Hong Kong Regulations

SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 55

Licensed corporations to notify Commission of circumstances relating to financial resources and trading activities and to submit returns in certain cases

(Past version on 01/04/2003).

(1) A licensed corporation shall notify the Commission in writing as soon as
reasonably practicable and in any event within one business day of becoming
aware of any of the following matters-

   (a)  its liquid capital falls below 120% of its required liquid  capital;

   (b)  a required liquid capital deficit occurs, but the licensed corporation
        is regarded as having complied with section 6(1) by virtue of
        section 6(3);

   (c)  its liquid capital falls below 50% of the liquid capital stated in its
        last return submitted to the Commission under section 56(1) or (3);

   (d)  any information contained in any of its previous returns submitted to
        the Commission pursuant to these Rules has become false or misleading
        in a material particular;

   (e)  the aggregate of the amounts it has drawn down on any loan, advance,
        credit facility or other financial accommodation provided to it by
        banks exceeds the aggregate of the credit limits thereof;

   (f)  it has been or will be unable, for 3 consecutive business days, to
        meet in whole or in part any calls or demands for payment or repayment

(as the case may be), from any of its lenders, credit providers or financial
accommodation providers;

   (g)  any of its lenders or any person who has provided credit or financial
        accommodation to it has exercised, or has informed it that he will
        exercise, the right to liquidate security provided by it to him in
        order to reduce its liability or indebtedness to him under any
        outstanding loan, advance, credit facility balance or other financial
        accommodation provided to it by him;

   (h)  (Repealed L.N. 117 of 2006)

   (i)  the aggregate of the maximum amounts that can be drawn down against it
        under any guarantee, indemnity or any other similar financial
        commitment provided by it-

        (i)    exceeds $5000000; or

        (ii)   would, if deducted from its liquid capital, cause its liquid 
               capital to fall below 120% of its required liquid capital;

   (j)  the aggregate of amounts of any outstanding claim made in writing by
        it or against it (whether disputed or not) exceeds or is likely to
        exceed $5000000;

   (k)  the aggregate of amounts of any outstanding claim made in writing by
        it or against it (whether disputed or not) would, if deducted from its
        liquid capital, cause its liquid capital to fall below 120% of its
        required liquid capital;

   (l)  any claim is made by it under any professional indemnity or other
        insurance policy that it is required to maintain under any rules made
        under section 116(5) of the Ordinance or the rules or conventions of
        any exchange or clearing house;

   (m)  any financial commitment, including a guarantee, is provided for it in
        favour of an exchange or a clearing house, by a corporation which is a
        member of a group of companies of which it is a member.

(2) Where a licensed corporation notifies the Commission of any matter under
subsection (1), it shall-

   (a)  include in the notice full details of the matter and the reason
        therefor; and (L.N. 117 of 2006)

   (b)  in the case of a notification under subsection (1)(a), (b),

   (c)  , (e), (f) or (g), include in the notice full details of any steps it
        is taking, has taken or proposes to take to prevent its liquid capital
        from falling below its required liquid capital or to improve its
        liquidity. (L.N. 117 of 2006)

   (c)  - (d) (Repealed L.N. 117 of 2006)

(3) Where a licensed corporation has, prior to the commencement of these
Rules, entered into any position in an off-exchange traded derivative contract
other than-

   (a)  an options contract written by it on its own account;

   (b)  an interest rate swap agreement; and

   (c)  a foreign exchange agreement, of which it has not notified the
        Commission prior to the commencement of these Rules, it shall within
        one business day of the commencement of these Rules notify the
        Commission in writing of the details of such position.

(4) Where a licensed corporation intends to enter into any position in an
off-exchange traded derivative contract other than-

   (a)  an options contract written by it on its own account;

   (b)  an interest rate swap agreement; and

   (c)  a foreign exchange agreement, it shall notify the Commission in
        writing of the details of the position it intends to enter into at
        least 10 business days before entering into the position.

(5) Where a licensed corporation intends to change any of its accounting
principles in a way that may materially affect the liquid  capital or paid-up
share capital that it maintains or is required to maintain under Part 3, for
the purposes of section 3(2), it shall notify the Commission in writing of the
details of, and the reasons for, the intended change not less than 5 business
days prior to effecting the change.