Cap. 571 sub. leg. N

Securities and Futures (Financial Resources) Rules(Cap. 571, sections 145 and 397)(Enacting provision omitted—E.R. 5 of 2018)[1 April 2003] L.N. 12 of 2003(Format changes—E.R. 5 of 2018) Part 1 Preliminary 1. (Omitted as spent—E.R. 5 of 2018) 2. Interpretation (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 unlisted options contracts held by it on behalf of its clients; (L.N. 196 of 2018) (ab) any amount of scheme money held by a licensed corporation licensed for Type 13 regulated activity in—(i) 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), a segregated account with an authorized financial institution; or(iii) a segregated account with a bank incorporated outside Hong Kong; (L.N. 56 of 2023) (ac) any amount held by a licensed corporation licensed for Type 13 regulated activity on behalf of—(i) subscribers or scheme participants of a relevant CIS constituting subscription proceeds in respect of the relevant CIS;(ii) unit holders, shareholders or scheme participants of a relevant CIS constituting redemption proceeds in respect of the relevant CIS; or(iii) unit holders, shareholders or scheme participants of a relevant CIS constituting distribution proceeds in respect of the relevant CIS,in an account which is separate from its own account and designated for holding such proceeds maintained with an authorized financial institution, a bank incorporated outside Hong Kong or a person approved by the Commission under section 4(2) or 10B(2) of the Securities and Futures (Client Money) Rules (Cap. 571 sub. leg. I) for the purposes of those Rules; (L.N. 56 of 2023) (b) an approved subordinated loan provided to it; and (L.N. 196 of 2018) (c) any amount of its on-balance sheet liabilities which—(i) arises from a tenancy agreement entered into by it in respect of any premises which it uses in carrying on the regulated activity for which it is licensed; and(ii) is equal to the total value of its assets arising from the tenancy agreement which are not included in its liquid assets under any provision in Division 3 of Part 4; (L.N. 196 of 2018) 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 unlisted options contract, calculated as the highest of the prevailing margin amounts set by— (L.N. 196 of 2018) (c) the exchange on which the futures contract or unlisted options contract is traded; (L.N. 196 of 2018) (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); authorized fund (認可基金) means a unit trust or mutual fund that is authorized by the Commission under section 104 of the Ordinance; (L.N. 196 of 2018) basic amount (基本數額), in relation to a licensed corporation, means 5% of the aggregate of— (a) its adjusted liabilities; (b) other than a licensed corporation licensed for Type 13 regulated activity in relation to the carrying on by it of Type 13 regulated activity, the aggregate of the initial margin requirements in respect of outstanding futures contracts and outstanding unlisted options contracts held by it on behalf of its clients; and (c) other than a licensed corporation licensed for Type 13 regulated activity in relation to the carrying on by it of Type 13 regulated activity, the aggregate of the amounts of margin required to be deposited in respect of outstanding futures contracts and outstanding unlisted 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; (L.N. 196 of 2018; L.N. 56 of 2023) 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 unlisted options contracts effected on an exchange; (L.N. 196 of 2018) (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; controlled asset (受管制資產) means an asset— (a) that is an amount of a currency which, because a relevant prohibition applies to the currency, cannot (or cannot without approval from an authority or regulatory organization)—(i) be remitted to Hong Kong; or(ii) be exchanged into another currency which can be remitted to Hong Kong; or (b) the proceeds of which on realization cannot (or cannot without approval from an authority or regulatory organization) be remitted to Hong Kong, because a relevant prohibition applies to the proceeds; (L.N. 196 of 2018) coupon payment (票息付款), in relation to any securities or instrument, means a payment of interest (or other periodic return of a similar nature) to the holder of the securities or instrument during the tenor of securities or instrument, that is calculated by reference to the principal value in accordance with the terms and conditions of the securities or instrument; (L.N. 196 of 2018)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;equities (股本) means shares issued by a corporation (including shares in a mutual fund) and units in a unit trust; (L.N. 196 of 2018)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; (L.N. 196 of 2018) 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— (L.N. 56 of 2023) (a) amounts payable to clients in respect of— (L.N. 56 of 2023)(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) client money held by it in a segregated account with an approved bank incorporated outside Hong Kong and, to the extent not covered in subparagraph (i), in a segregated account with an authorized financial institution;(iii) client money held by it in a segregated account with a recognized clearing house; (L.N. 56 of 2023) (b) any amount of scheme money held by a licensed corporation licensed for Type 13 regulated activity in—(i) a segregated account in accordance with the Securities and Futures (Client Money) Rules (Cap. 571 sub. leg. I); or(ii) a segregated account with a bank incorporated outside Hong Kong and, to the extent not covered in subparagraph (i), a segregated account with an authorized financial institution; and (L.N. 56 of 2023) (c) any amount held by a licensed corporation licensed for Type 13 regulated activity on behalf of—(i) subscribers or scheme participants of a relevant CIS constituting subscription proceeds in respect of the relevant CIS;(ii) unit holders, shareholders or scheme participants of a relevant CIS constituting redemption proceeds in respect of the relevant CIS; or(iii) unit holders, shareholders or scheme participants of a relevant CIS constituting distribution proceeds in respect of the relevant CIS,in an account which is separate from its own account and designated for holding such proceeds maintained with an authorized financial institution, a bank incorporated outside Hong Kong or a person approved by the Commission under section 4(2) or 10B(2) of the Securities and Futures (Client Money) Rules (Cap. 571 sub. leg. I) for the purposes of those Rules; (L.N. 56 of 2023) 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; (L.N. 196 of 2018) (h) a specified investment; (i) an illiquid investment; or (L.N. 196 of 2018) (j) a miscellaneous investment; (L.N. 196 of 2018) 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; (L.N. 196 of 2018) (h) a specified investment; (i) an illiquid investment; or (L.N. 196 of 2018) (j) a miscellaneous investment; (L.N. 196 of 2018) 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 unlisted 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 unlisted options contracts; or(B) the day-to-day adjustment of the financial position of futures contracts or unlisted 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; (L.N. 196 of 2018) general clearing participant of HKSCC (香港結算公司全面結算所參與者) means a clearing participant of HKSCC that is authorized in accordance with the rules of HKSCC to provide general clearing services to exchange participants of the Stock Exchange Company; (L.N. 196 of 2018)gross foreign currency position (外幣總持倉量)—see section 2A; (L.N. 196 of 2018)haircut amount (扣減數額)—see section 2B; (L.N. 196 of 2018)haircut percentage (扣減百分率)—see section 2C; (L.N. 196 of 2018)HKSCC (香港結算公司) means the recognized clearing house known as Hong Kong Securities Clearing Company Limited; (L.N. 196 of 2018)Hong Kong Exchange Fund (香港外匯基金) means the Exchange Fund established under the Exchange Fund Ordinance (Cap. 66); illiquid investment (低流通性投資項目) means— (a) shares that are not listed, except shares in a mutual fund that do not fall within paragraph (b); (b) units in a unit trust or shares in a mutual fund, where the unit trust or mutual fund—(i) is not an authorized fund, a recognized jurisdiction fund or a specified exchange traded fund; or(ii) is an authorized fund or a recognized jurisdiction fund, but—(A) is not a specified exchange traded fund; and(B) the units or shares are not redeemable within 30 days; (c) debt securities that are not marketable debt securities; (d) listed securities that have been suspended from trading for at least 3 trading days or ceased trading on any exchange on which the securities were listed, except where the securities can continue to be traded on any other exchange on which the securities are listed; or (e) a commodity that is not a tradable commodity; (L.N. 196 of 2018) 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 unlisted options contract, calculated as the highest of the prevailing margin amounts set by— (L.N. 196 of 2018) (a) the exchange on which the futures contract or unlisted options contract is traded; (L.N. 196 of 2018) (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) if the asset underlying the options contract or warrant is shares—the number of such shares;(ii) if the asset underlying the options contract is an asset other than shares—the number of units of such asset; or(iii) if an index underlies the options contract—the contract multiplier;“M” represents—(i) if the asset underlying the options contract or warrant is shares—the market value of one such share;(ii) if the asset underlying the options contract is an asset other than shares—the market value of one unit of such asset; or(iii) if an index underlies the options contract—the current level of the index; and“S” represents the strike price of the options contract or the exercise price of the warrant—(i) if the asset underlying the options contract or warrant is shares—for one such share;(ii) if the asset underlying the options contract is an asset other than shares—for one unit of such asset; or(iii) if an index underlies the options contract—for the index; (L.N. 196 of 2018) 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)—see section 2D; (L.N. 196 of 2018) 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; marketable debt securities (有價債務證券) means— (a) certificates of deposit issued by an authorized financial institution or an approved bank incorporated outside Hong Kong; or (b) debt securities (other than certificates of deposit referred to in paragraph (a)) in respect of which—(i) there are genuine offers to buy and sell so that a price reasonably related to the last sales price or current bid and offer quotations can be determined within 1 business day, and transactions can be settled at that determined price promptly in accordance with trading conventions; or(ii) quotations are available within 1 business day from any combination of 2 or more of the following persons who customarily deal in the debt securities—(A) market makers;(B) banks;(C) securities dealers outside Hong Kong;(D) licensed corporations; (L.N. 196 of 2018) 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; (L.N. 196 of 2018) (h) a specified investment; (L.N. 196 of 2018) (i) an illiquid investment; or (L.N. 196 of 2018) (j) a miscellaneous investment, (L.N. 196 of 2018) to reflect its current market value; miscellaneous investment (雜項投資項目)—see section 2E; (L.N. 196 of 2018)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 must 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; L.N. 196 of 2018)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; principal value (本金額), in relation to any securities or instrument, means the nominal, face, par or similar value of the securities or instrument; (L.N. 196 of 2018) 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) (Repealed L.N. 196 of 2018)(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; (L.N. 196 of 2018)(BA) Fitch Ratings at either BBB or F3 or above; or (L.N. 196 of 2018)(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; (L.N. 196 of 2018)(BA) Fitch Ratings at either A or F2 or above; or (L.N. 196 of 2018)(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; (L.N. 196 of 2018)(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; (L.N. 196 of 2018)(ix) any structured product other than a bond—(A) that has a coupon rate which has an inverse relationship to a money market or interbank reference interest rate that is widely quoted; or(B) under which the principal value or coupon payments are linked to an inflation rate; (L.N. 196 of 2018)(x) any securities or instrument the terms and conditions of which provide that, on the occurrence of one or more events specified in the terms and conditions, one or both of the following must apply in relation to the principal value—(A) the principal value is to be fully or partially converted into or exchanged for shares of the issuer or a related corporation of the issuer;(B) the principal value is to be fully or partially written down; or (L.N. 196 of 2018)(xi) an illiquid investment; or (L.N. 196 of 2018) (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; recognized jurisdiction fund (認可司法管轄區基金) means a unit trust or mutual fund that— (a) is regulated in a jurisdiction outside Hong Kong, regardless of whether it is also an authorized fund; and (b) falls within all of the criteria (including, as to the jurisdiction outside Hong Kong in which it is regulated, the applicable laws of that jurisdiction and the type of scheme that it constitutes under those laws) published on the Commission’s website for the purposes of the provisions of UT Code relating to recognition of certain collective investment schemes that are regulated in jurisdictions outside Hong Kong; (L.N. 196 of 2018; 31 of 2025 s. 171) 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;relevant CIS (相關集體投資計劃) has the meaning given by Part 2 of Schedule 5 to the Ordinance; (L.N. 56 of 2023)relevant CIS property (相關集體投資計劃財產) has the meaning given by Part 2 of Schedule 5 to the Ordinance; (L.N. 56 of 2023)relevant prohibition (相關禁制), in relation to a controlled asset or the proceeds of a controlled asset, means a prohibition imposed under the laws of, or by an authority or regulatory organization in, a jurisdiction, and includes a prohibition that does not apply to a person in relation to the controlled asset or proceeds only if the person obtains approval from a particular authority or regulatory organization in the jurisdiction; (L.N. 196 of 2018)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; scheme money (計劃款項), in relation to a licensed corporation licensed for Type 13 regulated activity, means any client money— (a) received or held by the licensed corporation in the course of the conduct of Type 13 regulated activity; or (b) received or held by any corporation which is in a controlling entity relationship with the licensed corporation, in relation to such conduct of Type 13 regulated activity, that constitutes relevant CIS property in respect of a relevant CIS, and includes any accretions to it whether as capital or income; (L.N. 56 of 2023) 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 (獨立帳户), in relation to a licensed corporation, means an account established and maintained by it, which—(a) is a segregated account within the meaning of section 2 of the Securities and Futures (Client Money) Rules (Cap. 571 sub. leg. I); (L.N. 56 of 2023)(b) is an account for holding client money which is separate from its own account; or (L.N. 56 of 2023)(c) in the case of a licensed corporation licensed for Type 13 regulated activity in relation to the carrying on by it of Type 13 regulated activity, is an account for holding scheme money which is separate from its own account; (L.N. 196 of 2018; L.N. 56 of 2023) 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 structured notes, specified convertible debt securities, specified bonds and non-interest bearing debt securities— (L.N. 196 of 2018) (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) (Repealed L.N. 196 of 2018) (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; (L.N. 196 of 2018)(iia) Fitch Ratings at either BBB or F3 or above; or (L.N. 196 of 2018)(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; (L.N. 196 of 2018)(iia) Fitch Ratings at either A or F2 or above; or (L.N. 196 of 2018)(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; (L.N. 196 of 2018) (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; (h) any securities or instrument the terms and conditions of which provide that, on the occurrence of one or more events specified in the terms and conditions, one or both of the following must apply in relation to the principal value—(i) the principal value is to be fully or partially converted into or exchanged for shares of the issuer or a related corporation of the issuer;(ii) the principal value is to be fully or partially written down; or (L.N. 196 of 2018) (i) an illiquid investment; (L.N. 196 of 2018) specified bond (指明債券) means a bond with non-detachable warrants under which the holder of the bond has the right (but not the obligation) to buy a specified number of shares in the issuer (or a related corporation of the issuer) of the bond; (L.N. 196 of 2018)specified convertible debt securities (指明可轉換債務證券) means convertible debt securities under which the holder of the securities has the right (but not the obligation) to buy a specified number of shares in the issuer (or a related corporation of the issuer) of the securities; (L.N. 196 of 2018)specified exchange (指明交易所) means an exchange specified in Schedule 3;specified exchange traded fund (指明交易所買賣基金) means a unit trust or mutual fund the units or shares of which are listed on a specified exchange; (L.N. 196 of 2018)specified investment (指明投資項目) means an investment specified in column 2 of Table 8 in Schedule 2, but does not include an illiquid investment; (L.N. 196 of 2018)specified licensing condition (指明發牌條件), in relation to a licensed corporation licensed for Type 4, Type 5, Type 6, Type 9 or Type 10 regulated activity, means a licensing condition that the licensed corporation must not hold client assets; (L.N. 29 of 2011; L.N. 196 of 2018)specified securities (指明證券) means the securities specified in column 2 of Table 7 in Schedule 2, but does not include an illiquid investment; (L.N. 196 of 2018)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 an unlisted options 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; (L.N. 196 of 2018)structured note (結構性票據)—see section 2F; (L.N. 196 of 2018)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;tradable commodity (流通商品) means a physical commodity of a quantity, quality and condition suitable for delivery under a tradable contract; (L.N. 196 of 2018)tradable contract (流通合約) means a futures contract or an unlisted options contract that is traded on a specified exchange; (L.N. 196 of 2018) 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; (L.N. 196 of 2018) (h) a specified investment; (L.N. 196 of 2018) (ha) an illiquid investment; or (L.N. 196 of 2018) (hb) a miscellaneous investment, (L.N. 196 of 2018) 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;trading day (交易日), in relation to listed securities, means a day on which the exchange on which the securities are listed is open for trading; (L.N. 196 of 2018)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;unlisted options contract (非上市期權合約) means an options contract that is not listed securities; (L.N. 196 of 2018)UT Code (《單位信託守則》) means the Code on Unit Trusts and Mutual Funds published by the Commission under section 399 of the Ordinance; (L.N. 196 of 2018) 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) (Repealed L.N. 196 of 2018) 2A. Meaning of gross foreign currency position (1) In these Rules— gross foreign currency position (外幣總持倉量), in relation to a licensed corporation’s position in a foreign currency, means the total of— (a) the aggregate of—(i) the value of assets, other than fixed assets, beneficially owned by the licensed corporation which are denominated in the foreign currency; and(ii) all of the licensed corporation’s on-balance sheet liabilities, other than excluded liabilities, which are denominated in the foreign currency; and (b) subject to subsection (2), the aggregate of—(i) the total amount of the foreign currency in respect of which the licensed corporation is exposed to the risk of a decline in the value of the foreign currency under outstanding contracts (including spot contracts); and(ii) the total amount of the foreign currency in respect of which the licensed corporation is exposed to the risk of a rise in the value of the foreign currency under outstanding contracts (including spot contracts). (2) In respect of a pair of outstanding contracts referred to in subsection (3), the licensed corporation must include in the amounts referred to in paragraph (b) of the definition of gross foreign currency position in subsection (1) the amounts specified in subsection (4).(3) Subsection (2) applies in respect of a pair of outstanding contracts which the licensed corporation holds with a client (except a client whose account with the licensed corporation is an omnibus account) if the licensed corporation—(a) under one of the contracts (contract 1), is exposed to the risk of a decline in the value of an amount of a currency (currency A) and to the risk of a rise in the value of an amount (amount X) of another currency (currency B); and(b) under the other contract (contract 2), is exposed to the risk of a decline in the value of amount X of currency B and to the risk of a rise in the value of an amount of currency A.(4) The amounts specified are—(a) in relation to currency A—the higher of the amounts in respect of which the licensed corporation is exposed to the risk of a decline in the value of currency A under contract 1 and to the risk of a rise in the value of currency A under contract 2; and(b) in relation to currency B—the amount X.(L.N. 196 of 2018) 2B.

Meaning of haircut amount (1) In these Rules— haircut amount (扣減數額), subject to subsection (2), means, in relation to— (a) any listed shares (except shares that are specified securities or an illiquid investment)—an amount derived by multiplying the market value of the shares by the haircut percentage in relation to the shares; (b) any qualifying debt securities—an amount derived by multiplying the market value of the qualifying debt securities by the haircut percentage in relation to the qualifying debt securities; (c) any special debt securities—an amount derived by multiplying the market value of the special debt securities by the haircut percentage in relation to the special debt securities; (d) any specified securities—an amount derived by multiplying the market value of the specified securities by the haircut percentage in relation to the specified securities; (e) a specified investment—an amount derived by multiplying the market value of the specified investment by the haircut percentage in relation to the specified investment; (f) an illiquid investment—an amount derived by multiplying the market value of the illiquid investment by the haircut percentage in relation to the illiquid investment; or (g) a miscellaneous investment—an amount derived by multiplying the market value of the miscellaneous investment by the haircut percentage in relation to the miscellaneous investment. (2) In relation to any securities or investment referred to in paragraph (a), (b), (c), (d), (e), (f) or (g) of the definition of haircut amount in subsection (1) that aims to deliver a daily return on the securities or investment that is equivalent to a certain multiple (leverage factor) of the daily return on a particular index or particular reference asset, haircut amount (扣減數額) means—(a) if the maximum loss that may be incurred in relation to the securities or investment is the market value of the securities or investment and the relevant holding is not a short position—the lower of—(i) the market value; and(ii) an amount derived by multiplying the amount referred to in paragraph (a), (b), (c), (d), (e), (f) or (g) of the definition of haircut amount in subsection (1) (as applicable) by the leverage factor; or(b) in any other case—an amount derived by multiplying the amount referred to in paragraph (a), (b), (c), (d), (e), (f) or (g) of the definition of haircut amount in subsection (1) (as applicable) by the leverage factor.(L.N. 196 of 2018) 2C. Meaning of haircut percentage (1) In these Rules— haircut percentage (扣減百分率) means, in relation to— (a) any listed shares (except shares that are specified securities or an illiquid investment)—the percentage specified in subsection (2) or (3); (b) any qualifying debt securities—the percentage specified in subsection (4); (c) any special debt securities—the percentage specified in subsection (5); (d) any specified securities—the percentage specified in subsection (6); (e) a specified investment—the percentage specified in subsection (7); or (f) an illiquid investment or a miscellaneous investment—the percentage specified in subsection (8). (2) Subject to subsection (3), in relation to any listed shares (except shares that are specified securities or an illiquid investment), the percentage specified for the purposes of paragraph (a) of the definition of haircut percentage in subsection (1) is—(a) subject to paragraphs (b) and (c), the percentage specified in column 3 of Table 1 in Schedule 2 (Table 1) opposite the applicable description set out in column 2 of Table 1;(b) if the shares fall within more than one of the descriptions set out in column 2 of Table 1—the percentage specified in column 3 of Table 1 opposite any of the applicable descriptions set out in column 2 of Table 1, as elected by a licensed corporation; or(c) if the shares fall within a description set out in—(i) item 1(a) or (b) in column 2 of Table 1—the percentage specified in column 3 of Table 1 opposite the description set out in item 1(c) in column 2 of Table 1, if elected by a licensed corporation;(ii) item 2(a)(i) in column 2 of Table 1—the percentage specified in column 3 of Table 1 opposite the description set out in item 2(a)(ii) in column 2 of Table 1, if elected by a licensed corporation;(iii) item 3(a)(i) in column 2 of Table 1—the percentage specified in column 3 of Table 1 opposite the description set out in item 3(a)(ii) in column 2 of Table 1, if elected by a licensed corporation;(iv) item 4(a)(i) in column 2 of Table 1—the percentage specified in column 3 of Table 1 opposite the description set out in item 4(a)(ii) in column 2 of Table 1, if elected by a licensed corporation; or(v) item 5(a) in column 2 of Table 1—the percentage specified in column 3 of Table 1 opposite the description set out in item 5(b) in column 2 of Table 1, if elected by a licensed corporation.(3) For the purpose of calculating the haircut amount under section 22(1)(b)(i), in relation to any listed shares (except shares that are specified securities or an illiquid investment) that are listed on a recognized stock market and specified in column 2 of Table 1A in Schedule 2 (Table 1A), the percentage specified for the purposes of paragraph (a) of the definition of haircut percentage in subsection (1) is—(a) subject to paragraphs (b) and (c) (and regardless of whether the shares also fall within any of the descriptions set out in column 2 of Table 1), the percentage specified in column 3 of Table 1A opposite the applicable description set out in column 2 of Table 1A;(b) if, in a particular month, the shares described in item 1(a), (b), (c) or (d) in column 2 of Table 1A cease to be a constituent of the applicable index and the cessation would result in the assignment to the shares of a percentage specified in column 3 of Table 1A that is higher than the percentage which applied to the shares immediately prior to the cessation (original percentage)—the original percentage, but only in relation to the particular month and for the period of the next 3 consecutive months; or(c) if the shares fall within a description set out in item 1(a), (b), (c) or (d) in column 2 of Table 1A—the percentage specified in column 3 of Table 1A opposite the applicable description set out in item 1(e) in column 2 of Table 1A, if elected by a licensed corporation.(4) In relation to any qualifying debt securities, the percentage specified for the purposes of paragraph (b) of the definition of haircut percentage in subsection (1) is the aggregate of—(a) the percentage specified in column 3 of Table 4 in Schedule 2 opposite the applicable description set out in column 2 of that Table; and(b) 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 that Table.(5) In relation to any special debt securities, the percentage specified for the purposes of paragraph (c) of the definition of haircut percentage in subsection (1) is the percentage specified in column 3 of Table 6 in Schedule 2 opposite the applicable description set out in column 2 of that Table.(6) In relation to any specified securities, the percentage specified for the purposes of paragraph (d) of the definition of haircut percentage in subsection (1) is the percentage specified in column 3 of Table 7 in Schedule 2 opposite the applicable description set out in column 2 of that Table.(7) In relation to a specified investment, the percentage specified for the purposes of paragraph (e) of the definition of haircut percentage in subsection (1) is the percentage specified in column 3 of Table 8 in Schedule 2 opposite the applicable description set out in column 2 of that Table.(8) In relation to an illiquid investment or a miscellaneous investment, the percentage specified for the purposes of paragraph (f) of the definition of haircut percentage in subsection (1) is the percentage specified in column 3 of Table 9 in Schedule 2 opposite the applicable description set out in column 2 of that Table.(L.N. 196 of 2018) 2D. Meaning of listed (1) In these Rules— listed (上市), in relation to securities which— (a) for the purposes of the definition of listed in section 1 of Part 1 of Schedule 1 to the Ordinance are regarded as listed on a recognized stock market—has the meaning given by that section; (b) are regarded as listed on an exchange located in a jurisdiction outside Hong Kong under the laws or regulations of the jurisdiction—means listed on that exchange; or (c) are admitted to trading on an exchange—means listed on that exchange if—(i) under the laws or regulations of the jurisdiction in which the exchange is located, the securities are regarded as listed on a different exchange located in the same jurisdiction; or(ii) under the laws or regulations of a jurisdiction other than the jurisdiction in which the exchange is located, the securities are regarded as listed on an exchange located in that other jurisdiction. (2) For the purposes of the definition of listed in subsection (1), securities are to continue to be regarded as listed on, or admitted to trading on, a particular exchange during a period of suspension of dealings in the securities on that exchange.(3) Despite the definition of listed in subsection (1), securities are not to be regarded as listed on, or admitted to trading on, a particular exchange merely because the exchange provides (directly or indirectly) facilities for—(a) effecting transactions in the securities on a different exchange; or(b) transmitting or otherwise communicating by any means offers to effect transactions in the securities on a different exchange.(4) Despite the definition of listed in subsection (1), securities that are options contracts with standardized contractual terms and conditions specified by a particular exchange are not to be regarded as listed on the particular exchange or on any other exchange on which they are admitted to trading.(L.N. 196 of 2018) 2E. Meaning of miscellaneous investment (1) In these Rules— miscellaneous investment (雜項投資項目), subject to subsection (2), means any asset or instrument held by a person for the purpose, or with the intention, of— (a) resale; (b) securing a profit from fluctuations in the value of the asset or instrument; (c) locking in arbitrage profits; or (d) hedging any risks of any other asset or instrument held by the person which falls within paragraph (a), (b) or (c). (2) A miscellaneous investment does not include the following assets or instruments held by a person—(a) any securities that fall within any of the descriptions set out in—(i) column 2 of Table 1, 1A, 4, 6 or 7 in Schedule 2;(ii) column 2 or 3 of Table 5 in Schedule 2; or(iii) item 2 in column 2 of Table 8 in Schedule 2;(b) any securities that are unlisted options contracts;(c) a derivative contract that is not securities;(d) a specified investment;(e) an illiquid investment;(f) a foreign exchange agreement;(g) a leveraged foreign exchange contract;(h) a fixed asset;(i) cash;(j) a bank deposit;(k) any loan, advance, credit facility or other financial accommodation provided by the person to another person;(l) any amount receivable by the person.(L.N. 196 of 2018) 2F. Meaning of structured note (1) In these Rules— structured note (結構性票據) means an instrument— (a) that is in the form of a bond, debenture or note; (b) that acknowledges, evidences or creates indebtedness, regardless of whether—(i) the holder of the instrument has the right to receive the principal value on or before maturity; or(ii) the issuer of the instrument has the right to terminate the instrument before maturity; (c) that is a structured product within the meaning of section 1A of Part 1 of Schedule 1 to the Ordinance, except a structured product that—(i) falls within subsection (1)(a)(ii) or (iii) or (b) of that section; or(ii) is an OTC derivative product; and (d) under the terms and conditions of which the holder is to receive a bearish return or a bullish return (whether or not subject to any deduction or payment of any expense or charge under those terms and conditions) that is determined by comparing the strike price and the settlement price of—(i) a permitted underlying asset; or(ii) a permitted underlying type of rate or index. (2) For the purposes of the definition of structured note in subsection (1)— bearish return (看跌式回報), in relation to an instrument, means— (a) both of the following—(i) on or before maturity or termination, one or more coupon payments;(ii) on or after maturity or termination, an amount referred to in paragraph (b); or (b) any of the following, on or after maturity or termination—(i) if the settlement price is below the strike price—settlement amount 1;(ii) if the settlement price exceeds the strike price—settlement amount 4;(iii) if the settlement price is equal to the strike price—(A) settlement amount 1; or(B) settlement amount 4; bullish return (看漲式回報), in relation to an instrument, means— (a) both of the following—(i) on or before maturity or termination, one or more coupon payments;(ii) on or after maturity or termination, an amount or quantity referred to in paragraph (b); or (b) any of the following, on or after maturity or termination—(i) if the settlement price exceeds the strike price—settlement amount 1;(ii) if the settlement price is below the strike price and the instrument has a permitted underlying asset—(A) the settlement quantity;(B) settlement amount 2; or(C) an amount and a number of units of the permitted underlying asset which together are equivalent in value to settlement amount 2;(iii) if the settlement price is below the strike price and the instrument has a permitted underlying type of rate or index—settlement amount 3;(iv) if the settlement price is equal to the strike price and the instrument has a permitted underlying asset—(A) the settlement quantity;(B) settlement amount 1;(C) settlement amount 2; or(D) an amount and a number of units of the permitted underlying asset which together are equivalent in value to settlement amount 2;(v) if the settlement price is equal to the strike price and the instrument has a permitted underlying type of rate or index—(A) settlement amount 1; or(B) settlement amount 3; maturity (到期), in relation to an instrument, means the date on which the instrument is due to mature; permitted interest rate (許可利率) means a money market or interbank reference interest rate that is widely quoted in a market that is domiciled in a jurisdiction which is 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) Fitch Ratings at either BBB or F3 or above; permitted securities (許可證券) means securities other than— (a) special debt securities; (b) an illiquid investment; (c) a miscellaneous investment; (d) a derivative contract; or (e) a structured product; permitted underlying asset (許可相關資產), in relation to an instrument, means a single asset that is— (a) permitted securities; or (b) a tradable commodity; permitted underlying type of rate or index (屬許可類別的相關比率或指數), in relation to an instrument, means a single type of— (a) permitted interest rate; (b) currency exchange rate; (c) tradable securities index; (d) tradable commodity index; or (e) tradable currency exchange rate index; settlement amount 1 (交收數額1), in relation to an instrument, means the sum of the principal value and the outstanding coupon payments; settlement amount 2 (交收數額2), in relation to an instrument that has a permitted underlying asset, means the value of the settlement quantity calculated in accordance with the following formula— settlement quantity × settlement price; settlement amount 3 (交收數額3), in relation to an instrument that has a permitted underlying type of rate or index, means an amount calculated in accordance with the following formula— settlement amount 1 × settlement price; strike price settlement amount 4 (交收數額4), in relation to an instrument, means the higher of— (a) an amount calculated in accordance with the following formula— settlement amount 1 – settlement amount 1 × strike price (settlement price – strike price); and (b) zero; settlement price (交收價) means a price or value of 1 unit of a permitted underlying asset or a level of a permitted underlying type of rate or index that, for the purposes of determining the bearish return or the bullish return under the terms and conditions of an instrument, is— (a) quoted in a market specified in those terms and conditions at a time specified in, or to be determined in accordance with a method specified in, those terms and conditions; or (b) determined in accordance with a method specified in those terms and conditions; settlement quantity (交收數量), in relation to an instrument that has a permitted underlying asset, means the number of units of the asset calculated in accordance with the following formula— settlement amount 1 ÷ strike price; strike price (行使價) means a price or value of 1 unit of a permitted underlying asset or a level of a permitted underlying type of rate or index that is specified in the terms and conditions of an instrument for the purposes of determining the bearish return or the bullish return under those terms and conditions;termination (終止), in relation to an instrument, means a date before maturity on which the instrument terminates in accordance with the terms and conditions of the instrument or by agreement between the parties to the instrument;tradable commodity index (流通商品指數) means a tradable index that is calculated by reference to changes in the price or value of a basket of tradable commodities;tradable currency exchange rate index (流通貨幣匯率指數) means a tradable index that is calculated by reference to changes in the level of a combination of more than one type of currency exchange rate;tradable index (流通指數) means an index that is traded under a tradable contract;tradable securities index (流通證券指數) means a tradable index that is calculated by reference to changes in the price or value of a basket of permitted securities.(L.N. 196 of 2018) 2G. References to exchange and clearing house In these Rules, a reference to—(a) an exchange includes a reference to any market operated by that exchange; and(b) an exchange or clearing house that is specified by name and, after the day on which it is specified—(i) changes its name, is to be read as if it is a reference to the name by which the exchange or clearing house is presently known; or(ii) is succeeded by another exchange or clearing house (whether by reason of merger, amalgamation or otherwise), is to be read as if it is a reference to the successor exchange or clearing house.(L.N. 196 of 2018) Part 2 Accounting Treatment 3. Accounting treatment (1) For the purposes of these Rules and subject to subsection (3), a licensed corporation must account for all assets and liabilities— (L.N. 196 of 2018)(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.(2) Subject to subsection (3), a licensed corporation must 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).(L.N. 196 of 2018) Part 3 Financial Resources Requirements 4. Licensed corporations to maintain financial resources A licensed corporation must at all times maintain financial resources in the amount required of it under this Part.(L.N. 196 of 2018) 5. Paid-up share capital requirement for licensed corporations 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, Type 9 or Type 10 regulated activity, which is subject to the specified licensing condition; (L.N. 117 of 2006; L.N. 29 of 2011)(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)must at all times maintain paid-up share capital of not less than— (L.N. 196 of 2018)(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. 6. Liquid capital requirement for licensed corporations (1) For the purposes of section 4, a licensed corporation must at all times maintain liquid capital which is not less than its required liquid capital. (L.N. 196 of 2018)(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 unlisted options contracts held by it on behalf of its clients; (L.N. 196 of 2018)(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. Part 4 Liquid Capital Division 1 General 7. Calculation of liquid capital and required liquid capital A licensed corporation, for the purposes of calculating its liquid capital and required liquid capital, must account for all its assets, liabilities and transactions in accordance with this Part.(L.N. 196 of 2018) Division 2 Computation basis 8. Accounting for transactions on trade date basis A licensed corporation, for the purposes of calculating its liquid capital and required liquid capital, must account on a trade date basis for all transactions effected by it, whether as principal or agent, in relation to any dealing or trading in, or entering into— (L.N. 196 of 2018)(a) a futures contract;(b) any securities;(c) an options contract;(d) a derivative contract;(e) a specified investment;(f) a leveraged foreign exchange contract;(g) a foreign exchange agreement;(h) an interest rate swap agreement;(i) an illiquid investment; or(j) a miscellaneous investment.(L.N. 196 of 2018) 9. Valuations (1) This section applies to the following instruments or assets—(a) a futures contract;(b) any securities;(c) an options contract;(d) a derivative contract;(e) a specified investment;(f) a leveraged foreign exchange contract;(g) a foreign exchange agreement;(h) an interest rate swap agreement;(i) an asset underlying a non-collateralized warrant that is issued by a licensed corporation;(j) an asset, other than shares, underlying an options contract;(k) an illiquid investment;(l) a miscellaneous investment.(2) Any reference in these Rules to the market value of an instrument or asset referred to in subsection (1) is, if there is no published market price in respect of the instrument or asset, to be construed as referring to the fair value (as determined in accordance with generally accepted accounting principles) of the instrument or asset.(3) A licensed corporation must, for the purposes of calculating its liquid capital and required liquid capital, value at market value any open position in an instrument or asset referred to in subsection (1).(4) Despite subsection (2) or (3), 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 subsection (5), (6) or (7) is to be construed as referring to the value (including any nil value) at which the securities are required to be valued under subsection (5), (6) or (7).(5) Listed securities that have been suspended from trading for at least 3 trading days or ceased trading on any exchange on which the securities were listed must, unless the securities can continue to be traded on any other exchange on which the securities are listed, be valued—(a) for long positions—at nil; or(b) for short positions—at the higher of fair value and the last closing price before the suspension or cessation of trading.(6) Marketable debt securities, in respect of which there is no published market price, must be valued—(a) for certificates of deposit—at the value quoted by the issuer; or(b) for debt securities other than certificates of deposit—(i) at the average value of quotations obtained from any combination of 2 or more of the following persons who customarily deal in the debt securities—(A) market makers;(B) banks;(C) securities dealers outside Hong Kong;(D) licensed corporations; or(ii) if the quotations referred to in subparagraph (i) cannot be obtained—at fair value.(7) Debt securities that are not marketable debt securities must be valued—(a) for long positions—at nil; or(b) for short positions—at the higher of fair value and the face value of the debt securities.(L.N. 196 of 2018) 10. Pairs of transactions 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, must account for the transactions as separate transactions.(L.N. 196 of 2018) 11. No set-off (1) Subject to subsections (2), (3), (4), (5), (6) and (7) and section 48(2), the assets and liabilities of a licensed corporation must be treated separately on a gross basis and must not be set-off against each other. (L.N. 196 of 2018)(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 a person, and any amounts payable by it to the person, where— (L.N. 196 of 2018)(a) such amounts—(i) do not arise from the carrying on of any regulated activity for which it is licensed; and(ii) do not include—(A) amounts receivable by it from, and amounts payable by it to, a general clearing participant of HKSCC which arise from transactions in securities that are cleared for it or its clients by the participant with HKSCC;(B) if the licensed corporation is a general clearing participant of HKSCC—amounts receivable by it from the person, and amounts payable by it to the person, which arise from transactions in securities that are cleared for the person by it with HKSCC; or(C) amounts receivable referred to in section 23(1)(f); and (L.N. 196 of 2018)(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.(7) If a licensed corporation has obtained an approval under section 58(5)(i), subsection (1) does not apply in respect of amounts receivable (except amounts receivable referred to in section 23(1)(f)) by it from, and amounts payable by it to, a general clearing participant of HKSCC which arise from transactions in securities that are cleared for it or its clients by the participant with HKSCC. (L.N. 196 of 2018) 12. Transactions in margined accounts (1) A licensed corporation must 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. (L.N. 196 of 2018)(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 must not— (L.N. 196 of 2018)(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 must cease to treat— (L.N. 196 of 2018)(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 unlisted options contracts; (L.N. 196 of 2018)(iv) securities borrowing and lending;(v) trading in leveraged foreign exchange contracts; or(vi) entering into repurchase transactions. 13. Treatment of exercised options contracts A licensed corporation must, 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— (L.N. 196 of 2018)(a) all its assets; and(b) all its liabilities,arising from such exercise. 14. Assignments (1) A licensed corporation must 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 must 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.(L.N. 196 of 2018) 15. Treatment of securities borrowing and lending agreements (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. 16. Treatment of repurchase transactions (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 must not include them in its liquid assets under section 27. (L.N. 196 of 2018)(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. Division 3 Liquid assets 17. Computation basis A licensed corporation must, for the purpose of calculating its liquid assets under the provisions of this Division, apply the computation basis prescribed in Division 2.(L.N. 196 of 2018) 18. Exclusion of branch assets required to be maintained outside Hong Kong (L.N. 196 of 2018)(1) A licensed corporation which operates a branch in a place outside Hong Kong must 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. (L.N. 196 of 2018)(2) (Repealed L.N. 196 of 2018) 18A. Exclusion of assets where remittance or exchange controls apply (1) Except in the circumstances referred to in subsections (2) and (3), a licensed corporation must not include a controlled asset in its liquid assets.(2) A licensed corporation must include a controlled asset in its liquid assets (in an amount calculated in accordance with the provisions of this Division which apply to it in relation to the controlled asset) if, in relation to the relevant prohibition applicable to the controlled asset or the proceeds of the controlled asset, it reasonably believes that it will be able to obtain the required approval from the relevant authority or regulatory organization within 1 week after applying for the approval.(3) Subject to subsection (4), a licensed corporation may elect to include in its liquid assets a controlled asset (other than a controlled asset referred to in subsection (2)) that it is able to freely apply to meet its existing obligations or liabilities that are denominated in the same currency as the asset.(4) If a licensed corporation makes an election under subsection (3) in relation to a controlled asset, the amount to be included in its liquid assets in respect of the controlled asset is to be calculated—(a) in accordance with the provisions of this Division which apply to it in relation to the controlled asset; and(b) on the basis that sections 27(2), (3), (4), (6) and (7) and 31(2) and (3) do not apply to it in relation to the controlled asset.(L.N. 196 of 2018) 19. Assets provided to others as security (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 unlisted options contracts by it; (L.N. 196 of 2018)(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. 20. Cash in hand and at bank (1) Other than a licensed corporation licensed for Type 13 regulated activity in relation to the carrying on by it of Type 13 regulated activity, a licensed corporation must include in its liquid assets— (L.N. 196 of 2018; L.N. 56 of 2023)(a) cash in hand which it beneficially owns;(b) money which it beneficially owns and holds in an account 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— (L.N. 196 of 2018)(i) a demand deposit; or(ii) a time deposit which will mature in 6 months or less; (L.N. 196 of 2018)(c) interest accrued on any deposit referred to in paragraph (b)(ii); and (L.N. 196 of 2018)(d) money which it holds on behalf of a client in an account in its name, or in a segregated account, with an authorized financial institution or an approved bank incorporated outside Hong Kong, and which it has received from the client for the purposes of settling a purchase of, or subscription for, securities by it on behalf of the client. (L.N. 196 of 2018)(2) A licensed corporation licensed for Type 13 regulated activity in relation to the carrying on by it of Type 13 regulated activity must include in its liquid assets—(a) cash in hand which it beneficially owns;(b) money which it beneficially owns and holds in an account 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). (L.N. 56 of 2023)(3) A licensed corporation licensed for Type 13 regulated activity must not include in its liquid assets—(a) any amount of scheme money held by the licensed corporation—(i) in a segregated account with an authorized financial institution or a bank incorporated outside Hong Kong;(ii) in a segregated account—(A) that is referred to in paragraph (a) of the definition of segregated account in section 2(1); and(B) with a person approved by the Commission under section 4(2) or 10B(2) of the Securities and Futures (Client Money) Rules (Cap. 571 sub. leg. I) for the purposes of those Rules;(iii) in a relevant CIS account within the meaning of section 10A of the Securities and Futures (Client Money) Rules (Cap. 571 sub. leg. I); or(iv) in an account maintained with an authorized financial institution or a bank incorporated outside Hong Kong which is separate from the own account of the licensed corporation; and(b) any amount held by the licensed corporation—(i) on behalf of subscribers or scheme participants of a relevant CIS constituting subscription proceeds in respect of the relevant CIS;(ii) on behalf of unit holders, shareholders or scheme participants of a relevant CIS constituting redemption proceeds in respect of the relevant CIS; or(iii) on behalf of unit holders, shareholders or scheme participants of a relevant CIS constituting distribution proceeds in respect of the relevant CIS,in an account which is separate from its own account and designated for holding such proceeds maintained with an authorized financial institution, a bank incorporated outside Hong Kong or a person approved by the Commission under section 4(2) or 10B(2) of the Securities and Futures (Client Money) Rules (Cap. 571 sub. leg. I) for the purposes of those Rules. (L.N. 56 of 2023) 21. Amounts receivable from clients in respect of purchase of and subscription for securities (1) Subject to subsections (3) and (7), a licensed corporation must include in its liquid assets the following amounts arising from the purchase by any of its clients of securities on a cash-against-delivery basis—(a) any amount receivable from the client which, when calculated on a transaction-by-transaction basis, is not yet due for settlement according to the settlement date or has been outstanding for 5 business days or less after the settlement date;(b) in respect of any amount receivable from the client which, when calculated on a transaction-by-transaction basis, has been outstanding for more than 5 business days but less than 1 month after the settlement date—the amount which, when calculated on a transaction-by-transaction basis, is the lower of—(i) the amount receivable less any specific provision for bad or doubtful debts made in respect of the amount receivable; and(ii) the market value of the securities to which the amount receivable relates. (L.N. 196 of 2018)(2) A licensed corporation may, subject to subsection (2A), elect 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, if the licensed corporation has obtained from the client a written authorization to— (L.N. 196 of 2018)(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.(2A) An election made by a licensed corporation under subsection (2) must be in respect of all of its clients from whom it has obtained a written authorization referred to in that subsection. (L.N. 196 of 2018)(3) Subject to subsection (7), where a licensed corporation makes an election under subsection (2), it must 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— (L.N.

196 of 2018)(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 must include in its liquid assets any amount receivable from any of its clients arising from the purchase by the client of securities on a free delivery basis which, when calculated on a transaction-by-transaction 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—(i) is not yet due for settlement according to the settlement date; or(ii) has been outstanding for 2 weeks or less after the settlement date; or(b) in any other case—is not yet due for settlement according to the settlement date. (L.N. 196 of 2018)(5) Subject to subsection (7), a licensed corporation must, 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— (L.N. 196 of 2018)(a) 90% of the total costs to the client of subscribing for the securities; and(b) any amount receivable from the client for subscribing for the securities. (L.N. 196 of 2018)(6) Subject to subsection (7), a licensed corporation must, 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 any 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. (L.N. 196 of 2018)(7) The aggregate of amounts that a licensed corporation includes in its liquid assets under subsections (1), (3), (4), (5) and (6) must 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. (L.N. 196 of 2018)(8) In subsections (2) and (2A), 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). (L.N. 196 of 2018)(9) This section does not apply to a licensed corporation licensed for Type 13 regulated activity in relation to the carrying on by it of Type 13 regulated activity. (L.N. 56 of 2023) 22. Amounts receivable in respect of providing securities margin financing (1) Subject to subsections (2) and (3), a licensed corporation licensed for Type 1 or Type 8 regulated activity must 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— (L.N. 196 of 2018)(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) applies to it as if such dealings in securities— (L.N. 196 of 2018)(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) must 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. (L.N. 196 of 2018)(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 on a particular exchange for less than 6 consecutive months (including any period during which the share or warrant is suspended from trading on the exchange) immediately preceding the month prior to the month in which the calculation is made; and (L.N. 196 of 2018)(d) any listed share which is a constituent stock of any of the following indices—(i) Hang Seng Index;(ii) Hang Seng Composite LargeCap Index; (L.N. 196 of 2018)(iii) FTSE 100 Index; (L.N. 196 of 2018)(iv) Nikkei Stock Average; or (L.N. 196 of 2018)(v) S&P 500 Index. (L.N. 196 of 2018)(vi) (Repealed L.N. 196 of 2018)(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 a particular 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 on the exchange) immediately preceding the month prior to the month in which the calculation is made; (L.N. 196 of 2018)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. 23. Amounts receivable from other dealers and clearing participants etc. in respect of securities (L.N. 196 of 2018)(1) Subject to subsection (2), a licensed corporation must include in its liquid assets the following amounts—(a) any amount receivable from any securities dealer which—(i) arises from the sale of securities by it to or through the securities dealer on a cash-against-delivery basis; and(ii) when calculated on a transaction-by-transaction basis—(A) is not yet due for settlement according to the settlement date; or(B) has been outstanding for 2 weeks or less after the settlement date;(b) in respect of any amount receivable from any securities dealer which arises from the sale of securities by it to or through the securities dealer on a cash-against-delivery basis, and which, when calculated on a transaction-by-transaction basis, has been outstanding for more than 2 weeks but less than 1 month after the settlement date—the amount which, when calculated on a transaction-by-transaction basis, is the lower of—(i) the amount receivable less any specific provision for bad or doubtful debts made in respect of the amount receivable; and(ii) the market value of the securities to which the amount receivable relates;(c) any amount receivable from any securities dealer which—(i) arises from the sale of securities by it to or through the securities dealer on a free delivery basis; and(ii) when calculated on a transaction-by-transaction 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—(I) is not yet due for settlement according to the settlement date; or(II) has been outstanding for 2 weeks or less after the settlement date; or(B) in any other case—is not yet due for settlement according to the settlement date;(d) any amount receivable from a general clearing participant of HKSCC which—(i) arises from a transaction in securities that is cleared for it or its clients by the participant with HKSCC and is to be settled on a cash-against-delivery basis; and(ii) when calculated on a transaction-by-transaction basis, is not yet due for settlement according to the settlement date;(e) if it is a general clearing participant of HKSCC—any amount receivable from a person which—(i) arises from a transaction in securities that is cleared for the person by it with HKSCC and is to be settled on a cash-against-delivery basis; and(ii) when calculated on a transaction-by-transaction basis, is not yet due for settlement according to the settlement date;(f) any amount receivable from a China Connect General Clearing Participant which—(i) arises from transactions in China Connect Securities on a China Connect Market that have been or are to be cleared for it or its clients by the participant; and(ii) is receivable in respect of amounts paid by it to the participant for the purposes of fulfilling the participant’s obligation to provide to HKSCC amounts of Mainland Settlement Deposit or Mainland Security Deposit in accordance with the rules of HKSCC. (L.N. 196 of 2018)(2) The aggregate of amounts that a licensed corporation includes in its liquid assets under subsection (1) must not exceed the aggregate of amounts receivable from the persons 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. (L.N. 196 of 2018)(3) In this section—China Connect General Clearing Participant (中華通全面結算所參與者) means a general clearing participant of HKSCC that is registered by HKSCC as a “China Connect Clearing Participant” in accordance with the rules of HKSCC;China Connect Market (中華通市場) means a stock market that is determined by the Stock Exchange Company to be a “China Connect Market” in accordance with the rules of the Stock Exchange Company;China Connect Securities (中華通證券) means securities that are determined by the Stock Exchange Company to be “China Connect Securities” in accordance with the rules of the Stock Exchange Company;Mainland Security Deposit (內地結算備付金) means an amount that is determined by HKSCC to be “Mainland Security Deposit” in accordance with the rules of HKSCC;Mainland Settlement Deposit (內地證券結算保證金) means an amount that is determined by HKSCC to be “Mainland Settlement Deposit” in accordance with the rules of HKSCC. (L.N. 196 of 2018) 24. Amounts receivable in respect of dealings in securities by common clients (1) A licensed corporation licensed for Type 8 regulated activity must 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 must 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.(L.N. 196 of 2018) 25. Amounts receivable from licensed corporations licensed for Type 8 regulated activity (1) Subject to subsection (2), a licensed corporation licensed for Type 1 regulated activity must 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— (L.N. 196 of 2018)(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) must 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. (L.N. 196 of 2018) 26. Cash provided as security for short selling A licensed corporation must 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— (L.N. 196 of 2018)(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). 27. Proprietary positions of licensed corporations (1) A licensed corporation must include in its liquid assets any of the following assets that it beneficially owns— (L.N. 196 of 2018)(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 must include in its liquid assets such shares in the amount which is the lower of— (L.N. 196 of 2018)(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 must include in its liquid assets such shares at market value. (L.N. 196 of 2018)(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 must include in its liquid assets such shares in the amount which is the higher of— (L.N. 196 of 2018)(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 must include in its liquid assets such shares in the amount which is the lower of— (L.N. 196 of 2018)(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 must include in its liquid assets such shares in the amount which is the lower of— (L.N. 196 of 2018)(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. 28. Amounts receivable from clearing houses, etc. (1) A licensed corporation must include in its liquid assets— (L.N. 196 of 2018)(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 with such clearing house. (L.N. 196 of 2018)(2) A licensed corporation must include in its liquid assets amounts receivable from, and cash deposited with, a prescribed clearing house (except admission fees it has paid to the prescribed clearing house, and cash it has deposited with the prescribed clearing house as security against its general obligations), in respect of—(a) any dealing or trading by it in, or its entering into—(i) a futures contract;(ii) any securities;(iii) an options contract;(iv) a derivative contract;(v) a specified investment;(vi) a leveraged foreign exchange contract;(vii) a foreign exchange agreement; or(viii) an interest rate swap agreement; or(b) any clearing by it with the prescribed clearing house (whether for its own account or on behalf of its clients) of a transaction in—(i) a futures contract;(ii) any securities;(iii) an options contract;(iv) a derivative contract;(v) a specified investment;(vi) a leveraged foreign exchange contract;(vii) a foreign exchange agreement; or(viii) an interest rate swap agreement. (L.N. 196 of 2018)(3) A licensed corporation must include in its liquid assets amounts receivable from, and cash deposited with, a futures or options clearing house other than a recognized clearing house (except admission fees it has paid to the futures or options clearing house, and cash it has deposited with the futures or options clearing house as security against its general obligations), in respect of—(a) any dealing by it in futures contracts or unlisted options contracts;(b) any trading by it in leveraged foreign exchange contracts; or(c) any clearing by it with the futures or options clearing house (whether for its own account or on behalf of its clients) of a transaction in a futures contract, unlisted options contract or leveraged foreign exchange contract. (L.N. 196 of 2018)(4) In this section— prescribed clearing house (訂明結算所) means— (a) Euroclear Bank S.A./N.V.; (b) Euroclear France S.A.; (c) Clearstream Banking S.A.; (d) Clearstream Banking AG; or (e) Korea Securities Finance Corporation. (L.N. 196 of 2018) 29. Amounts receivable from other dealers and clearing participants in respect of futures contracts, unlisted options contracts and leveraged foreign exchange contracts (1) Subject to subsection (2), a licensed corporation must include in its liquid assets amounts receivable from, and cash deposited with, a licensed corporation licensed for Type 1 or Type 2 regulated activity (dealer) or a clearing participant of a futures or options clearing house (participant), in respect of—(a) any dealing by it in futures contracts or unlisted options contracts;(b) any trading by it in leveraged foreign exchange contracts; or(c) any clearing by the dealer or the participant for it (whether for its own account or on behalf of its clients) of a transaction in a futures contract, unlisted options contract or leveraged foreign exchange contract.(2) Subsection (1) does not apply to—(a) admission fees the licensed corporation has paid to the dealer or the participant; and(b) cash the licensed corporation has deposited with the dealer or the participant as security against its general obligations.(L.N. 196 of 2018) 30. Amounts receivable from clients in respect of purchase of exchange-traded unlisted options contracts (1) A licensed corporation must include in its liquid assets any amount receivable from any of its clients arising from the purchase of any unlisted options contract traded on a specified exchange which, when calculated on a transaction-by-transaction basis— (L.N. 56 of 2023)(a) is not yet due for settlement according to the settlement date; or(b) has been outstanding for 5 business days or less after the settlement date.(2) This section does not apply to a licensed corporation licensed for Type 13 regulated activity in relation to the carrying on by it of Type 13 regulated activity. (L.N. 56 of 2023)(L.N. 196 of 2018) 31. Exchange-traded unlisted options contracts trading for own account (L.N. 196 of 2018)(1) Where a licensed corporation purchases for its own account any unlisted options contract traded on a specified exchange, it must include in its liquid assets— (L.N. 196 of 2018)(a) in the case where the unlisted options contract has been grouped with any other position held by the licensed corporation in— (L.N. 196 of 2018)(i) a futures contract; or(ii) any other unlisted 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 unlisted 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 must 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 must 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.(L.N. 196 of 2018) 32. Amounts receivable under securities borrowing and lending agreements A licensed corporation which is the borrower of securities under a securities borrowing and lending agreement must 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.(L.N. 196 of 2018) 33. Amounts receivable under repurchase transactions A licensed corporation which is the purchaser in the first instance of any securities under a repurchase transaction must 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.(L.N. 196 of 2018) 34. Amounts receivable in respect of leveraged foreign exchange trading (1) A licensed corporation licensed for Type 3 regulated activity must include in its liquid assets, in respect of any trading by it in leveraged foreign exchange contracts— (L.N. 196 of 2018)(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 must 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. (L.N. 196 of 2018) 35. Miscellaneous assets A licensed corporation must include in its liquid assets any of the following assets— (L.N. 196 of 2018)(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;(ab) if fees receivable by it in respect of its underwriting of an issue or a sale of securities (underwriting fees) do not fall within paragraph (a)(i) or (ii) and, in respect of the issue or sale it has entered into one or more sub-underwriting agreements under which it is obliged to pay fees to the sub-underwriters—the amount of the underwriting fees—(i) but only up to the total amount of the fees which it is obliged to pay to the sub-underwriters; and(ii) only if the fees which it is obliged to pay to the sub-underwriters will not fall due for payment until on or after the day on which it receives the underwriting fees; (L.N. 196 of 2018)(b) deposits which it beneficially owns and maintains 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; (L.N. 196 of 2018)(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. Division 4 Ranking liabilities 36. Computation basis A licensed corporation must, for the purpose of calculating its ranking liabilities under the provisions of this Division, apply the computation basis prescribed in Division 2.(L.N. 196 of 2018) 36A. Controlled assets where election made under section 18A(3) If a licensed corporation makes an election under section 18A(3) to include a controlled asset in its liquid assets, the amount to be included in its ranking liabilities in respect of the controlled asset is to be calculated—(a) in accordance with the provisions of this Division which apply to it in relation to the controlled asset; and(b) on the basis that sections 40(7) and (8) and 43(6) do not apply to it in relation to the controlled asset.(L.N. 196 of 2018) 37. Amounts payable to clients, etc. (1) A licensed corporation must 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— (L.N. 196 of 2018; L.N. 56 of 2023)(a) an amount payable to any of its clients in respect of client money held by it—(i) in a segregated account with an authorized financial institution, an approved bank incorporated outside Hong Kong or a recognized clearing house (except money included in its liquid assets under section 20(1)(d)); or (L.N. 56 of 2023)(ii) in a segregated account—(A) that is referred to in paragraph (a) of the definition of segregated account in section 2(1); and(B) with a person approved by the Commission under section 4(2) of the Securities and Futures (Client Money) Rules (Cap. 571 sub. leg. I) for the purposes of those Rules; and (L.N. 196 of 2018)(b) an amount payable to any of its clients which is set-off against an amount receivable from the client under section 21(3).(2) This section does not apply to a licensed corporation licensed for Type 13 regulated activity in relation to the carrying on by it of Type 13 regulated activity. (L.N. 56 of 2023) 37A. Scheme money and other proceeds related to relevant CIS A licensed corporation licensed for Type 13 regulated activity must include in its ranking liabilities—(a) any amount of scheme money in respect of a relevant CIS held by the licensed corporation other than an amount of scheme money held by it—(i) in a segregated account with an authorized financial institution or a bank incorporated outside Hong Kong;(ii) in a segregated account—(A) that is referred to in paragraph (a) of the definition of segregated account in section 2(1); and(B) with a person approved by the Commission under section 4(2) or 10B(2) of the Securities and Futures (Client Money) Rules (Cap. 571 sub. leg. I) for the purposes of those Rules;(iii) in a relevant CIS account within the meaning of section 10A of the Securities and Futures (Client Money) Rules (Cap. 571 sub. leg. I); or(iv) in an account maintained with an authorized financial institution or a bank incorporated outside Hong Kong which is separate from the own account of the licensed corporation;(b) any amount held by the licensed corporation—(i) on behalf of subscribers or scheme participants of a relevant CIS constituting subscription proceeds in respect of the relevant CIS;(ii) on behalf of unit holders, shareholders or scheme participants of a relevant CIS constituting redemption proceeds in respect of the relevant CIS; or(iii) on behalf of unit holders, shareholders or scheme participants of a relevant CIS constituting distribution proceeds in respect of the relevant CIS,other than an amount of these proceeds held by the licensed corporation in an account which is separate from its own account and designated for holding such proceeds maintained with an authorized financial institution, a bank incorporated outside Hong Kong or a person approved by the Commission under section 4(2) or 10B(2) of the Securities and Futures (Client Money) Rules (Cap. 571 sub. leg. I) for the purposes of those Rules; and(c) any amount payable to any person which arises from the carrying on of Type 13 regulated activity in relation to any obligation incurred solely on behalf of a relevant CIS other than an amount payable without recourse to the assets of the licensed corporation.(L.N. 56 of 2023) 38. Amounts payable in respect of dealing in securities A licensed corporation must include in its ranking liabilities, in respect of a sale of securities— (L.N. 196 of 2018)(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. 39. Amounts payable in respect of dealing in securities by common clients (1) A licensed corporation licensed for Type 1 regulated activity must 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 must 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.(L.N. 196 of 2018) 40. Futures contracts and unlisted options contracts dealing etc. (L.N. 196 of 2018)(1) Subject to subsection (2), a licensed corporation must include in its ranking liabilities, in respect of— (L.N. 196 of 2018)(a) any dealing by it in any futures contract;(b) any unlisted options contract written by it; or (L.N. 196 of 2018)(c) any futures contract or unlisted options contract cleared by it, (L.N. 196 of 2018)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 unlisted 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 unlisted options contract. (L.N. 196 of 2018)(3) Subject to subsections (5), (6) and (9) and sections 27(2) and 43(5), a licensed corporation must include in its ranking liabilities the market value of any unlisted options contract written by it for its own account and traded on a specified exchange, to the extent that the market value of the unlisted options contract exceeds the amount of margin required to be deposited by it in respect of the unlisted options contract. (L.N. 196 of 2018)(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 must include in its ranking liabilities the amount of margin required to be deposited by it in respect of— (L.N. 196 of 2018)(a) any futures contract which is traded by it for its own account; and(b) any unlisted options contract which is purchased or written by it for its own account and traded on a specified exchange. (L.N. 196 of 2018)(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 must include in its ranking liabilities an amount in the aggregate of the in-the-money amount of the options contract and the higher of— (L.N. 196 of 2018)(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 must include in its ranking liabilities an amount which is the higher of— (L.N. 196 of 2018)(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 must include in its ranking liabilities the lower of— (L.N. 196 of 2018)(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 must include in its ranking liabilities the lower of— (L.N. 196 of 2018)(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 must include in its ranking liabilities an amount which is the higher of— (L.N. 196 of 2018)(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 must include in its ranking liabilities, in respect of any unlisted options contract (other than a put unlisted 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— (L.N. 196 of 2018)(a) 200% of the market value of the unlisted options contract;(b) 200% of the in-the-money amount of the unlisted options contract; and(c) 200% of the amount of margin required to be deposited by it. (L.N. 196 of 2018)(12) A licensed corporation must include in its ranking liabilities, in respect of any put unlisted 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 unlisted options contract stated at the strike price of the unlisted options contract, which is the highest of— (L.N. 196 of 2018)(a) 200% of the market value of the unlisted options contract;(b) 200% of the in-the-money amount of the unlisted options contract; and(c) 200% of the amount of margin required to be deposited by it. (L.N. 196 of 2018) 41. Leveraged foreign exchange trading (1) A licensed corporation licensed for Type 3 regulated activity must include in its ranking liabilities— (L.N. 196 of 2018)(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 must include in the aggregate the highest of the equivalent amount of its reporting currency of— (L.N. 196 of 2018)(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. 42. Provision of securities margin financing (1) A licensed corporation licensed for Type 1 or Type 8 regulated activity must include in its ranking liabilities the amount, when calculated on a client-by-client basis, by which— (L.N. 196 of 2018)(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 must 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; L.N. 196 of 2018)(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. 43. Short positions in securities (other than unlisted options contracts) and investments (L.N. 196 of 2018)(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 unlisted options contracts), specified investments, illiquid investments or miscellaneous investments, whether by short selling or otherwise, must include in its ranking liabilities the market value of those securities or investments. (L.N. 196 of 2018)(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; (L.N. 196 of 2018)(e) specified investments; (L.N. 196 of 2018)(f) illiquid investments; or (L.N. 196 of 2018)(g) miscellaneous investments, (L.N. 196 of 2018)must increase the amount required to be included in its ranking liabilities under subsection (1) by the haircut amounts in relation thereto. (L.N. 196 of 2018)(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 constitute more than 5% by market value of all securities of the same description issued by a particular corporation, must increase the amount required to be included in its ranking liabilities under subsection (1) by the market value of the securities. (L.N. 196 of 2018)(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 must include in its ranking liabilities the higher of— (L.N. 196 of 2018)(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 must include in its ranking liabilities the lower of— (L.N. 196 of 2018)(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 must 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. (L.N. 196 of 2018)(9) A licensed corporation must 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. (L.N. 196 of 2018)(10) A licensed corporation must 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— (L.N. 196 of 2018)(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. 44. Concentrated proprietary positions (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 must include in its ranking liabilities— (L.N. 196 of 2018)(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. 45. Securities borrowing and lending agreements (1) Subject to subsections (5) and (6) and section 40(5), a licensed corporation which is the borrower of securities under a securities borrowing and lending agreement must include in its ranking liabilities the amount by which the aggregate of— (L.N. 196 of 2018)(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, must 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— (L.N. 196 of 2018)(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, must include in its ranking liabilities the amount by which the market value of the securities exceeds the aggregate of— (L.N. 196 of 2018)(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 must 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— (L.N. 196 of 2018)(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 must include in its ranking liabilities the amount which is the higher of— (L.N. 196 of 2018)(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. 46. Repurchase transactions (1) A licensed corporation which is the purchaser in the first instance of any securities in a repurchase transaction must include in its ranking liabilities the amount by which the amount included in its liquid assets under section 33 exceeds— (L.N. 196 of 2018)(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 market value; or(b) in any other case, 50% of the market value of the securities.(2) A licensed corporation which is the seller in the first instance of any securities in a repurchase transaction must 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— (L.N. 196 of 2018)(a) the maximum amount that it can draw under a bank guarantee provided to it as security by the purchaser of the securities and issued by an authorized financial institution or an approved bank incorporated outside Hong Kong;(b) the amount of proceeds of sale of such securities received by it from the purchaser;(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 purchaser 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 purchaser.(3) A licensed corporation which is the seller in the first instance of any securities in a repurchase transaction must include in its ranking liabilities the amount of the consideration for which it sold the securities. (L.N. 196 of 2018) 47. Net underwriting commitments (1) Subject to subsection (2), a licensed corporation which underwrites or sub-underwrites an issue or a sale of securities must include in its ranking liabilities— (L.N. 196 of 2018)(a) for a rights issue where the market price of the securities is less than or equal to their subscription price, the lower of—(i) the aggregate of—(A) 50% of the haircut percentage in relation to the securities multiplied by the net underwriting commitment; and(B) the amount by which the net underwriting commitment exceeds the market value of the securities; and(ii) the net underwriting commitment; (L.N. 196 of 2018)(ab) for a rights issue where the market price of the securities is greater than their subscription price, 5% of the haircut percentage in relation to the securities multiplied by the net underwriting commitment; or (L.N. 196 of 2018)(b) in any other case, 50% of the haircut percentage in relation to the securities multiplied by the net underwriting commitment.(2) This section does not apply to a licensed corporation on the day on which it acquires an underwriting or a sub-underwriting commitment in respect of an issue or a sale of securities and the business day following that day.(3) For the purposes of subsection (2), a licensed corporation acquires an underwriting or a sub-underwriting commitment in respect of an issue or a sale of securities at the later of—(a) the time when it commits itself to underwrite or sub-underwrite the securities; and(b) the time when the lead underwriter or co-lead underwriter signs the underwriting agreement with the issuer or the seller (as the case may be) of the securities.(4) In subsection (1), net underwriting commitment (包銷承擔淨額) means the total costs of subscribing for or purchasing securities underwritten or sub-underwritten by a licensed corporation other than—(a) securities which are sub-underwritten; and (b) securities which are the subject of a legally binding contract for the subscription for or purchase of such securities, through or from that licensed corporation by another person. 48. Off-exchange traded derivative contracts (1) Subject to subsection (2), a licensed corporation must include in its ranking liabilities the amount of any floating losses incurred by it in respect of any position in any off-exchange traded derivative contract. (2) Where a licensed corporation has entered into a bilateral netting agreement in respect of 2 or more off-exchange traded derivative contracts with the counterparty with whom it maintains the positions, it must include in its ranking liabilities the amount by which the amount of any floating losses incurred by it exceeds the amount of any floating profits made by it in respect of the contracts.(3) In subsection (2), bilateral netting agreement (雙邊淨額結算協議) means an agreement between the licensed corporation and the counterparty with whom it maintains positions in off-exchange traded derivative contracts under which each party has a single obligation to the other in respect of all such contracts covered by the agreement and which provides that, in the event that the counterparty fails to comply with its obligation under the agreement, the licensed corporation will have— (a) a single claim to receive only the net amount of the aggregate positive mark-to-market value of any contract covered by the agreement, calculated by deducting from the aggregate positive mark-to-market value of any contract covered by the agreement the aggregate negative mark-to-market value of any other contract covered by the agreement; or (b) a single obligation to pay only the net amount of the aggregate negative mark-to-market value of any contract covered by the agreement, calculated by deducting from the aggregate negative mark-to-market value of any contract covered by the agreement the aggregate positive mark-to-market value of any other contract covered by the agreement. (L.N. 196 of 2018) 49. Interest rate swap agreements (1) A licensed corporation which is a party to an interest rate swap agreement must include in its ranking liabilities the notional principal amount multiplied by the percentage specified in column 3 of Table 1 in Schedule 4 opposite the description of the remaining term to maturity in column 2 of the Table which is applicable to the agreement. (L.N. 196 of 2018)(2) In subsection (1), notional principal amount (名義本金額) means the theoretical amount agreed upon by the parties to an interest rate swap agreement on the basis of which any interest payment to be made under the agreement is calculated. 50. Foreign exchange agreements A licensed corporation which is a party to a foreign exchange agreement must include in its ranking liabilities the amount of currency to be delivered by it under the agreement multiplied by the percentage specified in column 3 of Table 2 in Schedule 4 opposite the description of the counterparty and the remaining term to maturity in column 2 of the Table which is applicable to the agreement.(L.N. 196 of 2018) 51. Introduction of transactions (1) Subject to subsection (2), where a licensed corporation introduces transactions which involve—(a) a dealing in any securities;(b) a dealing in a futures contract or an unlisted options contract; or (L.N. 196 of 2018)(c) a trading in a leveraged foreign exchange contract,to another person for execution or clearing on behalf of any of its clients and—(d) it does not include the amount receivable by it or payable to it in respect of any such transaction in the calculation of its liquid capital under this Part; and(e) there is neither express agreement nor a clear market practice that exempts it from any liability to the client or the other person in relation to such transaction,it must include in its ranking liabilities the amount by which its required liquid capital would have been increased had one or more of the following amounts been included in the calculation of its variable required liquid capital (as if the transaction had been executed or cleared by it)— (L.N. 196 of 2018)(f) (where the transaction introduced is a dealing in securities and the transaction has not been fully settled by the client or the other person (as the case may be)) the total value of the transaction entered into as a result of the introduction;(g) (where the transaction introduced is a dealing in a futures contract or an unlisted options contract) the total amount of margin required to be deposited in respect of the futures contract or the unlisted options contract entered into as a result of the introduction which remains outstanding; (L.N. 196 of 2018)(h) (where the transaction introduced is a trading in a leveraged foreign exchange contract) the aggregate gross foreign currency position arising from the leveraged foreign exchange contract entered into as a result of the introduction which remains outstanding.(2) Subsection (1) does not apply where—(a) the person to whom the transaction is introduced is a member of a group of companies of which the licensed corporation is a member;(b) the person to whom the transaction is introduced has entered into an agreement with the client for providing the execution or clearing service to the client and is contractually liable to the client for any default in the execution or clearing of the transaction; and(c) the licensed corporation is not liable to the client for execution or clearing of such transactions or default by the person to whom the transaction is introduced. 51A. Foreign currency positions (1) Subject to subsections (2) and (3), a licensed corporation must include in its ranking liabilities 5% of its net position in each foreign currency.(2) In calculating the net position in a foreign currency, a licensed corporation may elect to exclude from the calculation the value of any asset which is denominated in that foreign currency and not included in its liquid assets under any provision in Division 3.(3) If, in relation to a non-freely floating foreign currency, a licensed corporation has positions in the currency which are attributable to both the onshore and offshore markets in the currency, the licensed corporation must include in its ranking liabilities—(a) if its onshore net position in the currency and its offshore net position in the currency are both long positions or are both short positions—5% of the aggregate of the onshore net position and the offshore net position; or(b) if paragraph (a) does not apply to it in relation to the currency—(i) 1.5% of the lower of its onshore net position in the currency and its offshore net position in the currency; and(ii) 5% of the difference between its onshore net position in the currency and its offshore net position in the currency.(4) In this section— net position (淨持倉量), in relation to a licensed corporation’s position in a foreign currency, means the difference between— (a) the aggregate of—(i) the value of assets, other than fixed assets, beneficially owned by the licensed corporation which are denominated in the foreign currency; and(ii) the total amount of the foreign currency in respect of which the licensed corporation is exposed to the risk of a decline in the value of the foreign currency under outstanding contracts (including spot contracts); and (b) the aggregate of—(i) all of the licensed corporation’s on-balance sheet liabilities, other than excluded liabilities, which are denominated in the foreign currency; and(ii) the total amount of the foreign currency in respect of which the licensed corporation is exposed to the risk of a rise in the value of the foreign currency under outstanding contracts (including spot contracts); non-freely floating foreign currency (非自由浮動外幣) means a foreign currency in respect of which an authority of the jurisdiction of which the currency is the lawful currency specifies, in respect of one or more foreign exchange markets specified by the authority— (a) the rate at which the currency is permitted by the authority to be converted into one or more other currencies; or (b) a range of rates within which the currency is permitted by the authority to be converted into one or more other currencies; offshore net position (境外淨持倉量), in relation to a licensed corporation’s net position in a non-freely floating foreign currency, means its net position in the currency which is attributable to the offshore market in the currency;onshore net position (境內淨持倉量), in relation to a licensed corporation’s net position in a non-freely floating foreign currency, means its net position in the currency which is attributable to the onshore market in the currency.(L.N. 196 of 2018) 52. Miscellaneous (1) A licensed corporation must include in its ranking liabilities— (L.N. 196 of 2018)(a) 10% of the amount of any guarantee, indemnity or other similar financial commitment provided by it, directly or indirectly (including the pledging of assets for the purpose of obtaining a bank guarantee), other than a guarantee, an indemnity and other financial commitment provided by it in respect of its own liabilities and obligations;(b) the amount by which the liabilities of any subsidiary of it (excluding any amounts due to it from the subsidiary) exceed the assets of the subsidiary;(c) the consideration it is obliged to pay for the redemption of redeemable shares, other than approved redeemable shares, which have not yet been redeemed;(d) if it has made one or more elections under section 18A(3) in relation to one or more controlled assets denominated in a particular currency, the amount (if it exceeds zero) calculated in accordance with the following formula— A – L where— “A” is the aggregate of the amounts that it is required to include in its liquid assets in respect of the controlled assets denominated in the currency; and “L” is the aggregate of the amounts of its existing obligations or liabilities denominated in the currency (which the controlled assets may be freely applied to meet) that it is required (apart from by this paragraph) to include in its ranking liabilities; and (L.N. 196 of 2018) (e) where it is the underwriter of a note issuance and revolving underwriting facility, the maximum amount that can be drawn down by the issuer under the facility by issuing notes less the amount that has been drawn down by the issuer by issuing and placing notes multiplied by the percentage specified in column 3 of Schedule 5 opposite the description of the remaining term to maturity in column 2 of the Schedule which is applicable to the facility.(2)-(3) (Repealed L.N. 196 of 2018) 53. Other liabilities (1) Subject to subsections (1A) and (2), a licensed corporation must include in its ranking liabilities all its liabilities not otherwise required to be included in its ranking liabilities under any other provision of this Division, including— (L.N. 196 of 2018)(a) any amount payable by it in relation to any overdraft obtained by it;(b) any amount payable by it in relation to any loan obtained by it;(c) any accrued interest payable by it to any other person;(d) any accrued expenses incurred by it;(e) any tax payable by it, less any tax prepaid by it, to the extent that the tax payable and the tax prepaid are of the same description and levied by the same taxation authority;(f) any provision made by it for contingent liabilities;(g) any provision made by it for floating losses in respect of open positions held for its own account; and(h) any other liabilities provided for in accordance with generally accepted accounting principles.(1A) In relation to any liabilities of a licensed corporation which arise from a tenancy agreement entered into by it in respect of any premises which it uses in carrying on the regulated activity for which it is licensed, subsection (1) only applies to any amount by which its on-balance sheet liabilities arising from the tenancy agreement exceeds the total value of its assets arising from the tenancy agreement which are not included in its liquid assets under any provision in Division 3. (L.N. 196 of 2018)(2) A licensed corporation must not include in its ranking liabilities— (L.N. 196 of 2018)(a) any approved subordinated loan provided to it; or(b) any liability that it is not required to settle within the next 12 months and is secured by a first legal charge on immovable property beneficially owned by it and used in carrying on the regulated activity for which it is licensed, to the extent that the net realizable value of that property equals such liability. Part 5 Miscellaneous 54. Licensed corporations to notify Commission of failure to comply with these Rules (1) Where a licensed corporation notifies the Commission—(a) under section 146(1) of the Ordinance that it is unable to maintain, or to ascertain whether it maintains, financial resources in accordance with the specified amount requirements that apply to it; or(b) under section 146(3) of the Ordinance that it is unable to comply with, or to ascertain whether it complies with, all or any of the requirements of these Rules, other than the specified amount requirements,it must include in the notice— (L.N. 196 of 2018)(c) full details of the matter and the reason therefor; and(d) full details of any steps it is taking, has taken or proposes to take to redress the inability.(2) The Commission may, where a licensed corporation gives notice to the Commission under section 146(1) and (3) of the Ordinance, request the licensed corporation to provide, in such form and within such time as the Commission may specify, such additional information and document as the Commission may require in connection with the matter, whereupon the licensed corporation must comply with the request accordingly. (L.N. 196 of 2018)(3) For the purposes of this section and section 144 of the Ordinance, specified amount requirements (指明數額規定), in relation to a licensed corporation, means the applicable requirements specified in section 4 and—(a) the requirement to maintain paid-up share capital in the amount required under section 5; and(b) the requirement to maintain liquid capital not less than its required liquid capital under section 6. 55. Licensed corporations to notify Commission of circumstances relating to financial resources and trading activities and to submit returns in certain cases (1) A licensed corporation must notify the Commission in writing as soon as reasonably practicable and in any event within one business day of becoming aware of any of the following matters— (L.N. 196 of 2018)(a) its liquid capital falls below 120% of its required liquid capital;(b) a required liquid capital deficit occurs, but the licensed corporation is regarded as having complied with section 6(1) by virtue of section 6(3);(c) its liquid capital falls below 50% of the liquid capital stated in its last return submitted to the Commission under section 56(1) or (3);(d) any information contained in any of its previous returns submitted to the Commission pursuant to these Rules has become false or misleading in a material particular;(e) the aggregate of the amounts it has drawn down on any loan, advance, credit facility or other financial accommodation provided to it by banks exceeds the aggregate of the credit limits thereof;(f) it has been or will be unable, for 3 consecutive business days, to meet in whole or in part any calls or demands for payment or repayment (as the case may be), from any of its lenders, credit providers or financial accommodation providers;(g) any of its lenders or any person who has provided credit or financial accommodation to it has exercised, or has informed it that he will exercise, the right to liquidate security provided by it to him in order to reduce its liability or indebtedness to him under any outstanding loan, advance, credit facility balance or other financial accommodation provided to it by him;(h) (Repealed L.N. 117 of 2006)(i) the aggregate of the maximum amounts that can be drawn down against it under any guarantee, indemnity or any other similar financial commitment provided by it—(i) exceeds $5,000,000; or(ii) would, if deducted from its liquid capital, cause its liquid capital to fall below 120% of its required liquid capital;(j) the aggregate of amounts of any outstanding claim made in writing by it or against it (whether disputed or not) exceeds or is likely to exceed $5,000,000;(k) the aggregate of amounts of any outstanding claim made in writing by it or against it (whether disputed or not) would, if deducted from its liquid capital, cause its liquid capital to fall below 120% of its required liquid capital;(l) any claim is made by it under any professional indemnity or other insurance policy that it is required to maintain under any rules made under section 116(5) of the Ordinance or the rules or conventions of any exchange or clearing house;(m) any financial commitment, including a guarantee, is provided for it in favour of an exchange or a clearing house, by a corporation which is a member of a group of companies of which it is a member.(2) Where a licensed corporation notifies the Commission of any matter under subsection (1), it must— (L.N. 196 of 2018)(a) include in the notice full details of the matter and the reason therefor; and (L.N. 117 of 2006)(b) in the case of a notification under subsection (1)(a), (b), (c), (e), (f) or (g), include in the notice full details of any steps it is taking, has taken or proposes to take to prevent its liquid capital from falling below its required liquid capital or to improve its liquidity. (L.N. 117 of 2006)(c)-(d) (Repealed L.N. 117 of 2006)(3) Where a licensed corporation has, prior to the commencement of these Rules, entered into any position in an off-exchange traded derivative contract other than—(a) an options contract written by it on its own account;(b) an interest rate swap agreement; and(c) a foreign exchange agreement,of which it has not notified the Commission prior to the commencement of these Rules, it must within one business day of the commencement of these Rules notify the Commission in writing of the details of such position. (4) Where a licensed corporation intends to enter into any position in an off-exchange traded derivative contract other than—(a) an unlisted options contract written by it on its own account;(b) an interest rate swap agreement; and(c) a foreign exchange agreement,it must notify the Commission in writing of the details of the position it intends to enter into at least 10 business days before entering into the position.(5) Where a licensed corporation intends to change any of its accounting principles in a way that may materially affect the liquid capital or paid-up share capital that it maintains or is required to maintain under Part 3, for the purposes of section 3(2), it must notify the Commission in writing of the details of, and the reasons for, the intended change not less than 5 business days prior to effecting the change.(L.N. 196 of 2018) 56. Licensed corporations to submit returns to Commission (1) Subject to subsection (4), 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 4 regulated activity, and it is not subject to the specified licensing condition;(e) Type 5 regulated activity, and it is not subject to the specified licensing condition;(f) Type 6 regulated activity, and it is not subject to the specified licensing condition;(g) Type 7 regulated activity;(h) Type 8 regulated activity;(i) Type 9 regulated activity, and it is not subject to the specified licensing condition; (L.N. 29 of 2011)(ia) Type 10 regulated activity, and it is not subject to the specified licensing condition; (L.N. 29 of 2011; L.N. 56 of 2023)(ib) Type 13 regulated activity, (L.N. 56 of 2023)must, in respect of each month at the end of which it remains licensed, submit to the Commission, in the manner specified in subsection (5) and no later than 3 weeks after the end of the month concerned, a return which is in the form specified by the Commission under section 402 of the Ordinance and signed in the manner specified in subsection (6), and includes— (L.N. 92 of 2008; L.N. 196 of 2018)(j) its liquid capital computation, as at the end of the month;(k) its required liquid capital computation, as at the end of the month;(l) a summary of bank loans, advances, credit facilities and other financial accommodation available to it, as at the end of the month;(m) an analysis of its margin clients, as at the end of the month;(n) an analysis of collateral received from its margin clients, as at the end of the month;(o) an analysis of its rolling balance cash clients, as at the end of the month;(p) an analysis of its profit and loss account;(q) other than a licensed corporation licensed for Type 13 regulated activity in relation to the carrying on by it of Type 13 regulated activity, an analysis of its client assets, as at the end of the month; (L.N. 56 of 2023)(r) where it is licensed for Type 3 regulated activity, an analysis of its foreign currency positions, as at the end of the month; and (L.N. 56 of 2023)(s) where it is licensed for Type 13 regulated activity, an analysis of relevant CIS property received or held by it for any relevant CIS arising from the carrying on of Type 13 regulated activity, as at the end of the month. (L.N. 56 of 2023)(2) Subject to subsection (4), a licensed corporation to which subsection (1) applies must, in respect of each period of 3 months at the end of which it remains licensed, being such period in a year ending at the end of the month of March, June, September or December, respectively, submit to the Commission, in the manner specified in subsection (5) and no later than 3 weeks after the end of the period concerned, a return which is in the form specified by the Commission under section 402 of the Ordinance and signed in the manner specified in subsection (6), and includes— (L.N. 92 of 2008; L.N. 196 of 2018)(a) an analysis of its clientele, as at the end of the 3 month period;(b) an analysis of its proprietary derivative positions, as at the end of the 3 month period;(c) where it is licensed for Type 3 regulated activity, an analysis of its recognized counterparties, as at the end of the 3 month period; and(d) where it is licensed for Type 9 regulated activity, an analysis of the assets under its management, as at the end of the 3 month period.(3) Subject to subsection (4), a licensed corporation which is licensed solely for one or more of the following—(a) Type 4 regulated activity;(b) Type 5 regulated activity;(c) Type 6 regulated activity;(d) Type 9 regulated activity; (L.N. 29 of 2011)(da) Type 10 regulated activity, (L.N. 29 of 2011)and subject to the specified licensing condition, must, in respect of each period of 6 months at the end of which it remains licensed, being such period in a year ending at the end of the month of June or December, respectively, submit to the Commission, in the manner specified in subsection (5) and no later than 3 weeks after the end of the period concerned, a return which is in the form specified by the Commission under section 402 of the Ordinance and signed in the manner specified in subsection (6), and includes— (L.N. 92 of 2008; L.N. 196 of 2018)(e) its liquid capital computation, as at the end of the 6 month period;(f) its required liquid capital computation, as at the end of the 6 month period;(g) an analysis of its profit and loss account;(h) an analysis of its clientele, as at the end of the 6 month period; and(i) where it is licensed for Type 9 regulated activity, an analysis of the assets under its management, as at the end of the 6 month period.(4) A licensed corporation may elect to submit the return required under—(a) subsection (1), in respect of periods of not less than 28 days but not more than 35 days, each ending not more than 7 days before or after the end of a month;(b) subsection (2), in respect of periods of 3 months each ending not more than 7 days before or after the end of March, June, September or December in a year;(c) subsection (3), in respect of periods of 6 months each ending not more than 7 days before or after the end of June or December in a year,determined by it on a basis according to which the ending date of each period so determined is predictable, and where it so elects and submits the return concerned, it is deemed to have submitted the return concerned in respect of the period required under subsection (1), (2) or (3) (as the case may be). (L.N. 196 of 2018)(5) For the purposes of this section, a licensed corporation must submit a return referred to in this section to the Commission electronically by means of an online communication system approved by the Commission under section 58(7) for the purposes of this subsection. (L.N. 92 of 2008; L.N. 196 of 2018)(6) For the purposes of this section—(a) a return referred to in this section must be signed on behalf of the licensed corporation concerned by a responsible officer of the licensed corporation or another officer of the licensed corporation approved by the Commission under section 58(5)(e) for the purposes of this section, by way of attachment to the return of the digital signature or electronic signature of the responsible officer or other officer; and (L.N. 196 of 2018)(b) the signature referred to in paragraph (a) must— (L.N. 196 of 2018)(i) in the case of a digital signature, be supported by a recognized certificate, generated within the validity of that certificate and used in accordance with the terms of that certificate; or(ii) in the case of an electronic signature, be authenticated in accordance with such directions and instructions for the use of the online communication system concerned as are published by the Commission under section 58(8). (L.N. 92 of 2008)(6A) For the purposes of subsection (6)(b)(i), a digital signature is taken to be supported by a recognized certificate if it is taken to be supported by that certificate under section 2(2) of the Electronic Transactions Ordinance (Cap. 553). (14 of 2004 s. 30; L.N. 92 of 2008)(7) In this section—digital signature (數碼簽署) has the meaning assigned to it by section 2(1) of the Electronic Transactions Ordinance (Cap. 553); (14 of 2004 s. 30)electronic signature (電子簽署) has the meaning assigned to it by section 2(1) of the Electronic Transactions Ordinance (Cap. 553); (L.N. 92 of 2008)recognized certificate (認可證書) has the meaning assigned to it by section 2(1) of the Electronic Transactions Ordinance (Cap. 553); (14 of 2004 s. 30)rolling balance cash client (滾存結餘現金客戶) means a client of a licensed corporation in respect of whom the amounts receivable from, and amounts payable to, him by the licensed corporation arising from the purchase and sale of securities on a cash-against-delivery basis by the licensed corporation for him may be set-off by the licensed corporation under section 21(3);within the validity of that certificate (在該證書的有效期內) has the meaning assigned to it by section 6(2) of the Electronic Transactions Ordinance (Cap. 553).(14 of 2004 s. 30) 57. Licensed corporations to provide information The Commission may at any time, by notice in writing, request a licensed corporation to provide it within the time and in the manner specified in the notice with such information, including any record or document, as it may specify in the notice relating to the financial resources or trading activities of the licensed corporation, whereupon the licensed corporation must comply with the request accordingly.(L.N. 196 of 2018) 58. Approvals (1) For the purposes of these Rules, the Commission may, whether or not on application in writing and payment of the fee prescribed in the Securities and Futures (Fees) Rules (Cap. 571 sub. leg. AF), approve a person as—(a) an approved bank incorporated outside Hong Kong, where the person is a bank which is incorporated under the law or other authority of any jurisdiction outside Hong Kong;(b) an approved credit rating agency; or(c) an approved securities borrowing and lending counterparty.(2) Where the Commission approves a person under subsection (1), it must as soon as reasonably practicable— (L.N. 196 of 2018)(a) publish in such manner as it considers appropriate the name of the person approved; and (b) in the case of a person approved under subsection (1)(b), specify the ratings issued by the person as being equivalent to a specified rating issued by Moody’s Investors Service, Standard & Poor’s Corporation or Fitch Ratings.(3) A person approved under subsection (1)(c) must be a person whose activities or objects include the provision of services for interposing himself in a securities borrowing and lending agreement as the counterparty to both the borrower and the lender, including administering any security deposited with him in connection with the agreement and registration and settlement of the agreement.(4) The Commission may, on application in writing and payment of the fee prescribed in the Securities and Futures (Fees) Rules (Cap. 571 sub. leg.

AF), approve a licensed corporation for the purposes of these Rules as an approved introducing agent where the licensed corporation satisfies the Commission that—(a) where—(i) it is licensed solely for Type 1 regulated activity, it conducts no business other than—(A) communicating offers to effect dealings in securities to an exchange participant of a recognized exchange company or a specified exchange, in the names of the persons from whom those offers are received; and(B) introducing persons to an exchange participant of a recognized exchange company or a specified exchange, in order that they may—(I) effect dealings in securities; or(II) make offers to deal in securities;(ii) it is licensed solely for Type 2 regulated activity, it conducts no business other than—(A) communicating offers to effect dealings in futures contracts or unlisted options contracts to an exchange participant of a recognized exchange company or a specified exchange, in the names of the persons from whom those offers are received; and(B) introducing persons to an exchange participant of a recognized exchange company or a specified exchange, in order that they may—(I) effect dealings in futures contracts or unlisted options contracts; or(II) make offers to deal in futures contracts or unlisted options contracts;(iii) it is licensed solely for Type 3 regulated activity, it conducts no business other than—(A) communicating offers to effect leveraged foreign exchange trading to a recognized counterparty in the names of the persons from whom those offers are received; and(B) introducing persons to a recognized counterparty in order that they may—(I) effect trading in leveraged foreign exchange contracts; or(II) make offers to trade in leveraged foreign exchange contracts; or(iv) it is—(A) licensed for one or more of the following—(I) Type 1 regulated activity;(II) Type 2 regulated activity;(III) Type 3 regulated activity; or(B) licensed for one or more of the regulated activities referred to in sub-subparagraph (A) and one or more of the following—(I) Type 4 regulated activity, and it is subject to the specified licensing condition;(II) Type 5 regulated activity, and it is subject to the specified licensing condition;(III) Type 6 regulated activity, and it is subject to the specified licensing condition, and not licensed for any regulated activity other than as described in sub-subparagraphs (A) and (B), and in relation to any one or more of the regulated activities referred to in sub-subparagraph (A) for which it is licensed, it conducts no business other than that described in subparagraph (i), (ii) or (iii);(b) in connection with the offers communicated or the persons so introduced, it will not incur any liability to any person except for its own negligence, wilful default or fraud; and(c) it does not hold client assets.(5) The Commission may, on application in writing by a licensed corporation and payment of the fee prescribed in the Securities and Futures (Fees) Rules (Cap. 571 sub. leg. AF), approve—(a) as approved redeemable shares, any redeemable shares issued by the licensed corporation;(b) as an approved subordinated loan, any subordinated loan obtained by the licensed corporation;(c) as an approved standby subordinated loan facility, any standby subordinated loan facility obtained by the licensed corporation;(d) for the purposes of section 3(3), the adoption by the licensed corporation of an accounting principle other than one of those referred to in section 3(1)(a);(e) for the purposes of section 56(6), an officer of the licensed corporation to sign a return; (L.N. 92 of 2008)(f) for the purposes of section 41(1)(a)(v), a foreign currency;(g) the withdrawal of an election made by the licensed corporation under any provision of these Rules;(h) the calculation of the haircut percentage applicable to an underlying basket of securities as the weighted average of the haircut percentages applicable to each of the securities which constitute the basket—(i) for special debt securities which fall within the description set out in item 1(b)(iii) or 2(a)(ii) in column 2 of Table 6 in Schedule 2; or(ii) for specified securities which fall within the description set out in item 2(b) or 3(a)(vii) in column 2 of Table 7 in Schedule 2; and (L.N. 196 of 2018)(i) for the purposes of section 11(7), the setting-off by the licensed corporation of amounts receivable (except amounts receivable referred to in section 23(1)(f)) by it from, and amounts payable by it to, a general clearing participant of HKSCC which arise from transactions in securities that are cleared for it or its clients by the participant with HKSCC. (L.N. 196 of 2018)(6) An approval granted under subsection (1), (4) or (5) is subject to such reasonable conditions as the Commission may impose, and the Commission may at any time revoke the approval or amend or revoke any such condition or impose new conditions as may be reasonable in the circumstances.(7) The Commission may, for the purposes of section 56(5), approve an online communication system. (L.N. 92 of 2008)(8) Where the Commission approves an online communication system under subsection (7), it must as soon as reasonably practicable publish directions and instructions for the use of that system in such manner as it considers appropriate. (L.N. 92 of 2008)(9) An approval granted under subsection (1), (4), (5) or (7) remains in force—(a) where a period of validity of the approval is specified in the notice of approval, until the expiry of the period; or(b) where no such period is specified, until revoked by the Commission by notice in writing.(L.N. 196 of 2018) 59. Withdrawal of elections made under these Rules A licensed corporation which makes an election under any provision of these Rules is bound by the election until such time as the Commission approves the withdrawal of the election under section 58(5)(g).(L.N. 196 of 2018) 60. Transitional (1) (Omitted as expired—E.R. 5 of 2018)(2) (Omitted as spent—E.R. 5 of 2018)(3) Notwithstanding section 1 and subject to subsection (5), section 5 does not apply in respect of—(a) a partnership deemed under section 27 of Part 1 of Schedule 10 to the Ordinance to be a licensed corporation; or(b) an individual deemed under section 30 of Part 1 of Schedule 10 to the Ordinance to be a licensed corporation, provided that—(c) in the case of a partnership, the aggregate of amounts maintained in all partners’ capital accounts; or(d) in the case of an individual, the amount maintained in his capital account,is not less than the amount of paid-up share capital required of a licensed corporation under section 5, until such time as the specified decision referred to, in the case of a partnership, in section 53(1)(b) of Part 1 of Schedule 10 to the Ordinance or, in the case of an individual, in section 53(1)(c) of Part 1 of Schedule 10 to the Ordinance, takes effect.(4) For the purposes of these Rules, a transaction executed by—(a) a partnership deemed under section 27 of Part 1 of Schedule 10 to the Ordinance to be a licensed corporation, for the account of a partner of the partnership; and(b) an individual deemed under section 30 of Part 1 of Schedule 10 to the Ordinance to be a licensed corporation, for his own account,shall be treated as a transaction executed by it or him (as the case may be) for a client.(5) Notwithstanding section 1 and subject to subsection (6), these Rules do not apply in respect of—(a) a partnership deemed under section 27 of Part 1 of Schedule 10 to the Ordinance to be a licensed corporation;(b) an individual deemed under section 30 of Part 1 of Schedule 10 to the Ordinance to be a licensed corporation; or(c) a licensed corporation,which is licensed solely for one or more of the following—(d) Type 4 regulated activity;(e) Type 5 regulated activity;(f) Type 6 regulated activity;(g) Type 9 regulated activity,provided that it or he (as the case may be) maintains net tangible assets in an amount of not less than $500,000.(6) Subsection (5) shall expire at the expiration of 6 months from the commencement of these Rules.(6A) Where a licensed corporation is licensed immediately prior to 1 October 2006 for Type 1 or Type 8 regulated activity, for the period from 1 October 2006 to 30 September 2007, the reference in section 42(2) to 80% shall be construed as a reference to 65%. (L.N. 117 of 2006)(7) In this section—capital account (資本帳) means an account in which the amount of capital injected into the business of a partnership or sole-proprietorship is kept;net tangible assets (有形資產淨值), in relation to a person referred to in subsection (5)(a), (b) or (c), means the person’s total assets less—(a) the person’s intangible assets, including goodwill, copyrights, patents and licences; and(b) the person’s total liabilities (after excluding any approved subordinated loan provided to the person). Schedule 1 [ss. 2 & 5]Financial Resources Requirements Table 1Paid-up Share Capital Regulated activity Minimum amount of paid-up share capital Type 1— (a) in the case where the licensed corporation in question provides securities margin financing $10,000,000 (b) in any other case $5,000,000 Type 2 $5,000,000 Type 3— (a) in the case where the licensed corporation in question is an approved introducing agent $5,000,000 (b) in any other case $30,000,000 Type 4 $5,000,000 Type 5 $5,000,000 Type 6— (a) in the case where the licensed corporation in question is not subject to the no sponsor work licensing condition $10,000,000 (b) in any other case (L.N. 117 of 2006) $5,000,000 Type 7 $5,000,000 Type 8 $10,000,000 Type 9 $5,000,000 Type 10 (L.N. 29 of 2011) $5,000,000 Type 13 (L.N. 56 of 2023) $10,000,000 Table 2Required Liquid Capital Regulated activity Minimum amount of required liquid capital Type 1— (a) in the case where the licensed corporation in question is an approved introducing agent or trader $500,000 (b) in any other case $3,000,000 Type 2— (a) in the case where the licensed corporation in question is an approved introducing agent, futures non-clearing dealer or trader $500,000 (b) in any other case $3,000,000 Type 3— (a) in the case where the licensed corporation in question is an approved introducing agent $3,000,000 (b) in any other case $15,000,000 Type 4— (a) in the case where the licensed corporation in question is subject to the specified licensing condition $100,000 (b) in any other case $3,000,000 Type 5— (a) in the case where the licensed corporation in question is subject to the specified licensing condition $100,000 (b) in any other case $3,000,000 Type 6— (a) in the case where the licensed corporation in question is subject to the specified licensing condition $100,000 (b) in any other case $3,000,000 Type 7 $3,000,000 Type 8 $3,000,000 Type 9— (a) in the case where the licensed corporation in question is subject to the specified licensing condition $100,000 (b) in any other case $3,000,000 Type 10— (a) in the case where the licensed corporation in question is subject to the specified licensing condition $100,000 (b) in any other case (L.N. 29 of 2011) $3,000,000 Type 13 (L.N. 56 of 2023) $3,000,000 Schedule 2 [ss. 2, 2C, 2E & 58] (L.N. 196 of 2018)Haircut Percentages Table 1Haircut Percentages for Listed Shares Column 1 Column 2 Column 3 Item Description Haircut percentage % 1. Except for the purpose of calculating the haircut amount under section 22(1)(b)(i), shares which are listed on a recognized stock market— (a) being a constituent of the Hang Seng Index 15 (b) not being a constituent of the Hang Seng Index but being a constituent of the Hang Seng Composite LargeCap Index 20 (c) not being a constituent of the Hang Seng Index or the Hang Seng Composite LargeCap Index 30 2. Shares which are listed on a specified exchange in the United Kingdom— (a) other than shares which are listed on London Stock Exchange plc – SEAQ— (i) being a constituent of the FTSE 100 Index 15 (ii) not being a constituent of the FTSE 100 Index 20 (b) being shares which are listed on London Stock Exchange plc – SEAQ 30 3. Shares which are listed on a specified exchange in the United States of America— (a) other than shares which are listed on the NASDAQ Stock Market LLC – NASDAQ Global Market or the NASDAQ Stock Market LLC – NASDAQ Global Select Market— (i) being a constituent of the S&P 500 Index 15 (ii) not being a constituent of the S&P 500 Index 20 (b) being shares which are listed on the NASDAQ Stock Market LLC – NASDAQ Global Market or the NASDAQ Stock Market LLC – NASDAQ Global Select Market 30 4. Shares which are listed on a specified exchange in Japan— (a) other than shares which are listed on the Tokyo Stock Exchange, Inc. – JASDAQ— (i) being a constituent of the Nikkei Stock Average 15 (ii) not being a constituent of the Nikkei Stock Average 20 (b) being shares which are listed on the Tokyo Stock Exchange, Inc. – JASDAQ 30 5. Shares which are listed on a specified exchange specified in Part 1 of Schedule 3, other than an exchange in the United Kingdom, the United States of America or Japan— (a) being a constituent of the Euro Stoxx 50 Index 15 (b) not being a constituent of the Euro Stoxx 50 Index 20 6. Shares which are listed on a specified exchange specified in Part 2 of Schedule 3 30 7. Shares which are listed on a stock exchange (other than an exchange referred to in item 1, 2, 3, 4, 5 or 6) which is a member of the World Federation of Exchanges 50 8. Shares which are listed on a stock exchange not referred to in item 1, 2, 3, 4, 5, 6 or 7 75 (L.N. 196 of 2018) Table 1AHaircut Percentages for Shares Listed in Hong Kong for Purpose of Calculating Haircut Amount under Section 22(1)(b)(i) Column 1 Column 2 Column 3 Item Description Haircut percentage % 1. For the purpose of calculating the haircut amount under section 22(1)(b)(i), shares which are listed on a recognized stock market— (a) being a constituent of the Hang Seng Index 15 (b) not being a constituent of the Hang Seng Index but being a constituent of the Hang Seng Composite LargeCap Index 20 (c) not being a constituent of the Hang Seng Index or the Hang Seng Composite LargeCap Index but being a constituent of the MSCI Hong Kong Index or the MSCI China Index 30 (d) not being a constituent of the Hang Seng Index, the Hang Seng Composite LargeCap Index, the MSCI Hong Kong Index or the MSCI China Index but being a constituent of the Hang Seng Composite Index 30 (e) not being a constituent of an index referred to in paragraph (a), (b), (c) or (d)— (i) for a licensed corporation which does not repledge securities collateral 30 (ii) for a licensed corporation which repledges securities collateral 60 (L.N. 196 of 2018) Table 2(Repealed L.N. 196 of 2018) Table 3(Repealed L.N. 196 of 2018) Table 4 Haircut Percentages for Qualifying Debt Securities,by Issuer or Guarantor, etc. Column 1 Column 2 Column 3 Tier Description Haircut percentage % 1. Where the issuer or guarantor of the qualifying debt securities— (a) is the Central People’s Government of the People’s Republic of China or the People’s Bank of China; (b) is the Government; 0 (c) is the Hong Kong Exchange Fund; or (d) has an issue or issues currently rated by— (i) Moody’s Investors Service at Aaa or Prime-1; (ii) Standard & Poor’s Corporation at AAA or A-1; or (iii) Fitch Ratings at AAA or F1 (L.N. 196 of 2018) 2. Where the qualifying debt securities are any certificate of deposit, the issuer of which is an authorized financial institution or an approved bank incorporated outside Hong Kong 0 3. To the extent not already covered in Tier 1 or Tier 2— (a) where the issuer or guarantor of the qualifying debt securities has an issue or issues currently rated by— 2 (i) Moody’s Investors Service at Aa, A or Prime-2; (ii) Standard & Poor’s Corporation at AA, A or A-2; or (iii) Fitch Ratings at AA, A or F2; or (L.N. 196 of 2018) (b) where the issuer of the qualifying debt securities is the Hong Kong Mortgage Corporation (c) (Repealed L.N. 196 of 2018) 4. To the extent not already covered in Tier 1, Tier 2 or Tier 3, where the issuer of the qualifying debt securities has an issue or issues currently rated by— (a) Moody’s Investors Service at Baa or Prime-3; (b) Standard & Poor’s Corporation at BBB or A-3; or (c) Fitch Ratings at BBB or F3 (L.N. 196 of 2018) 5 (L.N. 196 of 2018) Table 5Haircut Percentages for Qualifying Debt Securities, by Remaining Term to Maturity Notes: 1. In this Table—category 1 qualifying debt securities (第1類合資格債務證券) means qualifying debt securities having a fixed rate coupon or a floating rate coupon, except qualifying debt securities having no maturity date or a remaining term to maturity exceeding 30 years;category 2 qualifying debt securities (第2類合資格債務證券) means qualifying debt securities that do not fall within category 1 qualifying debt securities. 2. In this Table, qualifying debt securities are regarded as having a fixed rate coupon if interest—(a) is payable periodically throughout the term of the securities; and(b) is calculated by reference to a predetermined fixed interest rate that does not change during the term of the securities. 3. In this Table, qualifying debt securities are regarded as having a floating rate coupon if interest—(a) is payable periodically throughout the term of the securities; and(b) is calculated by reference to a variable interest rate that is reset periodically to equate to the level of a money market or interbank reference interest rate that is widely quoted and is predetermined to apply throughout the term of the securities, plus or minus a predetermined specified rate (if any) that does not change during the term of the securities. Column 1 Column 2 Column 3 Remaining term to maturity Category 1 qualifying debt securities Haircut percentage % Category 2 qualifying debt securities Haircut percentage % (a) Less than 6 months 1 1 (b) 6 months to less than 3 years 3 3 (c) 3 years to less than 5 years 4 5 (d) 5 years to less than 10 years 7 10 (e) 10 years or more, or infinite 10 22 (L.N. 196 of 2018) Table 6Haircut Percentages for Special Debt Securities Notes: 1. In this Table, the following terms have the meaning given by section 2F(2)—(a) permitted interest rate (許可利率);(b) permitted securities (許可證券);(c) permitted underlying asset (許可相關資產);(d) permitted underlying type of rate or index (屬許可類別的相關比率或指數);(e) tradable commodity index (流通商品指數);(f) tradable currency exchange rate index (流通貨幣匯率指數);(g) tradable securities index (流通證券指數). 2. In this Table—category 1 special debt securities (第1類特別債務證券) means special debt securities having a fixed rate coupon or a floating rate coupon, except special debt securities having no maturity date or a remaining term to maturity exceeding 30 years;category 2 special debt securities (第2類特別債務證券) means special debt securities that do not fall within category 1 special debt securities. 3. For the purposes of the definition of category 1 special debt securities in Note 2, special debt securities are regarded as having—(a) a fixed rate coupon if interest—(i) is payable periodically throughout the term of the securities; and(ii) is calculated by reference to a predetermined fixed interest rate that does not change during the term of the securities; or(b) a floating rate coupon if interest—(i) is payable periodically throughout the term of the securities; and(ii) is calculated by reference to a variable interest rate that is reset periodically to equate to the level of a money market or interbank reference interest rate that is widely quoted and is predetermined to apply throughout the term of the securities, plus or minus a predetermined specified rate (if any) that does not change during the term of the securities. 4. In this Table—P, in relation to special debt securities referred to in item 1(b)(i), 2(b) or 3 of this Table, means the percentage calculated in accordance with the following formula—P = A + Bwhere—“A” is the percentage specified in column 3 of Table 4 opposite a description set out in Tier 1, 3 or 4 in column 2 of Table 4 of an issuer or guarantor of qualifying debt securities, being a description which is applicable to—(a) for special debt securities referred to in item 1(b)(i) of this Table—the rating given by Moody’s Investors Service, Standard & Poor’s Corporation or Fitch Ratings to the applicable jurisdiction referred to in the definition of permitted interest rate in section 2F(2); or(b) for special debt securities referred to in item 2(b) or 3 of this Table—the issuer or guarantor of the special debt securities; and“B” is—(a) for special debt securities referred to in item 1(b)(i) of this Table—the percentage specified in column 2 of Table 5 opposite the description of a remaining term to maturity of qualifying debt securities set out in column 1 of Table 5 which would, if the description was of the tenor of an interest rate, apply to the permitted interest rate underlying the special debt securities;(b) for special debt securities referred to in item 2(b) of this Table—the percentage specified in the following column of Table 5 opposite the description of a remaining term to maturity of qualifying debt securities set out in column 1 of Table 5 which would, if the description was of the remaining term to maturity of special debt securities, apply to the remaining term to maturity of the special debt securities—(i) if the special debt securities are category 1 special debt securities—column 2; or(ii) if the special debt securities are category 2 special debt securities—column 3; or(c) for special debt securities referred to in item 3 of this Table—the percentage specified in column 3 of Table 5 opposite the description of a remaining term to maturity of qualifying debt securities set out in column 1 of Table 5 which would, if the description was of the remaining term to maturity of special debt securities, apply to the remaining term to maturity of the special debt securities. Column 1 Column 2 Column 3 Item Description Haircut percentage 1. Special debt securities being a structured note, where— (a) the permitted underlying asset is— (i) permitted securities the percentage applicable to the permitted securities (ii) a tradable commodity 40% (b) the permitted underlying type of rate or index is a single type of— (i) permitted interest rate P (ii) currency exchange rate or tradable currency exchange rate index 5% (iii) tradable securities index the highest of the haircut percentages applicable to each of the permitted securities which constitute the basket underlying the index, or the weighted average percentage applicable to the basket as calculated in accordance with an approval granted under section 58(5)(h)(i) (iv) tradable commodity index 40% 2. Special debt securities being specified convertible debt securities or a specified bond, where— (a) the market value is more than the par value or nominal value, where— (i) the underlying asset is shares the percentage applicable to the underlying shares (ii) the underlying asset is a basket of shares the highest of the haircut percentages applicable to each of the shares which constitute the basket, or the weighted average percentage applicable to the basket as calculated in accordance with an approval granted under section 58(5)(h)(i) (b) the market value is equal to, or less than, the par value or nominal value P 3. Special debt securities being non-interest bearing debt securities 105% of P (L.N. 196 of 2018) Table 7Haircut Percentages for Specified Securities Column 1 Column 2 Column 3 Item Description Haircut percentage 1. Warrants listed on a specified exchange 100% 2. Equity-linked instruments, where— (a) the underlying asset is an equity the percentage applicable to the underlying equity (b) the underlying asset is a basket of equities, or the underlying index is calculated by reference to a basket of equities the highest of the haircut percentages applicable to each of the equities which constitute the basket, or the weighted average percentage applicable to the basket as calculated in accordance with an approval granted under section 58(5)(h)(ii) 3. Units in a unit trust or shares in a mutual fund (fund) which is an authorized fund, a recognized jurisdiction fund or a specified exchange traded fund, where the fund has features or characteristics that— (a) satisfy the descriptions in the UT Code for— (i) warrant funds 40% (ii) futures and options funds 40% (iii) hedge funds 40% (iv) structured funds 40% (v) funds that invest in financial derivative instruments 40% (vi) money market and cash management funds 5% (vii) index funds, but only if the fund tracks an equity index (being an index that is calculated by reference to a basket of equities) or a debt securities index (being an index that is calculated by reference to a basket of debt securities) the highest of the haircut percentages applicable to each of the equities or debt securities which constitute the basket, or the weighted average percentage applicable to the basket as calculated in accordance with an approval granted under section 58(5)(h)(ii) (b) satisfy the descriptions in the Code on Real Estate Investment Trusts published by the Commission under section 399 of the Ordinance for a REIT 30% (c) fall within more than one of the descriptions set out in paragraph (a) or (b) the highest of the haircut percentages applicable to each of the descriptions (d) do not fall within any of the descriptions set out in paragraph (a), (b) or (c) 20% (L.N. 196 of 2018) Table 8Haircut Percentages for Specified Investments Column 1 Column 2 Column 3 Item Description Haircut percentage % 1. Gold coin or gold bullion 10 2. Interests in a collective investment scheme which— (a) falls within the meaning of paragraph (b) of the definition of collective investment scheme in section 1 of Part 1 of Schedule 1 to the Ordinance; and (b) is authorized by the Commission under section 104 of the Ordinance Note— Paragraph (a) refers to arrangements for the purchase of gold coins or gold bullion, as described in item 1 of the Schedule to the Securities and Futures (Collective Investment Schemes) Notice (Cap. 571 sub. leg. M). 10 3. A tradable commodity 40 (L.N. 196 of 2018) Table 9Haircut Percentages for Illiquid and Miscellaneous Investments Column 1 Column 2 Column 3 Item Description Haircut percentage % 1. Illiquid investments 100 2. Miscellaneous investments 100 (L.N. 196 of 2018) Schedule 3 [s. 2 & Sch. 2]Specified Exchanges Part 1 ASX LimitedAustralian Securities Exchange LimitedBoard of Trade of the City of Chicago, Inc.Borsa Italiana S.p.A.Cboe Exchange, Inc.Chicago Mercantile Exchange, Inc.Commodity Exchange, Inc.Deutsche Börse AGEurex Frankfurt AGEurex Zürich AGEuronext Amsterdam N.V.Euronext Brussels S.A./N.V.Euronext Paris S.A.Hong Kong Futures Exchange LimitedICE Futures Canada, Inc.ICE Futures EuropeICE Futures U.S., Inc.Korea Exchange, Inc.London Stock Exchange plcMontréal Exchange Inc.Nagoya Stock Exchange, Inc.NASDAQ Copenhagen A/SNASDAQ Helsinki LtdNASDAQ PHLX LLCNASDAQ Stockholm ABNew York Mercantile Exchange, Inc.New York Stock Exchange LLCNYSE American LLCNYSE Arca, Inc.NZX LimitedOsaka Dojima Commodity ExchangeOsaka Exchange, Inc.Oslo Børs ASASIX Swiss Exchange Ltd.Sociedad Rectora de la Bolsa de Valores de Madrid, S.A., Sociedad UnipersonalSociété de la Bourse de Luxembourg S.A.The London Metal Exchange LimitedThe NASDAQ Stock Market LLC – NASDAQ Global MarketThe NASDAQ Stock Market LLC – NASDAQ Global Select MarketThe Stock Exchange of Hong Kong LimitedTokyo Commodity Exchange, Inc.Tokyo Financial Exchange Inc.Tokyo Stock Exchange, Inc.TSX Inc.Wiener Börse AG Part 2 B3 S.A. – Brasil, Bolsa, BalcãoBSE LimitedBursa Malaysia Derivatives BerhadBursa Malaysia Securities BerhadChina Financial Futures ExchangeDalian Commodity ExchangeNational Stock Exchange of India LimitedShanghai Futures ExchangeShanghai International Energy Exchange Co., LTDShanghai Stock ExchangeShenzhen Stock ExchangeSingapore Exchange Derivatives Trading LimitedSingapore Exchange Securities Trading LimitedTaiwan Stock Exchange CorporationThailand Futures Exchange Public Company LimitedThe Philippine Stock Exchange, Inc.The Stock Exchange of ThailandThe Taiwan Futures Exchange CorporationZhengzhou Commodity Exchange(L.N. 196 of 2018) Schedule 4 [ss. 49 & 50]Financial Commitments Table 1 Interest Rate Swap Agreements Item Remaining term to maturity Percentage % 1. Less than 3 months 0 2. 3 months or more but less than 1 year 0.05 3. 1 year or more but less than 2 years 0.1 4. Each year in addition to the period referred to in item 3 0.1 Table 2 Foreign Exchange Agreements Item Description Percentage 1. The counterparty of the foreign exchange agreement is an authorized financial institution or an approved bank incorporated outside Hong Kong and the remaining term to maturity is— (a) less than 3 business days 0% (b) 3 business days or more but less than 1 year 0.2% (c) 1 year or more 0.5% where the remaining term to maturity of the agreement is less than 2 years, plus 0.3% for each additional full year after 1 year, subject to a maximum of 5% 2. The counterparty of the foreign exchange agreement is a person other than a person referred to in item 1 and the remaining term to maturity is— (a) less than 3 business days 0% (b) 3 business days or more 5% Schedule 5 [s. 52]Note Issuance and Revolving Underwriting Facilities Item Remaining term to maturity Percentage % 1. Less than 1 year 1 2. 1 year or more but less than 5 years 2.5 3. 5 years or more 5