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Client Securities Rules

Q1 : Does the repledging limit apply to an intermediary that repledges securities collateral but has not drawn down any loan under the credit facility secured by the securities collateral?

A:

Yes. The repledging limit stipulated under section 8A of CSR applies to an intermediary which is licensed for dealing in securities or securities margin financing and where the intermediary or an associated entity of such intermediary repledges securities collateral. The repledging limit requirement applies irrespective of whether the intermediary has utilised the credit facility secured by repledging clients’ securities collateral or not.

Section reference: Section 8A

Q2 : Should an intermediary use the settlement date basis or trade date basis in determining the amount of margin loan for the purpose of calculating the repledging limit?

A:

The settlement date basis should be used for the purpose of determining the amount of margin loan under Section 8A of CSR, i.e., the margin loan amount should not include amounts arising from securities dealings which are not yet due for settlement according to the settlement date of such dealings.

Section reference: Section 8A

Q3 : Should financial accommodation provided to client for subscribing shares in Initial Public Offerings (“IPO”) be treated as margin loan for the purpose of calculating the repledging limit?

A:

No. IPO financing extended to clients for subscription of new issues does not form part of margin loan for the purposes of section 8A of CSR.

Section reference: Section 8A

Q4 : If the aggregate market value of repledged securities collateral exceeds the repledging limit on Day 1, can the intermediary withdraw the clients’ securities collateral originally repledged and deposit other clients’ securities collateral for repledging purpose on Day 2?

A:

The intermediary can withdraw and deposit clients’ securities collateral for repledging purpose on Day 2, provided that the aggregate market value of repledged securities collateral at the close of Day 2 which is calculated by reference to the respective closing price on Day 1 does not exceed the repledging limit of the intermediary calculated on the basis of its aggregate margin loans as at the close of Day 1.

Section reference: Section 8A

Q5 : Where can I find some illustrative examples of how the repledging limit operates?

A:

Illustrative examples can be found in the seminar materials posted on the SFC website under “Legislation & Regulatory Handbook” – “Legislation” – “Others” – “Public Briefing Presentation Materials” – “Seminar on New Requirements to Address Risks Arising from Securities Margin Financing ”.

Section reference: Section 8A

Q6 : When will the 180% and 140% repledging limits begin to apply?

A:

The 180% repledging limit requirement will apply to intermediaries which are licensed immediately prior to 1 October 2006 for dealing in securities or securities margin financing for the period from 1 October 2006 to 30 September 2007. With effect from 1 October 2007, such intermediaries will be subject to the 140% repledging limit.

For intermediaries which are licensed for dealing in securities or securities margin financing on or after 1 October 2006, the 140% repledging limit will apply to them with effect from 1 October 2006.

Section reference: Section 14

Last update: 28 Sep 2006

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