SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - CHAPTER 571N SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - LONG TITLE Empowering section VerDate:01/04/2003 (Cap 571, sections 145 and 397) [1 April 2003] L.N. 12 of 2003 (L.N. 209 of 2002) SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 1 (Omitted as spent) VerDate:01/04/2003 PART 1 PRELIMINARY (Omitted as spent) SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 2 Interpretation VerDate:01/10/2006 (1) In these Rules, unless the context otherwise requires- "adjusted liabilities" (經調整負債), for the purpose of calculating the variable required liquid capital in relation to a licensed corporation, means the sum of its on-balance sheet liabilities including provisions made for liabilities already incurred or for contingent liabilities, but excluding- (a) amounts payable to clients in respect of- (i) client money held by it in a segregated account in accordance with the Securities and Futures (Client Money) Rules (Cap 571 sub. leg. I); (ii) to the extent not covered in subparagraph (i), client money held by it in a segregated account with an authorized financial institution; (iii) client money held by it in a segregated account with an approved bank incorporated outside Hong Kong; (iv) client money held by it in a segregated account with a futures or options clearing house; or (v) client money held by it with- (A) a clearing house other than a futures or options clearing house; (B) a clearing participant; (C) a futures dealer; or (D) a securities dealer, as margin in respect of outstanding futures contracts and outstanding options contracts held by it on behalf of its clients; and (b) an approved subordinated loan provided to it; "aggregate gross foreign currency position" (合計外幣總持倉量) means the aggregate of all the gross foreign currency positions held by a licensed corporation licensed for Type 3 regulated activity, excluding positions held with a recognized counterparty; "amount of margin required to be deposited" (按規定須存放的保證金數額) means the amount of money required to be deposited as margin (whether the requirement is met by depositing the amount of money or by the provision of security instead of making such deposit)- (a) upon opening a position; or (b) for maintaining an existing position, in a futures contract or an options contract, calculated as the highest of the prevailing margin amounts set by- (c) the exchange on which the futures contract or options contract is traded; (d) the clearing house who registers such trade; (e) the agent who executes such trade for the licensed corporation; (f) the counterparty who executes such trade with the licensed corporation; and (g) the licensed corporation itself; "approved bank incorporated outside Hong Kong" (核准的在香港以外成立為法團的銀行) means- (a) a bank incorporated under the law or other authority of a prescribed country, and includes any of its branches or wholly owned subsidiaries which is a bank; or (b) any other bank approved as such under section 58(1)(a), and includes any of its branches or wholly owned subsidiaries which is a bank; "approved credit rating agency" (核准信貸評級機構) means a person approved as such under section 58(1)(b); "approved introducing agent" (核准介紹代理人) means a licensed corporation approved as such under section 58(4); "approved redeemable shares" (核准可贖回股份) means redeemable shares in the share capital of a licensed corporation approved as such under section 58(5)(a); "approved securities borrowing and lending counterparty" (核准證券借貸對手方) means- (a) a recognized clearing house; or (b) a person approved as such under section 58(1)(c); "approved standby subordinated loan facility" (核准備用後償貸款融通) means a standby subordinated loan facility obtained by a licensed corporation licensed for Type 1, Type 2, Type 3 or Type 8 regulated activity, which is approved as such under section 58(5)(c); "approved subordinated loan" (核准後償貸款) means a subordinated loan obtained by a licensed corporation approved as such under section 58(5)(b); "authorized financial institution" (認可財務機構) means- (a) a bank within the meaning of section 2(1) of the Banking Ordinance (Cap 155) and includes any of its branches; (b) any wholly owned subsidiary of a bank referred to in paragraph (a) which is a bank; or (c) the principal place of business in Hong Kong, and any local branch, of a restricted licence bank or a deposit-taking company, in each case within the meaning of section 2(1) of the Banking Ordinance (Cap 155); "basic amount" (基本數額), in relation to a licensed corporation, means 5% of the aggregate of- (a) its adjusted liabilities; (b) the aggregate of the initial margin requirements in respect of outstanding futures contracts and outstanding options contracts held by it on behalf of its clients; and (c) the aggregate of the amounts of margin required to be deposited in respect of outstanding futures contracts and outstanding options contracts held by it on behalf of its clients, to the extent that such contracts are not subject to payment of initial margin requirements; "clearing house" (結算所) means a person- (a) whose activities or objects include the provision of services for the clearing and settlement of transactions in, or the day-to-day adjustment of the financial position of, futures contracts or options contracts effected on an exchange; (b) whose activities or objects include the provision of services for the clearing and settlement of transactions in securities effected on an exchange; or (c) who guarantees the settlement of any such transactions as are referred to in paragraph (a) or (b), but does not include a corporation operated by or on behalf of the Government; "clearing participant" (結算所參與者)- (a) in relation to a recognized clearing house, means a clearing participant within the meaning of section 1 of Part 1 of Schedule 1 to the Ordinance; or (b) in relation to a clearing house other than a recognized clearing house, means a person who, in accordance with the rules of the clearing house, may participate in one or more of the services provided by the clearing house in its capacity as a clearing house, and whose name is entered in a list, roll or register kept by the clearing house as a person who may participate in one or more of the services provided by the clearing house; "collateral" (抵押品), in relation to a licensed corporation, means- (a) any listed shares; (b) any specified securities; (c) any qualifying debt securities; or (d) any special debt securities, which- (e) are deposited as security by the licensed corporation with another person; or (f) are deposited as security with the licensed corporation by another person, and- (i) are unencumbered in its possession and readily realizable by it; (ii) are encumbered only by virtue of being lent, deposited or pledged by it in accordance with the requirements of the Securities and Futures (Client Securities) Rules (Cap 571 sub. leg. H); or (iii) to which the Securities and Futures (Client Securities) Rules (Cap 571 sub. leg. H) do not apply, are encumbered only by virtue of being deposited or pledged by it with or to- (A) an authorized financial institution or an approved bank incorporated outside Hong Kong; (B) a person who is licensed, registered or authorized by an authority or regulatory organization outside Hong Kong, for an activity which, if carried on in Hong Kong, would constitute Type 1, Type 2, Type 3 or Type 8 regulated activity; or (C) a clearing house of a specified exchange or any of its clearing participants to secure its obligation to meet its clearing obligations or liabilities; "collateralized warrants" (有抵押權證) means derivative warrants listed on a recognized stock market in respect of which the issuer owns all of the underlying securities or other assets to which the warrants relate and grants a charge over those securities or assets in favour of an independent trustee who acts for the benefit of the warrantholders; "common client" (共同客戶) means a client of a securities dealer who is also a client of a licensed corporation licensed for Type 8 regulated activity and whose dealings in securities by the securities dealer are settled on his behalf by the licensed corporation; "derivative contract" (衍生工具合約) means an agreement the purpose or effect of which is to obtain a profit or avoid a loss by reference to the value or price of property of any description or an index or other factor designated for that purpose in the agreement, and includes a futures contract or an options contract; "equity linked instruments" (股票掛鉤票據) means securities within the description of such instruments under rules made under section 23 or 36 of the Ordinance governing the listing of securities and which are listed on a recognized stock market; "exchange participant" (交易所參與者)- (a) in relation to a recognized exchange company, means an exchange participant within the meaning of section 1 of Part 1 of Schedule 1 to the Ordinance; or (b) in relation to an exchange outside Hong Kong, means a person who, in accordance with the rules of the exchange, may trade through that exchange, and whose name is entered in a list, roll or register kept by the exchange as a person who may trade through that exchange; "excluded liabilities" (豁除負債), in relation to the on-balance sheet liabilities of a licensed corporation, means amounts payable to clients in respect of- (a) client money held by it in a segregated account in accordance with the Securities and Futures (Client Money) Rules (Cap 571 sub. leg. I); (b) client money held by it in a segregated account with an approved bank incorporated outside Hong Kong and, to the extent not covered in paragraph (a), in a segregated account with an authorized financial institution; and (c) client money held by it in a segregated account with a recognized clearing house; "floating losses" (浮動虧損) means unrealized losses calculated by marking to market an open position in- (a) a futures contract; (b) any securities; (c) an options contract; (d) a derivative contract; (e) a leveraged foreign exchange contract; (f) a foreign exchange agreement; (g) an interest rate swap agreement; or (h) a specified investment; "floating profits" (浮動利潤) means unrealized profits calculated by marking to market an open position in- (a) a futures contract; (b) any securities; (c) an options contract; (d) a derivative contract; (e) a leveraged foreign exchange contract; (f) a foreign exchange agreement; (g) an interest rate swap agreement; or (h) a specified investment; "foreign currency" (外幣), in relation to a licensed corporation, means any currency other than- (a) its reporting currency; and (b) any currency which has an exchange rate which is linked to the reporting currency; "foreign exchange agreement" (外匯協議) means an agreement other than a futures contract and an options contract, whereby the parties to the agreement agree to exchange different currencies at a future time; "free delivery basis" (信用交付形式) means the basis on which a sale or purchase of securities is effected, under which- (a) delivery of the securities by the seller takes place irrespective of whether the seller has received payment in settlement of a liability arising from the sale of the securities; or (b) payment is made by the purchaser of the securities in settlement of a liability arising from the purchase of the securities, irrespective of whether the securities have been delivered; "futures contract" (期貨合約) has the meaning assigned to it by section 1 of Part 1 of Schedule 1 to the Ordinance save that it does not include an options contract; "futures dealer" (期貨交易商) means- (a) a licensed corporation licensed for Type 2 regulated activity; or (b) a person licensed, registered or authorized by an authority or regulatory organization outside Hong Kong for an activity which, if carried on in Hong Kong, would constitute Type 2 regulated activity; "futures non-clearing dealer" (期貨非結算交易商) means a licensed corporation licensed for Type 2 regulated activity which is an exchange participant of a recognized futures market, but is not a clearing participant of a recognized clearing house; "futures or options clearing house" (期貨或期權結算所) means- (a) a recognized clearing house other than a recognized clearing house whose activities or objects include the provision of services for the clearing and settlement of transactions in securities (other than options contracts); or (b) a person- (i) whose activities or objects include the provision of services for- (A) the clearing and settlement of transactions in futures contracts or options contracts; or (B) the day-to-day adjustment of the financial position of futures contracts or options contracts, effected on a specified exchange, or subject to the rules of a specified exchange; or (ii) who guarantees the settlement of any such transactions as are referred to in subparagraph (i), but does not include a corporation operated by or on behalf of the Government; "gross foreign currency position" (外幣總持倉量), in relation to a foreign currency, means the total of- (a) the aggregate of the value of assets, other than fixed assets, beneficially owned by a licensed corporation which are denominated in the foreign currency together with the amount of the foreign currency which it is obliged to purchase under any outstanding contract; and (b) the aggregate of the amount of the on-balance sheet liabilities of the licensed corporation, other than excluded liabilities, which are denominated in such foreign currency together with the amount of that foreign currency which it is obliged to sell under any outstanding contract, save that where the licensed corporation holds with a client (other than a client whose account with the licensed corporation is an omnibus account) 2 outstanding contracts and- (c) 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 (d) 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"), it shall, in relation to the contracts described in paragraphs (c) and (d ), include in the total- (e) in relation to currency "B", the amount "X" of currency "B" that it is obliged to sell under the contract referred to in paragraph (c); and (f) in relation to currency "A", the amount of currency "A" at the higher of- (i) the amount of that currency which it is obliged to purchase under the contract referred to in paragraph (c); and (ii) the amount of that currency which it is obliged to sell under the contract referred to in paragraph (d ); "haircut amount" (扣減數額)- (a) in relation to any shares- (i) that are listed in Hong Kong, and specified in column 2 of Table 1 in Schedule 2; (ii) that are listed in Hong Kong, and specified in column 2 of Table 1A in Schedule 2; (iii) that are listed in the United Kingdom, the United States of America or Japan, and specified in column 2 of Table 2 in Schedule 2; or (iv) that are listed, and specified in column 2 of Table 3 in Schedule 2, means an amount derived by multiplying the market value of the shares by the haircut percentage in relation to such shares; (L.N. 117 of 2006) (b) in relation to specified investments, means an amount derived by multiplying the market value of the specified investments by the haircut percentage in relation to such specified investments; (c) in relation to specified securities, means an amount derived by multiplying the market value of the specified securities by the haircut percentage in relation to such specified securities; (d) in relation to qualifying debt securities, means an amount derived by multiplying the market value of the qualifying debt securities by the haircut percentage in relation to such qualifying debt securities; (e) in relation to special debt securities, means an amount derived by multiplying the market value of the special debt securities by the haircut percentage in relation to such special debt securities; "haircut percentage" (扣減百分率)- (a) in relation to any shares- (i) that are listed in Hong Kong, and specified in column 2 of Table 1 in Schedule 2; (ii) that are listed in Hong Kong, and specified in column 2 of Table 1A in Schedule 2; (iii) that are listed in the United Kingdom, the United States of America or Japan, and specified in column 2 of Table 2 in Schedule 2; or (iv) that are listed, and specified in column 2 of Table 3 in Schedule 2, means- (v) subject to subparagraphs (vi), (vii), (viii) and (ix), the percentage specified in column 3 of the Table concerned opposite the applicable description set out in column 2 of that Table; (vi) where the shares fall within any of the descriptions in column 2 of Table 1A in Schedule 2 and within any of the descriptions in column 2 of Table 1, 2 or 3 in Schedule 2, subject to subparagraphs (vii) and (ix) and for the purpose of calculating the haircut amount under section 22(1)(b)(i), the percentage specified in column 3 of Table 1A in Schedule 2 opposite the applicable description set out in column 2 of that Table; (vii) where the shares fall within 2 or more of the descriptions in column 2 of Table 1A in Schedule 2, subject to subparagraph (ix) and for the purpose of calculating the haircut amount under section 22(1)(b)(i), such percentage specified in column 3 of that Table opposite the applicable description set out in column 2 of that Table as may be elected by a licensed corporation; (viii) where the shares fall within 2 or more of the descriptions in one or more of column 2 of Table 1, 2 or 3 in Schedule 2, subject to subparagraph (vi), such percentage specified in column 3 of the Table concerned opposite the applicable description set out in column 2 of that Table as may be elected by a licensed corporation; or (ix) where the shares described in item 1(a), (b), (c) or (d) in column 2 of Table 1A in Schedule 2- (A) cease to be a constituent of the applicable index; and (B) the cessation would result in the assignment to the shares of a higher percentage specified in that Table, in relation to the month in which the cessation occurs and for the period of the next 3 consecutive months and for the purpose of calculating the haircut amount under section 22(1)(b)(i), the percentage specified in column 3 of Table 1A in Schedule 2 which was applicable to the shares immediately prior to the cessation; (L.N. 117 of 2006) (b) in relation to specified investments, means the percentage specified in column 3 of Table 8 in Schedule 2 opposite the applicable description set out in column 2 of the Table; (c) in relation to specified securities, means the percentage specified in column 3 of Table 7 in Schedule 2 opposite the applicable description set out in column 2 of the Table; (d) in relation to qualifying debt securities, means the aggregate of- (i) the percentage specified in column 3 of Table 4 in Schedule 2 opposite the applicable description set out in column 2 of the Table; and (ii) the percentage specified in column 2 or 3 (as the case may be) of Table 5 in Schedule 2 opposite the applicable description set out in column 1 of the Table; (e) in relation to special debt securities specified in column 2 of Table 6 in Schedule 2, means the percentage specified in column 3 of Table 6 in Schedule 2 opposite the applicable description set out in column 2 of the Table; "Hong Kong Exchange Fund" (香港外匯基金) means the Exchange Fund established under the Exchange Fund Ordinance (Cap 66); "initial margin requirement" (規定開倉保證金) means the amount of money required to be deposited (whether the requirement is met by depositing the amount of money or by the provision of security instead of making such deposit) upon opening a position in a futures contract or an options contract, calculated as the highest of the prevailing margin amounts set by- (a) the exchange on which the futures contract or options contract is traded; (b) the clearing house who registers such trade; (c) the agent who executes such trade for the licensed corporation; (d) the counterparty who executes such trade with the licensed corporation; and (e) the licensed corporation itself; "interest rate swap agreement" (掉期息率協議) means an agreement whereby the parties to the agreement agree to exchange a series of interest payments over time; "in-the-money amount" (價內值) means the amount calculated according to the following applicable formula- (a) in relation to a call options contract, N x (M – S); (b) in relation to a put options contract, N x (S – M); or (c) in relation to a call warrant on listed shares, N x (M – S), where- "N" represents- (i) where the asset underlying the options contract or warrant is shares, the number of such shares; or (ii) where the asset underlying the options contract is an asset other than shares, the number of units of such asset; "M" represents the market value of- (i) where the asset underlying the options contract or warrant is shares, one such share; or (ii) where the asset underlying the options contract is an asset other than shares, one unit of such asset; and "S" represents the strike price of the options contract or the exercise price of the warrant- (i) where the asset underlying the options contract or warrant is shares, for one such share; or (ii) where the asset underlying the options contract is an asset other than shares, for one unit of such asset; "liquid assets" (速動資產), in relation to a licensed corporation, means the aggregate of the amounts required to be included in its liquid assets under the provisions of Division 3 of Part 4; "liquid capital" (速動資金), in relation to a licensed corporation, means the amount by which its liquid assets exceeds its ranking liabilities; "listed" (上市), in relation to securities, means listed or traded on any exchange; "margin client" (保證金客戶)- (a) in relation to a licensed corporation licensed for Type 1 regulated activity, means a client to whom the licensed corporation provides securities margin financing; or (b) in relation to a licensed corporation licensed for Type 8 regulated activity, means any of its clients; "marking to market" (按照市值計算差額) means the method or procedure of adjusting the valuation of an open position in- (a) a futures contract; (b) any securities; (c) an options contract; (d) a derivative contract; (e) a leveraged foreign exchange contract; (f) a foreign exchange agreement; (g) an interest rate swap agreement; or (h) a specified investment, to reflect its current market value; "mutual fund" (互惠基金) means any arrangement made for the purpose, or having the effect, of providing facilities for investment in shares in a corporation which is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities or any other property whatsoever and which is offering for sale or has outstanding any redeemable shares of which it is the issuer; "no sponsor work licensing condition" (不任保薦人發牌條件), in relation to a licensed corporation licensed for Type 6 regulated activity, means a licensing condition that the licensed corporation shall not act as a sponsor in respect of an application for the listing on a recognized stock market of any securities; (L.N. 117 of 2006) "non-collateralized warrants" (非抵押權證) means derivative warrants listed on a recognized stock market other than collateralized warrants; "note issuance and revolving underwriting facility" (票據的發行及循環式包銷融通) means an arrangement under which a borrower may draw down funds up to an agreed limit over an agreed period of time (the term to maturity of the facility) by making repeated note issues to the market, and where, should an issue prove unable to be placed in the market, the unplaced amount is to be taken up or funds made available by the underwriter of the facility; "off-exchange traded derivative contracts" (場外買賣衍生工具合約) means derivative contracts which are traded other than on an exchange; "omnibus account" (客戶匯集綜合帳戶) means an account opened with a licensed corporation by a client of the licensed corporation, and the client has notified it that the account is to be operated by him as agent for the benefit of 2 or more other persons; "options contract" (期權合約) means a contract which gives the holder of the contract the option or right, exercisable at or before a time specified in the contract to- (a) buy or sell- (i) at an agreed consideration an agreed quantity of a specified futures contract, share or other property; or (ii) an agreed value of a specified futures contract, share or other property; or (b) be paid an amount of money calculated by reference to the value of such futures contract, share or other property or by reference to the level of an index, as may be specified in the contract; "out-of-the-money amount" (價外值) means the amount calculated according to the following applicable formula- (a) in relation to a call options contract, N x (S – M); (b) in relation to a put options contract, N x (M – S); or (c) in relation to a call warrant on listed shares, N x (S – M), where- "N" represents- (i) where the asset underlying the options contract or warrant is shares, the number of such shares; or (ii) where the asset underlying the options contract is an asset other than shares, the number of units of such asset; "M" represents the market value of- (i) where the asset underlying the options contract or warrant is shares, one such share; or (ii) where the asset underlying the options contract is an asset other than shares, one unit of such asset; and "S" represents the strike price of the options contract or the exercise price of the warrant- (i) where the asset underlying the options contract or warrant is shares, for one such share; or (ii) where the asset underlying the options contract is an asset other than shares, for one unit of such asset; "prescribed country" (訂明國家) means- (a) a country belonging to the Organization for Economic Co-operation and Development; or (b) Singapore; "qualifying debt securities" (合資格債務證券) means- (a) debenture stock, loan stock, debentures, bonds, notes and any securities or other instruments acknowledging, evidencing or creating indebtedness- (i) which are issued or guaranteed by- (A) the Central People's Government of the People's Republic of China or the People's Bank of China; (B) the Government; or (C) the Hong Kong Exchange Fund; (ii) which are issued by the Hong Kong Mortgage Corporation; (iii) which are listed on a recognized stock market; (iv) the issuer of which has at least one issue currently rated by- (A) Moody's Investors Service at either Baa or Prime-3 or above; (B) Standard & Poor's Corporation at either BBB or A-3 or above; or (C) an approved credit rating agency at or above a grade specified by the Commission under section 58(2)(b); or (v) the guarantor of which has at least one issue currently rated by- (A) Moody's Investors Service at either A or Prime-2 or above; (B) Standard & Poor's Corporation at either A or A-2 or above; or (C) an approved credit rating agency at or above a grade specified by the Commission under section 58(2)(b), but does not include- (vi) any special debt securities; (vii) any I-owe-you; and (viii) any securities or any instrument acknowledging, evidencing or creating a subordinated loan or a debt due from a corporation within a group of companies of which the holder of the securities or instrument is a member; or (b) certificates of deposit issued by an authorized financial institution or an approved bank incorporated outside Hong Kong; "ranking liabilities" (認可負債), in relation to a licensed corporation, means the aggregate of the amounts required to be included in its ranking liabilities under the provisions of Division 4 of Part 4; "redeemable shares" (可贖回股份) means shares in the share capital of a corporation which are redeemable at the option of the holder of the shares or the corporation; "repledge" (再質押), in relation to a licensed corporation, means an act by which the licensed corporation or an associated entity of such licensed corporation deposits securities collateral of the licensed corporation as collateral for financial accommodation provided to the licensed corporation; (L.N. 117 of 2006) "reporting currency" (申報貨幣), in relation to a licensed corporation, means the currency in which its financial statements, required under section 156 of the Ordinance to be submitted to the Commission, are denominated, or intended to be denominated; "repurchase transaction" (回購交易) means a transaction under which there is a sale of securities and a further arrangement obliging the seller of the securities to repurchase from the purchaser, or obliging the purchaser to resell to the seller, securities of the same description as the securities first sold, at a pre-determined consideration and date; "required liquid capital" (規定速動資金), in relation to a licensed corporation, means an amount equal to the higher of- (a) where it is- (i) licensed for only one regulated activity specified in column 1 of Table 2 in Schedule 1, the amount specified in column 2 of the Table opposite the regulated activity or, where any further description is set out for the regulated activity in column 1 of the Table, opposite the applicable description; or (ii) licensed for 2 or more regulated activities specified in column 1 of the Table, the amount which is the higher or highest upon comparing each amount specified in column 2 of the Table opposite any of such regulated activities or, where any further description is set out for any of such activities in column 1 of the Table, opposite any of such activities or any of the applicable descriptions; and (b) its variable required liquid capital; "required liquid capital deficit" (規定速動資金短欠數額), in relation to a licensed corporation, means the amount by which its required liquid capital exceeds its liquid capital; "rules" (規章)- (a) in relation to an exchange other than a recognized exchange company, includes its constitution and any rules, regulations, guidelines or directions, by whatever name they may be called and wherever contained, governing- (i) its exchange participants; (ii) the persons who may participate in any of the services it provides or trade on it; (iii) the setting and levying of fees; (iv) the listing of securities; (v) the trading of securities, futures contracts, options contracts or leveraged foreign exchange contracts through or on it; (vi) the provision of other services; or (vii) generally, its management, operations or procedures; or (b) in relation to a clearing house other than a recognized clearing house, includes its constitution and any rules, regulations, guidelines or directions, by whatever name they may be called and wherever contained, governing- (i) its clearing participants; (ii) the persons who may participate in any of the services it provides; (iii) the setting and levying of fees; (iv) the clearing and settlement of transactions, whether or not executed on an exchange, of which it is the clearing house; (v) the imposition of margin requirements and matters pertaining to the deposit or collection of margin; (vi) the manner of making and receiving payment of monies in respect of the provision by it of any service, including the setting-off of such amounts receivable and amounts payable to it; (vii) the provision of other services; or (viii) generally, its management, operations or procedures; "securities dealer" (證券交易商) means- (a) a licensed corporation licensed for Type 1 regulated activity; or (b) a person licensed, registered or authorized by an authority or regulatory organization outside Hong Kong for an activity which, if carried on in Hong Kong, would constitute Type 1 regulated activity; "securities margin financing" (證券保證金融資) has the meaning assigned to it by Part 2 of Schedule 5 to the Ordinance, save that notwithstanding paragraph (iii) of that definition, it includes the provision of financial accommodation by a licensed corporation licensed for Type 1 regulated activity to a client of the licensed corporation to facilitate- (a) the acquisition of securities listed on any stock market, whether a recognized stock market or any other stock market outside Hong Kong; or (b) (where applicable) the continued holding of those securities; "segregated account" (獨立帳戶) means- (a) a segregated account within the meaning of section 2 of the Securities and Futures (Client Money) Rules (Cap 571 sub. leg. I); or (b) an account for holding client money which is separate from a licensed corporation's own account; "settlement date" (交收日期), in relation to any dealing in securities, means- (a) in the case of a transaction effected on an exchange, the date on which payment for the securities is first due in accordance with the rules or conventions of the exchange on which the securities are traded; or (b) in any other case, the date on which payment for the securities is first due as agreed between the parties to the transaction, but in either case, the date not exceeding 20 business days after the trade date; "short selling" (賣空) means a sale of securities where at the time of the sale- (a) the seller does not have a presently exercisable and unconditional right to vest the securities in the purchaser of them; or (b) the seller has a presently exercisable and unconditional right to vest the securities in the purchaser of them by virtue of having entered into a securities borrowing and lending agreement; "special debt securities" (特別債務證券) means indexed bonds, convertible debt securities, bonds with non-detachable warrants and non-interest bearing debt securities- (a) which are issued or guaranteed by- (i) the Central People's Government of the People's Republic of China or the People's Bank of China; (ii) the Government; or (iii) the Hong Kong Exchange Fund; (b) which are issued by the Hong Kong Mortgage Corporation; (c) which are listed on a recognized stock market; (d) the issuer of which has at least one issue currently rated by- (i) Moody's Investors Service at either Baa or Prime-3 or above; (ii) Standard & Poor's Corporation at either BBB or A-3 or above; or (iii) an approved credit rating agency at or above a grade specified by the Commission under section 58(2)(b); or (e) the guarantor of which has at least one issue currently rated by- (i) Moody's Investors Service at either A or Prime-2 or above; (ii) Standard & Poor's Corporation at either A or A-2 or above; or (iii) an approved credit rating agency at or above a grade specified by the Commission under section 58(2)(b), but does not include- (f) any I-owe-you; and (g) any securities or any instrument acknowledging, evidencing or creating a subordinated loan or a debt due from a corporation within a group of companies of which the holder of the securities or instrument is a member; "specified exchange" (指明交易所) means an exchange specified in Schedule 3; "specified investments" (指明投資項目) means the investments specified in column 2 of Table 8 in Schedule 2; "specified licensing condition" (指明發牌條件), in relation to a licensed corporation licensed for Type 4, Type 5, Type 6 or Type 9 regulated activity, means a licensing condition that the licensed corporation shall not hold client assets; "specified securities" (指明證券) means the securities specified in column 2 of Table 7 in Schedule 2; "standby subordinated loan facility" (備用後償貸款融通) means a loan facility provided to a licensed corporation licensed for Type 1, Type 2, Type 3 or Type 8 regulated activity under which the lender's claim in respect of any drawdown by the licensed corporation is subordinated to the prior payment, or provision for payment, in full of all claims of all other present and future creditors of the licensed corporation; "stock futures contract" (股票期貨合約) means a contract traded on a specified exchange, the effect of which is that- (a) one party to the contract agrees to deliver to the other party to the contract at an agreed future time an agreed quantity of a specific listed share at an agreed consideration; or (b) the parties to the contract will make an adjustment between themselves at an agreed future time according to whether at that time an agreed quantity of a specific listed share is worth more or less than a value agreed at the time the contract is made; "stock options contract" (股票期權合約) means a contract traded on a specified exchange, the effect of which is that one party to the contract agrees to provide to the other party to the contract the right to sell or purchase at an agreed consideration an agreed quantity of a specific listed share at or before an agreed future time; "subordinated loan" (後償貸款) means a loan provided to a person under which the lender's claim in respect of the loan is subordinated to the prior payment, or provision for payment, in full of all claims of all other present and future creditors of the person; "trade date" (交易日期), in relation to a transaction in- (a) a futures contract; (b) any securities; (c) an options contract; (d) a derivative contract; (e) a leveraged foreign exchange contract; (f) a foreign exchange agreement; (g) an interest rate swap agreement; or (h) a specified investment, means- (i) in the case of a transaction on any exchange, the date on which the transaction is executed; or (j) in any other case, the date on which the agreement between the parties is made; "trader" (買賣商) means a licensed corporation licensed for Type 1 or Type 2 regulated activity which does not hold client assets or handle clients' orders and, in carrying on the regulated activity for which it is licensed, conducts no business other than effecting, or offering to effect, dealings in securities, futures contracts or options contracts for its own account; "unit trust" (單位信託) means any arrangement made for the purpose, or having the effect, of providing facilities for the participation by persons as beneficiaries under a trust, in profits or income arising from the acquisition, holding, management or disposal of securities or any other property whatsoever; "variable required liquid capital" (可變動規定速動資金)- (a) in relation to a licensed corporation licensed for Type 3 regulated activity (whether or not it is also licensed for any other regulated activity), means the sum of the basic amount and 1.5% of its aggregate gross foreign currency position; or (b) in relation to a licensed corporation licensed for any regulated activity other than Type 3 regulated activity, means the basic amount. (L.N. 117 of 2006) (2) In these Rules, a reference to an exchange shall include a reference to any market operated by that exchange. "adjusted liabilities" (經調整負債) "aggregate gross foreign currency position" (合計外幣總持倉量) "amount of margin required to be deposited" (按規定須存放的保證金數額) "approved bank incorporated outside Hong Kong" (核准的在香港以外成立為法團的銀行) "approved credit rating agency" (核准信貸評級機構) "approved introducing agent" (核准介紹代理人) "approved redeemable shares" (核准可贖回股份) "approved securities borrowing and lending counterparty" (核准證券借貸對手方) "approved standby subordinated loan facility" (核准備用後償貸款融通) "approved subordinated loan" (核准後償貸款) "authorized financial institution" (認可財務機構) "basic amount" (基本數額) "clearing house" (結算所) "clearing participant" (結算所參與者) "collateral" (抵押品) "collateralized warrants" (有抵押權證) "common client" (共同客戶) "derivative contract" (衍生工具合約) "equity linked instruments" (股票掛鉤票據) "exchange participant" (交易所參與者) "excluded liabilities" (豁除負債) "floating losses" (浮動虧損) "floating profits" (浮動利潤) "foreign currency" (外幣) "foreign exchange agreement" (外匯協議) "free delivery basis" (信用交付形式) "futures contract" (期貨合約) "futures dealer" (期貨交易商) "futures non-clearing dealer" (期貨非結算交易商) "futures or options clearing house" (期貨或期權結算所) "gross foreign currency position" (外幣總持倉量) "haircut amount" (扣減數額) "haircut percentage" (扣減百分率) "Hong Kong Exchange Fund" (香港外匯基金) "initial margin requirement" (規定開倉保證金) "interest rate swap agreement" (掉期息率協議) "in-the-money amount" (價內值) "liquid assets" (速動資產) "liquid capital" (速動資金) "listed" (上市) "margin client" (保證金客戶) "marking to market" (按照市值計算差額) "mutual fund" (互惠基金) "no sponsor work licensing condition" (不任保薦人發牌條件) "non-collateralized warrants" (非抵押權證) "note issuance and revolving underwriting facility" (票據的發行及循環式包銷融通) "off-exchange traded derivative contracts" (場外買賣衍生工具合約) "omnibus account" (客戶匯集綜合帳戶) "options contract" (期權合約) "out-of-the-money amount" (價外值) "prescribed country" (訂明國家) "qualifying debt securities" (合資格債務證券) "ranking liabilities" (認可負債) "redeemable shares" (可贖回股份) "repledge" (再質押) "reporting currency" (申報貨幣) "repurchase transaction" (回購交易) "required liquid capital" (規定速動資金) "required liquid capital deficit" (規定速動資金短欠數額) "rules" (規章) "securities dealer" (證券交易商) "securities margin financing" (證券保證金融資) "segregated account" (獨立帳戶) "settlement date" (交收日期) "short selling" (賣空) "special debt securities" (特別債務證券) "specified exchange" (指明交易所) "specified investments" (指明投資項目) "specified licensing condition" (指明發牌條件) "specified securities" (指明證券) "standby subordinated loan facility" (備用後償貸款融通) "stock futures contract" (股票期貨合約) "stock options contract" (股票期權合約) "subordinated loan" (後償貸款) "trade date" (交易日期) "trader" (買賣商) "unit trust" (單位信託) "variable required liquid capital" (可變動規定速動資金) SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 3 Accounting treatment VerDate:01/04/2003 PART 2 ACCOUNTING TREATMENT (1) For the purposes of these Rules and subject to subsection (3), a licensed corporation shall account for all assets and liabilities- (a) in accordance with generally accepted accounting principles, unless otherwise specified in these Rules; and (b) in a way that recognizes the substance of a transaction, arrangement or position including accounting for a structured bond as a derivative product and not as a debt security. (2) Subject to subsection (3), a licensed corporation shall not without notifying the Commission under section 55(5), change any of its accounting principles, other than those referred to in subsection (1)(a), 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. (3) A licensed corporation may, with the Commission's prior written approval under section 58(5)(d), adopt an accounting principle other than one of those referred to in subsection (1)(a). SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 4 Licensed corporations to maintain financial resources VerDate:01/04/2003 PART 3 FINANCIAL RESOURCES REQUIREMENTS A licensed corporation shall at all times maintain financial resources in the amount required of it under this Part. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 5 Paid-up share capital requirement for licensed corporations VerDate:01/08/2007 For the purposes of section 4, a licensed corporation other than one which carries on a regulated activity solely as one or more of the following- (a) an approved introducing agent who is not a licensed corporation licensed for Type 3 regulated activity; (b) a trader; (c) a futures non-clearing dealer; (d) a licensed corporation licensed for Type 4, Type 5 or Type 9 regulated activity, which is subject to the specified licensing condition; (L.N. 117 of 2006) (da) a licensed corporation licensed for Type 6 regulated activity, which is subject to both the specified licensing condition and the no sponsor work licensing condition. (L.N. 117 of 2006) shall at all times maintain paid-up share capital of not less than- (e) where it is licensed for only one regulated activity specified in column 1 of Table 1 in Schedule 1, the amount specified in column 2 of the Table opposite the regulated activity or, where any further description is set out for the regulated activity in column 1 of the Table, opposite the applicable description; or (f) where it is licensed for 2 or more regulated activities specified in column 1 of the Table, the amount which is the higher or highest upon comparing each amount specified in column 2 of the Table opposite any of such regulated activities or, where any further description is set out for any of such activities in column 1 of the Table, opposite any of such activities or any of the applicable descriptions. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 6 Liquid capital requirement for licensed corporations VerDate:01/04/2003 (1) For the purposes of section 4, a licensed corporation shall at all times maintain liquid capital which is not less than its required liquid capital. (2) Subsections (3) and (4) apply in respect of a licensed corporation licensed for one or more of the following- (a) Type 1 regulated activity; (b) Type 2 regulated activity; (c) Type 3 regulated activity; (d) Type 8 regulated activity, unless it is- (e) in the case of paragraph (a), an approved introducing agent or a trader; (f) in the case of paragraph (b), an approved introducing agent, a trader or a futures non-clearing dealer; or (g) in the case of paragraph (c), an approved introducing agent. (3) Subject to subsection (4)- (a) on any particular business day on which a licensed corporation's required liquid capital rises above its liquid capital; and (b) where applicable, on any one or more consecutive business days immediately following the day referred to in paragraph (a) on which there continues to be a required liquid capital deficit, the licensed corporation will be regarded as having complied with subsection (1) if- (c) it is entitled to draw down an amount not less than the required liquid capital deficit under an approved standby subordinated loan facility; and (d) its required liquid capital on the day that its required liquid capital rises above its liquid capital is at least 20% more than its required liquid capital at the close of business on the previous business day, as a result of- (i) an increase in its adjusted liabilities which is attributable to an increase in its dealings in securities for its clients; (ii) an increase in the aggregate of the initial margin requirements, or of the amounts of margin required to be deposited, in respect of outstanding futures contracts or outstanding options contracts held by it on behalf of its clients; (iii) an increase in its aggregate gross foreign currency position; (iv) an increase in its adjusted liabilities which is attributable to an increase in the aggregate of the amounts receivable from its margin clients; or (v) where applicable, the aggregate of the increases described in 2 or more of subparagraph (i), (ii), (iii) or (iv). (4) Subsection (3) only applies on a day referred to in subsection (3)(a) or (b) if, during the 60 days immediately preceding that day, the required liquid capital of the licensed corporation has exceeded its liquid capital on 4 or less business days. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 7 Calculation of liquid capital and required liquid capital VerDate:01/04/2003 PART 4 LIQUID CAPITAL Division 1-General A licensed corporation, for the purposes of calculating its liquid capital and required liquid capital, shall account for all its assets, liabilities and transactions in accordance with this Part. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 8 Accounting for transactions on trade date basis VerDate:01/04/2003 Division 2-Computation basis A licensed corporation, for the purposes of calculating its liquid capital and required liquid capital, shall account on a trade date basis for all transactions effected by it, whether as principal or agent, in relation to- (a) any dealing in- (i) a futures contract; (ii) any securities; (iii) an options contract; (iv) a derivative contract; or (v) a specified investment; (b) trading in a leveraged foreign exchange contract; or (c) entering into any- (i) foreign exchange agreement; or (ii) interest rate swap agreement. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 9 Valuation of proprietary positions, etc. VerDate:01/04/2003 (1) A licensed corporation, for the purposes of calculating its liquid capital and required liquid capital, shall, subject to subsection (2), value any open position in- (a) a futures contract; (b) any securities; (c) an options contract; (d) a derivative contract; (e) a leveraged foreign exchange contract; (f) a foreign exchange agreement; (g) an interest rate swap agreement; or (h) a specified investment, entered into for its own account at market value. (2) Notwithstanding subsection (1), for the purposes of calculating the liquid capital and required liquid capital of a licensed corporation, any reference in these Rules to the market value of the securities referred to in this subsection shall be construed as referring to the value (including any nil value) at which they are required to be valued under this subsection, namely- (a) debt securities other than a certificate of deposit, in respect of which there is no published market price, shall be valued- (i) at the average value of quotations obtained in respect of those debt securities from- (A) at least 2 market makers; or (B) where in relation to any debt securities there are less than 2 market makers, at least 2 banks, securities dealers outside Hong Kong or licensed corporations, who customarily deal in such debt securities, or at least 2 of the persons referred to in this sub-subparagraph; or (ii) if the quotations referred to in subparagraph (i) are not available- (A) in the case of long positions, at nil; or (B) in the case of short positions, at the face value of the debt securities; (b) listed securities which have been suspended from trading for at least 3 business days or ceased trading on any exchange on which the securities were listed, shall, unless the securities can continue to be traded on any other exchange on which the securities are listed, be valued- (i) in the case of long positions, at nil; or (ii) in the case of short positions, at the last closing price before the suspension or cessation of trading; (c) certificates of deposit issued by an authorized financial institution or an approved bank incorporated outside Hong Kong, in respect of which there is no published market price, shall be valued at the value quoted by the issuer. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 10 Pairs of transactions VerDate:01/04/2003 A licensed corporation which enters into a pair of transactions in which its respective roles are opposite, but which otherwise have identical or similar terms, shall account for the transactions as separate transactions. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 11 No set-off VerDate:01/04/2003 (1) Subject to subsections (2), (3), (4), (5) and (6) and section 48(2), the assets and liabilities of a licensed corporation shall be treated separately on a gross basis and shall not be set-off against each other. (2) Subsection (1) does not apply in respect of any amounts receivable by a licensed corporation from, and any amounts payable by it to, a recognized clearing house, where the rules of the clearing house permit the setting-off of such amounts against each other for settlement purposes. (3) Subsection (1) does not apply in respect of any amounts receivable by a licensed corporation from, and any amounts payable by it to, a person, where- (a) such amounts do not arise from the carrying on of any regulated activity for which it is licensed; and (b) it has a legally enforceable right to set-off such amounts against each other. (4) Subsection (1) does not apply in respect of any amounts receivable by a licensed corporation from, and any amounts payable by it to, a client of the licensed corporation, where such amounts arise from- (a) the purchase and sale by the client of securities of the same description due to be settled on a cash-against-delivery basis and the client has authorized the licensed corporation to set-off such amounts; (b) the purchase and sale by the client of securities in relation to which the licensed corporation has elected to set-off such amounts against each other under section 21(2); or (c) the provision by it to the client of securities margin financing. (5) Subsection (1) does not apply in respect of any amounts receivable by a licensed corporation licensed for Type 8 regulated activity from, and any amounts payable by it to, each securities dealer with which it has common clients, where such amounts arise from dealings in securities by the securities dealer for those clients. (6) Subsection (1) does not apply in respect of any amounts receivable by a licensed corporation licensed for Type 1 regulated activity from, and any amounts payable by it to, each licensed corporation licensed for Type 8 regulated activity with which it has common clients, where such amounts arise from dealings in securities by it for those clients. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 12 Transactions in margined accounts VerDate:01/04/2003 (1) A licensed corporation shall not set-off amounts receivable by it from, and amounts payable by it to, a client of the licensed corporation arising from transactions in different margined accounts maintained with it by the client. (2) Where a licensed corporation has a client who- (a) maintains with it more than one margined account; (b) has deposited with it security against his liabilities to it in the form of- (i) cash; (ii) collateral; or (iii) a bank guarantee issued by an authorized financial institution or an approved bank incorporated outside Hong Kong; and (c) has authorized it to apply such security to satisfy any liabilities to it arising from the execution by it of any transaction in relation to any of his margined accounts, the licensed corporation may, subject to subsections (3) and (4)- (d) for the purpose of calculating- (i) a specified shortfall amount in relation to a margined account of the client; or (ii) a margin shortfall amount under section 22(1)(b) in relation to the client, deem all or part of such security to be deposited by the client as security to the margined account in relation to which such shortfall amount is calculated; or (e) for the purpose of calculating any amount to be included in its ranking liabilities under section 45(1) or 46(1) in relation to a margined account of the client, reduce any such amount by- (i) where the client has deposited cash referred to in paragraph (b)(i), the amount of such cash; (ii) where the client has deposited collateral referred to in paragraph (b)(ii), the amount of the market value of such collateral, less the haircut amount in relation to the collateral; or (iii) where the client has deposited a bank guarantee referred to in paragraph (b)(iii), the amount that it can draw down under such bank guarantee. (3) A licensed corporation shall not- (a) under subsection (2)(d), deem- (i) any amount of cash; (ii) any collateral; or (iii) any amount that it can draw down under a bank guarantee, to be security to the margined account concerned; or (b) effect any reduction under subsection (2)(e) in respect of such security, if- (c) such security has been deemed under subsection (2)(d) to be deposited as security to another margined account of the client; or (d) in respect of such security a reduction under subsection (2)(e) has been effected in relation to another margined account of the client. (4) For the purposes of these Rules, a licensed corporation shall cease to treat- (a) any cash referred to in subsection (2)(b)(i); (b) any collateral referred to in subsection (2)(b)(ii); or (c) any bank guarantee referred to in subsection (2)(b)(iii), as security in relation to the margined account of the client into which it was deposited, to the extent that such security- (d) has been deemed under subsection (2)(d) to be deposited as security to another margined account of the client; or (e) has been utilized to effect a reduction under subsection (2)(e). (5) For the purposes of subsection (2), "specified shortfall amount" (指明短欠數額) means an amount to be included in the licensed corporation's ranking liabilities under- (a) section 40(1); (b) section 41(1); (c) section 43(10); (d) section 45(2); or (e) section 46(2). (6) In this section, "margined account" (以保證金形式操作的帳戶), in relation to a client of a licensed corporation, means- (a) an account maintained with a licensed corporation licensed for Type 1 regulated activity by the client for the provision to him by the licensed corporation of securities margin financing; or (b) an account maintained with the licensed corporation by the client for- (i) short selling; (ii) dealings in futures contracts; (iii) dealings in options contracts; (iv) securities borrowing and lending; (v) trading in leveraged foreign exchange contracts; or (vi) entering into repurchase transactions. "specified shortfall amount" (指明短欠數額) "margined account" (以保證金形式操作的帳戶) SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 13 Treatment of exercised options contracts VerDate:01/04/2003 A licensed corporation shall, immediately upon the exercise of an options contract purchased, written or cleared by it, treat the options contract as having ceased to exist and account for- (a) all its assets; and (b) all its liabilities, arising from such exercise. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 14 Assignments VerDate:01/04/2003 (1) A licensed corporation shall not include in its liquid assets any amount receivable by it from any of its clients if such amount has been assigned by it to another person. (2) A licensed corporation shall not treat any collateral or any other type of security deposited with it by any of its clients as so deposited where such collateral or other type of security has been assigned by it to another person. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 15 Treatment of securities borrowing and lending agreements VerDate:01/04/2003 (1) A licensed corporation which, under a securities borrowing and lending agreement, is the borrower of any securities, is deemed for the purposes of these Rules- (a) to remain the owner of any collateral beneficially owned by it and provided by it as security to the lender of the securities under the agreement; (b) to have an amount receivable from that lender equal to the amount of cash provided by it as security to that lender; and (c) not to own the securities borrowed under the agreement. (2) A licensed corporation which, under a securities borrowing and lending agreement, is the lender of any securities, is deemed for the purposes of these Rules- (a) where the securities lent under the agreement are beneficially owned by it, to remain the beneficial owner of the securities for the purposes of section 27; (b) not to own any collateral deposited with it as security by the borrower of the securities under the agreement; and (c) to have an amount payable to that borrower equal to the amount of cash deposited with it as security by that borrower, unless the cash- (i) is not included in its liquid assets under section 20; and (ii) is held in a segregated account. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 16 Treatment of repurchase transactions VerDate:01/04/2003 (1) Where a licensed corporation is the purchaser in the first instance of any securities under a repurchase transaction, it is deemed for the purposes of these Rules- (a) to have an amount receivable from the seller of the securities equal to the consideration for which it purchased the securities; and (b) not to own the securities purchased and so shall not include them in its liquid assets under section 27. (2) Where a licensed corporation is the seller in the first instance of any securities beneficially owned by it under a repurchase transaction, it is deemed for the purposes of these Rules- (a) to remain the owner of the securities sold by it; and (b) to be liable to the purchaser of the securities for an amount equal to the consideration for which it sold the securities. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 17 Computation basis VerDate:01/04/2003 Division 3-Liquid assets A licensed corporation shall, for the purpose of calculating its liquid assets under the provisions of this Division, apply the computation basis prescribed in Division 2. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 18 Exclusions from liquid assets VerDate:01/04/2003 (1) A licensed corporation which operates a branch in a place outside Hong Kong shall not include in its liquid assets any asset which it is required by an authority or regulatory organization in, or under the law of, that place, to maintain in that place in order for the branch to obtain or maintain a licence, registration, membership or authorization to carry on an activity which, if carried on in Hong Kong, would constitute a regulated activity. (2) A licensed corporation shall not include in its liquid assets- (a) any asset that is an amount of a currency that is subject to exchange control; or (b) any assets the proceeds of which upon realization are not freely remittable to Hong Kong, unless the licensed corporation reasonably believes that approval for the remittance of such currency or proceeds to Hong Kong can be obtained from the relevant authority within one week of application by it for such approval. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 19 Assets provided to others as security VerDate:01/04/2003 (1) A licensed corporation, for the purpose of calculating its liquid capital, subject to subsection (2), is deemed not to own any asset which it beneficially owns and has provided to another person as security for any liabilities or obligations. (2) A licensed corporation is deemed to remain the owner of any asset which it beneficially owns and has provided as security- (a) to- (i) an authorized financial institution; (ii) an approved bank incorporated outside Hong Kong; or (iii) another licensed corporation, for credit facilities provided to it by the institution, bank or corporation (as the case may be); (b) under a securities borrowing and lending agreement under which it is the borrower of securities; (c) in the form of margin deposited in respect of any short selling by it; (d) in the form of margin deposited in respect of any dealing in futures contracts or options contracts by it; (e) in the form of margin deposited in respect of any trading in leveraged foreign exchange contracts by it; (f) to obtain a bank guarantee for the purpose of fulfilling its obligations under the rules of a recognized exchange company to furnish the exchange company with a guarantee as an alternative to participating in the Fidelity Fund established under the rules; (g) to, or to obtain a bank guarantee in favour of, a recognized clearing house for the purpose of enabling it to fulfil its obligations under the rules of the clearing house (other than rules which relate to the Guarantee Fund or the Reserve Fund); or (h) in relation to collateralized warrants of which it is the issuer, in the form of a charge over the underlying securities or other assets to which the warrants relate in favour of an independent trustee. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 20 Cash in hand and at bank VerDate:01/04/2003 A licensed corporation shall include in its liquid assets- (a) cash in hand which it beneficially owns; (b) money which it beneficially owns and holds in its name, or in a segregated account, with an authorized financial institution or an approved bank incorporated outside Hong Kong in the form of- (i) a demand deposit; or (ii) a time deposit which will mature in 6 months or less; and (c) interest accrued on any deposit referred to in paragraph (b)(ii). SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 21 Amounts receivable from clients in respect of purchase of and subscription for securities VerDate:01/04/2003 (1) Subject to subsections (3) and (7), a licensed corporation shall include in its liquid assets the following amount receivable from any of its clients arising from purchase by the client of securities on a cash-against-delivery basis- (a) any such amount receivable which- (i) is not yet due for settlement according to the settlement date; or (ii) has been outstanding for 5 business days or less after the settlement date; and (b) where any such amount receivable has been outstanding for more than 5 business days but less than one month after the settlement date, the amount which is the lower, when calculated on a transaction-by-transaction basis, of- (i) such outstanding amount receivable less any specific provision for bad or doubtful debts made in respect of such outstanding amount; and (ii) the market value of the securities to which such outstanding amount relates. (2) A licensed corporation may elect in respect of all its clients to set-off, on a client-by-client basis, any amount receivable from, and amount payable to, a client where such amounts arise from the purchase and sale of securities by the client on a cash-against-delivery basis, and the licensed corporation has obtained from the client a written authorization to- (a) set-off such amounts against each other; and (b) dispose of securities held for the client for the purpose of settling any of the amounts payable by the client to the licensed corporation. (3) Subject to subsection (7), where a licensed corporation makes an election under subsection (2), it shall include in its liquid assets in respect of the amount receivable by it from and the amount payable by it to a client which arise from the purchase and sale of securities by the client on a cash-against-delivery basis the amount which is the lower, when calculated on a client-by-client basis, of- (a) any amount receivable that remains after the set-off referred to in subsection (2) less any specific provision for bad or doubtful debts made in respect of such amount receivable; and (b) the market value of the securities held for the client, less the haircut amounts in relation to the securities. (4) Subject to subsection (7), a licensed corporation shall include in its liquid assets the following amount receivable from any of its clients in respect of the purchase of securities by the client on a free delivery basis- (a) in the case where the clearing system of the exchange on which the securities are traded effects settlement only on a free delivery basis, such amount receivable which, when calculated on a transaction-by-transaction basis, has been outstanding for 2 weeks or less after the settlement date; or (b) in any other case, such amount receivable which, when calculated on a transaction-by-transaction basis, is not yet due for settlement according to the settlement date. (5) Subject to subsection (7), a licensed corporation shall, in respect of securities subscribed for on behalf of any of its clients, include, prior to the commencement of trading of the securities on any exchange on which they are listed, in its liquid assets the amount which is the lower, when calculated on a transaction-by-transaction basis, of- (a) 90% of the total costs to the client of subscribing for the securities; and (b) the amount receivable from the client for subscribing for the securities. (6) Subject to subsection (7), a licensed corporation shall, in respect of securities subscribed for on behalf of any of its clients, include, after the commencement of trading of the securities on any exchange on which they are listed, in its liquid assets the amount receivable from the client arising from subscribing for the securities in accordance with subsection (1) or (3) as if the securities had been purchased on a cash-against-delivery basis. (7) The aggregate of amounts that a licensed corporation includes in its liquid assets under subsections (1), (3), (4), (5) and (6) shall not exceed the aggregate of amounts receivable from its clients referred to in those subsections less the aggregate of amounts of specific and general provisions for bad or doubtful debts made in respect of such aggregate of amounts receivable. (8) In subsection (2), "written authorization" (書面授權) includes an agreement in writing within the meaning of the Securities and Futures (Client Securities) Rules (Cap 571 sub. leg. H). "written authorization" (書面授權) SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 22 Amounts receivable in respect of providing securities margin financing VerDate:01/10/2006 (1) Subject to subsections (2) and (3), a licensed corporation licensed for Type 1 or Type 8 regulated activity shall include in its liquid assets any net amount receivable from any of its margin clients, calculated as the amount by which the amount receivable from the margin client exceeds the amount payable by it to the margin client arising from the provision by it of securities margin financing, after deducting the higher of- (a) any specific provision for bad or doubtful debts made in respect of such net amount receivable; and (b) the margin shortfall amount, calculated as the amount by which the net amount receivable exceeds the aggregate of- (i) the market value of collateral, other than illiquid collateral, provided by the client, less the haircut amount in relation to such collateral; (L.N. 117 of 2006) (ii) the market value of all illiquid collateral provided by the client, multiplied by- (A) in the case of listed shares, 20%; and (B) in the case of listed warrants, 0%; (L.N. 117 of 2006) (iii) the amount of cash deposited as security by the client; and (iv) in the case of a licensed corporation licensed for Type 1 regulated activity, the maximum amount that it can draw under a bank guarantee provided to it by the client and issued by an authorized financial institution or an approved bank incorporated outside Hong Kong. (2) Notwithstanding section 8, a licensed corporation licensed for Type 1 or Type 8 regulated activity may, in calculating the margin shortfall amount referred to in subsection (1)(b) in relation to any of its margin clients, elect in respect of all its clients to exclude, on a client-by-client basis, from the calculation of the net amount receivable from the client, any- (a) amount receivable from the client; and (b) amount payable by it to the client, arising from dealings in securities which are not yet due for settlement according to the settlement date, whereupon subsection (1)(b) shall apply to it as if such dealings in securities- (c) had not given rise to any amount receivable from, or any amount payable by it to, the client; and (d) had not given rise to any change in the amount of collateral provided to it by the client. (3) The aggregate of amounts that a licensed corporation includes in its liquid assets under subsection (1) shall not exceed the aggregate of net amounts receivable from its margin clients referred to under that subsection less the aggregate of amounts of specific and general provisions for bad or doubtful debts made in respect of such aggregate of net amounts receivable. (4) In subsection (1)(b)(i) and (ii), "illiquid collateral" (非速動抵押 品), in relation to any collateral provided to a licensed corporation licensed for Type 1 or Type 8 regulated activity by its margin clients, means any listed share or listed warrant which is of the same description as that identified as top 3 collateral provided by any top margin client of the licensed corporation, where- (a) if it is a share, the aggregate market value of all shares of the same description as that share provided to the licensed corporation by its margin clients as collateral is equal to or greater than- (i) the average monthly turnover of that share; or (ii) 5% of the market capitalization of that share as at the end of the month immediately preceding the month prior to the month in which the calculation is made; or (b) if it is a warrant, the aggregate market value of all warrants of the same description as that warrant provided to the licensed corporation by its margin clients as collateral is equal to or greater than- (i) the average monthly turnover of that warrant; or (ii) 5% of the value of the relevant warrant issue as at the end of the month immediately preceding the month prior to the month in which the calculation is made, but does not include- (c) any listed share or listed warrant which has been listed for less than 6 consecutive months (including any period during which the share or warrant is suspended from trading) immediately preceding the month prior to the month in which the calculation is made; and (d) any listed share which is a constituent stock of any of the following indices- (i) Hang Seng Index; (ii) Hang Seng Hong Kong LargeCap Index; (iii) Hang Seng Hong Kong MidCap Index; (iv) FTSE-100 Index; (v) Nikkei 225 Index; or (vi) Standard & Poor's 500 Index. (5) In subsection (4)- "average monthly turnover" (平均每月成交額), in relation to a listed share or listed warrant, means one sixth of the aggregate value of transactions in that share or warrant on any exchange on which it is listed for a period of 6 consecutive months (including any period during which the share or warrant is suspended from trading) immediately preceding the month prior to the month in which the calculation is made; "calculation" (有關計算) means a calculation made for the purposes of subsection (1); "market capitalization" (市場資本值), in relation to a listed share, means the amount of the total number of shares of the same description as that share issued by the issuer of that share multiplied by their market price; "top 3 collateral" (首3位抵押品), in relation to a top margin client of a licensed corporation licensed for Type 1 or Type 8 regulated activity, means any of the 3 highest listed shares or listed warrants in terms of market value among all listed shares and listed warrants provided by him to the licensed corporation as collateral; "top margin client" (前列保證金客戶), in relation to a licensed corporation licensed for Type 1 or Type 8 regulated activity, means- (a) where it has less than 20 margin clients, all its margin clients with outstanding margin loan balance; or (b) where it has 20 or more margin clients, the 20 margin clients with the largest outstanding margin loan balance. (6) In the definition of "top 3 collateral" in subsection (5), "market value" (市值), in relation to a listed share or listed warrant provided by a margin client to the licensed corporation, means the market value of all such listed shares or listed warrants of the same description as that share or warrant (as the case may be) provided by the margin client to the licensed corporation. "illiquid collateral" (非速動抵押品) "average monthly turnover" (平均每月成交額) "calculation" (有關計算) "market capitalization" (市場資本值) "top 3 collateral" (首3位抵押品) "top margin client" (前列保證金客戶) "market value" (市值) SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 23 Amounts receivable from counterparties in respect of dealings in securities VerDate:01/04/2003 (1) Subject to subsection (2), a licensed corporation shall include in its liquid assets the following amounts receivable from any securities dealer which arise from the sale of securities by it to the securities dealer- (a) where the securities are sold on a cash-against-delivery basis- (i) any such amount receivable which has been outstanding for 2 weeks or less after the settlement date; and (ii) where any such amount receivable has been outstanding for more than 2 weeks but less than one month after the settlement date, the amount which is the lower, when calculated on a transaction-by-transaction basis, of- (A) such outstanding amount receivable less any specific provision for bad or doubtful debts made in respect of such outstanding amount; and (B) the market value of the securities to which such outstanding amount relates; (b) where the securities are sold on a free delivery basis, such amount receivable calculated on a transaction-by-transaction basis, which- (i) in the case where the clearing system of the exchange on which the securities are traded effects settlement only on a free delivery basis, has been outstanding for 2 weeks or less after the settlement date; or (ii) in any other case, is not yet due for settlement according to the settlement date. (2) The aggregate of amounts that a licensed corporation includes in its liquid assets under subsection (1) shall not exceed the aggregate of amounts receivable from securities dealers referred to in that subsection less the aggregate of amounts of specific and general provisions for bad or doubtful debts made in respect of such aggregate of amounts receivable. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 24 Amounts receivable in respect of dealings in securities by common clients VerDate:01/04/2003 (1) A licensed corporation licensed for Type 8 regulated activity shall include in its liquid assets the net amount receivable from each securities dealer with which it has common clients, calculated as the amount by which the amount receivable from such securities dealer exceeds the amount payable by it to the securities dealer, where such amounts arise from any dealing in securities by such securities dealer for those clients, to the extent that such amount does not exceed the total amount receivable from such securities dealer arising from any such dealing in securities which is not yet due for settlement according to the settlement date. (2) A licensed corporation licensed for Type 1 regulated activity shall include in its liquid assets the net amount receivable from each licensed corporation licensed for Type 8 regulated activity with which it has common clients, calculated as the amount by which the amount receivable from such second-mentioned licensed corporation exceeds the amount payable by it to such second-mentioned licensed corporation, where such amounts arise from any dealing in securities by it for those clients, to the extent that such amount does not exceed the total amount receivable from such second-mentioned licensed corporation arising from any such dealing in securities which is not yet due for settlement according to the settlement date. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 25 Amounts receivable from licensed corporations licensed for Type 8 regulated activity VerDate:01/04/2003 (1) Subject to subsection (2), a licensed corporation licensed for Type 1 regulated activity shall include in its liquid assets the aggregate of any amount receivable from each licensed corporation licensed for Type 8 regulated activity and any net amount receivable from such second-mentioned licensed corporation referred to in section 24(2) that has not been included in its liquid assets under that section, in the amount which, in relation to each such second-mentioned licensed corporation, is the lower of- (a) such aggregate amount less any specific provision for bad or doubtful debts made in respect of each such aggregate amount; and (b) the sum of- (i) the amount of cash deposited with it as security by such second-mentioned licensed corporation; (ii) the market value of collateral deposited with it by such second-mentioned licensed corporation, less the haircut amount in relation to such collateral; and (iii) the maximum amount that it can draw under a bank guarantee provided to it by such second-mentioned licensed corporation and issued by an authorized financial institution or an approved bank incorporated outside Hong Kong. (2) The aggregate of amounts that a licensed corporation includes in its liquid assets under subsection (1) shall not exceed the aggregate of amounts receivable from other licensed corporations referred to in that subsection less the aggregate of amounts of specific and general provisions for bad or doubtful debts made in respect of such aggregate of amounts receivable. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 26 Cash provided as security for short selling VerDate:01/04/2003 A licensed corporation shall include in its liquid assets an amount receivable in the amount of any cash (including interest accrued on it) provided by it as security to the counterparty in respect of a short selling by it of securities where it has not yet delivered the securities to the counterparty for settlement, where the counterparty is- (a) a securities dealer; (b) a specified exchange; (c) a clearing house of a specified exchange; or (d) a clearing participant of a clearing house referred to in paragraph (c). SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 27 Proprietary positions of licensed corporations VerDate:01/04/2003 (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. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 28 Amounts receivable from clearing houses, etc. VerDate:01/04/2003 (1) A licensed corporation shall include in its liquid assets- (a) amounts receivable from a recognized clearing house; and (b) cash deposited with such clearing house, other than- (c) admission fees it has paid to such clearing house; (d) contributions it has made to the Guarantee Fund or Reserve Fund of such clearing house; and (e) client money held in a segregated account maintained with such clearing house. (2) A licensed corporation shall, in respect of- (a) any dealing by it in- (i) a futures contract; (ii) any securities; (iii) an options contract; (iv) a derivative contract; or (v) a specified investment; (b) any trading by it in a leveraged foreign exchange contract; or (c) its entering into any- (i) foreign exchange agreement; or (ii) interest rate swap agreement, include in its liquid assets- (d) amounts receivable from Euroclear Bank S.A./N.V., Euroclear France S.A., Clearstream Banking S.A., Clearstream Banking AG or Korea Securities Finance Corporation; and (e) cash deposited with Euroclear Bank S.A./N.V., Euroclear France S.A., Clearstream Banking S.A., Clearstream Banking AG or Korea Securities Finance Corporation, other than- (f) admission fees it has paid to Euroclear Bank S.A./N.V., Euroclear France S.A., Clearstream Banking S.A., Clearstream Banking AG or Korea Securities Finance Corporation; and (g) cash it has deposited with Euroclear Bank S.A./N.V., Euroclear France S.A., Clearstream Banking S.A., Clearstream Banking AG or Korea Securities Finance Corporation as security against its general obligations. (3) A licensed corporation shall include in its liquid assets, in respect of any dealing by it in futures contracts or options contracts or any trading by it in leveraged foreign exchange contracts- (a) amounts receivable from a futures or options clearing house other than a recognized clearing house; and (b) cash deposited with such clearing house, other than- (c) admission fees it has paid to such clearing house; and (d) cash it has deposited with such clearing house as security against its general obligations. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 29 Amounts receivable from other dealers in respect of dealings in futures contracts and options contracts VerDate:01/04/2003 A licensed corporation shall include in its liquid assets, in respect of any dealing by it in futures contracts or options contracts or any trading by it in leveraged foreign exchange contracts- (a) amounts receivable from a licensed corporation licensed for Type 1 or Type 2 regulated activity or a clearing participant of a futures or options clearing house; and (b) cash deposited with that licensed corporation or that clearing participant, other than- (c) admission fees it has paid to such licensed corporation or clearing participant; and (d) cash it has deposited with such licensed corporation or clearing participant as security against its general obligations. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 30 Amounts receivable from clients in respect of purchase of exchange-traded options contracts VerDate:01/04/2003 A licensed corporation shall include in its liquid assets any amount receivable from any of its clients, calculated on a transaction-by-transaction basis, where such amount receivable arises from the purchase of any options contract traded on a specified exchange and has been outstanding for 5 business days or less after the settlement date. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 31 Exchange-traded options contracts trading for own account VerDate:01/04/2003 (1) Where a licensed corporation purchases for its own account any options contract traded on a specified exchange, it shall include in its liquid assets- (a) in the case where the options contract has been grouped with any other position held by the licensed corporation in- (i) a futures contract; or (ii) any other options contract, for the purpose of calculating a net amount of margin required to be deposited by it in respect of such positions, any amount receivable by it (other than any such amount receivable which has already been included in its liquid assets under section 28(1), (2) or (3) or 29) from- (iii) a licensed corporation licensed for Type 1 or Type 2 regulated activity; (iv) a futures or options clearing house; or (v) a clearing participant of a futures or options clearing house, arising from such calculation; or (b) in any other case, subject to subsections (2) and (3) and sections 27(4), 40(7) and (8) and 43(6), an amount which equals 60% of the market value of such options contract. (2) Subject to subsection (4) and without prejudice to section 40(7), where a licensed corporation holds a long position in a stock futures contract and holds a put stock options contract, which is not subject to any margin requirement, in respect of the same underlying listed shares, to the extent that the number of shares underlying the futures contract is equal to the number of shares underlying the options contract, subsection (1)(b) does not apply in respect of the options contract and section 40(4) does not apply in respect of the futures contract and it shall include in its liquid assets the options contract at market value. (3) Subject to subsection (4) and without prejudice to section 40(8), where a licensed corporation holds a short position in a stock futures contract and holds a call stock options contract, which is not subject to any margin requirement, in respect of the same underlying listed shares, to the extent that the number of shares underlying the futures contract is equal to the number of shares underlying the options contract, subsection (1)(b) does not apply in respect of the options contract and section 40(4) does not apply in respect of the futures contract and it shall include in its liquid assets the options contract at market value. (4) Subsections (2) and (3) 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. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 32 Amounts receivable under securities borrowing and lending agreements VerDate:01/04/2003 A licensed corporation which is the borrower of securities under a securities borrowing and lending agreement shall include in its liquid assets any amount receivable from the lender of the securities that it is deemed under section 15(1)(b) to have in respect of any cash provided by it as security to the lender. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 33 Amounts receivable under repurchase transactions VerDate:01/04/2003 A licensed corporation which is the purchaser in the first instance of any securities under a repurchase transaction shall include in its liquid assets any amount receivable from the seller of the securities that it is deemed under section 16(1)(a) to have in respect of the consideration for which it purchased the securities. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 34 Amounts receivable in respect of leveraged foreign exchange trading VerDate:01/04/2003 (1) A licensed corporation licensed for Type 3 regulated activity shall include in its liquid assets, in respect of any trading by it in leveraged foreign exchange contracts- (a) any amount receivable from a recognized counterparty; and (b) the amount of any cash deposited by it with the recognized counterparty. (2) A licensed corporation licensed for Type 3 regulated activity shall include in its liquid assets the amount of any floating profits in respect of outstanding foreign exchange agreements and leveraged foreign exchange contracts to which it is a party. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 35 Miscellaneous assets VerDate:01/04/2003 A licensed corporation shall include in its liquid assets any of the following assets- (a) the amount of any fees, commissions, commission rebates and interest charges to which it is beneficially entitled which arise from the carrying on by it of any regulated activity for which it is licensed and- (i) which have accrued and will first be due for billing or payment within the next 3 months; or (ii) which have been billed or fallen due for payment and remain outstanding for one month or less after the date on which they were billed or fell due; (b) deposits which it beneficially owns and maintained with, and in accordance with the rules or requirements of, a recognized exchange company as security for its obligations or liabilities owed to the recognized exchange company for stamp duty chargeable under the Stamp Duty Ordinance (Cap 117) on contract notes specified in an agreement under section 5A of that Ordinance; (c) prepaid operating expenses which will be incurred within the next 3 months; (d) tax reserve certificates issued by the Commissioner of Inland Revenue in accordance with the Tax Reserve Certificates Ordinance (Cap 289) which it beneficially owns; (e) interest accrued to it under an interest rate swap agreement to which it is a party, other than interest which remains outstanding after it is first due for payment; (f) amounts paid by it for its own account for subscribing for- (i) listed shares or shares pending their being listed; (ii) qualifying debt securities; (iii) special debt securities; (iv) specified securities, less an amount equal to such amounts as multiplied by 50% of the haircut percentages in relation to such shares or securities; (g) dividends receivable on shares listed on a recognized stock market or on a specified exchange that are traded on an ex-dividend basis and which it beneficially owns; (h) interest accrued on qualifying debt securities or special debt securities that are traded on an ex-interest basis and which it beneficially owns. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 36 Computation basis VerDate:01/04/2003 Division 4-Ranking liabilities A licensed corporation shall, for the purpose of calculating its ranking liabilities under the provisions of this Division, apply the computation basis prescribed in Division 2. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 37 Amounts payable to clients, etc. VerDate:01/04/2003 A licensed corporation shall include in its ranking liabilities any amount payable to any of its clients or any counterparty or clearing house which arises from the carrying on of any regulated activity for which it is licensed, other than- (a) an amount payable to any of its clients in respect of client money held by it in a segregated account maintained with an authorized financial institution, an approved bank incorporated outside Hong Kong or a recognized clearing house; and (b) an amount payable to any of its clients which is set-off against an amount receivable from the client under section 21(3). SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 38 Amounts payable in respect of dealing in securities VerDate:01/04/2003 A licensed corporation shall include in its ranking liabilities, in respect of a sale of securities- (a) by it for a client who is in default of his obligation to deliver the securities for- (i) more than 2 weeks after the settlement date; or (ii) (A) more than 5 business days but not more than 2 weeks after the settlement date; and (B) the market value of the securities is more than 200% of the consideration for which they were sold; and (b) which it has not settled with securities purchased at its own expense, the amount by which the market value of the securities exceeds the consideration for which they were sold. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 39 Amounts payable in respect of dealing in securities by common clients VerDate:01/04/2003 (1) A licensed corporation licensed for Type 1 regulated activity shall include in its ranking liabilities the net amount payable to each licensed corporation licensed for Type 8 regulated activity with which it has common clients, calculated as the amount by which the amount payable to each such second-mentioned licensed corporation exceeds the amount receivable by it from such second-mentioned licensed corporation, where such amounts arise from any dealing in securities by it for any of those clients. (2) A licensed corporation licensed for Type 8 regulated activity shall include in its ranking liabilities the net amount payable to each securities dealer with which it has common clients, calculated as the amount by which the amount payable to each such securities dealer exceeds the amount receivable by it from such securities dealer, where such amounts arise from any dealing in securities by such securities dealer for any of those clients. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 40 Futures contracts and options contracts dealing, etc. VerDate:01/04/2003 (1) Subject to subsection (2), a licensed corporation shall include in its ranking liabilities, in respect of- (a) any dealing by it in any futures contract; (b) any options contract written by it; or (c) any futures contract or options contract cleared by it, for another person, the amount, when calculated on an account-by-account basis, by which the aggregate of the amount of margin required to be deposited with it by the person and the amount of any floating losses incurred by the person on the contract less the amount of any floating profits made by the person on the contract exceeds the aggregate of- (d) the amount of cash deposited with it as security by the person; (e) the market value of collateral deposited with it by the person, less the haircut amounts in relation to such collateral; (f) the market value of specified investments deposited with it as security by the person, less the haircut amounts in relation to such investments; and (g) the maximum amount that it can draw under a bank guarantee provided to it as security by the person and issued by an authorized financial institution or an approved bank incorporated outside Hong Kong. (2) Subsection (1) does not apply to a licensed corporation on the day or days on which it is allowed, under the rules or conventions of the exchange on which the futures contract or options contract is traded, not to collect from the other person the margin required to be deposited by the other person in respect of the futures contract or options contract. (3) Subject to subsections (5), (6) and (9) and sections 27(2) and 43(5), a licensed corporation shall include in its ranking liabilities the market value of any options contract written by it for its own account and traded on a specified exchange, to the extent that the market value of the options contract exceeds the amount of margin required to be deposited by it in respect of the options contract. (4) Subject to subsections (5), (6), (7), (8) and (9) and sections 27(2) and (3), 31(2) and (3) and 43(4) and (5), a licensed corporation shall include in its ranking liabilities the amount of margin required to be deposited by it in respect of- (a) any futures contract which is traded by it for its own account; and (b) any options contract which is purchased or written by it for its own account and traded on a specified exchange. (5) Subject to subsection (10), where a licensed corporation borrows any listed shares under a securities borrowing and lending agreement for the purpose of depositing them to cover a call stock options contract written by it, 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 subsections (3) and (4) in respect of the options contract and not to apply section 45(1) in respect of the securities borrowing and lending agreement, whereupon it shall include in its ranking liabilities an amount in the aggregate of the in-the-money amount of the options contract and the higher of- (a) the haircut amount in relation to such shares; and (b) the amount that would, but for this subsection, be required to be included in its ranking liabilities under section 45(1). (6) Subject to subsection (10), where a licensed corporation holds a long position in a stock futures contract and writes a call stock options contract in respect of the same underlying listed shares, to the extent that the number of shares underlying the futures contract is equal to the number of shares underlying the options contract, subsections (3) and (4) do not apply in respect of the futures contract and the options contract and it shall include in its ranking liabilities an amount which is the higher of- (a) the amount of margin required to be deposited by it in respect of the futures contract; and (b) the in-the-money amount of the options contract. (7) Subject to subsection (10) and without prejudice to section 31(2), where a licensed corporation holds a long position in a stock futures contract and holds a put stock options contract, which is not subject to any margin requirement, in respect of the same underlying listed shares, to the extent that the number of shares underlying the futures contract is equal to the number of shares underlying the options contract, subsection (4) does not apply in respect of the futures contract and section 31(1)(b) does not apply in respect of the options contract and, if the options contract is out-of-the-money, it shall include in its ranking liabilities the lower of- (a) the amount of margin required to be deposited by it in respect of the futures contract; and (b) the out-of-the-money amount of the options contract. (8) Subject to subsection (10) and without prejudice to section 31(3), where a licensed corporation holds a short position in a stock futures contract and holds a call stock options contract, which is not subject to any margin requirement, in respect of the same underlying listed shares, to the extent that the number of shares underlying the futures contract is equal to the number of shares underlying the options contract, subsection (4) does not apply in respect of the futures contract and section 31(1)(b) does not apply in respect of the options contract and, if the options contract is out-of-the-money, it shall include in its ranking liabilities the lower of- (a) the amount of margin required to be deposited by it in respect of the futures contract; and (b) the out-of-the-money amount of the options contract. (9) Subject to subsection (10), where a licensed corporation holds a short position in a stock futures contract and writes a put stock options contract in respect of the same underlying listed shares, to the extent that the number of shares underlying the futures contract is equal to the number of shares underlying the options contract, subsections (3) and (4) do not apply in respect of the futures contract and the options contract and it shall include in its ranking liabilities an amount which is the higher of- (a) the amount of margin required to be deposited by it in respect of the futures contract; and (b) the in-the-money amount of the options contract. (10) Subsections (5), (6), (7), (8) and (9) 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. (11) A licensed corporation shall include in its ranking liabilities, in respect of any options contract (other than a put options contract) which is written by it for its own account and traded other than on a specified exchange or not exchange traded, an amount which is the highest of- (a) 200% of the market value of the options contract; (b) 200% of the in-the-money amount of the options contract; and (c) 200% of the amount of margin required to be deposited by it. (12) A licensed corporation shall include in its ranking liabilities, in respect of any put options contract which is written by it for its own account and traded other than on a specified exchange or not exchange traded, an amount, not exceeding the value of the assets underlying the options contract stated at the strike price of the options contract, which is the highest of- (a) 200% of the market value of the options contract; (b) 200% of the in-the-money amount of the options contract; and (c) 200% of the amount of margin required to be deposited by it. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 41 Leveraged foreign exchange trading VerDate:01/04/2003 (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) SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 42 Provision of securities margin financing VerDate:01/10/2006 (1) A licensed corporation licensed for Type 1 or Type 8 regulated activity shall include in its ranking liabilities the amount, when calculated on a client-by-client basis, by which- (a) any amount receivable from any of its margin clients; or (b) in the case of a group of related margin clients, the aggregate of amounts receivable from the group, included in its liquid assets under section 22(1), exceeds 10% of the aggregate of amounts receivable from its margin clients included in its liquid assets in accordance with that section. (2) Where a licensed corporation licensed for Type 1 or Type 8 regulated activity obtains any financial accommodation wholly or partly secured by collateral provided by any of its margin clients, it shall include in its ranking liabilities the amount by which such financial accommodation exceeds 80% of the aggregate of amounts receivable from its margin clients arising from the provision of securities margin financing. (L.N. 117 of 2006) (3) In subsection (1), "group of related margin clients" (一組關連保證金客 戶) means any 2 or more margin clients of a licensed corporation licensed for Type 1 or Type 8 regulated activity and- (a) where it is a group of 2 margin clients, one is the spouse of the other; (b) where one or more of the margin clients are corporations, one is in control, either alone or with his spouse, of 35% or more of the voting rights of that other margin client or each of the other margin clients (as the case may be); or (c) where the margin clients are corporations, they are members of the same group of companies. "group of related margin clients" (一組關連保證金客戶) SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 43 Short positions in securities (other than options contracts) and specified investments VerDate:01/04/2003 (1) Subject to subsections (2), (3), (6), (8) and (9) and section 27(6) and (7), a licensed corporation which holds for its own account a short position in securities (other than options contracts) or specified investments, whether by short selling or otherwise, shall include in its ranking liabilities the market value of those securities or specified investments. (2) Subject to subsection (3), a licensed corporation which holds for its own account a short position, whether by short selling or otherwise, in- (a) subject to subsections (4), (5) and (6) and section 45(5), listed shares; (b) qualifying debt securities; (c) special debt securities; (d) subject to subsections (8) and (9) and section 27(6) and (7), specified securities; or (e) specified investments, shall increase the amount required to be included in its ranking liabilities under subsection (1) by the haircut amounts in relation thereto. (3) Subject to subsections (4), (5), (6), (8) and (9) and sections 27(6) and (7) and 45(5), a licensed corporation which holds for its own account a short position in securities, whether by short selling or otherwise, which- (a) are not of a type specified in Schedule 2; (b) constitute more than 5% by market value of all securities of the same description issued by a particular corporation; or (c) are listed shares or listed warrants which have been suspended from trading for at least 3 business days or ceased trading on any exchange on which the securities were listed, unless the securities can continue to be traded on any other exchange on which the securities are listed, shall increase the amount required to be included in its ranking liabilities under subsection (1) by the market value of such securities. (4) Subject to subsection (7), where a licensed corporation short sells any listed shares and holds a long 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 shares short sold by it, subsections (2) and (3) do not apply in respect of the shares short sold and section 40(4) does not apply in respect of the futures contract. (5) Subject to subsection (7), where a licensed corporation short sells any listed shares and writes a put stock options contract in respect of such shares, to the extent that the number of shares underlying the options contract is equal to the number of shares short sold by it, subsections (2) and (3) do not apply in respect of the shares short sold and section 40(3) and (4) does not apply in respect of the options contract and it shall include in its ranking liabilities the higher of- (a) the increased amount that would, but for this subsection, arise under subsection (2) or (3); and (b) the in-the-money amount of the options contract. (6) Subject to subsection (7), where a licensed corporation short sells any listed shares and holds a call 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 shares short sold by it, it may elect not to apply subsections (1), (2) and (3) in respect of the shares short sold and not to apply section 31(1)(b) in respect of the options contract, whereupon it shall include in its ranking liabilities the lower of- (a) the aggregate of the market value of such shares sold short and the increased amount that would, but for this subsection, arise under subsection (2) or (3); and (b) the number of shares short sold multiplied by the strike price of the options contract. (7) Subsections (4), (5) and (6) 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. (8) A licensed corporation which is the issuer of any call non-collateralized warrants issued on listed shares shall increase the amount included in its ranking liabilities under subsection (1) in respect of any outstanding call non-collateralized warrants so issued which it does not cover by holding the underlying shares, by the amount by which the haircut amount in relation to the underlying shares which are not so held exceeds the aggregate of the out-of-the-money amounts of the warrants. (9) A licensed corporation shall increase the amount included in its ranking liabilities under subsection (1) in respect of any outstanding non-collateralized warrants issued by it on any assets other than shares, by 30% of the market value of the assets underlying such warrants. (10) A licensed corporation shall include in its ranking liabilities, in respect of the short selling of securities for any of its clients, save where such securities have been delivered to it by the client or are not yet due for settlement according to the settlement date, the amount by which the aggregate of- (a) the market value of such securities; and (b) the haircut amount in relation to such securities, exceeds the aggregate of- (c) the amount of cash deposited with it by the client and the amount of proceeds of sale of such securities withheld by it as security for delivery of securities by the client to the licensed corporation; (d) the maximum amount that it can draw under a bank guarantee provided to it as security by the client and issued by an authorized financial institution or an approved bank incorporated outside Hong Kong; and (e) the market value of collateral deposited with it by the client, less the haircut amount in relation to such collateral. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 44 Concentrated proprietary positions VerDate:01/04/2003 (1) Where a licensed corporation holds for its own account- (a) listed shares; (b) qualifying debt securities; (c) special debt securities; (d) specified securities; or (e) specified investments, and the net market value of any such securities or specified investments (as the case may be) which are of the same description equals 25% or more of its required liquid capital, it shall include in its ranking liabilities- (f) where the net market value is 25% or more but less than 51% of its required liquid capital, 5% of such net market value; or (g) where the net market value is 51% or more of its required liquid capital, 10% of such net market value. (2) In subsection (1), "net market value" (淨市值), in relation to any securities and any specified investments referred to in that subsection, means the market value that remains after netting each long and short position in securities and specified investments (as the case may be) of the same description. "net market value" (淨市值) SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 45 Securities borrowing and lending agreements VerDate:01/04/2003 (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. SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES - SECT 46 Repurchase transactions VerDate:01/04/2003 (1) A licensed corporation which is the purchaser in the first instance of any securities in a repurchase transaction shall include in its ranking liabilities the amount by which the amount included in its liquid assets under section 33 exceeds- (a) 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