Hong Kong Ordinances

SECURITIES AND FUTURES ORDINANCE - SECT 148

Client securities and collateral held by intermediaries and their associated entities

(Past version on 01/04/2003).

Division 3-Client assets

(1) The Commission may make rules requiring intermediaries and their
associated entities to treat and deal with client securities and collateral of
the intermediaries, and to ensure that client securities and collateral of the
intermediaries that are received or held by any other person on behalf of the
intermediaries or the associated entities (as the case may be) are treated and
dealt with, in such manner as is specified in the rules.

(2) Without limiting the generality of subsection (1) and without prejudice to
section 398(7) and (8), the Commission may in the rules referred to in
subsection (1)-

   (a)  require client securities and collateral of intermediaries to be held,
        and accounted for, in the specified manner;

   (b)  provide that the client securities and collateral shall not be
        deposited, transferred, lent, pledged, repledged or otherwise dealt
        with except in the specified manner;

   (c)  specify the circumstances in which the client securities and
        collateral may, notwithstanding that they are subject to a lawful
        claim or lien, be dealt with by intermediaries or their associated
        entities;

   (d)  provide for the approval, subject to such conditions as the Commission
        considers appropriate, of companies or non-Hong Kong companies as
        being suitable for the safe custody of the client securities and
        collateral; (Amended 30 of 2004 s. 3)

   (e)  require intermediaries and their associated entities to ensure, or to
        take reasonable steps to ensure, that persons who receive or hold the
        client securities and collateral on behalf of the intermediaries or
        the associated entities (as the case may be) comply with specified
        requirements;

   (f)  require the maintenance of records in relation to the client
        securities and collateral (including records of performance of
        reconciliations in respect of movements of the client securities and
        collateral into and out of accounts of intermediaries or their
        associated entities) in the specified manner;

   (g)  require the submission to the Commission, upon request or at specified
        intervals, of specified information, records and documents for the
        purpose of enabling the Commission to ascertain readily whether the
        rules are being complied with;

   (h)  require specified matters, and the circumstances relevant thereto, to
        be notified to the clients of intermediaries or the Commission, or
        both;

   (i)  require a person who becomes aware that he does not comply with any
        specified provision of the rules that applies to him to notify the
        Commission of that fact and of any further specified information,
        within the specified time;

   (j)  provide for any other matter relating to the client securities and
        collateral.

(3) Except as provided in the rules made under this section, client securities
and collateral of an intermediary are not liable to be taken in execution
against the intermediary or an associated entity of the intermediary under the
order or process of a court.

(4) Rules made under this section may provide that an intermediary, or an
associated entity of an intermediary, which, without reasonable excuse,
contravenes any specified provision of the rules that applies to it commits an
offence and is liable to a specified penalty not exceeding-

   (a)  on conviction on indictment a fine of $200000 and a term of
        imprisonment of 2 years;

   (b)  on summary conviction a fine at level 6 and a term of imprisonment of
        6 months.

(5) Rules made under this section may provide that an intermediary, or an
associated entity of an intermediary, which, with intent to defraud,
contravenes any specified provision of the rules that applies to it commits an
offence and is liable to a specified penalty not exceeding-

   (a)  on conviction on indictment a fine of $1000000 and a term of
        imprisonment of 7 years;

   (b)  on summary conviction a fine of $500000 and a term of imprisonment of
        1 year.

(6) A person is not excused from complying with a requirement in any rules
made pursuant to subsection (2)(i) to give notification to the Commission only
on the ground that to do so might tend to incriminate the person.

(7) Notwithstanding anything in this section-

   (a)  the power of the Commission to make rules under this section in
        respect of intermediaries shall, where the intermediaries are
        registered institutions, be regarded as the power to make rules in
        respect of the intermediaries only in relation to client securities
        and collateral received or held by them in the course of the
        businesses which constitute any regulated activities for which they
        are registered;

   (b)  the power of the Commission to make rules under this section in
        respect of associated entities shall, where the associated entities
        are authorized financial institutions, be regarded as the power to
        make rules in respect of the associated entities only in relation to
        client securities and collateral received or held by them in the
        course of their businesses of receiving or holding client securities
        and collateral of intermediaries of which they are associated
        entities.

(8) Notwithstanding anything in subsection (3), that subsection-

   (a)  applies to client securities and collateral received or held by a
        registered institution only if the client securities and collateral
        were received or held by the registered institution in the course of
        the business which constitutes any regulated activity for which the
        registered institution is registered;

   (b)  applies to client securities and collateral received or held by an
        associated entity that is an authorized financial institution only if
        the client securities and collateral were received or held by the
        associated entity in the course of its business of receiving or
        holding client securities and collateral of the intermediary of which
        the associated entity is an associated entity.