SFC 'suffers' from an embarrassment of riches in Year of the Horse

With enough money in reserve to last five years, the SFC should review its funding structure

PUBLISHED : Tuesday, 04 February, 2014, 5:57am
UPDATED : Tuesday, 04 February, 2014, 5:57am

With the Year of the Horse under way, White Collar wishes readers a happy and prosperous year ahead - Kung Hei Fat Choi.

This cheery Lunar New Year greeting expresses the wish for people to make money - and is welcome to the ears of investors and brokers. But this may not be the case for our regulatory friend the Securities and Futures Commission. The agency is suffering from an embarrassment of riches. Its reserve is expected to stand at HK$7.15 billion by the end of March - enough to keep the SFC running for five years.

Legislators have been pressing the commission on how it will use the reserve, and are likely to continue their grilling when SFC executives brief Legco about the budget on Friday.

In a paper it submitted to lawmakers last week, the commission proposed that, from October, it would cut the 0.003 per cent transaction levy to 0.0027 per cent - a move that will save investors HK$52.38 million a year. By law, it needs to consider cutting the levy when the reserve is sufficient for two years.

With smaller brokerages struggling, it will waive a further two years of licensing fees from 2014 to 2016. This will save brokers, fund managers and financial advisers a combined HK$340 million.

The measures will cut its reserve to HK$6.65 billion by the end of March 2015 - but that is still equal to four years of running costs at the SFC.

White Collar learned last year that the SFC plans to spend part of the reserve to build its own offices, with the aim of saving on rental costs.

But such a move would simply build up even more problems - of the excess money kind - as the savings would result in the SFC accumulating an even greater reserve over the longer term. Thus the happy problem of being a rich regulator won't go away.

More to the point, the regulator should review its funding structure. For example, should it continue to charge a levy? Or should it spend more on investor education programmes or bolster market development plans?

The SFC has added 51 more staff this year to handle its extra workload, bringing the total headcount to 845. Let's hope it isn't hiring simply because it has so much money to spend.


Favourable first half

Keeping with the New Year theme, White Collar has been chatting with fung shui master Wong Man-chiu in the hope of getting some investment tips.

The Year of the Horse, according to Wong, combines wood and fire. This means the year will be favourable in the spring and summer, but not so rosy in autumn and winter. He advises investors to buy more aggressively in the first half but show caution in the second half. The Hang Seng Index, he believes, will trade between 21,000 and 24,000 points. Companies wanting to tap funds would be better off getting their listing plans out in the first half.

The Year of the Horse would benefit gambling stocks, as well as companies involved in computers and mobile phones.