A CRACKDOWN has been launched by Hongkong's Monetary Authority in a bid to stop the orgy of reckless borrowing which has often overtaken the local stock market. The aim is to stop the practice among individual investors of borrowing huge sums - as much as $20 million - to finance purchases of stocks in companies coming to the market. Guidelines issued by the Monetary Authority are a response to the growing mania among small investors for China-linked stocks as they first become available. With huge profits to be made when trading starts, small investors have taken out huge loans to buy stock, with little regard to the risks they are running if an issue goes wrong. The last case of investors plunging into the market with borrowed money was in February when Denway Investment, a little-known car company based in Guangdong, attracted more than $240 billion in its flotation, equal to almost five months of economic output in Hongkong. Although many small investors made windfall profits, the scramble for shares led Joseph Yam Chi-kwong, chief executive of the Monetary Authority, to say it made Hongkong appear ''Mickey Mouse, and that is damaging to our credibility as a financial centre''. The guidelines sent to banks last night restrict the margin on lending to 10 per cent - meaning small shareholders must pledge assets equal to one-tenth of the money they borrow. ''Some of our regular clients will be disappointed,'' said Raymond Theodoulou, managing director of Standard Chartered Securities. ''It will certainly mean that money will be tight.'' Howard Gorges, director of South China Brokerage, said: ''It's going to check the abuse and check those who think they can be reckless.'' He said that during the flotation of Denway Investment some had been borrowing at ''crazy levels''. Albert Cheok Say-chuan, executive director of banking supervision at the Monetary Authority, said the move was intended to ''bring back the credibility of Hongkong as a financial centre''. The territory's stockbrokers have been preparing for the flotation of the Asian arm of the Shangri-La hotel chain, expected to cause big interest among small shareholders, partly because some of its hotels are in China and partly because of the involvement of tycoon Robert Kuok. Mr Theodoulou said brokers would have to decide how to ration access to lending for the issue. Previously some smaller banks, often with links to China, had been willing to lend tens of millions of dollars without any security as long as they could ensure the cash was used only for buying new shares. Mr Theodoulou said some may decide to run a first-come, first-served system, while others may simply decide not to contact some regular customers to reduce demand. When shares are in demand, the number issued rises with the number requested. The new guidelines are among the first indications of the tough line the recently introduced Monetary Authority is prepared to take. As the nearest institution Hongkong has to a central bank - such as the Bank of England - it is in a position to police the financial markets, and step in when they feel any undue risk is being run by users or practitioners.