Hong Kong Regulations

SECURITIES AND FUTURES (CONTRACTS LIMITS AND REPORTABLE POSITIONS) RULES - SECT 4

Restrictions on number of contracts held or controlled

(Past version on 01/04/2003).

(1) No person, other than a person referred to in subsections (2) and (4), may
hold or control futures contracts or stock options contracts in excess of the
prescribed limit.

(2) A person specified in subsection (3) may be authorized under the rules of
the recognized exchange company concerned to hold or control futures contracts
or stock options contracts in excess of the prescribed  limit.

(3) A person who may be authorized for the purposes of subsection

(2) is-

   (a)  a person registered with the Futures Exchange Company for the purpose
        of performing market making or liquidity providing activities in
        respect of futures contracts in accordance with its rules;

   (b)  a person registered with the Stock Exchange Company for the purpose of
        performing market making or liquidity providing activities in respect
        of stock options contracts in accordance with its rules;

   (c)  an issuer of securities listed under Chapter 15A of the Listing Rules
        who holds or controls futures contracts or stock options contracts in
        the course of hedging the risks of positions previously acquired in
        such listed securities for the purpose of performing liquidity
        providing activities in respect of such listed securities; or

   (d)  a related corporation of an issuer of securities listed under Chapter
        15A of the Listing Rules, where the related corporation holds or
        controls futures contracts or stock options contracts in the course of
        hedging the risks of positions previously acquired in such listed
        securities for the purpose of performing liquidity providing
        activities in respect of such listed securities.

(4) A person may hold or control a futures contract or stock options contract
in excess of the prescribed limit if-

   (a)  the person-

        (i)    is authorized under subsection (5) to hold or control such
               excess; or

        (ii)   is authorized under subsection (6) to hold or control such
               excess;

   (b)  the Commission is satisfied that the excess would not be prejudicial
        to the interest of the investing public having regard to the
        prescribed limit and the liquidity of the futures contract or stock
        options contract in question; and

   (c)  the Commission has given the person notice in writing that it is
        satisfied-

        (i)    where paragraph (a)(i) applies, of the matters referred to in
               paragraph (b) and subsection (5); or

        (ii)   where paragraph (a)(ii) applies, of the matters referred to in
               paragraph (b) and subsection (7)(a), (b) and (c). (L.N. 198 of
               2007)

(5) The Commission may authorize a person, other than a person who may be
authorized under subsection (3), to hold or control a futures contract or
stock options contract in excess of the prescribed limit if the Commission is
satisfied that there are special circumstances which warrant the person
holding or controlling such excess. (L.N. 198 of 2007)

(6) Subject to subsections (7) and (8), the Commission may authorize an
exchange participant or an affiliate of an exchange participant to hold or
control a specified contract in excess of the prescribed limit by up to the
specified percentage. (L.N. 198 of 2007)

(7) The Commission shall not authorize an exchange participant or an affiliate
of an exchange participant to hold or control a specified  contract in excess
of the prescribed limit unless the exchange participant satisfies the
Commission that-

   (a)  the exchange participant or the affiliate (as the case may be) has a
        relevant business need for holding or controlling the excess for which
        authorization is sought; (L.N. 241 of 2007)

   (b)  either the exchange participant or the affiliate has adequate 
        financial capability to cover the potential risks arising from such
        excess; and

   (c)  the exchange participant has effective internal control procedures and
        risk management systems to manage the potential risks arising from
        such excess. (L.N. 198 of 2007)

(8) The Commission shall not grant an authorization under subsection (6) if
holding or controlling the excess for which authorization is sought may be
authorized under the rules of the recognized exchange company concerned as
referred to in subsection (2). (L.N. 198 of 2007; L.N. 241 of 2007)

(9) An authorization granted under subsection (5) or (6)-

   (a)  subject to paragraph (b), shall be valid for such period as the
        Commission may specify in the notice given under subsection (4)(c);

   (b)  may be withdrawn by the Commission, at any time, by at least 5
        business days' notice in writing to the person authorized and, where
        the person authorized is an affiliate of an exchange participant, also
        to the exchange participant; and

   (c)  shall be subject to such reasonable conditions as the Commission may
        specify in the notice given under subsection (4)(c) and the Commission
        may, at any time, by at least 5 business days' notice in writing to
        the person authorized and, where the person authorized is an affiliate
        of an exchange participant, also to the exchange participant, amend or
        revoke any such condition or impose new conditions as may be
        reasonable in the circumstances. (L.N. 198 of 2007)

(10) In this section-

"adequate financial capability" (充足財政能力), in relation to an
exchange participant or an affiliate of an exchange participant, means such
exchange participant or affiliate or his holding company having-

   (a)  a net asset value of not less than $2 billion as set out in his or its
        latest audited financial statements; or

   (b)  a qualifying credit rating;

"affiliate" (聯繫人), in relation to an exchange participant, means any
corporation belonging to the same group of companies as the exchange
participant;

"relevant business need" (相關業務需要), in relation to an exchange
participant or an affiliate of an exchange participant, means a business need
that requires such exchange participant or affiliate to engage in hedging
activities to facilitate the provision of services to his clients;

"specified contract" (指明合約) means any of the following futures
contracts or stock options contracts-

   (a)  Hang Seng Index futures and options contracts;

   (b)  Hang Seng China Enterprises Index futures contracts and options
        contracts; (L.N. 241 of 2007)

"specified percentage" (指明百分率) means 50%. (L.N. 241 of 2007) (L.N.
198 of 2007)

(11) (Added L.N. 198 of 2007 and repealed L.N. 241 of 2007)

"adequate financial capability" (充足財政能力)

"affiliate" (聯繫人)

"relevant business need" (相關業務需要)

"specified contract" (指明合約)

"specified percentage" (指明百分率)