Scenario 3 Exercising Duty Without Care and Diligence

Case Ref: 062 Exercising duty without care and diligence

Doris is an account manager of a brokerage company. One day, a white-collar worker named Kelvin steps into her company with a request to open an account to deal in securities. He tells Doris that, as he plans to study abroad next year, he wants his savings of one hundred thousand dollars to have a good return so that he can have enough money to reach his goal early. He asks Doris in what products he should invest. Doris persuades Kelvin to open a margin account to buy second-line stocks. However, Doris doesn’t try to explain to Kelvin the difference between margin accounts and cash accounts, nor the risks involved in the former.

Hearing that the Hang Seng Index is dropping rapidly soon after the opening of the stock market, Kelvin calls Doris and places the order to immediately sell all the shares in his account. Because Doris also receives many other "sell" orders from her large clients that morning, she sets aside Kelvin’s order and busily handles their transactions. When Doris has time to eventually execute Kelvin’s order, Kelvin has already suffered a great financial loss.

Case Analysis

Doris breaches the *Codes of Conduct because she hasn’t exercised her duties with due care and diligence and fails to protect the interest of her client, Kelvin. Evidently Doris has not performed her function properly. She is obliged to ensure that her client understands the nature and risk of a margin account at the very beginning, and execute Kelvin’s order promptly upon receiving his instruction.

*Remarks: Codes of Conduct refer to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, the Code of Conduct for Corporate Finance Adviser and the Fund Manager Code of Conduct.