Could MPF assets be lent out for short selling? The government’s 2012 answer

Some legislators feared that because MPF rules allowed fund companies to lend assets for short selling, workers’ hard-earned savings could become ammunition for tycoons shorting the market. In January 2012, Deputy Secretary for Financial Services and the Treasury Julia Leung gave the Legislative Council a definitive answer that settled the matter.

Has MPF money ever been lent for short selling?

As of January 2012, MPF assets had never been lent out for short selling since the system’s inception. Leung told legislators that current rules allow MPF fund managers to lend no more than 10% of assets, but stressed that “up to now, MPF has never been lent for shorting activities” — a direct rebuttal of fears that big players were using the public’s savings to short the market.

How do the rules keep MPF assets from being abused?

The government had already banned “naked” short selling years earlier, protecting investors and managing risk. In other words, even with the 10% lending headroom in the rules, fund companies cannot short MPF assets out of thin air; any stock-lending arrangement requires actual shares for settlement, shutting out naked shorts by design. This safeguard works alongside the lending cap to make it practically impossible to weaponise MPF assets for large-scale shorting.

Also on the table: short-position reporting and longer HKEX hours

The same LegCo session touched on two market issues: the SFC’s proposal to criminalise non-reporting of short positions, which Leung said was about giving regulators better information transparency; and brokers’ pushback against HKEX’s extended trading hours, on which she said the exchange had consulted the market and she believed a balance could be struck, with the government open to refinements. For how MPF assets are regulated, see the MPF education hub.