HONG KONG: SFC Clarifies its Securities Margin Financing Strategy

Friday August 17 2018

The Securities and Futures Commission (SFC) have launched their consultation on its planned guidelines for clarifying, codifying and standardising its risk management strategy for securities margin financing (SMF). The guidelines offer both quantitative and qualitative standards for margin lending policies and key risk controls to prevent brokers from expanding margin loans beyond their own limits.

Key proposed amendments include

• Requiring brokers to carry out preventative strategies in excessive leverage and over concentration of securities collateral and individual margin clients.
• Brokers to be required to set and enforce margin calls and carry out conduct stress tests every month.
• Clearer guidance on carrying out haircuts for accepted collateral securities.

The consultation follows a review the SFC conducted last year which showed that brokers’ margin loans increased nine fold between 2006 and 2017. The review noted slack risk controls which led to excessive concentration of exposure to margin clients and individual collateral stocks, particularly non-index stocks and illiquid stocks. It also found delays in collecting outstanding margins and inadequate stress testing. The guidelines plan to standardise the risk management practices for margin lending and improve margin brokers’ resilience to stock market volatility.

The findings of the review are summarised in a report also published today by the SFC.

For further information please click on the link above.