FSC punishes Grand Cathay over bond purchases

The nation's financial regulator yesterday suspended two top executives of Grand Cathay Securities Corp (大華證券) to take responsibility for the company's breaching of a cap on bond purchases.

"The scale of the transaction far exceeded the regulatory cap on securities houses' bond purchases," Financial Supervisory Commission (FSC) spokeswoman Susan Chang (張秀蓮) told a press conference.

Earlier this year, Grand Cathay had to absorb more than NT$5 billion (US$152 million) in subordinated financial debts issued by Cosmos Bank (萬泰銀行), after clients retracted their orders in the wake of the government's takeover of The Chinese Bank (中華銀行) in January.

The transaction pushed up the ratio of subordinated financial debts to 46.8 percent of the firm's capitalization of NT$11.7 billion -- way beyond the regulatory 10 percent cap set for risk diversification.

Grand Cathay chairman Stan Siao (蕭子昂), formerly a Hong Kong-based managing director at Morgan Stanley, will be suspended for three months, while the company's vice president, Shiong Chao-mu (熊肇穆), will be suspended for a year, the commission said.

The commission also banned the securities house from setting up new branches and operating any new business within the next three months.

It also required Grand Cathay's parent firm, China Development Financial Holding Co (中華開發金控), to punish its vice president, Tsao Wei-shih (曹為實), for failing to carry out his duty as a supervisor.

In response, China Development said it respects the regulator's decision.

Grand Cathay still holds more than NT$4.6 billion of Cosmos' subordinated financial debentures and has promised to sell the debts to interested buyers in order to lower its exposure and meet the regulatory cap by the end of October, the commission said.

Cosmos Bank is likely to see a one-time fund injection of nearly NT$30 billion by the end of September to improve its financial structure, the commission said.