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Catherine Chan

THE Securities and Futures Commission is considering proposals to cap the size of a share tranche for which one investor can apply in new issues, in a bid to stamp out massive over-subscriptions.

  The securities watchdog is also looking at proposals which would require prospective buyers of big allocations to publish information about themselves, as part of a move to bring greater transparency to the market.

  Speaking at a meeting with legislators yesterday, SFC deputy chairman Ermanno Pascutto said both the watchdog and the stock exchange were looking into the over-subscription problem, and planned to release their findings next month.

  The banking industry was forced to address the problem of hefty over-subscriptions after the Monetary Authority found that institutions opened themselves to excessive risk in the financing of such issues.

  Monetary Authority chief executive Joseph Yam Chi-kwong launched his probe into possible weaknesses in the system after Denway Investment's $402 million offer pulled in about $240 billion of capital.

   He unveiled his seven-point plan to plug holes in lending policy last month.

  The key to his recommendations was a policy change that all banks slap a 10 per cent deposit margin requirement on loans to would-be investors in new share issues.

  Most banks have supported the guidelines. However, the Monetary Authority has fielded criticism from banks that are reluctant to see government intervention.

  Some banks have suggested that the authority should set broader guidelines, allowing them more freedom to set figures such as deposit margins themselves.

  Mr Pascutto was responding yesterday to suggestions from Legislative Councillor Philip Wong Yu-hong that more disclosure would give investors a better picture of the popularity of new issues.

  Fellow legislator Chim Pui-chung, representative of the financial services sector, proposed that the subscription limit for any single applicant should not exceed the total number of new shares issued.

  Brokerages often apply for double or more the number of shares offered in any one issue.

  Mr Chim also said applicants for loans to buy shares should only be able to borrow up to 10 times the amount they could produce in cash.

  ''Applications for each customer should be fixed at five or 10 times the application money to avoid giving investors an illusion that the new shares are immensely popular and thus over-subscribed,'' he said.

  But Mr Yam questioned the need for such harsh rules to be imposed on banks while the securities market was allowed to operate freely.

  Speaking about the guidelines issued last month, he said: ''The important thing is to be aware of the spirit of the recommendations. Guidelines are guidelines, and I don't expect banks to observe them dogmatically.''       The monetary chief also rejected a call from Mr Roger Luk Koon-ho to list criteria for banks that planned to become receiving banks, saying the authority should not interfere if issuers, underwriters or investors were willing parties.

  ''Our duty is to ensure that banks involved in this lending and customers involved in subscribing for the shares realise the total risks could be exposed to receiving banks.

  ''This point is what everybody ignores and we have pointed this out to everybody concerned, but the authority would not interfere with business,'' he said.

  The new-issue probe was launched nearly two months ago, during the frenzied buying caused by the Denway offer.

  Denway became Hongkong's biggest oversubscription, pulling in about $240 billion of capital - almost 40 per cent of Hongkong's 1991 gross domestic product.

 It followed other hot issues such as China Travel Service and China Overseas Land and Investment.

  Concerns sparked by the popularity of China play issues have fuelled fears of a similar rush of cash when the much larger mainland company listings come to the market this year.



SFC may put cap on share subscription