MPF securities-lending row: MPFA to review guidelines as short-selling fears surface

In October 2011, an obscure but critical question surfaced: MPF law does not prohibit trustees from lending fund securities for short selling. The Democratic Party wrote to the MPFA and the SFC urging regulators to examine the impact of securities lending on MPF funds — could workers’ retirement money be used to “go short”?

Can MPF securities be lent out for short selling?

MPF law does not prohibit trustees from lending securities for short selling, but in October 2011 the SFC said it had reached no conclusion on amending the law to ban the practice for retirement money; the MPFA responded that it would review the existing securities-lending guidelines to strengthen member protection. The MPFA added that it was closely monitoring all MPF trustees and had found no trustee lending shares for short selling at the time — members could rest easy for now.

Only three of ten trustees replied

The row began when media asked ten trustees whether they had engaged in securities lending or short selling over the previous decade; only three replied. AIA (01299), the market’s number three, said its fund prospectuses bar MPF involvement in securities lending or repurchase agreements; smaller providers China Life Overseas and Bank of Communications Trustee (a BOCOM subsidiary) also said they had no such activity. The silent majority remained an unknown.

Era footnote: regulation advancing through controversy

This 2011 row revealed a trait of MPF regulation: controversy moves first, legislation follows. The Democratic Party’s letter, the SFC’s “no conclusion yet”, the MPFA’s “guidelines under review” — the three statements sketch the era’s typical regulatory rhythm: observe first, tighten later. For members, real protection comes from ongoing disclosure and guideline updates, not one-off promises.