Hong Kong Regulations

SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 12

Transactions in margined accounts

(1) A licensed corporation shall not set-off amounts receivable by it from,
and amounts payable by it to, a client of the licensed corporation arising
from transactions in different margined accounts maintained with it by the
client.

(2) Where a licensed corporation has a client who-

   (a)  maintains with it more than one margined account;

   (b)  has deposited with it security against his liabilities to it in the
        form of-

        (i)    cash;

        (ii)   collateral; or

        (iii)  a bank guarantee issued by an authorized financial  institution
               or an approved bank incorporated outside Hong Kong; and

   (c)  has authorized it to apply such security to satisfy any liabilities to
        it arising from the execution by it of any transaction in relation to
        any of his margined accounts, the licensed corporation may, subject to
        subsections (3) and (4)-

   (d)  for the purpose of calculating-

        (i)    a specified shortfall amount in relation to a margined account
               of the client; or

        (ii)   a margin shortfall amount under section 22(1)(b) in relation to
               the client, deem all or part of such security to be deposited
               by the client as security to the margined account in relation
               to which such shortfall amount is calculated; or

   (e)  for the purpose of calculating any amount to be included in its
        ranking liabilities under section 45(1) or 46(1) in relation to a
        margined  account of the client, reduce any such amount by-

        (i)    where the client has deposited cash referred to in paragraph

   (b)  (i), the amount of such cash;

        (ii)   where the client has deposited collateral referred to in
               paragraph (b)(ii), the amount of the market value of such
               collateral, less the haircut amount in relation to the
               collateral; or

        (iii)  where the client has deposited a bank guarantee referred to in
               paragraph (b)(iii), the amount that it can draw down under such
               bank guarantee.

(3) A licensed corporation shall not-

   (a)  under subsection (2)(d), deem-

        (i)    any amount of cash;

        (ii)   any collateral; or

        (iii)  any amount that it can draw down under a bank guarantee, to be
               security to the margined account concerned; or

   (b)  effect any reduction under subsection (2)(e) in respect of such
        security, if-

   (c)  such security has been deemed under subsection (2)(d) to be deposited
        as security to another margined account of the client; or

   (d)  in respect of such security a reduction under subsection (2)(e) has
        been effected in relation to another margined account of the client.

(4) For the purposes of these Rules, a licensed corporation shall cease to
treat-

   (a)  any cash referred to in subsection (2)(b)(i);

   (b)  any collateral referred to in subsection (2)(b)(ii); or

   (c)  any bank guarantee referred to in subsection (2)(b)(iii), as security
        in relation to the margined account of the client into which it was
        deposited, to the extent that such security-

   (d)  has been deemed under subsection (2)(d) to be deposited as security to
        another margined account of the client; or

   (e)  has been utilized to effect a reduction under subsection (2)(e).

(5) For the purposes of subsection (2), "specified shortfall amount"
(指明短欠數額) means an amount to be included in the licensed
corporation's ranking liabilities under-

   (a)  section 40(1);

   (b)  section 41(1);

   (c)  section 43(10);

   (d)  section 45(2); or

   (e)  section 46(2).

(6) In this section, "margined account" (以保證金形式操作的帳戶),
in relation to a client of a licensed corporation, means-

   (a)  an account maintained with a licensed corporation licensed for Type 1
        regulated activity by the client for the provision to him by the
        licensed corporation of securities margin financing; or

   (b)  an account maintained with the licensed corporation by the client for-

        (i)    short selling;

        (ii)   dealings in futures contracts;

        (iii)  dealings in options contracts;

        (iv)   securities borrowing and lending;

        (v)    trading in leveraged foreign exchange contracts; or

        (vi)   entering into repurchase transactions.

"specified shortfall amount" (指明短欠數額)

"margined account" (以保證金形式操作的帳戶)