When the stock market is powering ahead as it has been doing recently may not seem the time for the regulators to step in. If the index is doing well, it may be tempting to leave things as they are. But action announced this week by the Securities and Futures Commission (SFC) and the Stock Exchange is to be welcomed on several counts. First it is good to see the regulatory body and the Exchange working together. Their united front can only give the measures added weight. In a strong statement on Wednesday, they threatened to block new listings, ban planned transactions and prevent the issue of derivative products of listed companies which are the subject of unusual price and turnover movements. Next Monday, they will implement measures on share distribution in initial public offerings (IPOs) to ensure small investors get fair treatment in allocations. Retail investors provide much needed liquidity in the market. Institutional brokerages tend to take large positions, but this means they want to feel confident that they will be able to liquidate them whenever they wish. Retail investors, who tend to hold positions for a relatively short period of time, play an important role in ensuring that institutions can get in or out of the market at any time. However, the extent of retail activity in the market has been decreasing steadily. At present, it accounts for about 40 per cent of turnover. The number of sole traders - small stockbrokers dealing for retail investors - has declined by two-thirds in the last nine years. Even institutional investors acknowledge that they cannot survive without retail help. The SFC and the Exchange have designated a level of $5 million as the 'limit' for retail investors. There may be some doubt about this - how many retail investors are in the habit of borrowing up to $5 million? But preventing huge over-subscriptions will certainly have the effect of helping to avoid volatility in the overnight interbank market. Overnight lending rates have increased significantly as funds of up to $250 billion have been frozen in the system by applicants for IPOs. At the end of this week, the trend was sharpened as investors poured in to apply for shares in Beijing Enterprises Holdings, promoting the biggest one-day rise in the overnight rate for two-and-a-half years. The attempt to steady this volatility is evidence of a welcome desire for stability at a time when Hong Kong has every interest in demonstrating to the international community its ability to control its market however big the boom - and however strong the rush for new red chip issues.