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Hong Kong SFC Consults On Amending Margin Financing Rules

by Mary Swire, for LawAndTax-News.com, Hong Kong

11 April 2006

Hong Kong's Securities & Futures Commission last week proposed the introduction of limits on repledging for securities margin financing in two stages - 180% initially with a target date of October 1, dropping to 140% after 12 months.

The Commission on Friday published 'Consultation Conclusions on Proposed Measures to Address Risks Arising from Securities Margin Financing', setting out measures for a "balanced and fair package" that would offer better protection for investors, while having minimum impact on the industry.

The Commission's Intermediaries and Investment Products Executive Director, Alexa Lam, said the market had been doing well in the past two years, observing that:

"Brokers have generally benefited from the significant increases in market capitalisation and daily trading volume."

"On the other hand, factors such as increased market volatility and recent reported cases of misappropriation may give rise to additional risks to investors and the industry. Therefore, the commission considers that this is the right time to proceed with the proposed measures to give investors better protection."

The proposed measures seek to:

  • Introduce limits on repledging in two stages - 180% initially with a target date of October 1 and dropping to 140% after 12 months as recommended by the working group;
  • Make some moderate changes to selected FRR haircut percentages;
  • Improve transparency by providing margin clients with better disclosure about the risks of pooling and repledging; and
  • Provide relaxation of certain requirements currently imposed on firms, as pooling risk will be reduced by the proposed measures.

The full text of the Securities and Futures Commission's consultation on Securities Margin Financing Limits can be found in the Tax News Resources section.

 

 






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