SFC too heavy-handed, says Chim

PUBLISHED : Wednesday, 06 September, 1995, 12:00am
UPDATED : Wednesday, 06 September, 1995, 12:00am

OUTSPOKEN former legislative councillor Chim Pui-chung has launched a scathing attack on the securities regulators for their heavy-handed supervision which has upset the territory's stockbrokers.

In a letter to Secretary for Financial Services Rafael Hui Si-yan, Mr Chim demanded that regulators should only carry out large-scale investigations when there was sufficient evidence.

Such investigations had disrupted the work of small stockbrokers who could not afford to spare manpower for the frequent scrutiny by the Securities and Futures Commission (SFC).

'If word spreads that a broker is being investigated by the SFC, the broker's reputation will be tarnished, whether he is innocent or not,' Mr Chim said.

The investigations in question were triggered by erratic price movements in more than 10 second and third-tier stocks.

Mr Chim said share prices were decided by market forces.

'To forcefully allocate liabilities and responsibilities to such listed companies and securities brokers in time of share-price fluctuation seems both far-fetched and unjustifiable,' he said.

Mr Chim said regulators should issue detailed guidelines and directives on their policies pertaining to such investigations. This would ensure that brokers could work 'without the impending fear that they would be investigated by the regulators at the regulators' free reign'.

Details such as the percentage of price changes which would warrant investigation would be useful.

Mr Chim also challenged the SFC's definition on 'rat-trading'.

'The regulator should distinguish between trading on price difference to rip the clients off and taking positions to bet against the clients,' he said.

In 1992 and 1993, against a background of a rising market, brokers who took positions against the clients might seem to have committed rat-trading.

To avoid the confusion created by ambiguous laws and procedures on rat-trading, Mr Chim called for an amnesty to all 'professionals who ventured into the grey area'.

Because the automated matching system installed in the exchange has almost stamped out rat-trading, the SFC should divert its resources to more worthy causes.

Mr Chim said the regulators should investigate only on 'the formal complaints received by them from investors who were treated prejudicially'.

A spokesman at Mr Hui's office said the Government would try to strike a balance between investor protection and brokers' interests.