The Securities and Futures Commission (SFC) is recommending changes to the stock exchange's compensation fund to enable individual investors to be paid compensation up to $250,000, according to a consultation paper recently given to the stock exchange.
Sources involved in preparing the paper said the SFC had made recommendations about changing compensation arrangements after the collapse of several brokers last year.
The move highlights difficulties caused by current arrangements under the fund, which allows investors who suffer losses from a broker in default to claim compensation. At the end of last March, the fund stood at $441 million.
Under a limit set in 1992, the total claims arising from clients of each brokerage firm cannot exceed $8 million. For claims above that figure, the amount is apportioned among claimants.
However, last year's failure of several brokers has shown that the loss for clients from a defaulting firm may well be above $8 million such as in the case of Wei Xin Securities, in which total debts reached $100 million.
The SFC is understood to regard the existing method as unfair if a large investor makes a claim which prevents small investors getting full repayment.