Hong Kong SFC Executive Director Speaks Out On Capital Requirements For Brokers

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

09 July 2003

Speaking to the Legislative Council's Panel on Financial Affairs on Monday, Hong Kong Securities and Futures Commission (SFC) executive director, Alexa Lam confirmed what the territory's brokers had been eagerly anticipating - namely that there are no immediate plans to increase their capital requirements.

According to a South China Morning Post report, despite warning that 'Under the current law, there are no restrictions on brokers pooling and re-pledging client collateral. If a broker fails the loss to investors could be huge,' and revealing that Hong Kong has some of the lowest capital requirements for brokers in the region, Ms Lam did not recommend any immediate increases in the requirements, and provided no timetable for reforming this element of the industry sector.

She explained that: 'The working group recognised that, if capital were increased for brokers holding client assets, there should be a solution for existing brokers who could not meet the new capital requirements,' and added:

'We fully understand that the securities industry is undergoing a period of difficulty and stress as market conditions continue to change. We will of course do our part to help the industry [and] it is understandable that some brokers do not wish to increase capital.'

She concluded by revealing, however, that in the interests of increasing investor protection in the territory, the SFC will be looking to consult with the Legislative Council, the industry, and the government in order to find a suitable solution as soon as possible.

According to initial reports on the reform proposals, the SFC was said to be planning to increase the minimum capital requirement for brokers engaging in cash equity business that also handle investor assets from HK$3 million to HK$30 million.

Brokerages with margin financing operations would have seen their minimum capital requirement lifted from HK$10 million to HK$50 million, and those offering margin pooling from HK$10 million to HK$100 million.

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