bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

helpersCheckIsPostiesArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

moreOnThisArticles

urlAlias

commentCount

authorLocations

authors

paywallTypes

corrections

sponsorType

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

socialHeadline

headline

flag

firstTopic

glossary

flattenTypeIds

publishedDate

additionalInfoBoxes

images

image

relatedLinks

relatedNewsletters

__typename

createdDate

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

Enoch Yiu

Compensation for clients of failed brokerages could be slashed from $250,000 to a maximum of $100,000 each if counter-proposals suggested by the stock exchange go through and are accepted by the Securities and Futures Commission (SFC).

 Sources said the exchange's ruling council would vote on the counter-proposals at its next meeting.

 If approved, they will be submitted to the SFC as the exchange's formal response to controversial plans to introduce an insurance-based scheme to compensate victims of brokerage collapses.

 In October, the SFC proposed a set of new compensation arrangements which would provide each client of a failed brokerage with cover of up to $250,000.

 Many brokers have been concerned about the extra financial burden the new scheme will impose on them because the SFC's proposal did not define the level of insurance premiums which would need to be paid.

 The exchange council hired a consultant, Jardine Insurance Brokers (JIB), to review the implications of the scheme for stockbrokers.

 Sources said JIB's report estimated that under the SFC's proposals, which would place no compensation cap on brokerage failures, the exchange would pay an annual insurance premium of $200 million - which most council members deemed unacceptable.

 The JIB report said a counter proposal to cap insurance coverage at $300 million a year would reduce the annual premium to a more acceptable $30 million.

 But the cap would mean a reduction in the maximum coverage for each client from $250,000 to $100,000.

 It also suggests clients should receive only 80 per cent of their claims rather than full compensation to encourage investors to pick brokers more carefully.

 The JIB report supports the SFC's proposal to allow the exchange to maintain a pool of funds amounting to about $200 million to pay claims of small amounts. Excess claims would then be covered by insurance.

 If the $200 million fund and the $300 million insurance coverage were insufficient to cover the compensation, the exchange would seek a government loan which would be repaid by imposing a special levy on each trade.

 The JIB report supports an SFC proposal to link the brokers' insurance premiums with their internal control systems. Under such a system, brokers with lax internal controls would need to pay a higher premium than those with better controls.

 One exchange council member said he opposed the move as the SFC had not defined what controls would merit a cheaper premium.

 He suggested that only brokers guilty of misconduct should be required to pay higher premiums.

 The new scheme is expected to be implemented within two years.

 It will replace the existing exchange compensation fund which pays a maximum of only $8 million to all clients of a failed broker regardless of the broker's size.

 The existing arrangements proved inadequate after the collapse of CA Pacific Securities a year ago, which left more than 5,000 clients seeking billions of dollars in compensation, and the later failures of Chark Fung Securities and Forluxe Securities.



Stock exchange seeks cut in compensation claims to $100,000