Hong Kong Regulations

SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 41

Leveraged foreign exchange trading

(1) A licensed corporation licensed for Type 3 regulated activity shall
include in its ranking liabilities-

   (a)  in respect of all outstanding leveraged foreign exchange contracts
        which it has with any of its clients, the excess, when calculated on a
        client-by-client basis, of the amount by which the aggregate of-

        (i)    3% of the aggregate of the amount of the gross principal values
               of the contracts;

        (ii)   the amount of any floating losses incurred by, and due from,
               the client on the contracts; and

        (iii)  the amount of any accrued interest, fees and commissions
               receivable from the client in respect of any such contracts,
               exceeds the aggregate of-

        (iv)   100% of the amount of cash in the Hong Kong currency (or any
               currency linked to the Hong Kong currency) deposited with it as
               security by the client;

        (v)    95% of the amount of cash in such foreign currency as may be
               approved under section 58(5)(f) deposited with it as security
               by the client;

        (vi)   95% of the amount of any time deposit in the Hong Kong currency
               (or currency linked to the Hong Kong currency) which- (A) is
               placed with a local branch or the principal place of business
               in Hong Kong of an authorized financial institution; (B) will
               become payable within 6 months; and (C) has been assigned to it
               by the client;

        (vii)  the market value of collateral deposited with it by the client,
               less the haircut amounts in relation to such collateral;

        (viii) the amount of any floating profits made by, and due to, the
               client on the contracts;

        (ix)   90% of the maximum amount that it can draw under a letter of
               credit issued in favour of it as security by an
               authorized financial  institution or an
               approved bank incorporated outside Hong Kong; and

        (x)    the amount of any accrued interest payable to the client in
               respect of any such contracts; and

   (b)  the amount of any floating losses incurred by it on any outstanding
        foreign exchange agreements and outstanding leveraged foreign exchange
        contracts to which it is a party.

(2) Where a licensed corporation holds with any of its clients

(other than a client whose account with the licensed corporation is an
omnibus account) any outstanding leveraged foreign exchange contracts, for the
purpose of calculating the aggregate of the amount of the gross 
principal values of the outstanding contracts, it may elect not to include in
such aggregate the gross principal values of any 2 outstanding contracts
where-

   (a)  under one of the contracts it is obliged to purchase an amount of a
        currency ("A") and sell an amount ("X") of another currency ("B"); and

   (b)  under the other contract it is obliged to purchase the same amount
        ("X") of the other currency ("B") and sell an amount of the
        first-mentioned currency ("A"), whereupon it shall include in the
        aggregate the highest of the equivalent amount of its
        reporting currency of-

   (c)  the amount "X" of currency "B";

   (d)  the amount of currency "A" which it is obliged to purchase under the
        contract referred to in paragraph (a); and

   (e)  the amount of currency "A" which it is obliged to sell under the
        contract referred to in paragraph (b).

(3) In this section, "gross principal value" (本金總額), in relation to an
outstanding leveraged foreign exchange contract, means the higher of the
equivalent amounts in the reporting currency of the licensed corporation of
the 2 amounts of currencies that the contract is intended to exchange.

"gross principal value" (本金總額)