Full alert for SFC in check on brokers
Securities and Futures Commission chairman Anthony Neoh yesterday reassured retail investors worried about the health of their stock brokers that the watchdog was on 'the highest degree of alert'.
He said it was monitoring up to 20 securities firms, some of which were suffering cash-flow problems.
However, Mr Neoh said none of the 20 had the same bad-debt problems which led to the collapse of two CA Pacific Group members and that many of these brokers had received cash injections from their primary shareholders.
His comments came after shares in listed Hong Kong brokers dropped by up to 14 per cent yesterday as nervous investors offloaded stock amid fears more brokers might collapse.
Among the hardest hit were South China Brokerage which fell 13.5 per cent to 5.1 cents, Tai Fook Group, down 8 per cent to $1.68, Kim Eng (HK), down 8 per cent to $6.90, Shenyin Wanguo, down almost 8 per cent to 59 cents.
Retail investors yesterday lined up outside the offices of Sun Hung Kai Securities, Seapower Securities, Cheerful Securities and South China Brokerage in a bid to recoup shares or even cancel accounts.
Stock exchange officials have asked brokers to allow investors to reclaim shares as they like in a bid to maintain investor confidence.
Some 30 clients of CA Pacific Securities, which has had provisional liquidators appointed to it, went to the commission's offices yesterday, with some complaining the watchdog had not done enough to prevent the group's collapse.
Mr Neoh said the commission had been closely watching brokers with active margin trading clients and had urged them to reduce their margin lending business in the middle of last year.
'When the third- and fourth-liners' share prices slumped at the beginning of this year, the SFC further upgraded its degree of alert and has checked on brokerage houses which may have been in danger.' He said the CA Pacific Group problem was that it had three unpaid loans amounting to $400 million by its finance companies which the commission had no power to regulate.
Mr Neoh said the watchdog had kept contact with the senior executives of about 20 brokers since the start of the year, and that brokers on the 'watch list' did not have the same bad-debt problems as CA Pacific Group.
However, he said some were experiencing cash-flow problems. 'Many of these brokers have been injected with new capital by their major shareholders to solve problems.' A loophole exists under present regulations, meaning the commission has no power to regulate margin financing companies operated by securities firms.
Mr Neoh said despite this, it had been asking brokers to provide the financial positions of their finance companies since mid-last year.
Stock exchange chief executive Alex Tsui Yiu-wa said the exchange agreed there was a need to strengthen control of finance companies related to brokers.
While Financial Secretary Sir Donald Tsang Yam-kuen said exchange members had been opposed to such a tightening, Mr Tsui said the situation was different now.
'The exchange will discuss with the SFC and the Financial Services Bureau how to strengthen control of the finance companies, protect investors' interests and enhance risk management,' he said.
Sir Donald was urged yesterday to appoint an inspector to investigate CA Pacific Group.
