” and “HSI K9”).

66.   In respect of HSI J9 futures contracts, by 09:42:57, the Defendant has set up a net long/buy position for a large number of futures contracts.  To rig the final COP in his favour, so that he could buy more cheaply, the Defendant placed 6 orders to sell a total of 140 futures contracts between 09:42:58 and 09:42:59, i.e. within 2 seconds of the end of the Pre-Open Allocation Session. As a result of those 6 sell orders, the final COP dropped to 15,030, down 240 points from where the indicative COP had been before the Defendant placed the first of those six sell orders.  Eventually, at the end of this Pre-Market Opening Period, the Defendant net bought 110 futures contracts and made profits of HK$1,320,000 ($50 x 240 x 110).

27 Apr 09 re HSI K9

67.   By 09:42:57 during the morning Pre-Market Opening Period on 27 April 2009, the Defendant intended to sell HSI K9 futures contracts.  To rig the final COP in his favour, between 09:42:57 and 09:42:59, the Defendant placed 6 orders to buy a total of 130 futures contracts.  As a result, the final COP was fixed at 15,028, up 28 points from where the indicative COP had been before he placed the first of those 6 buy orders.  The Defendant net sold 170 futures contracts during the morning Pre-Market Opening Period and made notional profits of HK$238,000 (=$50 x 28 x 170).

19 May 09 re HHI K9

68.  On 19 May 2009, during the morning Pre-Market Opening Period, the Defendant placed orders in respect of both HHI and HSI futures contracts for the contract month of May 2009 (“HHI K9” and “HSI K9”).  On 19 May 2009, by 09:41:52, the Defendant has established a long position in HHI K9 futures contracts.  To rig the final COP in his favour, the Defendant placed 5 separate orders to sell a total of 160 contracts just two (2) seconds before the end of the Pre-Open Allocation Session i.e., at 09:42:58.  As a result, the final COP was calculated at 9,916, 117 down points from where the indicative COP had been before the Defendant began to place those sell orders.  The Defendant net bought 140 futures contracts and made notional profits of HK$819,000 (=$50 x 140 x 117).

19 May 09 re HSI K9

69.   By 09:40:57, the net position of the Defendant during the morning Pre-Market Opening Period on 19 May 2009 was to buy HSI K9 futures contracts. To rig the final COP in his favour, the Defendant placed 2 orders to sell a total of 80 futures contracts at 09:42:57 and 1 order to sell 50 futures contracts at 09:42:58.  As a result, the final COP was fixed at 17,250, which was 27 index points below where the indicative COP had been before he began to place those sell orders.  He net bought 100 futures contracts during the Open Allocation Session and made a notional profit of HK$135,000 (=$50 x 27 x 100).

20 May 09 re HHI K9

70.   On 20 May 2009, the Defendant placed orders during the Pre-Market Opening Period in respect of HHI futures contracts for the contract month of May 2009 (“HHI K9”) and HSI futures contracts for the contract months of May 2009 and June 2009 (“HSI K9” and “HSI M9”).  In respect of HHI K9 futures contracts, the Defendant accumulated a short position by 09:41:35.  To rig the final COP in his favour, at 09:42:57, the Defendant placed 2 orders to buy a total of 40 futures contracts.  Two seconds later, at 09:42:59, he placed another order to buy 30 contracts.  As a result, the final COP jumped to 10,114, up from 10,047 where the indicative COP had been before he placed the first of three buy orders.  He net sold 30 contracts and made a notional profit of HK$100,500 (=$50 x 30 x 67).

20 May 09 re HSI K9

71.   In respect of HSI K9 futures contracts, the Defendant accumulated a long position by 09:40:56.  To rig the final COP in his favour, at 09:42:57, the Defendant placed 2 orders to sell a total of 100 futures contracts.  At 09:42:58, he placed another 3 orders to sell a total of 90 futures contracts. At 09:42:59, he placed 1 more order to sell 20 futures contracts.  As a result, the final COP was fixed at 17,475, down 37 points from where the indicative COP had been at 09:42:57.  The Defendant net bought 90 futures contracts and produced a notional profit of HK$166,500 ($50 x 90 x 37).

20 May 09 re HSI M9

72.   In respect of HSI M9 futures contracts, the Defendant accumulated a short position by 09:41:44.  To rig the final COP in his favour, at 09:42:57, the Defendant placed 2 orders to buy a total of 50 futures contracts.  At 09:42:58, he placed another 2 orders to buy a total of 40 contracts.  As a result, the final COP rose to 17,498, up 129 points from where the indicative COP was at 09:42:57.  The Defendant net sold 60 futures contracts and produced notional profits of HK$387,000 ($50 x 60 x 129).

26 May 09 re HSI K9

73.   On 26 May 2009, the Defendant placed orders during the Pre-Market Opening Period in respect of HSI and HHI futures contracts for contract months of May 2009 and June 2009 (“HSI K9”, “HSI M9”, “HHI K9” and “HHI M9”).  In respect of HSI K9 futures contracts, the Defendant accumulated a buy position by 09:40:57.  To rig the final COP in his favour, at 09:42:58 and 09:42:59, the Defendant placed a total of 3 orders to sell 90 futures contracts in total.  As a result, the final COP fell to 17,081, down 63 points from 17,144.  The Defendant net bought 20 futures contracts at the end of the Pre-Market Opening Period and produced a notional profit of HK$63,000 (=$50 x 63 x 20).

26 May 09 re HSI M9

74.   In respect of HSI M9 futures contracts, the Defendant created a sell position by 09:41:55.  To rig the final COP in his favour, at 09:42:58, the Defendant placed 3 orders to buy a total of 60 futures contracts.  As a result, the final COP was fixed at 17,074, up 52 points before he placed the first of three buy orders.  The Defendant net sold 20 futures contracts at the end of the Pre-Market Opening Period and produced a notional profit of HK$52,000 (=$50 x 20 x 52).

26 May 09 re HHI K9

75.   In respect of HHI K9 futures contracts, the Defendant accumulated a long position by 09:42:58.  To rig the final COP in his favour, the Defendant placed two orders to sell a total of 60 futures contracts at 09:42:59.  As a result, the final COP dropped to 9,666, down 37 points from where the indicative COP had been before the Defendant placed the first sell order.  The Defendant net bought 71 futures contracts at the end of the Pre-Market Opening Period and produced a notional profit of HK$131,350 (=$50 x 71 x 37).

26 May 09 re HHI M9

76.   In respect of HHI M9 futures contracts, the Defendant accumulated a short position by 09:42:18.  To rig the final COP in his favour, at 09:42:59, the Defendant placed 2 orders to buy a total of 40 contracts.  As a result, the final COP was fixed at 9,699, up 21 points from where the indicative COP had been before he placed those buy orders at 09:42:59.  The Defendant net sold 42 contracts at the end of the Pre-Market Opening Period and produced a notional profit of HK$44,100 (=$50 x 42 x 21).

4 Jun 09 re HHI M9

77.   The Defendant consistently held a sell position in respect of HHI futures contracts for the contract month of June 2009 (“HHI M9”) during the morning Pre-Market Opening Period.  By 09:42:09, the Defendant accumulated a substantial sell position.  To rig the final COP in his favour, the Defendant placed four (4) order to buy a total of 230 futures contracts at 09:42:58.  At the time when he placed the first of those four orders, the indicative COP was at 10,630.  As a result of those four orders, the final COP was fixed at 10,817.  The Defendant artificially raised the final COP by 187 points. He net sold 70 futures contracts and produced a notional profit of HK$654,500 (=$50 x 187 x 70).

5 Jun 09 re HHI M9

78.   In respect of HHI futures contracts for the contract month of June 2009 (“HHI M9”), the Defendant maintained a sell position from 09:15 to 09:41 on 5 June 2009.  To rig the final COP in his favour, the Defendant placed five (5) orders to buy a total of 115 futures contracts at 09:42:58.  As a result, the final COP was fixed at 10,736, up 55 points from 10,681 at which the indicative stood before he placed the first of those five orders.  He net sold 25 futures contracts and produced a notional profit of HK$68,750 (=$50 x 25 x 55).

5 Jun 09 re HSI M9

79.   In respect of HSI futures contracts for the contract month of June 2009 (“HSI M9”), the Defendant accumulated a buy position for 150 futures contracts as at 09:41:51.  To rig the final COP in his favour, the Defendant placed five (5) orders to sell a total of 110 futures contracts between 09:42:57 and 09:42:59.  As a result, the final COP was fixed at 18,493, which was 43 points down from 18,536 where the indicative COP stood before he entered the first of those five orders.  The Defendant net bought 40 futures contracts and produced a notional profit of HK$86,000 ($50 x 40 x 43).

10 Jun 09 re HHI M9

80.   During the morning Pre-Market Opening Period on 10 June 2009, in respect of HHI futures contracts for the contract month of June 2009 (“HHI M9”), the Defendant consistently maintained a sell position for a substantial number of futures contracts.  To rig the final COP in his favour, so that he could sell futures contracts more dearly, the Defendant placed a total of six (6) buy orders to buy 150 futures contracts in total between 09:42:57 and 09:42:59.  As a result, the final COP was fixed at 10,599, 33 points up from 10,566 where the indicative COP had stood before he placed the first of those 6 orders.  The Defendant net sold 50 futures contracts and produced a notional profit of HK$82,500 (=$50 x 50 x 33).

10 Jun 09 re HSI M9

81.   During the morning Pre-Market Opening Period on 10 June 2009, in respect of HSI futures contracts for the contract month of June 2009 (“HSI M9”), the Defendant maintained a buy position as at 09:41.  To rig the final COP in his favour, between 09:42:57 and 09:42:59, the Defendant placed altogether five (5) orders to sell a total of 150 futures contracts.  In consequence, the final COP was calculated at 18,165, 35 points down from 18,200 where the indicative COP had stood just before he placed the first of those sell orders.  The Defendant net bought 50 futures contracts and produced a notional profit of HK$87,500 (=$50 x 50 x 35).

11 Jun 09 re HSI M9

82.   During the morning Pre-Market Opening Period on 11 June 2009, in respect of HSI futures contracts for the contract month of June 2009 (“HSI M9”), the Defendant maintained a buy position between 09:35:43 and 09:42:56.  To rig the final COP in his favour, so that he could buy futures contracts more cheaply, between 09:42:57 and 09:42:58, the Defendant placed six (6) orders to sell a total of 135 futures contracts.  In consequence, the final COP was fixed at 18,480, 71 points down from 18,551 where the indicative COP had stood just before he inputted the first of those six orders.  The Defendant net bought 45 futures contracts and produced notional profits of HK$159,750 (=$50 x 71 x 45).

11 Jun 09 re HHI M9

83.   During the morning Pre-Market Opening Period on 11 June 2009, in respect of HHI futures contracts for the contract month of June 2009 (“HHI M9”), the Defendant accumulated a sell position as at 09:41:20.  To rig the final COP in his favour, so that he could sell futures contracts more dearly, between 09:42:57 and 09:42:58, the Defendant placed five (5) orders to buy a total of 72 futures contracts.  In consequence, the final COP was fixed at 10,830, 15 points up from 10,815 where the indicative COP had stood just before he inputted the first of those five orders.  The Defendant net sold 20 futures contracts and produced notional profits of HK$15,000 (=$50 x 20 x 15).

18 Jun 09 re MHI M9

84.   During the morning Pre-Market Opening Period on 18 June 2009, in respect of mini Hang Seng Index futures contracts for the contract month of June 2009 (“MHI M9”), the Defendant first placed two orders to buy a total of 50 mini futures contracts.  To rig the final COP so that he could buy those mini futures contracts more cheaply, the Defendant placed three orders to sell a total of 30 mini futures contracts in total.  As a result, the final COP was calculated at 17,900, 70 points down from 17,970 where the indicative COP had stood before he placed any sell order.  The Defendant net bought 20 mini futures contracts and produced a notional profit of HK$14,000 (=$10 x 70 x 20).

18 Jun 09 re HSI M9

85.   During the morning Pre-Market Opening Period on 18 June 2009, in respect of HSI futures contracts for the contract month of June 2009 (“HSI M9”), the Defendant established a sell position as at 09:40:58.  To rig the final COP so that he could sell futures contracts more dearly, between 09:42:57 and 09:42:58, the Defendant placed four (4) orders in total to buy a total of 80 futures contracts.  In consequence, the final COP was fixed at 18,020, 64 points up from 17,956 where the indicative COP had stood just before he inputted the first of those four orders.  The Defendant net sold 20 futures contracts and produced notional profits of HK$64,000 (=$50 x 20 x 64).

26 Jun 09 re HSI M9

86.   During the morning Pre-Market Opening Period on 26 June 2009, in respect of HSI futures contracts for the contract month of June 2009 (“HSI M9”), the Defendant accumulated a buy position for a substantial number of futures contracts as at 09:41:41.  To rig the final COP so that he could buy futures contracts more cheaply, between 09:42:58 and 09:42:59, the Defendant placed four (4) orders in total to sell a total of 90 futures contracts.  In consequence, the final COP was fixed at 18,420, 47 points down from 18,467 where the indicative COP had stood just before he inputted any sell order.  The Defendant net bought 60 futures contracts and produced notional profits of HK$141,000 (=$50 x 60 x 47).

26 Jun 09 re HSI N9

87.   During the morning Pre-Market Opening Period on 26 June 2009, in respect of HSI futures contracts for the contract month of July 2009 (“HSI N9”), the Defendant established a sell position as at 09:41:13.  To rig the final COP in his favour, so that he could sell futures contracts more dearly, between 09:42:58 and 09:42:59, the Defendant placed five (5) orders to buy a total of 150 futures contracts.  In consequence, the final COP was fixed at 18,470, 113 points up from 18,357 where the indicative COP had stood just before he inputted the first of those five orders.  The Defendant net sold 60 futures contracts and produced notional profits of HK$339,000 (=$50 x 60 x 113).

24 Jul 09 re HHI N9

88.   The Defendant intended to buy HHI futures contracts for the contract month of July 2009 (“HHI N9”) during the morning Pre-Market Opening Period on 24 July 2009.  As at 09:42:57, i.e., three seconds before the Pre-Open Allocation Session would end and the algorithm would compute a final COP for matching, the Defendant was holding a long position for 200 futures contracts. To rig the final COP so that he could buy more cheaply, between 09:42:57:94 and 09:42:58:34, the Defendant placed three auction orders to sell a total of 130 futures contracts.  As a result, the final COP was calculated at 11,910, 120 points down from 12,030 where the indicative COP had been just before he began to place his sell orders.  The Defendant net bought 70 HHI N9 futures contracts and made a notional profit of HK$420,000 (=$50 x 70 x 120).

24 Jul 09 re HSI N9

89.   The Defendant intended to buy HSI futures contracts for the contract month of July 2009 (“HSI N9”) during the morning Pre-Market Opening Period on 24 July 2009.  As at 09:42:57, i.e., 3 seconds before the final COP would be calculated, the Defendant was holding a long position for 200 futures contracts.  To rig the final COP so that he could buy more cheaply, between 09:42:57 and 09:42:58, the Defendant placed three orders to sell a total of 130 futures contracts.  As a result, the final COP was fixed at 19,989, 5 index points down from 19,994 where the indicative COP had stood just before he began to place those sell orders.  He net bought 70 futures contracts and made a notional profit of HK$17,500 (=$50 x 70 x 5).

24 Jul 09 re HSI Q9

90.   The Defendant also dealt in HSI futures contracts for the contract month of August 2009 (“HSI Q9”) during the morning Pre-Market Opening Period on 24 July 2009.  As at 09:42:56, i.e., 4 seconds before the final COP would be calculated, the Defendant was holding a short position for 80 futures contracts.  To rig the final COP so that he could sell futures contracts more dearly, at 09:42:57, the Defendant placed an order to buy 30 futures contracts.  As a result, the final COP was fixed at 19,996, 33 points more than where the indicative COP had been before he placed the order.  He net sold 50 futures contracts and made a notional profit of HK$82,500 (=$50 x 50 x 33).

27 Jul 09 re HSI Q9

91.   The Defendant dealt in HSI futures contracts for the contract month of August 2009 (“HSI Q9”) during the morning Pre-Market Opening Period on 27 July 2009.  As at 09:42:56, i.e., 4 seconds before the final COP would be calculated, the Defendant was holding a net long position for 50 futures contracts.  To rig the final COP so that he could buy futures contracts more cheaply, between 09:42:57 & 09:42:58, the Defendant placed four (4) orders to sell a total of 40 futures contracts.  As a result, the final COP was fixed at 20,200, 47 points lower than where the indicative COP had been before he placed the sell orders.  He net bought 10 futures contracts and made a notional profit of HK$23,500 (=$50 x 10 x 47).

28 Jul 09 re HSI N9

92.   The Defendant dealt in HSI futures contracts for the contract month of July 2009 (“HSI N9”) during the morning Pre-Market Opening Period on 28 July 2009.  As at 09:42:57, the Defendant was holding a long position for 60 futures contracts.  To rig the final COP so that he could buy more cheaply, the Defendant placed orders to sell 10 HSI N9 futures contracts at 09:42:58.65, 09:42:58.68, 09:42:58.88 and 09:42:59.07 (i.e. 40 HIS N9 futures contracts in total).  As a result, the final COP was calculated at 20,210, 29 points down from 20,239 where the indicative COP had been before he placed the first of those 4 sell orders.  The Defendant net bought 20 futures contracts and made a notional profit of HK$29,000 (=$50 x 20 x 29).

28 Jul 09 re HSI Q9

93.   The Defendant also dealt in HSI futures contracts for the contract month of August 2009 (“HSI Q9”) during the morning Pre-Market Opening Period on 28 July 2009.  As at 09:42:58, the Defendant was holding a net short position for 30 futures contracts.  To rig the final COP so that he could sell more dearly, at 09:42:59, the Defendant placed two orders to buy a total of 20 HSI Q9 futures contracts.  As a result, the final COP was fixed at 20,225, 25 points up from 20,200 where the indicative COP had been before he began to place those buy orders.  The Defendant net sold 10 futures contracts and made a notional profit of HK$12,500 (=$50 x 10 x 25).

29 Jul 09 re HHI N9

94.   The Defendant dealt in HHI futures contracts for the contract month of July 2009 (“HHI N9”) during the morning Pre-Market Opening Period on 29 July 2009.  As at 09:42:58, the Defendant was holding a short position for 50 futures contracts.  To rig the final COP so that he could sell futures contracts more dearly, the Defendant placed two orders to buy a total of 40 futures contracts at 09:42:59, i.e. less than 1 second before the final COP would be fixed.  As a result, the final COP was calculated at 12,322, 23 points more than where the indicative COP had been just before he placed his buy orders.  The Defendant net sold 10 futures contracts and produced a notional profit of HK$11,500 (=$50 x 10 x 23).

29 Jul 09 re HSI Q9

95.   The Defendant dealt in HHI futures contracts for the contract month of August 2009 (“HSI Q9”) during the afternoon Pre-Market Opening Period on 29 July 2009.  As at 14:27:56, i.e. 4 second before the final COP would be calculated, the Defendant was holding a net short position for 50 futures contracts.  To rig the final COP so that he could sell futures contracts more dearly, the Defendant placed three buy orders at 14:27:57, i.e. less than 3 seconds before the determination of the final COP, to purportedly buy 30 futures contracts in total.  As a result, the final COP was fixed at 19,940, 31 points more than where the indicative COP had stood just before he placed those buy orders.  The Defendant net sold 20 futures contracts and produced a notional profit of HK$31,000 (=$50 x 20 x 31).

30 Jul 09 re HSI N9

96.   The Defendant dealt in HHI futures contracts for the contract month of July 2009 (“HSI N9”) during the morning Pre-Market Opening Period on 30 July 2009.  As at 09:42:57, i.e. 3 second before the final COP would be calculated, the Defendant was holding a short position for 112 futures contracts.  To rig the final COP so that he could sell futures contracts more dearly, the Defendant placed a buy order at 09:42:58.65, 09:42:58.84 & 09:42:59.04, i.e. within less than 2 seconds before the determination of the final COP, to purportedly buy 72 futures contracts in total.  As a result, the final COP was fixed at 20,120, 24 points more than where the indicative COP had stood just before he placed those buy orders.  The Defendant net sold 40 futures contracts and produced a notional profit of HK$48,000 (=$50 x 40 x 24).

30 Jul 09 re HSI Q9

97.   The Defendant dealt in HHI futures contracts for the contract month of August 2009 (“HSI Q9”) during the morning Pre-Market Opening Period on 30 July 2009.  The Defendant has been holding a long position since 09:34:26.  To rig the final COP so that he could buy futures contracts more cheaply, the Defendant placed an order at 09:42:58.21, 09:42:58.25 & 09:42:58.45, i.e. within less than 2 seconds before the determination of the final COP, to purportedly sell a total of 62 futures contracts.  As a result, the final COP was fixed at 20,010, 46 points below where the indicative COP had stood just before he placed those sell orders.  The Defendant net bought 40 futures contracts and produced a notional profit of HK$92,000 (=$50 x 40 x 46).

31 Jul 09 re HSI Q9

98.   The Defendant dealt in HSI futures contracts for the contract month of August 2009 (“HSI Q9”) during the morning Pre-Market Opening Period on 31 July 2009.  As at 09:42:56, the Defendant was holding a long position for 100 futures contracts.  To rig the final COP so that he could buy futures contracts more cheaply, the Defendant placed a sell order at 09:42:57.85, 09:42:58.07 & 09:42:58.27, i.e. within less than 3 seconds before the determination of the final COP, to purportedly sell 60 futures contracts in total.  As a result, the final COP was fixed at 20,420, 24 points lower than where the indicative COP had stood just before he placed those sell orders.  The Defendant net bought 40 futures contracts and produced a notional profit of HK$48,000 (=$50 x 40 x 24).

31 Jul 09 re HHI Q9

99.   The Defendant dealt in HHI futures contracts for the contract month of August 2009 (“HHI Q9”) during the morning Pre-Market Opening Period on 31 July 2009.  As at 09:42:56, the Defendant was holding a short position for 72 futures contracts.  To rig the final COP so that he could sell futures contracts more dearly, the Defendant placed a buy order at 09:42:57.43, 09:42:57.44, 09:42:57.66, 09:42:58.48 & 09:42:59.29, i.e. a very short time before the determination of the final COP, to purportedly buy a total of 52 futures contracts.  As a result, the final COP was fixed at 12,125, 63 points more than where the indicative COP had stood just before he placed those buy orders.  The Defendant net sold 20 futures contracts and produced a notional profit of HK$63,000 (=$50 x 20 x 63).

Total notional profits/ losses

100.   On each of the aforesaid occasions, the Defendant either successfully bought various futures contracts at a lower final COP than would otherwise have been determined, or sold various futures contracts at a higher final COP than would otherwise have been determined if the Defendant had not conducted those artificial transactions.  The total sum of his notional profits, and therefore the total sum of notional losses incurred by those counterparties to the Defendant’s trades as outlined above, amounts to HK$13,688,950.

Schedule 2

Section 4.8 from Chapter 4 of the Trading Procedures for Stock Index Futures and Stock Index Options Traded on the Automated Trading System of the Exchange

“4.8 Pre-Market Opening

4.8.1   The pre-market opening algorithm of HKATS shall apply to such Stock Index Futures and/or Options Contract(s) as the Exchange may from time to time notify to Exchange Participants.

4.8.2  The Pre-Market Opening Period shall comprise (i) the pre-opening session; (ii) the pre-open allocation session; and (iii) the open allocation session, the duration of which may be changed by the Exchange and notified to Exchange Participants from time to time at its discretion.

4.8.3   During the pre-opening session, Limit Orders and Auction Orders may be entered into HKATS and may be amended or canceled subject to the provisions of procedure 4.3. During the pre-open allocation session, only Auction Orders may be entered into HKATS. No Orders may be amended or canceled during the pre-open allocation session. During the open allocation session, no Orders may be entered into HKATS and no Orders may be amended or canceled. The Calculated Opening Price (COP), if any, will be calculated, and Orders will be matched subject to Rule 1215 or converted into Limit Orders or inactive Orders in accordance with the procedures set forth below during the open allocation session.

4.8.4   A COP will be calculated only if the highest bid price of the Limit Orders entered into HKATS is greater than or equal to the lowest ask price of the Limit Orders. If more than one price satisfies this criterion, the COP shall be calculated according to the following rules:

4.8.4.1  The COP shall be one of the bid or offer prices falling at or within the highest bid price and the lowest ask price of the Limit Orders;

4.8.4.2  The COP shall be the price at which the number of contracts matched would be maximized;

4.8.4.3   If more than one price satisfies the rule in procedure 4.8.4.2, the COP shall be the price at which the normal order imbalance is the lowest. For the purposes of this procedure, normal order imbalance is defined as the difference between the number of bid contracts and the number of ask contracts that can be matched at a certain price;

4.8.4.4   If more than one price satisfies the rule in procedure 4.8.4.3, the COP shall be the price at which (i) the aggregate number of contracts comprising the bid Auction Orders and bid Limit Orders at or above that price or (ii) the aggregate number of contracts comprising the ask Auction Orders and ask Limit Orders at or below that price would be the highest;

4.8.4.5   If more than one price satisfies the rule in procedure 4.8.4.4, (i) the COP in the case of the morning trading session shall be the price closest to the previous Closing Quotation (as defined in the Clearing House Rules) of the relevant Stock Index Futures Contract or Stock Index Options Contract and (ii) the COP in the case of the afternoon trading session shall be the price closest to the last traded price if the relevant Stock Index Futures Contract or Stock Index Options Contract was traded in the immediately preceding morning trading session or if there was no trading in the immediately preceding morning trading session, the rule in this procedure 4.8.4.5 shall be disregarded and the calculation of the COP shall proceed in accordance with the rule set forth in procedure 4.8.4.6;

4.8.4.6   If more than one price satisfies the rule in procedure 4.8.4.5, the COP shall be the highest of such prices.

4.8.5    If a COP is calculated, Auction Orders and Limit Orders with ask prices at or below, or bid prices at or above, such determined COP shall be matched at the COP to the extent possible and any unmatched Auction Order shall be converted into a Limit Order with a bid or ask price equal to the COP immediately before Market open. The ranking of such converted Auction Orders and Limit Orders at the COP shall be in accordance with the time the converted Auction Orders and Limit Orders were originally entered into HKATS.

4.8.6    If no COP can be calculated according to procedure 4.8.4 but bid and ask prices exist, all bid Auction Orders will be converted immediately before Market open into bid Limit Orders at the highest bid price and all ask Auction Orders will be converted immediately before Market open into ask Limit Orders at the lowest ask price of the Limit Orders entered into HKATS. The ranking of such converted Auction Orders and Limit Orders with the highest bid price or lowest ask price, as the case may be, shall be in accordance with the time the Auction Orders and Limit Orders were originally entered into HKATS.

4.8.7   If no COP can be calculated according to procedure 4.8.4 and no bid price or ask price exists, all bid Auction Orders (if no bid price exists) and all ask Auction Orders (if no ask price exists) will be converted into inactive Orders immediately before Market open.

4.8.8  The conduct of the Pre-Market Opening Period shall be under the surveillance of designated HKATS Officials. A designated HKATS Official may cancel any Order entered into HKATS during the Pre-Market Opening Period which in his opinion is a manifest error and which would disproportionately affect the Calculated Opening Price.”

Dated this day of October 2013.