But new regulations came into effect on September 1 and companies and their representatives gained a 30-day breathing space to apply for a licence, the SFC said.

The clampdown appears to have driven bucket shops out of the territory and the SFC admitted last month that it was relieved that fears companies would fold or flee with clients' money during the 30-day transition period did not materialise.

About 45 traders had applied for licences and the companies themselves had more than 2,000 representatives applying, said SFC spokesman Bill Weeks, although he had no idea how many bucket shops silently closed down.

'Since the industry was unregulated before the ordinance came into effect, we don't know how many shops there were out there - probably a few thousand,' he said.

The legislation followed criticism that leveraged forex was wide open to abuse by unscrupulous operators.

Leveraging involves trading on a margin, the amount the client places with a dealer.

Under the new law it must be at least five per cent of the value of the deal. This translates into a leverage ratio of 20 times.

If exchange rates move against the client, the margin cannot drop below three per cent under the new regulations, giving a 40 per cent leeway between the minimum initial margin and the minimum maintenance margin of three per cent.

If clients' margins fall too much, they face a margin call.

The SFC said the leveraged forex industry had been cleaned up and all participants had to meet some simple, but stringent, criteria.

'First, as with all financial intermediaries, all licensed persons, the persons applying, have to be fit and proper . . . including the requirements that they have appropriate financial resources; that they have educational or qualification by way of experience to carry out their responsibilities; and they have to be fair, honest and efficient when carrying out their duties for their clients,' Mr Weeks said.

'Their character is an issue, too. Are they reputable? Those are all things that we look at when we vet a licence and it is an on-going review.' Financial requirements are tougher as well.

'Specifically, there is a minimum share capitalisation and minimum liquid capital requirement,' he said.

Licensed traders have to maintain issued and paid-up capital of at least US$30 million and liquid capital - liquid assets less ranking liabilities - of not less than $25 million.

And for the protection of clients, business is recorded.

'There has to be a centralised tape-recording system so that there is a record of conversations between traders and their clients in the event that an audit is necessary,' Mr Weeks said.

Traders operating without a licence faced a fine of $10 million and imprisonment for seven years on conviction, he said.

Even after the clean-up, leveraged forex trading is not for the faint-hearted.

Because of the leveraging, it remains a high-risk investment in which opening accounts can require at least US$100,000 that the client is prepared to lose.

Take a pounds sterling contract with a value of GBP62,500 (HK$756,250).

Under the initial margin of five per cent, investors have to front up with just under $38,000 and the three per cent maintenance margin works out at $22,725.

A price movement of just 0.25 per cent translates into a five per cent profit or loss on the account.

If rates continue to move against the account-holder, stop-loss levels are triggered and the client has to get out of the contract.