Chapter: 571N Title: SECURITIES AND FUTURES (FINANCIAL RESOURCES) RULES Gazette Number: L.N. 209 of 2002; L.N. 12 of 2003
Heading: Empowering section Version Date: 01/04/2003
(Cap 571, sections 145 and 397)
[1 April 2003] L.N. 12 of 2003
(L.N. 209 of 2002)
Section: 1 Heading: (Omitted as spent) Version Date: 01/04/2003
PART 1
PRELIMINARY
(Omitted as spent)
Section: 2 Heading: Interpretation Version Date: 01/10/2006
(1) In these Rules, unless the context otherwise requires-
"adjusted liabilities" (经调整负债), 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" (合计外币总持仓量) 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" (按规定须存放的保证金数额) 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为法团的银行) 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" (核准信贷评级机构) means a person approved as such under section 58(1)(b);
"approved introducing agent" (核准介绍代理人) means a licensed corporation approved as such under section 58(4);
"approved redeemable shares" (核准可赎回股份) 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" (核准证券借贷对手方) means-
(a) a recognized clearing house; or
(b) a person approved as such under section 58(1)(c);
"approved standby subordinated loan facility" (核准备用后偿贷款融通) 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" (核准后偿贷款) means a subordinated loan obtained by a licensed corporation approved as such under section 58(5)(b);
"authorized financial institution" (认可财务机构) 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" (基本数额), 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" (结算所) 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" (结算所参与者)-
(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" (有抵押权证) 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" (共同客户) 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" (衍生工具合约) 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" (股票挂钩票据) 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" (交易所参与者)-
(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" (豁除负债), 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" (浮动亏损) 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" (浮动利润) 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" (外币), 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" (外汇协议) 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" (期货合约) 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" (期货交易商) 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" (期货非结算交易商) 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" (期货或期权结算所) 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" (外币总持仓量), 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" (扣减数额)-
(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" (扣减百分率)-
(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" (香港外汇基金) means the Exchange Fund established under the Exchange Fund Ordinance (Cap 66);
"initial margin requirement" (规定开仓保证金) 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" (掉期息率协议) means an agreement whereby the parties to the agreement agree to exchange a series of interest payments over time;
"in-the-money amount" (价内值) 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" (速动资产), 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" (速动资金), 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" (保证金客户)-
(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" (按照市值计算差额) 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" (不任保荐人发牌条件), 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" (非抵押权证) means derivative warrants listed on a recognized stock market other than collateralized warrants;
"note issuance and revolving underwriting facility" (票据的发行及循环式包销融通) 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" (场外买卖衍生工具合约) means derivative contracts which are traded other than on an exchange;
"omnibus account" (客户汇集综合帐户) 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" (期权合约) 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" (价外值) 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" (订明国家) means-
(a) a country belonging to the Organization for Economic Co-operation and Development; or
(b) Singapore;
"qualifying debt securities" (合资格债务证券) 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" (认可负债), 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" (可赎回股份) 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" (再质押), 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" (申报货币), 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" (回购交易) 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" (规定速动资金), 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" (规定速动资金短欠数额), in relation to a licensed corporation, means the amount by which its required liquid capital exceeds its liquid capital;
"rules" (规章)-
(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" (证券交易商) 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" (证券保证金融资) 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" (独立帐户) 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" (卖空) 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" (特别债务证券) 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" (指明投资项目) means the investments specified in column 2 of Table 8 in Schedule 2;
"specified licensing condition" (指明发牌条件), 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" (指明证券) means the securities specified in column 2 of Table 7 in Schedule 2;
"standby subordinated loan facility" (备用后偿贷款融通) 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" (股票期货合约) 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" (股票期权合约) 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" (后偿贷款) 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" (买卖商) 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" (单位信托) 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" (可变动规定速动资金)-
(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.
Section: 3 Heading: Accounting treatment Version Date: 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).
Section: 4 Heading: Licensed corporations to maintain financial resources Version Date: 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.
Section: 5 Heading: Paid-up share capital requirement for licensed corporations Version Date: 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.
Section: 6 Heading: Liquid capital requirement for licensed corporations Version Date: 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.
Section: 7 Heading: Calculation of liquid capital and required liquid capital Version Date: 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.
Section: 8 Heading: Accounting for transactions on trade date basis Version Date: 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.
Section: 9 Heading: Valuation of proprietary positions, etc. Version Date: 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.
