Hong Kong Regulations

LEVERAGED FOREIGN EXCHANGE TRADING (FINANCIAL RESOURCES) RULES - SECT 6

Ranking liabilities

Caution: This is a past version. See the current version here.

(1) The following liabilities and financial adjustments of a licensed
leveraged foreign exchange trader are ranking liabilities for the purposes of
this Part and shall be calculated in accordance with this section and
section 7-

   (a)  liabilities to clients in respect of cash deposits received and
        interest payable on the deposits;

   (b)  where the licensed leveraged foreign exchange trader has any
        outstanding contract relating to leveraged foreign exchange trading
        with a client, the excess, which is calculated on a client by client
        basis, of-

        (i)    3% of the aggregate gross principal value of all outstanding
               contracts relating to leveraged foreign exchange trading in all
               foreign currencies other than currency linked to Hong Kong
               currency; over

        (ii)   (A) margin, as calculated in accordance with subsection

(2), received from the client together with accrued interest payable and
floating profits due to the client in respect of contracts relating to
leveraged foreign exchange trading; less (B) accrued interest, fees and
commissions receivable and floating losses due from the client in respect of
contracts relating to leveraged foreign exchange trading;

   (c)  floating losses in respect of foreign currency positions;

   (d)  in the case of a licensed leveraged foreign exchange trader other than
        a leveraged foreign exchange introducing agent, 5% of the amount by
        which the sum of the net positions of all foreign currencies other
        than currency linked to Hong Kong currency, as calculated in
        accordance with subsection (3), exceeds $20000000;

   (e)  in the case of any foreign exchange agreement to which the licensed
        leveraged foreign exchange trader is a party, the amount of currency
        to be received by the licensed leveraged foreign exchange trader under
        such foreign exchange agreement multiplied by the percentage specified
        in the following Table-

TABLE

Remaining term of foreign exchange agreement Percentage

        (i)    Where the other party is an authorized institution
Less than 3 days	   0%
3 days or more but less than 1 year 0.2% 1 year or more 0.5% plus 0.3% for
each additional full year in excess of 1 year

        (ii)   Where the other party is not an authorized institution 5%

   (f)  provision made for contingent liabilities;

   (g)  10% of the amount of any guarantee provided by the licensed leveraged
        foreign exchange trader;

   (h)  any amount by which the total liabilities of any subsidiary of the
        licensed leveraged foreign exchange trader (other than any amounts due
        to such trader) exceed the assets of that subsidiary;

   (i)  the consideration at which redeemable shares have been issued by the
        licensed leveraged foreign exchange trader but not redeemed, other
        than any approved redeemable shares;

   (j)  in the case of a licensed leveraged foreign exchange trader which is a
        leveraged foreign exchange introducing agent, 5% of the amount
        representing the difference between-

        (i)    the aggregate of the value of assets, other than fixed assets,
               beneficially owned by the leveraged foreign exchange
               introducing agent which are denominated in a foreign currency
               (other than a currency linked to Hong Kong currency) together
               with the amount of that foreign currency which it is obliged to
               purchase under any contract; and

        (ii)   the aggregate of the liabilities of the leveraged foreign
               exchange introducing agent which are denominated in that
               foreign currency together with the amount of that foreign
               currency which it is obliged to sell under any contract; and

   (k)  all other liabilities that are regarded as liabilities under generally
        accepted accounting principles other than any approved subordinated
        loan.

(2) For the purpose of subsection (1)(b)(ii)(A), the following collateral
provided by clients to a licensed leveraged foreign exchange trader are
regarded as margin and shall be calculated in accordance with this section and
section 7-

   (a)  100% of cash in Hong Kong currency (or currency linked to Hong Kong
        currency);

   (b)  95% of cash in such foreign currency as may be approved by the
        Commission in writing in each particular case;

   (c)  95% of any time deposits in Hong Kong currency (or currency linked to
        Hong Kong currency) which are placed with a local branch or the
        principal place of business in Hong Kong of an authorized institution
        and which will become payable within 6 months and which have been
        assigned to the licensed leveraged foreign exchange trader;

   (d)  60% by market value of any shares that are listed on the Unified
        Exchange or on any stock market specified in Part I of Schedule 1;

   (e)  80% by market value of any recognized debt securities issued or
        guaranteed by the Government of Hong Kong, or by any government of or
        central bank of an OECD country or Singapore;

   (f)  60% by market value of any recognized debt securities other than those
        specified in paragraph (e);

   (g)  90% of the maximum amount that could be drawn under current letters of
        credit issued by banks incorporated in Hong Kong or banks incorporated
        or established by or under the law or other authority of any OECD
        country or of Singapore in favour of the licensed leveraged foreign
        exchange trader.

(3) For the purpose of subsection (1)(d)-

   (a)  the net position of a particular foreign currency of a licensed
        leveraged foreign exchange trader is calculated as the difference
        between-

        (i)    the aggregate of the value of assets, other than fixed assets,
               beneficially owned by the licensed leveraged foreign exchange
               trader which are denominated in that foreign currency together
               with the amount of that foreign currency which it is obliged to
               purchase under any contract; and

        (ii)   the aggregate of the liabilities of the licensed leveraged
               foreign exchange trader which are denominated in that foreign
               currency together with the amount of that foreign currency
               which it is obliged to sell under any contract;

   (b)  the net position of a particular foreign currency of a licensed
        leveraged foreign exchange trader shall not be set off against the net
        position of another currency of such trader. (Enacted 1994)