Hong Kong Regulations

BANKING (CAPITAL) RULES - SECT 60

Securities firm exposures

(1) Subject to subsection (2), where a securities firm has an ECAI 
issuer rating, or an ECAI issue specific rating assigned to a debt obligation
issued or undertaken by the firm, an authorized institution shall map the
ECAI issuer rating or ECAI issue specific rating, as the case may be, to a
scale of credit quality grades represented by the numerals 1, 2, 3, 4 and 5 in
accordance with Table B in Schedule 6.

(2) Where an ECAI issue specific rating referred to in subsection

(1) is a short-term ECAI issue specific rating as referred to in subsection
(6), then subsections (6) and (7) apply.

(3) Subject to subsections (4), (5), (6), (7), (8) and (9) and section 69, an
authorized institution shall allocate a risk-weight to a securities firm
exposure in accordance with Table 5.

TABLE 5

RISK-WEIGHTS FOR SECURITIES FIRM EXPOSURES

Credit quality grade

(securities firms)

Risk-weight

1 20% 2 50% 3 50% 4 100% 5 150%

(4) Subject to subsections (8) and (9), where an authorized institution has an
exposure to a securities firm which has none of the following—

   (a)  an ECAI issuer rating;

   (b)  a long-term ECAI issue specific rating assigned to a debt obligation
        issued or undertaken by the firm;

   (c)  a short-term ECAI issue specific rating assigned to the exposure,
        subject to subsection (5), the institution shall allocate a
        risk-weight of 50% to the exposure.

(5) Where a securities firm falls within subsection (4)—

   (a)  subject to paragraph (b), an authorized institution shall not allocate
        a risk-weight to an exposure to the firm which is lower than the
        risk-weight applicable to the credit quality grade allocated to the
        sovereign of the jurisdiction in which the firm is incorporated in
        accordance with section 55 on the basis of an ECAI issuer rating
        assigned to the sovereign;

   (b)  if the sovereign referred to in paragraph (a) does not have an ECAI 
        issuer rating, an authorized institution shall allocate a risk-weight
        of 100% to the exposure.

(6) Where a securities firm has a short-term ECAI issue specific rating
assigned to an exposure of an authorized institution to the firm, the
institution shall map that rating to a scale of credit quality grades
represented by the numerals 1, 2, 3 and 4 in accordance with Table E in
Schedule 6.

(7) Subject to section 69, where a securities firm has a short-term ECAI 
issue specific rating assigned to an exposure of an authorized institution to
the firm, the institution shall allocate a risk-weight to the exposure in
accordance with Table 6.

TABLE 6

RISK-WEIGHTS FOR SECURITIES FIRM EXPOSURES WITH SHORT-TERM ECAI ISSUE SPECIFIC
RATINGS

Credit quality grade

(securities firms)
Risk-weight for exposures
to securities firms with a
short-term ECAI issue
specific rating

1 20% 2 50% 3 100% 4 150%

(8) Where—

   (a)  pursuant to subsections (6) and (7), an authorized institution
        allocates a risk-weight of 150% to an exposure to a securities firm;
        or

   (b)  the institution knows that—

        (i)    another person (including another authorized institution) has
               an exposure to the securities firm which has a
               short-term ECAI issue specific  rating; and

        (ii)   if subsections (6) and (7) applied to the exposure referred to
               in subparagraph (i), it would be allocated a risk-weight of
               150% pursuant to those subsections, the institution shall
               allocate a risk-weight of 150% to each other exposure it has to
               the securities firm which does not have an ECAI issue 
               specific rating.

(9) Where—

   (a)  pursuant to subsections (6) and (7), an authorized institution
        allocates a risk-weight of 50% or 100% to an exposure to a securities 
        firm; or

   (b)  the institution knows that—

        (i)    another person (including another authorized institution) has
               an exposure to the securities firm which has a
               short-term ECAI issue specific  rating; and

        (ii)   if subsections (6) and (7) applied to the exposure referred to
               in subparagraph (i), it would be allocated a risk-weight of 50%
               or 100% pursuant to those subsections, the institution shall—

   (c)  subject to paragraph (d), allocate a risk-weight of 100% to each other
        exposure it has to the securities firm which—

        (i)    does not have an ECAI issue specific rating; and

        (ii)   has a residual maturity of not greater than— (A) the original
               maturity of the exposure referred to in paragraph (a); or (B)
               the original maturity of the exposure referred to in paragraph
               (b), whichever is the greater;

   (d)  if the securities firm has an ECAI issuer rating, or an exposure of
        another person (including another authorized institution) to the firm
        has a long-term ECAI issue specific rating, which maps to a
        risk-weight of 150% in accordance with subsections (1) and (3),
        allocate a risk-weight of 150% to an exposure which would otherwise
        fall within paragraph (c).