Moves by the Securities and Futures Commission (SFC) to protect stock and futures markets over the handover period have been prompted by concern at the growing business handled by small and medium-sized brokers, sources say. They say the SFC is concerned about the quality of risk management procedures at the brokers, which have been involved in a growing number of trades in more volatile second-line and third-line stocks. 'The general perception is that these small brokers have had well over half the daily turnover in the past three months,' one source said. Heightened trading in these stocks has been generated more by rumours than by the companies' earnings potential, underlining the speculative nature of the trades. 'In the past three or four months, there has been strong pick-up in the dealing of red chips as well as second and third-liners,' he said. The speculative frenzy, which appears to have spread to retail investors, has generated big business for smaller brokers, who have become more active with the influx of new customers. 'Yet these firms are also more accident prone, compared with blue-chip broking firms, posing systemic risks,' a source said. On Monday, the SFC announced new risk-management measures, including an increase in margin levels, to ensure stability when the markets re-open after being closed from June 28 to July 2 - the longest period of inactivity since the 1987 market crash. In recent weeks, the SFC has also moved to curb speculation, particularly in red chips, by stepping-up its requests for explanations of unusual price movements. Last week, for the first time, a list of 11 companies under SFC investigation was made public. To survey the overall margin management of brokers, regulators have sent inspectors to selected brokerage houses for non-routine field visits. Some brokers are believed to have been irked by the visits. 'There have been complaints from brokers saying that the inspectors have caused a lot of back office hassles and have slowed things down when the market was extremely active,' one broker said. The purpose of the inspections was to ensure that brokers adopted sensible margin lending and shunned undue risk. 'The SFC wants to put the house in order,' the broker said. Generally, there are no set rules on margin lending on share transactions. Clients can borrow about 50 per cent of the amount required to purchase blue chips in the cash market and a lower level for second-line and third-line stocks.