A former RBC Dominion Securities Inc. representative who engaged in risky, discretionary trading in commodity futures that lost millions of dollars for clients has agreed to sanctions in a settlement with the Canadian Investment Regulatory Organization (CIRO).
A regulatory hearing panel approved a proposed settlement between CIRO staff and Hongjia Liu, a former DS rep in Vancouver, who admitted to violating the self-regulatory organization’s rules and his firm’s policies by trading commodity futures for clients on a discretionary basis.
According to the settlement, between June 2017 and December 2019, “Liu engaged in widespread discretionary trading across a significant portion of his futures book…”
That trading “involved large volumes of high-risk trading, routinely exposing clients to significant potential losses,” the settlement said, adding that “many of the clients suffered substantial losses while generating significant trading commissions for Liu and his [dealer].”
Specifically, Liu pursued a risky strategy of writing naked futures contracts and receiving premiums for those contracts. While those premiums represented the strategy’s maximum profit, the maximum loss was “potentially unlimited,” the settlement noted.
Additionally, the risk was exacerbated by rapid, high-volume trading in a wide variety of commodities across sectors, including energy, precious metals and agricultural commodities.
Ultimately, clients lost a combined $8.7 million from the trading, which generated $4.8 million in gross commissions — including almost $2.4 million for Liu.
“Liu was aware his conduct was contrary to RBC DS’s policies, which prohibited discretionary trading in futures accounts,” the settlement said.
When the firm questioned some of his trades, “Liu assured supervisors he was following RBC DS policies and that he was contacting clients regarding the details of all trades.”
However, after receiving client complaints, the firm conducted an internal investigation that revealed he was engaging in discretionary trading in certain client accounts.
Under the settlement, Liu agreed to pay $225,000 in disgorgement, along with a $75,000 fine and $15,000 in costs. He’ll also serve a six-month suspension.
“The amount of sanction reflects the personal financial circumstances of Liu, and that he has not worked in the industry since his termination in September 2020,” the settlement said, adding that he also paid $75,000 toward a settlement of clients’ complaints, self-reported the misconduct to the SRO, and had no prior disciplinary history.
Under the circumstances, the sanctions are “fair and reasonable,” the settlement concluded.