Background
Two clients, Fan and Xu, were found to have executed multiple trades (either opening or close-out) in several futures contracts with an account belonging to an industrial company. While in each trade the spread and price movement were small, they added up to a substantial amount of funds being moved.

Investigation
The investigation found that the futures accounts of Fan and Xu were in fact controlled and used by Tang, an employee of the above-mentioned industrial company. Through his position, Tang became aware of the trading plan of the industry company concerned in advance. Between January 2, 2018 and August 10, 2020, Tang executed pre-arranged trades between the accounts of Fan and Xu and the account of the industrial company. By opening and closing the positions for transferring benefits between these accounts, Tang got millions of RMB in violation of trading rules.

Sanctions
SHFE determined that Tang, Fan, and Xu violated Article 29.1.3 of the Enforcement Rules of the Shanghai Futures Exchange (2020 version). Tang was given a public censure and a fine; Fan and Xu were each given a reprimand and suspended from opening positions for 12 months.

The Lesson
Recently there has been a rise in the number of cases involving employees of a corporate client abusing their positions and trading to the detriment of their employers. These cases have the following characteristics. First, in most cases the trades and the transfer of funds occur between a receiving account (usually the perpetrator’s personal account) and the account assigned to the perpetrator for official use (usually a corporate account). Second, most of the trades are for inactive contracts to ensure successful shifting of funds. Both corporate clients and the employees tasked to manage the corporate accounts must remain vigilant and strengthen their awareness for lawful and compliant trading. Furthermore, those employees must understand the nature and consequences of this type of activities, which not only are a violation of the trading rules of the exchange, but may also be illegal or criminal. A momentary greed may bring dire legal consequences.

This case has the Chinese version on the SHFE website. If there is any discrepancy between the English version and the Chinese version, the Chinese version shall prevail.