Stock lenders and borrowers yesterday reacted with dismay to several measures proposed by the Government to clamp down on short selling, saying it could lead to increased market instability. Strongest criticism was levelled at the Government's efforts to enforce T+2 settlement, which they said was unnecessarily stringent and would discourage buyers as well as legitimate sellers. 'Asia is very dependent on overseas investors and being in the first time zone such a short settlement period will discourage legitimate purchases,' one lender said. As most stock was borrowed for hedging purposes rather than outright speculation, market volatility could be increased by the measures, brokers said. They said attempts to introduce centralised clearing of short positions would fail unless the Government improved on previous proposals. The Government has previously proposed setting up a voluntary central clearing house for stock lenders, which garnered little industry support as banks said it did not offer internationally acceptable risk controls. Acting Financial Services Secretary Rebecca Lai Ko Wing-yee said yesterday that the Government remained committed to having all investors operate accounts through Hong Kong's major stock clearing body, Hongkong Clearing, which brokers said could lead to the centralisation of all short selling. Stock lenders were less concerned about increased penalties on illegal short selling, and the prospect of criminalising unreported short selling, saying most major banks complied strictly with the laws already. 'What we make [from stock lending] is peanuts compared with what the rest of this bank makes, so there is no incentive to break the rules,' one source said. Stock lenders said off-shore traders were unlikely to remain active and unreported as they were outside the jurisdiction of Hong Kong regulators.