The stock exchange has finalised proposals to strengthen the regulation of margin lending in the wake of the collapse of broker CA Pacific earlier this year.
A sub-committee of the exchange had suggested prohibiting brokers from committing more than 10 per cent of their total lending to a single client or from using more than this as collateral for the purchase of a single stock, sources said.
The collapse of CA Pacific was partly due to losses incurred by then Leading Spirit chairman Wong Shi-ling, to whom it had lent heavily on margin.
Mr Wong was also a central figure in a liquidity crisis at Cheerful Holdings after he failed to repay margin loans collateralised by Leading Spirit (Holdings) shares, which collapsed in value before being suspended at the company's request in January.
The string of difficulties prompted regulators to tighten the guidelines governing margin lending.
'The CA Pacific example showed the concentration of margin lending to a single client could be fatal to a broker if the client is unable to repay the loan,' a source in the sub-committee said.
'It is important to require brokers to diversify margin loans to different clients and different stocks in a bid to diversify risks.
