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Rat accounts
Following is a question by the Hon Chim Pui-chung and a written reply by the Secretary for Financial Services, Mr Rafael Hui, in the Legislative Council today (Wednesday):
Question:
Most members of the Stock Exchange and the Futures Exchange are very dissatisfied and displeased with the term "rat accounts", and they consider that the term severely degrades the status of their industries. In view of this, will the Government inform this Council:
(a) of the Government's interpretation of the term "rat accounts" as well as its
analysis of such a practice; and
(b) whether it is aware that stock and futures brokers as well as their staff are forbidden to match orders with their clients; if so, whether such restriction is in violation of the policy of free trade?
Answer:
4
(a) 'Rat trading' is a term which has been used for many years in the Hong Kong securities and futures markets. It is a generic term covering a wide range of malpractices by brokers or their staff (staff) trading dishonestly, to the disadvantage of clients. This trading invariably results in material benefits to brokers or their staff at the expense of unsuspecting clients, by not giving clients the best execution of their orders. This is usually achieved by delaying notification of trade executions so as to take advantage of short term swings in the purchase and sale price of the transaction and by interposing an additional transaction by themselves between the client and the market. As a result, the clients will almost inevitably receive an inferior price in the execution of their orders. In an effort to mask delays and identities of trading activities, the staff will often open an account (i.e. a 'rat account') either with the broker with whom the staff work or, more commonly, with another broker.