At a Hong Kong Securities Institute seminar this week, SFC executive director Andrew Procter said guidelines were needed in order to protect the interests of clients trading online. At the same time he warned that the proposals were likely to increase brokers' operating costs, which could make it difficult for smaller brokers to provide online trading. Mr Proctor said of the proposed measures: 'We do not plan to close the online operations of these brokers. We just want to help them improve their standards by issuing guidelines.'

The measures focus on account-opening requirements, investor protection, and operational standards. They also cover how brokers should ensure the real identity of clients. The options being considered are a face-to-face meeting with clients, or a third party such as a bank manager being brought in to vouch for a client's identity; or a client might need to get a digital certificate from the Post Office.

Another proposal concerns restricting access to brokers' chat room services - used by investors to discuss market rumours or company news. The SFC is also expected to propose that brokers have back-up computer tapes of transaction details - with copies stored outside the brokers' offices.

The SFC is also proposing that certain standards of IT proficiency will have to be met by brokerage staff and that brokers will need to ensure the integrity of their systems. In addition, the SFC is expected to propose mandatory adoption of the Hong Kong Monetary Authority's guideline on "management of security risks in electronic banking services".

Separately, the SFC is to issue guidelines in November on how online securities exchanges should operate. They form part of the Composite Securities and Futures Bill. Mr Procter said the SFC was trying to find a happy medium between investor protection and the additional costs imposed on brokers.