Hong Kong Regulations

SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 45

Securities borrowing and lending agreements

(1) Subject to subsections (5) and (6) and section 40(5), a licensed
corporation which is the borrower of securities under a securities borrowing
and lending agreement shall include in its ranking  liabilities the amount by
which the aggregate of-

   (a)  the amount of cash deposited by it with the lender under the agreement
        as security; and

   (b)  the market value of collateral provided by it to the lender, less the
        haircut amount in relation to such collateral, exceeds-

   (c)  in the case where the securities are-

        (i)    shares listed on a specified exchange;

        (ii)   qualifying debt securities; or

        (iii)  special debt securities, 110% of their market value; or

   (d)  in any other case, 50% of the market value of the securities.

(2) Subject to subsection (6), a licensed corporation which, under a
securities borrowing and lending agreement, is the lender of securities which
are included in its liquid assets under section 27, shall include in its
ranking liabilities the amount by which the market value of the securities,
less the haircut amount in relation to such securities, exceeds the aggregate
of-

   (a)  the maximum amount that it can draw under a bank guarantee provided to
        it as security by the borrower under the agreement and issued by an
        authorized financial institution or an approved bank incorporated 
        outside Hong Kong;

   (b)  the amount of cash deposited with it as security by the borrower;

   (c)  the market value of-

        (i)    any shares listed on a specified exchange;

        (ii)   any qualifying debt securities; and

        (iii)  any special debt securities, deposited with it by the borrower
               as collateral, less the haircut amount in relation to such
               collateral; and

   (d)  50% of the market value of any collateral, other than collateral
        referred to in paragraph (c), deposited with it by the borrower.

(3) Subject to subsection (6), a licensed corporation which, under a
securities borrowing and lending agreement, is the lender of any securities as
agent for another person, or where the securities are borrowed by it under
another securities borrowing and lending agreement, shall include in its
ranking liabilities the amount by which the market  value of the securities
exceeds the aggregate of-

   (a)  the maximum amount that it can draw under a bank guarantee provided to
        it as security by the borrower under the agreement and issued by an
        authorized financial institution or an approved bank incorporated 
        outside Hong Kong;

   (b)  the amount of cash deposited with it as security by the borrower;

   (c)  the market value of-

        (i)    any shares listed on a specified exchange;

        (ii)   any qualifying debt securities; and

        (iii)  any special debt securities, deposited with it by the borrower
               as collateral, less the haircut amount in relation to such
               collateral; and

   (d)  50% of the market value of any collateral, other than collateral
        referred to in paragraph (c), deposited with it by the borrower.

(4) A licensed corporation which is the lender of securities under a
securities borrowing and lending agreement shall include in its ranking 
liabilities the amount payable to the borrower under the agreement in respect
of any cash deposited with it as security by the borrower, save where the
cash-

   (a)  is held in a segregated account; and

   (b)  is not included in its liquid assets under section 20.

(5) Where a licensed corporation borrows listed shares under a securities
borrowing and lending agreement for the purpose of short  selling for its own
account, to the extent that the number of shares borrowed is equal to the
number of shares short sold by it, subsection (1) does not apply in respect of
the agreement and section 43(2) and (3) does not apply in respect of the
shares short sold and it shall include in its ranking liabilities the amount
which is the higher of-

   (a)  the amount that would arise under subsection (1); and

   (b)  the increased amount that would arise under section 43(2) or

(3), but for this subsection.

(6) Subsections (1), (2) and (3) do not apply in respect of a securities
borrowing and lending agreement to which a licensed corporation is a party,
where the other party to the agreement is an approved 
securities borrowing and lending counterparty.