The Hong Kong Securities and Futures Commission (SFC) has come under fire again for its proposed investor compensation scheme.
Features of the SFC's proposal include compensation of up to HK$150,000 for losses incurred in the event of a brokerage collapse from a fund supported by an increase on the existing transaction levy on the transactions on the Hong Kong Stock Exchange from 0.01% to 0.012%. The new fund aims to establish reserves of HK$1 billion in order to provide reasonable protection to investors trading in Hong Kong securities and futures products.
Last month we reported the complaint of Fulbright Securities' general manager, Francis Lun, who described the proposal as 'unconscionable' and asked: 'How can the SFC make money from a bankruptcy when the . . . investor may lose up to HK$1 million or HK$10 million and only get HK$150,000 in return?
The South China Morning Post has now reported that the Hong Kong Stockbrokers Association (HKSA) has raised concerns that the investor compensation scheme could put extra pressure on small brokers and also warns that the planned HK$1 billion compensation fund might not be enough.
In a report submitted to the SFC, HKSA chairman Paul Fan Chor-ho explained: 'A higher amount in the fund would make it possible for investors to get a compensation cap more than the HK$150,000 as proposed.' Although the scheme would provide investors with more confidence to trade via banks and online brokers, Mr Fan warned that this 'would add competition pressure to small brokers' because the larger players might up the competition and lower their prices which may 'force the smallest players out of business.'
The HKSA proposed a solution to this by calling for a more level playing field, urging the SFC to abolish the exempt dealers system and for bank brokers to become regulated by the SFC - currently they are regulated by the Hong Kong Monetary Authority.
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