Investment Operations

HKSFC Concludes Guidelines on Securities Margin Financing

The Hong Kong Securities and Futures Commission (SFC) has released consultation conclusions on proposed Guidelines for Securities Margin Financing Activities. The SFC said respondents generally supported the SFC’s initiative to provide guidance on the risk management practices expected of brokers when they provide securities margin financing.

Under the guidelines, the maximum total margin loans-to-capital multiple brokers can adopt is five times to avoid excessive leverage. They should also control the concentration risks posed by holding individual or connected securities as collateral and by significant exposure to margin clients. In addition, brokers are required to set prudent triggers for margin calls and strictly enforce margin call policies. Guidance is provided to help brokers set prudent haircut percentages for securities acceptable as collateral and conduct stress testing to assess the financial impact of their securities margin financing activities.

On 17 August 2018, the SFC issued a Consultation Paper on the Proposed Guidelines for Securities Margin Financing Activities. The consultation period ended on 18 October 2018. A total of 33 written submissions from industry associations, brokers, professional bodies, consultancy firms, banks and individuals were received. The guidelines will be implemented with the revisions set out in the consultation conclusions.

“Managing margin lending risk is crucial to ensure brokers’ financial stability and protect market integrity,” said Ashley Alder, the SFC’s Chief Executive Officer. “The new guidelines will ensure a level playing field and consistent risk management practices,” Alder added.

The guidelines will take effect on October 4, 2019.

The SFC said that, to facilitate monitoring, the returns under the Securities and Futures (Financial Resources) Rules will be revised to collect additional financial data from brokers engaged in securities margin financing activities, and that the revised requirements will be published in due course.