BANKING (CAPITAL) RULES - CHAPTER 155L BANKING (CAPITAL) RULES - LONG TITLE Empowering section VerDate:01/01/2007 (Cap 155, section 98A) [1 January 2007] L.N.232 of 2006 (L.N. 228 of 2006) BANKING (CAPITAL) RULES - SECT 1 (Omitted as spent) VerDate:01/01/2007 PART 1 PRELIMINARY (Omitted as spent) BANKING (CAPITAL) RULES - SECT 1 Commencement VerDate: PART 1 PRELIMINARY These Rules shall come into operation on the day appointed for the commencement of section 4 of the Banking (Amendment) Ordinance 2005 (19 of 2005). BANKING (CAPITAL) RULES - SECT 2 Interpretation VerDate:01/01/2007 (1) In these Rules, unless the context otherwise requires— "alternative standardized approach" (替代標準計算法) means the method of calculating an authorized institution's operational risk set out in Division 4 of Part 9; "ASA approach" (ASA 計算法) means the alternative standardized approach; "asset sale with recourse" (有追索權的資產出售), in relation to an authorized institution, means an asset sale transaction where the credit risk of the asset sold remains with the institution because the purchaser of the asset is entitled to sell the asset back to the institution within a specified period, or under specified circumstances, under the terms of the transaction; "back-testing" (回溯測試), in relation to the use of an internal model by an authorized institution, means a process whereby the daily changes in the value of a portfolio of exposures of the institution are compared with the daily VaR generated from the institution's internal model applicable to that portfolio; "bank" (銀行) means— (a) an authorized institution except an authorized institution the authorization of which is for the time being suspended under section 24 or 25 of the Ordinance; or (b) a bank incorporated outside Hong Kong which is not an authorized institution except such a bank— (i) which, in the opinion of the Monetary Authority, is not adequately supervised by the relevant banking supervisory authority; or (ii) the licence or other authorization of which to carry on banking business is for the time being suspended; "banking book" (銀行帳), in relation to an authorized institution, means all the institution's on-balance sheet exposures and off-balance sheet exposures except such exposures which fall within the definition of "trading book" in this section; "basic approach" (基本計算法) means the method of calculating an authorized institution's credit risk for non-securitization exposures set out in Part 5; "basic indicator approach" (基本指標計算法) means the method of calculating an authorized institution's operational risk set out in Division 2 of Part 9; "BIA approach" (BIA 計算法) means the basic indicator approach; "bond" (債券) means an interest-bearing or zero-coupon debt security— (a) which is an acknowledgment of a debt promising payment of a specified sum to the holder of the debt security; and (b) which describes a time to maturity which is, or will become, definite; "BSC approach" (BSC 計算法) means the basic approach; "business day" (營業日), in relation to a country, means any day other than— (a) a public holiday in that country; or (b) a day on which the financial markets are not generally open for business in that country; "calendar quarter" (季度) means a period of 3 consecutive calendar months ending on a calendar quarter end date; "calendar quarter end date" (季度終結日) means the last day of March, June, September or December; "capital charge" (資本要求), in relation to an authorized institution, means an amount of regulatory capital which the institution is required to hold for an exposure to a relevant risk which, if multiplied by 12.5, becomes the risk-weighted amount of that exposure for that risk; "CCF" means a credit conversion factor; "clean-up call" (結清權) has the meaning assigned to it by section 227(1); "collective investment scheme" (集體投資計劃)— (a) subject to paragraph (b), has the meaning assigned to it by Part 1 of Schedule 1 to the Securities and Futures Ordinance (Cap 571); (b) does not include a restricted collective investment scheme; "collective provisions" (集體準備金), in relation to the exposures of an authorized institution, means an allowance for impairment loss in respect of a group of exposures considered by the institution as having similar credit risk characteristics which are indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the group of exposures, where the impairment loss has been assessed by the institution on a collective basis in respect of the group of exposures by reference to historical loss experience in respect of exposures with similar credit risk characteristics, relevant observable data reflecting current market conditions and other relevant factors; (L.N. 267 of 2006) "commodity" (商品) means any precious metal (other than gold), base metal, non-precious metal, energy, agricultural asset or any other physical product which is traded on an exchange; "commodity-related derivative contract" (商品關聯衍生工具合約) has the meaning assigned to it by section 281; "comprehensive approach" (全面方法) has the meaning assigned to it by section 51; "confidence interval" (置信區間) means a statistical range with a specified probability that a given parameter lies within the range; "consolidated basis" (綜合基礎) has the meaning assigned to it by section 4; "consolidation group" (綜合集團) has the meaning assigned to it by section 4; "core capital" (核心資本) has the meaning assigned to it by section 35; "counter-guarantee" (反擔保), in relation to an authorized institution, means a guarantee (or other undertaking) given by one party for the payment of money by a guarantor upon the guarantor being required to make payment under the terms of a guarantee given by the guarantor to the institution in relation to the exposure of the institution to a third party; "country" (國家) includes— (a) subject to paragraph (b), any part of a country; and (b) any jurisdiction except a restricted jurisdiction; "credit conversion factor" (信貸換算因數), in relation to an off-balance sheet exposure of an authorized institution, means a percentage by which the principal amount (within the meaning of section 51, 105, 139(1) or 227(1), as the case requires) of the exposure is multiplied as a part of the process for determining the credit equivalent amount (within the meaning of section 51, 105, 139(1) or 227(1), as the case requires) of the exposure; "credit default swap" (信用違責掉期) means a credit derivative contract under which the protection buyer pays a fee to the protection seller in return for a payment by the protection seller in the event of a default (or similar credit event) by a reference entity; "credit derivative contract" (信用衍生工具合約) means a forward contract, swap contract, option contract or similar derivative contract entered into by 2 parties with the intention to transfer credit risk in relation to a reference obligation from one party ("protection buyer") to the other party ("protection seller"); "credit enhancement" (信用提升) has the meaning assigned to it by section 227(1); "credit event" (信用事件), in relation to a credit derivative contract, means an event specified in the contract which, if it occurs, obliges the protection seller to make a payment to the protection buyer; "credit-linked note" (信用掛鈎票據) means a form of structured note with an embedded credit default swap which allows the issuer of the note ("protection buyer") to transfer credit risk to the buyer of the note ("protection seller"); "credit protection" (信用保障), in relation to an exposure of an authorized institution, means the protection afforded to the exposure by recognized credit risk mitigation; "credit protection provider" (信用保障提供者)— (a) in relation to a guarantee which constitutes credit protection, means the guarantor under the guarantee; or (b) in relation to a credit derivative contract which constitutes credit protection, means the protection seller under the contract; "credit quality grade" (信用質素等級) means a grade represented by a numeral to which an ECAI rating is mapped for determining the appropriate risk-weight for an exposure of an authorized institution; "credit risk" (信用風險), in relation to an authorized institution, means the institution's credit risk as referred to in paragraph (a) of the definition of "capital adequacy ratio" in section 2(1) of the Ordinance; "credit risk components" (信用風險組成部分) has the meaning assigned to it by section 139(1); "currency mismatch" (貨幣錯配), in relation to an exposure of an authorized institution— (a) subject to paragraph (b), means that the exposure and the credit protection afforded to the exposure are denominated in different currencies; (b) does not include a case in which the institution has, in respect of the exposure, entered into a hedging agreement and, under that agreement, the risk of foreign exchange loss to the institution arising from the fact that the exposure and the credit protection afforded to the exposure are denominated in different currencies is eliminated; "current exposure" (現行風險承擔), in relation to an off-balance sheet exposure of an authorized institution which is an OTC derivative transaction (referred to in this definition as "existing transaction") or credit derivative contract (referred to in this definition as "existing contract"), means the replacement cost— (a) which would be incurred by the institution if it were required to enter into another OTC derivative transaction or credit derivative contract, as the case may be, to replace the existing transaction or existing contract, as the case may be, with another counterparty with substantially the same economic consequences for the institution; and (b) which is calculated by marking-to-market the existing transaction or existing contract, as the case may be, and— (i) if the resultant value is positive for the institution, taking the resultant value of the existing transaction or existing contract, as the case may be; (ii) if the resultant value is negative for the institution, taking the resultant value of the existing transaction or existing contract, as the case may be, as zero; "debt-related derivative contract" (債務關聯衍生工具合約) has the meaning assigned to it by section 281; "debt security contract" (債務證券合約) means a forward contract, swap contract, option contract or similar derivative contract the value of which is determined by reference to the value of, or any fluctuation in the value of, one or more than one underlying debt security or underlying debt security index (being an index calculated by reference to a basket of debt securities); "delivery-versus-payment basis" (貨銀對付形式), in relation to a transaction, means the delivery of a thing under the transaction and the payment for the thing occur simultaneously; "derivative contract" (衍生工具合約)— (a) means a financial instrument (other than a bond, loan, share, note or structured financial instrument) the value of which is determined by reference to the value of, or any fluctuation in the value of, one or more than one underlying asset, index, financial instrument, rate or thing as designated in the financial instrument; (b) where a financial instrument which falls within paragraph (a) is embedded in or combined with, or forms part of, a bond, loan, share, note or structured financial instrument, means only the financial instrument which falls within paragraph (a); "dilution risk" (攤薄風險) has the meaning assigned to it by section 139(1); "direct credit substitute" (直接信貸替代項目), in relation to an authorized institution— (a) means an irrevocable off-balance sheet exposure of the institution which carries the same credit risk to the institution as a direct extension of credit by the institution; and (b) includes— (i) guarantees given by the institution; (ii) standby letters of credit serving as financial guarantees for loans; (iii) acceptances; and (iv) financial liabilities arising from the selling of credit protection under credit derivative contracts in the form of total return swaps or credit default swaps booked in the institution's banking book; "domestic currency exposure" (本地貨幣風險承擔) means an exposure of an authorized institution which is— (a) denominated in the local currency of the obligor in respect of the exposure; and (b) funded by liabilities entered into by the institution in that currency; "domestic public sector entity" (本地公營單位) means an entity specified in Part 1 of Schedule 1; "EAD" has the meaning assigned to it by section 139(1); "early amortization provision" (提早攤銷規定) has the meaning assigned to it by section 227(1); "ECAI" means an external credit assessment institution; "ECAI issue specific rating" (ECAI特定債項評級), in relation to an exposure, subject to subsection (7), means— (a) in section 55, a long-term credit assessment rating— (i) which is assigned to the exposure by an ECAI; and (ii) which is for the time being neither withdrawn nor suspended by that ECAI; (b) in sections 59, 60 and 61 and Parts 7 and 8, a short-term credit assessment rating or long-term credit assessment rating— (i) which is assigned to the exposure by an ECAI; and (ii) which is for the time being neither withdrawn nor suspended by that ECAI; or (c) in the case of a holding of units or shares in a collective investment scheme which only holds cash or fixed income assets, a credit assessment rating— (i) which is assigned to the scheme by an ECAI based on the credit quality of the cash held or the fixed income assets held, as the case may be; and (ii) which is for the time being neither withdrawn nor suspended by that ECAI; "ECAI issuer rating" (ECAI發債人評級), in relation to any person (however described), means a long-term credit assessment rating— (a) which is assigned to the person by an ECAI; and (b) which is for the time being neither withdrawn nor suspended by that ECAI; "ECAI rating" (ECAI評級) means— (a) an ECAI issuer rating; or (b) an ECAI issue specific rating; "EL amount" (EL額) has the meaning assigned to it by section 139(1); "equity contract" (股權合約) means a forward contract, swap contract, option contract or similar derivative contract the value of which is determined by reference to the value of, or any fluctuation in the value of, one or more than one underlying equity or underlying equity index (being an index calculated by reference to a basket of equities); "equity-related derivative contract" (股權關聯衍生工具合約) has the meaning assigned to it by section 281; "exception" (例外情況), in relation to back-testing by an authorized institution, means an instance in which the daily losses in the value of a portfolio of exposures of the institution are above the daily VaR generated from the institution's internal model applicable to that portfolio; "excess spread" (超額利差) has the meaning assigned to it by section 227(1); "exchange controls" (外匯管制) means controls or restrictions imposed by the government of a country on the exchange of the currency of that country for the currency of another country; "exchange rate contract" (匯率合約)— (a) means a forward foreign exchange contract, cross-currency interest rate swap contract, currency option contract or similar derivative contract; and (b) includes a forward contract, swap contract, option contract or similar derivative contract the value of which is determined by reference to the value of, or any fluctuation in the value of, gold; "external credit assessment institution" (外部信用評估機構) means— (a) Standard & Poor's Ratings Services; (b) Moody's Investors Service; (c) Fitch Ratings; or (d) Rating and Investment Information, Inc.; "facility grade" (融通等級) has the meaning assigned to it by section 139(1); "fair value" (公平價值)— (a) in relation to an asset, means the amount for which the asset could be exchanged between knowledgeable, willing parties in an arm's length transaction; or (b) in relation to a liability, means the amount for which the liability could be settled between knowledgeable, willing parties in an arm's length transaction; "financial instrument" (金融工具) includes a financial instrument in the form of— (a) a written document; (b) information which is recorded in the form of any entry in a book of account; (c) information which is recorded (whether by means of a computer or otherwise) in a non-legible form but is capable of being reproduced in a legible form; and (d) any combination of the document and information referred to in paragraphs (a), (b) and (c); "first-to-default credit derivative contract" (首先違責者信用衍生工具合約) means a credit derivative contract under which— (a) the protection buyer obtains credit protection for a basket of exposures held by it; and (b) the first default among the obligations specified in the contract for the purposes of determining whether a credit event has occurred triggers the credit protection and terminates the contract; "Fitch Ratings" (惠譽評級) means that organization the membership of which— (a) consists of— (i) members of the group of companies of which Fitch, Inc. is the ultimate holding company; (ii) Fitch Ratings Lanka Limited; and (iii) Fitch Ratings (Thailand) Limited; (b) adheres to a common set of core methodologies, practices and procedures for issuing credit assessment ratings; and (c) issues credit assessment ratings under the name of Fitch Ratings; "foreign public sector entity" (非本地公營單位) means an entity specified by a relevant banking supervisory authority outside Hong Kong (whether by means of legislation or a public notice or otherwise) to be a public sector entity for the purposes of applying preferential risk-weighting treatment under capital adequacy standards formulated in accordance with— (a) the document entitled "International Convergence of Capital Measurement and Capital Standards" published by the Basel Committee on Banking Supervision in July 1988; or (b) the document entitled "International Convergence of Capital Measurement and Capital Standards — A Revised Framework (Comprehensive Version)" published by the Basel Committee on Banking Supervision in June 2006; "forward asset purchase" (遠期資產購買), in relation to an authorized institution— (a) subject to paragraph (b), means a contractually binding commitment by the institution to purchase on a specified future date, and according to specified terms, a loan, security or other asset from another party, and includes a contractually binding commitment under a put option written by the institution; (b) does not include a contractually binding commitment arising from a forward foreign exchange contract; "forward contract" (遠期合約)— (a) subject to paragraph (b), means a contract between two parties for the purchase or sale of a specified quantity of a specified commodity, currency, financial instrument or thing at a specified price on a specified future date; (b) does not include a futures contract; "forward forward deposits placed" (遠期有期存款), in relation to an authorized institution, means an agreement between the institution and another party whereby the institution will place a deposit at a specified rate of interest with the party on a specified future date; "foundation IRB approach" (基礎IRB計算法) has the meaning assigned to it by section 139(1); "futures contract" (期貨合約) means a contract which is made under the rules or conventions of a futures exchange and traded on the exchange; "gain-on-sale" (出售收益) has the meaning assigned to it by section 227(1); "general market risk" (一般市場風險) has the meaning assigned to it by section 281; "gross income" (總收入) has the meaning assigned to it by section 323; "group of companies" (公司集團) has the meaning assigned to it by section 2(1) of the Companies Ordinance (Cap 32); "guarantee" (擔保) includes an indemnity; "haircut" (扣減), in relation to an authorized institution, means an adjustment to be applied to the credit protection held by the institution, or the institution's exposure, to take into account possible future price fluctuations or fluctuations in exchange rates; "IMM approach" (IMM計算法) means the internal models approach; "impairment loss" (減值損失), in relation to an exposure of an authorized institution, means the amount by which the carrying amount of the exposure exceeds the exposure's recoverable amount; "incorporated" (成立為法團) includes established; "insurance firm" (保險商號)— (a) means an entity— (i) which is authorized and supervised by an insurance regulator pursuant to the law of a country other than Hong Kong; and (ii) which is subject to supervisory arrangements regarding the maintenance of adequate capital to support its business activities comparable to those prescribed for authorized institutions under the Ordinance and these Rules; and (b) includes an authorized insurer within the meaning of the Insurance Companies Ordinance (Cap 41); "insurance regulator" (保險規管當局) does not include a restricted insurance regulator; "interest rate contract" (利率合約) means a single-currency forward rate contract, interest rate swap contract, interest rate option contract or similar derivative contract; "interest rate derivative contract" (利率衍生工具合約) has the meaning assigned to it by section 281; "internal capital" (內部資本), in relation to an authorized institution, means the amount of capital which the institution holds and allocates internally as a result of the institution's assessment of the risks faced by the institution; "internal model" (內部模式) means a model used by an authorized institution to measure the institution's credit risk, market risk or operational risk; "internal models approach" (內部模式計算法) means the method of calculating an authorized institution's market risk set out in Divisions 11 and 12 of Part 8; "internal ratings-based approach" (內部評級基準計算法) means the method of calculating an authorized institution's credit risk for non-securitization exposures set out in Part 6; "internal ratings-based (securitization) approach" (內部評級基準(證券化)計算法) means the method of calculating an authorized institution's credit risk for securitization exposures set out in Divisions 4, 5 and 6 of Part 7; "IRB approach" (IRB計算法) means the internal ratings-based approach; "IRB class" (IRB類別) has the meaning assigned to it by section 139(1); "IRB coverage ratio" (IRB涵蓋比率) has the meaning assigned to it by section 4; "IRB(S) approach" (IRB(S)計算法) means the internal ratings-based (securitization) approach; "IRB subclass" (IRB子類別) has the meaning assigned to it by section 139(1); "last 3 years" (最近3個年度) has the meaning assigned to it by section 323; "LGD" has the meaning assigned to it by section 139(1); "liquidity facility" (流動資金融通) has the meaning assigned to it by section 227(1); "local currency" (本地貨幣), in relation to a country, means the currency issued by the central government, the central bank, the monetary authority, or an authorized note-issuing bank, of that country; "long-term ECAI issue specific rating" (長期ECAI特定債項評級), in relation to an exposure, means an ECAI issue specific rating for the exposure which is a long-term credit assessment rating; "main index" (主要指數) has the meaning assigned to it by section 51; "market risk" (市場風險), in relation to an authorized institution, means the institution's market risk as referred to in paragraph (b) of the definition of "capital adequacy ratio" in section 2(1) of the Ordinance; "market risk capital charge" (市場風險資本要求) has the meaning assigned to it by section 281; "mark-to-market" (按市價計值), in relation to any transaction, position, exposure or contract, means to revalue the transaction, position, exposure or contract, as the case may be, at current market price; "minimum holding period" (最短持有期), in relation to the use of the STC approach, has the meaning assigned to it by section 51; "Moody's Investors Service" (穆迪投資者服務) means that organization the membership of which— (a) consists of members of the group of companies of which Moody's Corporation is the ultimate holding company; (b) adheres to a common set of core methodologies, practices and procedures for issuing credit assessment ratings; and (c) issues credit assessment ratings under the name of Moody's Investors Service; "net book value" (淨帳面價值), in relation to any thing, means the thing's book value after deducting the amount of any allowance for impairment loss arising from an individual assessment of the thing for impairment loss; "nettable" (可作淨額計算的), in relation to an exposure (however described) of an authorized institution, means that the exposure is subject to a valid bilateral netting agreement; "non-securitization exposure" (非證券化類別風險承擔), in relation to an authorized institution, means an exposure of the institution which is not a securitization exposure; "note issuance and revolving underwriting facilities" (票據發行及循環式包銷融通) means any facility in respect of the issue of debt securities to the market where— (a) an issuer may draw down funds, up to a specified limit, over a specified period, should any issue of the debt securities prove unable to be placed in the market; and (b) the unplaced amount is to be taken up, or funds are to be made available, by the underwriter of the facility; "notional amount" (名義數額), in relation to an off-balance sheet exposure of an authorized institution, means the reference amount used to calculate payment obligation between the parties to the exposure; "obligor" (承擔義務人)— (a) in relation to an exposure of an authorized institution in respect of a guarantee, means the guarantor under the guarantee; (b) in relation to an exposure of an authorized institution in respect of a credit derivative contract, means the protection seller under the contract; or (c) in relation to any other exposure of an authorized institution, means a person— (i) to whom the institution has an exposure; and (ii) who has the primary obligation to repay, pay or otherwise settle the exposure; "obligor grade" (承擔義務人等級) has the meaning assigned to it by section 139(1); "operational risk" (業務操作風險), in relation to an authorized institution, means the institution's operational risk as referred to in paragraph (c) of the definition of "capital adequacy ratio" in section 2(1) of the Ordinance; "option contract" (期權合約) means a contract which gives the holder of the contract the option or right, exercisable at or before a specified time, to purchase or sell a specified quantity of a specified commodity, currency, financial instrument or thing at a specified price; "originating institution" (發起機構) has the meaning assigned to it by section 227(1); "OTC derivative transaction" means an over-the-counter derivative transaction; "other commodity contract" (其他商品合約) means a forward contract, swap contract, option contract or similar derivative contract the value of which is determined by reference to the value of, or any fluctuation in the value of, one or more than one underlying commodity other than precious metal or underlying commodity index (being an index calculated by reference to a basket of commodities other than precious metal); "over-the-counter derivative transaction" (場外衍生工具交易)— (a) subject to paragraph (b), means a derivative contract other than a credit derivative contract; (b) does not include a contract referred to in paragraph (a)— (i) which is traded on an exchange; and (ii) which is subject to daily re-margining requirements; "parent bank" (母銀行), in relation to an authorized institution, means any holding company of the institution which is authorized as a bank in the overseas country in which the holding company is incorporated; "partly paid-up shares and securities" (部分付款股份及證券), in relation to an authorized institution, means shares or securities the unpaid portion of which the institution may be called upon by the issuer to pay on a specified or unspecified date in the future; "past due exposure" (逾期風險承擔), in relation to the use of the STC approach, has the meaning assigned to it by section 51; "PD" has the meaning assigned to it by section 139(1); "PD/LGD approach" (PD/LGD 計算法) has the meaning assigned to it by section 139(1); "pool" (組別), in relation to an authorized institution which uses the IRB approach, has the meaning assigned to it by section 139(1); "position" (持倉), in relation to an authorized institution's calculation of market risk, has the meaning assigned to it by section 281; "positive current exposure" (現行風險承擔正數), in relation to a transaction of an authorized institution referred to in paragraph (i) or (j) of the definition of "cash items" in section 51 or 105 or referred to in paragraph (h) or (i) of the definition of "cash items" in section 139(1), means the risk of loss to the institution on the difference between— (a) the transaction valued at the agreed settlement price; and (b) the transaction valued at the current market price; "potential exposure" (潛在風險承擔), in relation to an off-balance sheet exposure of an authorized institution which is an OTC derivative transaction or a credit derivative contract, means the principal amount (within the meaning of section 51, 105, 139(1) or 227(1), as the case requires) of the transaction or contract, as the case may be, multiplied by the applicable CCF; "precious metal contract" (貴金屬合約) means a forward contract, swap contract, option contract or similar derivative contract the value of which is determined by reference to the value of, or any fluctuation in the value of, one or more than one underlying precious metal other than gold or underlying precious metal index (being an index calculated by reference to a basket of precious metals other than gold); "prior consent" (事先同意) means prior consent in writing; "property-holding shell company" (持物業空殼公司) means a company which does not engage in any business activity except for the sole purpose of the buying, holding and selling of residential properties; "public sector entity" (公營單位) means— (a) a domestic public sector entity; or (b) a foreign public sector entity; "rated" (獲評級), in relation to a securitization exposure, has the meaning assigned to it by section 227(1); "ratings-based method" (評級基準方法) has the meaning assigned to it by section 227(1); "rating system" (評級系統) has the meaning assigned to it by section 139(1); "recognized credit risk mitigation" (認可減低信用風險措施), in relation to an exposure of an authorized institution, means the use by the institution of— (a) recognized netting; (b) recognized collateral (within the meaning of section 51, 105 or 139(1), as the case requires); (c) a recognized guarantee (within the meaning of section 51, 105 or 139(1), as the case requires); or (d) a recognized credit derivative contract (within the meaning of section 51, 105 or 139(1), as the case requires), for the purposes of reducing the risk-weighted amount of the exposure pursuant to these Rules; "recognized exchange" (認可交易所) means— (a) a recognized stock exchange; or (b) a recognized futures exchange; "recognized futures exchange" (認可期貨交易所) means a futures exchange specified in Part 2 of Schedule 1 to the Securities and Futures Ordinance (Cap 571); "recognized netting" (認可淨額計算) means any netting done pursuant to a valid bilateral netting agreement; "recognized stock exchange" (認可證券交易所) means a stock exchange specified in Part 3 of Schedule 1 to the Securities and Futures Ordinance (Cap 571); "reference entity" (參照實體), in relation to a credit derivative contract, means the entity on whose credit status that contract is based; "reference obligation" (參照義務), in relation to a credit derivative contract, means the specified obligation of a specified reference entity in the contract, pursuant to which the basis for the settlement of the contract is determined; "regulatory capital" (監管資本), in relation to an authorized institution, means the amount of capital the institution is required to hold in accordance with the Ordinance and these Rules in respect of its risk-weighted amount for each relevant risk; "regulatory capital arbitrage" (監管資本套戥) has the meaning assigned to it by section 4; "regulatory reserve" (監管儲備), in relation to an authorized institution, means that portion of the institution’s retained earnings which, for the purposes of paragraph 9 of the Seventh Schedule to the Ordinance, is earmarked or appropriated to maintain adequate provision for losses which the institution will or may incur; (L.N. 267 of 2006) "relevant international organization" (有關國際組織) means an international organization specified in Part 10 of Schedule 1; "relevant risk" (有關風險), in relation to an authorized institution, means the credit risk, market risk or operational risk of the institution; "repo-style transaction" (回購形式交易), in relation to an authorized institution, means a transaction entered into by the institution whereby the institution— (a) agrees to sell securities to a counterparty for a sum of money with a commitment to repurchase the securities at a specified price on a specified future date from the counterparty; (b) lends securities to a counterparty and receives a sum of money or other securities from the counterparty in exchange as collateral; (c) agrees to acquire securities from a counterparty for a sum of money with a commitment to resell the securities at a specified price on a specified future date to the counterparty; or (d) borrows securities from a counterparty and provides a sum of money or other securities to the counterparty in exchange as collateral; "residential mortgage loan" (住宅按揭貸款), in relation to an authorized institution, means a credit facility provided by the institution to a borrower— (a) which is secured on a residential property or residential properties; and (b) which is required by the facility agreement between the institution and the borrower to be secured on the residential property or residential properties referred to in paragraph (a); "restricted collective investment scheme" (受限制集體投資計劃) means a collective investment scheme specified in Part 3 of Schedule 1; "restricted debt securities" (受限制債務證券) means debt securities specified in Part 4 of Schedule 1; "restricted foreign public sector entity" (受限制非本地公營單位) means a foreign public sector entity specified in Part 5 of Schedule 1; "restricted insurance regulator" (受限制保險規管當局) means an insurance regulator specified in Part 6 of Schedule 1; "restricted jurisdiction" (受限制司法管轄區) means a jurisdiction specified in Part 7 of Schedule 1; "restricted securities regulator" (受限制證券規管當局) means a securities regulator specified in Part 8 of Schedule 1; "restricted sovereign" (受限制官方實體) means a sovereign specified in Part 9 of Schedule 1; "risk category" (風險類別), in relation to an authorized institution's calculation of market risk, has the meaning assigned to it by section 281; "risk-weighted amount" (風險加權數額)— (a) in relation to the calculation of the credit risk of a non-securitization exposure of an authorized institution, means the amount of the institution's exposure to credit risk calculated in accordance with Part 4, 5 or 6, as the case requires; (b) in relation to the calculation of the credit risk of a securitization exposure of an authorized institution, means the amount of the institution's exposure to credit risk calculated in accordance with Part 7; (c) in relation to the calculation of the market risk of an authorized institution, means the amount of the institution's exposure to market risk calculated in accordance with Part 8; (d) in relation to the calculation of the operational risk of an authorized institution, means the amount of the institution's exposure to operational risk calculated in accordance with Part 9; "risk-weighted amount for credit risk" (信用風險的風險加權數額), in relation to an authorized institution, means the total risk-weighted amount of— (a) the institution's non-securitization exposures to credit risk calculated in accordance with Part 4, 5 or 6, as the case requires; and (b) the institution's securitization exposures to credit risk calculated in accordance with Part 7; "risk-weighted amount for market risk" (市場風險的風險加權數額), in relation to an authorized institution, means the total risk-weighted amount of the institution's exposures to market risk calculated in accordance with Part 8; "risk-weighted amount for operational risk" (業務操作風險的風險加權數 額), in relation to an authorized institution, means the risk-weighted amount of the institution's exposure to operational risk calculated in accordance with Part 9; "second-to-default credit derivative contract" (第二違責者信用衍生工具合約) means a credit derivative contract under which— (a) the protection buyer obtains credit protection for a basket of exposures held by it; and (b) the second default among the obligations specified in the contract for the purposes of determining whether a credit event has occurred triggers the credit protection and terminates the contract; "section 79A(1) requirement" (第79A(1)條規定), in relation to an authorized institution, means a requirement in a notice under section 79A(1) of the Ordinance whereby a provision of Part XV of the Ordinance is to apply to the institution on— (a) a consolidated basis in respect of all the subsidiaries of the institution; (b) a consolidated basis in respect of such subsidiaries of the institution as specified in the notice; (c) the consolidated basis referred to in paragraph (a) and an unconsolidated basis unless otherwise specified in the notice; or (d) the consolidated basis referred to in paragraph (b) and an unconsolidated basis unless otherwise specified in the notice; "section 98(2) requirement" (第98(2)條規定), in relation to an authorized institution, means a requirement in a notice under section 98(2) of the Ordinance whereby the capital adequacy ratio of the institution is to be calculated on— (a) a consolidated basis in respect of all the subsidiaries of the institution; (b) a consolidated basis in respect of such subsidiaries of the institution as specified in the notice; (c) the consolidated basis referred to in paragraph (a) and an unconsolidated basis unless otherwise specified in the notice; or (d) the consolidated basis referred to in paragraph (b) and an unconsolidated basis unless otherwise specified in the notice; "securities firm" (證券商號)— (a) means an entity (other than a bank)— (i) which is authorized and supervised by a securities regulator pursuant to the law of a country other than Hong Kong; and (ii) which is subject to supervisory arrangements regarding the maintenance of adequate capital to support its business activities comparable to those prescribed for authorized institutions under the Ordinance and these Rules; and (b) includes a licensed corporation which has been granted a licence to carry on a regulated activity by the Securities and Futures Commission of Hong Kong; "securities regulator" (證券規管當局) does not include a restricted securities regulator; "securitization exposure" (證券化類別風險承擔) has the meaning assigned to it by section 227(1); "securitization issues" (證券化票據) has the meaning assigned to it by section 227(1); "securitization transaction" (證券化交易) has the meaning assigned to it by section 227(1); "senior management" (高級管理人員), in relation to an authorized institution, includes the chief executives and managers of the institution; "servicer cash advance facility" (服務者現金墊支融通) has the meaning assigned to it by section 227(1); "short-term ECAI issue specific rating" (短期ECAI特定債項評級), in relation to an exposure, means an ECAI issue specific rating for the exposure which is a short-term credit assessment rating; "solo basis" (單獨基礎) has the meaning assigned to it by section 4; "solo-consolidated basis" (單獨—綜合基礎) has the meaning assigned to it by section 4; "solo-consolidated subsidiary" (單獨—綜合附屬公司) has the meaning assigned to it by section 4; "sovereign" (官方實體) means— (a) the Government; (b) the central government of a country; (c) the central bank of a country; (d) an authority of a country which performs in the country functions similar to the functions performed by the Monetary Authority; or (e) a relevant international organization; "sovereign foreign public sector entity" (屬官方實體的非本地公營單位) has the meaning assigned to it by section 51; "SPE" has the meaning assigned to it by section 227(1); "specific provisions" (特定準備金), in relation to an exposure of an authorized institution, means an allowance for impairment loss in respect of that exposure where— (a) the institution reasonably considers that an event has occurred causing the impairment loss; (b) the event occurs after the exposure is originated or acquired by the institution; and (c) the allowance is assessed by the institution by reference to the impact that the event has on the cash flows in respect of the exposure insofar as that impact can be reliably estimated; (L.N. 267 of 2006) "specific risk" (特定風險) has the meaning assigned to it by section 281; "Standard & Poor's Ratings Services" (標準普爾評級服務) means that organization the membership of which— (a) consists of business units within members of the group of companies of which The McGraw-Hill Companies, Inc. is the ultimate holding company; (b) adheres to a common set of core methodologies, practices and procedures for issuing credit assessment ratings; and (c) issues credit assessment ratings under the name of Standard & Poor's Ratings Services; "standard supervisory haircut" (標準監管扣減) has the meaning assigned to it by section 51; "standardized business line" (標準業務線) has the meaning assigned to it by section 323; "standardized (credit risk) approach" (標準(信用風險)計算法) means the method of calculating an authorized institution's credit risk for non-securitization exposures set out in Part 4; "standardized (market risk) approach" (標準(市場風險)計算法) means the method of calculating an authorized institution's market risk set out in Divisions 2 to 10 of Part 8; "standardized (operational risk) approach" (標準(業務操作風險)計算法) means the method of calculating an authorized institution's operational risk set out in Division 3 of Part 9; "standardized (securitization) approach" (標準(證券化)計算法) means the method of calculating an authorized institution's credit risk for securitization exposures set out in Division 3 of Part 7; "STC approach" (STC 計算法) means the standardized (credit risk) approach; "STC(S) approach" (STC(S) 計算法) means the standardized (securitization) approach; "STM approach" (STM 計算法) means the standardized (market risk) approach; "STO approach" (STO 計算法) means the standardized (operational risk) approach; "stress-testing" (壓力測試), in relation to an authorized institution, means the use by the institution of a risk management technique to evaluate the potential impact on the institution of a specific event, or movements in a set of financial variables, or both, under market conditions depicting various levels of market movement and financial distress; "supervisory formula method" (監管公式方法) has the meaning assigned to it by section 227(1); "supplementary capital" (附加資本) has the meaning assigned to it by section 35; "swap contract" (掉期合約) means a contract under which two parties agree to exchange assets, liabilities or cash flows according to specified terms over a specified period; "synthetic securitization transaction" (合成證券化交易) has the meaning assigned to it by section 227(1); "title transfer" (所有權轉移), in relation to collateral, means an outright transfer of the legal and beneficial ownership in the collateral from the collateral provider to the collateral taker; "total EL amount" (EL 總額) has the meaning assigned to it by section 139(1); "total eligible provisions" (合資格準備金總額) has the meaning assigned to it by section 139(1); "total return swap" (總回報掉期) means a credit derivative contract under which the protection buyer— (a) agrees to pay the protection seller all cash flows which arise from a reference obligation together with any appreciation in the market value of the reference obligation; and (b) receives, in return for that agreement, a spread over a specified index together with any depreciation in the value of the reference obligation during the term of the contract; "trade-related contingency" (貿易關聯或有項目)— (a) means a contingent liability which relates to trade-related obligations; and (b) includes liabilities arising from issuing and confirming letters of credit, acceptances on trade bills, and shipping guarantees; "trading book" (交易帳), in relation to an authorized institution, means the institution's exposures in financial instruments and commodities where— (a) the financial instruments and commodities are held— (i) with the intention of trading; or (ii) for the purposes of hedging one or more of the exposures in other financial instruments and commodities which are held with the intention of trading; (b) the financial instruments are free of any restrictive covenants on tradability, or the exposures in the financial instruments and commodities are able to be completely hedged; and (c) the exposures are frequently and accurately valued and actively managed; "trading day" (交易日) means a day on which a financial market is open for trading; "traditional securitization transaction" (傳統證券化交易) has the meaning assigned to it by section 227(1); "transaction-related contingency" (交易關聯或有項目), in relation to an authorized institution— (a) means a contingent liability which involves an irrevocable obligation of the institution to pay a beneficiary when a customer fails to perform a contractual and non-financial obligation; and (b) includes a performance bond, bid bond, warranty and standby letter of credit related to a particular transaction; "transitional period" (過渡期) has the meaning assigned to it by section 4; "underlying exposures" (組成項目), in relation to a securitization transaction, has the meaning assigned to it by section 227(1); "unrated" (無評級), in relation to a securitization exposure, has the meaning assigned to it by section 227(1); "valid bilateral netting agreement" (有效雙邊淨額結算協議), in relation to an authorized institution, means an agreement in respect of which the following conditions are satisfied— (a) the agreement is in writing; (b) the agreement creates a single legal obligation for all individual contracts covered by the agreement, and provides, in effect, that the institution would have a single claim or obligation to receive or pay only the net amount of the sum of the positive and negative mark-to-market values of the individual contracts covered by the agreement in the event that a counterparty to the agreement, or a counterparty to whom the agreement has been validly assigned, fails to comply with any obligation under the agreement due to default, insolvency, bankruptcy, or similar circumstance; (c) the institution has been given legal advice in writing to the effect that in the event of a challenge in a court of law, including a challenge resulting from default, insolvency, bankruptcy, or similar circumstance, the relevant court or administrative authority would find the institution's exposure to be the net amount under— (i) the law of the jurisdiction in which the counterparty is incorporated or the equivalent location in the case of non-corporate entities, and if a branch of the counterparty is involved, then also under the law of the jurisdiction in which the branch is located; (ii) the law which governs the individual contracts covered by the agreement; and (iii) the law which governs the agreement; (d) the institution establishes and maintains procedures to monitor developments in any law relevant to the agreement and to ensure that the agreement continues to satisfy this definition; (e) the institution manages the transactions covered by the agreement on a net basis; (f) the institution maintains in its files documentation adequate to support the netting of the contracts covered by the agreement; and (g) the agreement is not subject to a provision that permits the non-defaulting counterparty to make only limited payment, or no payment at all, to the defaulter or the estate of the defaulter, regardless of whether or not the defaulter is a net creditor under the agreement; "value-at-risk" (風險值), in relation to a portfolio of exposures, means a measure of the worst expected loss on the portfolio resulting from market movement over a period of time within a given confidence interval; "VaR" means value-at-risk. (2) A reference in these Rules to a table or formula followed by a number is a reference to the table or formula, as the case may be, in these Rules bearing that number. (3) Where, under a provision of these Rules, the prior consent of the Monetary Authority is required by an authorized institution in respect of any matter, the institution shall seek the prior consent by making an application in the specified form, if any, to the Monetary Authority. (4) Where, under a provision of these Rules, the Monetary Authority is required to give notice of any matter to all authorized institutions incorporated in Hong Kong, or to a class of such institutions, it is sufficient compliance with that provision if the Monetary Authority publishes the notice in the Gazette. (5) Where any matter specified in a section of these Rules is qualified by the word "appropriate", "material" or "relevant", then, for the purposes of assisting in ascertaining the nature of that qualification insofar as it relates to that matter, regard shall be had to the guidelines, if any, issued under the Ordinance which are applicable to that section. (6) A reference in these Rules to an exposure of an authorized institution to a guarantor arising in respect of a guarantee, or to a counterparty arising in respect of a credit derivative contract purchased by the institution, is an exposure for the purposes of these Rules whether or not any event has occurred which may give rise to a right to sue, or a claim on, the guarantor or the counterparty, as the case may be. (7) For the purposes of these Rules, an authorized institution shall not use an ECAI issue specific rating allocated to a debt obligation of a person which has ceased to be outstanding for the purposes of determining the risk-weight to be applied to another debt obligation of that person. "alternative standardized approach" (替代標準計算法) "ASA approach" (ASA 計算法) "asset sale with recourse" (有追索權的資產出售) "back-testing" (回溯測試) "bank" (銀行) "banking book" (銀行帳) "basic approach" (基本計算法) "basic indicator approach" (基本指標計算法) "BIA approach" (BIA 計算法) "bond" (債券) "BSC approach" (BSC 計算法) "business day" (營業日) "calendar quarter" (季度) "calendar quarter end date" (季度終結日) "capital charge" (資本要求) "CCF" "clean-up call" (結清權) "collective investment scheme" (集體投資計劃) "collective provisions" (集體準備金) "commodity" (商品) "commodity-related derivative contract" (商品關聯衍生工具合約) "comprehensive approach" (全面方法) "confidence interval" (置信區間) "consolidated basis" (綜合基礎) "consolidation group" (綜合集團) "core capital" (核心資本) "counter-guarantee" (反擔保) "country" (國家) "credit conversion factor" (信貸換算因數) "credit default swap" (信用違責掉期) "credit derivative contract" (信用衍生工具合約) "credit enhancement" (信用提升) "credit event" (信用事件) "credit-linked note" (信用掛鈎票據) "credit protection" (信用保障) "credit protection provider" (信用保障提供者) "credit quality grade" (信用質素等級) "credit risk" (信用風險) "credit risk components" (信用風險組成部分) "currency mismatch" (貨幣錯配) "current exposure" (現行風險承擔) "debt-related derivative contract" (債務關聯衍生工具合約) "debt security contract" (債務證券合約) "delivery-versus-payment basis" (貨銀對付形式) "derivative contract" (衍生工具合約) "dilution risk" (攤薄風險) "direct credit substitute" (直接信貸替代項目) "domestic currency exposure" (本地貨幣風險承擔) "domestic public sector entity" (本地公營單位) "early amortization provision" (提早攤銷規定) "ECAI issue specific rating" (ECAI特定債項評級) "ECAI issuer rating" (ECAI發債人評級) "ECAI rating" (ECAI評級) "EL amount" (EL額) "equity contract" (股權合約) "equity-related derivative contract" (股權關聯衍生工具合約) "exception" (例外情況) "excess spread" (超額利差) "exchange controls" (外匯管制) "exchange rate contract" (匯率合約) "external credit assessment institution" (外部信用評估機構) "facility grade" (融通等級) "fair value" (公平價值) "financial instrument" (金融工具) "first-to-default credit derivative contract" (首先違責者信用衍生工具合約) "Fitch Ratings" (惠譽評級) "foreign public sector entity" (非本地公營單位) "forward asset purchase" (遠期資產購買) "forward contract" (遠期合約) "forward forward deposits placed" (遠期有期存款) "foundation IRB approach" (基礎IRB計算法) "futures contract" (期貨合約) "gain-on-sale" (出售收益) "general market risk" (一般市場風險) "gross income" (總收入) "group of companies" (公司集團) "guarantee" (擔保) "haircut" (扣減) "IMM approach" (IMM計算法) "impairment loss" (減值損失) "incorporated" (成立為法團) "insurance firm" (保險商號) "insurance regulator" (保險規管當局) "interest rate contract" (利率合約) "interest rate derivative contract" (利率衍生工具合約) "internal capital" (內部資本) "internal model" (內部模式) "internal models approach" (內部模式計算法) "internal ratings-based approach" (內部評級基準計算法) "internal ratings-based (securitization) approach" (內部評級基準(證券化)計算法) "IRB approach" (IRB 計算法) "IRB class" (IRB 類別) "IRB coverage ratio" (IRB涵蓋比率) "IRB(S) approach" (IRB(S)計算法) "IRB subclass" (IRB子類別) "last 3 years" (最近3個年度) "LGD" "liquidity facility" (流動資金融通) "local currency" (本地貨幣) "long-term ECAI issue specific rating" (長期ECAI特定債項評級) "main index" (主要指數) "market risk" (市場風險) "market risk capital charge" (市場風險資本要求) "mark-to-market" (按市價計值) "minimum holding period" (最短持有期) "Moody's Investors Service" (穆迪投資者服務) "net book value" (淨帳面價值) "nettable" (可作淨額計算的) "non-securitization exposure" (非證券化類別風險承擔) "note issuance and revolving underwriting facilities" (票據發行及循環式包銷融通) "notional amount" (名義數額) "obligor" (承擔義務人) "obligor grade" (承擔義務人等級) "operational risk" (業務操作風險) "option contract" (期權合約) "originating institution" (發起機構) "OTC derivative transaction" "other commodity contract" (其他商品合約) "over-the-counter derivative transaction" (場外衍生工具交易) "parent bank" (母銀行) "partly paid-up shares and securities" (部分付款股份及證券) "past due exposure" (逾期風險承擔) "PD" "PD/LGD approach" (PD/LGD計算法) "pool" (組別) "position" (持倉) "positive current exposure" (現行風險承擔正數) "potential exposure" (潛在風險承擔) "precious metal contract" (貴金屬合約) "prior consent" (事先同意) "property-holding shell company" (持物業空殼公司) "public sector entity" (公營單位) "rated" (獲評級) "ratings-based method" (評級基準方法) "rating system" (評級系統) "recognized credit risk mitigation" (認可減低信用風險措施) "recognized exchange" (認可交易所) "recognized futures exchange" (認可期貨交易所) "recognized netting" (認可淨額計算) "recognized stock exchange" (認可證券交易所) "reference entity" (參照實體) "reference obligation" (參照義務) "regulatory capital" (監管資本) "regulatory capital arbitrage" (監管資本套戥) "regulatory reserve” (監管儲備) "relevant international organization" (有關國際組織) "relevant risk" (有關風險) "repo-style transaction" (回購形式交易) "residential mortgage loan" (住宅按揭貸款) "restricted collective investment scheme" (受限制集體投資計劃) "restricted debt securities" (受限制債務證券) "restricted foreign public sector entity" (受限制非本地公營單位) "restricted insurance regulator" (受限制保險規管當局) "restricted jurisdiction" (受限制司法管轄區) "restricted securities regulator" (受限制證券規管當局) "restricted sovereign" (受限制官方實體) "risk category" (風險類別) "risk-weighted amount" (風險加權數額) "risk-weighted amount for credit risk" (信用風險的風險加權數額) "risk-weighted amount for market risk" (市場風險的風險加權數額) "risk-weighted amount for operational risk" (業務操作風險的風險加權數額) "second-to-default credit derivative contract" (第二違責者信用衍生工具合約) "section 79A(1) requirement" (第79A(1)條規定) "section 98(2) requirement" (第98(2)條規定) "securities firm" (證券商號) "securities regulator" (證券規管當局) "securitization exposure" (證券化類別風險承擔) "securitization issues" (證券化票據) "securitization transaction" (證券化交易) "senior management" (高級管理人員) "servicer cash advance facility" (服務者現金墊支融通) "short-term ECAI issue specific rating" (短期ECAI特定債項評級) "solo basis" (單獨基礎) "solo-consolidated basis" (單獨—綜合基礎) "solo-consolidated subsidiary" (單獨—綜合附屬公司) "sovereign" (官方實體) "sovereign foreign public sector entity" (屬官方實體的非本地公營單位) "SPE" "specific provisions" (特定準備金) "specific risk" (特定風險) "Standard & Poor's Ratings Services"(標準普爾評級服務) "standard supervisory haircut" (標準監管扣減) "standardized business line" (標準業務線) "standardized (credit risk) approach" (標準(信用風險)計算法) "standardized (market risk) approach" (標準(市場風險)計算法) "standardized (operational risk) approach" (標準(業務操作風險)計算法) "standardized (securitization) approach" (標準(證券化)計算法) "STC approach" (STC計算法) "STC(S) approach" (STC(S)計算法) "STM approach" (STM計算法) "STO approach" (STO計算法) "stress-testing" (壓力測試) "supervisory formula method" (監管公式方法) "supplementary capital" (附加資本) "swap contract" (掉期合約) "synthetic securitization transaction" (合成證券化交易) "title transfer" (所有權轉移) "total EL amount" (EL 總額) "total eligible provisions" (合資格準備金總額) "total return swap" (總回報掉期) "trade-related contingency" (貿易關聯或有項目) "trading book" (交易帳) "trading day" (交易日) "traditional securitization transaction" (傳統證券化交易) "transaction-related contingency" (交易關聯或有項目) "transitional period" (過渡期) "underlying exposures" (組成項目) "unrated" (無評級) "valid bilateral netting agreement" (有效雙邊淨額結算協議) "value-at-risk" (風險值) BANKING (CAPITAL) RULES - SECT 3 Calculation of capital adequacy ratio VerDate:01/01/2007 For the purposes of these Rules as read with the Ordinance, the capital adequacy ratio of an authorized institution shall be calculated, subject to sections 29, 30 and 31, as the ratio, expressed as a percentage, of the institution's capital base as determined in accordance with Part 3, to the sum of— (a) the institution's risk-weighted amount for credit risk; (b) the institution's risk-weighted amount for market risk; and (c) the institution's risk-weighted amount for operational risk. BANKING (CAPITAL) RULES - SECT 4 Interpretation of Part 2 VerDate:01/01/2007 PART 2 PRESCRIBED APPROACHES IN RELATION TO CALCULATION OF CAPITAL ADEQUACY RATIO Division 1—General In this Part, unless the context otherwise requires— "consolidated basis" (綜合基礎), in relation to the calculation of an authorized institution's capital adequacy ratio, means the basis set out in section 31 on which the institution calculates that ratio; "consolidation group" (綜合集團), in relation to an authorized institution, means— (a) the institution; and (b) such subsidiaries of the institution as specified in a section 98(2) requirement given to the institution; "IRB coverage ratio" (IRB 涵蓋比率), in relation to an authorized institution which uses the IRB approach, means the ratio, expressed as a percentage, of the sum of the following risk-weighted amounts to the institution's risk-weighted amount for credit risk— (a) the risk-weighted amount for credit risk of the institution's non-securitization exposures calculated under the IRB approach; and (b) the risk-weighted amount for credit risk of the institution's securitization exposures calculated under the IRB(S) approach; "regulatory capital arbitrage" (監管資本套戥), in relation to an authorized institution, means the use by the institution of a combination of different calculation approaches or methods in respect of the institution's exposures with the intention of minimizing its regulatory capital by selectively choosing a given calculation approach or method for certain exposures predominantly to achieve a lower regulatory capital; "solo basis" (單獨基礎), in relation to the calculation of an authorized institution's capital adequacy ratio, means the basis set out in section 29 on which the institution calculates that ratio; "solo-consolidated basis" (單獨—綜合基礎), in relation to the calculation of an authorized institution's capital adequacy ratio, means the basis set out in section 30 on which the institution calculates that ratio; "solo-consolidated subsidiary" (單獨—綜合附屬公司), in relation to an authorized institution, means a subsidiary of the institution specified in an approval granted to the institution under section 28(2)(a); "transitional period" (過渡期) means the period from 1 January 2007 to 31 December 2009, both days inclusive. "consolidated basis" (綜合基礎) "consolidation group" (綜合集團) "IRB coverage ratio" (IRB 涵蓋比率) "regulatory capital arbitrage" (監管資本套戥) "solo basis" (單獨基礎) "solo-consolidated basis" (單獨—綜合基礎) "solo-consolidated subsidiary" (單獨—綜合附屬公司) "transitional period" (過渡期) BANKING (CAPITAL) RULES - SECT 5 Authorized institution shall only use STC approach, BSC approach or IRB approach to calculate its credit risk for non-securitization exposures VerDate:01/01/2007 Division 2—Prescribed approaches to calculation of credit risk for non-securitization exposures (1) An authorized institution— (a) subject to paragraphs (b) and (c), shall use the STC approach to calculate its credit risk for non-securitization exposures; (b) may use the BSC approach to calculate its credit risk for non-securitization exposures only if it has the approval to do so under section 6(2)(a); (c) may use the IRB approach to calculate its credit risk for non-securitization exposures only if it has the approval to do so under section 8(2)(a). (2) Subsection (1) does not prevent an authorized institution from using any combination of the STC approach, BSC approach and IRB approach to calculate its credit risk for non-securitization exposures if that combination is expressly permitted by, and in accordance with, another section of these Rules. BANKING (CAPITAL) RULES - SECT 6 Authorized institution may apply for approval to use BSC approach to calculate its credit risk for non-securitization exposures VerDate:01/01/2007 (1) An authorized institution may apply to the Monetary Authority for approval to use the BSC approach to calculate its credit risk for non-securitization exposures. (2) Subject to subsection (3), the Monetary Authority shall determine an application under subsection (1) from an authorized institution by— (a) granting approval to the institution to use the BSC approach to calculate its credit risk for non-securitization exposures; or (b) refusing to grant the approval. (3) Without prejudice to the generality of subsection (2)(b), the Monetary Authority shall refuse to grant approval to an authorized institution to use the BSC approach to calculate its credit risk for non-securitization exposures if any one or more of the requirements specified in section 7(a) or (b) are not satisfied with respect to the institution. (4) Where an authorized institution is granted an approval under subsection (2)(a) to use the BSC approach on the ground specified in section 7(b)— (a) if the institution has obtained the prior consent of the Monetary Authority, the institution may, before it uses the IRB approach to calculate its credit risk for non-securitization exposures, use a combination of the STC approach and BSC approach to calculate its credit risk for non-securitization exposures during the transitional period; and (b) subject to section 10(5)(a), the institution shall, not later than the expiration of the transitional period— (i) use the STC approach to calculate its credit risk for non-securitization exposures to which an exemption under section 12(2)(a) relates; (ii) use the IRB approach to calculate its credit risk for all other non-securitization exposures. BANKING (CAPITAL) RULES - SECT 7 Minimum requirements to be satisfied for approval under section 6(2)(a) to use BSC approach VerDate:01/01/2007 An authorized institution which makes an application under section 6(1) to use the BSC approach shall demonstrate to the satisfaction of the Monetary Authority— (a) that— (i) at the end of the institution's financial year immediately preceding the date of the application, the institution and its consolidation group, if any, each had total assets, before deducting any specific provisions or collective provisions, of not more than $10 billion; and (ii) there is no cause to believe that the use by the institution of the BSC approach to calculate its credit risk for non-securitization exposures would not adequately identify, assess and reflect the credit risk of the institution's non-securitization exposures taking into account the nature of the institution's business; or (b) that— (i) the institution has an implementation plan for the use of the IRB approach to calculate its credit risk for non-securitization exposures which, in form and substance, is adequate for that purpose; and (ii) the institution is reasonably likely to satisfy, not later than the end of the transitional period, the requirements specified in Schedule 2 applicable to and in relation to an authorized institution seeking to use the IRB approach to calculate its credit risk for non-securitization exposures. BANKING (CAPITAL) RULES - SECT 8 Authorized institution may apply for approval to use IRB approach to calculate its credit risk for non-securitization exposures VerDate:01/01/2007 (1) An authorized institution may apply to the Monetary Authority for approval to use the IRB approach to calculate its credit risk for non-securitization exposures. (2) Subject to subsection (3) and section 9, the Monetary Authority shall determine an application under subsection (1) from an authorized institution by— (a) granting approval to the institution to use the IRB approach to calculate its credit risk for non-securitization exposures; or (b) refusing to grant the approval. (3) Without prejudice to the generality of subsection (2)(b), the Monetary Authority shall refuse to grant approval to an authorized institution to use the IRB approach to calculate its credit risk for non-securitization exposures if any one or more of the requirements specified in Schedule 2 applicable to or in relation to the institution are not satisfied with respect to the institution. (4) Where an authorized institution is granted an approval under subsection (2)(a) to use the IRB approach to calculate its credit risk for non-securitization exposures— (a) subject to sections 10(5)(a) and 12, the institution shall not, except with the prior consent of the Monetary Authority, use any approach other than the IRB approach to calculate its credit risk for non-securitization exposures; and (b) the institution shall not, without the prior consent of the Monetary Authority, make any significant change to any rating system which is the subject of the approval. BANKING (CAPITAL) RULES - SECT 9 Circumstances in which Monetary Authority shall take into account assessment outside Hong Kong of rating system used by authorized institution VerDate:01/01/2007 (1) Where— (a) an authorized institution uses a rating system which has been used by a bank incorporated outside Hong Kong to calculate the institution's credit risk for non-securitization exposures; and (b) the bank is a member of a group of companies of which the institution is also a member, the Monetary Authority shall, for the purposes of Schedule 2, take into account, insofar as is practicable and reasonable in all the circumstances of the case— (c) subject to subsection (2), the assessment of the relevant banking supervisory authority of the bank as to the accuracy, verifiability, internal consistency and integrity of the rating system; and (d) the appropriateness of the rating system for the purposes of assessing the credit risk characteristics of the institution's exposures. (2) The Monetary Authority shall take into account the assessment referred to in subsection (1)(c) if, and only if, the Monetary Authority is satisfied that the capital adequacy standards adopted by the relevant banking supervisory authority for assessing credit risk under the IRB approach are not materially different from those set out in Part 6 and Schedule 2. BANKING (CAPITAL) RULES - SECT 10 Measures which may be taken by Monetary Authority if authorized institution using BSC approach or IRB approach no longer satisfies specified requirements VerDate:01/01/2007 (1) Where— (a) an authorized institution uses the BSC approach to calculate its credit risk for non-securitization exposures; and (b) the Monetary Authority is satisfied that, if the institution were to make a fresh application under section 6(1) for approval to use the BSC approach to calculate its credit risk for non-securitization exposures, the approval would be refused by virtue of section 6(3), the Monetary Authority may, by notice in writing given to the institution, require the institution to use the STC approach to calculate its credit risk for non-securitization exposures instead of the BSC approach. (2) A notice given to an authorized institution under subsection (1) may require the institution to use the STC approach to calculate its credit risk for non-securitization exposures in respect of all of its non-securitization exposures, or such parts of its non-securitization exposures as specified in the notice, beginning on such date, or the occurrence of such event, as specified in the notice. (3) An authorized institution shall comply with the requirements of a notice given to it under subsection (1). (4) Where— (a) an authorized institution uses the IRB approach to calculate its credit risk for non-securitization exposures; and (b) the Monetary Authority is satisfied that, if the institution were to make a fresh application under section 8(1) for approval to use the IRB approach to calculate its credit risk for non-securitization exposures, the approval would be refused by virtue of section 8(3) (but, insofar as Schedule 2 is concerned, only section 1 of that Schedule shall be taken into account), the Monetary Authority may take one or more of the measures set out in subsection (5). (5) The measures referred to in subsection (4) are that— (a) the Monetary Authority may, by notice in writing given to the institution, require the institution to use the STC approach to calculate its credit risk for non-securitization exposures instead of the IRB approach in respect of all of its non-securitization exposures, or such parts of its non-securitization exposures as specified in the notice, beginning on such date, or the occurrence of such event, as specified in the notice; (b) the Monetary Authority may, by notice in writing given to the institution, require the institution to— (i) submit to the Monetary Authority a plan, within such period (being a period which is reasonable in all the circumstances of the case) as specified in the notice, which satisfies the Monetary Authority that, if it were implemented by the institution, the institution would cease to fall within subsection (4)(b) within a period which is reasonable in all the circumstances of the case; and (ii) implement the plan; (c) the Monetary Authority may, by notice in writing given to the institution, advise the institution that the Monetary Authority is considering exercising the Monetary Authority's power under section 101 of the Ordinance to vary the capital adequacy ratio of the institution by increasing it; (d) the Monetary Authority may, by notice in writing given to the institution, require the institution to be subject to a capital floor (within the meaning of section 139(1)) for such period, or until the occurrence of such event, as specified in the notice (for which purpose section 226 applies to the calculation of the capital floor and the Monetary Authority may specify in the notice an adjustment factor for the calculation); and (e) the Monetary Authority may, by notice in writing given to the institution, require the institution to reduce its credit exposures in such manner, or adopt such measures, as specified in the notice which, in the opinion of the Monetary Authority, will cause the institution to cease to fall within subsection (4)(b) within a period which is reasonable in all the circumstances of the case, or will otherwise mitigate the effect of the institution falling within that subsection. (6) An authorized institution shall comply with the requirements of a notice given to it under subsection (5)(a), (b), (d) or (e). (7) For the avoidance of doubt, it is hereby declared that— (a) the requirements specified in Schedule 2 are also applicable to and in relation to an authorized institution using the IRB approach to calculate its credit risk in respect of the use by the institution of a rating system to which a significant change referred to in section 8(4)(b) relates (whether or not the institution has, in respect of that change, been given the prior consent referred to in section 8(4)(b)), and subsection (4)(b) and the other provisions of this section apply to the institution accordingly; and (b) subsection (5)(c) does not operate to prejudice the generality of the circumstances in respect of which the Monetary Authority may exercise the power under section 101 of the Ordinance in the case of an authorized institution to which that subsection applies. BANKING (CAPITAL) RULES - SECT 11 Minimum IRB coverage ratio VerDate:01/01/2007 Division 3—Specific requirements relating to use of IRB approach (1) Subject to section 12, an authorized institution which uses the IRB approach to calculate its credit risk for non-securitization exposures shall have— (a) subject to paragraph (b), an IRB coverage ratio of not less than 85%, or not less than such other percentage as agreed in writing between the institution and the Monetary Authority, on a solo basis, solo-consolidated basis or consolidated basis as required pursuant to Division 7; (b) subject to subsection (2), if section 14(4) is applicable to the institution, an IRB coverage ratio of not less than 75%, or not less than such other percentage as agreed in writing between the institution and the Monetary Authority, on a solo basis, solo-consolidated basis or consolidated basis as required pursuant to Division 7; (2) Where section 14(4) ceases to apply to an authorized institution, subsection (1)(a) applies to the institution. (3) Subject to section 12, where an authorized institution uses the IRB approach to calculate its credit risk for an IRB class or an IRB subclass of retail exposures, the institution shall use the IRB approach to calculate its credit risk for all exposures which fall within that class or subclass, as the case may be. (4) Where— (a) an authorized institution uses the IRB approach to calculate its credit risk for non-securitization exposures; and (b) an event (referred to in this subsection as "relevant event"), which could reasonably be construed as causing, or potentially causing, whether by itself or in conjunction with any other event, a failure by the institution to comply with subsection (1), occurs, the institution shall, as soon as is practicable after the relevant event occurs, give notice in writing to the Monetary Authority of the relevant event. BANKING (CAPITAL) RULES - SECT 12 Exemption for exposures VerDate:01/01/2007 (1) An authorized institution which uses the IRB approach to calculate its credit risk for non-securitization exposures (referred to in this section as "relevant calculation") may apply to the Monetary Authority to have such of its non-securitization exposures as specified in the application exempted from inclusion in the relevant calculation. (2) Subject to subsection (4), the Monetary Authority shall determine an application under subsection (1) from an authorized institution by— (a) exempting from inclusion in the relevant calculation— (i) the exposures in an IRB class (or, in the case of retail exposures, an IRB subclass) which are specified in the application; or (ii) the exposures falling within a business unit which are specified in the application, if the institution demonstrates to the satisfaction of the Monetary Authority that— (iii) it is not practicable for the institution to include the exposures referred to in subparagraph (i) or (ii), as the case may be, in the relevant calculation; and (iv) the exemption will not materially prejudice the calculation of the institution's regulatory capital for credit risk; or (b) refusing to grant the exemption. (3) An authorized institution to which an exemption under subsection (2)(a) is granted— (a) subject to paragraph (b), shall use the STC approach to calculate its credit risk for non-securitization exposures to which the exemption relates; or (b) may use, during the transitional period, the BSC approach to calculate its credit risk for non-securitization exposures to which the exemption relates if the institution has been granted approval under section 6(2)(a) to use the BSC approach to calculate its credit risk for non-securitization exposures on the ground specified in section 7(b). (4) The Monetary Authority shall not grant an exemption under subsection (2)(a) to an authorized institution unless the institution demonstrates to the satisfaction of the Monetary Authority that, if the exemption were granted— (a) the aggregate risk-weighted amount of— (i) the non-securitization exposures to which the exemption would relate; and (ii) the securitization exposures which would be subject to the STC(S) approach in consequence of the exemption, would not cause the institution to fail to comply with the IRB coverage ratio applicable to the institution under section 11(1); (b) if subsection (2)(a)(i) is applicable— (i) in the case of non-securitization exposures which are not equity exposures, the aggregate risk-weighted amount of the institution's exposures in an IRB class (or, in the case of retail exposures, an IRB subclass) to which the exemption would relate would not exceed 10% of the institution's risk-weighted amount for credit risk; (ii) in the case of non-securitization exposures which are equity exposures— (A) subject to sub-subparagraph (B), the average aggregate EAD over the past 12 months (being the 12 months immediately preceding the date on which the institution applies to the Monetary Authority for the exemption) of the institution's equity exposures to which the exemption would relate would not exceed 10% of the institution's capital base as determined in accordance with Part 3; (B) if the institution's equity exposures consist of less than 10 individual holdings, the average aggregate EAD over the past 12 months (being the 12 months immediately preceding the date on which the institution applies to the Monetary Authority for the exemption) of the institution's equity exposures to which the exemption would relate would not exceed 5% of the institution's capital base as determined in accordance with Part 3. (5) Where— (a) an authorized institution is granted an exemption (referred to in this subsection as "existing exemption") under subsection (2)(a); and (b) the institution is at any time thereafter satisfied that if it were to make a fresh application under subsection (1) for an exemption (referred to in this subsection as "new exemption") in respect of the exposures to which the existing exemption relates, the new exemption would be, or may be, refused by virtue of subsection (2) or (4), the institution shall, as soon as is practicable after it is so satisfied, give notice in writing to the Monetary Authority of the case. BANKING (CAPITAL) RULES - SECT 13 Revocation of exemption under section 12 VerDate:01/01/2007 (1) Where— (a) an authorized institution uses the STC approach or BSC approach to calculate its credit risk for certain non-securitization exposures to which an exemption under section 12(2)(a) relates; and (b) the Monetary Authority is satisfied that, if the institution were to make a fresh application under section 12(1) for an exemption in respect of those non-securitization exposures, the exemption would be refused by virtue of section 12(2) or (4), the Monetary Authority may take one or more of the measures set out in subsection (2). (2) The measures referred to in subsection (1) are that— (a) if the fresh application referred to in subsection (1)(b) would be refused by virtue of section 12(2), the Monetary Authority may, by notice in writing given to the institution, require the institution to— (i) submit to the Monetary Authority a plan, within such period (being a period which is reasonable in all the circumstances of the case) as specified in the notice, which satisfies the Monetary Authority that, if it were implemented by the institution, the institution would be able to use the IRB approach to calculate its credit risk for those non-securitization exposures within a period which is reasonable in all the circumstances of the case; and (ii) implement the plan; (b) if the fresh application referred to in subsection (1)(b) would be refused by virtue of section 12(4), the Monetary Authority may, by notice in writing given to the institution, require the institution to— (i) submit to the Monetary Authority a plan, within such period (being a period which is reasonable in all the circumstances of the case) as specified in the notice, which satisfies the Monetary Authority that, if it were implemented by the institution within a period which is reasonable in all the circumstances of the case, the fresh application would then not be refused; and (ii) implement the plan; and (c) the Monetary Authority may, by notice in writing given to the institution, revoke the exemption on such date, or the occurrence of such event, as specified in the notice. (3) An authorized institution shall comply with the requirements of a notice given to it under subsection (2)(a) or (b). (4) For the avoidance of doubt, it is hereby declared that an authorized institution's compliance with a requirement referred to in subsection (2)(a) or (b) does not prejudice the generality of the Monetary Authority's power under subsection (2)(c). BANKING (CAPITAL) RULES - SECT 14 Transitional arrangements VerDate:01/01/2007 (1) Subject to subsection (2), an authorized institution which uses the IRB approach to calculate its credit risk for non-securitization exposures during the period from 1 January 2007 to 31 December 2011, both days inclusive, may comply with this section instead of Part 6 to the extent that this section is inconsistent with the provisions of that Part. (2) Subject to subsection (3), for the purposes of subsection (1), an authorized institution may, in the case of an IRB class specified in column 1 of Table 1, replace the minimum data requirement specified in column 2 of that Table opposite that class with the transitional data requirement specified in column 3 of that Table opposite that minimum data requirement. TABLE 1 TRANSITIONAL DATA REQUIREMENTS IRB class Minimum data requirement Transitional data requirement Observation period for the PD under— (a) the foundation IRB approach of corporate, sovereign and bank exposures; and (b) the PD/LGD approach of equity exposures Not less than 5 years as set out in section 159(1)(d )(ii) for corporate, sovereign and bank exposures and as set out in section 194(1) for equity exposures 2 years during the transitional period; 3 years for 2010; 4 years for 2011 Observation period for the PD, LGD and EAD of retail exposures Not less than 5 years as set out in section 177(1)(e)(ii) for PD, as set out in section 178(1)(g)(ii) for LGD and as set out in section 180(3)(b)(ii) for EAD 2 years during the transitional period; 3 years for 2010; 4 years for 2011 (3) An authorized institution which applies subsection (2) shall demonstrate to the satisfaction of the Monetary Authority that— (a) the institution is prudent in assigning exposures to obligor grades, facility grades, or pools of exposures, as the case requires; (b) the institution is prudent in its default and loss estimates; and (c) the rating system used by the institution fully enables it to comply with paragraphs (a) and (b). (4) Subject to subsection (5), an authorized institution may, with the prior consent of the Monetary Authority, during the transitional period use the IRB approach to calculate its credit risk for non-securitization exposures in phases (referred to in this section as "phased rollout"). (5) The Monetary Authority shall not consent to a phased rollout by an authorized institution unless the institution demonstrates to the satisfaction of the Monetary Authority that the institution has, and will implement, a plan for the phased rollout— (a) which is realistically achievable having regard to the nature of the institution's business; and (b) which has been developed in good faith for the purposes of introducing a method of calculating the institution's regulatory capital and not for the purposes of regulatory capital arbitrage. BANKING (CAPITAL) RULES - SECT 15 Authorized institution shall only use STC(S) approach or IRB(S) approach to calculate its credit risk for securitization exposures VerDate:01/01/2007 Division 4—Prescribed approaches to calculation of credit risk for securitization exposures (1) Subject to subsections (2) and (3) and section 16, where— (a) an authorized institution holds a securitization exposure in a securitization transaction; and (b) the underlying exposures in the securitization transaction are of a class which would fall within section 54, 108 or 142 (referred to in this section as "relevant class") if the institution were to classify those underlying exposures as if they were not securitized, the institution shall— (c) use the STC(S) approach to calculate its credit risk for the securitization exposure if it would use the STC approach or BSC approach to calculate its credit risk for the relevant class; (d) use the IRB(S) approach to calculate its credit risk for the securitization exposure if it would use the IRB approach to calculate its credit risk for the relevant class. (2) Where— (a) an authorized institution holds a securitization exposure in a securitization transaction; (b) the underlying exposures in the securitization transaction are of 2 or more relevant classes; and (c) the institution would use any combination of the STC approach, BSC approach and IRB approach to calculate its credit risk for the relevant classes, the institution shall, subject to subsection (4), after consultation with the Monetary Authority and unless otherwise directed by the Monetary Authority— (d) use the STC(S) approach to calculate its credit risk for the securitization exposure if— (i) the STC approach or BSC approach would be used to calculate its credit risk for the majority of the underlying exposures if they were classified into the relevant classes; or (ii) no single approach would be used to calculate its credit risk for the majority of the underlying exposures if they were classified into the relevant classes; (e) use the IRB(S) approach to calculate its credit risk for the securitization exposure if the IRB approach would be used to calculate its credit risk for the majority of the underlying exposures if they were classified into the relevant classes. (3) Where an authorized institution which holds a securitization exposure in a securitization transaction uses the IRB approach to calculate its credit risk for non-securitization exposures, and either— (a) the IRB approach has no specific calculation method for the relevant class for the underlying exposures in the securitization transaction; or (b) the institution does not have the approval under section 8(2)(a) to use the IRB approach to calculate its credit risk for the relevant class, the institution shall use the STC(S) approach to calculate its credit risk for the securitization exposure. (4) For the purposes of subsection (2), an authorized institution shall determine the majority of the underlying exposures referred to in that subsection by— (a) calculating an amount for each relevant class by— (i) if the institution would use the STC approach or BSC approach in respect of such a class, aggregating the principal amount of the on-balance sheet underlying exposures and the credit equivalent amount of the off-balance sheet underlying exposures which would be classified within that class pursuant to subsection (1)(b); or (ii) if the institution would use the IRB approach in respect of such a class, aggregating the EAD of the on-balance sheet and off-balance sheet underlying exposures which would be classified within that class pursuant to subsection (1)(b); (b) aggregating the amounts calculated under paragraph (a)(i) and aggregating the amounts calculated under paragraph (a)(ii); and (c) taking, as such majority, the larger of the 2 amounts resulting from the aggregation under paragraph (b). (5) In this section, the following expressions have the respective meanings assigned to them by section 227(1)— (a) credit equivalent amount; and (b) principal amount. BANKING (CAPITAL) RULES - SECT 16 Authorized institution using IRB(S) approach shall use ratings-based method or supervisory formula method to calculate its credit risk for securitization exposures VerDate:01/01/2007 An authorized institution which uses the IRB(S) approach to calculate its credit risk for securitization exposures— (a) shall use the ratings-based method to calculate the risk-weighted amount of its rated securitization exposures; (b) subject to paragraph (c), shall, with the prior consent of the Monetary Authority, use the supervisory formula method to calculate the capital charge factor for its unrated securitization exposures; (c) subject to paragraph (d), shall deduct from its core capital and supplementary capital any unrated securitization exposures in respect of which the supervisory formula method cannot be used because the institution lacks the consent referred to in paragraph (b); (d) may, with the prior consent of the Monetary Authority, apply the method specified in section 277(3) to calculate the risk-weighted amount of— (i) liquidity facilities provided by the institution which fall within section 252(1) and are unrated; and (ii) servicer cash advance facilities provided by the institution which fall within section 252(2), are unrated and satisfy the requirements set out in section 252(1) as if the facilities were liquidity facilities provided by the institution. BANKING (CAPITAL) RULES - SECT 17 Authorized institution shall only use STM approach, IMM approach or approach used by parent bank to calculate its market risk VerDate:01/01/2007 Division 5—Prescribed approaches to calculation of market risk (1) An authorized institution (other than an authorized institution exempted under section 22(1))— (a) subject to paragraphs (b) and (c), shall use the STM approach to calculate its market risk; (b) subject to section 18(5), may use the IMM approach to calculate its market risk only if it has the approval to do so under section 18(2)(a); (c) may use the approach used by the parent bank of the institution to calculate its market risk only if it has the approval to do so under section 20(2)(a). (2) Subsection (1) does not prevent an authorized institution from using any combination of the STM approach, the IMM approach and the approach used by its parent bank to calculate its market risk if that combination is expressly permitted by, and in accordance with, another section of these Rules. BANKING (CAPITAL) RULES - SECT 18 Authorized institution may apply for approval to use IMM approach to calculate its market risk VerDate:01/01/2007 (1) An authorized institution may apply to the Monetary Authority for approval to use the IMM approach to calculate its market risk. (2) Subject to subsections (3) and (5), the Monetary Authority shall determine an application under subsection (1) from an authorized institution by— (a) granting approval to the institution to use the IMM approach to calculate its market risk; or (b) refusing to grant the approval. (3) Without prejudice to the generality of subsection (2)(b), the Monetary Authority shall refuse to grant approval to an authorized institution to use the IMM approach to calculate its market risk if any one or more of the requirements specified in Schedule 3 applicable to or in relation to the institution are not satisfied with respect to the institution. (4) Where an authorized institution uses the IMM approach to calculate its market risk, the institution shall not, without the prior consent of the Monetary Authority, make any significant change to any internal model which is the subject of the approval granted to the institution under subsection (2)(a). (5) The Monetary Authority may grant an approval under subsection (2)(a) to an authorized institution to use the IMM approach to calculate its market risk in respect of general market risk or specific risk, or both, for such risk categories, or such local or overseas business of the institution, as specified in the approval, beginning on such date, or the occurrence of such event, as specified in the approval. (6) Subject to section 19(2)(a), where an authorized institution is granted an approval under subsection (2)(a) and uses the IMM approach to calculate its market risk in respect of general market risk or specific risk, or both, for its positions in all or any risk categories or business, it shall not, in respect of those positions, use the STM approach to calculate its market risk except with the prior consent of the Monetary Authority. (7) For the avoidance of doubt, it is hereby declared that an authorized institution which has an approval under subsection (5) shall use the STM approach to calculate its market risk for the risk categories or business which are or is not the subject of the approval. BANKING (CAPITAL) RULES - SECT 19 Measures which may be taken by Monetary Authority if authorized institution using IMM approach no longer satisfies specified requirements VerDate:01/01/2007 (1) Where— (a) an authorized institution uses the IMM approach to calculate its market risk; and (b) the Monetary Authority is satisfied that, if the institution were to make a fresh application under section 18(1) for approval to use the IMM approach to calculate its market risk, the approval would be refused by virtue of section 18(3), the Monetary Authority may take one or more of the measures set out in subsection (2). (2) The measures referred to in subsection (1) are that— (a) the Monetary Authority may, by notice in writing given to the institution, require the institution to use the STM approach instead of the IMM approach to calculate its market risk in respect of general market risk or specific risk, or both, for its positions in all risk categories or all of its business, or such risk categories or such part of its business as specified in the notice, beginning on such date, or the occurrence of such event, as specified in the notice; (b) the Monetary Authority may, by notice in writing given to the institution, require the institution to— (i) submit to the Monetary Authority a plan, within such period (being a period which is reasonable in all the circumstances of the case) as specified in the notice, which satisfies the Monetary Authority that, if it were implemented by the institution, the institution would cease to fall within subsection (1)(b) within a period which is reasonable in all the circumstances of the case; and (ii) implement the plan; (c) the Monetary Authority may, by notice in writing given to the institution, advise the institution that the Monetary Authority is considering exercising the Monetary Authority's power under section 101 of the Ordinance to vary the capital adequacy ratio of the institution by increasing it; (d) the Monetary Authority may, by notice in writing given to the institution, require the institution to calculate its market risk capital charge by the use of such higher multiplication factor as specified in the notice in accordance with section 319(3); and (e) the Monetary Authority may, by notice in writing given to the institution, require the institution to reduce its market risk exposures in such manner, or to adopt such measures, specified in the notice which, in the opinion of the Monetary Authority, will cause the institution to cease to fall within subsection (1)(b) within a period which is reasonable in all the circumstances of the case, or will otherwise mitigate the effect of the institution falling within that subsection. (3) An authorized institution shall comply with the requirements of a notice given to it under subsection (2)(a), (b), (d) or (e). (4) For the avoidance of doubt, it is hereby declared that— (a) the requirements specified in Schedule 3 are also applicable to and in relation to an authorized institution using the IMM approach to calculate its market risk in respect of the use by the institution of an internal model to which a significant change referred to in section 18(4) relates (whether or not the institution has, in respect of that change, been given the prior consent referred to in section 18(4)), and subsection (1)(b) and the other provisions of this section apply to the institution accordingly; and (b) subsection (2)(c) does not operate to prejudice the generality of the circumstances in respect of which the Monetary Authority may exercise the power under section 101 of the Ordinance in the case of an authorized institution to which that subsection applies. BANKING (CAPITAL) RULES - SECT 20 Authorized institution may apply for approval to use approach used by parent bank to calculate its market risk VerDate:01/01/2007 (1) An authorized institution may apply to the Monetary Authority for approval to use the approach used by its parent bank to calculate its market risk. (2) Subject to subsection (3), the Monetary Authority shall determine an application under subsection (1) from an authorized institution by— (a) granting approval to the institution to use the approach used by its parent bank to calculate its market risk; or (b) refusing to grant the approval. (3) Without prejudice to the generality of subsection (2)(b), the Monetary Authority shall refuse to grant approval to an authorized institution to use the approach used by its parent bank to calculate its market risk unless— (a) the institution demonstrates to the satisfaction of the Monetary Authority that use of that approach will not materially prejudice the calculation of the institution's regulatory capital for market risk; and (b) in the opinion of the Monetary Authority, the parent bank is adequately supervised by the relevant banking supervisory authority in respect of the calculation of market risk. BANKING (CAPITAL) RULES - SECT 21 Measures which may be taken by Monetary Authority if authorized institution using approach used by parent bank no longer satisfies specified requirements VerDate:01/01/2007 (1) Where— (a) an authorized institution uses the approach used by its parent bank to calculate its market risk; and (b) the Monetary Authority is satisfied that, if the institution were to make a fresh application under section 20(1) for approval to use that approach to calculate its market risk, the approval would be refused— (i) by virtue of section 20(3); or (ii) because the entity which was the parent bank of the institution has ceased to be the parent bank of the institution, the Monetary Authority may, by notice in writing given to the institution, revoke the approval concerned under section 20(2)(a) beginning on such date, or the occurrence of such event, as specified in the notice. (2) Immediately upon the revocation under subsection (1) of an approval under section 20(2)(a) granted to an authorized institution, section 17(1)(a) and (b) applies to the institution. BANKING (CAPITAL) RULES - SECT 22 Exemption from section 17 VerDate:01/01/2007 (1) The Monetary Authority may, by notice in writing given to an authorized institution (other than an authorized institution which uses the IRB approach to calculate its credit risk), exempt the institution from section 17 if the institution demonstrates to the satisfaction of the Monetary Authority that— (a) the institution's market risk positions— (i) never exceed 5% of its total on-balance sheet and off-balance sheet exposures; or (ii) only sporadically exceed 5%, and never exceed 6%, of its total on-balance sheet and off-balance sheet exposures; and (b) the institution's market risk positions— (i) never exceed $50 million; or (ii) only sporadically exceed $50 million and never exceed $60 million. (2) For the purposes of subsection (1)— (a) the amount of an authorized institution's market risk positions is calculated by aggregating— (i) the institution's total gross (long plus short) positions in debt securities and debt-related derivative contracts; (ii) the arithmetic mean of the institution's total long and total short positions in interest rate derivative contracts; (iii) the institution's total gross (long plus short) positions in equities and equity-related derivative contracts; (iv) the institution's total net open position in foreign exchange exposures as derived in section 296; and (v) the institution's total gross (long plus short) positions in commodities and commodity-related derivative contracts; and (b) an authorized institution's total on-balance sheet and off-balance sheet exposures are derived by— (i) aggregating the institution's total liabilities, total assets less specific and collective provisions, and the principal amount (within the meaning of section 51) of all of the institution's off-balance sheet exposures; and (ii) deducting therefrom the institution's paid-up capital, reserves (including current year's profit or loss) and perpetual or term subordinated debt. (3) The date on which an authorized institution's market risk positions are assessed for the purposes of subsection (1) shall be— (a) subject to paragraph (b), the calendar quarter end date of each of the 4 consecutive calendar quarters of the same calendar year; or (b) the calendar quarter end date of such consecutive calendar quarters, being not more than 4 consecutive calendar quarters, as the Monetary Authority specifies in writing given to the institution. (4) Where an authorized institution is exempted under this section from section 17, the institution— (a) shall not, except with the prior consent of the Monetary Authority, include market risk in the calculation of its capital adequacy ratio; (b) shall give notice in writing to the Monetary Authority of— (i) an increase in its market risk positions which causes, or could reasonably be construed as potentially causing, whether by itself or in conjunction with any other event, the institution to cease to fall within subsection (1)(a) or (b); or (ii) an intention to increase its market risk positions which will cause, or could reasonably be construed as potentially causing, whether by itself or in conjunction with any other event, the institution to cease to fall within subsection (1)(a) or (b); (c) shall apply Part 4, 5 or 7, as the case requires, to calculate the credit risk for the institution's market risk positions except for its total net open position in foreign exchange exposures as derived in section 296. (5) In this section, the following expressions have the respective meanings assigned to them by section 281— (a) debt security; and (b) equity. BANKING (CAPITAL) RULES - SECT 23 Revocation of exemption under section 22 VerDate:01/01/2007 (1) Where— (a) an authorized institution is exempted under section 22(1) from section 17; and (b) the Monetary Authority is satisfied that, if the institution were not already so exempted, the exemption would be refused by virtue of the institution failing to satisfy the Monetary Authority as specified in section 22(1), the Monetary Authority may, by notice in writing given to the institution, revoke the exemption granted under section 22(1), beginning on such date, or the occurrence of such event, as specified in the notice. (2) Section 17 applies to an authorized institution immediately upon the revocation under this section of an exemption under section 22(1). BANKING (CAPITAL) RULES - SECT 24 Authorized institution shall only use BIA approach, STO approach or ASA approach to calculate its operational risk VerDate:01/01/2007 Division 6—Prescribed approaches to calculation of operational risk (1) An authorized institution— (a) subject to paragraphs (b) and (c), shall use the BIA approach to calculate its operational risk; (b) subject to section 26, may use the STO approach to calculate its operational risk only if it has the approval to do so under section 25(2)(a); (c) subject to section 26, may use the ASA approach to calculate its operational risk only if it has the approval to do so under section 25(2)(a). (2) Subsection (1) does not prevent an authorized institution from using any combination of the BIA approach, STO approach and ASA approach to calculate its operational risk if that combination is expressly permitted by, and in accordance with, another section of these Rules. BANKING (CAPITAL) RULES - SECT 25 Authorized institution may apply for approval to use STO approach or ASA approach to calculate its operational risk VerDate:01/01/2007 (1) An authorized institution may apply to the Monetary Authority for approval to use the STO approach or ASA approach to calculate its operational risk. (2) Subject to subsections (3) and (4), the Monetary Authority shall determine an application under subsection (1) from an authorized institution by— (a) granting approval to the institution to use the STO approach or ASA approach to calculate its operational risk; or (b) refusing to grant the approval. (3) Without prejudice to the generality of subsection (2)(b), the Monetary Authority shall refuse to grant approval to an authorized institution to use the STO approach or ASA approach to calculate its operational risk if any one or more of the requirements specified in Schedule 4 applicable to or in relation to the institution are not satisfied with respect to the institution. (4) The Monetary Authority shall not grant approval to an authorized institution to use the ASA approach to calculate its operational risk unless the institution demonstrates to the satisfaction of the Monetary Authority that the use of the ASA approach would provide a more accurate assessment of the degree of operational risk to which the institution is exposed than would the use of the STO approach. BANKING (CAPITAL) RULES - SECT 26 Measures which may be taken by Monetary Authority if authorized institution using STO approach or ASA approach no longer satisfies specified requirements VerDate:01/01/2007 (1) Where— (a) an authorized institution uses the STO approach or ASA approach to calculate its operational risk; and (b) the Monetary Authority is satisfied that, if the institution were to make a fresh application under section 25(1) for approval to use the STO approach or ASA approach to calculate its operational risk, the approval would be refused by virtue of section 25(3), the Monetary Authority may, by notice in writing given to the institution, require the institution to use the BIA approach to calculate its operational risk instead of the STO approach or ASA approach, as the case may be. (2) A notice given to an authorized institution under subsection (1) may require the institution to use the BIA approach to calculate its operational risk in respect of all of its business, or such parts of its business as specified in the notice, during the period beginning on such date, or the occurrence of such event, as specified in the notice and ending on such date, or the occurrence of such event, as specified in the notice. (3) An authorized institution shall comply with the requirements of a notice given to it under subsection (1). BANKING (CAPITAL) RULES - SECT 27 Authorized institution shall calculate its capital adequacy ratio on solo basis, solo-consolidated basis or consolidated basis VerDate:01/01/2007 Division 7—Calculation of capital adequacy ratio: solo basis, solo-consolidated basis and consolidated basis (1) An authorized institution shall— (a) calculate its capital adequacy ratio on a solo basis or, if it has the approval to do so under section 28(2)(a), calculate its capital adequacy ratio on a solo-consolidated basis; and (b) subject to section 33, calculate its capital adequacy ratio on a consolidated basis. (2) Subject to section 33, the Monetary Authority may, in a section 98(2) requirement, require an authorized institution to calculate its capital adequacy ratio on a consolidated basis in respect of a subsidiary of the institution (other than a subsidiary which is an insurance firm or securities firm) where— (a) more than 50% of the total assets or total income of the subsidiary relate to or arise from the carrying out of one or more than one relevant financial activity; or (b) the Monetary Authority is satisfied that, after taking into account the nature of the business undertaken by the subsidiary, the institution should calculate its capital adequacy ratio on a consolidated basis in respect of that subsidiary if a relevant risk of the institution is to be adequately identified and assessed. (3) In subsection (2)— "relevant financial activity" (有關財務活動), in relation to a subsidiary of an authorized institution, means— (a) an activity which is ancillary to a principal activity of the institution, including— (i) owning and managing the institution's property; and (ii) performing information technology functions for the institution; (b) lending, including— (i) the provision of consumer or mortgage credit; (ii) factoring; (iii) forfaiting; and (iv) the provision of guarantees and other financial commitments; (c) financial leasing; (d) money transmission services; (e) issuing and administering a means of payment, including— (i) credit cards; (ii) travellers' cheques; and (iii) bank drafts; (f) trading for the subsidiary's own account, or for accounts of the subsidiary's customers, in— (i) money market instruments; (ii) foreign exchange; (iii) financial instruments which are traded on an exchange; (iv) OTC derivative transactions; or (v) transferable securities; (g) participating in securities issues, including the provision of services relating to the issues; (h) the provision of— (i) advice to undertakings on capital structure or industrial strategy, including any matter relating to capital structure or industrial strategy; or (ii) advice and services relating to mergers and the purchase of undertakings; (i) money broking; or (j) portfolio management and the provision of advice in relation to portfolio management. (4) An authorized institution which calculates its capital adequacy ratio on a consolidated basis shall give notice in writing to the Monetary Authority of any of the following matters as soon as is practicable after the institution is aware of the matter or ought to be aware of the matter— (a) a member of the institution's consolidation group ceasing to be a subsidiary of the institution; (b) a subsidiary of the institution becoming a member of its consolidation group; (c) the principal activities of a subsidiary referred to in paragraph (b); (d) any significant change to the principal activities of the institution or any of its subsidiaries (including a subsidiary referred to in paragraph (b)). "relevant financial activity" (有關財務活動) BANKING (CAPITAL) RULES - SECT 28 Authorized institution may apply for approval to calculate its capital adequacy ratio on solo-consolidated basis VerDate:01/01/2007 (1) An authorized institution may apply to the Monetary Authority for approval to calculate its capital adequacy ratio on a solo-consolidated basis instead of a solo basis in respect of such of its subsidiaries which are members of its consolidation group as specified in the application. (2) Subject to subsection (3), the Monetary Authority shall determine an application under subsection (1) from an authorized institution by— (a) granting approval to the institution to calculate its capital adequacy ratio on a solo-consolidated basis instead of a solo basis in respect of such subsidiaries of the institution as specified in the approval, and giving the institution a section 98(2) requirement to give effect to the approval; or (b) refusing to grant the approval. (3) Without prejudice to the generality of subsection (2)(b), the Monetary Authority shall refuse to grant approval to an authorized institution to calculate its capital adequacy ratio on a solo-consolidated basis instead of a solo basis in respect of a subsidiary of the institution unless the institution demonstrates to the satisfaction of the Monetary Authority that— (a) the subsidiary is wholly owned by, and managed as if it were an integral part of, the institution; (b) the subsidiary is wholly financed by the institution such that the subsidiary has no depositors or other external creditors except external creditors for— (i) audit fees; (ii) company secretarial services; and (iii) sundry operating expenses; and (c) there are no regulatory, legal or taxation constraints on the transfer of the subsidiary's capital to the institution. (4) Where— (a) an authorized institution has been granted an approval under subsection (2)(a); and (b) an event (referred to in this subsection as "relevant event") which could reasonably be construed as causing, or potentially causing, whether by itself or in conjunction with any other event, a subsidiary of the institution to fall outside subsection (3)(a), (b) or (c), occurs, the institution shall, as soon as is practicable after the relevant event occurs, give notice in writing to the Monetary Authority of the relevant event. BANKING (CAPITAL) RULES - SECT 29 Solo basis for calculation of capital adequacy ratio VerDate:01/01/2007 (1) An authorized institution shall in calculating its capital adequacy ratio on a solo basis— (a) aggregate the institution's (including the institution's local branches' and overseas branches') risk-weighted amounts for— (i) credit risk; (ii) market risk; and (iii) operational risk; (b) deduct from the aggregate amount derived under paragraph (a)— (i) that portion, as determined on a solo basis, of the total regulatory reserve for general banking risks and collective provisions of the institution apportioned to the STC approach or BSC approach, or both, and to the STC(S) approach, which is not included in the supplementary capital of the institution; and (ii) that amount, if any, as determined on a solo basis, by which the net book value of the institution's reserves attributable to fair value gains arising from the revaluation of the institution's holdings of land and buildings referred to in section 42(1)(a)(i) is in excess of the net book value of those reserves as at the end of December 1998 or the relevant date (within the meaning of section 43(8)); and (c) determine the institution's capital base, in accordance with Part 3, to reflect the fact that it is calculating its capital adequacy ratio on a solo basis. (2) For the avoidance of doubt, it is hereby declared that— (a) for the purposes of this section, an authorized institution shall risk-weight the exposures of an overseas branch of the institution in accordance with these Rules; and (b) for the purposes of subsection (1)(b)(ii), if an authorized institution has approval under section 43(4)(b) to include the fair value gains on revaluation of land and buildings referred to in section 42(1)(a)(i) arising from a merger or acquisition, the net book value of reserves as at the end of December 1998 or the relevant date (within the meaning of section 43(8)) shall be deemed to include the fair value gains approved under section 43(4)(b). BANKING (CAPITAL) RULES - SECT 30 Solo-consolidated basis for calculation of capital adequacy ratio VerDate:01/01/2007 (1) Subject to subsection (2), an authorized institution shall in calculating its capital adequacy ratio on a solo-consolidated basis— (a) aggregate the institution's (including the institution's local branches' and overseas branches') and its solo-consolidated subsidiaries' risk-weighted amounts for— (i) credit risk; (ii) market risk; and (iii) operational risk; (b) deduct from the aggregate amount derived under paragraph (a)— (i) that portion, as determined on a solo-consolidated basis, of the total regulatory reserve for general banking risks and collective provisions of the institution and its solo-consolidated subsidiaries apportioned to the STC approach or BSC approach, or both, and to the STC(S) approach, which is not included in the supplementary capital of the institution and its solo-consolidated subsidiaries; and (ii) that amount, if any, as determined on a solo-consolidated basis, by which the net book value of the institution's and its solo-consolidated subsidiaries' reserves attributable to fair value gains arising from the revaluation of the institution's and its solo-consolidated subsidiaries' holdings of land and buildings referred to in section 42(1)(a)(i) is in excess of the net book value of those reserves as at the end of December 1998 or the relevant date (within the meaning of section 43(8)); and (c) determine the capital base of the institution and its solo-consolidated subsidiaries, in accordance with Part 3, to reflect the fact that it is calculating its capital adequacy ratio on a solo-consolidated basis. (2) For the avoidance of doubt, it is hereby declared that, for the purposes of this section, an authorized institution shall risk-weight the exposures of an overseas branch of the institution in accordance with these Rules. (3) An authorized institution which calculates its capital adequacy ratio on a solo-consolidated basis shall ensure that, in calculating that ratio, the risk-weighting of a relevant risk does not include inter-company balances with, and transactions between, the institution and its solo-consolidated subsidiaries. (4) For the purposes of subsection (1)(b)(ii), if an authorized institution has approval under section 43(4)(b) to include the fair value gains on revaluation of land and buildings referred to in section 42(1)(a)(i) arising from a merger or acquisition, the net book value of reserves as at the end of December 1998 or the relevant date (within the meaning of section 43(8)) shall be deemed to include the fair value gains approved under section 43(4)(b). BANKING (CAPITAL) RULES - SECT 31 Consolidated basis for calculation of capital adequacy ratio VerDate:01/01/2007 (1) An authorized institution shall in calculating its capital adequacy ratio on a consolidated basis— (a) aggregate the institution's consolidation group's (including the institution's local branches' and oversea branches') risk-weighted amounts for— (i) credit risk; (ii) market risk; and (iii) operational risk; (b) deduct from the aggregate amount derived under paragraph (a)— (i) that portion, as determined on a consolidated basis, of the total regulatory reserve for general banking risks and collective provisions of the institution's consolidation group apportioned to the STC approach or BSC approach, or both, and to the STC(S) approach, which is not included in the supplementary capital of the institution's consolidation group; and (ii) that amount, if any, as determined on a consolidated basis, by which the net book value of the institution's consolidation group's reserves attributable to fair value gains arising from the revaluation of the institution's consolidation group's holdings of land and buildings referred to in section 42(1)(a)(i) is in excess of the net book value of those reserves as at the end of December 1998 or the relevant date (within the meaning of section 43(8)); and (c) determine the institution's consolidation group's capital base, in accordance with Part 3, to reflect the fact that it is calculating its capital adequacy ratio on a consolidated basis. (2) It is hereby declared that, under the consolidated basis for the calculation of the capital adequacy ratio of an authorized institution, the institution shall ensure that— (a) the risk-weighting of a relevant risk does not include the exposures of a subsidiary of the institution which is not a member of its consolidation group; and (b) the risk-weighting of a relevant risk does not include inter-company balances with, and transactions between, members of its consolidation group. (3) An authorized institution which calculates its capital adequacy ratio on a consolidated basis may, insofar as its market risk is concerned, offset market risk positions between members of its consolidation group if those market risk positions are monitored and managed on a group basis. (4) For the avoidance of doubt, it is hereby declared that— (a) for the purposes of this section, an authorized institution shall risk-weight the exposures of an overseas branch of the institution in accordance with these Rules; and (b) for the purposes of subsection (1)(b)(ii), if an authorized institution has approval under section 43(4)(b) to include the fair value gains on revaluation of land and buildings referred to in section 42(1)(a)(i) arising from a merger or acquisition, the net book value of reserves as at the end of December 1998 or the relevant date (within the meaning of section 43(8)) shall be deemed to include the