Hong Kong's securities watchdog said on Friday that a local court found two warrant traders guilty of manipulating the market in listed derivative warrants issued by Macquarie Group's Macquarie Bank .

The court convicted Patrick Fu and Francis Lee of 40 counts of market manipulation between January 2004 and January 2005 and were to remain in jail pending sentencing on May 13, the Securities and Futures Commission said.

Fu and Lee traded to receive commission rebates offered by Macquarie Equities (Asia) Ltd and to create the appearance of an active market, the District Court found.

The SFC alleged that Fu and Lee traded between themselves through accounts at two brokerages in a pre-determined manner. The turnover for the Macquarie-issued warrants in question was falsely inflated by 80 percent or more than HK$450 million in value.

Fu and Lee earned a net profit of approximately HK$1 million relating to the trading, the SFC said.

The SFC's action is part of a broader series of similar moves by the regulator as it seeks to clean up suspect activities in Hong Kong's financial markets.

Last week, the regulator sought court orders to ban Tiger Asia, a New York-based asset management company, from trading in Hong Kong, accusing the firm of insider trading in shares of Bank of China <3988.HK>.