THE launch of stock futures suffered another setback yesterday when dissatisfied legislative councillors deferred approval and opted to set up a sub-committee to further examine the impact of this new derivative product. Despite strenuous efforts by the Securities and Futures Commission (SFC) and the Hong Kong Futures Exchange to explain stock futures, disgruntled members of the Financial Affairs Panel decided to review the amendment to the Commodities Trading Ordinance instead of giving the product the go-ahead. The amendment to this subsidiary legislation is essential to legalise the introduction of stock futures in the territory. 'We will propose to set up a sub-committee in Legco's house committee tomorrow [today] and the amendment may not get passed,' said legislator Chim Pui-chung. Legislators had numerous questions which centred around the lack of prior consultation with market practitioners, insufficient education of investors and the disclosure of risk to retail investors. In response, futures exchange chairman Leong Ka-chai said a pamphlet containing the essential features of the new products would be distributed to various professional bodies and industry associations. 'Their comments on the products are welcome,' Mr Leung said. Members of the panel dismissed SFC and exchange arguments that outpacing Singapore in introducing the products was the reason for keeping the application process behind closed doors. However, exchange chief executive Ivers Riley said: 'There is a real international threat because the futures market has globalised so quickly. And there are certain exchanges which have established themselves as predators such as Singapore which has a small domestic business base.' On the regulatory side, SFC chairman Robert Nottle reminded members that 'public consultation is an exception rather than the key'. The SFC left the decision to the exchanges to decide if a public consultation exercise was needed. 'In this particular case, the futures exchange asked for commercial confidentiality because of the Singapore issue. I accepted it in good faith,' Mr Nottle said. Beside the consultation issue, members were apprehensive of the risks of such products and the possible impact on the underlying cash market and the to-be-launched traded options. Although repeated assurances were given by Mr Riley and Mr Nottle that stock futures would be the upcoming hot product, members remained to be convinced why only Sweden and Australia had caught the bug while other financial centres stayed on the sidelines. Another member pointed out that the controversy aroused so far attested to a lack of planning on the part of the Government. 'It seems that there is no long-term strategy as how these products would compete or complement one another [between the two exchanges],' one panel member said. Ever since the futures exchange announced its intention to launch stock futures on HSBC Holdings and Hongkong Telecom, it has been showered with criticism from the stock exchange and legislators for lack of transparency in deciding on such an important issue. Even the deposit requirement attracted much adverse comments. Many stockbrokers considered the margin requirement of 6.9 per cent and 5.8 per cent on the HSBC and Hongkong Telecom futures contracts too low. A working group set up by the stock exchange even vowed to distance the stock exchange from any calamities arising from trading such instruments. Mr Leong said the 6.9 per cent and 5.8 per cent were for indication purposes. The actual calculation of the margin would be based on the volatility of the share price movement. 'It is a misconception that we set a fixed percentage on the margin. The margin level varies according to the volatility and there is no fixed percentage,' he said.