Hong Kong Regulations

LEVERAGED FOREIGN EXCHANGE TRADING (FINANCIAL RESOURCES) RULES - SECT 7

Calculation of liquid assets and ranking liabilities

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

(1) Liquid assets and ranking liabilities in relation to all transactions
entered into by a licensed leveraged foreign exchange trader shall be
calculated on a trade date basis.

(2) For the purposes of calculating the liquid assets of a licensed leveraged
foreign exchange trader and the collateral provided by a client to such trader
as margin under section 6(2), the value of any securities the trading of which
is suspended for more than 2 business days shall be zero.

(3) Notwithstanding anything in section 5, any assets which are given by a
licensed leveraged foreign exchange trader to others as security for any
liabilities or obligations of other parties shall not be included as liquid
assets of the licensed leveraged foreign exchange trader.

(4) Notwithstanding anything in section 5, amounts which are receivable from
outside Hong Kong by a licensed leveraged foreign exchange trader and which
are not freely remittable to Hong Kong shall not be included as liquid assets
of the licensed leveraged foreign exchange trader.

(5) Where a licensed leveraged foreign exchange trader holds 5% or more of the
entire issued share capital, or of any class of the issued share capital, of a
company and the shares which it holds are of any description specified in
section 5(d), their value as liquid assets shall be further reduced below what
is provided for in section 5(d) by 100% of the discount amount.

(6) Where a licensed leveraged foreign exchange trader holds 25% or more of
all recognized debt securities, or of any class of recognized debt securities,
issued by an issuer, their value as liquid assets shall be further reduced
below what is provided for in section 5(f) by 100% of the discount amount.

(7) Where the aggregate of the market value of any shares in a company held by
a licensed leveraged foreign exchange trader, which are of any description
specified in section 5(d), and the market value of recognized debt securities
issued by that company held by it, exceeds 25% in value of the liquid capital
of the licensed leveraged foreign exchange trader-

   (a)  the value of the shares as liquid assets shall be further reduced
        below what is provided for in section 5(d) by 100% of the discount
        amount; and

   (b)  the value of the recognized debt securities as liquid assets shall be
        further reduced below what is provided for in section 5(f) by 100% of
        the discount amount.

(8) For the purposes of calculating the liquid capital of a licensed leveraged
foreign exchange trader in subsection (7), no account shall be taken of the
adjustments in the liquid capital by virtue of subsection (7)(a) and (b).

(9) For the purposes of subsections (5), (6) and (7), the number of shares or
the amount of recognized debt securities held by a licensed leveraged foreign
exchange trader shall be taken as the difference between-

   (a)  the aggregate of-

        (i)    the number of shares or amount of recognized debt securities
               held by it;

        (ii)   the number of shares or amount of recognized debt securities
               which it is under an obligation to purchase or subscribe; and

        (iii)  the number of shares or amount of recognized debt securities
               which it is entitled to purchase or subscribe under any option
               where the exercise price of the option is less than the market
               value of the securities; and

   (b)  the aggregate of-

        (i)    the number of shares or amount of recognized debt securities
               short sold by it;

        (ii)   the number of shares or amount of recognized debt securities
               which it is under an obligation to sell; and

        (iii)  the number of shares or amount of recognized debt securities
               which it is entitled to sell under any option where the
               exercise price of the option is more than the market value of
               the securities. (Enacted 1994)