The Assistant's Order
Rahim is a dealer's representative at a Bursa Malaysia participating organisation. At 9:10 a.m. he receives a call from a woman who says she is the executive assistant of Dato' Lim, an existing cash-account client. She instructs Rahim to buy 200,000 shares of XYZ Bhd at up to RM1.20, a consideration of about RM240,000. Dato' Lim's account holds RM35,000 cash and has no margin facility. Rahim has previously received orders from Dato' Lim's mobile phone, but there is no written third-party authority on file. The assistant says Dato' Lim is in a board meeting and cannot be reached. Rahim executes the order at RM1.18. Later, Rahim mentions the order to a colleague in the trading room. At 3:00 p.m. Dato' Lim calls to dispute the trade, saying he never authorised anyone to act for him. XYZ shares have fallen to RM1.05. The firm's compliance officer asks for an account of what happened.
1. Identify the conduct and licensing issues raised by Rahim's handling of the order. Explain which duties are engaged.
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Rahim's first duty is to act only on the client's authority. A dealer's representative must verify that the person giving the order is the client or a person with written authority. A call from a self-described assistant is not enough, especially where the account is a cash account and the order is roughly seven times the available cash. The order record should show who gave the instruction, the time, the price limit and the client's authorisation. Executing a RM236,000 purchase without funds also creates settlement risk and may breach the participating organisation's client account and credit rules. Mentioning the order to a colleague breaches client confidentiality and creates a market misconduct risk if the information is used or passed on. The key duties engaged are authority, record-keeping, client confidentiality and fair and orderly dealing. The fact that the client had previously used his mobile phone does not validate a third party's instruction.
2. What should Rahim and the firm do immediately after Dato' Lim disputes the trade?
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Rahim should stop trading on the account and escalate the matter to compliance and senior management at once. The firm should preserve the call logs, emails, order tickets, WhatsApp messages and the account's cash ledger, and interview Rahim and the colleague. It should give Dato' Lim a written summary of the firm's complaint procedure and tell him what steps are being taken. The firm must not try to 'fix' the trade by moving shares into another account or persuading the client to accept it. It should determine whether the trade can be cancelled as an error trade under Bursa rules, or whether the firm must bear the loss and settle the trade. If there is evidence of unauthorised trading or a supervision failure, the firm must report to Bursa Malaysia and the SC as required and cooperate fully. Any compensation should follow the investigation, not precede it.
3. How should the firm determine who bears the loss, and what controls should it introduce?
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Loss allocation turns on the facts. If Rahim acted outside his authority, the firm is likely responsible to the client and the market, and may recover from Rahim under his employment terms. If the client's own conduct contributed, the firm should document that carefully. The firm's controls should include a signed third-party authority form with specimen signatures and limits; verification call-backs to the client's registered number; recorded order lines; a pre-trade cash check; segregation of order information; and training on confidentiality. Compliance should review all accounts where third parties have given instructions. It should also review whether the account executive's supervision was adequate. The aim is to prevent the same fact pattern from recurring: no authority, no funds, no record, and a disputed trade.