Hong Kong Regulations

SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 27

Proprietary positions of licensed corporations

(1) A licensed corporation shall include in its liquid assets any of the
following assets that it beneficially owns-

   (a)  subject to subsections (2), (3), (4), (6) and (7), listed shares;

   (b)  qualifying debt securities;

   (c)  special debt securities;

   (d)  specified securities;

   (e)  specified investments, at market value, less the haircut amounts in
        relation to the securities or specified investments concerned.

(2) Subject to subsection (5), where a licensed corporation beneficially owns
any listed shares and writes a call stock options  contract on such shares, to
the extent that the number of shares underlying the options contract is equal
to the number of such shares, subsection (1)(a) does not apply in respect of
such shares and section  40 (3) and (4) does not apply in respect of the
options contract and it shall include in its liquid assets such shares in the
amount which is the lower of-

   (a)  the market value of such shares, less the haircut amount in relation
        to such shares; and

   (b)  the number of such shares multiplied by the strike price of such
        options contract.

(3) Subject to subsection (5), where a licensed corporation beneficially owns
any listed shares and holds a short position in a stock  futures contract in
respect of such shares, to the extent that the number of shares underlying the
futures contract is equal to the number of such shares, subsection (1)(a) does
not apply in respect of such shares and section 40(4) does not apply in
respect of the futures contract and it shall include in its liquid assets such
shares at market value.

(4) Subject to subsection (5), where a licensed corporation beneficially owns
any listed shares and holds a put stock options  contract, which is not
subject to any margin requirement, in respect of such shares, to the extent
that the number of shares underlying the options contract is equal to the
number of such shares, it may elect not to apply subsection (1)(a) in respect
of such shares and section 31(1)(b) in respect of the options contract
whereupon it shall include in its liquid assets such shares in the amount
which is the higher of-

   (a)  the market value of such shares, less the haircut amount in relation
        to such shares; and

   (b)  the number of such shares multiplied by the strike price of such
        options contract.

(5) Subsections (2), (3) and (4) do not apply in respect of a stock 
futures contract or a stock options contract which has been grouped with other
positions for the purpose of calculating a net amount of margin 
required to be deposited by the licensed corporation.

(6) Where a licensed corporation beneficially owns any listed shares and
issues any call non-collateralized warrants on such shares, to the extent that
the number of shares underlying the warrants which are outstanding is equal to
the number of such shares, subsection (1)(a) does not apply in respect of such
shares and section 43(1), (2)(d) and (3) does not apply in respect of such
warrants and it shall include in its liquid  assets such shares in the amount
which is the lower of-

   (a)  the market value of such shares, less the haircut amount in relation
        to such shares; and

   (b)  the number of such shares multiplied by the exercise price of such
        warrants.

(7) Where a licensed corporation beneficially owns any listed shares which are
charged for the purpose of issuing any call collateralized warrants on such
shares, subsection (1)(a) does not apply in respect of such shares and
section 43(1), (2)(d) and (3) does not apply in respect of such warrants and
it shall include in its liquid assets such shares in the amount which is the
lower of-

   (a)  the market value of such shares, less the haircut amount in relation
        to such shares; and

   (b)  the number of such shares multiplied by the exercise price of such
        warrants.