The decision marks yet another retreat in market reforms A working group led by the Securities and Futures Commission (SFC) has backed down from a proposal to raise the capital requirement for stockbrokers by up to 10 times after the government supported objections from brokerages, according to a source familiar with the situation. The change of mind was a setback for the SFC, which wanted to present the proposal to a Legislative Council financial affairs panel on Monday to improve investor protection, the broker source said. It marks yet another retreat in market reform plans, after the government in April delayed a plan to shift the front-line regulatory role from the Hong Kong Exchanges and Clearing (HKEx) to the SFC. In November last year, HKEx abandoned proposals to implement quarterly reporting for listed companies after deciding in July to withdraw a consultation paper four days after its release following the so-called penny stock fiasco. The latest reform proposal came from a working group led by SFC executive director Alexa Lam which reviewed regulation and financial requirements for brokers in a bid to avoid a repeat of the 1998 collapse of brokerage CA Pacific. The 15-member group included representatives of brokers, the Consumer Council and fund managers. The source said the working group had decided to propose raising the capital requirement for brokers lending to clients by 10 times to $100 million should they use clients' shares to secure bank loans. The group decided brokers which were handing cash clients should have their capital requirement increased by six times from $5 million to $30 million, the source said. The source said the broker members of the working group had consulted other brokers in recent days and received strong objections. Some brokers had lobbied government financial officials, including Secretary for Financial Services and the Treasury Frederick Ma Si-hang. The source said Mr Ma had been sympathetic to the brokers due to the poor market conditions, which meant it would be a hard time to increase capital. This led to the working group yesterday deciding not to put forward the proposal to the SFC. Mr Ma could not be contacted for comment last night. An SFC spokesman said the working group had a split view on the issue and had not yet given its recommendations to the commission. He said the group, however, had reached a consensus that brokerages which offered loans to clients posed higher risks than brokers which did not. Therefore, the group considered there might be a need to strengthen the financial requirements for these brokers. He said, however, the group had never proposed an increase. Institute of Securities Dealers vice-chairman Choi Chen Po-sum said she opposed an increase. 'Any plans to raise capital requirements will lead to more than half of the 470 brokers going out of business,'' Mrs Choi said. 'It is not realistic to ask brokers to add 10 times more money to carry out their business in light of the current weak market sentiment.'