On 4 April 2019, the Securities and Futures Commission (SFC) released the conclusions of its consultation on proposed guidelines for securities margin financing activities (the Guidelines).

The existing conduct requirements for securities margin financing activities are mainly prescribed in the Code of Conduct for Persons Licensed by or Registered with the SFC and the Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered with the SFC. The current conduct requirements are high level and principles based; there are concerns that these requirements are insufficient to prevent imprudent margin lending practices.  Managing margin lending risk is crucial to ensuring the financial stability of security margin financing brokers and protecting the market. The Guidelines are intended to provide additional guidance to the industry by clarifying, codifying and standardising the risk management practices expected of brokers when they provide securities margin financing.

In summary, under the Guidelines[1]:

  • the maximum total margin loans-to-capital multiple any broker can adopt is set at five times to avoid excessive leverage;
  • a broker should set prudent concentration limits to avoid building up excessive exposure to (i) individual securities collateral or groups of highly correlated securities collateral and (ii) individual margin clients or groups of related margin clients;
  • a broker is required to set prudent triggers for margin calls and strictly enforce margin call policies; and
  • brokers should set prudent haircut percentages for securities acceptable as collateral and conduct stress testing to assess the financial impact of their securities margin financing activities.

The Guidelines were gazetted on 4 April 2019 and will take effect on 4 October 2019. For the original consultation paper on the Guidelines issued in August 2018, please click here. The full set of consultation conclusions can be accessed here.


[1] The Guidelines apply to (i) persons licensed under the Securities and Futures Ordinance for Type 1 regulated activity (dealing in securities) who provide financial accommodation to any of their clients in order to facilitate acquisitions or holding of listed securities by the persons for their clients; and (ii) persons licensed under the Securities and Futures Ordinance for Type 8 regulated activity (securities margin financing).