LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - CHAPTER 451D LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - LONG TITLE Empowering section (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - LONG TITLE Empowering section VerDate:30/06/1997 (Cap 451 sections 21, 22 and 73) [1 September 1994] L.N. 482 of 1994 (L.N. 440 of 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 1 (Omitted as spent) VerDate:30/06/1997 PART I PRELIMINARY (Omitted as spent) (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 2 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 2 Interpretation VerDate:30/06/1997 In these Rules, unless the context otherwise requires- "address" (地址) means- (a) in the case of an individual, his residential or office address; (b) in the case of a corporation, its principal place of business; and (c) in the case of a partnership, its principal place of business; "advertisement" (廣告) has the meaning assigned to it in section 2(2)(a) of the Protection of Investors Ordinance (Cap 335); "client" (客戶) means any person who has entered into a client agreement with a licensed trader; "client agreement" (客戶協議書) means a written agreement that complies with section 5; "contract" (合約) means any contract, other than a client agreement or a discretionary account agreement, that is entered into by a licensed trader with or on behalf of a client and that relates to transactions regulated by the Ordinance; "discretionary account agreement" (全權委託戶口協議書) means a written agreement that complies with section 8; "floating loss" (浮動虧損) means unrealized losses calculated by marking to market foreign currency positions; "floating profit" (浮動利潤) means unrealized profits calculated by marking to market foreign currency positions; "initial margin" (最初保證金) means the minimum amount required to be deposited by a client with a licensed trader for each contract opened; "licensed trader" (持牌買賣商) means a licensed leveraged foreign exchange trader; "maintenance margin level" (維持保證金額) means the minimum balance which must be maintained for each contract by a client subsequent to the deposit of the initial margin; "net equity" (權益淨額) means the balance in the relevant client's ledger account at any given time, plus any floating profit or less any floating loss, and after adjusting for any income credited to and charges levied against that account; "trading day" (交易日) means a day on which a licensed trader is open for business. (Enacted 1994) "address" (地址) "advertisement" (廣告) "client" (客戶) "client agreement" (客戶協議書) "contract" (合約) "discretionary account agreement" (全權委託戶口協議書) "floating loss" (浮動虧損) "floating profit" (浮動利潤) "initial margin" (最初保證金) "licensed trader" (持牌買賣商) "maintenance margin level" (維持保證金額) "net equity" (權益淨額) "trading day" (交易日) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 3 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 PART II LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 3 Keeping of books, accounts and records VerDate:30/06/1997 PART II KEEPING OF BOOKS, ETC. AND CONTRACT NOTES (1) For the purposes of section 21 of the Ordinance, a licensed trader shall- (a) keep such accounting, trading and other records as are sufficient to- (i) explain all transactions undertaken by the licensed trader and the operation of its business; (ii) reflect the financial position of its business; and (iii) enable profit and loss accounts and balance sheets which give a true and fair view of its affairs to be prepared from time to time; (b) keep those records in such manner as would enable an audit to be conveniently and properly carried out; (c) make entries in those records in accordance with generally accepted accounting principles; and (d) keep those records at the principal place of business of the licensed trader in Hong Kong and, where the prior written approval of the Commission has been obtained, at any other place or places, whether in or outside Hong Kong. (2) The records mentioned in subsection (1) shall include- (a) particulars of- (i) all money received and paid by the licensed trader into accounts kept by it, including money paid to and disbursed from a segregated trust account; (ii) all income received by the licensed trader from any charges, commissions, brokerage, remuneration, interest and other sources; (iii) all expenses, commissions and interest paid by the licensed trader; and (iv) all the assets and liabilities, including contingent liabilities, of the licensed trader; and (b) particulars, including those specified in subsection (3), of all contracts and transactions entered into by the licensed trader with or on behalf of- (i) its clients who have signed the client agreement as specified in section 5; (ii) its clients who have signed the discretionary account agreement as specified in section 8; (iii) its representatives, employees and agents; (iv) its recognized counterparties; and (v) the licensed trader itself; and (c) copies of all contracts, client agreements, discretionary account agreements, order forms and all other agreements, confirmations and statements, registers, records, memoranda and correspondence made or received by the licensed trader in the course of the business for which it is licensed under the Ordinance. (3) The additional particulars referred to in subsection (2)(b) are- (a) the charges and credits arising from each of those contracts or transactions; (b) the names of the parties to each of those contracts or transactions; (c) the date and time of execution of each of those contracts or transactions; and (d) details of the relevant instructions and other terms and conditions. (4) For each trading day, the licensed trader shall maintain records which include- (a) the marked to market position for its own accounts and the accounts of each of its clients and recognized counterparties at the end of a trading day; (b) for each contract executed by the licensed trader- (i) the bid and offer prices quoted by the licensed trader to the client; (ii) the price at which the contract is executed; and (iii) the bid and offer prices at the time of execution of the contract as quoted and disseminated to the public, or to subscribers, by a reputable financial information services organization; and (c) the interest rate differentials which are charged or paid by the licensed trader on a daily basis for being long or short, one currency against another. (5) The licensed trader shall ensure that its records are sufficient to demonstrate whether or not the Leveraged Foreign Exchange Trading (Financial Resources) Rules (Cap 451 sub. leg.) have been complied with at all times. (6) The licensed trader shall adopt all reasonably necessary procedures for- (a) guarding against falsification of its records; and (b) facilitating discovery of any falsification of its records. (7) Except as otherwise provided in the Ordinance and these Rules, a licensed trader shall retain the records required by this section for a period of not less than 7 years. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 4 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 4 Preparation and production of contract notes and statements of account VerDate:30/06/1997 (1) For the purposes of section 22 of the Ordinance, a licensed trader shall, subject to subsection (4), make out and dispatch to a client no later than the end of the next trading day after the execution of a contract- (a) a contract note in respect of every contract entered into with or on behalf of that client; and (b) a statement of account for the relevant trading day. (2) A contract note shall include- (a) the name of the licensed trader as registered with the Commission and its address; (b) (i) where the licensed trader is acting as principal, a statement that it is so acting; or (ii) where the licensed trader is acting as agent, a statement that it is so acting and the name of the person for whom it is acting; (c) the name and address of the client; (d) the date and time of receipt of the client order; (e) the date and time of execution of the contract; (f) particulars of the contract specifying the currency, and if more than one, each currency to which the contract relates, and in relation to each such currency- (i) the amount involved; (ii) whether it is a sale or a purchase; (iii) whether it is for the opening or closing of a position; (iv) the price at which it is executed; and (v) the interest rate, if applicable; (g) the rate and amount of commission, if any, payable in respect of the contract; (h) the date of settlement, if any; and (i) the amount of margin deposit required, if any. (3) A statement of account referred to in subsection (1)(b) shall include- (a) the net equity balance of the account as at the beginning of the trading day on which the relevant contract was executed; (b) all income credited to and charges levied against the account during that trading day; (c) all movements of cash and margin deposits during that trading day; (d) all floating profits and floating losses calculated as at the end of that trading day and the prices used for such purposes; (e) all interest income and expenses accrued at the end of that trading day and the interest rates used for such purposes; (f) the net equity balance of the account as at the end of that trading day; (g) the minimum margin requirement for all open positions as at the end of that trading day; (h) the amount of margin excess or margin shortfall as at the end of that trading day; and (i) a list of all open positions as at the end of that trading day. (4) A licensed trader may, instead of making out and dispatching to the client any contract notes required to be made under subsection (1)(a) in respect of a contract or contracts entered into during the same trading day, consolidate the contract note or notes into the statement of account. (5) For the purposes of this section, delivery of any contract note or statement of account may be made by hand, by post, by facsimile or other mode of electronic transmission. (6) Except as otherwise provided in the Ordinance, a licensed trader shall retain in its records a copy of every contract note and statement of account required by this section for a period of not less than 2 years. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 5 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 5 Client agreement VerDate:30/06/1997 PART III CLIENT PROCEDURES (1) A licensed trader shall, before entering into a contract with or on behalf of a person- (a) inform the person that a client agreement is required to be entered into between them in writing in either English or Chinese; (b) explain to that person the contents of the client agreement; and (c) enter into a client agreement with that person. (2) The client agreement shall include- (a) the full name and address of the client; (b) the full name and address of the licensed trader and details of the licence it holds, including any conditions imposed on the licence; (c) a statement by the client- (i) that the client is trading on his own behalf; or (ii) if the client is not trading on his own behalf, of the name of the ultimate beneficiary on whose behalf the client is trading; (d) a statement by the client as to whether he is to operate his account by giving orders himself or by appointing another person to give orders on his behalf, and in the latter case, the name and address of the person appointed, to be accompanied by an appointment in writing; (e) a statement by the licensed trader that none of its employees or representatives shall accept appointment by the client as agent to operate the client's account for the purposes of paragraph (d) unless a separate agreement is entered into in accordance with section 8; (f) a statement by the licensed trader as to whether it may take the opposite position to a client's order; (g) a statement as to whether or not any employee or representative of the licensed trader may be allowed to trade contracts on his own account pursuant to the policy established under section 17(3); (h) a statement that all telephone conversations between the licensed trader and the client made in the course of business will be recorded on a centralized tape recording system operated by the licensed trader; (i) details of the basis on which charges, commission, brokerage and other remuneration are to be paid by the client; (j) specification of all services and contracts which the licensed trader may provide to, transact with, or undertake on behalf of, the client and of all terms and conditions attached to those services and to the trading of contracts; (k) where the terms of its licence so requires, a statement that in relation to any dispute between the licensed trader and the client, the licensed trader shall, if the client so requires, agree to refer the dispute to arbitration in accordance with the Leveraged Foreign Exchange Trading (Arbitration) Rules (Cap 451 sub. leg.); (l) details of margin requirements and the time within which any initial margin or other margin deposits must be paid; (m) the circumstances in which contracts transacted with or undertaken on behalf of the client may be closed out without the client's consent; (n) a statement as to whether the client, the licensed trader or any other person will be entitled in whole or in part to interest, dividends or other benefits derived from the client's margin collateral; (o) a description of the methods or procedures adopted by the licensed trader in choosing the prices or interest rates for the purposes of marking to market the client's open positions and in calculating the client's interest income and expenses; (p) a statement that the client may be affected by any curtailment of, or restriction on, the capacity of the licensed trader to deal in respect of open positions as a result of action taken by the Commission under the Ordinance or for any other reason, and that in such circumstances, the client may be required to reduce or close out his open positions with the licensed trader; and (q) a statement to the effect that the client agreement and all rights, obligations and liabilities under it shall be governed by and construed in accordance with Hong Kong law. (3) The following items, which shall be placed on separate sheets of paper forming part of the client agreement, are required to be signed or acknowledged, as the case may be, by the client under each item- (a) the risk disclosure statement prescribed by section 7(2); (b) undertakings by both the licensed trader and the client that each will notify the other of any material change to the information provided in the client agreement; (c) a statement by the client that he will immediately notify the licensed trader of any change in his address; and (d) a statement by the client that he understands the contents of the client agreement and accepts its terms and conditions. (4) No licensed trader shall include terms and conditions in any agreement or documentation with the client which are inconsistent with its obligations to the client under the Ordinance or any rules made thereunder. (5) A licensed trader shall file with the Commission its standard form of client agreement together with- (a) confirmation from its responsible director that the standard form of client agreement will govern all contracts entered into with or on behalf of its clients; and (b) confirmation from its responsible director and the legal advisers of the licensed trader that the standard form of client agreement complies with the requirements of subsections (2) and (3). (6) A licensed trader shall submit to the Commission any proposed amendments to the standard form of client agreement, together with confirmation from its responsible director and legal advisers that the standard form of client agreement as so amended complies with the requirements of subsections (2) and (3). (7) A licensed trader shall not- (a) enter into an agreement with a client on the basis of the standard form of client agreement; or (b) implement any changes to the standard form of client agreement, before a copy has been filed with the Commission in accordance with subsections (5) and (6), provided that a breach of this provision shall not of itself invalidate any agreement that is otherwise valid. (8) A licensed trader shall notify each of its clients in writing as soon as possible of any change to its licence, including changes to the conditions imposed thereon. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 6 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 6 Statement of client information VerDate:30/06/1997 (1) A licensed trader shall obtain from each of its clients a written statement which contains the following information about that client- (a) the name, address, telephone number and facsimile number, if any, of the client; (b) (i) in the case of an individual, details of that individual's Hong Kong identity card or, if the client is not the holder of an identity card, details of his passport, travel or other document issued by a competent government agency providing proof of identity; (ii) in the case of a corporation, details of its certificate of incorporation or similar document issued by the relevant authority of the country of incorporation; (iii) in the case of a partnership, details of its business registration certificate or similar document issued by the relevant authority of the country where the partnership was formed or, where not available, the partnership agreement or other document constituting the partnership; (c) (i) in the case of an individual, his occupation, position and years spent in that occupation; (ii) in the case of a corporation, the type of business and the number of years in the business; (iii) in the case of a partnership, the type of business and the number of years in that business; (d) details of the financial position of the client; and (e) details of the client's investment objectives and strategy. (2) Where a client has appointed another person to trade on his behalf, the licensed trader shall obtain the information required in subsection (1)(a), (b) and (c) in relation to that person and a statement of his relationship with the client. (3) A licensed trader shall obtain from each of its clients, and from any person who is authorized by the client to trade on his behalf, a written declaration to the effect that- (a) the statement provided under subsection (1) is true, complete and correct; and (b) the client and the authorized person will notify the licensed trader of any material changes to that information. (4) A sole proprietor shall, notwithstanding that he is trading in the name of his firm, be deemed to be trading as an individual for the purposes of these provisions. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 7 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 7 Risk disclosure statement VerDate:30/06/1997 (1) A licensed trader shall include in every client agreement a risk disclosure statement which shall be in bold print not smaller than the ordinary print for the text of the agreement. (2) The risk disclosure statement shall provide the following warning- "The risk of loss in leveraged foreign exchange trading can be substantial. You may sustain losses in excess of your initial margin funds. Placing contingent orders, such as "stop-loss" or "stop-limit" orders, will not necessarily limit losses to the intended amounts. Market conditions may make it impossible to execute such orders. You may be called upon at short notice to deposit additional margin funds. If the required funds are not provided within the prescribed time, your position may be liquidated. You will remain liable for any resulting deficit in your account. You should therefore carefully consider whether such trading is suitable in light of your own financial position and investment objectives.". (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 8 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 8 Discretionary accounts VerDate:30/06/1997 (1) A licensed trader who wishes to offer discretionary account services to its clients shall enter into a separate written discretionary account agreement with the client which, together with the client agreement required by section 5, will govern the relationship between the licensed trader and the client. (2) A licensed trader shall, before entering into any contract with or on behalf of a client under a discretionary account- (a) inform the client that a discretionary account agreement is required to be entered into between them in writing in either English or Chinese; (b) explain to the client the contents of the discretionary account agreement; and (c) enter into a discretionary account agreement with the client. (3) The discretionary account agreement shall include- (a) a description by the licensed trader as to the way in which the discretionary account will be managed by it, including information required pursuant to subsection (5); (b) a statement that the client appoints the licensed trader to manage his account; (c) a statement by the licensed trader of- (i) the name of the representative managing the account; (ii) the name of the supervisor of that representative; and (iii) whether that representative is permitted to deal for his own account pursuant to the policy established under section 17(3); (d) details of the terms and conditions specified by the client for management of the account, which shall include- (i) the amount deposited by the client; (ii) the terms and conditions of any "stop-loss" or "stop-limit" order by the client; and (iii) any specifications imposed by the client concerning his investment objectives and strategy including the size of transactions, frequency of trading and the currencies to be traded in; (e) details of all charges, commission, brokerage or remuneration payable by the client in addition to the charges, commission, brokerage or remuneration payable under the client agreement; (f) a statement that any modifications to the discretionary account agreement must be in writing and accepted by both parties in writing except for the terms and conditions specified in paragraph (d), which may be amended unilaterally at any time by the client; (g) a statement that either party may suspend or terminate the discretionary account agreement at any time by giving notice of suspension or termination to the other by telephone or in writing, such suspension or termination to take effect upon receipt of the notice; (h) a statement by the client that he understands that he is not obliged to enter into a discretionary account agreement before he can retain other non-discretionary services of the licensed trader, that he understands the contents of the discretionary account agreement and that he accepts the terms and conditions contained therein; (i) the risk disclosure statement prescribed by section 7(2); (j) an explanation of the additional risks of giving discretionary powers to a licensed trader to manage an account on his behalf, including the total dependence by the client on the integrity and skill of the licensed trader and the inherent risk of conflict of interest in that a licensed trader may take the opposite position to a client's order while acting for the client. (4) A licensed trader shall not accept or carry a discretionary account unless it- (a) has obtained, in addition to a duly signed discretionary account agreement under subsection (1), a signed copy of a power of attorney or other document by which trading authority is given or restricted; and (b) has designated such an account in its books and records as a discretionary account. (5) A licensed trader shall comply with the following procedures in managing a discretionary account- (a) whenever the net equity in a discretionary account falls during any one calendar month by more than 30% from the level at which it stood at the beginning of that month, the licensed trader- (i) shall immediately notify the client of the level of net equity, the amount of trading loss and the amount of income generated to the licensed trader from the account during that month; (ii) shall not, except in order to close out existing open positions, initiate any new contracts in respect of the discretionary account unless the client consents and subject to such conditions as may be imposed by the client; (b) in the case of any discretionary account to which paragraph (a)(ii) applies- (i) the licensed trader shall assign a director to review and approve every contract executed for the discretionary account before the consent of the client has been received; and (ii) where the consent of the client to continue trading is duly given, the licensed trader shall continue to comply with the requirements of paragraph (a), by using the net equity standing at the beginning of the day on which his consent is given as a new starting point. (6) For the purposes of subsection (5)(a), the net equity standing at the beginning of any calendar month shall be treated as including any cash deposits made to, and as excluding any cash withdrawal made from, the account by the client during that month. (7) For the purposes of this section, the consent of the client is duly given only if it is given in writing or is recorded on the centralized tape recording system of the licensed trader. (8) A licensed trader shall not maintain a trading position for a client where the client holds an equal outstanding long and short position of the same foreign currency at the same time, unless such position is specifically requested by the client in each instance. (9) All attempts to telephone the client shall be recorded on the centralized tape recording system. (10) Each discretionary account shall be reviewed by a responsible director of the licensed trader at least once every 3 trading days to ensure that it is being operated in conformity with the specific instructions of the client, if any, the client agreement, the discretionary account agreement and these Rules. (11) A licensed trader shall submit a standard form of discretionary account agreement to the Commission and section 5(5), (6) and (7) shall apply to such an agreement in the same way as it applies to a standard form of client agreement under that section. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 9 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 9 Client orders VerDate:30/06/1997 (1) A licensed trader shall- (a) ensure that all telephone orders from a client are recorded on the centralized tape recording system operated by it; and (b) record in writing each order, whether made by telephone or otherwise, immediately after it is received. (2) The record required to be made under subsection (1) shall include- (a) the name of the client and, if applicable, the person who is authorized by the client to give the order and the account number of the client; (b) the time and date at which the order was received; (c) the method by which the order was given; (d) the type, price and quantity of the contracts ordered; (e) the name of the representative or employee of the licensed trader who received the order; and (f) detailed particulars of the instructions in respect of the order. (3) A licensed trader shall confirm the details of each order executed as soon as possible with that client or his agent, as the case may be, through a telephone connected to the centralized tape recording system. (4) Where the voice of a client cannot be recorded on the centralized tape recording system for any reason, the licensed trader shall- (a) in the absence of any written instructions given by the client in respect of the order, require the client to sign an order form; and (b) confirm details of the contract with the client once an order has been executed. (5) Where a licensed trader does not have the client's confirmation on tape or on an order form as required by subsection (4)(a) and the client disputes the order within 10 trading days of its execution, it shall be voidable at the option of the client. (6) Where a client gives any instructions involving closing positions or closing an entire account, a licensed trader shall ensure that all necessary contracts that may be required in order to implement those instructions are executed promptly and that the price and terms and conditions of such contracts do not differ in any material respect from contracts entered into with or on behalf of other clients. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 10 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 10 Payment to clients VerDate:30/06/1997 A licensed trader shall ensure that any instructions given by a client relating to payment to the client of any net equity, floating profit or margin excess are complied with within 1 trading day. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 11 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 11 Statement of account VerDate:30/06/1997 (1) A licensed trader shall, within 7 trading days of the end of each calendar month, provide to each of its clients a monthly statement of account which shall include- (a) all contracts entered into with or on behalf of the client during that period; (b) the net equity balance of the account as at the beginning of that period; (c) all income credited to and charges levied against the account during that period; (d) all movements of cash and margin deposits during that period; (e) all floating profits and floating losses calculated as at the end of that period and the prices used for such purposes; (f) all interest income and expenses accrued at the end of that period and the interest rates used for such purposes; (g) the net equity balance of the account as at the end of that period; (h) the minimum margin requirement for all open positions as at the end of that period; (i) the amount of margin excess or margin shortfall as at the end of that period; (j) a list of all open positions as at the end of that period; and (k) a list of the balances of all holdings of cash and other assets held in the client's account as at the end of that period. (2) A licensed trader shall, upon a client's request, disclose to the client the financial condition of its business by- (a) providing him with a copy of its latest accounts as filed with the Commission under the Leveraged Foreign Exchange Trading (Financial Resources) Rules (Cap 451 sub. leg.); and (b) disclosing any material changes since its latest accounts which may adversely affect its financial condition. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 12 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 PART IV LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 12 Client's margin VerDate:30/06/1997 PART IV MARGINS (1) A licensed trader shall set the initial margin and maintenance margin level for its clients at not less than 5% and 3% respectively of the principal amount of the contract offered by the licensed trader. (2) Except as provided in subsection (3), no licensed trader shall execute any contract for a client until and unless the licensed trader has received from the client a margin deposit adequate to cover the initial margin required. (3) A licensed trader may execute a contract for a client, other than a discretionary account client, without first having received the initial margin from that client if it is reasonably satisfied that, given the investment objectives, investment strategy and financial position of that client, the full amount of the initial margin will be deposited by the client within the next trading day or such shorter period as may be specified by the licensed trader. (4) Subsection (3) does not apply to a client- (a) who has never entered into a contract through or with the licensed trader; (b) who has never paid, or been asked to pay, any initial margin to the licensed trader; or (c) who has failed to satisfy the initial margin requirement as specified in subsection (3) on at least 2 occasions during the period of 1 year immediately preceding the transaction for which the deferral of the deposit of initial margin is requested by the client. (5) For the purposes of calculating the amount of any margin deposit required under this section, the basis and method of valuation applicable to margins as provided in the Leveraged Foreign Exchange Trading (Financial Resources) Rules (Cap 451 sub. leg.) shall be adopted. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 13 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 13 No credit on margin VerDate:30/06/1997 Except as expressly provided in section 12(3), a licensed trader shall not extend any credit or give any rebate of any kind to a client which has the effect of circumventing or evading the margin requirements specified herein. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 14 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 14 Restricted use of margin collateral VerDate:30/06/1997 (1) A licensed trader shall ensure that margin deposits and other assets of its clients and recognized counterparties are properly safeguarded and are held separately from the assets of the licensed trader. (2) A licensed trader shall not use the margin collateral of its clients as security for loans or advances made to it or to any other person. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 15 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 PART V LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 15 Representatives and employees VerDate:30/06/1997 PART V STAFF AND STAFF DEALINGS (1) A licensed trader shall be responsible for all acts carried out and omissions made on its behalf by- (a) its representatives and all persons for whose registration it is responsible under the Ordinance; and (b) any other persons employed by it for the purposes of carrying on its business as a licensed trader, provided the acts or omissions are within the ostensible authority of that person. (2) A licensed trader shall ensure that its representatives and employees comply with the licensing requirements of the Ordinance. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 16 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 16 Register of representatives and employees VerDate:30/06/1997 (1) A licensed trader shall maintain a register of all of its representatives and employees. (2) The register shall include the following particulars with respect to each representative and employee- (a) the name, residential address and telephone number of each individual; (b) details of that individual's Hong Kong identity card or, if the individual is not the holder of an identity card, details of his passport, travel or other document issued by a competent government agency providing proof of identity; (c) the job title and description of responsibility of each individual; (d) the amount of any charges, commission, brokerage and remuneration to which that individual is entitled at each monthly interval or such shorter period and the means by which it is paid; (e) the date of becoming or ceasing to be an employee or representative; (f) the name, address and telephone number of every former employer of the individual within 5 years immediately preceding the commencement of his employment with the licensed trader; (g) the education of the individual; and (h) particulars of every licence in respect of the individual. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 17 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 17 Personal dealings by staff VerDate:30/06/1997 (1) No representative or employee of a licensed trader shall be a client of another licensed trader. (2) A licensed trader must make reasonable enquiries to ensure that none of its representatives or employees contravenes subsection (1). (3) A licensed trader shall have a policy, which shall be communicated in writing to its representatives or employees, as to whether they are permitted to deal for their own account. (4) A licensed trader who permits its representatives or employees to deal for their own account shall ensure that- (a) contracts undertaken for the account of a representative or employee must be separately recorded and clearly identified as such in the records of the licensed trader; and (b) contracts undertaken for the account of a representative or employee must be reported to and reviewed on a daily basis by a director of the licensed trader. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 18 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 PART VI LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 18 Advertisements VerDate:30/06/1997 PART VI MISCELLANEOUS (1) Where a licensed trader issues an advertisement in relation to its business, it shall ensure that- (a) the advertisement is not misleading or deceptive; and (b) the advertisement contains a risk disclosure statement as prescribed by section 7(2). (2) The Commission may- (a) prohibit the continued use of any advertisement by a licensed trader which contravenes subsection (1); or (b) permit the use of such advertisement provided that- (i) the licensed trader removes any reference in the advertisement which is misleading or deceptive; (ii) the licensed trader reformulates any advertisement which is misleading or deceptive in such a way that it is no longer misleading or deceptive; and (iii) the provisions of section 7(2) are satisfied. (3) Where any advertisement by a licensed trader is prohibited under subsection (2)(a), the licensed trader shall ensure that publication or distribution of such advertisement is stopped immediately. (4) Any material issued by the licensed trader which is intended to promote, or which has the effect of promoting, interest in the business of the licensed trader shall be deemed to be an advertisement for the purposes of this section. (5) If a licensed trader is aggrieved- (a) where the Commission prohibits the use of any advertisement in relation to its business, by that prohibition; or (b) where the Commission permits the use of such advertisement subject to any condition imposed under subsection (2)(b), by that imposition, it may appeal to the Securities and Futures Appeals Panel. (6) An appeal referred to in subsection (5) shall not affect the coming into force of any prohibition or imposition to which the appeal relates. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 19 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 19 Taping VerDate:30/06/1997 (1) A licensed trader shall install at its place of business a centralized tape recording system to record all telephone conversations conducted by it or its representatives with prospective clients, clients and recognized counterparties. (2) All telephone lines used by staff of the licensed trader responsible for making calls within the meaning of section 39(2) of the Ordinance, confirming orders, executing contracts, transferring funds, or carrying out instructions incidental thereto, shall be routed through the centralized tape recording system. (3) Tapes from the centralized tape recording system shall be kept for at least 2 months. (4) A licensed trader shall ensure that access to tapes of the centralized tape recording system, whether in use or in storage, is strictly controlled. (5) A licensed trader shall- (a) use its best endeavours to ensure that the centralized tape recording system functions properly at all times; and (b) carry out random checks at intervals of not less than once every week to ensure that the provisions of the Ordinance and any rules made thereunder have been complied with. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 20 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 20 Dealing practices VerDate:30/06/1997 (1) A licensed trader shall- (a) disclose its trading hours to its clients, specifying the beginning and ending hours of a trading day; and (b) display at each of its places of business a prominent notice which shows the information as specified in paragraph (a). (2) A licensed trader shall quote both the bid and offer prices at the request of a client. (3) A licensed trader shall not quote a price for a contract without specifying whether the price is, for a given quantity of contracts, a firm one or merely indicative. (4) A licensed trader quoting a price for a contract to any person shall inform that person that the price given by it is available only for a limited period of time and, where practicable, specify the time period in question. (5) A licensed trader quoting a firm price shall deal at that price. (6) All contracts shall be recorded in dealing slips which are time stamped. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 21 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 21 Licence to be exhibited VerDate:30/06/1997 A licensed trader shall exhibit- (a) its licence in a prominent place at its principal place of business; and (b) a certified copy of its licence at each of its other places of business, if any. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 22 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 22 Location of business VerDate:30/06/1997 A licensed trader shall carry on a business of leveraged foreign exchange trading only at an address or addresses approved by the Commission for that purpose. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 23 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 23 Record of client's complaints VerDate:30/06/1997 (1) A licensed trader shall- (a) maintain a written record of any complaints from clients; and (b) establish and implement proper procedures for handling and investigating such complaints. (2) A licensed trader shall ensure that client complaints are dealt with promptly and remedial action is taken as soon as possible. (3) A licensed trader shall inform a client of the results of any complaints made by him as soon as practicable and in any event within 3 days of determining the results of that complaint. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 24 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 24 Obligation to notify the Commission VerDate:30/06/1997 A licensed trader and its representatives shall notify the Commission in writing immediately upon its becoming aware of any breach of the provisions of the Ordinance or any rules made thereunder. (Enacted 1994) LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 25 (Repealed 5 of 2002 s. 406) VerDate:01/04/2003 LEVERAGED FOREIGN EXCHANGE TRADING (BOOKS, CONTRACT NOTES AND CONDUCT OF BUSINESS) RULES - SECT 25 Penalties VerDate:30/06/1997 Any person who contravenes section 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23 or 24 commits an offence and is liable to a fine of $50000 and to imprisonment for 6 months. (Enacted 1994)