Hong Kong Regulations

SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 21

Amounts receivable from clients in respect of purchase of and subscription for securities

(1) Subject to subsections (3) and (7), a licensed corporation shall include
in its liquid assets the following amount receivable from any of its clients
arising from purchase by the client of securities on a cash-against-delivery
basis-

   (a)  any such amount receivable which-

        (i)    is not yet due for settlement according to the settlement date;
               or

        (ii)   has been outstanding for 5 business days or less after the
               settlement date; and

   (b)  where any such amount receivable has been outstanding for more than 5
        business days but less than one month after the settlement date, the
        amount which is the lower, when calculated on a
        transaction-by-transaction basis, of-

        (i)    such outstanding amount receivable less any specific provision
               for bad or doubtful debts made in respect of such outstanding
               amount; and

        (ii)   the market value of the securities to which such outstanding
               amount relates.

(2) A licensed corporation may elect in respect of all its clients to set-off,
on a client-by-client basis, any amount receivable from, and amount payable
to, a client where such amounts arise from the purchase and sale of securities
by the client on a cash-against-delivery basis, and the licensed corporation
has obtained from the client a written authorization to-

   (a)  set-off such amounts against each other; and

   (b)  dispose of securities held for the client for the purpose of settling
        any of the amounts payable by the client to the licensed corporation.

(3) Subject to subsection (7), where a licensed corporation makes an election
under subsection (2), it shall include in its liquid assets in respect of the
amount receivable by it from and the amount payable by it to a client which
arise from the purchase and sale of securities by the client on a
cash-against-delivery basis the amount which is the lower, when calculated on
a client-by-client basis, of-

   (a)  any amount receivable that remains after the set-off referred to in
        subsection (2) less any specific provision for bad or doubtful debts
        made in respect of such amount receivable; and

   (b)  the market value of the securities held for the client, less the
        haircut amounts in relation to the securities.

(4) Subject to subsection (7), a licensed corporation shall include in its
liquid assets the following amount receivable from any of its clients in
respect of the purchase of securities by the client on a free  delivery basis-

   (a)  in the case where the clearing system of the exchange on which the
        securities are traded effects settlement only on a free delivery 
        basis, such amount receivable which, when calculated on a
        transaction-by-transaction basis, has been outstanding for 2 weeks or
        less after the settlement date; or

   (b)  in any other case, such amount receivable which, when calculated on a
        transaction-by-transaction basis, is not yet due for settlement
        according to the settlement date.

(5) Subject to subsection (7), a licensed corporation shall, in respect of
securities subscribed for on behalf of any of its clients, include, prior to
the commencement of trading of the securities on any exchange on which they
are listed, in its liquid assets the amount which is the lower, when
calculated on a transaction-by-transaction basis, of-

   (a)  90% of the total costs to the client of subscribing for the
        securities; and

   (b)  the amount receivable from the client for subscribing for the
        securities.

(6) Subject to subsection (7), a licensed corporation shall, in respect of
securities subscribed for on behalf of any of its clients, include, after the
commencement of trading of the securities on any exchange on which they are
listed, in its liquid assets the amount receivable from the client arising
from subscribing for the securities in accordance with subsection (1) or (3)
as if the securities had been purchased on a cash-against-delivery basis.

(7) The aggregate of amounts that a licensed corporation includes in its
liquid assets under subsections (1), (3), (4), (5) and (6) shall not exceed
the aggregate of amounts receivable from its clients referred to in those
subsections less the aggregate of amounts of specific and general provisions
for bad or doubtful debts made in respect of such aggregate of amounts
receivable.

(8) In subsection (2), "written authorization" (書面授權) includes an
agreement in writing within the meaning of the Securities and Futures 
(Client Securities) Rules ( Cap 571 sub. leg. H).

"written authorization" (書面授權)