FINANCIAL RESOURCES RULES - CHAPTER 24J FINANCIAL RESOURCES RULES - LONG TITLE Empowering section (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - LONG TITLE Empowering section VerDate:12/06/2000 (Cap 24, section 28) [Subject to section 38, these Rules } 12 June 2000] (L.N. 103 of 2000) FINANCIAL RESOURCES RULES - SECT 1 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 1 Commencement VerDate:12/06/2000 PART I PRELIMINARY Subject to section 38, these Rules shall come into operation on 12 June 2000. FINANCIAL RESOURCES RULES - SECT 2 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 2 Interpretation VerDate:20/10/2000 In these Rules, unless the context otherwise requires- "adviser" (顧問) means an investment adviser or an investment advisers' partnership registered under the Securities Ordinance (Cap 333) or a commodity trading adviser registered under the Commodities Trading Ordinance (Cap 250); "amount of margin required to be deposited" (規定保證金額) means the sum of money or other forms of security required to be deposited as margin upon opening a position or for maintaining an existing position in a futures contract or an options contract, including all subsequent or maintenance margin deposits required from time to time until the futures or options position is closed out, calculated as the highest amongst- (a) the prevailing amount stipulated by the exchange company operating the relevant market in which the futures or options contract is traded; (b) the prevailing amount stipulated by the clearing house who registers such trade; (c) the prevailing amount stipulated by the agent who executes such trade for the dealer; (d) the prevailing amount stipulated by the counterparty who executes such trade with the dealer; and (e) the prevailing amount stipulated by the dealer; "approved bank formed or established outside Hong Kong" (核准境外成立銀行) means- (a) a bank (other than a merchant bank or an investment bank) incorporated or established by or under the law or other authority of any jurisdiction outside Hong Kong, including its branches and wholly owned banking subsidiaries (but excluding any merchant banking or investment banking subsidiaries), which is approved by the Commission for the purposes of these Rules, whether or not such approval is subject to conditions; or (b) a prescribed bank formed or established outside Hong Kong; "approved redeemable shares" (核准可贖回股份) means shares in the share capital of a corporation which is a dealer or securities margin financier which are redeemable at the option of the holder of the shares or that of the corporation, and which are approved by the Commission for the purposes of these Rules, whether or not such approval is subject to conditions; "approved securities borrowing and lending counterparty" (核准證券借貸對手方) for the purposes of these Rules, means- (a) the Hong Kong Securities Clearing Company Limited; or (b) a person whose activities or objects include the provision of services for the interposition of itself as counterparty to both sides of a securities borrowing and lending arrangement, including administering the security deposited in connection therewith and registration and settlement thereof, who is approved by the Commission for the purpose of exempting the dealer who is engaged in securities borrowing and lending with this person from complying with financial adjustments in relation to such securities borrowing and lending which will otherwise be required by these Rules, whether or not such approval is subject to conditions; "approved stand-by subordinated loan facility" (核准備用後償貸款融通) means a loan facility provided to a dealer or securities margin financier for drawdown, which is approved by the Commission for the purposes of these Rules, whether or not such approval is subject to conditions, and under which the lender's claim in respect of any drawdown by the borrower shall be subordinated to the prior payment, or provision for payment, in full of all claims of all other present and future creditors of the borrower; "approved subordinated loan" (核准後償貸款) means a loan provided to a dealer, a securities margin financier or an adviser which is approved by the Commission for the purposes of these Rules, whether or not such approval is subject to conditions, and under which the lender's claim is subordinated to the prior payment, or provision for payment, in full of all claims of all other present and future creditors of the borrower; (L.N. 284 of 2000) "authorized institution" (認可機構) has the meaning assigned to it by section 2(1) of the Securities Ordinance (Cap 333), and, for the purposes of these Rules- (a) in the case of a licensed bank, includes its branches and wholly-owned banking subsidiaries but excludes any merchant banking or investment banking subsidiaries; and (b) in the case of a restricted licence bank or deposit taking company, is restricted to its Hong Kong office or branch; "business day" (營業日) has the meaning assigned to it by section 2(1) of the Securities Ordinance (Cap 333); "capital account" (資本帳) for the purposes of these Rules, means the amount of capital injected into the business of a sole proprietor or a partnership; "collateral" (抵押品) for the purposes of these Rules, means- (a) securities which are deposited as security by a dealer or securities margin financier with another person and such securities are of a type described in section 15; (b) securities of a type described in section 15 deposited as security by a person with a dealer and such securities are- (i) unencumbered, in the possession or control of the dealer and readily realizable by him; or (ii) in case the dealer is a securities dealer, encumbered only by being lent, deposited or pledged by him in accordance with the requirements of the Securities Ordinance (Cap 333); or (iii) in case the dealer is a futures dealer, encumbered only by being deposited by him with another futures dealer, a futures or options clearing house or its clearing member or clearing participant in the ordinary course of trading in futures or options contracts; (c) securities of a type described in section 15 deposited as security by a person with a securities margin financier and such securities are- (i) unencumbered, in the possession or control of the financier and readily realizable by him; or (ii) encumbered only by being deposited or pledged by him in accordance with the requirements of the Securities Ordinance (Cap 333); "collateralised warrants" (有抵押權證) are derivative warrants listed on the Unified Exchange and where the issuer owns all of the underlying securities or other assets to which the collateralised warrants relate and grants a charge over such securities or assets in favour of an independent trustee which acts for the benefit of the warrantholders; "common clients" (共同客戶) for the purposes of these Rules, means clients of a securities dealer who are also clients of a securities margin financier and whose dealings in securities through that dealer are settled by that securities margin financier on their behalf; "concentration discounting factor" (集中折扣系數) of a security which is received by a dealer or a securities margin financier from margin clients as collateral, means- (a) in case that security is listed shares issued by a corporation which is the issuer of a constituent stock of the Hang Seng Index or any related securities of such stock, the lower of- (i) 1; and (ii) the factor derived by dividing 20% of the total market value of all collateral received from all margin clients by the total market value of that security and all related securities of that security which are so received as collateral; (b) to the extent not already covered in paragraph (a) above, in case that security is listed shares issued by a corporation which is the issuer of a constituent stock of the Hang Seng 100 Index or any related securities of such stock, the lower of- (i) 1; and (ii) the factor derived by dividing 15% of the total market value of all collateral received from all margin clients by the total market value of that security and all related securities of that security which are so received as collateral; (c) to the extent not already covered in paragraph (a) or (b) above, in case that security is listed shares issued by a corporation which is not the issuer of a constituent stock of the Hang Seng 100 Index or any related securities of such shares, the lower of- (i) 1; and (ii) the factor derived by dividing 10% of the total market value of all collateral received from all margin clients by the total market value of that security and all related securities of that security which are so received as collateral; "corporation" (法團) has the meaning assigned to it by section 2(1) of the Securities Ordinance (Cap 333); "dealer" (交易商) means a securities dealer or a futures dealer; "FIBV" (國際證交所聯會) means Federation Internationale Des Bourses De Valeurs; "financial accommodation" (財務通融) has the meaning assigned to it by section 2(1) of the Securities Ordinance (Cap 333); "foreign currency" (外幣) in relation to a dealer or securities margin financier, means any currency other than- (a) the currency used, or intended to be used, by him in his annual accounts; and (b) any currency which has an exchange rate which is linked to the currency referred to in paragraph (a); "foreign exchange agreement" (外匯協議) means an agreement, other than a currency futures contract and a currency options contract, whereby 2 parties agree to exchange different currencies at a future time; "free delivery" (信用交付) means- (a) a delivery of securities which takes place irrespective of whether the seller has received payment; or (b) a payment made in settlement of a liability arising from a sale of securities on behalf of a client, or a purchase of securities from a client or a counterparty, irrespective of whether the securities so sold or purchased have been delivered; "futures dealer" (期貨交易商) means a dealer registered under the Commodities Trading Ordinance (Cap 250); "futures non-clearing dealer" (期貨非結算交易商) means an exchange participant of the Commodity Exchange who is not a clearing participant of the HKFE Clearing Corporation Limited; "futures or options clearing house" (期貨或期權結算所) means a person whose activities or objects include the provision of services for the registration, clearing and settlement of futures or options contracts traded on a futures or options market specified in Schedule 6 or, where applicable, the Unified Exchange or a stock market specified in Part I of Schedule 5 and for the central administration of the margin requirements of such contracts; "group of related margin clients" (一組關連保證金客戶) for the purposes of these Rules, means any two or more margin clients of a dealer or a securities margin financier- (a) of whom one is the spouse of another margin client; (b) of whom one is in control, either alone or with his spouse, of 35% or more of the voting rights of that other margin client or each of those other margin clients; or (c) which are members of the same group of companies; "haircut amount" (扣減數額) in relation to any securities or other investments, means an amount equals to the haircut percentage multiplied by the market value of such securities or other investments; "haircut percentage" (扣減百分率) in relation to any securities or other investments, means the applicable percentage as specified in Schedule 1, 2 or 3; "initial margin requirement" (規定開倉保證金) means the sum of money or other forms of security required to be deposited as margin upon opening a position in a futures or options contract, calculated for the purposes of these Rules as the highest amongst- (a) the prevailing amount stipulated by the exchange company operating the relevant market in which the futures or options contract is traded; (b) the prevailing amount stipulated by the clearing house who registers such trade; (c) the prevailing amount stipulated by the agent who executes such trade for the dealer; (d) the prevailing amount stipulated by the counterparty who executes such trade with the dealer; and (e) the prevailing amount stipulated by the dealer; "interest rate swap agreement" (掉期息率協議) means an agreement whereby 2 parties agree to exchange a series of interest payments over time; "in-the-money amount" (價內值) means- (a) in the case of a call stock option, the number of shares underlying the option multiplied by the amount by which the market price of the underlying share exceeds the strike price of the option; (b) in the case of a put stock option, the number of shares underlying the option multiplied by the amount by which the strike price of the option exceeds the market price of the underlying share; (c) in the case of a call warrant on shares, the number of shares underlying the warrant multiplied by the amount by which the market price of the underlying share exceeds the exercise price of the warrant; (d) in relation to a call option on other asset, the amount by which the market value of the asset underlying the option exceeds the value of such asset stated at the strike price of the option; or (e) in relation to a put option on other asset, the amount by which the value of the asset underlying the option stated at the strike price of the option exceeds the market value of such asset; "introducing broker" (介紹經紀) means a dealer who has satisfied the Commission that- (a) he, in respect of the business for which he is registered, conducts no business other than- (i) receiving from another person offers to effect dealings in securities or tradings in futures or options contracts and communicating the same in the name of such person to exchange participants, or members of a stock market specified in Schedule 5 or a futures or options market specified in Schedule 6; or (L.N. 204 of 2000) (ii) introducing another person to exchange participants, or members of a stock market specified in Schedule 5 or a futures or options market specified in Schedule 6, in order that such person may- (L.N. 204 of 2000) (A) effect dealings in securities; (B) make offers to acquire or dispose of securities; (C) trade in futures or options contracts; or (D) make offers to trade in futures or options contracts; (b) he does not handle clients' assets; and (c) in connection with the offers or person so introduced he incurs no legal liability to any party save for his own negligence, wilful default or fraud; "liquid assets" (速動資產) means such assets as are prescribed as liquid assets by Part III; "liquid capital" (速動資金) means the amount by which liquid assets exceeds ranking liabilities; "liquid capital deficiency" (速動資金短欠數額) means the amount by which required liquid capital exceeds liquid capital; "margin client" (保證金客戶) means- (a) in relation to a securities dealer, a client- (i) on whose behalf the dealer acquires securities; and (ii) to whom the dealer provides financial accommodation in order to facilitate the acquisition of securities, and where applicable, the continued holding of those securities by that client, whether or not those securities, cash, bank guarantee or any other types of security are provided as security for such financial accommodation; or (b) a client of a securities margin financier; "margined account" (以保證金形式操作的帳戶) for the purposes of section 5(5)(e)(iii), means- (a) a margin account; (b) a short selling account; (c) a futures trading account; (d) an options trading account; (e) a securities borrowing and lending account; and (f) an account held for the purpose of effecting repurchase transactions; "net tangible assets" (有形資產淨值) in relation to an adviser, means- (a) in the case of a sole proprietorship or a partnership, its total assets less its total liabilities (but excluding approved subordinated loans obtained by it); or (b) in the case of a corporation, the sum of its shareholders' funds and approved subordinated loans obtained by it, excluding, in each case, intangible assets such as goodwill, copyrights, patents and licences; "net underwriting commitment" (包銷承擔淨額) means the total costs of subscribing for or purchasing securities underwritten or sub-underwritten by a dealer other than securities which are sub-underwritten or subscribed for in writing through or from that dealer by another person; "non-collateralised warrants" (非抵押權證) are derivative warrants listed on the Unified Exchange and where the performance of the obligations of the issuer is secured in a form other than by way of a charge over the underlying securities or assets; "note issuance facility" (票據發行融通) means an arrangement whereby a borrower is able to issue short-term notes which a guarantor undertakes to purchase if unsold; "OECD countries" (經合組織國家) means countries belonging to the Organisation for Economic Co-operation and Development; "other investments" (其他投資項目) for the purposes of these Rules, means the items set out under the heading "Other investments" in Schedule 3; "other securities" (其他證券) for the purposes of these Rules, means the items set out under the heading "Other securities" in Schedule 3; "out-of-the-money amount" (價外值) means- (a) in the case of a call stock option, the number of shares underlying the option multiplied by the amount by which the strike price of the option exceeds the market price of the underlying share; (b) in the case of a put stock option, the number of shares underlying the option multiplied by the amount by which the market price of the underlying share exceeds the strike price of the option; or (c) in the case of a call warrant on shares, the number of shares underlying the warrant multiplied by the amount by which the exercise price of the warrant exceeds the market price of the underlying share; "prescribed bank formed or established outside Hong Kong" (訂明境外成立銀行) for the purposes of these Rules, means a bank (other than a merchant bank or an investment bank) incorporated or established by or under the law or other authority of any OECD country or of Singapore, including its branches and wholly-owned banking subsidiaries but excluding any merchant banking or investment banking subsidiaries; "qualifying debt securities" (合資格債務證券) means debenture stock, loan stock, debentures, bonds, notes and any securities or instruments acknowledging, evidencing or creating indebtedness- (a) which are issued or guaranteed by the central government or central bank of the People's Republic of China; (b) which are issued or guaranteed by the Government of the Hong Kong Special Administrative Region; (c) which are issued or guaranteed by the Hong Kong Exchange Fund; (d) which are issued by the Hong Kong Mortgage Corporation; (e) which are listed on the Unified Exchange; (f) the issuer of which has an issue or issues currently rated by Moody's Investors Service at either Baa or Prime-3 or above, or by Standard & Poor's Corporation at either BBB or A-3 or above; (g) the guarantor of which has an issue or issues currently rated by Moody's Investors Service at either A or Prime-2 or above, or by Standard & Poor's Corporation at either A or A-2 or above; (h) the issuer of which has an issue or issues currently rated at or above a specified grade by a credit rating agency approved by the Commission; or (i) the guarantor of which has an issue or issues currently rated at or above a specified grade by a credit rating agency approved by the Commission, but does not include special debt securities, IOUs and securities or instruments acknowledging, evidencing or creating subordinated debts or debts due from a company within a group of companies of which the holder of the securities or instruments is a member; "ranking liabilities" (認可負債) means such liabilities and financial adjustments as are prescribed as ranking liabilities by Part IV; "related securities" (關連證券) means- (a) in relation to a class of listed shares issued by a corporation- (i) listed warrants on such shares; (ii) other classes of listed shares issued by that corporation; (iii) listed shares issued by a corporation which holds, directly or indirectly, 30% or more of the equity of that first-mentioned corporation; (iv) listed shares issued by a corporation where 30% or more of the equity of that corporation is held, directly or indirectly, by that first-mentioned corporation; or (v) securities which are considered as related securities of the listed shares mentioned in subparagraph (ii), (iii) or (iv), except that a constituent stock of the Hang Seng Index does not form a related security of another constituent stock of the Hang Seng Index; (b) in relation to a description of listed warrants on a class of listed shares issued by a corporation- (i) such shares; or (ii) securities which are considered as related securities of such shares; "repurchase transaction" (回購交易) means a sale of securities whereby the seller is obliged to repurchase from the buyer, or the buyer is obliged to resell to the seller, securities of the same description, at a pre-determined price and date; "required liquid capital" (規定速動資金) means the amount of liquid capital required by section 6 to be maintained by a dealer or securities margin financier; "securities borrowing and lending" (證券借貸) means any transaction whereby a person borrows or lends securities pursuant to any arrangement where the borrower undertakes to return securities of the same description to the lender and includes the meaning of "stock borrowing" (證券借用) as defined in section 19(16) of the Stamp Duty Ordinance (Cap 117); "securities dealer" (證券交易商) means a dealer or a dealing partnership registered under the Securities Ordinance (Cap 333); "securities margin financier" (證券保證金融資人) means a securities margin financier registered under the Securities Ordinance (Cap 333); "securities margin financing" (證券保證金融資) has the meaning assigned to it by section 2(1) of the Securities Ordinance (Cap 333); "settlement date" (交收日期) in relation to any dealing in securities, means- (a) in the case of transactions on any stock market, the date on which payment for the securities is first due in accordance with the rules of the stock market; (b) in any other case, the date on which payment for the securities is first due as agreed between the parties to the transaction, but in any case, not exceeding 20 business days after the trade date; "short selling" (賣空) for the purposes of these Rules, means a sale of securities where at the time of the sale- (a) the seller does not have a presently exercisable and unconditional right to vest the securities in the purchaser of them; or (b) the seller has a presently exercisable and unconditional right to vest the securities in the purchaser of them by virtue of having entered into an arrangement with another person and under that arrangement the seller is obliged to deliver at a future date to that person a quantity of securities that relates to the sale or an equivalent amount of money or money's worth; "special debt securities" (特別債務證券) means indexed bonds, convertible debt securities, bonds with non-detachable warrants and non-interest bearing debt securities- (a) which are issued or guaranteed by the central government or central bank of the People's Republic of China; (b) which are issued or guaranteed by the Government of the Hong Kong Special Administrative Region; (c) which are issued or guaranteed by the Hong Kong Exchange Fund; (d) which are issued by the Hong Kong Mortgage Corporation; (e) which are listed on the Unified Exchange; (f) the issuer of which has an issue or issues currently rated by Moody's Investors Service at either Baa or Prime-3 or above, or by Standard & Poor's Corporation at either BBB or A-3 or above; (g) the guarantor of which has an issue or issues currently rated by Moody's Investors Service at either A or Prime-2 or above, or by Standard & Poor's Corporation at either A or A-2 or above; (h) the issuer of which has an issue or issues currently rated at or above a specified grade by a credit rating agency approved by the Commission; or (i) the guarantor of which has an issue or issues currently rated at or above a specified grade by a credit rating agency approved by the Commission, but does not include IOUs and securities or instruments acknowledging, evidencing or creating subordinated debts or debts due from a company within a group of companies of which the holder of the securities or instruments is a member; "stock futures" (股票期貨) means a contract the effect of which is that- (a) one party agrees to deliver to the other party at an agreed future time an agreed quantity of a specific share at an agreed price; or (b) two parties will make an adjustment between them at an agreed future time according to whether at that time an agreed quantity of a specific share is worth more or less than a value agreed at the time of making of the contract, and such contract is traded on a futures or options market listed in Schedule 6 or, where applicable, the Unified Exchange or a stock market listed in Part I of Schedule 5; "stock option" (股票期權) means a contract the effect of which is that one party agrees to provide to the other party the right to purchase or sell at an agreed price an agreed quantity of a specific share on or before an agreed future time and such contract is traded on the Unified Exchange, a stock market listed in Part I of Schedule 5, or, where applicable, a futures or options market listed in Schedule 6; "subsidiary" (附屬公司) has the meaning assigned to it by section 2 of the Companies Ordinance (Cap 32); "total liabilities" (負債總額) for the purpose of computing the required liquid capital of a dealer or securities margin financier, means all of his on balance sheet liabilities, calculated in accordance with sections 4 and 5, including provisions but excluding- (a) amounts payable to clients for- (i) clients' money held by that dealer or securities margin financier in a designated trust account or a segregated account in accordance with the Securities Ordinance (Cap 333) and the Commodities Trading Ordinance (Cap 250); (ii) balances held in a segregated client account with a futures or options clearing house; (iii) balances held with a futures dealer, whether registered in Hong Kong or elsewhere, or a clearing member or clearing participant of a futures or options clearing house as margin in relation to futures or options contracts traded on behalf of clients; and (b) approved subordinated loans; "trader" (買賣商) means a dealer who does not handle clients' orders or assets and who, in respect of the business for which he is registered, conducts no business other than effecting, or offering to effect, dealings in securities or tradings in futures or options contracts for his own account. "adviser" (顧問) "amount of margin required to be deposited" (規定保證金額) "approved bank formed or established outside Hong Kong" (核准境外成立銀行) "approved redeemable shares" (核准可贖回股份) "approved securities borrowing and lending counterparty" (核准證券借貸對手方) "approved stand-by subordinated loan facility" (核准備用後償貸款融通) "approved subordinated loan" (核准後償貸款) "authorized institution" (認可機構) "business day" (營業日) "capital account" (資本帳) "collateral" (抵押品) "collateralised warrants" (有抵押權證) "common clients" (共同客戶) "concentration discounting factor" (集中折扣系數) "corporation" (法團) "dealer" (交易商) "FIBV" (國際證交所聯會) "financial accommodation" (財務通融) "foreign currency" (外幣) "foreign exchange agreement" (外匯協議) "free delivery" (信用交付) "futures dealer" (期貨交易商) "futures non-clearing dealer" (期貨非結算交易商) "futures or options clearing house" (期貨或期權結算所) "group of related margin clients" (一組關連保證金客戶) "haircut amount" (扣減數額) "haircut percentage" (扣減百分率) "initial margin requirement" (規定開倉保證金) "interest rate swap agreement" (掉期息率協議) "in-the-money amount" (價內值) "introducing broker" (介紹經紀) "liquid assets" (速動資產) "liquid capital" (速動資金) "liquid capital deficiency" (速動資金短欠數額) "margin client" (保證金客戶) "margined account" (以保證金形式操作的帳戶) "net tangible assets" (有形資產淨值) "net underwriting commitment" (包銷承擔淨額) "non-collateralised warrants" (非抵押權證) "note issuance facility" (票據發行融通) "OECD countries" (經合組織國家) "other investments" (其他投資項目) "other securities" (其他證券) "out-of-the-money amount" (價外值) "prescribed bank formed or established outside Hong Kong" (訂明境外成立銀行) "qualifying debt securities" (合資格債務證券) "ranking liabilities" (認可負債) "related securities" (關連證券) "repurchase transaction" (回購交易) "required liquid capital" (規定速動資金) "securities borrowing and lending" (證券借貸) "stock borrowing" (證券借用) "securities dealer" (證券交易商) "securities margin financier" (證券保證金融資人) "securities margin financing" (證券保證金融資) "settlement date" (交收日期) "short selling" (賣空) "special debt securities" (特別債務證券) "stock futures" (股票期貨) "stock option" (股票期權) "subsidiary" (附屬公司) "total liabilities" (負債總額) "trader" (買賣商) FINANCIAL RESOURCES RULES - SECT 2 Interpretation VerDate:12/06/2000 In these Rules, unless the context otherwise requires- "adviser" (顧問) means an investment adviser or an investment advisers' partnership registered under the Securities Ordinance (Cap 333) or a commodity trading adviser registered under the Commodities Trading Ordinance (Cap 250); "amount of margin required to be deposited" (規定保證金額) means the sum of money or other forms of security required to be deposited as margin upon opening a position or for maintaining an existing position in a futures contract or an options contract, including all subsequent or maintenance margin deposits required from time to time until the futures or options position is closed out, calculated as the highest amongst- (a) the prevailing amount stipulated by the exchange company operating the relevant market in which the futures or options contract is traded; (b) the prevailing amount stipulated by the clearing house who registers such trade; (c) the prevailing amount stipulated by the agent who executes such trade for the dealer; (d) the prevailing amount stipulated by the counterparty who executes such trade with the dealer; and (e) the prevailing amount stipulated by the dealer; "approved bank formed or established outside Hong Kong" (核准境外成立銀行) means- (a) a bank (other than a merchant bank or an investment bank) incorporated or established by or under the law or other authority of any jurisdiction outside Hong Kong, including its branches and wholly owned banking subsidiaries (but excluding any merchant banking or investment banking subsidiaries), which is approved by the Commission for the purposes of these Rules, whether or not such approval is subject to conditions; or (b) a prescribed bank formed or established outside Hong Kong; "approved redeemable shares" (核准可贖回股份) means shares in the share capital of a corporation which is a dealer or securities margin financier which are redeemable at the option of the holder of the shares or that of the corporation, and which are approved by the Commission for the purposes of these Rules, whether or not such approval is subject to conditions; "approved securities borrowing and lending counterparty" (核准證券借貸對手方) for the purposes of these Rules, means- (a) the Hong Kong Securities Clearing Company Limited; or (b) a person whose activities or objects include the provision of services for the interposition of itself as counterparty to both sides of a securities borrowing and lending arrangement, including administering the security deposited in connection therewith and registration and settlement thereof, who is approved by the Commission for the purpose of exempting the dealer who is engaged in securities borrowing and lending with this person from complying with financial adjustments in relation to such securities borrowing and lending which will otherwise be required by these Rules, whether or not such approval is subject to conditions; "approved stand-by subordinated loan facility" (核准備用後償貸款融通) means a loan facility provided to a dealer or securities margin financier for drawdown, which is approved by the Commission for the purposes of these Rules, whether or not such approval is subject to conditions, and under which the lender's claim in respect of any drawdown by the borrower shall be subordinated to the prior payment, or provision for payment, in full of all claims of all other present and future creditors of the borrower; "approved subordinated loan" (核准後償貸款) means a loan provided to a dealer or securities margin financier which is approved by the Commission for the purposes of these Rules, whether or not such approval is subject to conditions, and under which the lender's claim is subordinated to the prior payment, or provision for payment, in full of all claims of all other present and future creditors of the borrower; "authorized institution" (認可機構) has the meaning assigned to it by section 2(1) of the Securities Ordinance (Cap 333), and, for the purposes of these Rules- (a) in the case of a licensed bank, includes its branches and wholly-owned banking subsidiaries but excludes any merchant banking or investment banking subsidiaries; and (b) in the case of a restricted licence bank or deposit taking company, is restricted to its Hong Kong office or branch; "business day" (營業日) has the meaning assigned to it by section 2(1) of the Securities Ordinance (Cap 333); "capital account" (資本帳) for the purposes of these Rules, means the amount of capital injected into the business of a sole proprietor or a partnership; "collateral" (抵押品) for the purposes of these Rules, means- (a) securities which are deposited as security by a dealer or securities margin financier with another person and such securities are of a type described in section 15; (b) securities of a type described in section 15 deposited as security by a person with a dealer and such securities are- (i) unencumbered, in the possession or control of the dealer and readily realizable by him; or (ii) in case the dealer is a securities dealer, encumbered only by being lent, deposited or pledged by him in accordance with the requirements of the Securities Ordinance (Cap 333); or (iii) in case the dealer is a futures dealer, encumbered only by being deposited by him with another futures dealer, a futures or options clearing house or its clearing member or clearing participant in the ordinary course of trading in futures or options contracts; (c) securities of a type described in section 15 deposited as security by a person with a securities margin financier and such securities are- (i) unencumbered, in the possession or control of the financier and readily realizable by him; or (ii) encumbered only by being deposited or pledged by him in accordance with the requirements of the Securities Ordinance (Cap 333); "collateralised warrants" (有抵押權證) are derivative warrants listed on the Unified Exchange and where the issuer owns all of the underlying securities or other assets to which the collateralised warrants relate and grants a charge over such securities or assets in favour of an independent trustee which acts for the benefit of the warrantholders; "common clients" (共同客戶) for the purposes of these Rules, means clients of a securities dealer who are also clients of a securities margin financier and whose dealings in securities through that dealer are settled by that securities margin financier on their behalf; "concentration discounting factor" (集中折扣系數) of a security which is received by a dealer or a securities margin financier from margin clients as collateral, means- (a) in case that security is listed shares issued by a corporation which is the issuer of a constituent stock of the Hang Seng Index or any related securities of such stock, the lower of- (i) 1; and (ii) the factor derived by dividing 20% of the total market value of all collateral received from all margin clients by the total market value of that security and all related securities of that security which are so received as collateral; (b) to the extent not already covered in paragraph (a) above, in case that security is listed shares issued by a corporation which is the issuer of a constituent stock of the Hang Seng 100 Index or any related securities of such stock, the lower of- (i) 1; and (ii) the factor derived by dividing 15% of the total market value of all collateral received from all margin clients by the total market value of that security and all related securities of that security which are so received as collateral; (c) to the extent not already covered in paragraph (a) or (b) above, in case that security is listed shares issued by a corporation which is not the issuer of a constituent stock of the Hang Seng 100 Index or any related securities of such shares, the lower of- (i) 1; and (ii) the factor derived by dividing 10% of the total market value of all collateral received from all margin clients by the total market value of that security and all related securities of that security which are so received as collateral; "corporation" (法團) has the meaning assigned to it by section 2(1) of the Securities Ordinance (Cap 333); "dealer" (交易商) means a securities dealer or a futures dealer; "FIBV" (國際證交所聯會) means Federation Internationale Des Bourses De Valeurs; "financial accommodation" (財務通融) has the meaning assigned to it by section 2(1) of the Securities Ordinance (Cap 333); "foreign currency" (外幣) in relation to a dealer or securities margin financier, means any currency other than- (a) the currency used, or intended to be used, by him in his annual accounts; and (b) any currency which has an exchange rate which is linked to the currency referred to in paragraph (a); "foreign exchange agreement" (外匯協議) means an agreement, other than a currency futures contract and a currency options contract, whereby 2 parties agree to exchange different currencies at a future time; "free delivery" (信用交付) means- (a) a delivery of securities which takes place irrespective of whether the seller has received payment; or (b) a payment made in settlement of a liability arising from a sale of securities on behalf of a client, or a purchase of securities from a client or a counterparty, irrespective of whether the securities so sold or purchased have been delivered; "futures dealer" (期貨交易商) means a dealer registered under the Commodities Trading Ordinance (Cap 250); "futures non-clearing dealer" (期貨非結算交易商) means an exchange participant of the Commodity Exchange who is not a clearing participant of the HKFE Clearing Corporation Limited; "futures or options clearing house" (期貨或期權結算所) means a person whose activities or objects include the provision of services for the registration, clearing and settlement of futures or options contracts traded on a futures or options market specified in Schedule 6 or, where applicable, the Unified Exchange or a stock market specified in Part I of Schedule 5 and for the central administration of the margin requirements of such contracts; "group of related margin clients" (一組關連保證金客戶) for the purposes of these Rules, means any two or more margin clients of a dealer or a securities margin financier- (a) of whom one is the spouse of another margin client; (b) of whom one is in control, either alone or with his spouse, of 35% or more of the voting rights of that other margin client or each of those other margin clients; or (c) which are members of the same group of companies; "haircut amount" (扣減數額) in relation to any securities or other investments, means an amount equals to the haircut percentage multiplied by the market value of such securities or other investments; "haircut percentage" (扣減百分率) in relation to any securities or other investments, means the applicable percentage as specified in Schedule 1, 2 or 3; "initial margin requirement" (規定開倉保證金) means the sum of money or other forms of security required to be deposited as margin upon opening a position in a futures or options contract, calculated for the purposes of these Rules as the highest amongst- (a) the prevailing amount stipulated by the exchange company operating the relevant market in which the futures or options contract is traded; (b) the prevailing amount stipulated by the clearing house who registers such trade; (c) the prevailing amount stipulated by the agent who executes such trade for the dealer; (d) the prevailing amount stipulated by the counterparty who executes such trade with the dealer; and (e) the prevailing amount stipulated by the dealer; "interest rate swap agreement" (掉期息率協議) means an agreement whereby 2 parties agree to exchange a series of interest payments over time; "in-the-money amount" (價內值) means- (a) in the case of a call stock option, the number of shares underlying the option multiplied by the amount by which the market price of the underlying share exceeds the strike price of the option; (b) in the case of a put stock option, the number of shares underlying the option multiplied by the amount by which the strike price of the option exceeds the market price of the underlying share; (c) in the case of a call warrant on shares, the number of shares underlying the warrant multiplied by the amount by which the market price of the underlying share exceeds the exercise price of the warrant; (d) in relation to a call option on other asset, the amount by which the market value of the asset underlying the option exceeds the value of such asset stated at the strike price of the option; or (e) in relation to a put option on other asset, the amount by which the value of the asset underlying the option stated at the strike price of the option exceeds the market value of such asset; "introducing broker" (介紹經紀) means a dealer who has satisfied the Commission that- (a) he, in respect of the business for which he is registered, conducts no business other than- (i) receiving from another person offers to effect dealings in securities or tradings in futures or options contracts and communicating the same in the name of such person to exchange participants, or members of a stock market specified in Schedule 5 or a futures or options market specified in Schedule 6; or (L.N. 204 of 2000) (ii) introducing another person to exchange participants, or members of a stock market specified in Schedule 5 or a futures or options market specified in Schedule 6, in order that such person may- (L.N. 204 of 2000) (A) effect dealings in securities; (B) make offers to acquire or dispose of securities; (C) trade in futures or options contracts; or (D) make offers to trade in futures or options contracts; (b) he does not handle clients' assets; and (c) in connection with the offers or person so introduced he incurs no legal liability to any party save for his own negligence, wilful default or fraud; "liquid assets" (速動資產) means such assets as are prescribed as liquid assets by Part III; "liquid capital" (速動資金) means the amount by which liquid assets exceeds ranking liabilities; "liquid capital deficiency" (速動資金短欠數額) means the amount by which required liquid capital exceeds liquid capital; "margin client" (保證金客戶) means- (a) in relation to a securities dealer, a client- (i) on whose behalf the dealer acquires securities; and (ii) to whom the dealer provides financial accommodation in order to facilitate the acquisition of securities, and where applicable, the continued holding of those securities by that client, whether or not those securities, cash, bank guarantee or any other types of security are provided as security for such financial accommodation; or (b) a client of a securities margin financier; "margined account" (以保證金形式操作的帳戶) for the purposes of section 5(5)(e)(iii), means- (a) a margin account; (b) a short selling account; (c) a futures trading account; (d) an options trading account; (e) a securities borrowing and lending account; and (f) an account held for the purpose of effecting repurchase transactions; "net tangible assets" (有形資產淨值) in relation to an adviser, means- (a) in the case of a sole proprietorship or a partnership, its total assets less its total liabilities (but excluding approved subordinated loans obtained by it); or (b) in the case of a corporation, the sum of its shareholders' funds and approved subordinated loans obtained by it, excluding, in each case, intangible assets such as goodwill, copyrights, patents and licences; "net underwriting commitment" (包銷承擔淨額) means the total costs of subscribing for or purchasing securities underwritten or sub-underwritten by a dealer other than securities which are sub-underwritten or subscribed for in writing through or from that dealer by another person; "non-collateralised warrants" (非抵押權證) are derivative warrants listed on the Unified Exchange and where the performance of the obligations of the issuer is secured in a form other than by way of a charge over the underlying securities or assets; "note issuance facility" (票據發行融通) means an arrangement whereby a borrower is able to issue short-term notes which a guarantor undertakes to purchase if unsold; "OECD countries" (經合組織國家) means countries belonging to the Organisation for Economic Co-operation and Development; "other investments" (其他投資項目) for the purposes of these Rules, means the items set out under the heading "Other investments" in Schedule 3; "other securities" (其他證券) for the purposes of these Rules, means the items set out under the heading "Other securities" in Schedule 3; "out-of-the-money amount" (價外值) means- (a) in the case of a call stock option, the number of shares underlying the option multiplied by the amount by which the strike price of the option exceeds the market price of the underlying share; (b) in the case of a put stock option, the number of shares underlying the option multiplied by the amount by which the market price of the underlying share exceeds the strike price of the option; or (c) in the case of a call warrant on shares, the number of shares underlying the warrant multiplied by the amount by which the exercise price of the warrant exceeds the market price of the underlying share; "prescribed bank formed or established outside Hong Kong" (訂明境外成立銀行) for the purposes of these Rules, means a bank (other than a merchant bank or an investment bank) incorporated or established by or under the law or other authority of any OECD country or of Singapore, including its branches and wholly-owned banking subsidiaries but excluding any merchant banking or investment banking subsidiaries; "qualifying debt securities" (合資格債務證券) means debenture stock, loan stock, debentures, bonds, notes and any securities or instruments acknowledging, evidencing or creating indebtedness- (a) which are issued or guaranteed by the central government or central bank of the People's Republic of China; (b) which are issued or guaranteed by the Government of the Hong Kong Special Administrative Region; (c) which are issued or guaranteed by the Hong Kong Exchange Fund; (d) which are issued by the Hong Kong Mortgage Corporation; (e) which are listed on the Unified Exchange; (f) the issuer of which has an issue or issues currently rated by Moody's Investors Service at either Baa or Prime-3 or above, or by Standard & Poor's Corporation at either BBB or A-3 or above; (g) the guarantor of which has an issue or issues currently rated by Moody's Investors Service at either A or Prime-2 or above, or by Standard & Poor's Corporation at either A or A-2 or above; (h) the issuer of which has an issue or issues currently rated at or above a specified grade by a credit rating agency approved by the Commission; or (i) the guarantor of which has an issue or issues currently rated at or above a specified grade by a credit rating agency approved by the Commission, but does not include special debt securities, IOUs and securities or instruments acknowledging, evidencing or creating subordinated debts or debts due from a company within a group of companies of which the holder of the securities or instruments is a member; "ranking liabilities" (認可負債) means such liabilities and financial adjustments as are prescribed as ranking liabilities by Part IV; "related securities" (關連證券) means- (a) in relation to a class of listed shares issued by a corporation- (i) listed warrants on such shares; (ii) other classes of listed shares issued by that corporation; (iii) listed shares issued by a corporation which holds, directly or indirectly, 30% or more of the equity of that first-mentioned corporation; (iv) listed shares issued by a corporation where 30% or more of the equity of that corporation is held, directly or indirectly, by that first-mentioned corporation; or (v) securities which are considered as related securities of the listed shares mentioned in subparagraph (ii), (iii) or (iv), except that a constituent stock of the Hang Seng Index does not form a related security of another constituent stock of the Hang Seng Index; (b) in relation to a description of listed warrants on a class of listed shares issued by a corporation- (i) such shares; or (ii) securities which are considered as related securities of such shares; "repurchase transaction" (回購交易) means a sale of securities whereby the seller is obliged to repurchase from the buyer, or the buyer is obliged to resell to the seller, securities of the same description, at a pre-determined price and date; "required liquid capital" (規定速動資金) means the amount of liquid capital required by section 6 to be maintained by a dealer or securities margin financier; "securities borrowing and lending" (證券借貸) means any transaction whereby a person borrows or lends securities pursuant to any arrangement where the borrower undertakes to return securities of the same description to the lender and includes the meaning of "stock borrowing" (證券借用) as defined in section 19(16) of the Stamp Duty Ordinance (Cap 117); "securities dealer" (證券交易商) means a dealer or a dealing partnership registered under the Securities Ordinance (Cap 333); "securities margin financier" (證券保證金融資人) means a securities margin financier registered under the Securities Ordinance (Cap 333); "securities margin financing" (證券保證金融資) has the meaning assigned to it by section 2(1) of the Securities Ordinance (Cap 333); "settlement date" (交收日期) in relation to any dealing in securities, means- (a) in the case of transactions on any stock market, the date on which payment for the securities is first due in accordance with the rules of the stock market; (b) in any other case, the date on which payment for the securities is first due as agreed between the parties to the transaction, but in any case, not exceeding 20 business days after the trade date; "short selling" (賣空) for the purposes of these Rules, means a sale of securities where at the time of the sale- (a) the seller does not have a presently exercisable and unconditional right to vest the securities in the purchaser of them; or (b) the seller has a presently exercisable and unconditional right to vest the securities in the purchaser of them by virtue of having entered into an arrangement with another person and under that arrangement the seller is obliged to deliver at a future date to that person a quantity of securities that relates to the sale or an equivalent amount of money or money's worth; "special debt securities" (特別債務證券) means indexed bonds, convertible debt securities, bonds with non-detachable warrants and non-interest bearing debt securities- (a) which are issued or guaranteed by the central government or central bank of the People's Republic of China; (b) which are issued or guaranteed by the Government of the Hong Kong Special Administrative Region; (c) which are issued or guaranteed by the Hong Kong Exchange Fund; (d) which are issued by the Hong Kong Mortgage Corporation; (e) which are listed on the Unified Exchange; (f) the issuer of which has an issue or issues currently rated by Moody's Investors Service at either Baa or Prime-3 or above, or by Standard & Poor's Corporation at either BBB or A-3 or above; (g) the guarantor of which has an issue or issues currently rated by Moody's Investors Service at either A or Prime-2 or above, or by Standard & Poor's Corporation at either A or A-2 or above; (h) the issuer of which has an issue or issues currently rated at or above a specified grade by a credit rating agency approved by the Commission; or (i) the guarantor of which has an issue or issues currently rated at or above a specified grade by a credit rating agency approved by the Commission, but does not include IOUs and securities or instruments acknowledging, evidencing or creating subordinated debts or debts due from a company within a group of companies of which the holder of the securities or instruments is a member; "stock futures" (股票期貨) means a contract the effect of which is that- (a) one party agrees to deliver to the other party at an agreed future time an agreed quantity of a specific share at an agreed price; or (b) two parties will make an adjustment between them at an agreed future time according to whether at that time an agreed quantity of a specific share is worth more or less than a value agreed at the time of making of the contract, and such contract is traded on a futures or options market listed in Schedule 6 or, where applicable, the Unified Exchange or a stock market listed in Part I of Schedule 5; "stock option" (股票期權) means a contract the effect of which is that one party agrees to provide to the other party the right to purchase or sell at an agreed price an agreed quantity of a specific share on or before an agreed future time and such contract is traded on the Unified Exchange, a stock market listed in Part I of Schedule 5, or, where applicable, a futures or options market listed in Schedule 6; "subsidiary" (附屬公司) has the meaning assigned to it by section 2 of the Companies Ordinance (Cap 32); "total liabilities" (負債總額) for the purpose of computing the required liquid capital of a dealer or securities margin financier, means all of his on balance sheet liabilities, calculated in accordance with sections 4 and 5, including provisions but excluding- (a) amounts payable to clients for- (i) clients' money held by that dealer or securities margin financier in a designated trust account or a segregated account in accordance with the Securities Ordinance (Cap 333) and the Commodities Trading Ordinance (Cap 250); (ii) balances held in a segregated client account with a futures or options clearing house; (iii) balances held with a futures dealer, whether registered in Hong Kong or elsewhere, or a clearing member or clearing participant of a futures or options clearing house as margin in relation to futures or options contracts traded on behalf of clients; and (b) approved subordinated loans; "trader" (買賣商) means a dealer who does not handle clients' orders or assets and who, in respect of the business for which he is registered, conducts no business other than effecting, or offering to effect, dealings in securities or tradings in futures or options contracts for his own account. "adviser" (顧問) "amount of margin required to be deposited" (規定保證金額) "approved bank formed or established outside Hong Kong" (核准境外成立銀行) "approved redeemable shares" (核准可贖回股份) "approved securities borrowing and lending counterparty" (核准證券借貸對手方) "approved stand-by subordinated loan facility" (核准備用後償貸款融通) "approved subordinated loan" (核准後償貸款) "authorized institution" (認可機構) "business day" (營業日) "capital account" (資本帳) "collateral" (抵押品) "collateralised warrants" (有抵押權證) "common clients" (共同客戶) "concentration discounting factor" (集中折扣系數) "corporation" (法團) "dealer" (交易商) "FIBV" (國際證交所聯會) "financial accommodation" (財務通融) "foreign currency" (外幣) "foreign exchange agreement" (外匯協議) "free delivery" (信用交付) "futures dealer" (期貨交易商) "futures non-clearing dealer" (期貨非結算交易商) "futures or options clearing house" (期貨或期權結算所) "group of related margin clients" (一組關連保證金客戶) "haircut amount" (扣減數額) "haircut percentage" (扣減百分率) "initial margin requirement" (規定開倉保證金) "interest rate swap agreement" (掉期息率協議) "in-the-money amount" (價內值) "introducing broker" (介紹經紀) "liquid assets" (速動資產) "liquid capital" (速動資金) "liquid capital deficiency" (速動資金短欠數額) "margin client" (保證金客戶) "margined account" (以保證金形式操作的帳戶) "net tangible assets" (有形資產淨值) "net underwriting commitment" (包銷承擔淨額) "non-collateralised warrants" (非抵押權證) "note issuance facility" (票據發行融通) "OECD countries" (經合組織國家) "other investments" (其他投資項目) "other securities" (其他證券) "out-of-the-money amount" (價外值) "prescribed bank formed or established outside Hong Kong" (訂明境外成立銀行) "qualifying debt securities" (合資格債務證券) "ranking liabilities" (認可負債) "related securities" (關連證券) "repurchase transaction" (回購交易) "required liquid capital" (規定速動資金) "securities borrowing and lending" (證券借貸) "stock borrowing" (證券借用) "securities dealer" (證券交易商) "securities margin financier" (證券保證金融資人) "securities margin financing" (證券保證金融資) "settlement date" (交收日期) "short selling" (賣空) "special debt securities" (特別債務證券) "stock futures" (股票期貨) "stock option" (股票期權) "subsidiary" (附屬公司) "total liabilities" (負債總額) "trader" (買賣商) FINANCIAL RESOURCES RULES - SECT 3 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 3 Application VerDate:12/06/2000 (1) Subject to subsection (2), all registered persons shall comply with these Rules. (2) These Rules shall not apply to an individual who is registered as a registered person only because he is a director, a partner or an employee of another registered person. (3) Where any of these Rules is expressed to provide for net tangible assets, liquid assets or ranking liabilities of a registered person which is not a corporation, or to refer to the total liabilities or capital account of such a registered person, that provision shall be construed as- (a) providing for net tangible assets, liquid assets or ranking liabilities; or (b) referring to total liabilities or capital account, as the case may be, of the registered person in the business for which he is registered and any other business carried on by him under the same name as appears in the certificate of registration issued by the Commission under the Securities Ordinance (Cap 333) or the Commodities Trading Ordinance (Cap 250). FINANCIAL RESOURCES RULES - SECT 4 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 4 Accounting treatment VerDate:12/06/2000 (1) For the purposes of these Rules, a registered person shall calculate all assets and liabilities in accordance with generally accepted accounting principles unless otherwise specified. (2) For the purposes of these Rules, a registered person shall account for all assets and liabilities in such a way that recognizes the substance of a transaction, an arrangement or a position, including in the case of a structured bond, the registered person shall account for it as a derivative product and not as a debt security. (3) For the purposes of these Rules, a registered person shall ensure that his accounting policies are in accordance with this section and seek the Commission's approval before adopting a different accounting policy. FINANCIAL RESOURCES RULES - SECT 5 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 5 Computation basis VerDate:12/06/2000 (1) For the purposes of calculating total liabilities, liquid assets and ranking liabilities of a dealer or securities margin financier- (a) all assets and liabilities arising from dealing in securities, trading in futures or options contracts or the provision of securities margin financing shall be accounted for on a trade date basis, or in the case of off-exchange transactions, on the date when he enters into agreement with the counterparty of the transaction; (b) balance of securities or collateral shall include securities receivable from and exclude securities deliverable to a clearing house or securities dealer (who is either registered in Hong Kong or registered or authorized by a regulatory body outside Hong Kong) in respect of purchases or sales of securities which are not yet due for settlement according to their settlement date. (2) All investments, trading positions and collateral held by a dealer or securities margin financier, whether traded on an exchange or otherwise, shall be revalued at market value for the purposes of calculation of liquid assets, ranking liabilities and total liabilities under these Rules, save that- (a) debt securities, in the absence of a market price, shall be valued at- (i) the average of quotations obtained from at least 2 market makers; (ii) in case of long position and the quotations in subparagraph (i) are not available, nil value; (iii) in case of short position and the quotations in subparagraph (i) are not available, face value of the debt securities; (b) long positions in securities which have been suspended from trading for 3 or more business days shall be stated at nil value; and (c) short positions in securities which have been suspended from trading for 3 or more business days shall be stated at the last closing price before the suspension, unless otherwise stipulated by these Rules. (3) Where a dealer enters into a pair of transactions which have identical or similar terms except that the respective roles of the dealer in those transactions are opposite, such transactions shall be accounted for as separate transactions for the purposes of calculating total liabilities, liquid assets and ranking liabilities of the dealer. (4) For the purposes of calculating total liabilities, liquid assets and ranking liabilities of a dealer which is a sole proprietorship or a partnership, amounts receivable from, or payable to, an individual operating the sole proprietorship or a partner of the partnership which arise from dealing in securities, trading in futures or options contracts, or the provision of securities margin financing, shall be treated as amounts receivable from, or payable to, third party clients and shall be subject to the same deductions or financial adjustments as are required by these Rules to be applied thereto. (5) Unless otherwise provided in these Rules, all assets and liabilities of a dealer or securities margin financier shall be treated separately on a gross basis and shall not be set off with each other for the purposes of calculating total liabilities, liquid assets and ranking liabilities except- (a) balances held with the Hong Kong Securities Clearing Company Limited and which can be set off for settlement purpose under its rules; (b) balances held with the SEHK Options Clearing House Limited and which can be set off for settlement purpose under its rules; (c) balances held with the HKFE Clearing Corporation Limited and which can be set off for settlement purpose under its rules; (d) amounts receivable and payable which do not arise from dealing in securities, trading in futures or options contracts, or the provision of securities margin financing, and such amounts are receivable from and payable to the same person, and the dealer or securities margin financier is entitled to set off these amounts under a legally enforceable right to set off; (e) amounts receivable from and payable to the same client which arise from- (i) dealings in securities which are due to be settled on a cash-against-delivery basis and which relate to the same securities and the dealer is authorized by the client to set off amounts arising from these transactions; (ii) the provision of securities margin financing to that client by the dealer or securities margin financier; or (iii) transactions in different margined accounts maintained by that client with the dealer or securities margin financier, and the dealer or securities margin financier is authorized by the client to set off amounts arising from these transactions; in which case the dealer or securities margin financier shall not set off the amounts but can apply any surplus cash, collateral and, where applicable, bank guarantee in any of that client's margined accounts, after effecting all appropriate deductions and financial adjustments in respect of that account, to reduce the financial adjustments or deductions from liquid assets which would otherwise arise in respect of another margined account of that client; (f) in the case of a dealer and the dealer is a securities dealer, amounts receivable from and payable to a securities margin financier by the dealer arising from dealings in securities by their common clients; or (g) in the case of a securities margin financier, amounts receivable from and payable to a securities dealer by the financier arising from dealings in securities by their common clients. (6) A dealer shall, immediately upon the exercise of any option purchased or written by him on his own account, include in his liquid assets and ranking liabilities all liquid assets and ranking liabilities arising from such exercise as if the transaction were a purchase or sale of the underlying assets, as the case may be. (7) A dealer shall, immediately upon the exercise of any option purchased, written or cleared by him on behalf of another person, include in his liquid assets and ranking liabilities all liquid assets and ranking liabilities arising from such exercise as if the transaction were a purchase or sale of the underlying assets, as the case may be, on behalf of that other person. (8) For the purposes of these Rules, any assignment of amounts receivable by a dealer or securities margin financier from, and of collateral or any other types of security provided by, clients shall be disregarded. (9) Where a dealer borrows securities in a securities borrowing and lending for the purpose of short selling on his own account, to the extent that the number of shares borrowed matches the number of shares short sold by the dealer, sections 24(2) and (3) and 26(1) shall not apply to these transactions and he shall include in his ranking liabilities the higher of- (a) the financial adjustment that would otherwise arise under section 24(2) and (3) if not for this subsection; or (b) the financial adjustment that would otherwise arise under section 26(1) if not for this subsection. (10) Where a dealer beneficially owns shares and issues call non-collateralised warrants on the same shares, to the extent that the number of the shares owned matches the number of shares underlying the call non-collateralised warrants issued by him which are outstanding, sections 15(a) and 24(1) shall not apply to those shares and warrants and he shall include those shares in his liquid assets at the lower of- (a) the market value less the applicable haircut amount; or (b) the number of those shares multiplied by the exercise price of the warrants. (11) Where a dealer beneficially owns shares which are charged for the purpose of issuing call collateralised warrants on those shares, sections 15(a) and 24(1) to (3) shall not apply to those shares and warrants and he shall include those shares in his liquid assets at the lower of- (a) the market value less the applicable haircut amount; or (b) the number of those shares multiplied by the exercise price of the warrants. (12) Subsections (13) to (23) shall not apply to stock futures or stock options contracts which have been grouped with other positions for the purpose of calculating a net amount of margin required to be deposited. (13) Where a dealer beneficially owns shares and writes a call stock option on the same shares, whether or not those shares are deposited with a futures or options clearing house or its clearing member or clearing participant to cover the option, to the extent that the number of shares underlying the call stock option matches the number of the shares owned by the dealer, sections 15(a) and 22(3) and (4) shall not apply to those shares and the option and he shall include those shares in his liquid assets at the lower of- (a) the market value less the applicable haircut amount; or (b) the number of those shares multiplied by the strike price of the call stock option. (14) Where a dealer beneficially owns shares and holds a short position in stock futures contracts in respect of the same shares, to the extent that the number of shares underlying the stock futures position matches the number of shares owned by the dealer, sections 15(a) and 22(4) shall not apply to those shares and the futures contracts and he shall include those shares in his liquid assets at market value. (15) Where a dealer beneficially owns shares and holds a put stock option in respect of the same shares and such put stock option has been paid for in full and is therefore not subject to a margin requirement, to the extent that the number of shares underlying the put stock option matches the number of shares owned by the dealer, he may elect (there is no obligation to inform the Commission of any such election) not to apply sections 15(a) and 16(e) to those shares and the option, in which event he shall include those shares in his liquid assets at the higher of- (a) the market value less the applicable haircut amount; or (b) the number of those shares multiplied by the strike price of the put stock option. (16) Where a dealer borrows shares for the purpose of depositing the same to cover a call stock option written by him, to the extent that the number of shares underlying the call stock option matches the number of shares so borrowed, he may elect (there is no obligation to inform the Commission of any such election) not to apply sections 22(3) and (4) and 26(1) to the option and the securities borrowing and lending, in which case he shall include in his ranking liabilities the in-the-money amount of the call stock option, plus the higher of- (a) the applicable haircut amount of those shares as if they were beneficially owned by him; or (b) the financial adjustment that would otherwise arise under section 26(1) if not for this subsection. (17) Where a dealer sells shares short and holds a long position in stock futures contracts in respect of the same shares, to the extent that the number of shares underlying the stock futures position matches the number of shares sold short by him, sections 22(4) and 24(2) and (3) shall not apply to the short selling and stock futures contracts. (18) Where a dealer sells shares short and writes a put stock option in respect of the same shares, to the extent that the number of shares underlying the put stock option matches the number of shares sold short by him, sections 22(3) and (4) and 24(2) and (3) shall not apply to the put stock option and the short selling and he shall include in his ranking liabilities the higher of- (a) the financial adjustment that would otherwise arise under section 24(2) and (3) if not for this subsection; or (b) the in-the-money amount of the put stock option. (19) Where a dealer sells shares short and holds a call stock option in respect of the same shares, and such stock option has been paid in full and is not therefore subject to a margin requirement, to the extent that the number of shares underlying the call stock option matches the number of shares sold short, he may elect (there is no obligation to inform the Commission of any such election) not to apply sections 16(e) and 24(1), (2) and (3) to the call stock option and the short selling, in which event he shall include in his ranking liabilities the lower of- (a) the sum of the market value of the shares sold short and the financial adjustment that would otherwise arise under section 24(2) and (3) if not for this subsection; or (b) the number of shares short sold multiplied by the strike price of the call stock option. (20) Where a dealer holds a long position in stock futures contracts and writes a call stock option in respect of the same underlying shares, to the extent that the numbers of shares underlying the 2 positions match each other, section 22(3) and (4) shall not apply to the call stock option and stock futures contracts and he shall include in his ranking liabilities the higher of- (a) the in-the-money amount of the call stock option; or (b) the amount of margin required to be deposited in respect of the stock futures contracts. (21) Where a dealer holds a long position in stock futures contracts, and holds a put stock option in respect of the same underlying shares, and such put stock option has been paid for in full and is not therefore subject to a margin requirement, to the extent that the numbers of shares underlying the 2 positions match each other, sections 16(e) and 22(4) shall not apply to the put stock option and the stock futures contracts and he shall include in his liquid assets the market value of the put stock option, provided that where the put stock option is out-of-the-money, he shall also include in his ranking liabilities the lower of- (a) the out-of-the-money amount of the put stock option; or (b) the amount of margin required to be deposited in respect of the stock futures contracts. (22) Where a dealer holds a short position in stock futures contracts, and holds a call stock option in respect of the same underlying shares, and such call stock option has been paid for in full and is not therefore subject to a margin requirement, to the extent that the numbers of shares underlying the 2 positions match each other, sections 16(e) and 22(4) shall not apply to the call stock option and the stock futures contracts and he shall include in his liquid assets the market value of the call stock option, provided that where the call stock option is out-of-the-money, he shall also include in his ranking liabilities the lower of- (a) the out-of-the-money amount of the call stock option; or (b) the amount of margin required to be deposited in respect of the stock futures contracts. (23) Where a dealer holds a short position in stock futures contracts, and writes a put stock option in respect of the same underlying shares, to the extent that the numbers of shares underlying the 2 positions match each other, section 22(3) and (4) shall not apply to the put stock option and the stock futures contracts and he shall include in his ranking liabilities the higher of- (a) the in-the-money amount of the put stock option; or (b) the amount of margin required to be deposited in respect of the stock futures contracts. (24) Where a dealer lends securities in a securities borrowing and lending, he is considered for the purposes of these Rules- (a) to remain the owner of the securities lent; and (b) not to be the owner of any collateral or cash provided to him as security by the borrower of the securities and shall not include the same in his liquid assets. (25) Where a dealer borrows securities in a securities borrowing and lending, he is considered for the purposes of these Rules- (a) to remain the owner of any collateral or cash provided by him as security to the lender of the securities; and (b) not to be the owner of the securities borrowed and shall not include the same in his liquid assets. (26) Where a dealer is in the first instance the seller of securities in a repurchase transaction, he is considered for the purposes of these Rules- (a) to remain the owner of the securities sold; and (b) to be liable to the buyer of the securities for an amount equals to the price at which he sold those securities. (27) Where a dealer is in the first instance the buyer of securities in a repurchase transaction, he is considered for the purposes of these Rules- (a) to be the beneficiary of an amount receivable from the seller of those securities in the amount of the price at which he purchased those securities; and (b) not to be the owner of those securities purchased. FINANCIAL RESOURCES RULES - SECT 6 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 6 Liquid capital requirement for dealers and securities margin financiers VerDate:12/06/2000 PART II FINANCIAL RESOURCES REQUIREMENTS (1) Subject to section 7, a dealer (other than a futures non-clearing dealer, an introducing broker and a trader) or securities margin financier shall have and at all times maintain in the business for which he is registered, liquid capital of no less than his required liquid capital, namely the higher of- (a) $3000000; (b) an amount which is equal to 5% of the aggregate of- (i) his total liabilities; (ii) the initial margin requirement in respect of open positions in futures or options contracts held by him on behalf of clients; and (iii) the amount of margin required to be deposited in respect of open positions in futures or options contracts held by him on behalf of clients to the extent that those futures or options contracts have not been subject to the initial margin requirement described in subparagraph (ii). (2) Subject to section 7, a futures non-clearing dealer, an introducing broker or a trader shall have and at all times maintain in the business for which he is registered, liquid capital of no less than his required liquid capital, namely the higher of- (a) $500000; (b) an amount which is equal to 5% of his total liabilities, or in the case of a futures non-clearing dealer, 5% of the aggregate of- (i) his total liabilities; (ii) the initial margin requirement in respect of open positions in futures or options contracts held by him on behalf of clients; and (iii) the amount of margin required to be deposited in respect of open positions in futures or options contracts held by him on behalf of clients to the extent that those futures or options contracts have not been subject to the initial margin requirement described in subparagraph (ii). FINANCIAL RESOURCES RULES - SECT 7 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 7 Compliance with liquid capital requirement VerDate:12/06/2000 A dealer or securities margin financier is considered to have maintained in the business for which he is registered, liquid capital of no less than his required liquid capital where he has an approved stand-by subordinated loan facility sufficient to meet his liquid capital deficiency which would otherwise arise, provided that such deficiency- (a) is caused by an increase in the required liquid capital by 20% or more compared to the required liquid capital at the close of business on the previous business day due to- (i) in the case of a securities dealer, an increase in gross value of dealings in securities on behalf of clients or aggregate margin loans granted to margin clients; (ii) in the case of a futures dealer, an increase in open positions in futures or options contracts held on behalf of clients; (iii) in the case of a securities margin financier, an increase in aggregate margin loans granted to margin clients; and (b) does not occur on more than a total of 4 business days over any 2 consecutive months. (L.N. 204 of 2000) FINANCIAL RESOURCES RULES - SECT 8 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 8 Net tangible assets requirement for advisers VerDate:12/06/2000 An adviser shall have and at all times maintain in the business for which he is registered net tangible assets of not less than $500000. FINANCIAL RESOURCES RULES - SECT 9 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 9 Capital requirement for dealers VerDate:12/06/2000 (1) A dealer (other than a futures non-clearing dealer, an introducing broker and a trader) which is a corporation shall have and at all times maintain paid up share capital of- (a) in the case where it provides securities margin financing, not less than $10000000; or (b) where paragraph (a) does not apply, not less than $5000000. (2) A dealer (other than a futures non-clearing dealer, an introducing broker and a trader) which is a sole proprietorship shall have and at all times maintain a capital account of- (a) in the case where it provides securities margin financing, not less than $10000000; or (b) where paragraph (a) does not apply, not less than $5000000. (3) A dealer (other than a futures non-clearing dealer, an introducing broker and a trader) which is a partnership shall have and at all times maintain an aggregate of partners' capital accounts of- (a) in the case where it provides securities margin financing, not less than $10000000; or (b) where paragraph (a) does not apply, not less than $5000000. FINANCIAL RESOURCES RULES - SECT 10 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 10 Capital requirement for securities margin financiers VerDate:12/06/2000 A securities margin financier shall have and at all times maintain paid up capital of not less than $10000000. FINANCIAL RESOURCES RULES - SECT 11 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 11 Calculation of liquid assets VerDate:12/06/2000 PART III LIQUID ASSETS (1) Subject to subsections (2) to (4) and section 5, the assets described in, and calculated in accordance with, sections 12 to 18 which are held by a dealer or a securities margin financier constitute his liquid assets for the purposes of these Rules. <* Note - Exp. X-Ref.: Sections 12, 13, 14, 15, 16, 17, 18 *> (2) In the event that a dealer or a securities margin financier operates a branch outside Hong Kong, and he is required to maintain at all times certain assets in order to obtain or maintain the necessary licence, registration or membership for that branch, such assets shall not be included in his liquid assets. (3) Any assets beneficially owned by a dealer or securities margin financier which are provided to others as security for any liabilities or obligations shall not be included as his liquid assets except where such assets are provided- (a) as security to a dealer, an authorized institution or an approved bank formed or established outside Hong Kong, as the case may be, for credit facilities provided to the dealer or securities margin financier; (b) as security in a securities borrowing and lending in which the dealer is the borrower of securities; (c) as margin deposited in respect of short selling by the dealer; (d) as margin deposited in respect of trading in futures or options contracts by the dealer; (e) to obtain a bank guarantee for the purpose of participating in the Fidelity Fund established under the Rules of the Unified Exchange by the dealer; (f) as security to, or as security to obtain a bank guarantee in favour of, the Hong Kong Securities Clearing Company Limited for the purpose of meeting all the obligations of the dealer under its Rules (except those related to the Guarantee Fund); (g) as security to, or as security to obtain a bank guarantee in favour of, the SEHK Options Clearing House Limited for the purpose of meeting all the obligations of the dealer under its Rules (except those related to the Reserve Fund); or (h) as security to, or as security to obtain a bank guarantee in favour of, the HKFE Clearing Corporation Limited for the purpose of meeting all the obligations of the dealer under its Rules (except those related to the Reserve Fund). (4) All assets held in a currency that is subject to exchange control, or the proceeds of which upon realization or liquidation are not freely remittable to Hong Kong, shall be excluded from liquid assets unless the dealer or securities margin financier reasonably believes that remittance approval can be obtained within 1 week of application for approval to make such remittance to Hong Kong. FINANCIAL RESOURCES RULES - SECT 12 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 12 Cash in hand and at bank VerDate:12/06/2000 The following items shall be included in the liquid assets of a dealer or securities margin financier provided he is the beneficial owner thereof and holds them directly in his own name- (a) cash in hand; (b) money which is held on account with an authorized institution or an approved bank formed or established outside Hong Kong, as follows- (i) demand deposits; (ii) time deposits which will mature in 6 months or less; (iii) accrued interest on time deposits maturing in 3 months or less. FINANCIAL RESOURCES RULES - SECT 13 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 13 Amounts receivable from clients and securities margin financiers arising from dealings in securities or the provision of securities margin financing VerDate:01/10/2002 (1) A dealer shall include in his liquid assets amounts receivable from clients arising from dealings in securities which are settled on a cash-against-delivery basis and the amounts receivable have been outstanding for not more than 5 business days after the settlement date. (2) In respect of amounts receivable from clients arising from dealings in securities which are settled on a cash-against-delivery basis, and the amounts receivable have been outstanding for 6 or more business days but less than 1 month after the settlement date, a dealer shall include in his liquid assets, calculated on a transaction-by-transaction basis, the lower of- (a) the amounts receivable less any provision made for bad or doubtful debts; and (b) the market value of the securities purchased by or on behalf of the respective clients. (3) In respect of amounts receivable from clients arising from dealings in securities which are settled on a free delivery basis, a dealer shall include in his liquid assets the following amounts, calculated on a transaction-by-transaction basis- (a) where the local clearing system settles only on a free delivery basis, amounts receivable which have been outstanding for not more than 2 weeks after the settlement date; or (b) in all other cases, amounts receivable which are not yet due for settlement in accordance with the rules or regulations of the stock market in which the securities are traded. (4) A dealer or a securities margin financier shall include in his liquid assets amount receivable from a margin client arising from the provision of securities margin financing, less the higher of- (a) any provision for bad or doubtful debts; and (b) the margin shortfall amount, calculated as the amount by which the amount receivable exceeds the aggregate of- (i) the market value of collateral, other than illiquid collateral, provided by the client less the applicable haircut amount and multiplied by the applicable concentration discounting factor; (L.N. 87 of 2002) (ia) the market value of all illiquid collateral provided by the client, multiplied by 20%; (L.N. 87 of 2002) (ii) the amount of cash deposited as security by the client; and (iii) in the case of a dealer, the maximum amount that can be drawn by him under a bank guarantee which is provided by the client to him and which is issued by an authorized institution or an approved bank formed or established outside Hong Kong. (5) In calculating the margin shortfall under subsection (4)(b), the dealer or securities margin financier may elect to exclude, for all margin clients and on a client by client basis, from the amounts receivable amounts attributable to dealings in securities which are not yet due for settlement according to their settlement date, and in which case section 5(1)(b) shall not apply to the calculation of the balance of collateral provided by clients. (6) If a dealer or a securities margin financier elects to calculate margin shortfall in accordance with subsection (5), he is not allowed to change his election except with the prior approval of the Commission. (7) Amounts receivable from a securities margin financier, other than amounts included in liquid assets under subsection (8), shall be included in the liquid assets of a dealer at the lower of- (a) the amounts receivable less any provision made for bad or doubtful debts; and (b) the aggregate of- (i) the amount of cash deposited as security by the securities margin financier; (ii) the market value of any collateral provided by the securities margin financier less the applicable haircut amount; and (iii) the maximum amount that can be drawn by him under a bank guarantee issued by an authorized institution or an approved bank formed or established outside Hong Kong and provided by the securities margin financier. (8) A dealer shall include in his liquid assets net amount receivable from a securities margin financier arising from dealing in securities by their common clients, to the extent that such amount represents receivables from dealings which are not yet due for settlement according to their settlement date. (9) Where a dealer subscribes for securities on behalf of clients, he shall include in his liquid assets, calculated on a transaction-by-transaction basis, the lower of- (a) 90% of the total costs of subscribing for the securities; and (b) the amounts receivable from the respective clients in respect of such subscription for securities. (10) In this section, "illiquid collateral" (非速動抵押品), in relation to collateral provided to a dealer or securities margin financier by a margin client, means any listed or traded share or warrant which is of the same description as that identified as the top 3 collateral where- (a) if it is a share, the aggregate market value of all shares of the same description as that share provided to the dealer or securities margin financier by his margin clients as collateral is equal to or greater than- (i) the average monthly turnover of that share; or (ii) 5% of the total market capitalization of that share as at the end of the month immediately preceding the month prior to the month in which the calculation is made; or (b) if it is a warrant, the aggregate market value of all warrants of the same description as that warrant provided to the dealer or securities margin financier by his margin clients as collateral is equal to or greater than- (i) the average monthly turnover of that warrant; or (ii) 5% of the warrant issue as at the end of the month immediately preceding the month prior to the month in which the calculation is made, but does not include- (c) any listed or traded share or warrant which has been listed or traded for less than 6 consecutive months (including any period during which the share or warrant is suspended from trading) immediately preceding the month prior to the month in which the calculation is made; and (d) any listed share which is a constituent stock of any of the following indices- (i) Hang Seng Index; (ii) Hang Seng Hong Kong LargeCap Index; (iii) Hang Seng Hong Kong MidCap Index; (iv) FTSE-100 Index; (v) Nikkei 225 Index; or (vi) Standard & Poor's 500 Index. (L.N. 87 of 2002) (11) In this subsection and subsection (10)- "average monthly turnover" (平均每月成交額), in relation to a listed or traded share or warrant, means one sixth of the aggregate value of transactions in that share or warrant on any stock market on which it is listed or traded for a period of 6 consecutive months (including any period during which the share or warrant is suspended from trading) immediately preceding the month prior to the month in which the calculation is made; "calculation" (有關計算) means a calculation made for the purposes of subsection (4); "market capitalization" (市場資本值), in relation to a share, means the total number of shares of the same class as that share issued by the issuer of that share, as multiplied by their market price; "top 3 collateral" (首3位抵押品), in relation to a top margin client of a dealer or securities margin financier, means any of the 3 highest listed or traded shares or warrants in terms of market value among all shares or warrants provided by him to the dealer or securities margin financier as collateral; "top margin client" (佔首位的保證金客戶), in relation to a dealer or securities margin financier, means- (a) where he has less than 20 margin clients, each of his margin clients; or (b) where he has 20 or more margin clients, each of the 20 margin clients with the largest outstanding margin loan balances; "traded" (買賣), in relation to any share or warrant, means traded on a stock market. (L.N. 87 of 2002) "illiquid collateral" (非速動抵押品) "average monthly turnover" (平均每月成交額) "calculation" (有關計算) "market capitalization" (市場資本值) "top 3 collateral" (首3位抵押品) "top margin client" (佔首位的保證金客戶) "traded" (買賣) FINANCIAL RESOURCES RULES - SECT 13 Amounts receivable from clients and securities margin financiers arising from dealings in securities or the provision of securities margin financing VerDate:12/06/2000 (1) A dealer shall include in his liquid assets amounts receivable from clients arising from dealings in securities which are settled on a cash-against-delivery basis and the amounts receivable have been outstanding for not more than 5 business days after the settlement date. (2) In respect of amounts receivable from clients arising from dealings in securities which are settled on a cash-against-delivery basis, and the amounts receivable have been outstanding for 6 or more business days but less than 1 month after the settlement date, a dealer shall include in his liquid assets, calculated on a transaction-by-transaction basis, the lower of- (a) the amounts receivable less any provision made for bad or doubtful debts; and (b) the market value of the securities purchased by or on behalf of the respective clients. (3) In respect of amounts receivable from clients arising from dealings in securities which are settled on a free delivery basis, a dealer shall include in his liquid assets the following amounts, calculated on a transaction-by-transaction basis- (a) where the local clearing system settles only on a free delivery basis, amounts receivable which have been outstanding for not more than 2 weeks after the settlement date; or (b) in all other cases, amounts receivable which are not yet due for settlement in accordance with the rules or regulations of the stock market in which the securities are traded. (4) A dealer or a securities margin financier shall include in his liquid assets amount receivable from a margin client arising from the provision of securities margin financing, less the higher of- (a) any provision for bad or doubtful debts; and (b) the margin shortfall amount, calculated as the amount by which the amount receivable exceeds the aggregate of- (i) the market value of collateral provided by the client less the applicable haircut amount and multiplied by the applicable concentration discounting factor; (ii) the amount of cash deposited as security by the client; and (iii) in the case of a dealer, the maximum amount that can be drawn by him under a bank guarantee which is provided by the client to him and which is issued by an authorized institution or an approved bank formed or established outside Hong Kong. (5) In calculating the margin shortfall under subsection (4)(b), the dealer or securities margin financier may elect to exclude, for all margin clients and on a client by client basis, from the amounts receivable amounts attributable to dealings in securities which are not yet due for settlement according to their settlement date, and in which case section 5(1)(b) shall not apply to the calculation of the balance of collateral provided by clients. (6) If a dealer or a securities margin financier elects to calculate margin shortfall in accordance with subsection (5), he is not allowed to change his election except with the prior approval of the Commission. (7) Amounts receivable from a securities margin financier, other than amounts included in liquid assets under subsection (8), shall be included in the liquid assets of a dealer at the lower of- (a) the amounts receivable less any provision made for bad or doubtful debts; and (b) the aggregate of- (i) the amount of cash deposited as security by the securities margin financier; (ii) the market value of any collateral provided by the securities margin financier less the applicable haircut amount; and (iii) the maximum amount that can be drawn by him under a bank guarantee issued by an authorized institution or an approved bank formed or established outside Hong Kong and provided by the securities margin financier. (8) A dealer shall include in his liquid assets net amount receivable from a securities margin financier arising from dealing in securities by their common clients, to the extent that such amount represents receivables from dealings which are not yet due for settlement according to their settlement date. (9) Where a dealer subscribes for securities on behalf of clients, he shall include in his liquid assets, calculated on a transaction-by-transaction basis, the lower of- (a) 90% of the total costs of subscribing for the securities; and (b) the amounts receivable from the respective clients in respect of such subscription for securities. FINANCIAL RESOURCES RULES - SECT 14 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 14 Amounts receivable from counterparties, etc. arising from dealings in securities or the provision of securities margin financing VerDate:12/06/2000 (1) Where a dealer or securities margin financier sells securities on a cash-against-delivery basis to another dealer, whether that other dealer is registered in Hong Kong or registered or authorized by a regulatory body outside Hong Kong, he shall include in his liquid assets the following amounts receivable from that other dealer arising from such sales of securities- (a) amount receivable which has been outstanding for not more than 2 weeks after the settlement date; and (b) amount receivable which has been outstanding for more than 2 weeks but less than 1 month after the settlement date, at the lower of- (i) the amount receivable, calculated on a transaction-by-transaction basis, less any provision made for bad or doubtful debts; and (ii) the market value of the securities sold to that other dealer. (2) Where a dealer or securities margin financier sells securities on a free delivery basis to another dealer, whether that other dealer is registered in Hong Kong or registered or authorized by a regulatory body outside Hong Kong, he shall include in his liquid assets the following amounts receivable from that other dealer arising from such sales of securities, calculated on a transaction-by-transaction basis- (a) where the local clearing system only settles on a free delivery basis, those amounts receivable which have been outstanding for not more than 2 weeks after the settlement date; and (b) in all other cases, those amounts receivable which are not yet due for settlement in accordance with the rules or regulations of the stock market in which the securities are traded. (3) A dealer shall include in his liquid assets amounts receivable from, and cash deposited with, the Hong Kong Securities Clearing Company Limited, other than admission fees paid to it and contributions towards its Guarantee Fund. (4) A dealer shall include in his liquid assets amounts receivable from, and cash deposited with Euroclear or Centrale de Livraison de Valeurs Mobilieres (Cedel), other than, where applicable, admission fees paid to it and cash deposited as security against the dealer's general obligations. (5) A securities margin financier shall include in his liquid assets net amount receivable from a dealer, whether that dealer is registered in Hong Kong or registered or authorized by a regulatory body outside Hong Kong, arising from dealings in securities by their common clients through that dealer to the extent that such amount represents receivables arising from dealings which are not yet due for settlement according to their settlement date. (6) A dealer shall include in his liquid assets cash provided as security to another dealer (whether that other dealer is registered in Hong Kong or registered or authorized by a regulatory body outside Hong Kong), to the Unified Exchange or a stock market specified in Part I of Schedule 5, or to a clearing house of such stock market or a clearing member or clearing participant of such clearing house, and any interest accrued thereon, in respect of short selling of securities by the dealer, whether on his own account or on behalf of his client, provided that the dealer has not yet delivered the securities to the counterparty for settlement. FINANCIAL RESOURCES RULES - SECT 15 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 15 House positions-securities and other investments VerDate:12/06/2000 The following items shall be included in the liquid assets of a dealer or securities margin financier provided he is the beneficial owner thereof- (a) subject to section 5(10), (11), (13), (14) and (15), shares specified in Schedule 1 at market value less the applicable haircut amounts calculated by reference to the haircut percentages specified in either Part I or II, as he elects (there is no obligation to inform the Commission of any such election), and Part III, of Schedule 1; (b) the full amount of dividends receivable on shares listed on the Unified Exchange or a stock market specified in Schedule 5, provided such shares are traded on an ex-dividend basis; (c) qualifying debt securities at market value less the applicable haircut amounts; (d) special debt securities at market value less the applicable haircut amounts; (e) interest accrued on qualifying or special debt securities provided that such debt securities are traded on an ex-interest basis; (f) an amount paid in respect of subscription for shares specified in Schedule 1, warrants specified in Schedule 3, qualifying debt securities or special debt securities by a dealer on his own account less such amounts multiplied by 50% of the haircut percentages applicable to the shares, warrants, qualifying debt securities or special debt securities which are so subscribed for; (g) other securities at market value less the applicable haircut amounts; and (h) other investments at market value less the applicable haircut amounts. FINANCIAL RESOURCES RULES - SECT 16 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 16 Futures and options trading VerDate:12/06/2000 The following items shall be included in the liquid assets of a dealer- (a) amounts receivable from, and cash deposited with, the SEHK Options Clearing House Limited other than clients' monies deposited in a designated account maintained with it, admission fees paid to it and contributions towards its Reserve Fund by the dealer; (b) amounts receivable from, and cash deposited with, the HKFE Clearing Corporation Limited other than clients' monies deposited in a designated account maintained with it, admission fees paid to it and contributions towards its Reserve Fund by the dealer; (c) subject to paragraphs (a) and (b), where a dealer trades in futures or options contracts on his own account or on behalf of his clients, amounts receivable from, and cash deposited with, a futures dealer, futures or options clearing house or any of its clearing members or clearing participants in the ordinary course of trading in futures or options contracts, other than, where applicable, admission fees paid to it and cash deposited as security against the dealer's general obligations; (d) amounts receivable from a client in relation to a purchase of an option traded on the Unified Exchange, a stock market listed in Part I of Schedule 5 or a futures or options market listed in Schedule 6, calculated on a transaction-by-transaction basis, which have been outstanding for not more than 5 business days from the day of that purchase; and (e) subject to section 5(15), (19), (21) and (22), where a dealer purchases on his own account options traded on a futures or options market specified in Schedule 6 or, where applicable, the Unified Exchange or a stock market specified in Part I of Schedule 5- (i) in case such options are included in the calculation of a net amount of margin required to be deposited in respect of the options and any other futures or options positions, any net credit balance arising from that calculation that is maintained with a futures dealer, futures or options clearing house or any of its clearing members or clearing participants provided it has not already been included in liquid assets under paragraph (a), (b) or (c); or (ii) in any other case, 60% of the market value of such options. FINANCIAL RESOURCES RULES - SECT 17 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 17 Securities borrowing and lending and repurchase transactions VerDate:12/06/2000 (1) Where a dealer is the borrower of securities in a securities borrowing and lending, the amount receivable from the lender of such securities upon the dealer returning securities of the same description to the lender, comprising the cash provided by the dealer as security to the lender of such securities shall be included in his liquid assets provided the amount of such cash has not already been included in his liquid assets. (2) Where a dealer is in the first instance the buyer of securities in a repurchase transaction, an amount receivable from the seller of those securities in the amount of the price at which he purchased those securities shall be included in his liquid assets. FINANCIAL RESOURCES RULES - SECT 18 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 18 Miscellaneous VerDate:12/06/2000 The following items shall be included in the liquid assets of a dealer or securities margin financier provided that he is the beneficial owner thereof and holds them directly in his own name- (a) fees, commissions, commission rebates and interest charges which have accrued and will be first due for billing within 3 months and fees, commissions, commission rebates and interest charges which have been billed and have been outstanding for not more than 2 weeks after their billing date, provided that they arise from dealing in securities, trading in futures or options contracts, providing of securities margin financing, engaging in securities borrowing and lending, or the rendering of investment advice or commodity trading advice; (b) transfer deed stamps; (c) deposits paid to the Unified Exchange in accordance with the provisions of the Stamp Duty Ordinance (Cap 117); (d) prepaid operating expenses where such expenses will be incurred within 3 months; (e) tax reserve certificates issued in accordance with the Tax Reserve Certificates Ordinance (Cap 289); and (f) where a dealer or securities margin financier is a party to an interest rate swap agreement, interest accrued under the agreement, other than any amount which remains outstanding after it is first due for payment. FINANCIAL RESOURCES RULES - SECT 19 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 19 Calculation of ranking liabilities VerDate:12/06/2000 PART IV RANKING LIABILITIES Subject to section 5, all liabilities and financial adjustments (to the extent that the dealer or securities margin financier has not otherwise made provision for such adjustments) of a dealer or securities margin financier described in, and calculated in accordance with, sections 20 to 31, constitute ranking liabilities for the purposes of these Rules. <* Note - Exp. X-Ref.: Sections 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31 *> FINANCIAL RESOURCES RULES - SECT 20 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 20 Dealing in securities VerDate:12/06/2000 (1) A dealer shall include the following amounts in his ranking liabilities- (a) amounts payable to clients arising from dealing in securities, except where they represent amounts payable to clients out of monies held by that dealer in a designated trust account in accordance with the Securities Ordinance (Cap 333); (b) amounts payable to a securities margin financier arising from sales of securities by their common clients; and (c) amounts payable to counterparties and clearing houses arising from dealing in securities. (2) Subject to subsection (3), where a dealer sells securities on behalf of a client, and- (a) the client has been in default of his obligation to deliver the securities for more than 2 weeks after the settlement date; and (b) the dealer has not settled the sale with securities purchased on his own account, he shall include in his ranking liabilities the amount by which the market value of the securities exceeds the price at which the securities were sold. (3) Where a dealer sells securities on behalf of a client, and- (a) the client has been in default of his obligation to deliver the securities for more than 5 business days after the settlement date; (b) the dealer has not settled the sale with securities purchased on his own account; and (c) the market value of the securities is more than 200% of the price at which they were sold, he shall include in his ranking liabilities the amount by which the market value of the securities exceeds the price at which the securities were sold. FINANCIAL RESOURCES RULES - SECT 21 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 21 Provision of securities margin financing VerDate:01/10/2002 (1) A dealer or securities margin financier shall include the following amounts in his ranking liabilities- (L.N. 87 of 2002) (a) amounts payable to margin clients except where they represent amounts payable to clients out of monies held by that dealer or securities margin financier in a designated trust account in accordance with the Securities Ordinance (Cap 333); and (b) in the case of securities margin financier, net amount payable to a dealer by him arising from dealings in securities by their common clients through that dealer. (2) Where a dealer or securities margin financier obtains financial accommodation wholly or partly secured by collateral provided by his margin clients, he shall include in his ranking liabilities the amount by which such financial accommodation exceeds 65% of the aggregate amount receivable from his margin clients arising from the provision of securities margin financing. (L.N. 87 of 2002) FINANCIAL RESOURCES RULES - SECT 21 Provision of securities margin financing VerDate:12/06/2000 A dealer or securities margin financier shall include the following amounts in his ranking liabilities- (a) amounts payable to margin clients except where they represent amounts payable to clients out of monies held by that dealer or securities margin financier in a designated trust account in accordance with the Securities Ordinance (Cap 333); and (b) in the case of securities margin financier, net amount payable to a dealer by him arising from dealings in securities by their common clients through that dealer. FINANCIAL RESOURCES RULES - SECT 22 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 22 Futures and options trading VerDate:12/06/2000 (1) A dealer shall include the following amounts in his ranking liabilities- (a) amounts payable to clients arising from trading in futures or options contracts except where they represent amounts payable to clients out of monies held by that dealer in a designated trust account in accordance with the Securities Ordinance (Cap 333), a segregated account in accordance with the Commodities Trading Ordinance (Cap 250) or a designated account maintained by the dealer with the HKFE Clearing Corporation Limited or the SEHK Options Clearing House Limited; and (b) amounts payable to counterparties and clearing houses arising from trading in futures or options contracts. (2) Subject to subsection (6), where a dealer, on behalf of another person, trades in futures contracts, writes options or clears futures or options contracts, he shall include in his ranking liabilities any amount, to be calculated on an account by account basis, by which the amount of margin required to be deposited with him by that other person, less any floating profits made and add any floating losses incurred by that person, exceeds the aggregate of- (a) the amount of cash deposited by that other person as security; (b) the market value of collateral deposited with him by that other person less the applicable haircut amounts; (c) the market value of other investments deposited with him as security by that other person less the applicable haircut amounts; and (d) the maximum amount that can be drawn by the dealer under a bank guarantee which is provided by that person and which is issued by an authorized institution or an approved bank formed or established outside Hong Kong. (3) Subject to section 5(13), (16), (18), (20) and (23), where a dealer on his own account writes options which are traded on a futures or options market specified in Schedule 6 or, where applicable, the Unified Exchange or a stock market specified in Part I of Schedule 5, he shall include in his ranking liabilities the market value of any such options written by him or part thereof to the extent that such market value or part thereof has not been included in the calculation of the amount of margin required to be deposited by him in respect of such options positions. (4) Subject to section 5(13), (14), (16), (17), (18) and (20) to (23), a dealer shall include in his ranking liabilities the amount of margin required to be deposited by him in respect of- (a) futures contracts traded on his own account; and (b) options purchased or written by him on his own account which are traded on a futures or options market specified in Schedule 6 or, where applicable, the Unified Exchange or a stock market specified in Part I of Schedule 5. (5) Where a dealer on his own account writes an option which is not traded on a futures or options market specified in Schedule 6, the Unified Exchange or a stock market specified in Part I of Schedule 5, he shall include in his ranking liabilities the highest of- (a) twice the market value of the option; (b) twice the in-the-money amount of the option; or (c) twice the amount of margin required to be deposited by the dealer with the holder of the option or the agent who executes the trade for the dealer, provided that in the case of a put option, the amount to be included in his ranking liabilities will be limited to the value of the underlying assets stated at the strike price of that option. (6) No amount shall be included in the ranking liabilities of a dealer under subsection (2) during any period in which he is allowed under the rules, regulations or guidelines of the market in which the futures or options contract is traded to collect from the client margin required to be deposited by him. FINANCIAL RESOURCES RULES - SECT 23 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 23 Concentration of margin clients VerDate:12/06/2000 A dealer or a securities margin financier shall include in his ranking liabilities the amount by which any amount receivable from a margin client, or aggregated amounts receivable from a group of related margin clients, as calculated and included in liquid assets under section 13(4), exceeds 10% of the aggregate of amounts receivable from all margin clients calculated and included in liquid assets in accordance with that subsection. FINANCIAL RESOURCES RULES - SECT 24 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 24 Short positions in securities and other investments VerDate:12/06/2000 (1) Subject to subsections (2) to (5) and section 5(10), (11) and (19), where a dealer holds on his own account a short position in securities or other investments by short selling or otherwise, he shall include in his ranking liabilities the market value of the short position. (2) Subject to subsections (3) to (5) and section 5(9), (11), (17), (18) and (19), where a dealer holds a short position in securities or other investments which are of a type described in section 15 on his own account by short selling or otherwise, the amount to be included in his ranking liabilities under subsection (1) shall be increased by the applicable haircut amounts. (3) Subject to subsections (4) and (5) and section 5(9), (11), (17), (18) and (19), where a dealer holds a short position in securities or other investments on his own account by short selling or otherwise and where- (a) they are not of a type described in section 15; (b) they constitute more than 5% by market value of all securities, or of any class of securities, issued by a particular corporation; or (c) they are shares or warrants which have been suspended from trading for 3 business days or more, the amount to be included in his ranking liabilities under subsection (1) shall be increased by the market value of the securities or the other investments short sold. (4) Where a dealer issues call non-collateralised warrants on shares, to the extent that the dealer does not cover such warrants which are outstanding by holding the underlying shares, the amount to be included in his ranking liabilities under subsection (1) shall be increased by the amount by which the haircut amount which would be applicable to the shares underlying such warrants exceeds the aggregate out-of-the-money amounts of such warrants. (5) Where a dealer issues non-collateralised warrants on any assets other than shares, the amount to be included in his ranking liabilities under subsection (1) shall be increased by 30% of the market value of the assets which underlie such outstanding warrants. (6) Subject to subsection (7), where a dealer sells securities short on behalf of a client, he shall include in his ranking liabilities the amount by which the aggregate of the market value of the securities sold short and the applicable haircut amount exceeds the aggregate of- (a) the amount of cash deposited by that client or withheld by the dealer as security; (b) the maximum amount that can be drawn by the dealer under a bank guarantee which is provided to him by that client and which is issued by an authorized institution or an approved bank formed or established outside Hong Kong; and (c) the market value of any collateral deposited with the dealer by that client less the applicable haircut amount. (7) No financial adjustment shall be made to the ranking liabilities of a dealer under subsection (6) if- (a) the client has delivered the securities to him; or (b) the securities that were sold short are not yet due for settlement. FINANCIAL RESOURCES RULES - SECT 25 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 25 Concentrated house positions VerDate:12/06/2000 Where the net market value of a description of securities or other investments or a group of related securities held by a dealer or securities margin financier on his own account, calculated by netting item by item the long and the short positions in such securities, other investments or securities forming that group of related securities, equals or exceeds 25% of his required liquid capital, he shall include in his ranking liabilities such net market value multiplied by the percentage of net market value specified in Table A below- TABLE A Percentage of net market value in required liquid capital 25% to 50% Over 50% Percentage of net market value to be included in ranking liabilities 5% 10% FINANCIAL RESOURCES RULES - SECT 26 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 26 Securities borrowing and lending and repurchase transactions VerDate:12/06/2000 (1) Subject to section 5(9) and (16), where a dealer is the borrower of securities in a securities borrowing and lending (except where the lender is an approved securities borrowing and lending counterparty) or is the buyer of securities in a repurchase transaction, he shall include in his ranking liabilities the amount by which the amount of cash plus the market value of collateral provided by the dealer to the lender of the securities, less the applicable haircut amount; or the amount receivable from the seller of securities which is included in his liquid assets under section 17(2), as the case may be, exceeds- (a) where the securities borrowed or repurchased are- (i) shares listed on the Unified Exchange or a stock market listed in Part I of Schedule 5; or (ii) qualifying or special debt securities, 110% of their market value; or (b) in any other case, 50% of the market value of the securities borrowed or repurchased. (2) Subject to subsection (3), where a dealer is the lender of securities in a securities borrowing and lending (except where the borrower is an approved securities borrowing and lending counterparty) or is the seller of securities in a repurchase transaction, he shall include in his ranking liabilities the amount by which the market value of the securities lent or sold by the dealer, less the applicable haircut amount, exceeds the sum of- (a) the maximum amount that can be drawn by the dealer under a bank guarantee which is issued by an authorized institution or an approved bank formed or established outside Hong Kong and provided by the borrower or the buyer; (b) the amount of cash deposited by the borrower as security, or the amount of sale proceeds received from the buyer, as the case may be; (c) the market value of collateral provided by the borrower or the buyer which is in the form of shares listed on the Unified Exchange or on a stock market listed in Part I of Schedule 5, or qualifying or special debt securities, less the applicable haircut amount; and (d) 50% of the market value of collateral, other than those prescribed in paragraph (c), provided by the borrower or the buyer. (3) Where the securities lent, referred to in subsection (2), are clients' securities which a dealer can apply in a securities borrowing and lending without the provision of adequate collateral, cash deposited or bank guarantees to the client as security, the market value of the securities lent to be included in the calculation of his ranking liabilities under subsection (2) shall be increased by- (a) where such securities are of a type referred to in section 15, twice the applicable haircut amount; or (b) where such securities are not of a type referred to in section 15, the market value of such securities. FINANCIAL RESOURCES RULES - SECT 27 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 FINANCIAL RESOURCES RULES - SECT 27 Introduction of transactions VerDate:12/06/2000 Where a dealer introduces transactions to another dealer (whether that other dealer is registered in Hong Kong or registered or authorized by a regulatory body outside Hong Kong) for execution